Q1 2016 Tech M&A Update

Q1 2016 Tech M&A Update

While the tech industry may not repeat the same record-breaking deal volume it experienced in 2015, the consensus is that 2016 will be a very active year for technology M&A.  

According to prominent venture capitalist, Marc Andreessen, Microsoft’s planned acquisition of LinkedIn is indicative of an imminent increase in M&A across the tech sector.  Andreessen predicts there will be many deals through the remainder of 2016 and the entirety of 2017, asserting that there are numerous deals that should have already happened, but have not occurred yet.  “Most of the big tech companies have done very well over the past five years, they’ve piled up lots of cash, and they have to go shopping,” affirmed Andreessen on Tuesday, June 14, 2016.

Tech M&A is also on the rise globally, accounting for roughly 14% of M&A deals worldwide in Q1 2015, which was the most of any industry.  The chart below depicts tech deal volume and value in Q1 for the past five years.  Overall, global Tech M&A deal volume peaked this past quarter (Q1). 

Just recently, Microsoft Corp announced its planned acquisition of LinkedIn Corp in an all-cash transaction deal valued at US$26.2 billion.  According to Mergermarket’s records, the deal is the third highest valued deal within the US technology sector since 2001 and has consequently given a much needed boost to the sector’s current M&A activity.

Thus, despite a slow start to the year and a lack of momentum, M&A activity in the US tech sector is back on track to match last year’s record.  833 deals worth US$254.7 billion were struck in 2015, which overshadowed 2014’s record value by 94.7%.  According to Thomson Reuters, US$209 billion in tech transactions have been announced so far this year and these deals are expected to close by year end.

Versailles Group is a 29-year-old Boston-based investment bank that specializes in international mergers, acquisitions, and divestitures.  Versailles Group’s skill, flexibility, and experience have enabled it to successfully close M&A transactions for companies with revenues between US$2 million and US$250 million.  Versailles Group has closed transactions in all economic environments, literally around the world.

Versailles Group provides clients with both buy-side and sell-side M&A services, and has been completing cross-border transactions since its founding in 1987.  

More information on Versailles Group, Ltd. can be found at www.versaillesgroup.com.

For additional information, please contact

Donald Grava

Founder and President

+617-449-3325

June 26, 2016

M&A - The Letter of Intent

M&A - The Letter of Intent

When a business is being sold, a buyer typically makes an offer for the business.  Next, the seller responds with a counter-offer, which is followed by the negotiation of terms and then, the execution of a Letter of Intent (“LOI”) by both parties.  Sometimes, the LOI is called a Memorandum of Understanding (“MOU”).  To summarize, the LOI or MOU documents the buyer’s proposed price and terms.  Once the LOI is signed, due diligence begins, during which the buyer confirms the condition of the business and the seller confirms the buyer’s ability to complete the deal.

Even though an LOI, or MOU, contains terms that are still negotiable, buyers often get nervous once the document has been executed.  During the diligence process, they start double and triple-checking all of the details.  Part of the M&A advisor’s job is to facilitate the buyer’s diligence, reassure the buyer, and keep the process moving towards a closing.  

Generally, LOIs and MOUs are not binding, but many buyers and sellers view them as binding contracts.  Therefore, these documents often include contingencies; more specifically conditions to be met before the offer becomes legally binding.  However, certain other clauses of the LOI or MOU will be binding, e.g., exclusivity, confidentiality, timing of the transaction, etc.

Signing the LOI or MOU usually takes the company off of the market during the exclusivity period; thus, the seller should be sure to do some diligence on the buyer’s financial ability before signing.  The deal will not close if the buyer cannot pay the purchase price.  Thus, it can sometimes be advantageous to accept a lower price from a financially capable buyer as opposed to a higher price from a potentially financially unstable buyer.

Finally, it is critical to thoroughly review the LOI or MOU with an attorney.  The seller should also seek advice from their M&A advisor and CPA, if necessary.  Sellers should be careful not to focus only on the proposed sales price as there are many factors that affect how good or bad the deal is for the seller.

