Owner Health Issues Plaguing Mergers & Acquisitions

Selling anything under duress is always less than ideal. Unfortunately we’re never privy to when misfortune will strike. As businesses age, so do their staff, the owners and their spouses. The probability of a health issue increases almost exponentially as the business gets older and the owners look forward to retirement. The eventuality of health issues plaguing owners or their families, further underscores the need to prepare to sell the business long before it’s actually necessary. Like a good entrepreneur, business owners are typically eternally optimistic, but they should also adhere to some of the mantras of doomsday preppers in preparing for the unforeseen event.

I can think of three separate instances over the last several years where a client was forced into a situation where the owner or his/her spouse had health issues which sped the M&A process up significantly. For those prepared to sell, the issues take on less significance. But sometimes they can significantly hamper the eventual payout price of the business.

Let’s take Brian as an example. Brian owned and operated a mid-sized trucking and logistics company. The only owners were he and his wife Lauren. When Lauren unexpectedly came down with breast cancer a couple of years ago, the business suffered noticeably. Brian and Lauren were unable to put the time and effort into the company they once had. Brian had sought representation in the past, but had always been slow at “pulling the trigger” because things had been going so well in the business that the timing didn’t seem right. Fast forward about 11 months and Brian and Lauren’s life is in chaos and the business is nowhere near sell-able. Not to mention the fact that working through both breast cancer and the most significant transaction of one’s life simultaneously could cause even the most robust constitution a little stress.

I hate to paint a doomsday picture, but there at least needs to be a contingency plan in place for when the unthinkable arises. Not just a buy-sell agreement, but a plan that could include a rapid merger or acquisition with another firm, in the unlikely event of owner health issues. It’s a step above and beyond the buy-sell agreement and includes things like performing business valuations and keeping them updated, being in close with your CPA or accountant to ensure your books are in order and having a manager that can run the business without you present.

The biggest reason for talking contingencies is to avoid 1) that the business can operate independent of any owner input in the unlikely event of a major health calamity and 2) that the business owners do not feel backed into a corner and feel forced to sell under any form of duress. The sharks and wolves so often portrayed in the financial sector are often epitomized by those looking for companies under distress when an owner is briefly or permanently out of commission.

It doesn’t mean you should sell today. It simply means thinking through all possible negative scenarios and painting worst case descriptions of possible events and then working on solutions to such scenarios long in advance. But, it is best to sell before the onslaught of a major health issue. Combining the stress of selling a company with fighting a disease can make a bad situation worse.

Knowing your company’s inherent value and being ready to sell can also put an owner in a good place when the market is ready to buy. Luckily today’s market has the perfect storm for M&A swirling together:

  1. Valuations of private firms are up.
  2. Buyers are actively buying and larger companies have balance sheets flush with cash to make acquisitions.
  3. The overall market has improved greatly since 2008.
  4. The money is flowing better for bank lending in the financial markets once again.

A window this good may not last forever, but it is good to be prepared for when other micro and macro contingencies, including health issues, rain down on your personal life and your business.


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Nate Nead
Nate Nead is a licensed investment banker and Principal at Deal Capital Partners, LLC which includes InvestmentBank.com and Crowdfund.co. Nate works works with middle-market corporate clients looking to acquire, sell, divest or raise growth capital from qualified buyers and institutional investors. He is the chief evangelist of the company's growing digital investment banking platform. Reliance Worldwide Investments, LLC a member of FINRA and SIPC and registered with the SEC and MSRB. Nate resides in Seattle, Washington.
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