[M&A Supplement] How You Feel Might Kill the Deal

Supplement - Mergers & Acquisitions Supplement

It’s easy to get emotional selling your business. But too much feeling is not in your best financial interest. Experts offer tips to help you get a grip.

July 31, 2012
Anne Nagro

Cold feet prevailed. The seller backed out. Paul Giannamore, managing director of The Potomac Company, had been trying to close the sale of this pest management business for six years. Given the owner’s emotional state, it was no surprise he didn’t show up at closing.

Emotional issues are “big, big time deal killers” causing an “almost fight or flight” response, said Giannamore.

They are the “impetus behind a failed business sale at least half of the time, if not more,” said Barbara Taylor, New York Times blogger and co-founder of Synergy Business Services, a business brokerage firm in Bentonville, Ark. Frequently people focus on financial details, but “emotional ones are equally important.”

Most sellers aren’t even aware their emotions cause “seemingly unexplainable behavior and barriers to the sale,” said Jack Garson, attorney and author of “How to Build a Business and Sell It for Millions.”

Take the seller who suddenly increases his demands or rejects terms to which he previously agreed. The buyer backs out and the process has to start over again. Often, though not always, owners sell for less than they could have received in the first go-round.

Selling in Bad Times...
“M&A in the pest control space is largely driven by life events,” said Giannamore, so when an owner has to sell his business due to health problems, divorce, financial duress or old age he brings extra baggage to the process.

This just adds to feelings of tremendous uncertainty and not being prepared, said Garson.

Tears at the negotiating table aren’t uncommon. “It’s usually the older guys” in their 60s and 70s, said Giannamore. That’s when emotions “really start to kick in and it causes them to make serious missteps.”

Some sellers learn their business is not as valuable as they thought. Owners often stretch the truth to peers about how much they sold their business for and these rumors set unreasonable expectations, said Giannamore. By the time many figure this out, “it’s too late to do anything about it.”

Others may feel selling is “admitting defeat,” said Jeff Teague of Hamilton, Ohio. He sold Responsible Services to Perfection Pest Control in 2012. The hardest part for him was realizing he wouldn’t see his vision come to fruition, to “give up on that part of the dream.”

… And Good Times. Even when cashing in at the height of success, selling a business is not without emotion.

Craig Thomas, former owner of Craig Thomas Pest Control in Hyde Park, N.Y., didn’t intend to sell, but received an offer from Rollins he could not refuse. Still, selling wasn’t an easy decision and the year-long process was an “emotional rollercoaster,” Thomas said.

What follows are some of the common emotions experienced by sellers as they consider the possible sale of their business, an emotional experience even under the best of circumstances.

Do Your Homework

These books can help owners prepare for selling the business:

Exiting Your Business, Protecting Your Wealth
by John Leonetti
Outlines exit options and helps you analyze your financial and mental readiness for your business exit.

Built to Sell: Building a Business That Can Thrive Without You
by John Warrillow
Explores key criteria for enhancing a business’s salability.

Every Family’s Business: 12 Common Sense Questions to Protect Your Wealth
by Tom Deans
Provides a plan to get families thinking and talking about the future of the family business.

How to Build a Business and Sell It for Millions
by Jack Garson
Uses real-life examples to explain how the goal of selling your company must be linked to every business decision you make: hiring, compensation, contracts, financial reporting and more.

Transaction: Putting a Price on Business
by Barbara Taylor
This blog is part of the New York Times’ small business blog, “You’re the Boss,” and features insights on buying, selling and valuing private businesses. http://boss.blogs.nytimes.com/author/barbara-taylor/

Losing yourself. Randy Nader, who sold Nader’s Pest Raiders to Arrow Exterminators in 2010, didn’t commit to selling until the day Arrow management arrived to close. He was 51 years old. A big question for him: “What would I do after that?”

Fear of the unknown is a common concern, said Taylor. Frequently owners haven’t given enough thought to life post-sale, besides finally having free time to play golf or take vacation.

Owners worry about losing their identity. For years they’ve been the boss and have taken great pride in this position, an enviable place in society’s pecking order, said Garson.

Selling the business is akin to selling “part of me and somebody else is going to have control of it,” said Teague.

Sellers may feel sad, lost, lonely and without purpose. Garson had one client sell his business only to find his wife busy with daily activities and his friends at work. He ultimately started a new company, not to make more money, but to keep himself occupied.

Worries about others. Concern for family, employees and customers also drives owners to distraction.

Thomas’ business was a “family organization with deep tradition,” one that employed his wife, daughter and sister.

Owners worry about what’s going to happen to the kids, the in-laws, said Giannamore. Will my family relationship with them be destroyed?

Nader, who admits there were “many emotional hurdles to get over,” worried about employees, some of whom he’d worked with for 20 years. Not only did he have to keep the deal hush-hush — “I’m not used to keeping secrets with my employees” — but they “couldn’t believe I sold it. They didn’t understand.”

