Economic forecasts look uncertain for 2016, particularly in the wake of instability in the Chinese economy. Investors need stable hands to guide them through M&A transactions. This article explores the unique approach to M&A dealmaking by Versailles Group, led by its Founder and President, Donald Grava. Versailles Group is the winner of Business Worldwide’s 2016 M&A Award for Best Investment Banking Boutique, USA.
When Donald Grava started working on Wall Street over 30 years ago, mergers and acquisitions (M&As) were done the old-fashioned way. The firm would gather bankers in a conference room once a week to cobble together lists of buyers or sellers until the client achieved either the sale or purchase of another company.
This process was, by definition, slow, and many times not successful. Worst of all, clients weren’t always sure that they had achieved the best possible transaction.
“It seemed to me there had to be a better way,” Grava said. “So I began experimenting with different processes to determine the best approach to completing M&A transactions.”
He determined that the best approach was to focus on the clients’ goals: buying the best possible business at the best possible valuation or selling with a high valuation and excellent terms. But how do you achieve that?
Donald Grava: a new approach to M&A transactions
Donald Grava, founder and current President of Versailles Group, earned an Economics degree from Yale University and a Master’s in Business Administration from the Stern School of Business at New York University.
He learned the “nuts and bolts” of accounting at PWC (FKA Coopers & Lybrand), worked for two Fortune 500 companies, GK Technologies, and Kennecott Corporation, where he worked on financial analysis and planning. There he learned how to make first-class presentations for the board of directors and senior management.
Grava then joined the Wall Street firm, Warburg Paribas Becker, which was jointly owned by Warburg, a large merchant bank in the UK and the French bank Paribas (now BNP Paribas). His time there was instrumental in learning how to complete international transactions.
Finally, he helped build a successful practice at a boutique M&A firm, ELM Securities, also in New York City, where he and the founder built a successful business. He then founded Versailles Group, which has just celebrated its 29th year in business. Based in Boston, the firm also has associates abroad, including in the U.K. and Brazil.
By the time Grava founded Versailles Group, he had devised a program where buyers or sellers could be contacted, worldwide, quickly and efficiently. By using a culturally sensitive approach, he demonstrated that clients could achieve their goals faster and with significantly better results.
The Middle-Market Challenge
More M&A deals happen in the so-called lower “middle-market,” companies with less than US$250 million in revenues. Larger companies require a different approach and typically have access to large investment banks that cater to their needs.
Most business owners, whether they are single entrepreneurs, partners, or part of a management team for a larger private or public company, will need to sell or buy a business at some point during their career. Those are the clients who look to Versailles Group for help.
In middle-market M&As, there are few absolutes except that you need to make each aspect of the process a center of excellence. Documentation, for example, the Confidential Information Memorandum (CIM), must be accurate, easy to understand, and contain the information that a prospective buyer needs to make a reasonable assessment of the company being sold.
Concerning sell-side assignments, it’s important to “shop” the company widely, but confidentially. On the buy-side, M&A specialists need to be careful not to allow their clients to miss valuable opportunities by conducting a search that is too narrow.
Sell-side clients are always nervous about signing agreements when they think that there might be just one more buyer that would have paid more or offered better terms. The best way of addressing this concern is to do intensive industry research to find the best possible buyers or sellers for the client.
A Worldwide Approach
Buyers from other countries often place higher valuations on companies being sold because they need a “toehold” in a new country. At other times, buyers can also take advantage of market anomalies by purchasing companies in different states or countries where the valuations are more attractive.
“Many boutique M&A firms research 20 or fewer companies in-depth to find the right buyer or seller. Sometimes that works, but more often it does not,” Grava said. But 20 or fewer companies may not be enough, and deals can falter. By contacting a broader list of buyers (or sellers), Versailles Group enables prospective buyers (or targets) to indicate possible interest. This action results in much more activity and better options for the client whether they are on the sell-side or buy-side.
It’s not just a question of contacting more companies. What Versailles Group does is to compile a highly focused and targeted worldwide list that is customized for each client.
It’s also important to have very high-quality contact materials and know how to approach the buyers or sellers so that they take notice. At some point, a Non-Disclosure Agreement is executed, and information between the companies exchanged.
In the case of a sell-side assignment, this is a very professional CIM that portrays all of the salient points in a logical order so that the buyer can make a decision as to whether to pursue the deal or not.
For buy-side clients, it usually entails having documentation that explains the buyer’s company, their objectives, and potential timing.
Trust and Credibility
In many cases, it’s all about credibility. Buyers and sellers are always wary of spending time and money on transactions that never come to fruition. The mission of any M&A advisor should be to convince the buyer or seller that their client is serious and professional. The best way to do that is to operate professionally.
From its inception in 1987, Versailles Group was not interested in closing the most deals. Instead, the focus has always been on doing the best deals, where buyer and seller could both achieve success. That model has resulted in Versailles Group having more repeat business than any other middle market M&A firm.
In several instances, Versailles has completed three or more transactions for the same people or company. Over the years, the firm has won awards and accolades for completing high-valuation transactions and difficult cross-border transactions.
One example of Versailles Group’s unique approach to sell-side engagements resulted in several bidders for Datentechnik. Versailles Group’s international reach and negotiating experience enabled it to negotiate a 70 percent increase in the value for this company from initial offers.
Brapenta, a Brazilian company, attempted to sell their business without success. Versailles Group was then engaged and identified a number of bidders worldwide. The eventual buyer was a large multinational strategic company that wanted to penetrate further into the Brazilian market.
Versailles Group successfully completed three transactions for 3i Group plc, the London-based, multi-national Private Equity and Venture Capital firm.
“All of our clients are different, and each receives an individualized approach. But, the techniques we have perfected and our attention to excellence always delivers positive results,” Grava said.
2015 was a record year for M&A deals, but the outlook for 2016 looks less optimistic, according to some commentators. The experience and unique approach of the Versailles Group will be critical in helping investors negotiate the choppy waters of global economic instability with confidence.
