Subscribe Watch the earn-out clause in your contract says one because I have never seen one work properly
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"Watch the earn-out clause in your contract," says one, "because I have never seen one work properly." Another says: "Why are they only offering you only four times earnings?" The consensus is that David has done very well and, if he is going to sell, he should hold out for a better offer. This, says The Executive Committee branch 15 chairman Philip Gee, is the raison d'etre of the group. Should he sell now? Hold out for better terms? Or break off talks and run the risk of a future downturn in business which will dramatically reduce the value of the company? The puzzle produces plenty of suggestions from his colleagues on The Executive Committee (TEC) branch 15, a regional support group of chief executives and small business owners who meet once a month to mull over issues facing each others' businesses. The sales and marketing business he founded three years ago has really hit the big time in the last 12 months, and now an American company wants to buy it for $6m (pounds 4m) and keep him on as chief executive. About a tenth of the information comes from the public domain, while the rest is gathered from interviews.. For instance, a "people thing" was responsible for the bad image of the engineering company that was set upon buying a smaller rival. It can also be seen to be behind poor service and weak relationships with suppliers and customers.One of the things that Kaiser research can identify is which individuals in a management team are seen as crucial to success and which are deemed to be a weakness. It was in this way that they discovered that one company's claim that it had a "partnering" relationship with a supplier was false; it had a conventional arrangement that could be terminated at little notice and therefore made the firm less attractive.To Mr Barnard and John Spear, his colleague, behind most of these problems are human resources issues that companies continue to be unwilling to face "It's the people thing It comes up again, again and again," says Mr Barnard.
What he and his colleagues offer is a more inclusive approach, which aims to find out as much information as possible about not just the target of an acquisition but also the acquirer and the markets in which they operate."You can't just take a target's word for it," explains Mr Barnard "You've got to talk to customers." Nor does it end there. Kaiser people typically interview suppliers and anybody else who might have an interest in the market in order to check out the management's story. But, as Rupert Barnard, vice-president in the London office, points out, it has tended to concentrate on the financial side of deals. It has lately moved into "due diligence" at the request of clients who are finding that acquisitions still have an unacceptably high failure rate, despite increasing focus on the financial and strategic aspects.As a result of its researches, increasing numbers of companies are either calling off deals or are negotiating a lower price.Due diligence has, of course, been around for ages. They put far more emphasis on being able to call on a network of service engineers. Similarly, an engineering group's takeover of a smaller competitor was abandoned after it discovered that the target company had a far better reputation than it enjoyed and would probably suffer from association with the predator. The supplier of both pieces of information was Kaiser Associates, a small American management consultancy that has carved out a niche in the fields of benchmarking and competitive analysis. A short while ago a British electronics company was planning to acquire an American rival in order to gain access to its superior technology.
It is not assumed that the Prince, who has reputation for putting money in struggling businesses with potential for recovery, and Ellison are on opposing paths "I know Ellison," the Prince told the New York Times. "I like and respect him."Milton, who follows Apple in particular, notes the eccentricity of Ellison in announcing his interest to a newspaper and triggering a rise in the Apple share price. But he, among others on Wall Street, suggests we take the Apple manoeuvre seriously. "Investors would like to see Larry Ellison and Steve Jobs running that company," he concedes.But are they not also a little of wary of Ellison and his overblown designs? Says Milton: "Silicon Valley is filled with oversized egos, and it just happens that this one also produces.".
The person he would elevate in Amelio's place would almost certainly be Steve Jobs, co-founder of Apple, who recently rejoined it as a consultant. Jobs and Ellison happen also to be old friends.Additional intrigue has been provided by last week's news of a five per cent investment in Apple by Saudi Arabia's Prince al-Waleed bin Talal. Ellison has said that his first move at Apple would be to replace management and in particular the chairman of only 13 months, Gil Amelio. Very soon, we will have a clearer idea of the true potency of his most important weapon, the NC. "We are the critical moment," says William Milton, an analyst at Brown Brothers Harriman in New York "This battle is just getting under way.
But I think the NC has to be a threat."Much more urgent now is the Apple question. Infamous for abandoning the speeches that have been prepared for him and for blurting out what is on his mind, Ellison may guide us when he takes the microphone in Vienna tomorrow. What we know so far, thanks to an interview he gave last month to the San Jose Mercury newspaper, is that he is talking of a bid of about $1bn to take a 51 per cent stake - if he can find anyone else who is interested. By May 1996, Oracle's revenues had topped $4bn.Today Ellison gives the impression of a warrior - in keeping with his interest in things Japanese, he would probably suggest a 16th century Samurai - preparing finally to storm the Microsoft citadel.