Posts Tagged ‘Due diligence’

A Vulnerable Seller

Monday, November 13th, 2017

Here is something counter-intuitive for a great many sellers of high-growth and mid-market privately-held businesses. If you want to maximise the price on exit, you need to maximise your vulnerability. Yet most sellers have spent years doing the exact opposite.

Vulnerability is largely a function of a seller’s self-worth (“I won’t allow the sale outcome to influence how I think about myself”), giving yourself permission to be vulnerable and the quality of your support system (friends, family, advisers and acquaintances). Hence any transition plan in the lead up to the start of the exit process, needs to address all three aspects, in advance, alongside:

  • Any fractured personal relationships (spouse/partner/family members)
  • Any past, present or future “private promises” made by the business to fellow shareholders, managers and family members (financial or no-financial)
  • Any private grievances (key clients, key business partners, key suppliers) or events (disputes, potential regulatory breaches etc.) that might reasonably give the buyer cause for alarm in due diligence or god forbid, post-sale.

You are rightly proud of the business that you have built. You have had proprietary control of the reins (people, capital, resources). Your control has given you power (discretionary authority) and protection (preeing eyes). The “4 P’s”. Now a buyer (strategic or financial) is being asked to make an informed judgement on the value of your business to their ideal future. What is the sum of your pride, your proprietary control, your power and your protection worth to them?

A buyer can rarely understand it (quality of your people and management, quantum of uncertainty, competitive threats) clearly without you being voluntarily vulnerable (trust). You cannot negotiate successfully without putting yourself in a position of vulnerability (willing at any point to walk away from a proposed deal), irrespective of the  consequences (financial, non-financial, business or personal). That requires a mix of internal and external attention as early as possible in the transition process. If appropriate, hiring someone, who has successfully dealt with those issues in their own business and who can help navigate you through the process. Almost certainly, not an internal figure, nor your corporate finance adviser. Someone, whose skills, behaviours and expertise are strongly aligned to your discrete personal and business needs.

© James Berkeley 2017. All Rights Reserved.

“Free” Article: Where Angels Fear To Tread

Tuesday, July 7th, 2015

Here is a “free” article titled, “Where Angels Fear To Tread” for members of my professional communities, published today in the Global Trader 2015 eBook.

Global Trader is the pre-eminent UK publication for executives with the fiduciary responsibility and a passion for global expansion and investment in their firms.

In the eBook, James explains how to establish a local business in a frontier market, where there is no local consulting or advisory market expertise of note to draw upon. Also known as “how to fly by the seat of your own pants and succeed.”

Drawing on his own experiences in some of the world’s most remote markets working for local and global management teams in major multinationals (Allianz, Hilton, Ericsson) and smaller entrepreneurial organisations, he discusses six conditions and criteria for successful assignments.  How to make critical and informed decisions? How to balance qualitative information in the absence of hard data and analytics? How to live with ambiguity? How to mitigate risk while maximising rewards?

Click here for further details Global Trader 2015 eBook

For those wanting more specific help, applying these and your own ideas write to james@elliceconsulting.com

© James Berkeley 2015. All Rights Reserved.

Let’s Spend The Night Together

Wednesday, June 17th, 2015

The classic Rolling Stones refrain ends with “Now I need you more than ever”. Many experienced professionals in advisory businesses often have a very similar mindset when it comes to entering into collaborative discussions with other firms in order to profit from a client opportunity. Here is why they are more often wrong than right.  Trust trumps money. No amount of riches will arise if promises and expectations are not openly shared or honoured to the satisfaction of both parties.

In the opening conversation, my best clients at a minimum, ask five powerful questions:

1. “I am curious, what motivated you to contact us about this opportunity?” Find out the business and personal reasons.

2. “Do you a short term opportunity in mind?” You want to hear a buyer’s name, organisation and need. If the other party cannot provide that level of clarity, your retort is “I will happily tell you briefly about my firm’s expertise and an ideal client. However experience tells me it is a poor use of our valuable time to have a detailed conversation about a conceptual collaboration that may very well not happen.” Stop there, don’t go into the following questions.

3. “What stops you doing this yourself?” Identify the perceived or actual gaps in the potential partner’s competency and passion to address the client’s need.

4. “What has been the secret of past collaborations with people like me?” You want to find both the substance (expertise, knowledge, contacts) and the style (personal chemistry, appearance, image) that best suits the other party.

5. “What are your expectations about the investment each of us would ideally make in the relationship (communication, priority, accountability marketing, sales, revenue sharing, resources, branding and so on)?” You want to lay the cards on the table. Note, not all the cards are of equal value or importance in meeting or exceeding your client’s expectations so devote time accordingly.

