Friday, November 10, 2006
Influence and Currant Buns
Another case study for you. As mentioned before I’m involved in the sale of a subsidiary. The wide list became a short list of potential suitors. Then recently the shortlist narrowed to one. We’ve been in negotiations with the final suitor for a bit now. Its complicated because the sub we’re selling provides quite a lot of services to the parent company. That means not only are we selling a company, we’re selling a contract.
To be honest, that’s the primary reason the sub is so attractive. There is a nice fat revenue stream that will be guaranteed as part of the purchase. The buyer has been very cany, I personally think we’ve been out negotiated (and I stress I haven’t been leading the negotiations, just throwing tomatoes at what gets agreed). They’ve gained concessions on a number of fronts. For us, indeed the CFO, the key is getting the sale. This sub has long been a bit of a problem, its had losses and issues. Its not in a core area of business, so no one at the top tier really has understood it. A sale has been promised so a sale will be delivered.
Which leads to the current conundrum. The potential buyer wants the fees charged to be raised to what it considers a market rate. To be perfectly honest, the parent company has got away with robbery. The sub has only been able to charge far below market rates because that’s what it was told to do. Frankly, that’s part of the reason it suffered losses.
What gets difficult is the buyer of these services doesn’t see why he should have to pay increased rates. This is made worse as he’s my Peter proof, a fine example of the Peter Principle in action. He doesn’t really have a clue about what he’s buying, or what constitutes a fair market rate.
So I get rolled in by the CFO. This is a market I used to work in, understand intimately. I’m recognised in the company as knowing this stuff and being a hard negotiator on getting the best rates for services. The CFO has decreed that we have to issue a joint statement saying the new rates are fair market value.
The problem is, other than the CFO’s request I have no official authority in this. Its my Peter Proof who has the fairy dust of responsibility. Though he knows he has to do this sale, thinks that maybe out the far side it actually might be better for him. You can deal with a vendor differently to how you deal with a wholly owned subsidiary. Yet he still squirms when the question of market rates comes up. Its his budget that gets hit by the increase, even though the CFO has promised to cover the difference. He also doesn’t report into the CFO, so can somewhat hide from the requests. His boss isn’t entirely approving of the sale, which makes it all the more interesting.
The question is, how do you bring about what the CFO wants? Jack boots or gentle persuasion? Who indeed do you persuade? If this doesn’t get sorted the deal won’t get done, and that’s a whole different story.
To be honest, that’s the primary reason the sub is so attractive. There is a nice fat revenue stream that will be guaranteed as part of the purchase. The buyer has been very cany, I personally think we’ve been out negotiated (and I stress I haven’t been leading the negotiations, just throwing tomatoes at what gets agreed). They’ve gained concessions on a number of fronts. For us, indeed the CFO, the key is getting the sale. This sub has long been a bit of a problem, its had losses and issues. Its not in a core area of business, so no one at the top tier really has understood it. A sale has been promised so a sale will be delivered.
Which leads to the current conundrum. The potential buyer wants the fees charged to be raised to what it considers a market rate. To be perfectly honest, the parent company has got away with robbery. The sub has only been able to charge far below market rates because that’s what it was told to do. Frankly, that’s part of the reason it suffered losses.
What gets difficult is the buyer of these services doesn’t see why he should have to pay increased rates. This is made worse as he’s my Peter proof, a fine example of the Peter Principle in action. He doesn’t really have a clue about what he’s buying, or what constitutes a fair market rate.
So I get rolled in by the CFO. This is a market I used to work in, understand intimately. I’m recognised in the company as knowing this stuff and being a hard negotiator on getting the best rates for services. The CFO has decreed that we have to issue a joint statement saying the new rates are fair market value.
The problem is, other than the CFO’s request I have no official authority in this. Its my Peter Proof who has the fairy dust of responsibility. Though he knows he has to do this sale, thinks that maybe out the far side it actually might be better for him. You can deal with a vendor differently to how you deal with a wholly owned subsidiary. Yet he still squirms when the question of market rates comes up. Its his budget that gets hit by the increase, even though the CFO has promised to cover the difference. He also doesn’t report into the CFO, so can somewhat hide from the requests. His boss isn’t entirely approving of the sale, which makes it all the more interesting.
The question is, how do you bring about what the CFO wants? Jack boots or gentle persuasion? Who indeed do you persuade? If this doesn’t get sorted the deal won’t get done, and that’s a whole different story.
