Competitors, Old Friends & Partners

By Thomas E. Pabst – HYPERAMS, LLC

I must admit I was a skeptic about the value of the IAA. Seemed really strange to me to pay money to belong to an organization that by all accounts has one real purpose – to network with competitors.   Between the annual dues, and the cost of the annual event, it was hard to understand the potential return on investment that we all strive for from the money we spend on both transactions and business development activities.  But, I guess when I think about it now, our industry is so driven by transaction related partnerships, it makes a lot of sense to meet the industry leaders in a more relaxed and social setting.

So, for HYPERAMS, I would say our first annual IAA Members Meeting was a success.   Connections with old friends, partners we had only met over the phone and, of course, reconnecting with David Fiegel.  The last one resulted in a new chapter for our firm, and hopefully one that makes for a stronger and more accessible partner to other member firms.

But sometimes it makes sense to dig a bit deeper as to what true partnership is, and the do’s and don’ts of what partnerships are in this industry.   Also, you might want to question whether or not you are using the strengths of other members to maximum value for your business.

When I grew up in the industry, there were a few fundamentals that all of our competitors abided by.   I must admit that I learned these lessons in a different field of liquidations – retail – but many of the firms we worked with are in this organization today.   The first fundamental was that if you worked a liquidation for a particular company with a partner(s), then you were partners on any carry forward liquidations that took place with the same company in perpetuity.   The second fundamental was that if a competitor had a signed contract to complete a liquidation, you never ever tried to” backdoor” and upset that transaction.    Obviously, this is not the case if there is an auction with a stalking horse bidder through a professionally run process where overbids are solicited.  I am speaking of a deal that was sourced, bid on, won fair and square and a contract negotiated and signed.

One of the first auction deals that HYPERAMS bid on after its inception was with an industry specialist for a particular category of collateral.  We did not win that engagement for a specific plant.  However, when the entire company shut down, that same firm shut us out of a different joint venture to bid on that larger deal with them.  To us, that is “bad faith” partnership, and we have never done business, nor attempted to do business, with that Company again.

Earlier this year, our firm, and a partner from this organization, experienced a violation of what we consider the second fundamental principle of “friendly competitors”.   A deal we had signed in a competitive bidding process, managed by an advisor and initially supported by the lender, was ultimately upset by a consortium of other firms who knew the deal had been signed.  We are all big boys and girls, and we certainly do lose our share of deals.   But, when a competitor violates the principles that we should all strive for and adhere to, it has to make you wonder.   At some point there has to be a level of honor, particularly in an industry that is so driven by partnerships.   I want everyone in the organization to understand that we live by these two principles and expect the firms that we partner with will abide by them as well.

One of the other fundamental concepts of partnership is whether or not the relationship is reciprocal.  It only makes sense that if you are asked into a joint venture on one or more transactions with another firm, that you seek to joint venture with them on a transaction that you have sourced or with one of your relationships.   There is nothing more frustrating than having a one-way type of relationship.  Without reciprocity there cannot be true partnership.

The other point I question is if you are thinking about all of the ways that you can maximize the partnerships that you develop within this organization.  Yes, we all understand the value of partnership for industry expertise, or perhaps for geographic synergies.  Or, perhaps a partnership is forged for reasons of spreading risk, manpower requirements or even capital constraints.   But, sometimes it makes sense to ask how a partnership can make one plus one equal three.

Different firms in this organization have a different level of expertise than those who concentrate only on industrial assets.    Those skill sets can be used to your advantage when building a team to present the best possible front to the company you are pursuing or the advisors that are representing that company.  For example, if an entity is shutting down entirely, and plants are closing, it is also likely that accounts receivable exist and will need to be monetized.   While perhaps not in your bag of tricks, that AR might be the key to securing the deal.   Did you know that one of our members has a division that invests in or collects accounts receivable?   The combined skill sets of your respective industrial divisions, along with that firm’s AR expertise might just put you over the hump in terms of securing a deal.   We have partnered with them numerous times, and the combined venture has made us a stronger bidder on those deals.

Or, what about inventory?  Yes, we all sell raw materials, components and MRO in our auction events.   But what about those companies that have a significant level of experience in consumer related finished goods when a wind down begins?    If a company or bank needs a solution, do you just walk away from the inventory and focus on the M&E only.   Or, does it make sense to partner with another firm who can provide a more robust global solution and address the inventory, while supporting the M&E as well?   Perhaps a direct purchase of that inventory by a partner firm helps solidify a deal, or perhaps it is just their expertise that allows them to present a plausible brokerage agreement that turns the tide.   Selling inventory at auction generally results in the lowest possible return on that asset class, while an orderly disposition process can result in premium return for all stakeholders.

We just completed such a deal with another member firm.  The inventory was the driving force of the transaction, but the ability to provide an equity play for that asset class also let us buy the equipment at a price more favorable to the partnership.  The ability to bundle inventory and equipment together can frequently lead to a lower purchase price for each asset class and provide a hedge against one asset class underperforming in the wind down process.  It is my guess that most of you do not even inquire about the inventory when you are speaking to a potential client that is a producer of consumer goods.   Just because it is not a skill set that your firm possesses, that does not mean a strategic alliance with a partner firm cannot provide a competitive advantage – or present a whole new opportunity not related to the plant closing or equipment sale.

`So, I ask you to think about two things when you are at the conference and when you travel back into your everyday world.   First, do you actually know the multiple skill sets that other firms have, and are you capitalizing on all the different talents that exist within the member organizations?  Have you ever really thought about how you can make one plus one equal three for both you and a client?   And second, what kind of partner are you, and do you treat other firms how you would want to be treated?  The pillar of this organization should always be that there is honor in the way we compete with the organizations that we also partner with.