In my experience, on average most service businesses will have between 10 to 40 such exploratory conversations in any given year. Typically, there is 1-10 hours spent on due diligence. 80% result in “it was great to meet you” and no business. Only 5% result in a long-term relationship. In other words this can be a huge “time dump” if you don’t apply the rigour I am suggesting. Equally, no advisory business can ignore alliances as a growth alternative.

Know where you are headed, ask the right questions and use your time wisely.

© James Berkeley 2015. All Rights Reserved.

Who Owns The Client

Tuesday, March 25th, 2014

In many advisory firms, economic ownership of the business rests in the hands of a few key client-facing people. Legal ownership rests with shareholders, partners or some other ownership construct. I regularly observe acquisitions, whether it is an entire advisory business, the acquisition of a new advisory team or portfolio of clients, where the overriding investment of management time and focus pre-deal, during the deal and post- the deal is on the legal ownership. Rather like the yacht dropping anchor and docking in the marina, the crew’s energy and effort goes into securing the yacht (the business) with a firm hold on the anchor and the guy ropes. That is effective so long as the yacht doesn’t break free of its’ moorings, it can withstand changes in the weather, the wind and the tide and the crew are constantly vigilant about other yacht movements near the yacht.

In certain jurisdictions (California, Middle East, China and so on), non-compete and legal remedies are largely ineffective when trying to restrain a key producer or group of individuals moving to a competitor. In Europe and in certain countries with more employer-friendly attitudes to economic ownership and upholding legal rights over intellectual property, these remedies are more effective albeit for a limited duration (0-12 months).

When these fissures in the relationship between the acquired and the acquirer happen in more liberal jurisdictions on a frequent basis and with the same companies, you have to ask the question are management asleep at the wheel or are they simply failing to apply good judgement? This week’s announcement that global insurance broker AON are suing Alliant for a second such sizeable breach in California in two years, and an increasing uptick of lawsuits in North America, Western Europe and Asia as international advisory firms within the insurance market gear up for growth and expansion reminds us that far too many firms are dependent on legal remedies.

Faced with limited legal remedies, what can and should top management do when considering acquisitions:

1. People leave bosses, not businesses. Does the direct report of the key individuals you are acquiring possess the skills and volition to successfully integrate those people into the firm? Do they have the right set of tools (technology) and support available to help the newly acquired people hit the ground running? Are their own rewards and recognition aligned with the pre-deal business goals or the new business goals for the combined team (is it clearly a “win-win” or a “win-lose” relationship)? Are managers in the acquiring business held accountable for the right behaviours, not just the results (individual performance)?

2. People leave the “acquiring” firm because the firm failed to meet or exceed their expectations. Promises are made pre-deal, which in many competitive situations are geared to a point where they are highly improbable and unrealistic. Both parties in the “deal frenzy” are so focused on the rewards (personal or corporate), they don’t spend enough time reaching conceptual agreement on the best way to produce results (“we’ll work it out when you are on board”). Most relationships fall apart not because the logic didn’t make sense rather the emotional objectives of the acquired party are left unfulfilled. If you don’t invest sufficient time building a trusting relationship and eliciting pre-deal what the personal objectives of the newly acquired individual, team or business owner is and how you can best meet them during and post-deal, don’t be surprised that an insurmountable fracture arises in your relationship a short way down the track.

3. The management team of the acquiring business must understand their own limitations. They cannot motivate the newly acquired resources, any more than they can motivate their own colleagues. It is their direct responsibility to create an environment in which those individuals, their customers and their people can foster.  What they can and must do is show respect for everyone’s past accomplishments. They must judge their own self-worth and contribution on their ability to apply their own past experience into a more impressive future for the newly acquired people and business (increased productivity, unprecedented growth, happier customers, increased career opportunities, greater profit, lower attrition etc.).

The next time a prospective producer, a sales team or a business owner walks into your office, invite them to sit on a comfortable sofa, offer them a drink and remind yourself that they represent a wonderful opportunity, not a threat. Place yourself in their shoes, how can they leave the room more comfortable and excited about not just the rewards but the “journey” of realising their own personal aspirations within your firm than when they walked in an hour earlier, no matter what you ultimately decide to do together. Succeeding with that simple step, may dramatically increase your success in holding onto your most prized assets more than you ever imagined.

© James Berkeley 2014. All Rights Reserved.

Business Acquisition: A Winning Mindset

Monday, March 17th, 2014

Why do first meetings with the owners of businesses you want to buy or the team or key producer you want to hire, reveal so little about them and so much about your own insecurities? If the objective is to profitably grow and expand the business, then we should first check that we are able to maintain a “winning mindset” and provide a lasting first impression. That is not difficult to achieve unless we consciously or unconsciously ignore the other party’s best interests.

