When you’re pulling together all the legal paperwork as you near deal completion it’s important to manage the expectations of everyone involved. And sometimes the management of the Funder can be a massive challenge.
Having a completion plan in place for both the seller and buyer, the Funder and the professionals involved in the process, should get everyone aligned and focused on the completion deadline.
But even if you have an acquisition completion plan in place, always be prepared for some last-minute challenges.
Let me give you an example.
My most recent acquisition was due to complete in July 2021. Sitting with the Funders at the offices of our target acquisition, we agreed to move back the completion date by a week or so to give the Funder’s accountants some more time to verify their ledger and complete their financial due diligence (FDD) with their external FDD advisors. It’s always disappointing to delay completion but a week or two wasn’t a big deal.
Then the FDD lead announced that he was going on holiday. Naturally my first question was, “Who’s going to handle all this while your away?” and we were reassured it was all in hand and not to be concerned. So this was the first artificial delay imposed on us and we agreed to delay until the end of July.
Bearing in mind as well, we were using the June management accounts as completion accounts. So, we didn’t want to go over another month because then we would need to adjust all the figures, cash flows, the whole model and forecast.
Days passed. The month of July was behind us and we moved into August.
Then we found out that the key take-on manager for the Funder was going on holiday, so we had to wait for her to return, effectively losing us another month.
The simplest of things – people going on holiday – lost us two months and we ended up completing on the 10th September. Those delays cost us over £26,000 in lost revenue.
The Funder was a major cause of our frustration, with no sense of urgency or reference to the completion plan. A strong sense of ‘we’re the funder, we’re doing you a favour’ came across and as a buyer, you always fear upsetting the Funder, especially at this vital stage of the process. Ultimately, the Funder is providing a service, getting handsomely paid, charging fees and interest for supplying the money. In a genuine win-win deal, parity is key. All parties are equal, and no one should ever hold another to ransom.
The funding came through, the paperwork done and dusted, and everyone achieved what they wanted to from the deal. But together, these two issues made the end of the process intensely irritating and stressful because it caused delays on the rest of our business and other deals we were trying to get done at the time.
If the Funder had said that they did not have the resources and time to complete according to the plan, then the management of expectations would have been much, much easier. Most importantly, it would have allowed us to get on with other projects in the meantime, instead of putting things back, thinking completion was imminent.
Problems can arise when you’re dealing with funders who may not be involved regularly in acquisitions, or perhaps you’re dealing with someone who usually is on the sales side of the business. Sometimes they might just apply the same sort of pace to those sorts of deals as they would do just for arranging standard growth capital or a working capital facility. A completely different process with different challenges.
Choosing the right funder is crucial, and we always recommend you use someone who comes as a referral rather then going in blind.
I recently raised a question in my Friday Clubhouse room (details at the bottom on this article) which elicited some interesting responses: should we tie the payment of professional fees to as a condition? So, if the funder for example, gets the deal through on the specified date, we’ll pay in full and, if not, for every day that completion is delayed, £1000 will be deducted from their completion fee!
What’s your view on this? Reasonable? Realistic? Fair?
Do feel free to add a comment below and join the debate.
Perhaps a better way to approach this is to identify at the beginning what their standard fees are and then identify their key performance indicators (KPIs). This sets the bar. So, if their standard delivery earns them a 1% fee, they’re paid 1% on completion. If they fail to deliver by the agreed date, lower the fee to 0.75% and if they deliver sooner agree on 1.25%. Paying more the agreed rate, in some instances, buys you more attention from a supplier. And attention is a scarce commodity. You usually have to pay for it.
Business acquisitions can be an emotional rollercoaster, and if you’re prepared for that you’ll be in a better place to handle it. There are so many moving parts to co-ordinate and as happened in my example above, sometimes life just gets in the way.
Here are a few recommendations to make your completion go smoothly:
- Always have a completion plan with dates and timings for specific parts on the process.
- Make sure the plan clearly identifies co-dependencies (ie, who depends on whom for the next or concurrent step)
- Set and agree your expectations from the start.
- Establish a data room for sharing documents and information between parties. This massively helps to get your house in order. It means that important documentation such as financial, warranty indemnities and contracts are easily accessed by all.
- Try to have and maintain face-to-face meetings with the key parties involved. It helps with rapport building, and the larger part of the communication process isn’t about what we actually say.
- Never rush the due diligence process – leave no stone unturned! You’ll definitely appreciate it in the long run, no matter how protracted and tedious it might seem.
Stamina and stickability are key qualities of anyone getting into buying companies.
Because we don’t buy businesses just for the sake of buying them. We buy them because we see the potential for future growth and opportunity.
If you’d like to join the weekly debate on Clubhouse, check out our Clubhouse page here.