Bing Crosby and the Andrews Sisters recorded the hit song, “Ac-Cent-Tchu-Ate the Positive.” The tune’s upbeat message carries a lesson for buyers of companies.
Years ago, I was selling a Northeast Ohio capital equipment company, a real jewel with proprietary products. Two buyers made offers with virtually the same price and structure. Both had excellent reputations, would retain the facilities and employees, and had financing in place. Yet one buyer was clearly the better choice. Why?
The answer was how each buyer had framed its offer. Each began by explaining they were reputable, financially solid, long-term investors that care for their employees. Then each laid out their nearly identical price and terms. So far, so good. But the first buyer then listed all the due diligence concerns that would have to be addressed before they would close. They would have to (a) talk with the major customers about their need for the product and opinion of the seller, (b) have experts study the seller’s engineering capabilities, (c) perform an independent study of the seller’s domestic and international market positions, (d) audit the seller’s financials, (e) evaluate various “nuisance lawsuits” against the seller and (f) conduct an environmental review of the seller’s plants. Only if all their questions were satisfactorily answered would they agree to proceed. This made it sound as if they were looking for reasons NOT TO DO the deal.
The second buyer took a very different tack after establishing their bona fides and outlining their price and terms. They then explained that they were impressed with the seller’s business and believed in its future. Then they said that although their bank would require some customary due diligence, they were confident that the seller would pass “with flying colors.” This made it sound as if the second buyer was looking for reasons TO DO the deal. Hence, our client signed the letter of intent with the second buyer.
The irony is that the second buyer’s due diligence encompassed all the points that the first buyer had raised. And, as the second buyer had forecast, the seller passed easily and the deal closed to both sides’ benefit. The first buyer’s concerns were legitimate. The problem was how they had communicated them.
What can buyers learn from this? How you present your offer can make the difference between success and failure. If you present yourselves as if you are going to “play gotcha” during due diligence and agreement drafting, sellers will hold that against you.
Buyers should conduct rigorous diligence and be candid about risk. But there is a difference between communicating, “Here are the issues we need to confirm” versus “Here are the reasons we would not proceed.” The substance can be identical. The framing can determine who gets the deal.
Sometime later I encountered a former executive with the unsuccessful first buyer. He asked why they had lost the deal. When I explained the reason, he said that that kind of thinking was why he had left the firm: “They fixate on problems rather than on potential.”
Buyers should follow Bing’s advice. When making an offer, “Ac-Cent-Tchu-Ate the Positive!” ●
Mark A. Filippell is a M&A professional
