“If I don’t handle this right, it could cost me millions and leave me bored to tears. Can you help?”
I get a question like this from a business owner about once a month. The types of businesses are different, but the situation is the same…the owner has a successful business and they have been approached by a credible third party with an unsolicited, though compelling, offer to sell their company.
The second question I hear from the owner is, “If I decide to sell, can I get more?” My answer is always the same, “perhaps.” Maybe I shouldn’t admit this in a blog post, but I don’t know everything. Before I can render an opinion about a company’s valuation, I need to study the quality of the company, understand the objective of the company that made the offer, and get feedback from the owner about his/her after-sale objectives.
Let’s say the business ranks high on my proprietary metric, “seven principles of irresistibility.” Then let’s say the company that made the offer has completed other acquisitions in the industry and publicly stated their plan to continue to grow through acquisition. So far, we’d have all the makings of a great exit. But suppose the business owner tells me she doesn’t know what she’d do after the sale, or maybe she’s always planned to pass the business on to her children, or maybe she thinks the business has significant near term potential and it’s not time to sell. These are the kind of factors that would tell me the business is not ready to be sold, even if the offer was, as the godfather would say, “an offer she can’t refuse.”
If your business has annual revenue greater than $5 million, your name is on the target list of every private equity group and search funder in America. You are likely already getting scads of calls and letters from potential buyers. You might also be getting calls from competitors, suppliers, or even customers asking if your business is for sale. I’m guessing that most of the time, your visceral and sincere answer is, “I’m not interested.” But what if the potential buyer puts an attractive number on the table? What if the potential buyer has reached out to you when you’re having a bad day or having a “take-this-job-and-shove-it” attitude? If there’s any circumstance you think might drive you to consider selling now, you need to do your homework, which means learn your company’s market value and decide if it meets your exit objectives.
Everything I have said so far you know, it’s instinctive; before you sell you have to determine if the deal meets your exit objectives. But, many business owners get tripped up because they don’t ask themselves that question before they start to get the “are you for sale?” calls.
Most everyone will remember that they did better on tests in school if they’d done their homework before the test. Let’s face it, doing your homework while taking the test is not a good idea. Once the call with an offer comes in, the test has begun. Prepare to be prepared. Ask yourself the hard question and force yourself to answer it now. Then let the test begin.
JIM CUMBEE is President of Tennessee Valley Group, Inc. a retainer-based business brokerage and transition mediation firm in Franklin, TN. Cumbee is an attorney and has an MBA from Harvard Business School. Jim is the author of Home Run, A Pro’s Guide to Selling a Business. https://www.amazon.com/Home-Pros-Guide-Selling-Business/dp/1599329239 . He has a wide range of corporate and entrepreneurial experiences that make him one of the most sought-after business transition advisors in the state of Tennessee. The principles above are true, but the story, names and fact patterns are changed to preserve the parties’ identities.
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