In April this year – Fred Wilson from AVC wrote a blog called Losing Money. You can read it here.
Fred’s blog has been making the rounds here in the M&A offices for many reasons – but the aspect that particularly resonates with me is his discussion of the win/loss rate. I understand Fred’s approach for a VC – if you have never lost money on an investment, “…then you are not taking enough risk.” But we’re not VCs. We’re investment bankers and a big part of our job is to help our clients make money. When we agree to work with a buyer, we know that we are taking on risk. The odds of completing a successful acquisition are stacked against us from the beginning as we haven’t yet figured out the real strategic fit, let alone the cultural one; we haven’t even started real due diligence yet; and we certainly haven’t yet agreed on a price. But when we are working for a company that is looking to raise capital or to sell, we do expect 100% success. It’s in our DNA. And we hate to lose.
We keep win/loss stats here at M&A. And we’re proud of them. We’ll stack them up against any other advisory firm. But that doesn’t mean that we are perfect. We know exactly what deals we have taken on over the past 14 years that have not resulted in a deal. It’s very few.
I believe that our attitude – our expectation of success is one reason that people choose us to advise them. We not only are experts in our field and know how to get deals done, we also don’t quit. Perseverance is one of our mantras. It’s one thing to simply “broker” a deal – to introduce parties and get a deal conversation started – it’s quite another to bring the deal to closure. We are not mere “brokers.” We’re full-fledged strategic and financial advisors.
As I said, we’re not perfect (although we try). Over the course of 14 years, there have been a handful of sell-side assignments that we took on that did not complete. In every case, the senior team here all can tell you exactly why. One was early in our existence; we took on a client firm that we shouldn’t have. The company had a strong brand but operated in an industry that was in steep decline. The entrepreneur/founder believed his company could buck the trend – and we accepted his rationale – but it was not to be. We worked hard and brought in several offers but they were at levels below where the entrepreneur/owner would sell. We should have known. Another was a firm that was growing nicely but the partners that controlled the firm wanted to sell now at a price based on promised results two years out. We tried to talk them into waiting a year but they were insistent. We took on the assignment but it soon became clear to all of us that we were early. We withdrew the company from the market. Two years later they came back to us and we got the deal done. I could go on. Two deals failed to complete in 2008, just as the Global Financial Crisis was nearing its peak. A year ago, we took on a client whose financial backers had very high price expectations (albeit not insane). We got several strong offers but the owners decided to wait until the company could grow into the valuation they wanted. We’re still talking.
Back to Fred’s blog – and his words: “Ironically, another key to managing your losses is to spend more time with them, not less….” This is another philosophy that we can relate to. It fits with our “never quit” philosophy. When the going gets tough is when some bankers quit. Not us. Tough going just makes us dig deeper. I like Fred’s words: “I am a big believer in ‘loving your losers’ in the sense that you should not orphan them and you should work hard to get to the right outcome.” We agree.
We’re not perfect, but we’ll stack our success rate up against any other firm in our industry. We believe it is exceptional. And keeping it that way is the fun part of banking; spending time with the Board, the CEO, and management team; getting to know a business at a deep level – and then sticking with them through all parts of the process until we accomplish the mission. It’s not always easy – but it’s what gets us excited.