InSight

Exit and Growth Strategies for Middle Market Businesses

Who Moved My Deal? | Why Selling Your Company isn’t a DIY Project [Part 1]

By Daniel Sirvent | Apr 09, 2020

While intelligence, creativity and grit are all requisite characteristics of a future surgeon, nothing quite works like experience.

Nearly any medical school resident can handle a surgical procedure under normal circumstances; they’ve studied and memorized the procedures and the most likely risks associated with them. So why do they need an attending surgeon to supervise? Because when things don’t go according to plan, they need someone who’s “been there and done that” who can remain calm and work through the situation to re-stabilize the patient and get them to recovery.

How Business Owners Kill Their Own Deals

Why would an intelligent, creative and gritty business owner who hires a mechanic to repair their car and a plumber to fix their toilet, ever even think about trying to sell what may be their most prized and valuable financial asset all by themselves?

Simply put, they believe they understand the procedure (just find a buyer and stand your ground) and they believe they have the “right stuff” to negotiate a great deal.

Unfortunately, what they’re often lacking is the experience to handle the unexpected turns that come with the territory and often don’t realize their mistakes until it’s too late. Which could mean that at best they’ve missed an opportunity or at the worst, agreed to a deal that’s left them holding the short end of the stick.

So what are some of the most common mistakes that can derail a transaction and/or lower the transaction value in a business sale?

Time vs. Ego – What Kills More Deals?

Years ago, I had a public company CEO as a client who told me “time is the enemy of all deals.” While his intentions were well placed (he didn’t want to be the party that was dragging its feet), I gently and directly let him know that…he was completely wrong. Time is actually an asset that both parties need to protect and manage effectively, but that’s not the same as assuming that every part of the process must be fast. While poor time management carries its own risks, ego is the true enemy of all deals. When either party in a transaction fails to acknowledge the role ego plays, the entire deal is put at risk. 

Fortunately, my CEO client had thick enough skin to understand that my statement was not designed to accuse him of being an egomaniac (he was far from it, believe it or not). He recognized that in his particular transaction, we needed to intentionally take a little more time to cater to egos on the other side of the table in order to achieve the outcomes he wanted.

A Quick Negotiating “TIP”

Experienced negotiators understand that there are three universal forces in every negotiation: Time, Information and Power (“TIP”). Time is a resource that can work for you or against you if you understand how and when to bring it into play.

Ego on the other hand is never an asset or a resource. Ego doesn’t increase the attractiveness of a business or put another penny in your bank account. We all have egos, some of us manage them well and some not, but we all have them. So having an ego isn’t the problem, managing it effectively in the right ways and at the right times are critical.

Experienced M&A advisors, are adept at noticing when egos are beginning to hijack a transaction and are able to use that insight to avoid an impasse.

They’re able to do so because they’re hired to serve as a third-party observer (not impartial of course since they owe a duty to their clients) where they can remain emotionally objective and rational. It also allows them to be the “bad guy” if that’s ever actually necessary, to preserve the goodwill and working relationships between sellers and buyers so they can work together post-close.

Finally, they’ve worked with hundreds of unique personalities across dozens of transactions and have developed a specialized type of emotional intelligence that enables them to spot issues as they’re forming and sometimes avoid them altogether.

Who Moved My Deal?

Business owners attempting to sell their own companies are by definition biased (which alone isn’t fatal) and also exposed to the potential negative consequences of their egos (which unchecked can torpedo their deal).

If they fall into behavioral routines where they define themselves as either “customer” or “boss”, the inclination to play their hand too aggressively on the wrong issues can result in a major blind-spot in their negotiations.

It’s all too common in deals that are attempted between two private companies, where both owners (and sometimes multiple other partners) elect to stand their ground and create an impasse that’s based on ideology rather than the merits of the transaction.

The importance of having another set of eyes and ears on you and your deal cannot be overstated, whether the issue is your ego or the other guy’s. It’s because a key part of all communication is in the interpretation. We’ve all been in conversations where the other person is misinterpreting our words and intentions because of their own mental and emotional filters.

When we’re under pressure and the stakes are high, it’s not uncommon to have difficulty choosing our words as carefully and precisely as we’d like. It happens often in every transaction process, but having someone on your team that can interpret for you in both directions can resolve a very high percentage of the possible controversies that could derail your deal.

Making Room for Others

Imagine a woman telling her spouse she doesn’t want to buy a particular house because she doesn’t like the color of the living room walls. If the spouse tries to talk her into that color (or makes a foolish statement such as “that’s ridiculous, it’s a great color”)…the conversation is over and he’s sleeping on the couch.

In contrast, if he acknowledges her concerns and reminds her that it’s an opportunity for her to redesign the entire living room (if not the whole house) in the color of her dreams then he’s created space for her to participate in the decision on her terms.

Unfortunately, the stakes are much higher when selling or acquiring a company and it’s often difficult for business owners to distance themselves sufficiently from their emotions and ego without someone to act as the angel on their shoulder.

Hiring Experience

It’s been said that if you think hiring a professional is expensive, just try hiring an amateur. In a recent conversation with an M&A attorney at a major law firm, I was told that “the value is always higher with an investment banker involved.”

If only I could make that sort of claim with the sort of empirical evidence that would settle the issue for everyone. Perhaps then business owners would think of engaging M&A advisors more often and spare themselves the effort, expense and eventual frustration that results from broken deals.

If you or someone you know is wrestling with a transaction that’s been hung up by ego, or where discussions have broken down for other reasons, our team is happy to serve as a resource to help you evaluate (for yourself and on your unique criteria) whether an experienced M&A advisor could improve your chances of generating the premium outcomes you’re looking for.

 


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