INSURANCE AGE 26th October 2017
“I have discussed it with the board and we can’t pay more,” were Colin’s exact words. When I phoned him to say we were selling to another party his immediate response was: “Can we pay more?”
“No,” I replied. That was over 20 years ago but I have had a very similar conversation in the last couple of months although, as the situation was very different, so was the result.
There is no substitute for competitive tension. Only when a buyer is faced with the prospect of losing a transaction do they truly reveal their hand.
But don’t confuse competitive tension with talking to lots of people. Buyers want to believe that you wish to sell to them, if you are talking to lots of people, that position is not sustainable. Having agreed a shortlist of buyers our client’s job is to persuade every one of them that they are the preferred candidate. Our job is to use the threat of another buyer to push up the price.
“My business is always for sale, if somebody pays the right price”
Most owners say the opposite and, as a consequence, get into a fix exactly when it matters, when they are selling the business. Having spent 10 years saying the business is not for sale, how does one respond to the direct question? The only downside of this is that some will see this as an opportunity to press for a meeting. This is rapidly dealt with by saying they need to talk to their M&A adviser; that puts the enquirer on notice they will have to put up or shut up.
“Can’t you do it quicker?”
We have done a deal in four weeks start to finish, we acted for the buyer and the seller was in a rush. If there were a number of buyers who could have met the deadline at the start of the process, after two weeks our client was the only game in town. If you need to move quickly you put all the cards in the other party’s hands. You need to be in charge of the process, a deadline can work wonders, but use with care.
“The devil is in the detail”
Buyers don’t encourage sellers to take advice as they know they will pay more. The headline number may look attractive, but there is much else besides that may not be. Buyers are typically very experienced and use this to their advantage.
You can only do a good deal if ultimately you are willing to walk away from it. We talked to one buyer who openly admitted they always said they would not chip the price but always did. It has never happened to one of our clients, but the unadvised seller is particularly vulnerable. Sellers have often already spent the money on the new car and a villa in Portugal – when at the completion meeting the price drops by 10% it leaves them with little option. After many months of work it is pretty hard to walk out, especially when there are significant fees to pay.
The insurance industry is all about reducing risk. Professionals should take care to do the same when they sell their most important asset. They should seek out people who can share their experience and expertise.