Deal makers and deal breakers
What is it that makes some deals fly and others fail? Every deal needs to be judged on its own facts. However, there is often a pattern that develops during the M&A process.
Five deal breakers
How to avoid: Bring in a third party to properly assess each firm. An unbiased opinion will prevent issues overlooked by rose colored glasses. The key is for the seller to factor in how the buyer will run the business. The buyer also needs to understand and appreciate how the business was run to date and take proper steps for a smooth transition.
How to avoid: The seller needs to sit down and review everything: selling the business, life after the sale, financial equity, etc. Again, outside experts can assist with this process. Unfortunately, some sellers will get cold feet no matter what, so the buyer needs to exercise patience. Selling a firm can be similar to facing death for some people. After all, the business has been the largest part of the typical seller’s life. The key to this deal breaker is what boils down to career counseling and patience for the process to unfold.
How to avoid: Buyers needs to know what a fair price is for an agency and stick to it. Every once in a while a buyer will pay an over-inflated price for an agency. Buyers should understand what price makes financial sense for them. Sellers need to educate themselves on agency value and the full impact of terms on the deal.
How to avoid: Sellers need to evaluate what it is they are really getting into and face what it would be like to work for someone else. Buyers need to provide a way to make the transition seamless, such as providing the seller with as much authority as possible.
How to avoid: The seller needs to understand that things will change and the buyer needs to realistically state that fact. In the courting process buyer and seller must consider how the integration will take place and try to preserve the best aspects of each firm.
Five deal makers
Summary
The difference between a successful transaction and one that falls apart is a clear understanding of the relevant facts. The use of outside experts will remove the biases and personal feelings that often cloud judgment. The making of a good deal for all parties takes time, patience and experience. Obtaining assistance with this difficult process can help insure that it is done right the first time.
Bill Schoeffler and Catherine Oak are partners at Oak & Associates. The firm specializes in financial and management consulting for independent insurance agents and brokers. They can be reached at 707-935-6565, by e-mail at: bill@oakandassociates.com, or visit www.oakandassociates.com.