Buyers are liars says Brent Holliday, CEO of Garibaldi Capital. Read on to learn more
My name is Cory, I am the President of Creative Return and the host of The Insider’s Guide To Business. The following are my insights and learnings from the interviews and dealings I have with talented entrepreneurs, operators and financiers. I hope you find them valuable and applicable in your endeavours.
When negotiating the sale of your business, Brent Holliday is blunt: “Buyers are liars,” he says.
As the founder and CEO of Garibaldi Capital Advisors in Vancouver, he provides merger and acquisition services for Canadian tech companies primarily in B2B software as well as IT hardware, IT services and some direct-to-consumer businesses.
Brent’s warning about buyers, while harsh, comes with wisdom. He’s seen the damage caused by unscrupulous suitors who gaslight CEOs with praise while speeding them towards an exclusivity agreement. In reality, they’re not sure they even want to buy; they’re simply kicking tires. Conversely, he’s dealt with buyers working their way through a deal while secretly working to be bought themselves. The point being is that there is a lot you, as a seller, aren't aware of.
But if buyers are liars, as he says, many CEOs and executive teams are also somewhat complicit in fooling themselves too. All too often, CEOs happily lap up a suitor’s praise. Too many companies assume a potential deal is in the works, when the “buyer” has only verbally expressed an interest in a deal. “It’s not real until it’s written down on a piece of paper in a fulsome letter of intent.”
A CEO’s hubris can also hurt their company’s fortunes at this critical time. Many executives, he says see little difference between selling their product (something they have done hundreds or even thousands of times before) and selling their company. They enter into a deal lacking the skills for a months-long process, not clear on the time required nor the scope and complexity of the work involved.
Hands-on CEOs who want to be involved in the entire deal process often fail to realize this work takes them away from the very important day-to-day work of maintaining momentum. Consequently, company performance suffers affecting the overall quality of the deal.
Brent strongly cautions against entering into M&A deals alone. But even working with a seasoned advisory firm, such as a business broker or investment banker, with numerous deals under its belt still isn’t good enough, especially for tech companies.
Garibaldi’s philosophy is that Canadian tech companies are underserved in the M&A advisory space because most firms are generalists. Too few advisors truly appreciate the high growth, fast changing world of high technology well enough to raise capital or negotiate a sale properly.
Brent points to Blackberry Limited, formerly known as Research in Motion, as a good example. The company once enjoyed bigger market capitalization than RBC. “Within a year they were a tenth of that,” he says. “Outmanoeuvred and outcompeted. That’s the pace of change in the technology market.”
Brent’s advice when selecting an advisory firm is clear: only work with those firms that have negotiated deals in your specific technological niche, with companies of similar size and valuations. Moreover, an advisor must have deep enough relationships to know the specific champions in a potential buyer who will advocate strongly and competently for the deal.
Advisory firms worth their salt must also be aware of the specific points each buyer uses in their scoring formulas when investigating a deal and how much to pay. This key knowledge only comes as a result of time spent building strong relationships.
Brent’s final piece of advice about selecting an advisor goes straight to the heart of negotiations: money. One could simultaneously run their company while negotiating a deal, but why?
Advisors who work in your specific niche “have the creativity of hundreds and hundreds of [previous] deals to put together the right deal for you…In the end, they end up extracting more value that you could possibly do by learning it yourself.”
If you are interested, you can listen to Brent's episode of the podcast here: