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M&A Process Dynamics

Overview

The mechanics of how M&A processes run in the lower middle market — from broad auctions to narrow fireside chats — shape how buyers and bankers interact. Understanding process dynamics is essential for PE firms trying to win deals and for bankers advising business owners on the best path to a successful outcome.

Key Perspectives

  • Chris Reilly shares observations on how processes have evolved over his decade at VRA in Ep. 23: Deals Still Run on Relationships.
  • Karl Rectanus provides the founder/seller's perspective on running a process in Ep. 1. Karl describes LearnPlatform's exit: a banker bake-off among six banks (chose Needham & Company), approximately 100 parties engaged across financial, strategic, majority, and minority tracks, and a decision framework that prioritized strategic "1+1=3" potential over price alone.
  • Rod Jimenez provides a counterpoint to traditional process advice in Ep. 4. After eighteen months of relationship building with Dan Herr at Serent Capital, Rod chose not to run a competitive process at all — moving directly from conversation to LOI in days when SHR's Singapore-based partners were ready to exit. Rod acknowledges "a lot of people would say, well, that's stupid. You should always run a process," but argues that the depth of relationship, character assessment, and mutual understanding made a process unnecessary. He also describes the Baird symposium format — a structured "rapid dating" event where founders record a video about their company and then hold fifteen-minute Zoom meetings with pre-qualified investors — as an efficient alternative to unstructured outreach. (Ep. 4)
  • Bill Nunan provides the acquirer-operator's perspective on add-on deal dynamics in Ep. 5. Bill has closed over 30 add-on acquisitions, all involving founder-led businesses. He describes an enterprise deal pursuit model where the CEO and sponsor form a collaborative team and adjust roles based on the founder's persona — the CEO addresses post-close life, culture, and product fit, while the sponsor handles deal structure and valuation. Five of 30 founders told Bill that his CEO engagement was the deciding factor: "What cinched the deal was how engaged you were as CEO in the process, whereas I was dealing with a corp dev guy in the competition." Bill also emphasizes that founders of tuck-in businesses are often motivated by concerns beyond price — protecting customers, preserving team culture, understanding what life looks like post-close — and that setting proper expectations before close prevents "shocks" that derail integration. He describes one deal that required three separate approaches to LOI over three years before closing, underscoring the importance of sustained relationship nurturing. (Ep. 5)

How Processes Have Changed (2015–2025)

According to Chris Reilly:

  1. Processes are taking longer — driven by market uncertainties and a more cautious environment compared to the frenetic pace of 2021–early 2022.
  2. Buyers have become more specialized — a shift from generalist PE funds to sector-focused strategies, with value creation driven by deep sector knowledge, executive networks, and operational expertise rather than pure financial engineering.
  3. The BD professional has evolved — from "teaser gatherers" to sophisticated, execution-experienced professionals who bring real thematic research and understand criteria deeply.
  4. Capital abundance creates noise — with thousands of managers in the market, it's increasingly difficult for business owners (and bankers) to distinguish committed funds from less capitalized players (e.g., independent sponsors raising deal-by-deal).

Process Types

Broad auction: Wide distribution of materials to many potential buyers. Standard approach, but the least likely to produce above-market outcomes for unique assets.

Narrow / targeted process: Selective outreach to a small number of highly qualified, relevant buyers. Used when the asset has a story that requires careful positioning. Access to these processes is earned through relationship investment.

Fireside chats: Pre-process, small-group conversations with management. The most coveted access point for PE firms. Prerequisites include preliminary valuation indication, existing relationship with the asset or management, and a track record of good process behavior.

Buyer Behavior Tracking

Bankers track and discuss buyer behavior internally. Key data points: - Bid history: Did you stick to your stated valuation, or did you retrade? - Process behavior: Did you behave appropriately? Were you thorough in your diligence? - Attention to detail: Did you raise issues that were already disclosed in the CIM? - Decisiveness: Quick, clear passes are appreciated; drawn-out maybes are not.

Negative behavior doesn't necessarily blacklist a buyer, but it weighs on inclusion decisions, particularly for narrow processes. As Chris puts it: "we would be remiss if we didn't mention the way that they can behave."

The Founder's Process Perspective

Karl Rectanus describes LearnPlatform's exit process from the seller's side in Ep. 1:

Banker Selection

Karl ran a bake-off among approximately six investment banks and advisors before selecting Needham & Company. The winning team "understood the market," "understood our needs," and understood what LearnPlatform was trying to accomplish in identifying a partner — not just a buyer.

Process Scale and Prior Relationships

Approximately 100 parties engaged across financial and strategic buyers, including majority, minority, and strategic tracks. Of those, 50–60% had prior relationships with Karl — many from the spreadsheet of 175+ firms that had reached out over the preceding years. The ratio of prior-relationship firms held roughly constant through each stage of the funnel, from initial engagement to management meetings to finalists.

The Advantage of Prior Engagement

Karl is unequivocal that prior relationships provided an advantage: "The long-term relationships matter. When all relationships are long-term, there's comfort, there's confidence, there's trust that's already been built up." Firms that had engaged earlier brought deeper understanding into management meetings. Karl's leadership team had trust that he would bring partners "similarly motivated, that wouldn't undercut what our growth strategy was."

Decision Framework Beyond Price

Karl's board explicitly told him that selling to the highest bidder — if it meant LearnPlatform ceased to exist — would be considered "a loss, a failure." The framework centered on:

  1. Strategic alignment with the company's North Star — would the partner accelerate the mission?
  2. "1+1=3" potential — does the combination create outsized value beyond what either party could achieve alone?
  3. Team fit — do the partner's people mesh with LearnPlatform's leadership team?
  4. Culture preservation — can the company continue to operate as an impact-centered organization?

Karl ultimately chose a strategic pathway, continuing to engage with second- and third-place finishers in subsequent advisory work — another manifestation of his all relationships are long-term principle.

Episode Coverage

Episode Guest Angle
Ep. 1 Karl Rectanus Founder's process perspective: banker bake-off, 100 parties, prior-relationship advantage, decision framework beyond price
Ep. 4 Rod Jimenez Founder skips process entirely: relationship depth as process substitute, Baird symposium format
Ep. 5 Bill Nunan Operator-acquirer's perspective: CEO engagement as competitive differentiator, founder motivations beyond price
Ep. 23: Deals Still Run on Relationships Chris Reilly Process evolution, buyer behavior tracking, fireside chat access