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My Best Mistake

InsightfulCRM, Doing A Deal Overseas: Legal Matters

How an overseas deal can get lost in translation

By Michelle Hammond
Friday, 06 January 2012

Negotiating the terms of a deal can be taxing at the best of times. But the challenge is particularly acute if the other party is based overseas, as details can get lost in translation or slip through the net entirely. 

 

Marc Englaro, who sold his business to a US-based firm before buying it back again, has first-hand knowledge of how important it is to be able to decode legal jargon and trust in your own convictions.

 

While it was only in hindsight that Englaro made this realisation, it has enabled him to mould his business for the better.

 

Englaro is the managing director of InsightfulCRM, which he co-founded with Rick Bushell in 2005.

 

Based in Sydney, Insightful is a premium reseller of SugarCRM services in Australia, New Zealand and the Asia Pacific region.

 

The founders saw an opportunity to help companies reap the benefits of the open-source software model by providing an experienced and commercially-focused support organisation.

 

Insightful provides professional implementation, customisation, integration, training and support services, and offers both hosted and managed on-premise solutions. The business forecasts revenue of between $2.5 million to $3 million this year.

 

In November 2007, Insightful merged with LA-based firm Fonality, which provides turn-key CRM systems for telephone-centric sales and support teams.

 

But as Englaro points out, doing deals with companies based outside of Australia is not as easy as it looks, particularly when it comes to the legalities.

 

“In 2007, we were approached by one of our US clients interested in our technology… We sold our business to this US firm at the end of 2007, which was quite a challenge,” Englaro says.

 

According to Englaro, it took more than six months to work through the paperwork.

 

“An Australian firm was representing us and a US firm was representing them. They don’t speak the same language with regard to how the transaction should occur,” he says.

 

“In the US, when you acquire the business, the people you buy it from make certain guarantees about the value of the business.”

 

“For example, [the US firm said to us], ‘We’d like you to guarantee there’s no radioactive waste in your facility’. It was out of a template they must have used for [another deal].”

 

“I’m frightened to think how much time was spent on something that we knew was never going to be an issue.”

 

Englaro says the key is to arm yourself with as much information as possible before negotiations begin. This is especially important when dealing with lawyers.

 

“Lawyers are there to give you advice but they’re not necessarily in the best position to judge the commercial realities of the deal,” he says.

 

“There’s a difference between what is legally ideal and what is practical… Don’t think you can let lawyers do it for you. That’s what we did – we didn’t trust in our commercial instincts.”

 

According to Englaro, the executive team is now far better equipped to manage the business, mainly because it was recently bought back.

 

“When we acquired the business back, it was done with two of the senior employees in the team, so now there are three executive directors in Australia,” he says.

 

“There are more shoulders to carry the responsibility, which I really value. Being an owner really shifts your focus.”

 

“If you have the right team in the ownership and executive structure, you can be more effective.”

 

“We have far more of a handle on the drivers of the business, so we could explain to a potential investor what the metrics of the business are.”

 

“Before, we couldn’t express what drove our business in a succinct manner.”

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Interesting story - every time we work with a business in the sale process, we have to spend considerable time to make sure they understand the completely different perspectives that lawyers and commercial parties take to negotiation. Due diligence is the other area where this crops up. We find that lawyers keep digging until they find problems to present to the client, who then has to judge how important they are. Their clients really just want them to work through the material issues and advise them of any deal-breakers. It gets even worse when the clients see DD as a 'getting to know you' process rather than a risk assessment and sign-off, but involve their lawyers in this process anyway. This can become an enormous expense and time-sink, and can also happen with clients' accountants.

Great article! Keep them coming!
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Paul D Hauck , January 13, 2012
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Michelle Hammond
Thanks Paul. I might send you an email re: ICT Strategic Consulting.
Michelle Hammond , January 13, 2012
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