Managing relationships with buyers or investors

Apr 26, 2024

A common concern among founders exploring M&A or raising capital is maintaining relationships with potential acquirers or investors, which can be categorized as:

  1. Longstanding relationships with other founders and CEOs in their industry who are now potential strategic acquirers

  2. Recently developed relationships with prospective buyers

Initial discussions about M&A or investment are usually high-level and focus on positive aspects, signaling smooth sailing in a future transaction. However, relationships are tested when real negotiations begin, as buyers and sellers have different objectives:

  • Sellers want a high valuation, ideally paid in cash, upfront

  • Buyers want a low valuation, with a payment structure spread out over time and contingent upon performance

Difficult conversations during negotiations can strain relationships, but not having these conversations may result in leaving money on the table. Buyers, who are almost always experienced in doing so, know how to maximize their outcomes.

Differing objectives can create future challenges, such as:

  • Strained long-term partnerships in the case of a strategic acquisition

  • Difficulty in obtaining financial consideration (escrow, stock, or earnouts)

  • Misalignment for future product vision or employee retention/culture

M&A advisors help achieve great outcomes while maintaining relationships by:

  • Having well-crafted conversations with buyers about strategy, synergies, and go-forward vision to get them excited about the opportunity

  • Acting as an intermediary for tough conversations, keeping buyers accountable while preserving founder-buyer relationships

  • Focusing on maximizing valuations and terms for founders with no emotional attachments

Buyers may threaten not to participate in a transaction if a founder hires a banker or advisor, but this is often a scare tactic to eliminate competition. Sophisticated buyers usually view a process driven by a sell-side M&A advisor positively, as it signals serious intent and creates urgency to act and lead with their best offer.

M&A advisors can help founders avoid choosing between burning bridges for a better outcome or sacrificing the outcome for good relationships. By shouldering the responsibility of hard conversations, bankers ensure that neither side harbors resentment when the transaction is complete.

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