An astute article in April 2006 FOLIO: offered this wisdom:
All mergers and acquisitions carry an inherent risk. At some level, both parties will need to make a leap of faith, assume a calculated risk.
This mantra should be on the lips of every buyer and seller meeting at the M&A table, especially when larger publishers negotiate to purchase a small title or company.
All too often, what happens instead is this: buyers (especially) engage in seemingly endless rounds of information gathering in a futile pursuit of the risk-free deal.
Anyone who his dipped a toe in the turbulent waters of buying and selling media properties has likely encountered the notorious in-house deal-wrecker. This individual charged, ironically, with evaluating properties for acquisition has instead crafted a secure career and made a nice living by not doing deals. He or she usually works for the larger strategic buyers and likes to pick on inexperienced entrepreneurial sellers who arent on to the game. The game, by the way, is to drag out the information gathering/evaluation process until someone (the seller) gives up, withdraws from the market, or sells to another party (usually to those clowns who will buy anything.) The deal-wrecker wins by never making a bad acquisition.
The common, garden-variety Deal-Wrecker, found in all parts of the country, is easy to spot:
! Peppers conversation with all the M&A lingo. EBITDA, trailing earnings, mezzanine financing, scale, exit strategies, Murders & Accusations, et al.
! Has never met a Non-Disclosure Agreement that couldnt be amended ad nauseam.
! Specializes in issuing never-ending documentation requests.
! Always appears busy crunching numbers and analyzing data.
! Seldom (or never) actually makes a bona fide, reasonable offer.
The deal-wreckers worst fear is that an ambitious Group Publisher will step in and see that a transaction is completed. Still, under most circumstances, the intrepid deal-wrecker can torpedo even the most obvious strategic fit.
Yes, there are deal-demolishing counterparts on the seller side, too, most notably the Delusional Entrepreneur with grandiose price expectations. But for the most part, deal-wreckers ply the conference rooms and cubicles of strategic publishing houses looking to buy.
Indeed, most savvy buyers wont commit the resources to evaluate an acquisition unless they are serious about closing a deal. So, how does the seller know if he or she is negotiating with a well-intentioned but thorough buyer, or instead is fulfilling a deal-wreckers unbroken legacy of non-deals?
The answer lies in preparation. Both parties should begin the evaluation process with a clear understanding as to what level of documentation will be required after the NDA is signed and during initial discussions (i.e., before the Letter of Intent stage) and what documents will be reviewed only after a non-binding Letter of Intent has been signed. Simply put, a pre-LOI list and a post-LOI (due diligence) list. Aggressive and eager buyers may request reports in the pre-LOI stage that more appropriately belong in due-diligence, but the observant seller should always have the right to limit disclosure of proprietary data until the right time.
Once both parties have agreed upon the documentation ground rules, the procedure should roughly follow this schedule:
· Evaluation of pre-LOI documentation
· A round or two (ideally, in person) of Management Meetings between buyer and seller to discuss documentation and to answer questions
· Decision to move ahead or terminate discussions
· Non-binding Letter-of-Intent
· Due diligence
· Transaction closed
Generally speaking, the information contained in a thorough Offering Memorandum (Book), including three years of financials, should answer most pre-LOI requirements and serve as the foundation for the face-to-face meetings. If negotiations become bogged down in endless and non-productive parrying, you may be dealing with either a timid buyer not willing to assume any level of risk (tire kicker), or a veteran deal-wrecker. In either case, your best exit strategy is just that: Exit, Stage Left.
Michael D. Kreiter
W.B. Grimes & Co