Making first contact with an owner is a decisive step in the acquisition process. You only have one chance to make a good first impression. When you first contact an owner, the response you are most likely to hear is “No”. I have rarely found an owner who, when asked if he would consider selling his business, immediately says, “Yes, I want to sell, and I want to sell now.” For most company owners, “no” is their knee-jerk response.
Your purpose when making first contact with an owner is to start a dialogue and extend the conversation. The purpose of the first call with an owner is not to buy the company. Your sole purpose is a follow-up call or face-to-face meeting. But how do you go about doing that, even after an owner has said “no”?
Before anyone in your company begins to speak to owners, you need to determine a contact strategy based around three key points:
1) Whom you are contacting from the prospect’s organization
2) Who is making the contact on the behalf of your organization
3) The method of approach
Assuming your research has brought you to the point of initiating a connection, you should have an idea of whom to call first at the prospect company. Needless to say, this can be more complicated than simply asking to speak with ‘‘the owner.’’ Companies can have multiple owners, or an owner who is only passively involved in the business. You may need to make multiple contacts and carry on separate dialogues with several different people in the same target company.
As to who should be making the first contact, it may seem intuitive that when contacting an owner, the best person in your organization to make the call is your own CEO, who may even know the individual in question. Actually, I caution against the CEO being the one to first make contact with an owner. Having a preexisting relationship with an owner can actually create an awkward situation as you start to ask probing questions about the target company from a buyer’s point of view.
Instead, it’s often a wise idea to have your M&A adviser make the initial contact. Here’s one instance where the use of a third party makes particular sense. An outside consultant can maintain your anonymity at this exploratory stage, interviewing owners to gauge their attitudes toward a potential partnership. If, after these initial calls, you decide that you do not want to continue with a particular company, they will be none the wiser. If you do wish to proceed, you can then reveal yourself on your terms.
Third-party experts can also bring their years of experience in contacting owners and discovering their “hot buttons,” or factors that might prompt them to sell. It takes considerable skill to quickly catch an owner’s interest, extend the conversation, and identify the underlying issues. So when you have only one chance to make a good first impression, it helps to have someone at your side who has been in that situation many times before. The probing questions that may cause an awkward situation between CEOs are expected from third parties, and prospects are more likely to open up to them. Just as you may not tell all of your health problems to your friends, you would have no problem explaining them to a doctor—an outside expert.
You may have noticed that in discussing the initial contact, I refer to making a phone call. This may seem unremarkable, but I have found that the idea of contacting owners by phone is actually somewhat unusual. I estimate that 85 percent of third-party advisers, including investment bankers, first contact a prospect by letter.
While this option may be less costly in time, you get what you pay for. With a letter, you have no way of knowing how the owner immediately reacted, or even if the letter was actually read. A phone call allows you to respond instantly to any questions or concerns, as well as to ramp up excitement by laying out your vision tailored to that specific company.
Handled right, your first contact with an owner can initiate the beginnings of a productive relationship that may lead to a profitable transaction. Handled wrong, that one phone call can sink the deal before it has even begun.
This post is adapted from David Braun’s forthcoming book, “Successful Acquisitions,” now available at Amazon.com