Versailles Group is a 29-year-old Boston-based investment bank that specializes in international mergers, acquisitions, and divestitures.  Versailles Group’s skill, flexibility, and experience have enabled it to successfully close M&A transactions for companies with revenues between US$2 million and US$250 million.  Versailles Group has closed transactions in all economic environments, literally around the world.

Versailles Group provides clients with both buy-side and sell-side M&A services, and has been completing cross-border transactions since its founding in 1987.  

More information on Versailles Group, Ltd. can be found at www.versaillesgroup.com.

For additional information, please contact

Donald Grava

Founder and President

+617-449-3325

June 16, 2016

Q1 2016 Top Five Countries for M&A 

With regard to M&A activity, people always want to know where the most transactions are being completed.  The charts below reflect the activity in the top five countries for the first quarter of 2016.

    If one looks at volume, i.e., the number of transactions completed worldwide, the US and China are the clear leaders.  There were 5,018 transactions completed in the US, which accounted for almost 50 percent of the worldwide volume.  By contrast, in China 1,938 M&A transactions were completed, which accounted for 19 percent of the volume.  

    The chart below shows the number of M&A transactions completed by country in Q1 2016 for the top five countries.

By value of M&A transactions completed around the world, the US was again the leader in the first quarter of 2016.  Some US$279,171 MM of transactions were completed in the US, which accounted for 47 percent of the total value of transactions completed worldwide.  On the other hand, China represented 31 percent of the worldwide value, approximately US$182,832 MM of transactions were completed.  Switzerland is usually not in the top five list; however, due to a very large transaction, the acquisition of Syngenta by ChemChina, it was propelled into third place.

The chart below shows the value of M&A transactions completed by country in Q1 2016 for the top five countries.

Many think that an M&A transaction is simply a matter of developing and posting a listing and/or notifying a few M&A firms; however, that strategy usually results in failure or a poor transaction.  The best transactions are completed when a seller or buyer develops a strategy for success.

Versailles Group is a 29-year-old Boston-based investment bank that specializes in international mergers, acquisitions, and divestitures.  Versailles Group’s skill, flexibility, and experience have enabled it to successfully close M&A transactions for companies with revenues between US$2 million and US$250 million.  Versailles Group has closed transactions in all economic environments, literally around the world.

Versailles Group provides clients with both buy-side and sell-side M&A services, and has been completing cross-border transactions since its founding in 1987. 

More information on Versailles Group, Ltd. can be found at www.versaillesgroup.com.

For additional information, please contact

Donald Grava

Founder and President

+617-449-3325

June 5, 2016

Quarterly M&A Comparison

Globally, both the volume and value of M&A transactions slowed in the first quarter of 2016.  Private Equity transactions were not exempt from this slowdown, which is being caused by tightening credit to finance transactions, election uncertainty, and lower confidence in the economy.

With regard to the volume of Private Equity transactions, the following chart depicts the Q1 2016 slowdown.  More specifically, Q1 2016 was almost 17 percent lower than Q1 2015.

With regard to the value of Private Equity transactions in the first quarter, the slump in the number of completed transactions was even more apparent.  The value of transactions in Q1 2016 versus Q1 2015 decreased by 34 percent.  The major factor contributing to this was the simple fact that there was a dramatic slowing of very large transactions.

Private Equity buyers still have plenty of “dry powder” and continue to look for transactions across all sectors.  Their investors are always looking for good returns, which can only happen if the Private Equity firm is invested.  In addition, while Private Equity buyers frequently don’t outbid strategic buyers, they do offer competitive valuations.  Furthermore, they provide business owners that are selling a very viable alternative with lots of other benefits.

The key to closing a successful transaction, particularly if the goal is to do that in 2016 is to explore the topic and develop definitive objectives.  Many sellers wait too long or have this fuzzy notion that a qualified buyer will seek them out.  Neither scenario achieves the best value.  

Versailles Group is a 29-year-old Boston-based investment bank that specializes in international mergers, acquisitions, and divestitures.  Versailles Group’s skill, flexibility, and experience have enabled it to successfully close M&A transactions for companies with revenues between US$2 million and US$250 million.  Versailles Group has closed transactions in all economic environments, literally around the world.

Versailles Group provides clients with both buy-side and sell-side M&A services, and has been completing cross-border transactions since its founding in 1987.  More information on Versailles Group, Ltd. can be found at www.versaillesgroup.com.

For more information, please contact

Donald Grava

Founder and President

+617-449-3325

 May 23, 2016 

M&A - Financial Versus Strategic Buyers

M&A - Financial Versus Strategic Buyers

M&A buyers are usually classified as either strategic or financial buyers.  Strategic buyers are companies actively pursuing opportunities to grow or diversify their revenue sources in the seller’s market.  Strategic buyers represent about 70 percent of the total M&A market.  Usually, a strategic buyer will have something in common with the selling company; they can be competitors, suppliers, customers, or even an unrelated company with a complimentary product looking to gain access to the seller’s industry, market, or business. Ultimately, they are looking for a company with attributes that can be integrated into their established business strategy to create synergy - the concept that the value of two companies combined is greater than the sum of the separate individual parts.  (Sometimes, strategics make acquisitions to diversify.)

Financial buyers look for good businesses they can build up over a few years and then sell to make a profit.  Private equity, venture capital, family offices, and some hedge funds are good examples of financial buyers.  Their acquisitions comprise the remaining 30 percent of the M&A market.  They look for growth prospects, good management, and future exit opportunities.  Rather than integrate the company into their own, they work with the seller’s management team to understand what resources they need and help obtain them, in an effort to foster growth.

During the Transaction 

Understanding the end goals of both financial and strategic buyers is essential to understanding how and why their approaches differ.  After the transaction, a strategic buyer will consolidate the target business with their business systems, controls, and management to recognize synergies from the integration of the two organizations.  If it’s a total integration, this may present a challenge for a seller that is looking to remain active in the company.  In this case, the best alternative is a financial buyer, who typically allows the company to run as a stand-alone entity.  In contrast, the financial buyer’s goal is to improve the business operations in order to make the company a more attractive investment to a future acquirer. 

Efficiency of the Transaction

Typically, a financial buyer has completed many deals before and has developed a kind of “playbook” to follow making the process flow along more efficiently than an inexperienced strategic buyer.  However, financial buyers tend to be more thorough in their diligence, for a couple reasons.  First, they have to take the time to learn about the industry they will be entering, whereas a strategic buyer generally has strong industry knowledge and has already developed an outlook for the future.  Additionally, things that may make sense to a strategic buyer may become an issue for a financial buyer who doesn’t understand industry norms.  

Secondly, a financial buyer is more likely to keep the current personnel in place than a strategic buyer.  Thus, the diligence process will have a stronger focus on the infrastructure of the target company.  Effectively, strategic buyers will focus on validation and the ability to integrate the target into their business model and financial buyers, in addition, will have to study the business model, the personnel, and much more.  

Consideration

One of the most important issues for sellers is the amount of consideration paid by each type of buyer.  Generally, a strategic buyer will offer greater consideration than a financial buyer.  In essence, financial buyers are purchasing explicitly what the company has to offer.  They buy the expected future earnings, in hopes to expand the cash flow beyond what the company has done previously, but they do not pay for that potential.  Usually, a strategic buyer will pay a premium to recognize the synergies that make the transaction attractive.  Almost immediately after closing, a strategic buyer will recognize synergistic benefits.  These benefits can be attributed to various factors that will depend on the organizations involved but can include greater market share, combined talent, and cost reduction.  Most importantly, the more realizable the synergies are, the more the purchaser will be willing to pay.  

There are also defensive reasons for a strategic buyer to pay a premium.  Suppose there are three companies who sell the same product; two with large distribution networks and significant market share.  The third company lacks the sales capability but they know how to produce the product for much less.  If the third company were to sell itself, it would make sense that the other two would pay a significant premium to prevent the other from acquiring the low cost producing seller.  In this scenario, a financial buyer would be outbid as they would be unwilling to pay a defensive premium. 

While the differences between strategic and financial buyers are evident, there is no clear answer as to what type of buyer is best for a seller.  The best way to discover what is right for the seller is to reach out to both strategic and financial buyers.  Understanding the characteristics and intentions of the target and acquiring entities is essential in making the right decision.  Aside from the obvious benefits of fostering competition, reaching out to both types of buyers present the opportunity for the seller to see more options and ultimately better understand what is in their best interest.  It’s also the best way to drive the highest possible valuation.

Versailles Group is a 29-year-old Boston-based investment bank that specializes in international mergers, acquisitions, and divestitures.  Versailles Group’s skill, flexibility, and experience have enabled it to successfully close M&A transactions for companies with revenues between US$2 million and US$250 million.  Versailles Group has closed transactions in all economic environments, literally around the world.

Versailles Group provides clients with both buy-side and sell-side M&A services, and has been completing cross-border transactions since its founding in 1987.  More information on Versailles Group, Ltd. can be found at www.versaillesgroup.com.

For more information, please contact

Donald Grava

Founder and President

+617-449-3325

May 18, 2016

Quarterly M&A Comparison

Global M&A activity in the first quarter of 2016 decreased in comparison to the last eight quarters.

As depicted in the graph below, in terms of volume, Q1 2016 was the lowest in the past two years.  Despite the decrease, there were still approximately 20,000 transactions completed in just three months.

In terms of the aggregate value of M&A transactions, Q1 2016 was not the lowest in the past eight quarters.  Q1 2014 was actually lower.  The reduction of value reflects a slowing of mega-mergers, which sometimes skew the statistics particularly when one is focused on the lower middle market.

In the lower middle market, M&A activity remains robust, but it's important for both buyers and sellers to make sure that they are addressing the entire market.  For example, sellers should make sure that they are contacting buyers internationally.  Buyers should make sure that they are contacting targets in their entire marketplace to insure that they have the ability to comparison shop and complete the best possible transaction.

One of the biggest challenges to completing an M&A transaction is to make sure that the buyer or seller have engaged a well-experienced advisor that has experience in the international arena.  The world has gotten “smaller,” largely due to the improvements in communications.  In the “old” days, say prior to 1982, international telephone calls were extremely expensive, faxes didn’t exist, and telex was a worldwide standard, but slow and expensive.  To summarize, email, cheap telephone calls, etc. have made it easy for people to communicate worldwide.  But, many M&A advisors don’t have the experience to deal with people with different customs and cultures.  Versailles Group has nearly 30 years of dealing with buyers and sellers around the world.  We use a culturally sensitive approach that allows us to successfully complete transactions that increase shareholder value on both sides of the negotiating table.  Win win negotiating always works best!

May 11, 2016

M&A Negotiations

M&A Negotiations

In negotiating a merger, an acquisition, or a divestiture the ultimate goal is to structure a deal in which separate companies complete a transaction that generates shareholder value for both buyer and seller.

M&A negotiations are one of the more complex aspects of an M&A transaction and it’s always a good idea to have an experienced M&A advisor performing this task.   While there are some minor negotiations that occur in the earlier stages of the M&A process, the most important negotiations relate to the value and terms of the proposed transaction.  The value usually isn’t a complex concept, but earnouts, and other forms of consideration can be tricky, particularly for an entrepreneur who has not completed a large number of transactions.  There are many important items that need to be negotiated, for example, there is the issue of a holdback versus an escrow and what percentage of the transaction consideration this will be.  The holdback or escrow provides the buyer with protection against unforeseen liabilities.  Many sellers worry that they’ll never see this money; however, provided there are no hidden liabilities, the seller always gets their funds.

