Beware the Exploding Offer Bluff

As we head into the Labor Day long weekend, we note that this year Friday is the 31st, a.k.a. the end of the month.

Yesterday I wrote about the car buying experience and its applicability to information resource renewals.

I have bought three cars from dealers over the years - one new and two used. In each case, I negotiated the sale on the 28th or 29th of the month - and one, on December 28th - the end of the month, quarter, and calendar year. I bet I was the only customer they had between Christmas and New Year's! And I got great deals each time.

As in buying a car, you will also find that the end of the month is a big deal for sales pros at market data and information services vendors.

You've likely heard one or more of the following from a vendor:

• The offer expires 7/31
• We really need to get this signed before the 1st 
• I won't be able to offer this discount next month. 

What's driving this? Simple: companies can book, and often recognize, the revenue (or a portion of it) in the current month. That's why sales people always want to close a sale in the current month.

The problem is, these "deals" don't "expire". In effect, the vendor is showing their cards on their ability and willingness to negotiate. Don't far for one of the oldest sales tactics on the books.

The "discount" will still be available on the 1st, just as it was on the 31st.

It's not like information services vendors have expensive inventory they're carrying. These are highly scalable, low variable cost businesses. They don't have lots of working capital tied up in inventory. In fact, they don't have inventory per se - their product is non-rivalrous: selling you a subscription to X service doesn't mean they can't also sell it to Y. So you're not taking any inventory off their hands. They don't have to ship un-sold inventory back to the OEM.

What to do?

First, consider the merits of the deal, independent of whether the offer is exploding. A deadline to sign shouldn't necessarily factor into your decision around the value of the product for your organization. However, if the deal is a good one, why not take advantage of it?

Second, see the "discount" for what it is: pricing flexibility. Look at what other concessions you can extract from a vendor that's not playing firm on price. Can you get a CPI cap? A flat renewal? Additional licenses, if the ROI is there? The opportunities that open up in this scenario are many. Take advantage of them.

Third, use the end of the month tactic yourself to negotiate better deals, particularly on renewals. The earlier you start the renewals process, the more likely you are to realize savings. Say you have a service that expires 4/30 that you know you want to renew. Why not reach out in February and discuss early renewal? Your sales people at the vendor may have more flexibility on pricing if you can close a renewal with them by 2/28. Take a stab at it -- but don't appear too eager to renew, thereby undercutting your negotiating leverage.

As with most aspects of negotiation, there are two sides to every gambit. Use end of the month urgency to your advantage when negotiating renewals - you may be surprised at the savings you can extract from the seller. But don't allow vendors to use this tactic on you to get you to sign for something you don't necessarily need.

- Kevan Huston

Change of Control and Opportunities for Cost Savings

It's important to keep track of "M&A" among your suppliers for a number of reasons: compliance, contractual implications (known as assignment clauses), conflicts of interest, and other boring contract housekeeping stuff. 

But change in control can offer an opportunity for significant cost savings too. 

Mergers, acquisitions, divestitures, and spin-offs are very common in the B2B information services and market data space. Common are the following types of deals: 

• Two large providers combine, such as the IHS - Markit deal in 2016
• A large vendor buys a smaller, niche publication, such as the Acuris purchase of SparkSpread in 2018
• A division is sold or divested from one owner to another, such as Thomson Corp.'s sale of its Finance & Risk division to Blackstone, also in 2018
• A PE or VC firm makes a big investment in one of your vendors, or your vendor closes another round of funding, such as the huge Series A Alpha-Sense closed in 2016

Sometimes you'll get two or more of these at once, as when DrillingInfo bought competitors 1Derrick and PLS, and then was promptly sold by Insight to Genstar just days later.

When a deal goes down, in all likelihood a rep from the new owner will be reaching out to discuss your contracts. Take the opportunity to review the new owner's service offerings for cost savings and ROI gains: 

• How does your existing TargetCo subscription tie into, or overlap, with the BuyerCo product offerings? A small, niche acquisition is usually integrated with a similar product - are you paying twice for the same content? The vendor may squawk - no, there's no overlap! Make the case there is, and the cost you pay should be reduced to reflect this.
• If you have subscriptions with both the TargetCo and BuyerCo, think about what kind of economies of scale you can realize with the combined spend. If you spend $500K with TargetCo and $500K with BuyerCo, should you really be paying $1,000,000 when they merge? Argue that purchasing power should apply across your entire spend with a vendor, not just for single specific product (something you should be arguing with all your vendors anyway)
• Take advantage of the disarray at the new owner (trust me: these deals are absolute chaos for months after close): can you get your contract repapered with better terms? Can you bolt on other BuyerCo offerings you've been eyeing but were over budget? This may be the time strike a great deal. 

Depending on the complexity of the acquisition, you may be looking at a change in license structure, changes that may not benefit you. If you know the BuyerCo favors licenses unfavorable to you, try extending your contract with the TargetCo before the deal closes, effectively grandfathering you in for a couple years before a new less attractive license structure is forced on you. 

I recommend creating alerts in Factiva, MergerMarket or Nexis to track your portfolio of vendors for significant M&A, Funding or C-Level changes. There may be cost savings and ROI opportunities if you play your cards right. 

- Kevan Huston