“The Caretaker”: Coming Soon to Your Local Theatres (& Contracts)

It’s 2002 in the Square Mile, the City of London, the home of Dick Whittington (and his cat).

I’m wearing a very colourful stripey shirt. Back in 2022, I love that shirt. I’m not quite so sure about it now.

By this time, I know my way round an M&A deal like the back of my hand. Sales, purchases, assets, shares, I can do them all. I’ve even got a niche, with a lot of my corporate work coming in distressed situations.

I’m even enjoying the periods of intense work that come as we get close to concluding the deal. Clocking up an “all nighter”, as we wrestle the final points of the Sale & Purchase Agreement into shape, still feels like a badge of honour. After all, it’s the culmination of several weeks of hard work on a lengthy complicated document.

That Sale & Purchase Agreement (or SPA) is where pretty much all that work has gone, from warranties to indemnities, to seller limitations and earn-outs. And those things do feel like the stuff that really matters in “the deal”.

There is also a Transitional Services Agreement, though. A wee bit of work has gone into it. But definitely not a lot.

We’ve done the transitional agreement because we vaguely understand that its hard to just jumpcut “on the ground” from a business being owned by one company to being owned by another. We know that the practicalities of certain things will take a little time to sort out and so need a document to govern them. 

But we rather just assume that those things will happen because why wouldn’t the buyer and seller just sort this out among themselves afterwards? Sure, it’ll be fine, won’t it? They’ll both make it happen.

Which explains the lack of focus.

You can therefore imagine my surprise, some 12 months or so later on joining FTSE100 listed Associated British Foods (ABF), when I find out that, inside ABF, they focus much more heavily on those transitional arrangements than on the SPA.

_____

According to a Harvard Business Review report based on collated research, somewhere between 70% to 90% of business acquisitions fail. Or to put that another way, only between 10% to 30% of them are successes.

That stat is fairly well known. But that doesn’t make it any less damning. I can’t think of too many other things businesses do where they’d accept a 30% success rate max.

What goes into the decision making that signs off on actions with such a poor track record could probably fill a newsletter in and of itself. But today, I want instead to pick up on the key reasons for those failures.

The list of reasons includes things like integration issues, cultural mismatches, overestimated synergies and costs savings, and an incoherent (or absent) strategy. None of those things occur “by surprise” or bad luck. All of them can be prepared for in advance, and all of them can be handled more closely afterwards. Meaning that every time they come up, there has been a failure to plan on the one hand, and a failure to manage on the other.

Or to put that another way, insufficient time, thought and focus has been put into the aftermath. Not enough has gone into the transitional arrangements. ABF had learned this: but I’d imagine they learnt it the hard way.

______

I have a bit of a guilty pleasure.

I love Jason Statham movies. 

They won’t win an Oscar. But, still, I just love watching them. They are action perfection, highly entertaining without requiring an awful lot from me.

One quirky thing I particularly love about Jason Statham movies is quite how many of them have titles that are just an occupation or job title. The Transporter (a stone cold classic, that one). The Transporter 2 (“it’s a totally different shark, Ted”). Mechanic, The Expendables, Spy, The One, A Working Man.  My personal favourite is The Beekeeper (go watch as soon as you’ve finished reading this).

There’s an important occupation missing from Jason’s list, though. And I want to take this opportunity to encourage Jason to make it. Because it has a cracking backstory. It is a hugely important role. It also can really helps you get the most from your contracts.

Here, let me play you the trailer (cue deep cinema announcer’s voice that I most definitely do not have):

One man stands alone amid a wasteland of failed contracts. Casting his eye over the wreckage, he sees the way contracts are usually handled after they’ve been signed.

He knows there’s a better way. 

Not for him is the usual path of chucking the agreement in a drawer and forgetting about it. He just cannot leave the outcome to fate or chance. Instead, he will make sure his contract is remembered. He will make sure it works for both sides. He will make sure his agreement is a success for many years to come. And he will not let anything get in his way.

Coming soon to your local theatres, starring Jason Statham, it’s…The Caretaker.

I know! See you Friday at the local multiplex, right? Just look at the poster.

______

One key thing separates contracts that last a long time from those that hit a road block.

A contract only endures and delivers a successful long-term relationship if minor niggles are identified and raised early, so they are dealt with quickly in a way that works for both businesses before they become big issues.

That only happens with communication. Deliberate, consistent communication. And that communication only happens if someone is specifically tasked with making it happen.

That only happens if each side appoint a “Caretaker” to look after the contract and ensure it is a success. And here’s how to do that in your contracts going forward.

· Together with your business partner, decide on one or two people from each business who are to take primary responsibility for the interactions between you. Formally agree that they will meet regularly (we’d suggest monthly) to review all aspects of performance. 

· Specifically agree that each side will raise any concerns or issues they may have as soon as they pop up. Doesn’t matter if they’re big or small, promise to raise them immediately. That way they can quickly be discussed.

· As a backstop, make sure that there’s an internal escalating dispute resolution mechanism to ensure that things the contract team can’t resolved are referred first to their bosses, and then to the CEOs. When you’re both committed to making the arrangement between you a long-term success, you can resolve anything that might come up between you for the best without lawyers, arbitrators or mediators

(I used to think it was weird to have to write down in contracts for this to happen. I thought it was obvious that the parties would meet. I know now that its not, and these clauses are now the only ones that I insist get added to every contract I look at.)

So….

Don’t let your contract get thrown in a (metaphorical electronic) drawer once its finished. Ensure that someone on each side owns both the contract and the day-to-day ins-and-outs of the relationship between the two businesses.

Because when you’ve got a Caretaker appointed, you will greatly increase the chances of your contract being successful ‘on the ground’ for many years to come. 

As always, just get in touch if you’ve got any questions. Or if you’re Jason Statham and you want to discuss taking on the film rights to The Caretaker

Andrew