Industry the October 2017 issue

Motivationally Speaking

Examine others’ incentives when deciding your future.
By Phil Trem Posted on September 29, 2017

In his final manipulative act, Little Finger talked about how he would “play a little game” to determine someone’s motivations for a certain act or series of actions. He would think of the absolute worst possible reason someone could be doing or saying a certain thing. This perspective helped him either eliminate potential alternatives or protect himself from a potential self-serving act.

An interesting perspective from a fictional character. I am not suggesting you should assume the worst possible outcome of every situation you encounter. However, it is typically useful to try to understand someone’s motives during a particular exchange. Have you ever tried to analyze someone else’s motives—putting yourself in their shoes—during a negotiation or sales process?

If considering a sale of your business, it is wise to look at those approaching you from this vantage point. I truly believe most of those who approach you have good intentions. But one person’s good intentions are not necessarily in the best interest of another person—that being you, the seller.

In general, two main groups are coming after you: the M&A advisor and the buyer segment. The boiler room approach that some M&A advisors in the marketplace are using to get your attention can be enticing.

Most of you have likely been called by a “bird dog” telling you about the unbelievable multiple and value they can command for you in today’s hot market. Ironically, the person you are speaking with likely doesn’t know anything about you or your firm. How could they possibly know what your market value could be? Is it really that easy, or do they have an ulterior motive masked behind a great sales pitch? Don’t get caught up in the momentum. Stop and understand whether this message is really the right approach for your firm.

The second group is the buyer field—a group of roughly 35 firms trying to convince other firms to sell to them. Buyers will approach you in multiple ways—via employees who are also M&A reps, outsourced cold callers, local representatives and potentially even M&A advisors trying to represent the sole interests of a specific buyer. Sounds like a lot of activity!

Some buyers will encourage you to talk to others in the marketplace. They want to make sure you are comfortable, that they are the right fit for the next stage in your career. Others may try to convince you they are the only firm out there for you, that you should not hire an advisor, not talk to other firms. They want you to think the valuation they are offering you is very competitive in the marketplace.

Both sales tactics are likely coming from a good place. But the latter is trying to convince you to narrow your focus on what is likely the most important decision of your professional career. Understand what they have to gain from the approach. Of course, it is better for the buyer if you don’t talk to other firms. Competition not only has the potential to drive up the price but also to create a scenario where the buyer (or their advisors) won’t get the deal done.

The bottom line is to be diligent. Understand the motivations of any firm calling on you. Can you create a scenario where you get value from the advisor you choose or the buyer you select and still have a win-win outcome? Of course you can. But make sure you don’t get sold on something that might be well intentioned but doesn’t give you the absolute best outcome.

Can you create a scenario where you get value from the advisor you choose or the buyer you select and still have a win-win outcome?

Market Update

Deal activity in August 2017 slowed to 25 announced deals in the month, down from 35 in July and from the peak of 56 announcements in June. Year-to-date activity through August is up from last year, however, at 321 total announcements compared to 289 through August 2016. California, Texas and Florida have been the most targeted states so far this year.

Acrisure continues to be the most active buyer in the field through August, announcing 29 deals. Broadstreet Partners and Hub International have each announced 23 deals year to date through August.

Notably during August, Seeman Holtz Property and Casualty announced three acquisitions, bringing the total for June, July and August to six, with eight announcements for the year through August compared to only two in all of 2016. Seeman Holtz is based in Florida and has its largest presence there and in Texas and California. It also has locations in New Jersey and Illinois.

Brown & Brown also announced three acquisitions in the month of August, in addition to two announcements earlier in 2017. Historically a very active acquirer, Brown & Brown has announced fewer than 10 acquisitions since the beginning of 2016 (through August 2017).

Trem is SVP at MarshBerry.

Phil Trem President of Financial Advisory, MarshBerry Read More

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