By Jeff Bell. Bespoke artwork by Eric Löbbecke.
“We’ve made it at last!” Earl strutted into Larry’s office.
“That sounds encouraging,” said Larry, “did we win Lotto?”
“Well, just as good,” said Earl. “Serena’s offer has come in!!”
Weeks earlier, Earl had been approached by their former consultant Serena in a merger conversation. Larry had been included, but belatedly, he felt, in the discussions.
“I thought that we were considering a merger? She said that she would be making a formal proposal…,” said Larry.
Earl paused. He now realised that he had neglected to inform Larry that the landscape had changed.
“Actually, she has come into some money Larry, serious money, and she wants to buy us.”
Again Earl paused.
“Yes, a long term investment has come through–there have been some stellar rises in those riverside suburbs Buddy!”
“Yes, alright, good on her. But she wants to put it into a takeover? Of us?”
Earl nodded sagely.
“This sure is a turn of events,” said Larry looking sideways at Earl, “how much is it?”
“Well, at this stage she’s talking about a multiplier of 4!”
“That’s not bad, said Larry, “didn’t we both think we’re a 2 or 3…? And wait a minute. Are we talking last year’s net or an average of the past 3?”
“Oh, she didn’t say,” said Earl. “I guess we’ll work that out later. Does it really matter?”
“You bet,” said Larry, “haven’t you been paying attention to the P&L? Last year was OK, but the 2 years before that–wow! Don’t you get it?”
“OK, OK, keep your shirt on,” said Earl, “I see what you mean.”
But Larry wasn’t finished yet. “And what about the staff leave entitlements? Did she mention them? And the assets and the stock. What about the lease—we’ve just signed up to another 5 years.”
“Wo, wo, let’s just settle down for a minute Larry. It’s early days. She wants to come in and do due diligence. That should sort things out.”
“The other thing is about our roles,” said Larry.
“What do you mean ‘our roles’,” said Earl. “We’ll be out the door, won’t we? We take the money and run!”
“I doubt it Earl. I bet that she would want us to stay in the business for a couple of years—before she pays the full amount.”
“What?! She didn’t say anything about that.”
“Yeah, didn’t you just say ‘it’s early days’ Earl? Put yourself in her shoes. Would you pay top money without some sort of risk mitigation. She would want to keep a tight hold on the books, then she would want to keep us here, just in case.
“And there’s one more thing,” said Larry, wearing his most grave expression. “How do we know that she’s fair dinkum? How do we know that this isn’t a trick?
“I think that you must be smoking something,” said Earl. “We know Serena, we trust her!”
“Just think about it, Earl. This puts her on the other side of the fence now. Is it not possible that she wants to see our numbers, just to tie us up for 3 months and then walk away?”
“Wow! I think that you’ve got trust issues Larry. Would Serena really do that?”
“Well, it happens,” said Larry. “Who knows? Maybe she’s looking at multiple businesses.
“Look, I’m just as thrilled as you are about a fat payout, but we have to be careful.”
“OK then Mr Conservative, what are you saying?” said Earl.
“Well, if this really is a serious offer, then we have to be serious too,” said Larry. “That means setting up a data room with the financials, but all the other stuff as well. But just to be on the safe side, I think that we get our legal guys to draw up a confidentiality agreement, that we ask her for a deposit, that we put a time limit on this—and we make it non-exclusive.”
“What, you mean we let someone else in? Who?”
“No idea Earl. Now that the cat’s out of the bag, anyone could come knocking.
“So let’s just take our time. How about two more years at a higher margin? And some work on that multiplier.”