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Financieel Management

Management’s essential task at the beginning of the process is to gain a clear under-standing of the vendor’s motivation for selling, price expectations, preferred buyers and issues which the vendor may accept as having a bearing on the price: for example speed, ongoing participation and deal structuring with a view on the impact on posted earnings and current bookvalue.

After the approval to pursue the buyout, it is usually the adviser who takes the lead in the contacts with the vendor. The adviser can provide an impersonal interface between management and vendor and may assume the role of buyer vis-à-vis the vendor. As an outsider, the adviser can easier bring difficult subjects to the table and may be in a better position to drive a hard bargain. Experience has taught that negotiations between management and vendor tend to be affected by emotions, that it is hard to break old relationships and that management at the fore front of discussions may make the conflict of interest issue too visible. The presence of the adviser therefore helps both sides concentrate on the process and not the surrounding emotional and political issues and is a good way to handle any conflicting loyalties.

Later on in the process the lead in negotiations and discussions is taken over by the investor. For obvious reasons the investor is positioned as the buyer and his involvement in the negotiations is crucial. The investor is an independent negotiator and importantly has financial credibility in the eyes of the vendor. Any vendor’s concern, that management might not be able to raise the money, will now have been removed. The investor will be in the best position to exert firm control over the price negotiations.

Management’s role is more supportive and on the background; promoting the buyout and gaining insight into the vendor’s aspirations. During negotiations management’s relationship with the vendor may sometimes be used effectively as a source of ‘vendor intelligence’ providing guidance on issues, tactics, timing and negotiations.

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