The Unwritten Laws of M&A

There are many unwritten laws of sports. For example, when a batter gets a hit in baseball, one of the greatest sins of the game is to flip (throw) the bat. However, when we were kids and we got a hit in whiffle ball, we would throw that bat as high in the sky as we could. In the Major Leagues, the next pitch is going in your back. In whiffle ball, the next kid tries to throw the bat higher. Because every company and individual is different, in M&A it is hard to determine what are laws, unwritten laws, or acceptable behavior.

Here are some general “do not” unwritten rules to follow:

• Do not discuss politics, religion, or other controversial topics: Although it is very tempting to rant and rave about the world’s ailments, it is better to stick to business. You never know what button you might push and sour the deal. It is better to stick to safe subjects as much as possible.
• Do not sell only when times are bad: In fact, the opposite is true. Prepare the business so that it is mostly ready to sell at any time. Almost all owners say, “I do not have to sell,” which is a good position to be in. A business will get a better valuation and terms if selling into strength.
• Do not tell buyers only positive things about your business: It starts to get old when buyers hear nothing but a commercial about a company. Being realistic and mentioning weaknesses as potential opportunities will create trust. The buyer’s business is not perfect either. In fact, you might be filling a gap for them.
• Do not fake it: When selling a product, it is common for salespeople to over-sell and make unsubstantiated claims. Selling a business is quite different. Buyers will eventually figure out that the emperor is wearing no clothes. Be sure to be careful about the line between embellishing and stretching the truth too far. At best, buyers will figure it out and lower the price (or walk away). At worst, it could be seen as fraud.
• Do not bash competitors: A realistic viewpoint of the competition is important to have but bashing the competition too much or irrationally is distasteful to many buyers. Competitors are often the best buyers, especially if your company will help augment the buyer.
• Do not make it too hard for buyers to buy your company: Many sellers set up an us vs. them mentality that makes it hard for a buyer to move forward. Due to sunk costs, buyers may soldier on, but it will cost the seller in ways that they do not realize. Sellers should make it as easy as possible to buy their company.
• Do not keep the deal a secret (let the key employees, etc., talk for you): When we sell a home or car, we put a sign out front and list it on the web. When we sell a business, owners do not want to tell anyone. Every situation is different, but it is usually best to involve as many people as possible.
• Do not assume that other party has the same negotiating style. One-shot, everlasting, back-and-forth: It is good to get to know the style of the other party and accept that other people have different personalities. Some buyers will only give you one shot, while others will negotiate six months after the deal is closed. Most are somewhere in between.
• Do not blab: Buyers start to get wary if an owner is gossiping or talking out of turn. They do not want their dirty laundry on display like they are on reality TV or something, so they may back off if an owner is spreading rumors.

Like with all complicated endeavors, it is hard enough to know the rules, let alone the unwritten rules. Unfortunately, most experience comes through making mistakes. If buyers are really interested in a business, they will forgive a few missteps. Most deals get derailed several times before closing, so as long as the train does not go too far off the tracks, we can usually get things moving forward again.

It is not easy to stick to the rules and keep a deal moving in the right direction. However, when we do close the deal, let’s be sure to flip that bat as high as possible.

Tom Kastner is the president of GP Ventures, an investment banking firm focused on sell-side and buy-side transactions in the tech and electronics industries. GP Ventures has offices in Chicago and Tokyo, with five people in total. Tom Kastner is a registered representative of, and securities transactions are conducted through StillPoint Capital, LLC—a Tampa, Florida, member of FINRA and SIPC. StillPoint Capital is not affiliated with GP Ventures.