A CEO emailed regarding yesterday's post wondering what I meant by, Before moving forward with an outside opportunity, the corporate development team must show that it has compared the deal to other possible transactions or options. This is a great question, and one I would rather not answer. However, given that the whole reason for this blog is to share an insider's view as to how corporate acquisitions are done, here goes.
This is an old trick that has been rejuvenated because the strategy and specifically the deal sourcing processes have gotten so strict. So, let's say you've decided to proactively sell your company, hired a banker who made a pretty book and sent the book to me - the corporate development person at some big, public technology company. You of course have had me sign some sort of confidentiality agreement. The good news is that your company fits within my company's acquisition strategy, parameters and is even on our target list. Here's the bad news - your company is actually number three on my target list, with your two biggest competitors ranked higher based upon our internal intelligence and assessment. Now, because my company's deal screening committee has adopted this process of comparing deals sourced from the outside to other transactions and alternatives, I am required to contact your two top competitors to see if there is a better deal to be had. After all, they rank higher than you do.
Wait you say, you signed a CA or NDA or something like that. Yes I did, and I am very careful not to violate it by even mentioning your company. Also, since I have established a previous dialog with the CEOs of your competitors regarding an acquisition, partnership or alliance and told them I would be regularly checking in with them, contact regarding a potential sale is not outside my normal business practice. The fact of the matter is that selling companies and their bankers are almost always completely naive that this even happens. The other truth is that nearly half the time your competing CEOs have a copy of your book sitting in front of them when I call - which you probably didn't want - and suggest that I then give you a call!
I'll address confidentiality agreements and the things you can do to avoid this scenario in a later series along with a series on the selling process. I hope this helps, and please let me know if there are any other topics you would like me to address.
Comments