January 07. 2013 9:00AM

It is time to exit?: Ponder your options for selling your business

Company Sale

By Cary Silverstein

  
It's Monday morning and you have just finished your first cup of coffee, kissed your spouse goodbye and drove to your office. You are the first one to arrive and turn on the lights. As you finish your second cup of coffee, your employees begin to arrive as they have done for the last 30 years.

But this morning will be different. Over the weekend; you had conversations with your accountant, your attorney and a local business broker. You have decided that since you do not have a succession plan in place, it is time to position the company for sale. Neither of your children is interested in running your business. They have chosen to pursue their own career paths.

Your firm is financially healthy and this year's projections will exceed your budget in sales and profitability. The business broker has also reviewed your financials and feels that they are sound and the multiples look good. Your attorney and accountant have advised you that you will need to seriously consider the tax implications involved in any sale, since a majority of your net worth is tied up in the fixed assets of the business.

You question your best exit strategy. Do I sell to a competitor? Do I sell to one or more of my executives? Do I remain on in a reduced capacity as a consultant?

You have been mulling over these questions for the entire weekend. You have decided to meet with your senior executives to get some feedback as what they feel would be the best course of action. Besides the building, the machines, the finished goods and WIP, they are your most important asset.

As you conduct the meeting, the mood in the room gets very sullen. The first question you field is, "Why?" Your answer, it is time to "reap what you have sowed" before it is too late to enjoy it. "I want to enjoy the benefits of my successes."

The group ponders the first option, selling to a competitor. They immediately identify three potential buyers. They ask how you determine the best match by product or customer.

Your response is:
  • Do the corporate cultures match?
  • Are they financially able to successfully acquire your company?

You stress these questions will be addressed by your business broker at the next meeting.

After the meeting concludes, two of your vice presidents ask if they can speak with you privately. These senior executives are interested in buying the business, but do not have the capital to purchase all of the family's stock at one time. They are suggesting you let them purchase the company over a five year period using the capital they currently have and the balance will be an earn out from profits. These are two of your must experienced and trusted executives. You tell them that you will consider their offer and review it with your attorney, broker and accountant.

As they leave your office, the phone rings and it is your business broker and he indicates that he has someone who has been looking to purchase a company like yours and would like to sit down as discuss a possible sale. The broker has vetted this potential buyer and he has the necessary capital to purchase the firm. He is currently in an aligned business and deals with some of your larger customers. He considers this purchase as a way of expanding his product offerings to his target market and becoming a more valued supplier. You are aware from your contacts in the market, that his management style differs from yours' in that he is more "hands on" and does not empower his senior executives. In fact, one of your senior executives was an employee of his firm in the past. There is a good chance the cultures will not match up well and once he gains control there could be turnover in the senior ranks.

The business broker also indicated that he has another potential buyer who has no experience in the industry and would like you and your senior executives to stay on for at least five years until he has a strong handle on the business. This buyer also has the necessary capital to acquire the business, but he needs to sell another business he currently owns. You now have three viable options. Which one will you choose?

It is time to evaluate each offer and consult with your advisors. After meeting with your advisors, you decide to build a decision matrix, which will permit you to evaluate each offer in an objective manner.

Your first criterion is income flow for you, your family and your key stakeholders. The second one would be a smooth transition and blending of cultures. The last criterion is a level of job security for your employees and their families. Many of your employees have been with your for more than 20 years. You see them as family, not just mere employees.

After much thought and consideration, you decide to sell the company to your key executives. They know the business, and they have strong relationships with your customers, your banker and your suppliers. You will assist them in getting the needed funding from the bank and stay on during the transition. In this manner you maintain an income flow, the employees feel secure and so do your customers. There is a level of risk, if they default on the note, you again are at the tiller sailing the corporate ship through the daily challenges that exist in the market.

Which option would you choose?

The phone rings. "Good morning Mr. Smith this is your 7 a.m. wake-up call." Was this a nightmare or just a dream?

Cary Silverstein, MBA, is the president and chief executive officer of Fox Point-based SMA LLC and The Negotiating Edge Coaches & Trainers. He can be reached at (414) 352-5140.

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