The selling firm can accept, reject, or attempt to negotiate any offer that is submitted for their company.  Most of the time, the offer price isn’t considered high enough or the other terms don’t coincide with the interests of the selling company’s shareholders.  However, if this can be overcome, more detailed negotiations will ensue, if both parties are willing.  Both parties always retain the ability to reject the transaction if it doesn’t meet their financial and other objectives.  Once the major deal terms are agreed, the parties will execute a Letter of Intent, which is a non-binding document, but captures the major terms and conditions of a potential transaction.

In order to complete a successful transaction, a large amount of collaboration and negotiation between the buyer and seller is required.  Most importantly, both parties must understand each other’s objectives and it’s always helpful if both sides believe in win-win negotiating. 

The importance of understanding each other’s objectives can be demonstrated by the following story.  Two sisters were fighting over an orange and in order to resolve the argument, their father cut the orange in half and gave one half of the orange to each of his daughters.   While this seems like the best solution, both sisters actually ended up with a bad deal.  One sister wanted the rind for cooking while the other sister wanted to eat the orange.  Hence, both of them actually lost.  Instead, if the two sisters had understood each other’s objectives, the orange could have been divided in a much better way, the rind to one and the contents to the other.  The moral of the story is to try to understand the other side’s needs and objectives with a view towards finding middle ground or a compromise.  An experienced M&A advisor will know how to conduct these M&A negotiations so that they are productive, efficient, and result in a successful transaction.

Versailles Group is a 29-year-old Boston-based investment bank that specializes in international mergers, acquisitions, and divestitures.  Versailles Group’s skill, flexibility, and experience have enabled it to successfully close M&A transactions for companies with revenues between US$2 million and US$250 million.  Versailles Group has closed transactions in all economic environments, literally around the world.

Versailles Group provides clients with both buy-side and sell-side M&A services, and has been completing cross-border transactions since its founding in 1987.  More information on Versailles Group, Ltd. can be found at www.versaillesgroup.com.

For more information, please contact

Donald Grava

Founder and President

+617-449-3325

May 3, 2016

The Importance of an M&A Advisor

The Importance of an M&A Advisor

While some debate the issue of whether to hire an M&A advisor or try to complete a transaction alone, it’s been well-proven that a good financial advisor can add value to completing a successful transaction.

M&A advisors play an integral role in orchestrating successful mergers, acquisitions, and divestitures.  The best M&A advisors are generalists as they have broad experience to draw on as they work through the process of completing a successful transaction.  Anyone interviewing an M&A advisor that receives the answer that the financial advisor knows exactly who will buy their company should keep looking.  Often, the best buyer isn’t known to the company, but is carefully cultivated through the process by the M&A advisor.

The M&A advisor’s role is to orchestrate the transaction.  One of our clients used the analogy of a choreographer.  In some ways, the M&A process is a ballet that needs to be carefully scripted if the best possible results are going to be achieved.  One of the most important objectives is keeping the process confidential.  The M&A advisor also plays an integral role in mobilizing information, organizing the auction, negotiating terms, managing the diligence process, and finding solutions to a multitude of issues during the process.

One of the first steps that a good M&A advisor will take is to identify the client’s objectives.  Next, there’s the discovery period where the advisor researches the client’s company in order to create first class documentation.  The M&A advisor will also do research to find every possible prospective buyer on the sell-side or identify possible targets on the buy-side.

On the sell-side, the M&A advisor will create an Offering Memorandum or Confidential Information Memorandum so that prospective buyers can obtain information in a logical order about the company.  More specifically, this document lays out information on the company’s operations and products (or services), industry analysis, financial background, forecasts, etc.

On the buy-side, it’s always good to have a well written document to give to potential sellers that outlines information on the acquiring company and their objectives.  This makes the sellers comfortable and accelerates the process.

Whether it’s on the sell-side or the buy-side, a good financial advisor will know how to draft these documents, which are pivotal in attracting potential buyers or sellers.  While some companies think they can do without a financial advisor, most entrepreneurs are ill-equipped to prepare these essential documents.

