Every company has two kinds of customers: the ones buying their products or services and the ones buying their shares.
In 2021, selling shares was easier than selling products/services, which was odd because selling shares is usually much harder. Now, in 2024, we're back to the familiar struggle.
Familiar struggle because selling shares, or in this context M&A, is:
the most complex B2B enterprise sales venture.
characterized by low odds of success.
about disrupting the status quo.
Let's have a quick look at each of these affirmations.
M&A is the most complex B2B enterprise sales venture
Those involved in go-to-market activities know that selling a $10k annual contract value (ACV) and a $100k ACV is a different game.
As the ACV rises, finding the champion, identifying the ideal economic buyer, and navigating their buying journey becomes increasingly difficult. Furthermore, convincing their buying committee, which involves multiple stakeholders with distinct agendas, compounds this complexity.
To illustrate this concept, I often reference Christoph Janz's hunting animal framework from Point Nine.
The Angel VC
While I'm not a hunter myself, I imagine that hunting Whales ($1m+ ACV) or Elephants ($100k+ ACV) is exponentially more difficult than hunting Rabbits ($100+ ACV) or Mice ($1k+ ACV).
Therefore, engaging in an M&A deal with a price tag in the tens of millions is like hunting the Moby Dick!
M&A is characterized by low odds of success
Those engaged in fundraising often deal with investors who intensely focus on the market's size. This is normal, as the size of the market directly impacts a company's odds of success in achieving a business plan.
As I'm in an animal mood, let's use a fishing analogy to drive this point home.
Imagine a scenario in which a fisherman aims to catch 1,000 fish from a pond with only 10,000 fish rather than one with 1,000,000 fish.
In a small pond with 10,000 fish, catching 1,000 fish is a big deal and risks depleting the population. But in a larger pond with 1,000,000 fish, catching the same amount has minimal impact, making success more likely.
Similarly, acquiring a significant share in smaller markets is challenging, while larger markets offer greater potential for success without exhausting market resources.
In M&A, the market is akin to a small pond, especially if it is unable to address Private Equity firms. Only a few corporate buyers can afford a company with a price tag of tens of millions.
Furthermore, most corporate buyers are not "ready to buy." More on that later.
M&A is about disrupting the status quo
I've written before about the substantial risks corporate buyers face when engaging in M&A.
It's actually one of the riskiest activities a company can perform due to the financial commitment, integration resources required, and potential ROI, which often materializes in the mid-to-long term.
Therefore, buyers tend to play it safe by staying the same.
Without a strong willingness to change, buyers will be very creative in finding reasons to avoid your deal.
For sellers, the essence of M&A lies in triggering Buying Intent, which goes beyond mere interest.
Buying Intent is a buyer's commitment to invest time, effort, and resources into completing the transaction within a reasonable timeframe.
Without Intention, M&A can be really painful for sellers, as they may encounter buyers who:
Frequently fail to honor commitments regarding follow-ups.
Postpone meetings abruptly, often by several weeks.
Disappear without explanation, only to resurface unexpectedly.
(if you have other painful experiences, share them with me!)
In essence, sellers find themselves at buyers' mercy. Gaining control over buyers requires thoughtful sales & marketing efforts to generate Buying Intent in the buyer journey.
Numerous factors can influence Buying Intent, which typically develops slowly and has a meaningful effect over time.
The typical Buying Intent: The Rational Intent
Buyers initially become aware of their problems through self-education or conversations. Their Intent gradually grows, leading them to compare alternatives such as organic versus inorganic solutions.
Credit to Pierre Herubel
Their Intent usually grows once buyers validate the following:
Strategic fit, evidenced by a sound business case with initial results.
Cultural fit, indicated by the desire of key individuals to collaborate with the seller.
Valuation fit, demonstrated by a valuation quickly translating into a high ROI.
Buying committee fit, backed by the board's support of the inorganic option as the least risky.
Bootstrapping a relationship to the level of trust needed for an M&A offer within a 6-month process is challenging. This type of process often attracts opportunistic buyers who make cheap offers.
I've written before about the importance of VC-backed companies building prior relationships, ideally go-to-market partnerships, with big potential buyers.
In a specific case, I worked with a sub-$5m software company, which received an offer at 14x its revenues following a 2-year partnership. During this partnership, the buyer's revenues in regions where the software was deployed increased by an additional 20% compared to other areas.
In essence, the Rational Intel takes time to develop. However, there are instances when strong triggers quickly build Buying Intent.
The rapid-fire Buying Intent: The Urgent Need
While buyers usually know the seller, they have no intention to buy until it eventually becomes their highest priority.
Credit to Pierre Herubel
Here are some examples of Heavy Buying Triggers:
Disclaimer: Launching an M&A process is not one of them.
New regulation
Competitor move
Missed sales numbers
Loss of a major client
New internal reorganization or shareholders
These events create a narrative that compels the buyer to take action:
Maybe consecutive misses have created a narrative suggesting the buyer is declining.
Maybe the relentless pace of a competitor's launches has created a narrative that the buyer isn't innovating as much as he used to.
I've written before about how pain proves to be a powerful driver in inducing a strong willingness to change.
The more someone is concerned about future pain, the more open he becomes to change in the present.
Our typical approach to building Buying Intent starts by addressing international buyers who may be interested in gaining a solid foothold in our client's market.
Once a buyer is hooked, we approach local and other international players by informing them that someone is making a move by trying to buy our clients' assets.
We've received offers in less than two weeks each time we've successfully implemented this strategy.
In the end, Buying Intent is the Product Market-Fit of M&A.
Without it, M&A is really painful.
With it, everything becomes easier—most of the M&A tactics for converting buyers' interest into offers work.
Good luck!
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