Many growth-stage software CMOs have received a phone call from their CEO that goes something like this: “After months of talking to potential buyers, we’ve found a great fit and are under LOI with a buyer who will enable us to expedite our mission and dominate market share.”
At that point, the CMO must 1) aid the due diligence process to ensure the deal goes through seamlessly while 2) prepare for an M&A announcement and the subsequent brand changes that will occur – from sunsetting legacy platforms to integrating MarTech stacks. We’ll tackle the latter in a future blog. Today, let’s focus on the first priority – getting the deal to the finish line.
Modern Complexities of M&A Processes
From bank deadlines to regulations to legal involvement, the sell-side of deal-making is more complex than ever.
Beatrice Mitchell, co-founder and managing director of Sperry, Mitchell & Co., says the #1 challenge she sees is the depth of due diligence. “The amount of data needed today is incredibly time-consuming.”
Why? “Thirty years ago, all this data didn’t exist. There’s more information required in the same amount of time. Particularly by PE firms, while strategic buyers can be more forgiving.”
For many founder-owned businesses, the data that buyers require doesn’t exist within their systems. For example, Mitchell says, “A buyer might ask, ‘We see that you have five different product lines – what are the margins for each line?’ And the seller may have no idea. Because often the numbers aren’t relevant until they’re relevant.”
As a result, she says, “What should be a three-week process can take six months simply because it takes so long to get the information we need.”
The CMO’s Role in Due Diligence
The marketing department is a treasure trove of data – from market research and competitor analysis to channel strategy and customer insights, making the CMO a key ally of the finance team during an M&A process.
So, what questions can you expect to be mandated with answering? Shiv Narayanan, CEO of How to SasS, advises PE firms to ask potential units these three questions:
Where are the opportunities to scale demand gen
Where are the gaps in the marketing team
How much budget does marketing need to hit growth targets
While those insightful questions are somewhat broad and open ended – at Alloy, we’ve seen buyers also ask for very granular data production. For example, a list of every award the company has won in the past five years. Or every headline the company has landed in the past three years.
In general, CMOs should be prepared to provide data and documentation in the following areas:
GTM Strategy, including ICP definitions, persona, and positioning rationale
Pipeline performance – both past and future projections
Marketing org chart, as well as vendor partners
Marketing budget and current spending levels
Brand materials, including audits, guidelines, etc.
Brand awareness levels
MarTech stack contracts and utilization
Customer sentiment, retention, and engagement
Being involved in due diligence can feel like a second full-time job. Often, the CEO will award a bonus for the extra support during this critical time. Some deals can take wild turns and/or fall apart, so it’s important to stay calm, discreet and confident throughout the process.
CMOs on both buy and sell-sides need a trusted agency partner that can be tapped to aid during the sensitive due diligence period… and beyond the deal. In Alloy’s 10+ year history, we’ve helped clients navigate more than 45 M&As and exits. See why we’re the marketing agency that the world’s PE firms trust.