Most companies, when involved in a major acquisition, take confidentiality very seriously. When the acquisition is in the form of a competitive bid, the most confidential part of the process is the decision on the final price.
I have worked with clients who take this so seriously that when the bid documents are virtually complete, they are delivered to the CEO, who then writes in the final price by hand and seals everything up. This way only one person in the company knows the final number.
I had always assumed that the reason for keeping the final decision confidential was to minimise the risk of an information leak. Turns out, it's a bit more complicated than that.
One of my clients, Cantell Corp, has been very successful in growing its business through well-priced acquisitions. Despite the fact that I have advised them on every one of these acquisitions, until last week I had never been in any of their meetings on the final price. But last Thursday I finally got an invitation.
My team and I had been working for Cantell for months on their upcoming bid for a small telephone company called Wontell. We had prepared projections of the assets, cash-flow and income of Wontell for the next 20 years. We had put together a detailed analysis of Wontell's financing structure and where it could be improved. And we had worked long and hard with Cantell's team to demonstrate that additional value could be extracted from Wontell once it was part of the Cantell group.
In the end we concluded that based on a cash flow analysis at a 17 per cent discount rate, Wontell was worth between US$730 million and US$790 million. All the board had to do was decide the final number, depending on how aggressive they wanted to be. And this time I was asked to join the meeting.