Why Acquisitions Happen
Big or small ― It's the same factors
As I write this, there is still a "bidding war" going on between Qwest and Verizon over MCI. Verizon makes an offer, Qwest makes a better offer. Qwest publicly complains they are being snubbed, the shareholders of MCI ask why and Verizon's offer increases. Then Qwest's offer increases. On April 6, MCI turned down Qwest again. As I depart on my trip, Verizon is still in the lead. Why? Because the MCI board of directors states that Verizon is a better company.
Buyer's strength
When there's a transaction for the acquisition of a company it is not like buying a car. Just having the money isn't enough. The buyer needs to demonstrate the ability to run the company, merge the culture and add insight. In other words, provide benefit and value.
If shareholders are getting all cash it's one thing. But in many mergers there is a stock swap (especially for executives regarding their options and compensation packages). In small business deals we call it seller financing. Sure the stockholder can cash out the stock immediately but most don't. If they owned the stock as a long term investment they want to maintain that long term philosophy (and they like the industry). A family friend bought some stock in a regional airline many years ago. They were bought by United so he got United stock and we know what that's worth now. (He also has some Verizon that came to him the same way showing that these things sometimes work and sometimes don't.)
Small business owners need to be convinced of the buyer's capabilities to run the business and make the payments. It starts with the first contact and continues until closing. The reverse is also true. Buyers need to be assured the business is what is seems, the owner is truthful, trustful and will live up to his or her promises. In other words, both sides are like salespeople and the first sale is selling themselves.
But the onus is on the buyer. There are usually more buyers than sellers and the seller has a lot more to lose. Unless there's a cataclysmic reason why the business needs to be sold now the seller can just walk away and find another buyer. That's why it's so important for the buyer, whether it be a major corporate deal or a small business, to prove themselves.
Relationships
And this is where it starts. As I've written many times, people do business with people they like. And when it's as important as their business (read as their "baby") it takes on extra importance. One of the things I've learned in my 12 years of doing this is that most owners truly care about their customers and their employees. I've seen sellers do many things to make sure the employees are taken care of. I hear repeatedly that the customers need to be taken care of (as in "I don't want to subject them to my competitor").
Another interesting bit of information is that people usually do deals with people like them. In other words, the sales type does not buy a business from the highly analytical operations type and the financial owner does not sell to the marketing wizard. There has to be at least some similarities in skills and tactics to make it work. This is something that is a huge issue in the success or lack of success in large corporate mergers. The numbers don't have to work together. The people do.
When deals are based only on numbers there are no indicators to indicate success. That's why there are consulting firms that deal with transition issues, corporate culture issues, inter-company politics, etc.
Conclusion
Buying or selling a business, buying or selling a car, a house, furniture or just about anything else is relationship based and is dependent on two parties. About six years ago we bought a new car for my wife. When I asked the salesperson about a CD player (just getting popular) he replied with something like "You don't need a CD player. There are so many radio stations that you can hear whatever music you want." Not the way to build commonality or a relationship. In business sales, the strength the buyer brings to the table is their capabilities. It's a big reason deals get done once the buyer and seller realize they can work together.