As experienced medtech executives and current practitioners of medtech merger & acquisition (M&A) advisory, we have observed some interesting and exciting acquisitions from the buyers’ and sellers’ side of the table – merger activity with large organizations, middle-market companies, and emerging technology start-ups.
Common seller-side mistakes include:
1. Being unprepared for M&A – Many sellers have limited M&A experience and don’t take the time to understand the full requirements of the process to achieve a successful outcome.
2. Unrealistic valuation expectations – It’s important to understand the likely value of your company – not some comparable obtained by reading about a one-off deal (i.e. an acquisition of another company by a Medtronic or Boston Scientific for hundreds of millions).
3. Lacking transparency – Sellers may lose the deal or value by not being forthright with potential issues. If discovered in diligence (which usually happens), the buyer will either back away or re-negotiate the deal. It’s better to provide full disclosure before the letter of intent (LOI).
4. Changing sell price based on perceived interests – Once a seller has an appropriate value in mind, the seller shouldn’t change expectations due to the number of interested parties. Buyers that you worked hard to entice to review your business may become nervous if you jump to higher valuations. A seller, however, can negotiate with multiple interested parties to ensure no money is left on the table.
5. Leaving money on the table – Without proper, objective, professional help, many sellers leave some potential value unrealized in the deal.
6. Overestimating negotiation leverage – Sellers who lack a clear understanding of their actual leverage may push buyers away from the deal.
7. Taking too much time to respond – Deal magic is about timing and process flow. Every process has its own flow so once it begins, do everything possible to keep the process train on the tracks. If momentum stops, it may kill the deal.
8. Being unprepared for the tax implications – Be ready to negotiate tax implications to avoid future conflicts. Do this prior to LOI negotiations to avoid killing the deal through slowing the momentum.
9. Not understanding global opportunities – A seller should be able to explain the full global market opportunity for its products and pipeline – leave no market behind.
10. Underestimating regulatory requirements (and timing) for new products – Timing is critical to the seller’s pro-formas and the buyer’s new product introduction calculations.
11. Not having a reasonable pro-forma projection – Many buyers prefer to assess the sellers’ vision for future sales during valuation analysis.
12. Losing track of company operations – Some sellers get lazy and decide not to invest in some operations during the M&A process. This is a huge mistake as those items can often be a deal-killer when discovered by a potential buyer during diligence.
13. Not hiring an experienced M&A professional to lead negotiations – Every deal has its own momentum and leverage points. It’s helpful to have a professional on your side to negotiate with the buyer – who will likely have experienced professionals on their side.
At a high level, we have learned that Value = Strategic Fit + Timing. It should be that simple. However, deal attainment takes much preparation and execution. Think it through to avoid unforced errors during your strategic exit process.