The urgency level for Project Spy continues to increase. Two senior sales people, including the head of all sales, have given their notice. At some point we have to start wondering if there is going to be enough of a firm left for us to actually improve on. At what point does a deteriorating asset slip far enough that we aren't interested anymore? We're already beginning to feel like bottom feeders on this deal as it is.
There is this fine line between urgency and triage. Obviously, urgency is a benefit to us up to a point. The more issues a firm has and the faster they develop the more time pressure there is for the parent to sell quickly. Machiavellian as it feels, that means less argument about terms and usually lower purchase price for us. The risk the seller assumes in delaying is that the division will deteriorate so substantially that no one will want to buy it anymore. And, of course, large corporates can be uniquely inept at restructuring small units. It is not in their core business model (unless perhaps you are GE or something and your corporate philosophy is that constant reshuffling is the way to introduce fresh thinking and prevent internal empire building).
Generally, it is not in a buyout firm's interest to share in detail the modeling and assumptions that underpin our approach to transforming the business into a working and profitable firm. In this case, however, we made the tactical decision to share our analysis, since it is so dismal. The idea being that since Spy, Inc. had itself never delved into the stand-alone structure of the business it would add to the urgency once they realize how bad it actually is. It had the quite expected result: A constant battle at every step on all the assumptions. Since the projections are pretty bad, we have elected not to fight these at this point, but rather let Spy, Inc. put in their rather optimistic assumptions. The result is still looking rather cash flow negative even in the face of dozens of last minute discoveries of "hidden savings." Funny, if management had just sat down and gone through this exercise a year ago they would have probably improved profitability by 15%. That is, if these "hidden savings" are even real.
I also wonder if the unit might have avoided the loss of the senior sales people if they had just disclosed that they were in talks with a potential acquirer (us, in other words). The low morale seems to be mostly tied to feelings about present management and the parent. Perhaps revealing the existence of discussions would present a glimmer of hope. Well, on second thought, maybe not, given the reputation buyout firms have in the UK.
Well, there will be a go/no-go decision for Project Spy in the next 14 days, if not the next 7. We will see. A "go" probably means I have to relocate to the UK for 3-6 months. I am not quite sure how I feel about that prospect at this point. Then again, the UK in summer is much better than the UK in winter.