ACTIVE CONCEPTS’ BANNER PRODUCT, FUNNEL WEB, INITIALLY WAS SOLD ONLY TO WEBMASTERS. UNDER A NEW STRATEGY ADAPTED FROM THE AGSM’ S FIT MODEL OF DETERMINING PRODUCT PRICE POINTS AND STRATEGIC MARKETING PLANS, SPECIALISED PRODUCTS WERE DEVELOPED FOR A NEWLY-SEGMENTED MARKET.
shares. At that time we were the price makers, and there was plenty of euphoria inside Active with talk of a selling price of 40 times projected revenues”.
They also strategically paired Quest president Doyle with Active’ s CEO Williams to discuss the complex technology during negotiations and Quest CEO Smith with Active’ s Bowles and Jafco to talk business.
“ One of the toughest aspects of the deal was keeping focused on executing the business plan, a difficult task in a small company during an acquisition when so much of your time and energy is taken up in the acquisition proceedings. We split up responsibilities within the company to keep everything on track,” says Bowles.
“ Both Michael and I had to maintain an unemotional investment in the deal to ensure all sides benefited,” says McLean.“ We played it as a team, always coordinating our actions, especially towards Quest,” adds Bowles.
Legal negotiations continued and led to Quest signing a detailed term sheet, only to be hit by a sledgehammer courtesy of the March-April stock market correction.
“ All of a sudden discussions went quiet. Our negotiating power had disappeared and Quest started saying we needed to revalue,” McLean says.“ Market sentiment was running all over the place, so to say all parties were unsure of what the market was going through and where it would lead is an understatement.”
As COO, Bowles was nominated to front negotiations with Quest. Which meant that Active’ s negotiating team, in a new‘ price taking’ environment, deliberately slowed down negotiations, prolonged discussions, continued to engage Quest’ s CEO and president and, importantly, never made impatient ultimatums that could potentially scare off Quest. Bowles knew he couldn’ t force the issue when Quest’ s share price had been hit hard, making it more reluctant to enter into an acquisition of an Internet company that had only just started to earn its stripes.
“ We were constantly asking ourselves,” Bowles recalls,“‘ Are we doing an injustice by selling out or could we hold off and become global in our own right?’. It was during this time that I relied on the board to review my thinking; they were that one step removed from the day-to-day operations and proved very useful for sounding out ideas.”
Fortunately, after several months of uncertainty, the two parties reached common agreement, just prior to the Sydney Olympic Games, giving Active’ s owners an acceptable new bid of 20 times estimated revenues – a direct reflection of the macro market revaluation. As an unexpected sweetener, Quest opted against the inclusion of a share package as part of the overall deal given that its stock price had crashed from a high of $ US80 to $ US35. At the time of signing the second deal, the Australian dollar had fallen from US64 cents to US54 cents, which made a cash deal more lucrative from a conversion perspective. It also meant that Active didn’ t have to wait for escrow periods to lapse before getting access to share packets.
While the owners counted the returns of their investment, Bowles and McLean were left to contemplate the magnitude of their achievement.“ Being a COO in this industry is all about doing too much, with too little money, in too little time,” says Bowles.“ I never thought that I would be negotiating an acquisition though a market crash – it’ s complicated enough without the added dimension of a highly volatile market. For the immediate future, the market needs to start valuing with some sort of predictability in order to get VC [ venture capital ] liquidity flowing again.” ✪
STRATEGY
DO
■ Assemble negotiation teams with multiple skill sets. You need people with technical competency, commercial sense and bargaining expertise.
■ Respect the other parties’ perceptions and cultural differences as they generally always reflect reality.
■ Be flexible.
DON’ T
■ Be aggressive in the negotiation phase or make unrealistic demands of other parties.
■ Try to railroad other parties into accepting your proposal. Always strive to achieve a shared outcome.
* Cameron Tomes is a specialist freelance business writer and editor of Asia Pacific Banking Technology.
10 | AGSM ISSUE1 • 2001