Deals can be intoxicating
If you have ever managed in business, you know that when one of your employees has a challenge in their personal life (marital conflict, health problems, school issues, etc.), their attention to work and overall performance will understandably suffer.
In our experience, it is no different for business owners in the middle of a transaction - transactions are every bit as stressful and distracting as these types of personal issues. Unless you take great care to focus even more intensely on your business during a transaction, your business performance can often suffer, which in turn will diminish your chances of a successful deal.
Selling your company can be an intoxicating experience. It starts with several advisors (lawyers, investment bankers, consultants, etc.) pitching to earn your business - to gain your trust, they will tell you how great your business is, how easy the sale process will be, and how much money you will make. It sounds wonderful, of course - it's what you love to hear and want to believe.
After you pick your team, your investment banker will put together a really nice book describing how attractive your company is, how bright its prospects are, and how well an acquirer should expect to do after the sale. Then you will have calls with potential buyers - if they are interested in your business, they will tell you a lot of the same things.
Potential buyers who are skilled at negotiations are very likable - they want you to believe they are the best future owner of your company, and as a result will flatter you with compliments about how well you have done with your company. You may even begin to believe all of this yourself (who wouldn't?). This, of course, is where it gets dangerous.
If you are not careful, you will begin to spend more time on the deal at the expense of your normal job of running your company. The deal process itself is different, it's exciting, and it has lots of ups and downs as you work through issues and negotiate final terms. You might begin to think about life after closing, you might even buy something new in anticipation of all that new money you will have, and you will grow wearier of all those day-to-day challenges of running a business. This, after all, is why you wanted to sell your business in the first place.
If you do not anticipate this course of events, and get distracted from your daily focus on your business, it is predictable that the performance of your company is likely to deteriorate. Declining business performance in the middle of a deal, particularly during due diligence when buyers are examining every number with a magnifying glass, is a killer. Seeing revenues soften or profitability decline or key employees getting restless, a buyer will begin to have second thoughts. This will start a new round of questions and inquiry, which will take up even more of your time and energy. Buyers will want to revisit key terms of the deal, including valuation. This is when deal fatigue sets in - you grow even less tolerant of negotiating new issues, and the buyer gets even more nervous, typically wanting to "wait and see" if the business performance improves. This is when deals crater if not handled with extreme skill and care.
We have seen this "movie" too many times to count - the business owner gets distracted, loses focus on their operations, business performance suffers, and the buyer wants to renegotiate the deal. This is self-serving of course, but these are the reasons you really should have a team: to limit the amount of time and energy you have to devote to a deal, so that you can ensure your business not only does not deteriorate, but actually improves during the course of a deal. Improving performance allows you maximum leverage in your negotiations, and push the deal to closing on the most favorable terms. You have worked hard to create a great company, but you can lose significant value over the course of a deal if operating results start to erode. Be aware of this danger, and prepare for it by hiring the right team, and "run through the tape." If you run your business as if you have to own it forever, you will be focused on the right things - let your deal team manage the rest of the stress of the deal to the maximum extent possible, and you will dramatically increase your odds of having a successful sale.
Chris Younger is Managing Director of CapitalValue Advisors, LLC (www.capitalvalue.net). Chris has over 20 years of experience in structuring deals and managing businesses, sales and operations. He was the co-founder and president of a 4,200-employee telecommunications company, has purchased and sold over 30 businesses as a principal and investor, and has been an advisor to hundreds of companies. Additionally, he is the co-author with David Tolson of the book Harvest: The Definitive Guide To Selling Your Company, available on Amazon. He can be contacted at firstname.lastname@example.org.