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  • The Importance of Synchronicity in a M&A Transaction

    Mar 15, 2022

    On a recent walk with my dog, I was listening to The Police’s Synchronicity album.  The first song on the album is Synchronicity 1 ( https://www.youtube.com/watch?v=FMmCJ6-uu3M).  The chorus of that song is as follows:

    A connecting principle

    Linked to the invisible

    Almost imperceptible

    Something inexpressible

    Science insusceptible

    Logic so inflexible

    Causally connectible

    Nothing is invincible

    Thinking about the song, I realized some of the concepts conveyed in the chorus relate directly to the work done at IBA by our knowledgeable, experienced, highly skilled team of professional intermediaries while managing and progressing the work done by the individual members of each party’s transaction team.

    In a traditional transaction, each side will have accounting and legal counsel, with the buyer often adding banking and/or investor relationships.  One of the jobs of the M&A intermediary in a transaction is to keep communication productive and collaborative between the parties and their professional advisors, often being the only one at the table with the ability to talk directly to all of the individuals.  In addition, the broker is often the “go to” party for recommendations of specialized professional advisors (e.g., specialized legal (Tax, Estate, Environmental, Patent, etc.) equipment appraisers, environmental inspectors, etc.).  If everyone works in synchronicity the probability of successful completion of a deal is enhanced.

    Back to the first line of the chorus, …a connecting principle.   In a M&A transaction, the connecting principle is the element that brought all the parties to the table together at a given place and time, the deal, a defined collaborative objective everyone wants to achieve in a “win-win” good faith negotiation.

    In negotiations, a stumbling block can be, something inexpressible (e.g., an assessment of the buyer where their intentions or aptitude are wrongly judged or a threat to a business model that cannot be quantified); science insusceptible (e.g., a bank debt service coverage ratio or established seasonality of the business model); or logic so inflexible (e.g., a representation that cannot be given without a best of their knowledge language modifier, for example a buyer may ask for a flat warranty that no employee has violated any laws.  Reasonable request, correct? (Now imagine a company with a delivery fleet, how could an owner know that none of their drivers ever received a parking ticket, given the possibility a driver can pay for a ticket out of their own pocket and not bring it to the attention of their employer out of fear of implications resulting from the violation).  Business purchase & sale transactions are made in the real world.  A critical component to getting the parties to “yes” and completing the transaction is to keep everyone actively listening to each other, willing to assess issues from the other side of the table, and problem solve deal elements as they are presented in a positive, fair manner.  Simply put, everyone working in synchronicity. This responsibility traditionally is assigned to the mergers & acquisitions intermediary.   It is skill set where business brokers have a spectrum of abilities.  Pick the right one the difficult is made to look easy.  Pick the wrong one the achievable can be lost.

    Which brings us to the final line of Synchronicity 1’s chorus, …nothing is invincible.  Transactions always have stress points where they can fail.  The value of a business broker is demonstrated the more unique or challenging the problem confronting a deal.  Many individuals can sell a business when the sun is shining, the books are clean, and the buyer can pay 100% cash out of their bank account.  Unfortunately, that is rarely the case, more frequently businesses have issues ranging from customer concentrations to less than transparent financial records to key employee risk to location longevity concerns.  The best way to successfully navigate challenges on the pathway to a business sale is to have an experienced, knowledgeable, highly skilled intermediary represent you in the transaction.  If you pick the right person, you may be singing “Everything Little Thing She Does is Magic” (https://www.youtube.com/watch?v=aENX1Sf3fgQ) as you think about your wonderful business broker who successfully sold your business allowing you to retire and place your life work as an entrepreneur in the hands of a capable, qualified buyer.  Select the wrong intermediary and the song, “Can’t Stand Losing You” (https://www.youtube.com/watch?v=43l4ksaD3vA) may be playing in your head as you watch the perfect buyer for your business end negotiations and walk out the door.

    IBA, the Pacific Northwest’s premier business brokerage firm since 1975, is available as an information resource to the media, business brokerage, and mergers & acquisitions community on subjects relevant to the purchase & sale of privately held companies and family owned businesses.  IBA is recognized as one of the best business brokerage firms in the nation based on its long track record of successfully negotiating “win-win” business sale transactions in environments of full disclosure employing “best practices”.

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