Perry Miele's firm, Beringer Capital, is usually in the business of selling companies on behalf of their owners, but Beringer also buys businesses as investments in the hopes of nurturing and growing them.
I asked Mr. Miele, Beringer's chairman, to put on his buyer's hat and share an example of a company he was interested in but ultimately walked away from. I wanted to understand what caused him to get cold feet when the shoe was on the other foot.
Mr. Miele shared a story of a very successful owner-operated business in the marketing communications industry. The founder was a charismatic salesman and leader. From the outside, the business looked like it would make a superb acquisition.
Mr. Miele prepared a term sheet to buy the company and started his due diligence. As he got to know the business better, he found the owner had an unusually dominant role in all aspects of the business, despite having a management team with impressive titles, including a vice-president of operations, a vice-president of sales and a vice-president of marketing. Concerned that the owner had a hub-and-spoke management style, Mr. Miele asked to speak to a couple of department heads individually, without the owner present.
In probing the VPs about their plans for hiring, Mr. Miele learned that personnel changes needed to be approved by the owner. Concerned, Mr. Miele kept pressing by asking about decisions on key client files, and again, the managers told him all major client decisions were run by the owner. Mr. Miele pushed for concrete plans on increasingly more trivial decisions, and each time, the department heads explained that they were not in a position to make a final decision, that they would need to consult with the owner.
Mr. Miele walked away from the investment, reasoning that, despite being profitable and attractive on paper, in practice the company was too dependent on the owner.
When you go to sell your business, a buyer will likely ask to speak to your employees when you are not present. They will probe, as Mr. Miele did, to find out about their decision-making authority and their autonomy. The buyer is looking to see whether you've built a company that can sustain itself without you at the helm, or if you are quietly controlling everything from behind the scenes.
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. Follow him on Twitter @JohnWarrillow.