The M&A advisor is also very useful in the preliminary negotiations leading to an offer, structuring the transaction and negotiating and mediating throughout the process.  The client can benefit from this advice as the financial advisor can help keep their client level-headed by maintaining realistic goals and expectations as well as providing unbiased advice.  In addition, they can negotiate more effectively because they are removed from the inherent emotional complications, not to mention their expertise in the entire process.

Whether a client is looking to acquire or sell a company, they have the option of hiring a full service bank or a boutique bank as a financial advisor, which both inherently have their pros and cons.  While full service banks have a greater variety and depth of resources than boutique firms, their effectiveness is also hindered by possible conflicts of interest that don’t affect boutique firms as severely.  In a study done by Jie Wei, a financial economist working in the Office of the Controller of Currency in Washington, D.C., and Weihong Song, an assistant professor of finance and the University of Cincinnati, boutique banks on average are found to be less expensive overall and when used for financial advisory on the buy-side, the premium paid for an acquired company is less than using a full service bank.

For smaller middle-market companies, i.e., companies with less than US$250 million in revenues, a boutique firm can offer the client better service, specialized expertise, and better results than a larger full service bank.  Most importantly, M&A advisors, because of their experience and expertise, can do a far better job at navigating the M&A waters than an entrepreneur whose expertise is in their product or services.

Versailles Group is a 29-year-old Boston-based investment bank that specializes in international mergers, acquisitions, and divestitures.  Versailles Group’s skill, flexibility, and experience have enabled it to successfully close M&A transactions for companies with revenues between US$2 million and US$250 million.  Versailles Group has closed transactions in all economic environments, literally around the world.

Versailles Group provides clients with both buy-side and sell-side M&A services, and has been completing cross-border transactions since its founding in 1987.  More information on Versailles Group, Ltd. can be found at www.versaillesgroup.com.

For more information, please contact

Donald Grava

Founder and President

+617-449-3325

April 26, 2016

M&A - The Teaser

M&A - The Teaser

When selling a business, it is important to know how to appeal to buyers.  A key step, of course, is to make sure that the best parts of the business are displayed.  These items are what we call Unique Selling Points (“USP”).

A good M&A advisor will know how to portray the USPs so that a broad audience will be able to understand and value the business.  This is important as the best way to sell a business is to contact a large number of potential buyers, usually worldwide.  The buyer list should also include a variety of types of businesses, if possible.  There is no way to predict where a buyer will come from, why they will be interested in your company, or why they are looking to buy any company at all.  Because of this, casting a wide net in the search for buyers is the best chance at finding the “right” interested party.  The “right” buyer will always pay more for the company.

In addition to the formal Confidential Information Memorandum that buyers will receive after executing a Non-Disclosure Agreement, the company or its M&A advisor should create a one-page teaser.  The teaser should describe the company in enough detail, without disclosing confidential information, to get potential buyers interested.  In most cases, it will be a “blind” teaser in that the company’s name will not be disclosed.  It should also be written so that potential suitors won’t be able to figure out which company is for sale.

The teaser should include background on the company—the type of company, overview of its products/services, its history, location, etc.  The teaser should then go on to describe the customer base and why the business is a good investment.  The teaser should also have summary financial data, historical, current and projected.  To summarize, the critical part of the teaser is to make bold claims to drive interest.  At the same time, one needs to make sure that those claims can be backed up with facts.

The majority of people who receive the teaser will not end up being interested in purchasing the business.  However, knowledge is power.  It’s just as important to know that other companies are not interested.  It demonstrates to the seller how strong the market is for their company, which is very useful information.  Both the seller and the M&A advisor commence the process with the optimism that there will be many prospective buyers.  But, once buyers are contacted, the seller will have a very good idea of how many interested buyers there really are.  If the demand is modest, it doesn’t’ mean that the company can’t be sold for a good valuation.  But, it does mean that the seller needs to be careful with the buyers that do present themselves.

