We teach our kids that “money isn’t everything.” But selling your business is perhaps the biggest financial event of your lifetime. How important is money then?
Most owners are bombarded with solicitations from business brokers and private equity groups. The reason is simple: the cost of funds has been very low for a decade. Returns on bonds and deposits are in the low single digits. Many investors are searching for better returns, and privately held companies have become an attractive option.
There are about 7,000 Private Equity Groups (PEGs) in the United States. Sometimes these buyers are Search Groups (who have investors lined up if they identify an acquisition opportunity). Others are investment funds with a billion dollars or more in "dry powder" (cash in the bank), ready to put into a business.
If you are smart, clever, tenacious, and lucky, you can reach the point where there is plenty of money to buy you out. In fact, money is probably chasing you. Most sellers, however, come to realize that money isn't everything.
What else do you envision for the future of your business? Do you have close relationships with your employees, and the desire to see their jobs preserved? Would your town suffer if the company relocated? Perhaps most importantly, is your name over the door? Is your family’s reputation in the community tied to the business?
The M&A world abounds with horror stories of financial buyers who stripped the employee benefits from a company and drove off its key personnel. Others pulled their capital as soon as they had control (to leverage it in another deal), leaving the business staggering under the debt replacing it. Some have inserted a Hired Gun executive from another industry whose inexperience quickly ran the business on the rocks.
That might not be your concern if you walk away with a terrific multiple. But if you are concerned about your legacy as much as your bank account, such issues will play a major role in your consideration of prospective buyers.
You can address non-financial concerns by asking a few questions about your buyers:
- Do you trust them? Can you see working side by side with them as your partners?
- Do they understand your business and your customers, or are they just looking at your financial statements?
- Can you talk to other owners who were acquired about their feelings after it was done?
- What is their track record for relocating or cost-cutting post-acquisition?
- Is your business slated to be a key holding for them, or is it just one of a number of add-ons to something else?
Notice that the questions don't include "How much money do they have?" If you are attractive to one financial buyer, you are probably attractive to a number of others.
Many of my clients, when they examine the non-financial aspects of selling, choose alternative exits. They arrange for the employees to buy the business, or merge with a friendly competitor. They may not make quite as much, but money isn't everything.