By Maurie Cashman
When owners decide to sell their companies what makes them choose one buyer over all the others? What is it that sets successful buyers apart from those who fail?
Evaluation of Buyers.
Owners evaluate whether a potential buyer meets their ownership transition objectives. Owners should have financial and timing objectives. The financial objective is the amount of cash the owner wants from the sale to help achieve his financial objectives. Can this buyer deliver it? The timing objective is when the owner wants to leave. Does she want to stay on with the company for a few years or leave the closing table for the first flight to Hawaii?
Sellers Choose Buyers Who Make Them Comfortable.
“The most basic of all human needs is the need to understand and be understood. The best way to understand people is to listen to them.” – Ralph Nichols
Years ago, we worked with an owner who had built a world-class company without ever losing sight of the role his employees played in the companyâ€™s success. He treated them with great care and respect and they stayed with his company for years. This solid employee base was one of the company’s strongest value drivers. It enabled the owner to demand a premium price for his company and made potential buyers willing to pay it.
One of those potential buyers was a financially strong suitor whose offer more than satisfied this owner’s financial objectives. While the owner was considering the offer, the buyer made numerous comments on how he planned to change personnel, operations and culture. He was insensitive to the owner’s desires about how he wanted his employees and his customers to be treated after the sale. As a result, the owner eliminated this suitor from further participation in the sale process.
The suitor not only did not understand the owner but also failed to tailor his behavior to the owner’s style. Tailoring behavior involves avoiding discussions of philosophical differences regarding management and emphasizing similarities. If an owner is eager to close buyers would be wise to accelerate the process. If an owner has non-financial ownership transition objectives, intelligent buyers find creative ways to meet them or to negotiate a compromise.
Smart buyers understand the ego of the owner of the privately held company. These owners often derive their identities from their companies. Their companies have demanded personal sacrifices and provided great opportunities. Owners want to be acknowledged for their hard work and business expertise. They want a little respect.
Buyers who reach the closing table may do so because they have satisfied an owner’s ownership transition objectives and have appreciated that owner’s state of mind.
Â© 2016 Aspen Grove Investments, Inc.