Teague worried about finding a good place for his customers. “When I decided to sell, it was a big concern for me.” Selling to Perfection Pest Control – he’d known President Tim Leatherman for 15 years – gave him confidence they’d receive good care.

Frustration with the process. Unless you have experience buying and selling companies, it’s easy to let mergers and acquisitions get personal.

Due diligence “is a nasty process for a lot of these companies,” said Giannamore, adding that sellers bring it on themselves by not being prepared or knowing what to expect.

They can feel intimidated. Most sellers are selling their first and only business, while buyers and others involved in the sale — brokers, investment bankers, legal and financial advisors — have been through many sales, said Garson.

Sometimes sellers’ competitive nature gets in the way. The ego takes over and a strong need to feel they didn’t get taken by accepting too low a price, said Lance Tullius, managing partner of Tullius Partners, Portland, Ore. This dickering can ultimately kill the deal.

“Mentally you’re operating in a tunnel,” Tullius explained. “You can’t see the big picture anymore.” Instead, it’s “me against them.”

As for Nader’s decision to sell, “It’s OK now.” He remains involved in his former business doing what he likes best. “I help them build business. I’m very good at that.” He’s pleased employees are learning how a bigger business operates, are developing their skills, and have access to greater opportunities.

Teague, who previously was operations vice president at his father’s pest control business before starting his own firm, realized it would take years before he could remove himself from daily service work. “I wanted more than that,” he said. Selling his company allowed him to pursue management opportunities in the industry.

Thomas said he doesn’t regret or second guess the sale. The offer was right, and so was the timing for Thomas and his wife. “Life is about having choices.” An added bonus: He can continue to grow and participate in the family-owned Thomas Pest Services, run by his daughter.

Check Your Emotions

Selling the business? Owners need to recognize their emotional attachment, said Lance Tullius, managing partner of Tullius Partners in Portland, Ore. Here are tips for removing sentiment, and the poor decisions it can cause, from the M&A process:

Be an investor first. Owners make proper decisions when they view their role as investors, said The Potomac Company Managing Director Paul Giannamore. Focus on maximizing return on investment, reducing risk and increasing business value. This is not the same as managing the business.

Despite the industry’s tradition of multi-generational companies, you “start a business to someday get the rewards of your labor,” reminded Craig Thomas, former owner of Craig Thomas Pest Control in Hyde Park, N.Y.

Understand the process. Emotions increase when sellers don’t understand the process, said Barbara Taylor, New York Times blogger and co-founder of Synergy Business Services. This leads to poor decision making and the deal falls apart.

Learn how mergers and acquisitions work, the steps involved in diligence and how buyers determine business value. Owners of businesses with annual revenue of $5 million or more may need a comprehensive exit planning process to understand all their options, she said.

Engage advisors. Advisors can guide an owner through the sale process, set expectations and help plan for post-exit life, said Taylor. She recommends putting together a team to help, comprised of a business broker or M&A expert, an attorney and CPA, at minimum.

Selling a business takes time, so choose an advisor you trust to be coach, financial counselor and psychologist, said Tullius. It’s his or her job to validate feelings but also warn owners who are being overly emotional and not making sound decisions.

Get support. Lean on personal and professional networks. Business owners tend to be do-it-yourself types, cautioned Taylor. “This is not the time to go it alone.”

Some owners are setting up independent councils or boards of directors to evaluate offers and review deals, said Giannamore. These groups make the hard decisions for owners.

Create value. Know how the business creates value, said Giannamore. This will help you understand what the business is worth and your alternatives for monetizing that value.

Value enhancement and strategic planning go hand-in-hand: Define your shareholder goals, tie corporate strategy to these goals, and develop a financial policy that serves both, he advised.

Jeff Teague, former owner of Responsible Services, had bought companies for his father’s pest management firm so he had a good idea of what his business was worth. Many sellers don’t have realistic expectations, he said.

Prepare from day one. Owners should prepare for selling their businesses from the day they start their companies, said Jack Garson, attorney and author of “How to Build a Business and Sell It for Millions.”

“Don’t wait until the last minute when you’re old, sick or getting divorced,” said Giannamore. Make planning for your exit part of annual strategic planning.

Teague gave himself five years. At the start of his fifth season he realized it wasn’t enough for him, that it would be years until he could hang up his technician uniform and focus on sales and management. This timeframe helped focus his efforts.

According to Taylor, “the best outcomes happen when business owners understand the option they’ve chosen and then commit to it.”

Selling your business is business.
Owners likely will face buyers who have no emotion invested in the transaction, reminded Tullius. For them, he said, buying is business as usual, so take steps to even the playing field.


The author is a frequent contributor to PCT magazine. She can be reached at anagro@giemedia.com.