Here are the distinctions I draw from my very best clients in professional service firms (insurance, legal, accounting, architectural, art, advertising and so on):

  1. They establish clearly defined minimum and maximum objectives before the meeting. At a minimum, a common set of beliefs, a sense of each other’s destiny and timing, why it is important personally and professionally. At a maximum,  they have established trust, both parties are open about their objectives for any future collaboration, what represents progress and success, and the value derived from the collaboration and the contribution being invested by each.
  2. They are able to tilt the power in the conversation (astute preparation and visualisation of the conversation) with people they have never met quickly and impressively.
  3. They invest time in understanding their own fears and those of their colleagues before they walk in the door and they take assertive steps to prevent those biases clouding good judgement.
  4. They willingly provide immediate value to the other party (ideas, insights, self-disclosure, suggestions how to accelerate the conversation) that is demonstrably in the best interests of the other party, not just their own situation.
  5. They readily admit what they don’t know to the other party (high-level of self-esteem).
  6. They are accurate in identifying the other party’s comfort zone and readily able to adapt their own approaches (pace of discussion, objections expressed and self-evident fears, and suggest alternatives)
  7. Their language and discussion focuses on the future value they can create for the other party (results), not their “past” history or their current methodology.
  8. They know where they are in the conversation at all times, what key questions they will ask next to move the dialogue to where they want to go (the finishing line) and what responses demand immediate push back or even running to the exit door.
  9. They willingly embrace and have the means to hire third party help (facilitating meetings, resolving conflicts over objectives and alternatives, formulating strategy, independent valuations and so on), where it is reasonable and appropriate to do so without fear of others’ opinions (their own self-worth).
  10. They maintain a strong resolve to see the conversation through to its’ natural conclusion (prioritising time and in-person presence, garnering support from others, acting as an exemplar, overcoming -changes of direction, accepting push back and so on)
  11. They establish clearly defined next steps (time, date, action) for any future follow up.

The next time an acquisition target appears on your radar screen, invite them to a comfortable setting, offer them generous hospitality and remind yourself that they represent a fabulous opportunity, not a threat. Ask yourself how they might leave eulogising about a really positive experience, no matter what you decide to do together. Put yourself in their shoes. Achieving that small goal, might have a bigger impact on your business growth than you ever imagined.

© James Berkeley 2014. All Rights Reserved.

 

 

 

Uncommon Partnerships

Wednesday, January 29th, 2014

Earlier this week I was at a fundraising “thank you” for the National Horse Racing Museum hosted by The Jockey Club in London. The event drew an august crowd of donors and supporters and they received the obligatory overview of the Museum’s plans in the confines of Christie’s, the global auction house. A very convivial evening experience. What later became obvious talking to some of the organisers was the huge missed opportunities to harness the power of the alliance (stronger credibility, attract wealthier and more influential people, provide them increased excitement and perceived value, offer multiple ways  for future contact, repeat contributions, referrals to others and continuous communication). This sadly is the common outcome of most alliances.

My observation based on hundreds of alliance conversations and a handful of powerful alliances that  I have formed for global organisations is that very few take heed of the old real estate sage’s wisdom “you make money on the way in, not the way out.”

In other words, there needs to be strong, factual evidence BEFORE entering the alliance what goals can reasonably be achieved and how to best make that happen, and the results that arise AFTER the duration of the alliance are viewed simply as a bonus.

Yet the majority of alliances I see in professional service firms, financial services, and international growth and expansion initiatives are not formed on that basis. Little wonder that that 90% of partnership or alliance discussions never result in any business being done, 75% of actual partnerships or alliances formed cease to be effective within a year and no more than 10% of partnerships or alliances run the duration of their projected lifespan.

Here is a few key steps for any business or not-for-profit to undertake BEFORE expanding valuable time, money and effort on alliance discussions:

  1. Strong Personal Chemistry (share same values, trust, social skills, empathy and so on)
  2. Track record of success with other alliances and strong references
  3. Each partner’s self-interests and desired outcomes are transparent
  4. Each partner comfortably shares their strategies and  agreed investment plans
  5. There is a demonstrable short-term opportunity (name of an individual, organisation) with a clear “need”, where the power of the alliance will result in a dramatic improvement to the individual or organisation and mutual benefit to both partners.

Let me remind you what doesn’t work. Detailed conceptual discussions based on perfect paper exercises. Effective alliances are about people with the requisite skills and volition doing something together, not thinking about doing something together.

© James Berkeley 2014. All rights reserved.