Acquisition Advisors | My Seller Broke Ranks
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08 Jan My Seller Broke Ranks

There’s a point in each sell-side engagement – towards the end – when one of the serious buyer candidates makes a push to communicate directly with my seller client. I call it the “moment of truth.” I talk to my seller clients about it in advance. Try to prepare them, and stress how important it is they not flinch.

When the negotiations get tight, every buyer wants to go around the dealmaker. Communicate directly with the seller. Why? Because the buyer knows such might allow him to get a better deal. Or get the seller to agree, prematurely, to sell to them over another.

And so when the moment of truth arrives, we find out whether the client will “break ranks” and seriously undermine his bargaining power, or hold the line. To be sure, the seller will feel pressure. To hold the line, all he needs to do is:

a. After the small talk, politely ask the buyer to work through his chosen representative (as the buyer agreed to do at the outset).

b. Decline to respond to or comment on deal-related questions.

Of course, most business owners are fully capable of negotiating for themselves. It has nothing to do with intelligence, experience, or competency. It’s just that, when a complex deal is being negotiated and multiple suitors are involved, representation works.

Professional athletes, actors, litigants, business owners, etc. maximize value by employing skilled and experienced agents. By working a process that brings all the best buyers to the table at the same time. It takes a lot of work, and all buyers and discussions should go through a single skilled and experienced agent.

As I often explain, when I tell a business buyer or investor that my client’s business is worth more money, they believe me. And I can argue my case using information, statistics, logic, and my experience. When a business seller himself says it, he’s perceived as greedy or delusional.

Most of our sellers hold the line. But in a deal earlier this year, my client flinched. The buyer called him directly and invited him to visit one of their facilities. My client took the call and, by chance, he was already scheduled to be traveling through the city where the buyer is headquartered. He agreed to a meeting.

No problem, on the surface, right?

But I guess my seller was getting a bit tired and anxious. Over the prior four months, we’d identified and weeded through some forty qualified buyer candidates and met the top six in person. We had driven the entire field and it was now first and goal on the 9 yard line. We had followed the game plan, had received many offers, and were now where we wanted to be: three motivated and capable buyers. Let’s call them Buyers D, F and Q, each vying for the deal.

Buyer F was a perfect fit and had already made a written offer that exceeded my client’s “hoped for” price. I explained to my seller that I thought this (F) would be our winning buyer. That we may just need to work with them to “shore it up a bit.” My client agreed.

I also explained to my client that I thought I could get F to pay more, and that I expected to receive offers from two more very good buyers within the next week. Potentially, at prices materially higher than the offer from F.

My seller, however, apparently had not listened to me.

My client called me as he was leaving town for his trip. I knew about the trip, but he had not told me about the call from the buyer and his plan to meet with the buyer while en route.

I was not thrilled, but such was done. He’s the boss. And no real harm would come of it so long as my client:

a. Didn’t agree to a deal

b. Did not concede any deal points nor make any promises

My client assured me that it would be okay.

Upon his return, he called me. “It’s all done shored up,” he told me (with a bit of country humor).

What?

“It’s done. We agreed.”

While he was there, the CEO of the buying company said, “So do we have a deal?” and held out his hand. My client, clearly impressed with the facilities and comfortable with everything, as he later reported, said, “Yes,” and shook his hand.

That same day, Buyer D sent a written offer that was thirty percent higher. And the buyer was immensely capable financially and operationally. So we had a moral and, potentially legal, dilemma.

Soon after, Buyer Q called and said he was willing to beat D’s offer.

Without going into great detail, after much consternation, my client decided that he had better keep his word and go through with his handshake deal.

This was not a family that had so much money that it didn’t matter. It did.

To pour salt on the wound, from then on my client was unable and unwilling to force the buyer to work through me. For some, it’s hard to let someone else handle important and exciting work they feel competent doing themselves. It’s also hard for some to risk “relationship stress” with the buyer by insisting he work through the representative. And so I watched my seller client give up more money and important deal points through closing.

As one of my partners said, “As long as he’s happy…” Well, maybe, but I’m not happy. And my client (and his family members) could have received more for their considerable investment, risk and hard work.

Business sellers should find and hire a skilled representative because it works. And when you do, try to keep your ego – or desire to be in control – in check. You ARE ultimately in control. It is just easier to get a maximized deal when you have skilled representation.

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