We published a Deal Note® on March 29, 2022, addressing the need for sellers to retain professionals (accountants and attorneys) with substantial M&A experience. In this edition, we look at another aspect of the seller’s deal team – the importance of a strong executive team during the sale process.
A large part of the successful sale of a business depends on the buyers believing and liking what they learn about the company before and during due diligence. They need to have confidence both in the accuracy of explanations of past performance and in the rationale behind the strategic and operating plans that support future projections. During management presentations, site visits, and due diligence, buyers will probe these areas with members of the leadership team, from which buyers will draw conclusions about how the business is likely to perform in the future which, in turn, affects the price they are willing to offer. These conclusions will be based, in large part, on their opinion of the executives themselves, with buyers seeking to determine:
- Intellect – does each executive have a strong understanding of the industry, the company, and their respective fields of expertise? Do they give convincing explanations of the strategy and the tasks required to drive future performance?
- Integrity – do they offer honest, candid explanations for what happened in the past, both good and bad? Are the explanations both logical and believable?
- Interpersonal – does each possess the requisite communication and people skills to be a strong leader and work effectively with other members of the executive team?
For these reasons, we encourage sellers to objectively assess each member of their executive team well before considering a sale process. Identify and address management development needs and take additional actions if needed. So much of a successful sale transaction depends on the buyers’ impressions of the executive team that decisive action early on is warranted and necessary.
Have a great day, everyone.
Managing Director, Aerospace