One type of person we should have on the core due diligence team … should handle cultural issues. If you’re dealing with a seller … who’s very different from yourself … they may be
in a different country … they may be in an entirely different industry … they
just may be very different. We do need someone on our side … who thoroughly
understands the other side … and can explain to them what we want … and try and
keep everybody on the right wavelength. Because you can make very, very serious mistakes … by jumping to conclusions. Obvious mistakes. There’s a friend of mine who was doing a deal in Barcelona … a couple of years ago … in Spain. And he’d arranged to see the other side … in the hotel … at 8:00. He’d phoned and they’d said: “See you in the hotel at 8:00” Now, being Northern European … he arrived bright-eyed and bushy-tailed … at eight o’clock in the morning. Nobody there. He had to kick his heels all day … to wait for them to turn up at 8 o’clock in the evening. The idea of organising a serious business meeting in Barcelona at that time (at 8 o’clock in the morning) … was a completely alien concept. But he’d jumped to the conclusion that: “See you at 8:00” … means 8:00 o’clock in the morning. I had another experience … similar … where I
was dealing for … I had a Dutch client … who wanted to buy a cheese-making
factory … somewhere quite close to Milan … in Italy. I didn’t have to go to Italy … because their bank was Credito Italiano …in Moorgate … in the City of London … which
was about five minutes walk from my own office. I went to see the banker at Credito Italiano … just to start the ball rolling … … and I asked about the company. It seemed a sensible company. And I talked about figures to a
certain extent … and the market … and the competitors …and so on. And then I said:
“Well, I think my client certainly would be interested in this. But just to go through the procedure … we’d like obviously more information … we’d like an ‘Information Memorandum’. And then, if we think we could
take it one step further … we’d like to send in KPMG in Italy … just to do an
overview … to give us a general view of the company … before we go any further.” To which the answer was: “Absolutely not. No no no. You can’t do that. That’s not how it works.” So I said: “Well, how does it work?” He said “Ah, well. What happens …
you have to go to Milan … to meet my client … and, I’ll give you a set of accounts
before you go. And you’ll then have dinner with my client. And, if you get on
during dinner … round about coffee time he’ll take out a set of the accounts … and he’ll write down … in pencil … on the side of the accounts … … the real accounts.” And I said: “That’s very interesting.” I assumed they weren’t paying the proper tax … and so I said: “Well, that’s very interesting. And, no doubt, the real accounts will be better than the ordinary accounts. And so, if we like those … we can then proceed … and start our due diligence with KPMG.” “Absolutely not.” he said.
I said: “All right. Then you tell me … what happens next?” He said: “Well, my client
will ring me. And, if he reckons that you’re the right sort of person to deal with …
and, therefore … represent clients who are probably the right sort of people … for him to deal with … then he’ll say: “This is the time for the second meeting.” I said: “I’ve got to go to Milan again?” “Yes. You’ve got to Milan again” “Dinner?”
“Yes dinner. And then at coffee” he said “he’ll take out the set of accounts again … and he’ll write down … in pencil … the the real, REAL accounts.” I said: “That’s very interesting indeed … and what are those?” He said: “Well, the company is
making a great deal of money … and the internal family … don’t want the external family … the nephews … and nieces … and cousins … and so on
… to know quite how much they’re making. So the real, real accounts … are not
disseminated very … widely. And I said: “Well, that’s absolutely excellent. It’s an even better company than I thought Then can we ask KPMG … to go and have a
look?” “Absolutely not.” I said: “Why not?” He said: “Well, by that time … you’ll know
each other well … you’ll like each other … and you’ll trust each other … and the deal
can, sort of … go ahead.” I said “Well, unfortunately my clients in
in Holland … they won’t go along with that. They need to do a proper due diligence.”
Now, I can see both sides … both views … to a certain extent.
But Northern Europe is very different to southern Europe … in these
particular matters. And, of course … in wider parts the world … things are also
very different. So, we do need somebody who can handle the culture on the deal
… if it’s very different. You can make fundamental mistakes. Just a well-known story … just very briefly … on when ABN (a Dutch bank) … merged
with Amro (a Dutch bank) … to become ABN Amro. Now, those were two banks … in
the same country … Holland … with probably a very similar type of client list.
One would think they were culturally extremely similar. But they were very different. And it was first noticed … at the celebratory dinner both boards organised … to get to know each other a bit better. Because being
Dutch (and Dutch are very keen on keeping costs down) … they have an expression:
“Tall trees catch the wind.” You cut everything that is out of line. And, being that pedantic over costs … they’d agreed between themselves … the maximum value of a present … that any one director could give another director … at this particular
celebratory dinner. I can’t remember the exact figure. It was all in Guilders in those days … rather than euros nowadays. But let’s say it was 12.50 guilders. It had been agreed that no present should be more than 12.50 guilders. Now, the people at Amro thought that was really rather cheap. So, they pushed it a bit … and they thought: “We could spend 25.00 Guilders.” And they turned up … with fairly
expensive boxes of chocolates. Now, the guys on the ABN side … they thought 12.50 [Guilders] meant twelve hundred and fifty [Guilders]. And they turned up with fairly expensive gold cufflinks. You know, two banks … in the same country.
But internally, culturally completely different. So, how we can get round this
sort of problem … is to … not only have our own person on our team (who understands
the culture) … but also to employ a local lawyer … to explain to the seller … exactly
what type of due diligence we’re going to do. On the Italian deal (had it gone ahead) … had
it been possible to get it off the starting blocks … I would have employed a lawyer in Milan … explaine to him (if he didn’t know already) …what an Anglo-Saxon type due diligence was like … and explain to the other side (the cheese manufacturer) … that it wasn’t that we didn’t trust him. It wasn’t that we didn’t take his word on various things. We just did that sort of due diligence.
We had to do that sort of due diligence. It wasn’t a personal sleight on his character at all. And that probably would have brought us
… slightly closer together.