Hold ‘em or fold ‘em?

Psychological aspects come into play in business sales

Steve Ziegler, owner of Muskego-based architectural building products manufacturer Inpro Corp., gave his senior managers 11 years to prepare for his departure from the day-to-day management of the business.

One day in 2000, he kicked them all out of the nest and forced them to make decisions themselves.

M&A-Speakers-2“As a family business, when I decide to step down, they need to be comfortable making decisions and taking risks,” Ziegler said. “Since we did that, I don’t think I ever changed one person’s decision that they made. There’s a lot of ways to do things right.”

In 2011, Ziegler stepped down from his role as chief executive officer and became chairman. He has also transferred minority ownership to his two children, while retaining his majority share and growing the company organically and strategically.

Ziegler and other experts will evaluate the psychological aspects of management during a panel discussion at the 2016 BizTimes M&A Forum on April 21, titled “The psychology of growing your business or deciding to sell.”

Business owners often hold onto their companies until a triggering event causes them to sell, said Paul Stewart, partner at leveraged buyout firm PS Capital Partners LLC in Milwaukee and another panelist.

The owner is often working to accomplish certain goals before selling, or waiting for his or her children to decide whether they want to become involved, said Thomas Myers, shareholder at Reinhart Boerner Van Deuren s.c. in Milwaukee and a panelist.

“The owner wrestles with that issue for an extended period of time, and what often happens in my experience is there’s some trigger,” such as a family member becoming ill or a friend selling his or her business, he said.

At the same time, the worry of where to invest the large influx of cash from a sale when the stock market is volatile and returns are scarce causes some business owners to hesitate, Stewart said.

“Where do you put your money that will generate a return?” he asked. “They almost look at it as ‘I’m better off keeping my business; at least that’s the devil I know.’”

Another psychological factor that plagues business owners considering a sale is what they would do with the 60 to 80 hours of free time they would have per week after exiting their company, said Ann Hanna, managing director at Schenck M&A Solutions in Milwaukee, who will moderate the panel discussion.

“You have a lot of emotional issues where you think, ‘My whole identity is tied up in my business. What am I going to do when I’m not the CEO?’” Hanna said.

That’s not to mention the psychological considerations when an owner has started the sale process and is entering the unknown of negotiations.

“We tell them that it’s very normal to wake up in the middle of the night, kind of the night terrors, ‘What did I do? Did I get a good price? Is this the right buyer?’” That’s totally normal,” Hanna said.

The business owner may only sell one company in his or her lifetime, but advisors have completed countless deals, Stewart said. For that reason, they can serve as a reassuring sounding board during the sale process.

“It’s good to have someone on your side that says, ‘This is normal. This is standard information that’s being required of you. We would tell you if they were asking for something that really doesn’t make sense,’” he said.

As the buyer is conducting due diligence, sensitive topics or potential problems may come up, and the advisor team can walk the buyer through it, Hanna said.

“We assure them that all these ups and downs are very normal and just part of the process and that we’re going to get through it and that they’ve got the support of their team and that we’ve faced larger problems,” Hanna said.

Jim Feeney, former owner and chief executive officer of Shawano-based Wisconsin Film & Bag Inc., who also is a panelist, said the sale process can be grueling and tense, and involves keeping a disparate group of stakeholders satisfied.

For one, the trailing 12 months’ EBITDA become very important in the sale process and the owner could be worried about keeping sales up throughout the preparation and due diligence phases.

Wisconsin Film started the sale process in April and completed it in September 2015, selling to a strategic buyer owned by a private equity company.

“You can really depreciate the physical value of the business and the game that’s played is the buyer is looking to lower the value and the seller is looking to increase the value, so you have that natural tension,” he said.

The M&A Forum will be held on Thursday, April 21. More information and registration is available at biztimes.com/maforum.

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