Nov 232009

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Dr. Earl R. Smith II


Most founders think that the process of selling their company is the most difficult – but that is not the principal reason that companies do not transact. Unfortunately, many founders discover much too late that they are the reason.


The closing table is no place to finally come to terms with the fact that you are about to sell your interest in a business that you may have spend years building up. It is no place to come to terms with the fact that tomorrow morning you will wake up and either have no place you have to be or nowhere near the authority over the people you built into a team. Coming to terms with the facts of life may mean that:

  • Your management team will look at you differently and to others for leadership
  • Customers that you have spent years building relationships with may not jump to take your calls like they used to – nor will they call you when there is a problem
  • Years of carefully reviewing budgets, leading meetings and planning the next move will be over
  • You won’t be the big dog in the yard anymore
  • Friends and business associates will look at you differently – you are over the hill, put out to pasture or wandering in the woods looking for a new path
  • You will now have a boss to report to
  • You spouse may be less than happy that you will be spending more time at home

These are just a few of the challenges you could face post-sale. Any of them can bring on potent emotions. And if they are concentrated in the brief morning that you have agreed to as for the closing of the sale, they can come upon you like a tsunami. The experience can be gut wrenching.

Working Through the Emotions: Whatever the reasons are, they are almost always connected to some very strong emotions. Humans are, after all, fundamentally emotional animals. Some of the founders I work with initially resist this suggestion. They want to get on with the process of selling out. Some get very defensive about the suggestion that their decisions will be primarily driven by emotions.

“So why are we focusing on emotions? Why aren’t we analyzing the company? What have my emotions got to do with it?” I get these questions and many similar ones all the time – particularly at the beginning of an engagement. My response is generally “because it is not the details of the company that are likely to sink any deal – it is your inability to pull the trigger when the time comes. Valuations will be generated based on similar transactions, term-sheets will be received that will reflect the value of the company to potential buyers, agreements negotiated that will protect your interest as well as possible; the legal process is well defined. Sure there are uncertainties in all of these areas but historically the biggest unknown comes from a seller who only at the closing table comes to terms with the fact that he is selling his interest in his company.”

Getting a company ready to be sold is an expensive and time consuming process that can have major negative effects – particularly if the founder gets to the settlement table and just can’t pull the trigger. Talk to any investment banker – particularly those who routinely represent the sell side of the process. (BTW, the best representation is widely seen as the ‘buy side’ – for reasons that will become clear if they already are not by now.) Their biggest nightmare is putting together a deal – doing the diligence – developing the book – arranging for presentation to prospective buyers – reviewing a term sheet – negotiating the terms – arranging the financing – working through the papers with the lawyers and accountants – getting to the settlement table only to have their client change his mind at the last minute. Sure they get their monthly retainer and that helps cover their costs – but investment bankers are not in business to collect retainers. They make their profits from the success fees derived from actually transacting a company.

So, the settlement table is no place to finally confront the daemons that are likely to upset the process. Decisions made under such duress are very likely to be wrong, messy and counter-productive. But how do you work through the emotions associated with selling a company? Here are a few suggestions:

  • Take a Test Drive: It’s a simple idea. Take a sabbatical and simulate the life-after-sale that you think will be so satisfying. I have used this approach in a couple of engagements with very interesting – if diverse – results. The idea is simple – take some time off – ideally at least six months. Put your team in charge with orders to ‘work out whatever comes up and don’t bother to bother me’. And then sail off into the sunset and see how it feels. One client who tried this lasted less than two months before he realized that he really didn’t want to sell out – he had just had a couple of trying quarters. That realization saved the company hundreds of thousands of dollars and kept his team together. Another just kept on going. He extended his sabbatical and returned to negotiate a management buy-out with his team. It can go either way – but you need to know more than you probably do before you jump out of the boat into that trackless ocean.

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