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PREPARE YOUR BUSINESS FOR SALE
Mark Corke & Challenging positions
4 September 2008
In the book "Getting to Yes" by Fisher, Uri & Patton, one of the underlying themes is the value in not taking positions when negotiating. Their reasoning is that once a position has been taken, it is very difficult to move away from it without losing. For me this was illustrated so well during the last week.
Our whole existence is about negotiating: From negotiating with our kids about getting into the bath, eating their vegetables, getting into bed on time, coming home on time, to arguing about where they are going to sleep, and with whom! Negotiating prices with plumbers, salaries with bosses or employees, leave entitlements with staff and even Christmas party budgets with the whole company. We all negotiate all the time.
"Start out with an ideal and end up with a deal." Karl Albrecht I am regularly tasked with effectively negotiating a person's pension as part of his exit plan from a business. I do this by negotiating the best price for my client; the seller of a business. It is a heavy responsibility, and we are rewarded handsomely, I think. In doing so, I tend to live the deal somewhat, and as a result all this, negotiating becomes somewhat second nature. And so when the phone rings, I am very careful to understand what the other person is saying before make a potentially deal breaking or deal limiting statement.
At the beginning of the year Suitegum conducted a business valuation on a very nice business for a sprightly owner who is intent on retiring in his fifties. The business is an excellent one with good cash flows and in an industry which is witnessing the floundering of one its stalwarts. Our hero is picking up customers left right and centre from the ensuing disappointments created by the struggling competitor.
I should point out at this juncture that before we take on the task of selling any business, we always conduct a proper well thought out market related valuation. This does not mean that every business for which we do the valuation exercise ends up being sold by us, or at all. In fact we have several clients who have their businesses valued on an annual basis so that they know where their retirement plans are headed. So it is normal to not hear from a business owner for some time after a valuation is complete. We certainly don't hound them to sell to a "confirmed and qualified buyer"!
Anyway, some time after the valuation had been completed, we were called by the owner of the business to say that he did not realise the complexity, and the time required away from his core activity in selling a business. Would we step in to help? He had taken it upon himself, in addition to all his other duties, to sell his business - a once off transaction for him, but an almost every day occurrence for his target market.
We agreed the terms of Suitegum acting as his negotiator, and he gave us the list of suppliers and customers to whom he had spoken about selling, and who are interested in acquiring.
When we went to see the first of the potential buyers on the list, I became very concerned when the person told us that he had seen our valuation, and disagreed with it. Not so much with the fact that he disagreed with it - that is normal - but that he had seen it at all. Effectively the seller had drawn a line in the sand, which had magically transformed into a price ceiling which would now never be achieved with this buyer. Forgive me for mixing so many metaphors into one paragraph.
Of course the counter offer is well below the valuation, and backed up by as much bluster and hot air as you’re ever likely to see. I politely asked the financial advisor of the interested party (I call him an “interested party” because he is no longer a “buyer”) to walk me through his reasoning. There is no logic of any merit, but there was no point in entering into any debate. Nor is there any point in calling this “buyer” to argue up the price.
Instead I concentrated on connecting with him on a social level, and will not make the promised call next week. When he calls me eventually, I will inform him regretfully that we feel that we are able to achieve a much higher price in the open market amongst our 150 odd serious, well qualified investors. This last bit is true, fortunately.
I hope that his greed and knowledge of the industry will cause him to reconsider his own position. Remember our position is simply a higher one. How high? He does not know, and the pressure will be on him to make an offer.
It is unfortunate though that every potential buyer on the seller’s list has had exposure to our valuation. They all have the same ceiling. Our seller has taken a position, from which we are going to be hard pressed to move as the buyers all sharpen their pencils which are increasingly resembling swords.
I am confident that we will be able to find a buyer at the best price possible, even if it is after a bit of a fight. The South African testosterone filled negotiation has a weakness - how do you back down? How do you find reason to force a price upwards?
Compare this deal to another for which we never mentioned a price, but rather suggested a guideline value at which bidders should enter the market. As the seller has become more and more cooperative and excited about the deal, and as buyers are gently allowed to discover that other buyers exist, we have forced that price up from an initial asking price of 40M to 60M. Why?
Because the business is worth every penny, future prospects are brilliant, and the buyers know that they would be getting more than a fair deal. And of course we are interested in maximising our commission.
Cheers
Mark Corke
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