Selling the Story

By Tom Zucker,
President

The famous 1920’s quote by Elmer Wheeler, “People don’t buy the steak, they buy the sizzle” emphasizes the importance of appealing to the senses and emotions of the buyer to induce a desired action. The “sizzle” is especially important when convincing M&A buyers of an opportunity associated with an acquisition. The sharing of the facts surrounding a seller’s business is expected in a transaction but demonstrating the true synergistic opportunity for the buyer is ideal. The professional story teller who can sell the unique aspects and unique positioning of your business is a priceless M&A advisor.

Every business has a story to tell, but who should tell the story? For example, if I ask an accountant, they will share your financials and pontificate on the historical performance of your business. Stories that are retrospective and solely fact-based are often not truly representative of the premium value your business represents to a strategic buyer. The reality is that your business is multi-faceted, complex, and compelling from many perspectives. The story teller needs to reference the company’s facts and the past performance, but more importantly sell the strategic opportunities. The right story teller needs a diverse business background, the ability to identify and convey hidden value, and the credibility to ensure the message is not only heard but believed. Therefore, professional business sellers, such as private equity firms, as well as private business owners frequently utilize capable investment banking firms to tell their story and achieve above market valuations.

So why tell a story? So why not just share your legal and financial documents with a buyer? The simple answer is that premium buyers buy future cash flows. The nuance to this statement is that future cash flows may be different for every buyer. It is the investment banker’s job to uncover these hidden value drivers and build a compelling story for each buyer. This requires deep business and industry expertise to develop and convey these unique buyer story lines. The bridge to the company’s future financial performance and the historical numbers are essential to building a compelling story and enabling a buyer to pay full price for your business. The hectic pace of most corporate development professionals necessitates the investment banker clearly highlight and illustrate the synergistic opportunities that your business represents for the buyer. These sophisticated buyers need the story teller to provide the “sizzle” to justify the investment of their limited time.

Experienced story tellers can support their stories with successful and impressive outcomes. The following are just a few stories to illustrate the impact of a proven M&A advisor such as EdgePoint:

• The fintech business that had break even profitability that sold for 5X revenue required a story about the buyer’s cross-selling opportunities with the seller’s Fortune 500 clients.
• The industrial manufacturing company products were well positioned to complete the large buyer corporation’s product suite. The buyer’s fear of international competitors entering their markets needed to be emphasized and enlarged. The positioning and competition were important to above market purchase multiples.
• The business just emerging from a turn-around situation who had not realized their full economic potential required a story to sell their business for a high multiple of projections two years out rather than historical performance.

The accountants and attorneys play an important role in supporting the bridge. From an M&A perspective, the continuation of the past is fine, but we are more interested in what unlocked potential cash flows and value may exist. For example, a valuable patent which has been successfully leverage in your industry may have immense value if another entity can exploit this technology patent over a broader set of industries. How valuable is this patent to a larger organization with more established sales channels? In this situation, the value equation of two plus two might actual be higher than 4. This is one reason why a story teller is critical to bringing buyer interest but more importantly conveying to the buying market the full potential of your business.

Selling the “sizzle” is more than just fast talking and impressive word choice. It is developing and selling a compelling future for a business acquisition. If done well it can be lucrative and transformative for both the buyer and seller. As you build out your advisory team during your pre-sale planning, ensure that your team has a proven story teller.

© Copyrighted by Tom Zucker, President of EdgePoint Capital, merger & acquisition advisors. Tom can be reached at 216-342-5858 or on the web at www.edgepoint.com.