S1-E3 | Phase 2: Solicitation — Turning Outreach into Interest

Transcript

SPEAKER_01 0:02

Hi everyone, I'm Joshua Jahani. Thank you for joining in for our podcast, The Technical Founder. This is episode three, where we talk about solicitation in the MA process, turning outreach into interested buyers. We've got our co-host, Ricardo Oberlander, here. How are you today, Ricardo? I'm very well, alive and kicking. That's excellent. And we're going to be even better after we talk about the art and science of attracting qualified buyers. So, as a reminder for our audience, we talked about preparation uh just prior to this. And the subsequent phase after solicitation, after this episode, is receiving indications of interest. So, solicitation is a action that usually the banker, but sometimes board can do it, sometimes CEOs, et cetera, they perform to receive indications of interest. So it's very much about soliciting a potential buyer for a business based on an established interest in that sector, that business, that business model, and then saying, hey, Mr. and Mrs. Buyer, here is your information. And this is the confidential information memorandum with some addendums, which we talked about in the preparation phase. Now that you've got this information, please submit an indication of interest to us to purchase this business. And the art and science of that is what we're discussing. So, Ricardo, for us as the investment bankers on these projects, you know, we have a very sophisticated and large network of buyer relationships that we maintain all the time. The ability to run a sophisticated solicitation process, I think, is one of the core value ads of a proper registered investment bank. But in addition, a lot of it is forcing buyers to submit bids. Buyers don't always like uh being given deadlines. Some love it, some don't like it at all. And it's surprising how many people try to skirt deadlines. And we can talk more about that if we have time. But based on your experience, both as a principal and as an advisor in MA processes, what do you think the technical founder needs to be aware of for solicitations?

SPEAKER_00 2:13

I think, first of all, solicitation has to be understood as a professional stress test. Because one assumes that once the materials are ready, the market will respond naturally. And that assumption is very dangerous because markets do not respond to effort, as you mentioned. They're not necessarily flock to your positioning, and they respond to clarity and repetition and to established position, to defensible position. Therefore, solicitations where you test whether your preparation was robust because now you're exposed to external scrutiny. And this is also where discipline becomes visible. Do you follow a sequence? Do you control the pace? Do you control leverage? Or do you react emotionally to each response? So that's exactly where I think the points you alluded to in your comments, right, Joshua? Yeah. Yeah.

SPEAKER_01 3:09

It's easy, particularly in a smaller MA, to seem desperate. And it's also easy in a larger MA to seem overconfident. And both are negative signals to buyers. I think the stoicism of the solicitation process is absolutely essential for the investment banker to provide information in a fair way. All buyers need to get the same information. It's unfair if one buyer gets a lot and one buyer gets a little. How are they supposed to submit competing bids? So they all get fair amounts of information. And then they submit bids. And they're always, always, always, always looking for some kind of indication for how competitive the bid is, what valuation expectations are, et cetera. And as a banker, you need to answer those questions. Some of those questions should not be part of the preparation materials, but you have to be very professional to make sure you answer them the same way. Otherwise, you could unintentionally kind of lead the seller to one particular buyer just because they've been enabled with more information. Ricardo, when you've done buy-side decisions, did you ever have a particularly positive or negative experience with an intermediary or just a seller and the way that they were presenting information to you and asking you to make a decision?

SPEAKER_00 4:24

For sure. And that's almost inevitable at the end of the day, because you're dealing with different expectations around the table. But I think the key point here for anyone involved in the process is to keep oneself as rationally neutral as possible. Because at the end of the day, you have to put emotions outside the door in order to make the best decision for the business. I mean, hundreds plus qualified solicitations. You know what I'm talking about. But the number necessarily is the point. The principle is this precision before volume. And therefore, I mean you have to expect that different submissions, different solicitations will have possibly bias embedded in them. And before sending a single email, I mean someone should ask what are the logical strategic bias, what are the financial bias, who has a capital, who has the mandates, the incentive, who is likely to move more decisively. Because at the end of the day, you have to consider that there'll be a person on the other side which will receive the I mean solicitation, the documents, and everything else, and make a rational decision for the business. At the end of the day, the emotions will run high, inevitably. We'll talk at some point in time about stakeholder management, but at the end of the day, we expect rational decisions for the business.

