In Part 9, we discussed establishing a Transition Committee to develop and implement a transition plan.
If you follow the nine steps listed above, you should have a successful sale of your business.
In this part, we discuss a few other considerations for a successful sale.
Step 10. Additional Considerations.
As any M&A professional or any executive who has sold a business will tell you, there are many things that can go wrong that are not directly related to the business. Here are a few additional things to consider.
Don’t Scrimp on Professional Advisors.
The sale of your business may be the most important event in your business life. Treat it with the care it deserves. For many small businesses, the attorneys and accountants they use for daily work are not experienced in business sales. Assemble a good team of transaction attorneys, investment bankers, and accountants who have a track record in selling businesses. The specialists you need will cost more than generalists, just like a cardiac surgeon costs more than a family doctor. Spend the extra money for the expertise.
Once you hire your team, use them to your advantage. Take the time and effort to bring your professional advisors in early to help you plan. Refrain from communicating term sheets or proposals of any kind to potential buyers, or communicating with employees, before you’ve consulted with your team. Be sure to keep your team fully informed of all material information regarding your company and your business. Let them help you get the best result in the sale of your busine
The Human Factors
In my practice I’ve handled many mergers and acquisitions. Most were successful. Some failed. In every transaction, we encountered problems in most, if not all, of the nine steps discussed in this article. That’s just part of business. Generally, we were able to get people to communicate, work through issues rationally, be realistic, and come to an agreement.
There are a few common reasons the other transactions failed. First, there are “concrete” reasons. These include;
(i) An unrealistic purchase price;
(ii) After completing the due diligence review, the buyer decides the target business won’t fit the buyer’s business plan or goals;
(iii) The due diligence review uncovers problems that are either expensive, hard to fix, or both; or
(iv) the buyer fails to get the necessary financing.
There is a host of other reasons that are less concrete and more amorphous. While selling a business is a business transaction, there can be plenty of emotion in the mix. Ego, anxiety, greed, worry, fear, hope, anticipation, all appear at various times in the process. Dealing with the human factors can be as important as the business and financial factors.
Sometimes the seller or buyer had second thoughts during the process, for reasons unrelated to the “concrete” reasons discussed in this article. Sometimes it’s fatigue. After extended talks, parties get tired of arguing, or get angry with each other. Maybe one party’s risk tolerance is too low, the fear factor is too high, and the nerves are too on edge to come to an agreement.
Greed is a great deal killer.
If one party tries to negotiate the last dollar out of the purchase price, it can break the other party’s patience. Or senior executives disrupt the deal because they don’t like the terms of the contracts they are offered to stay with the company. Or there is someone whose consent is needed for the deal to close, who holds out until the last minute, hoping to be paid more money to get their consent.
Pride, too, is a good deal killer. Good business owners put a lot of their time, energy, blood, sweat and tears into their business, and are justifiably proud of their accomplishments. But sometimes business owners allow a bruised ego to bring the deal to a halt. In one case, the deal breaker was that the buyer wouldn’t agree to the seller’s request for how to handle a social impact aspect of the business going forward. The buyer was already engaged in several social impact initiatives, but the seller wanted the buyer to continue with a different set of social impact initiatives. The buyer, predictably, chose not to close.
Figuring out ways to deal with the “human factor” can be critical to closing your transaction. An important way is developing a level of trust. This requires good communications. Getting all the important terms out on the table, and being open and forthcoming with disclosure, is critical. Trust breaks down quickly if one party appears to be hiding problems or bad news, or seems to have a hidden agenda.
Sometimes an apparently unreasonable demand is a sign of confusion. Sometimes it is a mask for a “real” issue that hasn’t been stated yet. It can require people skills and finesse to figure out what the confusion or “real” issue is, and address it directly. This requires people skills and finesse. Patience and empathy are good tools to use to find the “real” issue.
Keep the “hotheads” out of the negotiations. Choose the “cool heads” to do the talking. Let your attorneys handle most of the negotiations. Attorneys deal with big egos and hidden agendas all the time, and can generally keep a cool head in the process. Sometimes the principals need someone to blame to save face in negotiations. Attorneys are used to getting blamed. It’s one of the reasons we get paid the big bucks.
Putting It All Together
This article covers several of the most important issues in selling your business. Each business is unique, and each seller and buyer have their own special needs and concerns. So each acquisition will be different.
The acquisition process requires planning. It is highly detailed and document-driven. Lawyers and accountants play big roles. The process requires balancing a range of issues, from valuation and financing, to risk allocation and communication.
Ultimately the balance must accommodate the real needs of both buyer and seller, as well as the requirements of the lender and other financiers. All of this balance has to be captured and documented, then brought through to closing, and sometimes beyond.
If you follow these nine steps, and are alert to the “human factors,” the sale of your business should be successful.
You can then turn your focus and business acumen to starting up your Next Act. Or move to the Bahamas and buy that sailboat…
