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Musings on business value, sale preparation, sale negotiations, sale structure.

Archive for Aug, 2014

Twitchy buyers

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Professional sellers of various products and services use a number of passive and active hard sell tactics to persuade buyers to part with their money, and even put up the price after the fact:

  • “That offer is only available until close of business today”
  • “This is the last one we have in stock, and we don’t know when the next orders arrive”
  • “Calling Mr Otis”*
  • “We have three other buyers”
  • “While stocks last”
  • And many more

So a few weeks ago I wrote here about the high prices for which tech companies tend to be sold. A précis: Twitch is a company which provides live views of gamers’ screens to people that are interested in such things. Google was a talking a $1B deal. I asked about the price of a company that was making no money, and provided some suggestions as to why it would be sold so high.

Suddenly, enter stage left: Amazon, paying $970M cash for the business. It appears that Google may have walked away to avoid anti trust investigations. Perhaps Google was only prepared to pay with their own sky high stock in overcooked shareprice markets.

Whichever way, Amazon blinked because it really needs more revenue (and is ditching Google adverts from its own site in favour of Amazon’s own brand of click through advertising.)

In the new paradigm which Google, Apple, Microsoft and Amazon have created, there will be many more similar deals in the future, as they all seek to either position themselves in line or ahead of the others, or try to take potential competitors out of the mix.

With respect Dear Reader, I suggest that your business is probably not worth this sort of money. But the underlying principles are similar when it comes to selling it one day:

  1. You need to have options
  2. You need to create competition between prospective buyers
  3. You need to know what the realistic value of your business is
  4. You need to understand your buyers’ motivation
  5. You need to be able to negotiate without blinking (or twitching)

Understand the thinking of the business buyers, and your eventual buyer may start the process on the backfoot, without even knowing it. Preparing your business well in advance for the eventual deal will nail the deal down.


* “Mr Otis” was a technique used by motor car salesmen in the USA. A now relaxed buyer would settle back in his chair after signing the papers to trade in his old car. He would mention that the next best trade in offer was substantially lower (by $2,000, say). The salesman would wait a minute or so, shuffle the papers, look for his stapler, then say: “We just need to get this signed off by Mr Otis”. He would call his manager on the phone, and say: “Mr Otis, won’t you please come down and meet Mr Buyer?” Being called “Mr Otis” was the manager’s cue for objecting to the offer on the trade in. Of course by that time the buyer was so emotionally invested in the deal, that he could never back out, and he would quickly agree to the lower trade in value. – Lesson 25 in Harvey Mackay’s Swim With The Sharks Without Being Eaten Alive.

Options yield results

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The first decent size business I sold in this century was at the dawn of the century. It was a wonderful operation; it was priced right, easy to run, a money spinner, recession proof, Rand hedge… all the good things. But the seller really needed to move on in his life. He was living to an emigration timeline.

We’d had several interested buyers traipse through the factory, drink coffee, ask lots of questions, and move on. In our very respectful way, we had been careful to space the potential buyers far apart so that they never ran into one another, and we gave them lots of time to ask questions… Always the same questions. Always the same answers.

Then my seller had to go overseas for ten days. During his time away I arranged to see at my office, as many new potential buyers as possible. For three days I saw one buyer per hour. It would have been murderous if the documentation wasn’t so well prepared. On the fourth day I arranged a factory visit at 4pm, as everyone was knocking off for the weekend. There were close to twenty different potential buyers present.

I addressed them all to the effect that this was a site visit only. I would answer questions to do with processes, markets and opportunities. All financial questions had already been dealt with, and there would certainly be no discussions about price and terms of the sale in such an open forum. These rules were mostly adhered to by all present. We walked through the factory together. They sniffed the air, they ran their toes through the dust, they kicked some tyres.

At the end of the visit, everybody was quite clear that they were not operating in a vacuum as a single buyer. In other words, they all knew that we had options.

The following week I was able to present four offers to my seller. He took a clean deal which gave him about 50% more than he had originally wanted.

If you have options you are likely to have control of situations. If options exist, you as a negotiator can get up from the table and walk away. Options yield results.

Those options begin early in the cycle and continue through it, with options for:

  • Knowing what the value of one’s business is. This knowledge gives options as to what to do to increase value if necessary, put selling plans on the backburner for a while, or in fact selling the business now.
  • Knowing that it is safe to sell a business either as an asset deal or an equity deal, because the legal framework is in place to do either deal.
  • Taking a business to many different potential buyers, willing and able to do a deal. Having only one buyer places unnecessary pressure on a seller to do any deal that offers itself. Buyers know this. Turn the tables.