I recently met a woman I’ll call Pam who runs a successful clothing line that has captured a loyal following of women who buy her products through a group of retail stores across North America.
Pam also produces a private-label brand for a large apparel maker. She has proven herself to be a valuable supplier with a keen sense of trends — so much so that her private-label customer has started to make overtures about the possibility of buying her business.
When I last saw Pam, she was understandably excited about the prospect of selling her business and she was seeking information about my experiences.
The buyer had asked Pam to present a price she thought the business was worth. Pam hired an accountant to prepare a valuation, and in her excitement, she told her employees. Instead of being happy for Pam, her employees reacted with a mix of fear and resentment.
Pam had painted herself into a tough corner: Her employees were disrupted and concerned about the possible sale of her business, and the acquirer, rather than making an initial offer, was asking Pam to negotiate with herself to come up with a price she thought her business was worth.
I asked Pam if she was working with a mergers and acquisitions (M&A) professional, and she said no. She had her accountant doing a valuation and she had asked her CFO to prepare a financial summary. Pam feared the buyer would walk if she introduced an M&A professional into the mix.
My advice was simple: Hire an M&A professional. Selling a business is not a do-it-yourself project. The role of an M&A adviser is to manufacture competitive tension for your deal and to drive a professional sales process.
The good M&A pro will know when to apply pressure and when to give the acquirer time. He or she will hint at competitive offers and insulate you from the emotional roller-coaster of selling your life’s work.
Yes, a good M&A pro is expensive — maybe 4 per cent or 5 per cent on a $10-million deal — but if you try to do it yourself, potential acquirers will know they are in control and may take advantage of you in a number of ways. They could:
• Prolong the due diligence process.
• Force you to take some or all of your proceeds as an earn-out.
• Make a lowball offer.
• Discount the offer during due diligence.
• Walk away or become unresponsive for months.
I explained to Pam that if the acquirer balks at the introduction of a professional intermediary, he or she was likely not serious about acquiring Pam’s business in the first place, and it would be better for Pam to know that sooner than later.
Special to the Globe and Mail
John Warrillow is the author of Built To Sell: Turn Your Business Into One You Can Sell. Throughout his career as an entrepreneur, Mr. Warrillow has started and exited four companies. Most recently he transformed Warrillow & Co. from a boutique consultancy into a recurring revenue model subscription business, which he sold to The Corporate Executive Board in 2008. He is the author of Drilling for Gold and in 2008 was recognized by BtoB Magazine’s “Who’s Who” list as one of America’s most influential business-to-business marketers.
