Nearly 15 years ago, I was setting up a trade-show booth when the exhibitor beside me - a young guy about my age -started a conversation.
Seeing me wrestle with the various poles and staging needed to erect my booth, he came over to help. Small talk aside, he started quizzing me about my little marketing company. At the time, I probably had two or three employees, and maybe $300,000 in revenue, so I was surprised by his degree of interest. He seemed overly complimentary about the modest portfolio of work we had created.
It turned out that he, too, had a marketing agency. But, he soon revealed, he didn't spend much time creating brochures or wooing clients. Instead, he focused on buying small companies like mine.
At the end of the first day, my new friend turned to me and offered to buy my company. I couldn't believe my ears. After all, we had met only a few hours earlier. What would this guy want with our three-person shop? How could he offer to buy my company without any financial information? And how would a twenty-something guy, just a few years out of school, get the money to buy my business?
I asked him what exactly he had in mind. He went on to explain that he wouldn't actually buy my company for cash. Instead, he was offering to give me some shares in his company in return for my business.
When I probed further about what his company actually did, he wasn't able to show me much of a vision beyond his idea of buying lots of smaller advertising agencies so that he could own one large one.
Using his company stock instead of real cash, he was targeting anyone with a pulse - after all, he didn't have much to lose other than his company. Given that it didn't actually do anything or serve any real customers, it was pretty much worthless.
I passed on his offer and, ever since then, have been skeptical about financiers who make their money solely from the labour of others.
My guess is that, as a business owner, you, too, have been approached by these opportunists who claim a big vision for creating a large company. Their favourite come-on line is: "Would you rather own all of a small pie or a slice of a much larger pie?" Their so-called business strategy is really just a merger and acquisition ploy.
Their pitch may sound good in theory - until you realize the currency these vultures want to use to buy your company is their stock. Admittedly, it has the potential to work if you're in an industry in which size trumps all else, but in all too many cases, each new acquisition these buyers make further dilutes your slice of the pie and your control over decision-making.
Pretty soon, if Mr. Moneybags does nothing meaningful beyond jamming together unrelated businesses, all you are is an employee with an illiquid slice of a rapidly deteriorating stock.
Since that day at the trade show, I haven't paid much attention to people who want to use stock as a currency to buy a company. If they have the cash - and that's a good acid test to determine if they are serious - they should use it.
Special to The Globe and Mail
John Warrillow is a writer, speaker and angel investor in a number of start-up companies. He writes a blog about building a valuable - sellable - company. He is the author of Built To Sell: Creating a Business That Can Thrive Without You, which will be released in April.