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The Stiff Arm

I blew it, didn’t I, Jim? I just pushed too hard.”

I felt bad for Raymond (not his real name). He retained me about a year ago to sell his company and prepare his path toward retirement. He and his wife have already done post-sale planning. She is an art collector, and they have several European museums on their itinerary.

Fortunately, Raymond’s company is on the radar of several large private equity-backed companies that are in consolidation mode. We call these “strategic buyers.” Once we prepared the marketing materials for his company, I reached out to the seven potential buyers we had identified. I got immediate feedback from all seven. Three were not interested because the geography wasn’t right. Two were interested but said they couldn’t make a move until 2024 after they had digested companies acquired this year. That left us with two interested parties who were ready to begin negotiations. We scheduled site visits for both. The first potential buyer came in, took a quick tour, then gave us an offer well below what we thought was acceptable. About a week later, the second interested party came down for a visit, along with five of his team members. They were much more deliberate during their site visit. A few days later, they sent me their Indication of Interest, and it was close to what Raymond and I thought was doable. 

Then it happened, and I’ve seen this before. The moment a seller sees a good offer from what he/she believes is a well-funded and interested buyer, they start to push back. Something happens in the seller’s mind, no matter how good the first offer is, they think the buyer has more capacity. Raymond then consulted with his accountant, his banker, and his wealth planner, and they all offered input as to how to improve the deal. We countered with a hodgepodge of terms that seemed (IMHO) to be an overreach. I cautioned Raymond accordingly, but he said he was “acting on the good advice he had been given.” Predictably, the buyer pushed back on almost everything, yet Raymond held his ground. He was confident the buyer would come around.

After this back and forth, the buyer called me and politely told me they were passing. He said the multiple terms Raymond was advocating were a sign he wasn’t interested in selling. “Jim, I buy 9 to 10 companies a year, I know when a seller is ready. Raymond isn’t ready,” the buyer told me.

I went back and described the conversation to Raymond and he said, “That’s fine, if they aren’t ready, we’ll wait for the next one to come around.” I explained to Raymond that we didn’t know if or when the “next one” would come around, and that we might have missed a good opportunity. But Raymond felt confident this buyer would come back around.

The next morning, I got a text from Raymond saying he was prepared to reduce some of his ask. I then texted the buyer and asked him to call me. I hear nothing. The next morning, I get another text from Raymond with a second reduction of his expectation. I text the buyer again. I hear nothing. Then about four days later, I sent the buyer an email asking him to call me, saying I have new information that might affect his thinking. But here we are, two weeks later, with no response to my email.

Now, as a matter of basic courtesy, I think the buyer should call to at least say “no thanks.” But the larger message here is a seller can push too hard. Just because a well-funded buyer has a big budget doesn’t mean they don’t have a walking away point. Don’t be surprised when the pushback is a stiff arm.

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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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