April 2020 | Przegląd Piekarski i Cukierniczy (Baking and Confectionery Review)
SELLING THE COMPANY
In recent years private equity investment funds have appeared in Poland which are engaged in buying small family companies. The market in small companies is developing, and bakeries and confectioners’ shops are attractive investments in the eyes of the funds.
These funds, also called speculative funds, have a relatively simple plan of action. They have to buy a company cheaply, raise its market value over 2–3 years, and then sell it at a profit. If a fund buys a bakery expensively, then it has to work more intensively on raising its market value. It is therefore best, through a good purchase price, to obtain a large margin at the outset. Properly conducted price negotiations when buying a confectioner’s shop or bakery are the key to a successful investment. Many simple negotiating techniques have arisen, based mainly on emotions. On the one hand they beat down the price. On the other they give sellers of their companies a sense of fulfilment and reassurance. Professional negotiators will never leave the former bakery owner with a sense of loss.
W-MOSZCZYNSKI ppic 4-201. Depriving of an alternative
The greatest enemy of negotiators is an alternative solution which the seller has. The alternative may be another investor wishing to buy the bakery; it may also be another business solution, such as recapitalising the confectioner’s shop or liquidating it by selling off its assets and real estate. Investors sometimes resort to agreements and one of them withdraws from competing for the purchase of the company. Negotiators often try to discourage the entrepreneur from alternative solutions.
2. Not allowing preparation for the negotiations
The owner selling the bakery should begin preparing for the negotiations at least a month in advance. The most important thing is a credible valuation of the company, carried out twice by different consulting firms. It is also recommended to create various alternative investment scenarios. The owner must know, and be certain, how much their bakery is worth. They should know the limit below which they cannot go. Negotiators prefer to negotiate with someone unprepared; then they can easily achieve their goal. That is why forcing a quick decision on the immediate sale of the company can easily deprive the owner of the time to prepare for the negotiations.
3. Dragging out the negotiations
This is a method of psychological and financial attrition. The negotiations are dragged out for trivial reasons. At the same time, random pieces of information are woven in about the appearance on the market of better opportunities, cheaper offers for the sale of confectioners’ shops, or other alternative investments. The fund then shows that it is hesitating and indicates that it may take advantage of the new opportunities. At the same time the negotiations become bogged down for many weeks.
4. Breaking up the offer
At a certain stage of the negotiations, various variants for buying the bakery are presented to the seller. The variants are so complicated and there are so many of them that the entrepreneur is not able to assess them quickly. As in the previous point, the true aim is to undermine the stability of the negotiations and to create in the seller a feeling of uncertainty.
5. Good cop and bad cop
This method is probably known to everyone. In negotiations it takes a specific form. At a certain moment the negotiators have to go out and telephone their boss. He is the bad cop. The negotiators come back and say that they would like to pay more, but they cannot. Then a feeling of unity arises between the person selling the bakery and the negotiators. The seller and the buyers suddenly look for a solution together. They work jointly on how to bring the negotiations to a happy end, against the resistance of some third party, some hypothetical figure who often does not exist.
6. Conditional purchases
At a certain stage of the talks the negotiators present reasons why they are not able to agree to the seller’s proposal. The weight of the reasons is usually artificially magnified. The reasons are usually difficult to satisfy. The seller and the buyers again look together for a good solution, despite the difficulties which arise.
Price negotiations when selling one’s own bakery may be a painful lesson for an entrepreneur. Negotiators apply their psychological methods only when the other side is not prepared for the negotiations. Lacking knowledge of the real value of the bakery or confectioner’s shop, without an alternative, the owner with their emotions is defenceless against the experienced negotiators of investment funds. That is why preparation for the negotiations is so important.
Wojciech Moszczyński
Wojciech Moszczyński — graduate of the Department of Econometrics and Statistics of Nicolaus Copernicus University in Toruń; specialist in econometrics, finance, data science, and management accounting. He specializes in the optimization of production and logistics processes. He conducts research in the area of the development and application of artificial intelligence. For years he has been engaged in the popularization of machine learning and data science in business environments.
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