Taking M&A out of the Wild West
Mark Sapsford, co-founder, Capeq
The OK Corral looks great on film, but few of us want to encounter it in matters of business. Yet even today, Mergers and Acquisitions can feel like shootouts without rules - or even functioning revolvers.
Lawyers offer covering fire, but usually late in the day, when the sun is in your eyes, squinting at an opponent whose hand is already twitching on the trigger. All too often you find out that your legal or accountancy expert can’t shoot straight, either through a lack of M&A experience, or because they’re standing behind your advisor.
As for ethics, the word is almost as alien to modern M&A as it was to Billy the Kid. Transactions are, like gunfights, about money, power and status. As long as a few basic rules are complied with, (almost) anything goes. The implicit assumption is that doing the right thing is a matter for a client’s conscience, not for a professional to worry about. That’s as dangerous as it is immoral, since any M&A transaction affects people, their jobs and their futures.
Of course, if you walk into Dodge City, you’ll find some upright citizens, but beware of advisors who are too close to any particular private equity house. Ask why one PE is favoured over another – and whether recommendations carry an implicit expectation of reciprocity. Your best interests should be more important than the fact the parties go way back.
Run for the hills if you encounter an advisor who lacks experience and technical knowledge: M&A transactions are not for novices. Also beware anyone who doesn’t start by explaining the risks and pitfalls, such as accepting large earn-outs without exploring the downside. It’s no use winning the gunfight then getting shot in the back.
Capeq is unique in the M&A field, in being a Certified B Corporation (a social enterprise independently verified as creating value for employees, the local community and the environment).As such, we consider the impact of any transaction on the wider community. This rather confuses the opposing side and most other advisors, whose main concerns are getting paid, not being sued, building their reputation and gaining their colleagues’ approbation. What happens to staff or the environment may not even make their ticklist. Many don’t care whether the client survives or thrives: the transaction is all that matters. This leads to shareholders – most of whom get involved in M&As once or twice only - being left unprotected by those they have hired.
So, how can clients protect themselves during M&A transactions? The simple approach is to find a trusted and trustworthy advisor. The giveaway signs are people who seem to put client interests before fee generation or cosy arrangements with industry best mates. Bonnie and Clyde may be good box office, but surely it’s better to have an honest sheriff on your team - especially if the sheriff combines financial intelligence with a social and environmental perspective.
But we would say that, wouldn’t we?!