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One Thoughtless Comment Cost Him $35 Million

Don (not his real name) was smart, but his errant comment cost him $35 million.

In just 12 years, he had built his company to be the largest in his industry. Don was a rock star, and his company’s future was bright. But Don had taken the company as far as he wanted to take it. Though just 44 years old, he was ready to sell the company and realize his life’s ambition to play golf on six continents (did you know, there are no golf courses on Antarctica?).

I was representing the buyer. My client was the perfect buyer for Don’s company. My client had capital, and Don’s company was a perfect strategic add-on to the services my client’s company delivered. It was a match made in heaven. There was just one problem; Don’s company had some operational complexity not within my client’s core competency. Part of my client’s deal would have to include Don staying actively involved for at least two years after the closing.

My client valued the company at $35 million. When I told Don that would be our offer and that my client needed him to stay on for a couple of years, he expressed interest in moving the negotiation to the next level. “I was hoping for $40 million,” he told me on a phone call, “but we’re close enough so let’s keep talking.” He never addressed my comment about him staying on for a couple of years. That was an omission we’d both come to regret.

My client was so excited about the strategic implications of the acquisition, he wanted his entire Board of Directors to visit Don’s company. Though I’d never had a Board visit a prospective acquisition during due diligence, I didn’t express reservation about the idea. In fact, my client was so enthusiastic about the opportunity, I figured a big meeting like this would only make the deal go faster. Don loved the idea of meeting my client’s Board of Directors because he knew his business would show well. I set up the Board visit to start with a tour of Don’s facility to be followed by a nice dinner at a local steakhouse.

The tour came off without a hitch. Every member of my client’s Board was genuinely excited. Dinner was equally smooth, lots of laughter and positive energy. On the way back to the hotel after dinner, I reflected that this visit from the Board of Directors seemed to have been a brilliant idea.

Until I got the call.

It was about midnight and I had just turned off my light to get some sleep. My phone rang. It was my client’s CEO calling to tell me the deal was off. It seems that during dinner, Don made a comment to one of the Board members about his interest in joining a famous golf club in Ireland after the deal closed. Don had also told the Board member that this club in Ireland had on-course condominiums and that he planned to buy one as soon as possible.

As the CEO was telling me this, I remember thinking, “I don’t see the problem, every entrepreneur who sells a business is entitled to a post-closing splurge, it’s quite normal.” But Don’s comment alarmed that Board member (who happened to be the CEO’s closest friend and advisor). After dinner, that Board member and the CEO talked and concluded Don would not have his head in the company post-closing. Without Don’s full emotional commitment to the deal post-close, my client didn’t think the integration would work.

Having to call Don and explain how his single comment about buying a condo in Ireland changed the trajectory of the deal was the hardest business-related phone call I have ever made. It seemed so petty and silly that one flippant comment, perhaps after an extra glass of wine, could so quickly change a buyer’s perspective.

This episode happened twenty years ago, and as I reflect on what happened, I think the CEO and his Board member friend made an astute decision. Don had built a fabulously profitable company and had strong functional leadership at each key staff position, but Don was the glue. Don was going to be needed for an extended period post-closing to make the integration work. In retrospect it is clear, Don had mentally checked out, he was probably already thinking about how he was going to decorate his Irish golf retreat.

The transfer of a business is a timely and cumbersome process. Lots of paperwork, meetings and phone calls. But it is also an emotional process and unless the buyer “feels right” about their decision, the deal can hit a ditch over the most mundane matter. Don was not sensitive to my client’s clearly expressed need to have him in the deal for two or three years. Sure, it’s fine to have a vision for your life post-closing, but remember you’ll never get there unless the buyer is financially, and emotionally, comfortable with the decision.


NOTE: This blog was originally published in 2017 about an event that occurred almost twenty years ago. I wanted to republish it today since the lessons are still so relevant.

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Tennessee Valley Group

Jim is an attorney (non-resident status with the Missouri Bar) and though he no longer practices law, he has read and negotiated enough legal documents to fill a cargo tanker. He has an MBA from Harvard Business School and knows how Wall Street and private equity operates. Jim is a Tennessee Supreme Court Rule 31 listed general civil mediator with tons of experience helping business owners (large and small) work through sensitive problems to achieve winning results. He is the author of "Home Run, A Pro's Guide to Selling Your Business, Seven Principles to Make Your Company Irresistible."

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