Information Is Power: Leaving No Stone Unturned During M&A
Experience is a great teacher. Especially when you can learn from someone else’s experience – and mistakes. Fortunately for Exitwise clients, they get to learn from mine.
Early in my entrepreneurial career, one small oversight while selling my company cost me a significant amount of money. It’s a memory that I carry with me every day, and an important learning that I apply to every one of my client engagements. Here’s the story:
If the Equipment Doesn’t Match Your Skill Set, Invent Better Equipment
I grew up playing hockey. In college, I played goalie for Yale, which led to tryouts for the Olympic Men’s Hockey Team, with the San Jose Sharks, and a stint in the minors. Hockey was a great life experience, but it didn’t pan out as a long-term career. It did lead to an opportunity to play in a professional roller hockey league, however.
The thing is, inline skate technology of the mid-90s limited the goalie’s ability to move quickly from side to side. Quick side-to-side movements in the net were my trademark, and the main thing that separated my game from other goalies. To create that advantage, I had to re-invent the skate chassis to allow for better side-to-side movement.
My first post-college business, SHOCKZ, was born. My brother and I designed a new skate, filed for a patent and started attending trade shows to attract the attention of inline skate manufacturers. It worked. We licensed the technology and pretty soon, money was coming in.
However, as time went our licensee realized they’d be better off if they simply purchased our company, patent and all. So, they made us an offer. We hired an M&A Advisor, they looked at our technology, the offer, and helped get the sale over the line.
We sold. We made some decent money and started a lifetime of entrepreneurship. However - while the sale of the business was considered a success, the learnings came later.
One Small Detail Eluded Our Attention
It turns out that Oxygen, the business unit who purchased our small company was in the process of being sold by its parent company, the Amer Group. We were the last piece of intellectual property over which they did not have full control. They needed our deal to close in order to sell this enormous division. If we had just known that one piece of information, we could have created a completely different exit narrative with leverage - it truly could have been a 10x different outcome for us.
As they say, sometimes you don’t learn the difficult lessons until it’s too late. I wish I could go back to apply what I know now, but I’m also extremely thankful for the lesson and the knowledge we gained.
How do I apply this experience to my clients? With SHOCKZ, we worked with an M&A Expert that was a generalist instead of one that had intimate knowledge of the sports equipment industry. Had we worked with such an industry expert, we would have likely known about the pending divisional sale and could have negotiated a different deal. Fortunately, this experience forged one of our core principles at Exitwise:
Work with Investment Bankers Who Know Your Space
Our Investment Banking partners all have years of industry-specific knowledge, expertise, and deep contacts at both the board and management team levels of likely buyers. This yields information that you won’t find on the balance sheet. It provides the type of insights that allow companies to find buyers with a compelling need and provide you with a well-informed understanding of what your business is worth.
In the end…do as I say and not as I did. Experience is a great teacher. Let my lesson – that knowledge is power – help you find the most profitable exit possible.
Listen to more about my entrepreneurial journey, the creation and sale of four businesses, and my M&A experiences and key learnings on the Cashing Out Podcast, episodes #12 and #13.