Recently I was asked to act as a consultant in the due diligence process for the acquisition of a label company. The CEO of my client identified the target company through a broker. As many of you who have been down this road know, there are times when you want to make an acquisition happen so much that you can almost taste it.
As the due diligence progressed, I began to get an uneasy feeling about the asking price, as well as what the acquiring company was going to be allowed to do concerning the seller’s customer base. The broker advised that the seller was not willing to upset his customer base without a firm offer on the table and that the price was not negotiable. Emotions were setting in, the CEO wanted this acquisition, and he was inclined to meet the seller’s demands.
I felt there needed to be a hold back as relates to sales, and that the overall price was high. It’s my belief that because the CEO and I had a strong business/advisory relationship and that I understood his business, he took my advice. We made a smaller overall offer with a hold back relating to future sales. As the broker had indicated, we lost the deal.
Ninety days later, however, we found out that the acquiring company had lost 40% of the acquisition’s anticipated sales. A critical salesperson who refused to sign a non-compete left the company and brought the business with him. Had my client’s CEO not had a trusted business advisory relationship with me, he might have moved ahead with the wrong decision and suffered a large financial loss.
This is one more instance where it is important to have outside business advisors whom you trust and who not only understand your business, but will remove emotions from the decision-making process. And they also will say NO when they think that is the proper course of action. It is important to have not just a consultant, but an advisory partner you know and trust.
