Snaring a Suitor
By Dennis C. Carey

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For more modest-sized organizations, developing business relationships with executives in companies known for acquisitions is the best advertising you can develop. Within their own industry space, far-sighted executives are constantly on the lookout for well-managed companies that can expand their platform. Mackey Macdonald, CEO of the apparel company VF Corp., for example, encourages his managers to look beyond their current business to discover "what product consumers are going to wear tomorrow that is going to replace the product we're selling today." But short of having a financial advisor beat the bushes for a potential buyer through a series of road shows, executives of small- and mid-sized firms have few ways to promote the virtues of their companies. Using a network of professional relationships to showcase your company is therefore not only a way of winning the trust of other executives, but also of educating them.

Some relationships will naturally terminate once the sale has been consummated. But that's not always the case, especially when a seller's management team is vital to continuing growth of the company. Indeed, while purchasers are always under pressure to cut costs after an acquisition, they're likely to find a company more attractive if some of its senior management shows a willingness to stay around during an extended transition. Executives who make it clear that they're looking for a cash-only deal that lets them walk away from a company they've helped to grow invariably send a negative signal to the market. By contrast, companies willing to accept a stock deal implicitly indicate their faith in the merger, especially if they're willing to accept a post following the acquisition.

Seek the Right Culture
The meshing of corporate cultures is increasingly seen as the litmus test for a successful merger. It's now widely recognized that traditional financial due diligence conducted by an acquirer tells relatively little about whether the two companies will "fit." Indeed, many mergers, announced with great fanfare, soon find themselves victims of a culture clash once the integration process begins. This hurts not only the acquirer, but the seller, too.

John McCartney was CEO at U.S. Robotics, the company that launched the Palm Pilot. In 1997, the company merged with 3Comm, at the time the second largest technology merger in history. He continued to work as a president of a 3Comm business unit through the following year. He says that although he believes the underlying rationale of the merger was sound, his company, U.S. Robotics, struggled through the integration process, discovering the two companies had very different cultures and management styles. Nearly all the senior U.S. Robotics team left 3Comm within a year. "I now realize that in any merger, focusing on the common culture is as important as focusing on product integration, strategy or technology," McCartney explains.

McCartney's experience is instructive to any corporate acquirer. But there's also a lesson here for companies looking to be sold. As stories like McCartney's become more common, there will be greater pressure on any acquisition team to avoid a company with a clearly incompatible and inflexible culture. Companies that have a good understanding of their own culture - and can point a potential buyer to where two companies need work on the integration process - will be seen as a more attractive target. In other words, a seller that anticipates the challenges of cultural integration saves the buyer a lot of headaches down the road. If a seller is willing to think through integration problems early in the negotiation process, before a deal is even signed, it's more likely that the final agreement will come more quickly and prove less burdensome for both sides.

Be Positioned Before Negotiation
No one trying to sell a company can ever presume to know the strategy of a buyer. Nor is it possible to anticipate exactly who the buyer will be and what conditions would be placed on a sale. But a far-sighted company can do many things to put itself in a position where its strengths are recognized and its value is understood. The most successful mergers arise from circumstances where two companies have truly had a chance to get to know one another. By forging alliances and partnerships, leveraging long-term relationships and thinking strategically about corporate culture, a company makes it much easier for a strategic buyer to get to know it and move toward a sale.

Dennis C. Carey is vice chairman of Spencer Stuart U.S. and co-head of the recruiting firm's board services practice. He also is founder and co-chairman of The M&A Group, a consortium of CEOs focused on the best practices in merger and acquisition transactions.