By Daniel B. Price
Last month we covered the first two rules for agency buyers to remember when heading down the acquisition path: Clearly Define the Acquisition Strategy and Establish Pricing Rational and Metrics. This month we continue our discussion of important rules for buyers to keep in mind as they work through the acquisition process with: Be Flexible and Creative, Give Due Diligence Its Just Do, Engage Professional Advisors and It Is Okay to Walk Away.
Be Flexible and Creative. To maximize the probability that a transaction will be successful, buyers need to be flexible and creative when developing alternative deal structures. Alternative structures often allow both parties to reach a better deal and move beyond the zero-sum pricing argument. Parties on both sides of negotiations often overuse the term “win-win”; it has been our experience that a buyer’s ability to be flexible and creative often results in a deal price and structure that is “fair and reasonable” to both parties.
Give Due Diligence Its Just Do. The most common shortfall in the acquisitions process is inadequate due diligence. When buyers are asked how time was spent during the acquisition process, one will generally find that much more time is spent negotiating the deal versus time spent conducting due diligence. Due diligence takes on many forms but, at a minimum, should include comprehensive financial, operational, human resource, book of business and legal reviews.
Engage Professional Advisors. Too many buyers make the costly mistake of not engaging experienced and qualified professional advisors. Often buyers fail to realize that the cost of professional advisors is minimal compared to the cost of a failed or poorly executed acquisition. Acquisition expertise is not a core competency of most agency owners and as such professional advisors provide critical expertise and market knowledge that inevitably proves to be invaluable in completing a successful acquisition. In the long run, the cost of advisors, including any costs incurred for acquisitions that are not completed, may be the best investment a buyer can make.
It Is Okay to Walk Away. There is often a tendency for buyers to become emotionally involved with a deal as time, energy and money are invested. Professional advisors keep everyone grounded and help the buyer understand that not every transaction should be completed and many times buyers are better served by walking away from an opportunity. In these cases very often a buyer is financially stronger in the long run by not doing the deal.
In short, especially in today’s market, buyers must be creative and flexible in order to bridge the gap between seller expectations and market realities. Due diligence procedures allow a buyer to gain greater assurance that what is being acquired actually reconciles with what has thus far been presented by the seller. Qualified professional advisors are an invaluable resource that should be leveraged throughout the transaction process. Experienced acquirers truly understand that often times the best deal is the one not done. Whatever the reason may be, buyers should always be willing to walk away, and in some cases run away, should a potential acquisition prove not to coincide with long-term goals and objectives.
Daniel B. Price is Vice President of Hales & Company, Inc.
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