First discuss the geographic layout of an Internet service business with its owner.
In the first hour with a prospective sellside client I need to learn a lot about the company and about the seller’s style … so I need to listen way more than I talk, respect the story teller, ask the right questions, and manage the time we have.
The way NOT to spend this first hour is for me to quickly review the financials then open my mouth and blab like I know what’s going on with this seller’s business … because sellers hate when people do that, and besides, financials many times disguise and distort what is really happening … so I need to hear the story first.
Since most Internet service companies have owners, management, employees, customers and assets in many geographic locations around the world, I suggest in the first hour we discuss the location, history and set-up of all of the aforementioned human resources and fixed assets. This lengthy conversation inevitably reveals all sorts of intangibles I need to know in order to properly market and sell the company.
The geographic locations of each of these assets have huge implications on the liquidity and valuation of the company. Sometimes the geographic set-up enables a negative cash flow company to actually be sellable. Unfortunately the reverse is true as well, the geographic set-up can make a profitable company extremely illiquid … as far as selling the company as a whole.
There are always buyers looking for a 2nd or 3rd customer support center half way around the world so they can offer and advertise “in-house customer support 24/7” … so why not acquire a company that already has one (even if it’s presently losing money). There are 101 examples of this.
Once this “first overview” of the company is complete, I propose we review the financials because I then have an idea of what I am looking at … and in the eyes of the business seller I am now “checked out” to make comments about their company.
Side note to the writing above:
The specific way I take notes during the exploration chat is what I call my “Geographic Diamond” … but really it’s just a large, messy doodle. I start discussing the ownership, then the employees, assets and finally the customers. Here is a sample of what I start with … yet for the purpose of showing the reader what I am referring to I added a few of the questions I ask during the discussion to keep it going. (but of course we never make it thru all of these)
Once the initial discussion is over and I have made my way around the geographic diamond, my note taking pages are full of lists, arrows, pros and cons, additional questions and information requests … THEN I review the financials with the business owner and have better questions to ask.
In my 20+ years of doing M&A, I have found the above exercise is a productive and respectful way to get to know a seller and their business.
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FYI, I send out a “Weekly Internet M&A Deal List”. This list contains between 30-40 deals. Each week it is sent out to 1,000s of Internet executives and financial buyers around the world. If you would like to see the latest copy, message me. If you would like to be added to the auto weekly version, you can either sign up on my web site or message me and I will add you.