As many readers know, Agency Consulting Group, Inc. has formed itself as a Seven Habits company, following the philosophies so eloquently delivered by Stephen R. Covey. Stephen’s sub-title for the book is Restoring the Character Ethic. And that character ethic truly applies to the agency acquisition process and should be integrated into your due diligence on any agency transaction, whether a buyer, seller or merger.
Agency Consulting Group, Inc. assists many agents in mergers, acquisitions, and sales. We have encountered all types of business owners from the naïve to the very fair to the ‘cut-throat’ player, interested only in winning. We choose to only do business with buyers, sellers and merger partners who seek Habit Four, the Win/Win Scenario. But you would be surprised at how many do not and the results of trying to deal with those types of owners.
We recently became involved in a transaction involving an agency who we knew over a long period of time who was seeking to purchase an agency who had a good book of business, but possibly dishonest owners. Whether they actually performed illegal activities or simply did the wrong things for and to their clients by accident, the subsequent publicity made their continued operation of their agency impossible.
Each side had a professional assisting them. As consultants, we knew and respected each other and told our respective clients that both of us were equally capable of managing the transaction and would approach the process in relatively the same way.
The first challenge came when the seller refused to share the analysis information that their consultant created even though they were under legal obligations to complete this transaction very quickly. They also were reluctant to provide us the same level of detailed data from which we could draw our valuation. So we did the best we could and I valued the book of business as fairly as I could with the data provided. (We later found that my valuation was within a few percent of the other valuer’s.)
The next challenge was when we asked the sellers what they needed. They countered by asking us what we would offer them. We told them that we could certainly do that, but it would be simpler to determine if their needs could be met within the value estimate of the buyer. We knew (without an exception) that the seller will ALWAYS overvalue his asset because of ego and his particular financing needs (often greater than the market valuation would yield).
We provided a Fair Market Value price and, as expected, were told that they needed more. We finally prompted them to explain their financial needs in order for us to determine if we could creatively meet them. There were two levels of need, one legitimate to satisfy their creditors and the other trying to get as much out of their asset as they could, regardless of the validity of the value claim.
At this point, I’d like to tell you how we applied the Seven Habits to this transaction.
Habit 1 – Be Proactive – Once the seller expressed an interest in working with my client, we provided all information needed and timetables that would have satisfied their critical time needs for the transaction.
Unfortunately, they delayed, trying to get other agencies interested even after telling us we were the selected buyer.
Habit 2 – Begin With the End in Mind – We had our goal well established – purchasing the book of business in the time frame required, at a value that would be profitable to our client while still meeting the financial needs of the seller.
Habit 3 – Put First Things First – We outlined the steps needed to be taken in the order required to get the transaction done properly. Then we diligently pursued those priorities, even when roadblocks were put up by the seller to the process.
Habit 4 – Think Win/Win – Here’s where we had our greatest challenge. We were constantly thinking about how to satisfy the seller while still providing a profitable venture for the buyer. The Seller, on the other hand, was not. Each time the seller through a ‘curve ball’ requesting us to respond to a need or demand, we went back to the drawing board looking for ways to accomplish their needs. Then, they would find fault in our solutions because while we satisfied their stated needs, we had to insert caveats to protect the interest of the buyer. The seller was thinking Win/Lose (with them on the winning side) while the buyer was thinking Win/Win.
Habit 5 – Seek First to Understand, Then to Be Understood – This was another challenge. At every step, the buyer was trying to understand the seller’s motivation and responding to legitimate needs. The seller was simply assuming that the buyer was trying to ‘put one over on them’.
Habit 6 – Synergize – This is the determinant of the success of the transaction. As we got down to the wire, the buyer continued to apply Habits 4 and 5 irregardless of the sellers disputes. In our opinion, the book of business was a worthwhile purchase as long as a way could be found to make it profitable for the buyer with sufficient safeguards against the subjective portions of the sellers assumptions (i.e. bonus for high retention and off-setting reductions if the clients did not stay in the fold). By the end of the transaction, the seller could not say that their financial goals were not accomplished and they could not dispute that the buyer had the right to protect himself against losses beyond projections.
Habit 7 – Sharpen the Saw – Self-Renewal – This was a valuable lesson to the buyer. Be trustworthy and trusting – but only with appropriate means of measurement and due diligence. Some people don’t trust simply because they, themselves, are not trustworthy. If you would make someone “LOSE” in order to win, you will always assume that your opponent is the same. The buyer has come out of this process wiser and less intimidated with the Win/Lose type businessperson. They now realize that with the application of judicious analysis and protective devices, the Win/Win player will always have the advantage over the Win/Lose player.