Here’s a common scenario in the business world: you’re a business owner and you receive an expression of interest in your company from a peer or a competitor. The inquiry might even come from someone you’ve known and associated with professionally for years.
“One plus one makes three: this equation is the special alchemy of a merger or an acquisition. The key principle behind buying a company is to create shareholder value over and above that of the sum of the two companies. Two companies together are more valuable than two separate companies – at least, that’s the reasoning behind M&A (Investopedia).”
The scenario goes something like this:
“We got to talking about it and the transaction just makes a ton of sense. You have X, and we have Y, so together it’s a no brainer.” Awesome, right?!
But as a practical matter, these things usually drag on forever without moving forward. Everyone is happy, and everyone kind of wants to get together, but neither party is willing to lay it out there and say what they really want.
You know what they call this? The friend zone. And it’s typically a dreaded place to be.
What’s Wrong with the M&A Friend Zone?
You may be asking yourself, “What’s wrong with two businesses hanging out in the friend zone, you know, kicking the tires . . . no labels?”
Well, honestly nothing. Things are comfortable. Things are the way they always have been. But that’s the problem – at least one party no longer wants to “just be friends”.
You are both wasting time and energy flirting with the idea of moving your businesses forward, but never making any real progress. To get out of the M&A friend zone you’re going to have to take a proactive stand about a few things:
1. Create constraints .
If you are serious about getting a business deal done, be honest. Have an open discussion with your prospective business partner and let them know what you are looking for (and have them share their needs and wants too).
M&A deals can take a ridiculously long time, involve a lot of different players, and can be fraught with acrimony if they go the wrong way. To sidestep potential problems, work with your potential partner to create a framework for discussions – and constraints to help guide them. For example:
Decide how long will you spend in negotiations
Talk about how long diligence will last
Think about who is going to present an offer or counter offer
2. Get formal (quick!) .
The worst thing about the friend zone? For a business ready to take things to the next level, it can feel like purgatory. You’re in “no man’s land” and have absolutely no idea when you are getting out. So be grown ups. Instead of having endless meetings and dinners talking about how great things can be, talk price. Why? Because price is the one thing that separates dreamers from doers.
3. Design a discussion framework.
If you’ve worked closely with the other party for some time it can be difficult to be open about a potential merger or acquisition. Consider bringing in an outside advisor to help manage the discussions. For instance, an experienced M&A intermediary or transaction attorney can be invaluable in guiding discussions and maintaining a buffer between two business parties.
4. Get some closure.
As the business owner, the friend zone only exists if you allow it to. One of you must be bold, be brave, and lay it out there. If you want to merge your businesses, then propose your plan, negotiate the details, and make your happily ever after a reality.
If your partner’s intentions are not as sincere or you just can’t find terms you both agree upon, then it is time to move on. Either way, you will have closure and have finally moved beyond the dreaded M&A friend zone.
This article has been edited and condensed.
Dan Doran is principal of Quantive Business Valuations, a professional business valuation practice specializing in small to medium-sized closely held and family owned businesses. Dan has performed valuations for hundred of companies, and advised on a wide variety of real world M&A transactions as a partner with Clear Rock M&A. He holds the CVA credential. Connect with @Quantive1 on Twitter.
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