Strive Masiyiwa: Buying and selling businesses, is also business (Part 4)

Trusted relationships matter.

 

The "lions" are always out there. You have to respect that they’re there, also hunting. It’s part of business. Our research told us that Liquid Telecom would have possible competitors who also wanted to acquire the asset. The sellers were likely to follow a tender process.
Our intelligence seemed to suggest that some very aggressive competitors could emerge, with very deep pockets.



We developed our business plan carefully, and discussed how we would make the business work within the rest of our operations. This would be a large acquisition at $450m, but it would be manageable for Liquid and its management team.



We brought in external advisors to help us evaluate and test each stage of our proposed strategy.
You must always seek expert advice, when it comes to buying a business. It doesn’t matter your own business skills, or how well you know the business -- seek advice, and develop a culture of taking advice from trusted and credible professionals… include experts who are prepared to give you hard, cold facts and analysis that they know may not make you smile.



Many of you have asked: What about raising the money?
Let’s start at the beginning: For an entrepreneur, relationships matter. They’re the most important part of business. I’ve told you before, you must build trusted relationships. Twenty years ago, I went to a bank branch in Harare, Zimbabwe and asked them for a loan. It was the local branch of an international bank.



# A bank is a business, and never, ever forget that! They want clients who will grow with them, and continue to make them money. If you run from bank to bank, you may never get an opportunity to build a real relationship with them. Even as we’ve grown and built relationships with new banks and financiers around the world, I still hold on to my oldest relationships, just adding new ones as I go.
# Respect the so-called "small guys" you meet today, because they’re headed to be tomorrow's "big guys” (and by this, of course, I’m referring to women, too!) Some branch managers at the banks I dealt with 20 years ago, are now very senior executives in the banking world.
# The serious entrepreneur treats the bank as a partner. They don't just pitch up when a deal emerges. They’re constantly talking and comparing notes with the banks. Some of my best deals are brought to me by the banks… It's their job, to bring me good deals!



This is not rocket science: Build relationships based on trust, and start today! Some of the other key relationships I rely on, even today, were also made over 20 years ago!
By the time we learned of the Neotel opportunity, we and our "lead" bankers were really old partners. We’d gone on many buffalo hunts together over the years, and we knew the rules of the hunt.
They weren’t hearing it for the first time from me. We’d made known that we were looking for an opportunity to make a big acquisition. Once our teams had completed their presentations, and our advisors had given their support, it was time to make the approach:
"We need money to buy the business, and also to develop it, going forward. We have a solid business plan for it."



"For that kind of money, we’ll have to syndicate with others. You know you’ll need to come up with considerable equity. How far are you on equity?"
"We’ll share with you our plans on the equity piece. We have everything in hand. We know what you need. And we need your help to make it all happen."
# Banks like to share risk with other banks. This is called syndication. Sometimes you can have as many as 20 banks working on a deal. Again, a good entrepreneur makes it their business to know how it works. This is how large amounts of money can be put together very quickly to support mega-deals.


# By now you’re familiar with the difference between "debt" and "equity" in financing a deal. From the business modeling (used for our business plan), we’re expected by the banks to know how much debt, and how much equity we need to make a business deal work. At this level, it’s almost a science, and there’s very little debate amongst the experts.
"Let's meet."
"Our team is ready."


The rest is history. A few months later, the deal was done, fully funded, and ready to go.
I hear you asking: "And what happened to the lions?”
The "tall" tale of the Buffalo Hunter says: "The lions were very, very big. We managed to shoot the buffalo, and to get it out of the bush just in time. Our children are now fed well, and we’ll be planning a new hunt soon!"
To be continued. . .

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 Afterthought:

When I stood with President Kenyatta in Nairobi, a few weeks ago, at the AGRF, we asked people to come forward to make pledges. In less than an hr, more than $30bn, had been announced.
It all seemed so simple!
Not so, my dear friends. Months of planning by leading experts, some of whom had been CEOs of multi-billion dollar organizations had been involved.
I remember the first day, it was suggested that we could try and mobilize a very large amount of money. It seemed impossible, but once we identified the experts, and talked to people who had specific experience in this type of thing; things quickly clicked into place. That is how it is done.
When you work with the right experts, and consult the people who have the correct experience, hard things can be made to look simple, and even fun!

 Afterthought 1.

Some of you have asked guidance how to write a business plan. You can find many different resources online to get you started. Richard Branson has put together one really helpful template for entrepreneurs who want a start-up loan from him (only for England and Scotland). Check out http://entrepreneurs.virginstartup.org/virgin-startup...

Afterthought 2.

You must read up on the various aspects of banking. Banks are not simply about borrowing money and making deposits. That’s a small part of banking. You will not join the big leagues if that’s all you understand. When your business is still small, your relationship with a bank is usually the "commercial banker." For something like buying or selling a business, you need to become familiar with the "investment bankers." These days I have very little interaction with "commercial banks." I deal mostly with the "investment bankers." I speak with investment bankers almost on a daily basis. This is where the big stuff happens!

Afterthought 3.

Do you remember the posts I wrote in which I said: "Every game has its language"? There are things you can say that will expose whether you’re a player or just a casual observer of a game. You cannot speak about soccer, using the language of tennis… People will laugh at you! Just by listening to someone for five minutes, I can tell you if investors and financiers will take them seriously, even if they themselves think they’re very serious. 

Afterthought 4.

A friend of mine who is a very famous international musician wanted to start a business venture which needed a lot of money. He went to New York (most important place for big money deals). Whenever he asked for meetings, everyone agreed to see him, including the chairman, but the moment he asked for money, they politely declined. Then he changed strategy, and sent an experienced entrepreneur who was not even well known. He didn’t get to see the chairman of the bank, but he got the money after just one meeting, with some really junior guys! What’s the moral of this story? 

Ali,

Thank you Sir.The only way we can go far in life is by seeking advice from those who know more than we do.

My reply,
There are many reasons we should develop a culture of seeking professional advice, and it is not necessarily because we believe the one giving advice knows more than we do. Unfortunately there are people who are literally afraid to ask for advice simply because they think it is acceptance of ignorance.
We cannot all be experts of "EVERYTHING". I'm not a motor mechanic, or an electrician; if I call either of them to fix something, it does not mean they know more than me; it just means I recognize their expertise in their field.
If you want to raise money for instance, remember there are people who spend their everyday raising money. If you have never raised money, talk to someone who has raised money--don't go round in circles, pretending you know what you are doing.