Part 3: Preparing the Family Business for Sale
There is probably nothing more emotionally laden than working with the owners of a family business on the sale of their company. Being the investment banker in this situation is a little bit like being their therapist because of all the different family complications, intrigues, and opinions that often surface.
To work through these machinations and provide logical business counsel, it’s important to remember that the investment banker’s role is to respect everyone’s issues and their positions, avoid playing favorites, and objectively present all the information related to the sale of the company. Perhaps most important, you need to separate the emotions related to the deal from the deal itself. By making sure everyone’s voice is heard, you have a better chance of helping them reach a consensus of how to move forward.
Often we find that family-owned businesses need guidance on how to prepare for sale, and one of the most important aspects is to examine the role that the owners play in the day-to–day running of the operation. Too much involvement can lead to a substantial decrease in the sales price. Buyers become weary and skeptical if the owner is deemed essential to the company’s growth and success.
When we have a client where the owners play an outsized role at the company, we may recommend that they take six months to two years to replace themselves from all critical positions to prove that the company can flourish without them. Even though that delay may not be on anyone’s agenda or timeline and it can be a hard adjustment for some owners to leave their positions of authority, our experience has shown that making this change can result in a substantial increase in the value of the company to the buyer.
Sometimes we have a situation where family members think they want to stay with the firm and work under the new ownership. While the idea is heart-felt, it usually doesn’t work out to anyone’s advantage. People who have owned businesses are usually very independent minded and not adept at taking orders, especially from a stranger. Even though they may have a hard time letting go of something that has been in their family for decades or multiple generations, they soon come to recognize they don’t really want to work for someone else. By that time they are ready to liquefy their investment – at the best possible price -- and move on to their next adventure.
Write back and let me know about your experience in selling family-owned businesses.