In conclusion, the key to the teaser is to give potential buyers enough information to pique their curiosity without releasing too many details about the company.  Interested buyers should then execute a Non-Disclosure Agreement and receive the Confidential Information Memorandum on the company.  From there, the M&A advisor should narrow down the interested parties to those that are serious and financially qualified.

Versailles Group is a 29-year-old Boston-based investment bank that specializes in international mergers, acquisitions, and divestitures.  Versailles Group’s skill, flexibility, and experience have enabled it to successfully close M&A transactions for companies with revenues between US$2 million and US$250 million.  Versailles Group has closed transactions in all economic environments, literally around the world.

Versailles Group provides clients with both buy-side and sell-side M&A services, and has been completing cross-border transactions since its founding in 1987.  More information on Versailles Group, Ltd. can be found at www.versaillesgroup.com.

For more information, please contact

Donald Grava
Founder and President
617-449-3325

April 14, 2016

Buy-Side M&A - Seller Employment

Buy-Side M&A - Seller Employment

With regard to buy-side M&A, when purchasing a company, it is important to make an objective assessment of the seller as a potential employee.  Typically, these “employees” carry particularly high risk.  Unless the seller is truly essential to the running of the company, it is usually better to remove them from the company as soon as possible. If a seller is retained at the company needlessly, they will often be an obstruction to the future running of the business.

The reason that sellers often make poor employees is that it is difficult for them to remember that it is no longer their company.  They are accustomed to doing things their own way, working independently, and in some cases, they may have personal relationships with former customers that prevent them from effectively dealing with new clients that might be competitors of their old “friends.”  These types of events undermine the buyer’s ability to lead employees and take the newly purchased company in a new direction.  The buyer’s role must be unambiguous; therefore, employing a seller is a risk that should only be taken when it is necessary to do so.

If a seller has a vested interest in a business’ success, any continuing relationship between them and the company after closing is usually outlined in the sales agreement.  Of course, the nature of that relationship must match the nature of their interests, for example, performance based earnout payments, consulting agreements, etc.

Employment of the seller is not always the best way to enable the seller to monitor the status of their vested interest.  There are better ways to accomplish this task by sending the seller monthly or quarterly financial statements, providing audit reports, granting the seller rights to “audit” results, etc.

If employing the seller for an extended period of time is unavoidable, it is important to help him or her prepare for their new role.  It is quite common for sellers to unintentionally find themselves filling their former role.  For the buyer to be successful, this must be avoided. Some ways to gracefully usher the former owner aside include:

Having the new CEO move into the seller’s office.  As the employees are accustomed to the person in charge being there, this will also make it easier for them to see the buyer as that person.

Suggesting that the seller not take the lead in decision-making, and instead adopting a back-seat role.

Asking that the seller to redirect staff questions to the new CEO.

Use the seller as a source of advice, but demanding that the staff go to the new CEO when they need recommendations or decisions made.

Asking that the seller use the pronoun "we" when he or she talks to customers.

Giving the seller plenty of time off, especially during the transitional period immediately following the closing of the transaction.

However positive the buyer’s relationship with the seller is, he or she will eventually need to be removed from the company.  Very likely, the seller will be looking forward to this day as well, so it is useful to plan ahead when the buyer is preparing the consulting or employment agreement.  Thus, on the buy-side of MA, being stuck with a seller as an employee can be a major obstacle in the running of the business, so unless you have no choice, try to get them out as soon as you possibly can.

Versailles Group is a 29-year-old Boston-based investment bank that specializes in international mergers, acquisitions, and divestitures.  Versailles Group’s skill, flexibility, and experience have enabled it to successfully close M&A transactions for companies with revenues between US$2 million and US$250 million.  Versailles Group has closed transactions in all economic environments, literally around the world.  Versailles Group provides clients with both buy-side and sell-side M&A services, and has been completing cross-border transactions since its founding in 1987.  More information on Versailles Group, Ltd. can be found at www.versaillesgroup.com.

For more information, please contact

Donald Grava
Founder and President
617-449-3325

March 23, 2016