Groom or Hire Your Successor | Selling Your Business
Groom or Hire Your Successor
by Dave Kauppi - The Exit Strategist
One of the exciting aspects of being involved in Mergers and Acquisitions is that we are constantly learning. One of our most productive classrooms is the buyer visit. In those visits the buyer's motivations, priorities, concerns, and value drivers and value detractors are often revealed.
This was the case in one recent buyer visit with our client. Her Firm is representative of many early baby boomer led firms that "started the business in their garage" (actually it was started in her living room) 25 years ago and built a successful business with an excellent brand and customer loyalty. She is now looking to exit her business and reap the rewards from her hard work in the form of a generous buy out offer.
The potential buyer is a business owner that started a similar firm at about the same time, but has morphed into part business owner and part private equity investor. He brings a unique perspective of analyzing this acquisition wearing two hats - one as a strategic industry buyer and the second as a disciplined financial buyer. It was quite instructive to watch the dual motivations at play during the visit.
While wearing his industry buyer hat, he was quite excited about the synergies of the two companies, the growth potential, and the new vertical market that the combined firm could capture. While wearing his private equity investor hat, however, that excitement was dampened by the risk that our owner had created with her company. The owner and her top producer directly touch 70% of the company's revenues. They are the face of the company. They are the "brand". They are also in retirement mind set and have not groomed a capable successor internally.
Even though we have coached our clients with the "We will stay on for a period of time to transition our relationships and transfer the intellectual capital" speech, the buyer perceives huge risk. Quite frankly, I completely agree with his thinking. As this issue was explored, it became evident that this factor would negatively impact both the transaction value and the deal structure. Translation - a discounted purchase price and much of that price deferred in the form of a multi-year earn out payment.
The good news was the buyer's strategic side recognized the value of the new vertical market our client's company would allow him to...
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About the Author:
Dave Kauppi is a Merger and Acquisition Advisor with Mid Market Capital, Inc. MMC is a private investment banking and business broker firm specializing in providing corporate finance and business intermediary services to entrepreneurs and middle market corporate clients in a variety of industries. Email at email@example.com
This was originally published under "The Exit Strategist" by Dave Kauppi. Used with permission.
The Successful Transition Planning Institute of Cambridge, MA teaches Baby Boomers and their advisors how to avoid boring, meaningless retirements. STPI's books, tools, training and seminars empower Baby Boomers to "Think", "Live" and "Decide" what to do with their companies and careers. By doing so, Baby Boomers create plans for dynamic new lives, full of meaning and purpose. (see video).