When to Walk Away from a Business Deal

When executives start dealing with an acquisition, they quickly develop a mental image of the target company and often rely on its public profile or reputation in the business world. This mental image shapes the entire process of closing a deal – it becomes the story that management tells itself about the deal. An effective due diligence process challenges this mental model and reaches the real story beneath the often heavily painted surface. Instead of relying on secondary sources and biased forecasts provided by the target company itself, the company`s applicant must build their own exclusive bottom-up view of the purpose and industry and gather information about customers, suppliers and competitors in the field. It`s just a business, after all. So when you walk away from a bad deal, you know you`re doing the right things for your business and not losing a part of yourself. The possible area of agreement is between the starting position of each game, not between its WOW or its ideal point. If there is no overlap between the starting positions, there is no match area. Most importantly, if you don`t know your worst case or leave, you may give up too much. At this point, you should leave because you are not prepared. Once the wheels of an acquisition turn, it becomes difficult for executives to brake; They are too invested in the success of the agreement. Again, due diligence should play a crucial role in imposing objective financial discipline on the process. What you find in your bottom-up assessment of the goal and its industry should translate into concrete benefits in terms of revenue, costs and revenues, and ultimately cash flow.

At the same time, the books of the target company must be analyzed in depth, not only to verify the stated figures and assumptions, but also to determine the real value of the company as a stand-alone concern. The vast majority of the price you pay reflects the business as it is, not what it could be if you won it. Too often, the opposite is true: the fundamentals of the company for sale are unattractive compared to its price, so the search for synergies begins to justify the agreement. To set a starting price, successful negotiators convene a decision-making body composed of trusted individuals who are less connected to the agreement than senior management. They insist on management`s approval of the board of directors and establish a decision-making process that clearly describes who in the company recommends doing business, who has a veto, who must be sought, and who ultimately decides yes or no. They introduce formal checks and balances based on predefined withdrawal criteria. Having seen the situation many times, I know that those who do not have backup options, that is, other solid leads in the pipeline, often feel that they need to force the sale to achieve their quota or their goals. That`s why it`s so important to have backup options.

If you know you have a pipeline that will be converted into sales, you won`t feel stuck in a business. We found it useful to consider potential synergies as a series of concentric circles, as shown in the exhibition “A Map of Synergies”. Synergies at the centre result from the elimination of duplicate functions, business activities and costs – for example, through the combination of legal staff, treasury supervision and board expenses. These are the easiest synergies to achieve; Businesses will certainly realize the greatest potential for savings here. The closest circle represents the savings achieved by reducing current operating costs such as distribution, distribution and regional overheads. Most companies will also realize the majority of these savings. This is followed by savings from facility rationalization, which are generally more difficult to achieve because they can lead to significant personnel and regulatory problems. Further afield are the elusive revenue synergies, starting with selling existing products through new channels and moving to the farthest circle to sell new products through new channels.

Each circle offers great rewards, but the greater the savings or winnings, the harder it will be to reach them and the longer it will take. Categorizing synergies in this way provides a useful framework for assessing them. Analysts can assign each circle a potential value, a probability of achieving value, and an implementation timeline that can be used to model the impact of synergies on companies` combined cash flows. Add that this terrible prospect may call you again for additional business (restart the cycle) or refer you to their friends who look like them! Whenever we move away from an opportunity, we may regret at first not being able to put the agreement in place. Eventually, however, we realize that we`ve done the right thing: we`ve maintained our self-respect – and probably earned their respect too. Do not burn bridges; There can always be another chance to work together. Even if you have to walk away, do it in a polite and polite way. You don`t want to break all connections with the other party. In fact, leaving can convince the person to call you back with a better deal. By the way, if you end up leaving, make sure you do so with courtesy and professionalism. Just because a deal didn`t work this time doesn`t mean it can`t do it at some point in the future. Let`s say you`re in a sales discussion and your buyer starts reporting that it may not be the right deal for them.

Their price is too high or they are just not sure if they want to commit at the moment. You never count your money When you sit at the table, you`ll have enough time to count Once the deal is done When you test the strategic logic of a deal, most companies will look for potential problems – smoking guns, skeletons in closets. But the due diligence process can produce nice surprises just as easily as bad surprises, and it can give a potential acquirer a reason to pursue a transaction more aggressively than they would otherwise have done. Centre Partners` acquisition of American Seafoods, a fishing company, in the late 1990s is a case in point. (See the Discover Hidden Treasures sidebar.) You don`t have to walk away from all the negotiations, but it certainly helps if you know you can. A starting point should be set before you even approach the table, as it gives you the confidence you need to negotiate successfully. On the positive side, celebrate the result with the other party when closing the deal. Go out together for lunch, dinner or whatever. By doing so, you celebrate the success of everyone involved and further strengthen the relationship for the future! If, in fact, completely new facts are revealed, take the time to take a break, to escape, preferably for a few days or at least for the night. It`s all too easy to convince yourself that you should change your “starting” position when you see the negotiation go up in flames.

For a starting price to make sense, you really have to be ready to go. A useful lesson in this regard comes from Kellogg CEO Carlos Gutierrez, who negotiated the purchase of Keebler. Gutierrez was desperate to close the deal. Keebler`s touted direct-to-store delivery system allowed the company to transport products to stores on its own trucks, bypassing retailers` warehouses altogether. Gutierrez saw huge potential for routing Kellogg products through Keebler`s highly efficient system. But Kellogg`s rigorous due diligence analysis made it clear that the maximum he was supposed to pay for Keebler was $42 per share, which he expected was less than Keebler was looking for. “Although it was a deal we really wanted,” Gutierrez later recalled, “I mentally conditioned myself to say that we might not have it.” In a final round of trading in New York, Gutierrez told Keebler`s management that a $42 share price was his maximum offer — and that if they could get more from someone else, they would have to accept it. .

Unifisio - Fisioterapia Hospitalar