This series will highlight some of the business owner characteristics, motivations, and fears we often encounter in the world of mergers and acquisitions. The hypothetical business owners discussed here are amalgamations of personalities we've seen and are not meant to describe any particular person perfectly. You may, however, recognize some of these circumstances or motivations in yourself or others. Each time you do, consider it an opportunity to dig a little deeper and find opportunities to craft a better transaction for all parties. This discussion is by no means exhaustive or scientific, so make sure to apply your judgment and experience. The real goal here is to help to get you thinking along potential axes for negotiation outside of the enterprise value on a specific date.
Last time we focused on two types of owners who have a hard time seeing the company as an economic entity with a life cycle separate from that of its owners and an owner whose main goal in owning a company is their employment.
This Company is My People
This owner focuses on leadership first -- and will put their employees before most other concerns. These employees will often be fiercely loyal but may have flaws the employer is willing to overlook.
If you're buying
Loyalty to team is paramount. As a seller, this owner wants to ensure that the employees will be well taken care of. Go out of your way to communicate your desire to care for the team, then follow through.
If you're selling
Maintain focus on what you want for yourself in the transaction. Your employees are (generally) not your children, and there are limits to your responsibility to them. What you can do for them in the transaction process, however, is to ensure that the buyer is aware of the value your team brings to the business and works to secure appropriate employment contracts for each employee. If the buyer is unwilling to employ your staff, negotiate for generous severance benefits, including transition services like resume assistance, career coaching, move assistance, financial counseling, etc.
This Company is My Professional Obligation
Common among professional service providers, these business owners see their career as a calling and tend to be deeply concerned about the health, well-being, and outcomes of their patients, clients, or customers. This can have a lot of crossover with "This Company is My Baby" and "This Company is a Bureaucratic Necessity," with a bit more emphasis on the patients/clients/customers than the others. Many of the same factors apply.
If you're selling
Consider arranging to stay on for a period to help with the transition. Also, ensure you get your buyer well to ensure they share similar values regarding the services they provide.
If you're buying
Be aware of the owner's deeply personal relationships with many of their clients. Recognize that you will likely lose some patients or clients no matter how closely you align with the predecessor's values. Work to make the seller a part of the transition process for some time -- maybe a long time. These relationships weren't forged overnight. While these relationships tend to create long-time, loyal customers, they may require less efficient practices than contemporary practitioners in your industry would deem ideal.
This Company is One of Many
Serial entrepreneurs have a skill set that makes them highly effective at starting companies and building them to a certain point, then selling. This business owner will often have several projects going and many more projects in the works. This means getting the full attention of the serial entrepreneur can be difficult. Serial entrepreneurs can cause challenges because they typically take a wealth of leadership skills (and possibly the entire leadership team). The serial entrepreneur's big-picture focus and DIY attitude can also mean that the company's operating procedures are not well documented or constantly in flux.
If you're buying
The serial entrepreneur has often worked for years with submarket compensation and/or needs money to roll out their next venture. Dig into management and find out who, besides the owner, knows how to keep the company operating daily. This can be anyone from an operations manager to an executive assistant. Make clear to the owner that keeping that person on board for a transition period is critical to the transaction – and something you're willing to pay for. Earnouts can be tricky because the operating model often changes substantially from startup mode to operation and growth mode.
If this is you and you're the buyer
Work to manage the inevitable clash of cultures that will impact your new employees and client base. Frank discussions about these items with the seller and developing an integration plan – often with the help of integration consultants- can help maintain the value of the assets you're purchasing.
If you're selling
Congratulations, you've done this before and are working on your next big thing. Look for ways to facilitate knowledge transfer to the new owner while staying out of the way and maintaining the freedom to pursue whatever is next.
We'll follow next week with some thoughts on working with (or being) an institutional owner and a multigenerational family business owner -- but remember, every deal is different, and every party is driven by their own concerns and motivations.
If you see yourself or people you know in this article, fantastic – hopefully, we've given you some new perspectives to consider sand angles to work. If not, use this as a jumping-off point to consider the range of non-price facets you can negotiate to make a better deal for all parties. Please feel free to contact the team at Stock Legal to discuss ways to structure a winning transaction.