Financial advisers talk a lot about “adding value”. I use the phrase quite regularly when trying to persuade clients to hire me. I tell them I can add value by coming up with loads of useful advice.
My potential to add value is being put to the test right now on an M&A transaction. I am advising a Chinese company bidding for the Asian arm of a financially troubled US company. We’ve made a bid and, as far as I can tell, there are no real competitors.
“We can accept your client’s offer,” says Robert, the adviser to the US company, “if they can raise their price by $50 million.”
“No chance, Robert,” is my reply.
“Well, I’d like to be able to go back to my client with some sort of gesture, to demonstrate that your client is serious,” he says. “How much are you prepared to increase your offer to close this deal?”
“Not at all. There are no other bidders and you’re lucky to get the price we have offered. So that’s it.”
Robert is not happy, but he eventually gives up. It’s standard practice for the seller’s adviser to try to squeeze extra money out of the buyer, but it’s not going to work on this deal.
After my conversation with Robert, I immediately call my client, Mr. Wang.
“I just got a call from Robert. He is trying to squeeze us for extra money,” I say.
“What did you tell him?” asks Mr. Wang.
“Well, as far as I can tell there are no other really serious bidders,” I explain, “so I’m fairly certain we are the only option they have. So there’s no reason for us to have to increase our bid at all. So I told him no way.”
“OK, so what happens now?” asks Mr. Wang.
“Most likely, he’ll call you and try the same thing on you. He’ll tell you that unless you increase the price, they’re not sure if they can go ahead with you, and so on. Do not offer anything more.” This is me adding value with useful advice. By following my advice, my client can save a lot of money.
“Sure, understood,” says Mr. Wang.
Fifteen minutes later my phone rings. It’s Mr. Wang. “Great news, Alan, they’ve agreed to close the deal with us next week,” he says.
“That’s good to hear. How did you get that message?”
“Oh, I just spoke to Robert. He said that if we can increase our price by $60 million, the deal is ours. So I agreed.”
This happens all the time. Clients hire me, pay dearly for my advice, and ignore it. It’s the way of the world. Clients ignore advisers, patients ignore doctors, and athletes ignore coaches. Everyone thinks he knows better.
I am of course furious at Mr. Wang, but I can’t tell him that he’s a fool and that he just threw away $60 million of his company’s money. Insulting clients, while no doubt very satisfying, is not a good way to make sure that your invoices get settled on time.
So the deal gets done and Mr. Wang’s company buys the Asian arm of a financially doubtful US multinational for $60 million more than it had to.
Mr. Wang is happy, Robert and his client are happy, and I am happy to get my fee despite the fact that my client would have saved $60 million if he had have listened to me.
But this is not the end of the story, and not my last chance to add value for Mr. Wang.
A few months after the transaction is completed, one or two analysts start to suggest that Mr. Wang’s company paid too much for the business. It’s not making the kind of money it was hoping and the outcome is getting difficult for it to explain.
When management look as if they might have messed up, there is a natural urge to pass the buck, and there is no better place to pass the buck than to someone outside the company. And that’s where financial advisers really add value, as someone to blame.
A few days pass, a few more analyst reports and a few more difficult questions from financial journalists and it eventually appears. Mr. Wang is quoted in the press: “Based on this independent advice received, we believe the price we paid is reasonable. We were advised on the sale price by Alan Alanson.”
2 comments:
Added value in being a scapegoat
The art of giving useful (but ignored) advice
Alan Hanson
01 November 2009
Financial advisers talk a lot about “adding value”. I use the phrase quite regularly when trying to persuade clients to hire me. I tell them I can add value by coming up with loads of useful advice.
My potential to add value is being put to the test right now on an M&A transaction. I am advising a Chinese company bidding for the Asian arm of a financially troubled US company. We’ve made a bid and, as far as I can tell, there are no real competitors.
“We can accept your client’s offer,” says Robert, the adviser to the US company, “if they can raise their price by $50 million.”
“No chance, Robert,” is my reply.
“Well, I’d like to be able to go back to my client with some sort of gesture, to demonstrate that your client is serious,” he says. “How much are you prepared to increase your offer to close this deal?”
“Not at all. There are no other bidders and you’re lucky to get the price we have offered. So that’s it.”
Robert is not happy, but he eventually gives up. It’s standard practice for the seller’s adviser to try to squeeze extra money out of the buyer, but it’s not going to work on this deal.
After my conversation with Robert, I immediately call my client, Mr. Wang.
“I just got a call from Robert. He is trying to squeeze us for extra money,” I say.
“What did you tell him?” asks Mr. Wang.
“Well, as far as I can tell there are no other really serious bidders,” I explain, “so I’m fairly certain we are the only option they have. So there’s no reason for us to have to increase our bid at all. So I told him no way.”
“OK, so what happens now?” asks Mr. Wang.
“Most likely, he’ll call you and try the same thing on you. He’ll tell you that unless you increase the price, they’re not sure if they can go ahead with you, and so on. Do not offer anything more.” This is me adding value with useful advice. By following my advice, my client can save a lot of money.
“Sure, understood,” says Mr. Wang.
Fifteen minutes later my phone rings. It’s Mr. Wang. “Great news, Alan, they’ve agreed to close the deal with us next week,” he says.
“That’s good to hear. How did you get that message?”
“Oh, I just spoke to Robert. He said that if we can increase our price by $60 million, the deal is ours. So I agreed.”
This happens all the time. Clients hire me, pay dearly for my advice, and ignore it. It’s the way of the world. Clients ignore advisers, patients ignore doctors, and athletes ignore coaches. Everyone thinks he knows better.
I am of course furious at Mr. Wang, but I can’t tell him that he’s a fool and that he just threw away $60 million of his company’s money. Insulting clients, while no doubt very satisfying, is not a good way to make sure that your invoices get settled on time.
So the deal gets done and Mr. Wang’s company buys the Asian arm of a financially doubtful US multinational for $60 million more than it had to.
Mr. Wang is happy, Robert and his client are happy, and I am happy to get my fee despite the fact that my client would have saved $60 million if he had have listened to me.
But this is not the end of the story, and not my last chance to add value for Mr. Wang.
A few months after the transaction is completed, one or two analysts start to suggest that Mr. Wang’s company paid too much for the business. It’s not making the kind of money it was hoping and the outcome is getting difficult for it to explain.
When management look as if they might have messed up, there is a natural urge to pass the buck, and there is no better place to pass the buck than to someone outside the company. And that’s where financial advisers really add value, as someone to blame.
A few days pass, a few more analyst reports and a few more difficult questions from financial journalists and it eventually appears. Mr. Wang is quoted in the press: “Based on this independent advice received, we believe the price we paid is reasonable. We were advised on the sale price by Alan Alanson.”
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