Recipe for Deal Making

“My recipe for deal making: dinner and a bottle of wine” appeared in the Sunday Times Business News. It was written on 22nd August 2021 and the link is here.

James Timpson is the author. He is an experienced acquirer of businesses and chief executive of Timpsons. In his article he sets out some of his experiences of acquiring businesses.

He mentions the experience of doing a deal with the seller over a meal and a bottle of wine. He writes: “… afterwards things slow up as advisers become involved.” He’s right, of course. It is one of the reasons I advise setting a time table at an early stage to avoid hold ups. It does not always work especially when the advisers are not on a fixed fee.

How to minimise hold-ups

How do I avoid hold-ups, I seek to draw up quite detailed Heads of Agreement*. The principals will agree price. That is when the initial offer is tabled and agreed. The danger is they think that is the end of it. It’s not the case.There are other points to cover off. These are best done at the next stage and before too many advisers become involved. Points such as structure, warranties, indemnities need to be covered.. The document is a useful reference point for all parties. These basic points are set out. They may avoid issues later on. I have had examples where lawyers have attempted to change the basis of a deal. The principles can then go back and say: ” This is what we agreed do not change it”. Thus avoiding further delays.

A reason why deals fail

There is no doubt the delays can cause what is known as deal fatigue. In other words both parties want to complete and will concede things to achieve this. Alternatively they walk away. this has happened. As James Timpson points out, “deals fail because of unrealistic expectations, culture clashes, people problems and IT integration disasters.”  In the book “Why deals fail and how to rescue them, the authors reiterate these points. They say planning, communication and people are the three overarching issues. they say; “These are the three big mistakes of deal making.”

I believe this is where the advisers come in to help, they have the deal making skills. They deal with the technical bits: the due diligence, legal and financials. The principals can then sit down for the deal making process and see how the two businesses will fit together after the completion.

As James Timpson says “We have had the odd instant success, but it can be five years before we know whether a deal has been worth doing”. 

Action

if you are in the process of thinking about selling your buisness or on the other side making an acquistion, then here is some further reading.

Further reading

Am I ready to sell my businesses?

So, how do you prepare for and go through the business exit process?

How do I Maximise the Value in my Business?

What makes a business more saleable?

*Heads of Agreement

This is a document signed by the parties setting out the key terms of the agreement to buy the business. Not only does it include price but also other key points such as how the consideration will be paid; A typical document may include:

• Any presale conditions e.g. dividends
• Contingent consideration
• Basis of accounting
• Principal conditions
• Directors and employees
• Due diligence
• Funding
• Warranties and Indemnities
• Restrictive covenants
• Timing
• Confidentiality – usually legal binding
• Exclusivity – usually legal binding
• Law
• Cost