When Vaughan Capital Advisors (“VCA”) engages a middle-market company, we assess what the company does well, or better than all of their competitors, or the company’s “unique ability”. In almost all cases, the unique ability of the company is driven by the unique abilities of the management team that owns and operates the company.
When major corporate buyers are assessing the management team of a middle-market company in M&A transaction, they are evaluating several key factors:
Track Record of Success:
Buyers want to see evidence that this management team has worked together over a long period of time, and produced multiple years or profit, growth and return on investment. Most of the time, if a management team is pursuing an M&A transaction, this will be the case.
Ability to Face Adversity:
Profit and “success” can mask a multitude of sins. Most buyers want to know that the management team has faced and dealt with a crisis or adverse circumstances. These include loss of a key client, a major company entering their market, the departure of a key team member. The buyer wants to know that the management team can solve problems. If they have done it before, there is a strong likelihood that they can do it again.
Self-Awareness:
A buyer wants to know that management is aware of the things the company does well, and areas where there need to be improvements to drive more value. Those improvements can often include adding another key hire that has skills and abilities that the management team does not. In a best case scenario, post-acquisition, the seller and buyer can address these needs together.
Alignment
Buyers want to know that interests of the management team are aligned financially, operationally and with respect to delivering compelling results for the acquirer post-acquisition. One of VCA’s key focus areas is to create alignment amongst the management team prior to pursuing a transaction, which of course, makes it easier to structure a deal that creates near-term and long-term alignment between buyer and seller.
Talent Acquisition:
When evaluating the management team, a buyer is considering how these executives will fit within their corporate environment. In many cases, they are asking “is this the kind of executive we would have hired to run or build a division within our company absent an M&A transaction?”. Also, importantly, the buyer is assessing how the management team will interact with their largest clients in pitch meetings, or from a client management perspective.
What we learned from working at one of the leading talent agencies in the world, and by investing in some of the most iconic media and technology companies, is that the people who launch and run successful companies are really “talent”. They are usually, by far, the most valuable asset in the M&A transactions VCA closes. As such, VCA prioritizes buyers who recognize, value and commit to our management teams as key value drivers in the M&A transaction.
