Avoiding Seller’s Remorse in M&A
Seller’s remorse at some point in the business sale process is extremely common. Because many business owners often spend their lives building up their companies, but sell them only once, anxiety abounds as a transaction close nears. Virtually no entrepreneurs will know emphatically that they have made the right decision until the business sales process is over and the deal is done. Because seller’s remorse can represent a huge emotional barrier, it is helpful to be preemptive in problem solving. Below are some clear questions and potential solutions which will help to alleviate many of the big issues inherent in traversing seller’s remorse when selling your business.
Am I leaving money on the table?
Selling entrepreneurs always want to maximize their liquidity event. Juxtapose this with the acquirer’s desire to nab the business and its assets for as little as possible and you have a legitimate fear on your hands. There are a few ways to help ensure this fear remains unrealized:
1. Maximize cash flows. Whether through top-line revenue increases or expense cuts, maximizing your company’s EBITDA will perhaps be the biggest boon to get the highest value possible. This is one of the reasons many owners waited to sell once the crash of 2008 hit. Middle market multiples were down and companies were selling for smaller multiple valuations.
2. Get multiple buyers to the table. Pump up demand for your business and simple economics dictates the price will increase.
3. Get a third-party valuation. Validate the value of your company by getting a MBA-level business valuation. A professional business valuation is helpful in getting the maximum amount possible from selling the company.
Getting a maximum price will become more difficult as time progresses for a number of reasons we’ve previously discussed including pent-up supply and a continuously soft market. Alleviating seller’s remorse when it comes to the sales price requires a bit more work, but is extremely rewarding if executed properly.
How will the business survive without me?
The truly platonic business owner will care little as to whether the business will survive after he/she is gone. Many business owners, however, don’t want to see their hard work fizzle into oblivion after they have sold. While there are plenty of instances of failure in M&A, the most active private company buyers utilize a fairly repeatable system for ensuring their investment in your business extends well beyond a year or two. Some owners question whether or not their business will survive with them not at the helm, particularly those that have not focused on building something as turnkey as possible. The solution to this concern is to ignore it as much as possible. Work on the business, work with your representative broker dealer and altogether ignore future decisions for which you cannot control.
What will I do after the business is sold?
Ultimately, the answer to this question can only come from the exiting entrepreneur. This concern is perhaps the most emotionally-driven of all those which fuel the seller’s remorse problem. Knowing what to do in the next phase of life can be difficult, but should not be the tail that wags the dog. Entrepreneurs are not the retiring type. The serial entrepreneur will likely already know the next move.
For the truly burnt-out business owner, selling will mean not having to think about anything for a while. This thought alone helps many owners with the emotion that can drag down a business sale.
What about the employees?
Employees can be like family. Being concerned about their well-being after the business is sold is very natural. While no seller can force a buyer to keep employees, contractual arrangements can certainly help to discourage attrition and layoffs. From experience, losing employees and watching the business flounder after it is sold is most likely to occur if sold to institutional investors. When a so-called “strategic” buyer swoops in, there is a greater likelihood that cost synergies will be extracted through “strategic” cuts to redundancies on the payroll which unfortunately typically occurs in the target and not the acquirer’s business. Negotiations and discussions about these issues during LOI and purchase and sale agreement negotiations is important. Assumptions leave room open for decisions that go in an undesirable direction.
Do what you can for the employees, but at the end of the day you also need to make assumptions, hope for the best and do what’s right for your future, especially if most of your retirement is tied up in your company.
Am I doing the right thing?
All of the previously mentioned questions can probably stem from this single inquiry, “am I doing the right thing?” At some point, this question almost always surfaces for business owners going through seller’s remorse. Only the selling entrepreneur can effectively answer this question. It is an emotionally-charged time with many emotionally driven questions. Even if a seller has gone through the process of personal financial planning, including an analysis of what diversification means for risk as the owner ages, the question still remains. In most cases, this question is purely psychological.
Change itself can be very difficult. Get a heavy-hitter in your corner to make the sales process more smooth.
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