Displaying Integrity Helps Close M&A Deals
Integrity between principles can be considerably more valuable than specific deal points in an M&A transaction.
Late one evening, back in my investment banking days, we were hammering out the final points of an acquisition contract for our client to sell his engineering firm to a much larger corporate buyer. We were in a large conference room at the law office with several representatives from the buy-side (including the CEO), their lawyer, our clients (a majority owner and two minority owners), our client’s lawyer and two bankers – one of which was me.
The buyer wanted to expand their service geographically into a new territory. Our client’s company was a perfect fit because the existing platform would allow the buyer to establish a presence in the desired market without building from scratch.
From the buyer’s perspective, it was paramount the key employees remain with the company post transaction, especially the two minority owners. The key employees (both lead engineers) had developed significant customer relationships, intellectual capital and local expertise. As such, they were deemed integral to the continued success of the combined company going forward. Consequently, the buyer wanted some assurance these key employees would remain with the company.
Getting straight to the point, the buyer CEO looked directly at the lead engineer and said, “The success of this deal depends on your plans going forward. Will you stay on after the transaction and work for our company?”.
The lead engineer could have answered, “That depends on the compensation and benefits.” or “What will be my title?” or “What are my career growth opportunities at your company?”, or any number of self-serving points.
Instead, he paused, thought for a moment and said, “I like doing quality engineering work for our customers. Is your company a great engineering firm that does quality work?”
The buyer CEO made direct eye contact and thoughtfully replied, “Yes, we are.” His answer was both sincere and believable.
The lead engineer replied, “Then I’ll stay.”
At that point, I believe the deal was sealed. In answering this vitally strategic question, which was the focal point of the transaction, the minority seller revealed where his heart was – in the quality of the work. He simply wanted to work where he could be proud of the output. The simple honesty and selfless intent of the exchange garnered mutual respect and was a turning point in the deal negotiations that paved the way to a smooth closing.
The point is – integrity and sincerity between principals establishes credibility, engenders trust and creates a foundation upon which M&A transactions may be built.