Four former CEOs were playing golf together for the first time at a very nice country club in Naples, Fla. After the initial introductions, one turns to another and says, “Who were you when you were somebody?”
Many issues surround the problem of exit planning for the CEO, including the loss of identity. This is particularly true for the owner of a privately held firm. The act of selling the company or turning over the reins to another leader, however, should be as logical and natural as starting and growing the firm. It will happen to every CEO, one way or another.
Here are some things to consider when deciding when to get out.
Having fun and making money
Any investment banker will advise the owner of a privately held firm that the best time to sell the company is when she is having fun and making money. A buyer looking at a firm like this is more likely to say, “Hey, I want some of that.”
Unfortunately, the seller feels the same way and might think the fun ride will last forever. It never does. And the premium that might have been earned will dissipate as the good times cease to roll.
The five-year plan
At about age 55, most owners of privately held businesses start thinking about how to exit. It goes something like, “I’ll sell this puppy in five years. It’ll take five years to fix a few things and really get it right.”
Without a certain date, this same conversation can happen again at 60, 65 and so on. It’s better to set the exit date and work backward to fix the things that need fixing.
Nice gig
By the time some owners of privately held companies start being serious about selling the firm, they have had decades to create a job they like. They have been able to delegate the things they don’t like to do and keep the things they enjoy.
Who wouldn’t like coming in late and leaving early?
This CEO complacency zone can be quite dangerous. Competitors, either known or unknown, are scheming every day to take market share and ruin the boss’ perfect day job.
Loss of identity
The opening story about the four former CEOs playing golf is a true story. Business owners work hard, sacrifice self, and often create a personal identity that is indistinguishable from the business itself.
The business is me and I am the business. This loss of identity is compounded by long hours and the hard work required to start and grow a business. Outside interests go wanting. No hobbies. No other pursuits.
Business owners confronted with the loss of identity paradigm might be better off seeing a therapist than an investment banker. At the very least, developing interests outside the business early on will help smooth the eventual transition.
How much is enough?
TEC resource specialist Walt Sutton asked this provocative question of a TEC group recently: How much money would it take for the CEO/owner to sell the company today? The responses were all over the map. Answers varied from a few million to hundreds of millions, from CEOs who were running somewhat similar enterprises.
The answer to the “how much is enough” question is a personal decision and perhaps beyond the scope of this article. One thing, however, is clear. Owners have put the kibosh on potential deals because, more than any other single cause, they have an unrealistic opinion of value.
Best practice: Seek professional assistance when considering a purchase price for a privately held business.
Bad timing
Most merger and acquisition firms would agree that now is a great time to sell a business. Money is cheap. Demand is high. Multiples are at near record levels.
But what if you missed this business cycle? Economist and TEC resource specialist Brian Beaulieu is predicting a favorable time to sell or retire through 2017-’18, with rising interest rates triggering a recession in 2019.
Beaulieu is also forecasting a depression in the 2030-2040 time frame. Sellers will probably want to cash in their chips by then.
Finally, it’s always a good idea to have some outside perspective, like a board of directors or an advisory board, when working through these issues.