SPEAKER_01 6:02

I also think about reasons buyers pass. So one of the things buyers have uh very quick reactions, right? So always the first reaction is like, is it the right size? Is it the right sector? Is it the right geography? Very basic macro stuff that they can get from a blind teaser. Uh, but as really step two, three, or four of them deciding if pursuing this deal is worth their time is being confronted with the structured information that they need to make a decision. And that's really, I think, an area where sellers have the least amount of exposure. And really, why sellers can't do this themselves, they either overstructure the information and they overwhelm the buyer, or they don't know how to structure the information correctly. And uh the buyer says, What the heck is this? I can't make a decision. How do you want me to bid with this? And then they just lose interest and move on. And that's a great way to leave money on the table. And it's case by case based on each buyer, based on personality. Some people like to get really into the weed, some people don't. And the investment banker has to be able to navigate those channels.

SPEAKER_00 7:09

Yeah, and there's a thinking discipline to illustrate your point, which is uh sometimes is very useful, uh, which is the blind teaser. It's one of the most underestimated intellectual exercises in the process. And and and it goes by if you cannot describe the essence of a business without naming it in a concise and compelling way, you probably don't understand its core value drivers. So a good blind teaser does three things signals scale, defensibility, and opportunity. It does not try to explain everything or to sell anything to anyone, it creates curiosity without confusion, without emotion. And that ability, distinct complexity into clarity, is one of the most valuable professional skills in financial services, as you know.

SPEAKER_01 8:04

Yeah. Yeah, I think the salesiness of it should really be non existent. I think if a if a if an investment banker, buy side or sell side, comes across salesy, pretty much it's always a turn off. But at the same time, they have to be very adept and skilled at describing the reasons that a person will buy or sell. And that comes across, I think you're right on. It comes across through the same kind of verbiage and intellectual exercise that would exist in a blind teaser. It's project X, right? It's company Y. The name of the company is not really relevant to the strengths of its products and services, the reason that customers buy its solutions, and the strength of its balance sheet. Those are reasons to buy. And you know, uh part of that is, I think, driven by the complexity of the deals, but also the regulated nature of securities sales, right? And the fact that, you know, you just the SEC and FINRA regulate these items, and so there's limits to what you can and cannot say. And uh, you know, people have to be professional.

SPEAKER_00 9:02

True. And in professionalism, actually, I mean, shows that's in many different ways and form because it's important to be assertive, not necessarily being commercially aggressive will help you. And understanding that this is a process that actually will lead into more perhaps negative responses than positive responses. But many professionals in this area they interpret silence as rejection. But effective professionals interpret silence as timing misalignments, in-box overloads, internal debates, or incomplete clarity. So one has to be mindful of that. Otherwise, I mean, I mean the negative load that you get deal after deal, after silence after silence, after negative reply after negative reply, actually can wear you down.

SPEAKER_01 9:56

Yeah, definitely. Yeah, you can't take that emotionally. One of the takeaways that I think a technical founder and our audience should take away from solicitation is making sure to understand, and it actually ties back a lot to what we talked in episode one and two, and what we're going to talk about in four, five, and six. But it's that structured presentation of the business that's specific to the buyer, not specific to a customer. For, I mean, it's sort of an anecdotal and a silly example, but it would be a disaster to send buyers a customer brochure, right? And be like, hey, buy the business, look at this customer brochure, look at the products, right? But like that is unintentionally, I think a lot of times that's what sellers uh do. They mistakenly sort of equate the buyer information with the customer information, and uh, and that can lead to an unsuccessful process. So it's making sure that that audience profile continues to play through with every solicitation that you're doing and that you're realistic with what the buyers want. What are your takeaways, Ricardo?

SPEAKER_00 11:00

I think the point you raised is absolutely clear. That makes you really think because MA is a different business than real estate management. So and and thinking about actually sending prospectors or brochures actually won't cut the deal. We have to be really, really focused. Therefore, solicitation is about being a structured engagement, not an activity per se. Motion without sequence does not create value. Second point is that optionality is leverage. The more credible alternatives you maintain, the stronger your position. Thirdly, objections are intelligence. Being useful means converting feedback into refinement and learnings for the future. Solicitation at the end of the day reviews professional maturity very quickly. And in high-stakes environments, maturity is leverage.

SPEAKER_01 11:57

I completely agree. Thank you everybody for listening to our third episode, Solicitation Turning Outreach into Interest. Please join us on the next episode where we talk about the third phase of the MA process from IOI to LOI, negotiations and relationship building. That'll be a good one. Have a great day.