Issue link: http://read.dmtmag.com/i/414216
33 Oil Prophets BUSINESS STRATEGIES they realize it's not going to happen, they might lower their price. Suggested seller action – Engage a professional petro business valuation service like Meridian so you know the discrepancy between your number and the market number up front and can prepare. We often work with sellers for two to three years helping them create more profit which comes back usually five-fold upon sale. For instance, getting profit up $500K annually will put $2.5 million in your pocket! Deal Killer #4 – Buyer Reputation. As a buyer, you love your business, think you do things right, treat people fairly, have a great culture, etc. The trouble is, what you think doesn't much matter. It's what the marketplace thinks of you and more specifically, a potential seller. Buyers earn reputations, good or bad, based upon rumor or hearsay. It may be accurate, it may not be. Doesn't matter. It just is what it is. Suggested buyer action – Don't let your ego keep you from being in touch. Ask your supplier rep what people say about you. Ask fellow jobbers. Knowledge of even untruthful negatives is power. Why? You can use that marketplace perception in your negotiations, tackling it head on. For example, have a reputation for extended negotiations and long overdue closing dates? Disclose that to your buyer, tell them about your processes and timing, tell them you are slow and here's why. Truth gets respect. Have a negative that isn't true? For example, "there is a rumor that we lose customers when we make an acquisition because of our terms. Let me tell you exactly what happens (or happened with last deal) so you can be comfortable your customers will be treated fairly." Suggested Seller action – Do not exclude any seller based on rumor or expectation. For instance, let's say you've heard XYZ Petro is a low- ball bidder and never buys anything. Have a frank discussion with the owner. "I've heard you make a lot of offers in the marketplace that are far below what sellers want and therefore have made very few acquisitions. I'd like to understand your pricing model before we both waste valuable time. Could you help me to understand how you price?" Deal Killer #5 –Customer Attrition Perception. I was once talking with a marketer who said when they did a lube acquisition; they used a 25% fall off rate in customers. That had been their actual experience so their pricing model reflected this drop off. Should that be the actual experience? Absolutely not. We've handled many deals where the retention was in the mid to high 90's! Interestingly enough, a company who has trouble with post- acquisition retention will try to build in volume retention in their pricing. In well handled transitions, volumes stay and even grow. Suggested buyer action – If you have a repeated pattern of customer fall out on prior deals, ask yourself why that happened. Did you not plan for the transition well? Was there a marketplace perception of poor customer service (and if so, is it true?) Did you change pricing or terms? Did you keep primary sales and customer contacts or did you try to centralize too soon? In other words, take responsibility for your attrition and get to work on fixing it! It's your problem, not the seller's. Suggested seller action – Inquire about prior acquisition attrition. Get straight answers and confirmations. Never accept a volume retention payout from a company with a bad track record. Deal Killer #6 –Surprises. During and after transaction surprises run the gamut from unknown environmental situations to missing equipment and tanks to surprise employee exits to financials that don't match up or make sense to industry shifts. When a buyer submits an offer, he is hoping and praying that what he thinks will happen over the next five years turns out to be correct! With some marketers, a single bad surprise gets them gun shy and overly risk averse on subsequent possible transactions making the due diligence process painful for the seller. And in some instances, the financial team is driving the due diligence and misses the entire people and culture side of the transaction. If you don't mesh cultures, people will quit and the transaction will fall apart. Suggested buyer action – Have a realistic due diligence process that you would be willing to submit to yourself. Keep your process streamlined and as practical and non-onerous as you can make it. Remember that culture trumps numbers. People will make or break you. Most owners care as much about their team as they do the cash. Suggested seller action – Ask the buyer about past surprises. Ask about the due diligence process. Ask about culture. Visit the potential buyer's home office to experience the culture for yourself. Inquire about personnel turnover rates in all key areas as part of your initial discussions. In summary, the marketplace is wary right now on both sides since so much consolidation has taken place. The naivety that once existed is gone. But in the midst of this new age of distrust, we at Meridian are still making happy marriages, bridging that perception gap between buyers and sellers. If we can assist you on either side of the table, please let us know! Since 1991, Meridian has provided insight and services to over 3,400 petroleum marketers, growing and expanding their market share, while increasing their cash flow and profits. Being the leading petro valuation provider in the nation, Meridian is also trusted for buy/sell transactions. To find out what Meridian can do for you – Call us 800-728-9005.