Saturday, May 30 2020

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Buyer (and seller) beware

Update: May, 04/2020 - 08:13

 

Brian Spence

Brian Spence*

Amid all the gloom, it is worth remembering that the only constant in life is change and while we will awaken from the COVID-19 nightmare to a very changed world, much good could emerge.

Crises tend to accelerate already existing trends and make space for the new. This one will cull companies that were not future-fit and create the conditions for those that are to flourish. The culture of entrepreneurialism already so strong in Việt Nam will be the engine room of the country’s further growth. Post-pandemic, mergers and acquisitions activity is likely to go off the charts.

But it is also the case that rapid change can lead to poor decision-making and expensive mistakes. Never is this more true than when buying or selling businesses, which is ironic given the seriousness of the occasion. Sell at the wrong price, or buy a business which isn’t really the right fit, and the consequences can echo down the generations.

Impressions are key

In the new environment, many people will see the time is right to sell a business and crystallise – and enjoy – the wealth their hard work has generated. Here perception will be key. Buyers may wrongly believe that you are a forced seller and so try to knock you down to fire-sale prices. If this seems to be all that is on the table, you might be tempted to accept low-ball offers: don’t.

Instead, make sure that professional long-term valuation models are used so that the full value of your business is baked in. This needs to include recurring revenues and assets, but also the more intangible elements of value such as the expertise of any staff staying on, brand power and the goodwill of clients and partners. Don’t discount anything that a buyer will leverage off to build on your success.

On the flip side, don’t try to cut corners when it comes to tax. So many times I’ve seen buyers spending incredible amounts on lawyers and accountants who say they know workarounds, when in fact it would have been far simpler and very much cheaper to adhere to government policy and pay what is owed when it is due. There is such a thing as trying to be too clever about such things.

That’s not to say you shouldn’t approach M&A deals intelligently, of course, just that you should direct this in the right direction. And often true wisdom is about having the humility to admit what you do not know – or at least not sufficiently well to get the very best deal.

Don’t go it alone (but also not with a crowd)

There is a reason that nobody in the West attempts an M&A deal without a specialist advisor fighting their corner, and I mean that in the singular. All too often I see buyers and sellers of businesses engaging multiple middlemen who promise too much and deliver very little. With scant professional reputation at stake, they say anything to try to make a commission. If you sell at the wrong price to the wrong buyer or purchase a business that isn’t in reality what it seemed what do they care? Trust instead to professionals who really have skin in the game.

Find an adviser with integrity and proven experience in significant deals and you can trust your future to them and them alone. Unpicking businesses' prospects and brokering deals are highly involved processes, but a firm can only commit to you as much as you commit to them.

You can actually undermine the value of a sale very significantly by engaging lots of different parties to work on your behalf (an impression of desperation is never a good look). On the flipside, seeming like you are flailing around for just anything to buy marks you out as someone who could be taken advantage of.

Business discipline

Business might be all about the numbers, but my decades of experience have taught me that impressions and intangibles matter just as much – and often very much more.

Yet as all good business people know, relationships and reputation are the most important things of all. At every stage of the business cycle, choosing the right partners will not only make your life easier, it will doubtlessly make it very much wealthier too.

The post-crisis world will be incredibly fast-moving, meaning that maintaining business discipline will be vital. There will be those who fight against a Western model of transparency when buying or selling a business but be assured they will be the losers long term. Do things correctly and you only have to do them once. Buyer beware, as we say back home, and all the sellers coming to market too.

* Brian Spence is managing partner of S&P Investments. He has over 35 years of experience in the UK financial services industry as an investment manager, financial planner and M&A specialist. He is a regular contributor to the UK financial press and has a deep understanding of the financial services community. Brian’s column will reflect on all the challenges and opportunities within the Vietnamese market, bringing a fresh perspective to today’s hottest issues. The columnist’s email address is brian@sandpinvestments.com.

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