Business and finance expert Jo Haigh writes about dealing with the unexpected in business negotiations.
It’s a fact; if it can go wrong it will do
I have successfully completed literally hundreds of corporate finance transactions on behalf of numerous clients. A handful have gone through without any hitches the rest…well the rest have seen more ups and downs than any scary ride yet to be devised by Disney.
I have been doing this job for more years than I care to remember and, being a permanent optimist, (you have to be to do the job) I tend to believe I have seen it all.
I have certainly seen the same problems repeating themselves like a bad case of food poisoning! But then just when I think it’s yet another same old same old problem I am unpleasantly surprised.
No blog of mine would be complete without some tips on how to deal with the unexpected so here you go
1) Buyer can’t get funding
2) Buyer changes his mind about doing the transaction at all
3) Your market position takes a tumble
4) Your market position goes into ascendance
5) Your key staff resign
6) Word gets out that you are selling
7) You change your mind
8) Buyer try’s a last minute chip
9) Something is discover in due diligence that you were unaware of
10) None of the offers are what you wanted for the business
Ok these are a very, very small selection but none the less probably the most common.
1) Well you should have asked for proof before you started and definitely before you gave them an exclusive position. But assuming this is a genuine problem (and you need to be clear) you have a number of choices which largely depend on how keen you are to do the deal and your appetite for risk but;
a) You can abort the deal
b) Sell part of the business
c) Provide the buyer with a loan for the balance
2) First check this isn’t calling your bluff. Sadly there are lots of brinkmanship games in this business but if they are serious if you have had a wise adviser they will have kept the door wide open for the runners up to get back in the game, if not you are back to square one.
3) If this was a genuine surprise, and it will have been becoming evident through the process, the buyer is almost certainly going to want this reflecting in the price. To manage this and, if you believe you can turn the position, then change the deal to an earn out.
4) If you have done the deal on a balance sheet adjuster completion then any increase profits made throughout the negotiation process will be reflected in theses final accounts. However if that’s not the case, or you can see you it will only get better and better, you can of course withdraw or renegotiate. But be careful, I have seen these wished for profits be a one swallow situation too many times.
5) Frankly if they were integral to the deal you should have planned for this and tied them in with some sort of phantom share scheme based on business value achieved and payable post deal. If you haven’t done this then you can try and buy their loyalty for the process but inevitably this is going to cost considerably more than a pre planned exercise and it will be you that pays out of your own consideration.
6) Vendors are paranoiac about this from the start, my advice is to remind them that your business is always for sale you are just waiting for the right value to be offered so brazen it out on this line as denial only increases speculation. Better still though is to be up front with your key staff at the start that way they can help you and you can manage their anxieties.
7) I have seen multiple reasons for this, many of them based on sentiment for the business which is entirely understandable. So long before you go down the sales route plan what you will do with your time and money and visualise a new name over the door, if it leaves you cold then don’t do it.
8) All too common with sophisticated buyers who are aware the vendor has got deal fatigue at best and have certainly started to spend their new found wealth. Write a list at the start of the process no more than 1/2 dozen items you will not compromise on no matter what, keep it in your wallet at all times and when something like this happens check the list and if the chip is not acceptable you must walk. If you don’t this will be the start of a whole load more unacceptable actions.
9) Again this shouldn’t happen; at best you should have had a pre sale due diligence exercise done on your business which would have uncovered this. I can tell you for certain no one goes into a DD process to increase value however if this has happened you can accept it and renegotiate a deal as bear in mind for a new buyer the same thing will be a problem or you can walk and wait.
10) Ask yourself are you being realistic? The market is challenging, just like an estate agent value of your home can sound very attractive until it’s sold that’s not its value is. A business is worth what you will sell at and a buyer will buy at if you can’t find a buyer and after six months (which is what I would normally expect a deal to take) no one is biting at the value you hoped for you can either accept a lower value or take the business off the market and start making improvements that will lift the barrier.