Well yesterday's post has certainly been the most controversial to date. I received a lot of emails today from readers, or maybe former readers, complaining that my tactics to "bust-up" a target's DCF analysis are "dishonest", "deceiving" or "unethical." One reader mentioned that, "It's just a poor way to start the deal process by tricking the seller ... and doesn't build any positive goodwill going forward." On the positive side, I'm apparently qualified to work at Gitmo (see the Comment on the post) and a very nice Excel Product Manager from Microsoft emailed to thank me for the input on manual recalc, as they are considering taking the feature out - seems no one's been using it but me. It's amazing how blogs travel!
I don't feel like the tactics I use are meant to deceive. I use manual recalc to simply get the selling team to focus on the granular aspects of their projection assumptions without being jaded by the end result. What's ironic is that I'm really trying to get to the truth. I worked in investment banking too long and saw too many DCF's reverse-engineered to achieve a pre-destined result. Meetings like this are hard, and they often end in an uncomfortable way with the sellers feeling angry and/or embarrassed. But I don't rub it in anybody's nose; there are no fist-pumps or high-fives on my side. I try to act professional and treat people with respect and dignity.
I don't like having to use tactics like this, but in every acquisition I've seen, the projections were "hockey sticked". While in almost every case post-deal revenue went down instead. Hugh McColl always assumed that 30% of the acquired revenue would walk. Without that assumption going in, he said the deals would have never worked. Besides, if your projections were realistic, why would you be selling? By the way, don't embarrass yourself by justifying your projections based on what your company could achieve as part of my company. I don't pay for synergies that I have to make happen.