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Selling Under Duress: Don’t Be a Harvey Weinstein

My doctor told me yesterday this cancer will likely take me in 6 to 8 months. I need to sell my company now before my crazy ex-wives and kids have a full-blown food fight over my assets.” Andrew (not his real name) wasn’t kidding when he first told me this story. At the time of our first call, I kind of assumed he was exaggerating, but once we started working together I realized he was serious about two things: 1) he had to sell his company quickly, and 2) he didn’t trust his family to be responsible after his death.

Andrew’s story, which I have written about before, is one of the more extreme examples I have encountered of selling a business under distress. It goes without saying, selling a business in circumstances like this never leads to an optimal outcome. No matter how a seller might try to disguise his/her reason for selling, when the business or the owner is under distress causing the sale, the buyer will figure it out and it will impact the price and terms the seller will be offered.

All of America has been watching the recent horror story of Harvey Weinstein. Here’s a powerful and successful movie producer whose career and business will justifiably go down in flames. His legacy will be that of greed, excess, and harmful behavior.  Nothing good will be said about Harvey Weinstein, all because of his own egregious choices.

But Weinstein has challenges that go beyond his reputation living in infamy. The Board of Directors of his company has decided that this scandal forces them to sell the company. The library of movies the company has produced is very impressive, so there is some sustainable value in the business, but nobody expects the business to sell for much more than basic asset value. The latest reports indicate the company will be acquired by private equity group Colony Capital. While terms of the deal have not been announced, most experts believe Colony will pay less than 50% of what the company would have been worth before the scandal.

Yes, stories like Andrew and now Harvey Weinstein are extreme examples of the dangers of selling your business in distress. But the principle applies to every business owner, irrespective of the size or nature of the business: sell your business before you have to sell your business. Admittedly, it’s often difficult to see distress coming before it hits you. It might be a sudden and unexpected diagnosis from your doctor like Andrew received. It might be the loss of a key employee or customer. It might be a move by a bigger, better-funded competitor.  You might never see the pending distress coming, but when it comes, you might find yourself boxed in with few options. I don’t advocate selling a business in fear of what might be coming, but I am suggesting you keep one eye open to opportunities to exit if/when your valuation is consistent with your objectives.

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. 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.

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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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