By Daniel B. Price
Last month we continued our discussion of guiding rules for agency buyers to remember when embarking down the road to acquisition growth; rules previously covered include: Clearly Define the Acquisition Strategy, Establish Pricing Rational and Metrics, Be Flexible and Creative, Give Due Diligence Its Just Do, Engage Professional Advisors and It is Okay to Walk Away. This month, we finish our discussion of guiding rules for buyers with: Remember that Buying is Selling, Don’t Overestimate Synergistic Value, Realize that Things Will Change and Thinking the Deal is Done.
Remember that Buying is Selling. Buyers sometimes subscribe to the mentality that if they offer the highest price they will be the successful party. Taking such a view violates one of the most basic principles of negotiation strategy, and that is: buying is selling. A major non-financial concern for a seller is often to find the “right” buyer. Buyers must take pride in, and fully embrace, the notation that in order to bring a transaction to conclusion, sellers often need to be sold on why they should choose to partner with the buyer.
Don’t Overestimate Synergistic Value. In determining value, buyers review both intrinsic value (the value of cash flows) and synergistic value. Synergistic value is incremental value achieved from enhancing financial performance through expense savings, increased revenues and operational efficiencies. However, experience has taught the most successfully buyers that they need to be cognizant not to overestimate synergistic value creation. Overestimating synergistic value results in future performance that never lives up to expectations. The point to remember is to be cautious and to not take any shortcuts when trying to determine the synergies that can be achieved post acquisition.
Realize that Things Will Change. Buyers often make the mistake of telling the seller that nothing will change after the acquisition. While the buyer may think that such a promise helps to get the deal completed, sellers know that change will inevitably occur. Nobody likes change, but when properly communicated, positive results can result. Be candid with the seller and tell them of the changes that you would expect to make, both short- and long-term. Obtain input from the seller regarding intentions; getting the seller's feedback and having them be part of the decision process goes a long way in getting “buy in” and facilitates integration.
Thinking the Deal is Done. Everybody remembers the excitement of closing the deal and thinking the deal is done. While closing the deal is a milestone that should be celebrated, the reality is that signing the agreements is the easy part. An acquisition is two parts: closing the deal and integrating the deal. Unfortunately, the integration aspect of the acquisition process is the most difficult. Most acquisitions fail not because of the price paid, but because of a failure to properly integrate the acquired organization financially, operationally and managerially. The single biggest mistake one can make is thinking the deal is done at closing.
The takeaway from our ten “Guiding Rules for Buyers” is that careful planning and a well vetted strategy is required before one embarks on the acquisition growth highway. Adhering to the basic concepts discussed will help any buyer implement a successful acquisition strategy and avoid some of the many costly potholes that other buyers have encountered.
Daniel B. Price is Vice President of Hales & Company, Inc.
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