In conversation with Bill Snow, author of M&A for Dummies

Can you tell us more about your career in M&A?

I started in M&A in 2005 after working in sales and management positions in companies that ranged from angel-funded startups to venture-funded companies to publicly traded companies. I banged my head against the wall in the venture capital space until a former colleague contacted me. He had been with a central marketing investment bank for a few years, and they were looking for someone who could speak on the phone, read a balance sheet, and sell. Naturally, I turned down the job offer four or five times until I was caught in a moment of weakness and said, “ok, fine, I’ll be an investment banker”. 

I started in the industry by handling the execution on sell-side mandates – I built buyers lists, disseminated the materials, solicited the initial offers, set up meetings between the buyers and the seller, negotiated the LOI, oversaw due diligence, and helped draft the purchase agreement. 

I’ve worked primarily with companies between $10m (£7.8m) and $300m (£236m) in revenue, although for acquisition clients, I’ve worked with much larger companies. Thanks to my writing, I’ve had numerous speaking engagements, which has helped create opportunities, so I have been on the client origination side and oversee the transactional work of the clients I bring in.  

What led you to write Mergers and Acquisitions for Dummies and who is it aimed at? 

I was contacted by the publisher, John Wiley and Sons, in 2008. They contacted me because of a book I wrote in 2003 on venture capital (Venture Capital 101). I lost an opportunity to raise money for a venture capital-seeking company. I was so frustrated with that meeting and my inability to adequately explain what works (and doesn’t work) in venture capital, that I wrote an article that turned into a series of articles, and finally, after I got fancy and wove a narration through the work, I turned it into a book. I saved that little book as a PDF and gave it away for free. The book was forwarded throughout the world, I was contacted by all manner of offers (good, bad, insane), and numerous VC firms contacted me. They thanked me, and eventually after I segued to middle market investment banking, Wiley publishing contacted me to write a book. My little free PDF made it all the way to the mean streets of Hoboken, New Jersey.

Wiley’s idea was LBOs for Dummies and they asked, “do you wanna write it?’ I asked, “well, who would buy such a book?” They replied, “the people on Wall Street, you know, the ones who do those billion-dollar deals,” I said, “only five or six people do that kind of thing, and I wouldn’t be able to teach them anything. I would be learning from them.” I thought for a moment, then suggested we broaden the scope of the book, and instead of focusing on one method to finance the acquisition of a company (borrowing money, vis-a-vis an LBO), we could explain the entire process of buying or selling a company. 

“What would you call such a stupid book?” they asked. “Oh, I dunno… how about Mergers and Acquisitions For Dummies?” I replied. “What a stupid title, who would buy such a book?” they asked. “Oh, I dunno,” I said, “the tens of thousands – maybe hundreds of thousands of people – who own and operate middle market companies or provide professional services to those companies.” They declared it a stupid idea and thus ended our negotiations. Two years later, Wiley contacted me again with a new idea. Mergers and Acquisitions For Dummies. “We thought of it, not you,” they told me. Naturally, I replied, “what a great idea, wish I thought of it”. 

I wrote the book in the fall of 2010; the first edition was released in May 2011. 12 years later, Wiley contacted me again, and I wrote the second edition in fall of 2022. This new version was released on May 31, 2023. The book is aimed at business owners and executives, service providers, students, and anyone who is interested in becoming an M&A investment banker.

What’s new in the second edition of Mergers and Acquisitions for Dummies?

The new edition has a deeper dive into the different ways to look at valuation, the importance of quality of earnings reports, the increased use of rep and warranty insurance, how to hire an investment banker, and a more in-depth explanation of adjusted EBITDA, which I call a Frankenstein’s monster. Adjustments to EBITDA have taken on a life of their own.

Why is selling a company generally perceived to be easier than buying one?

Buyers far outnumber sellers. A good company – profitable, growing, strong management team – will attract multiple bidders, yet only one bidder will win. In most other industries, high demand means you can produce more to meet that demand. In M&A, the supply is limited, that good company will only be sold to one buyer. Not only is supply limited, but owners of good companies are often not interested in selling. That dearth of sellable companies therefore puts further upward pressure on price. That’s why attempts to stimulate aggregate demand in M&A usually do not increase supply. Increased demand without a commensurate increase in supply means one thing, inflation, and for over a decade, we’ve seen inflation in the M&A arena. 

In your opinion, how do you best analyse the hurdles buyers face when conducting due diligence on potential acquisitions?

One of the main hurdles is access to information. Proprietary deal flow, that is to say, companies that are not going through an M&A process, are often the preferred target for buyers because of the lack of competition. However, that lack of competition comes at a price: the seller might not be prepared due diligence and the amount of information being requested by the buyer. Also, a seller who is not represented by an attorney who has M&A experience can slow down the process. I highly recommend sellers only hire attorneys who have done M&A deals when they sell their companies.

What financial considerations should accountants look out for in M&As? 

Taxes! Please take the time to put pen to paper and run the numbers for both an asset sale and a stock sale. Will accounts receivable be taxed at a different rate? Knowing ahead of time what a preferred structure best works for a seller increases the odds of a tax-advantaged sale.

Can you share any valuable insights into the current M&A landscape? 

A good company with an owner with reasonable expectations stands a very good chance of getting a very good, if not great, deal. I strongly encourage any would-be seller to first get a sell-side quality of earnings report. Focus on the net proceeds. The gross amount might sound nice, but the net amount after taxes, debt repayment, fees, and a working capital adjustment is where sellers should focus. Depending on the transaction’s structure, a deal with a lower gross amount might net a higher amount for the seller.