Search
  • Jonathan Brabrand

M&A Mistake #7: Over-Emphasis on Price


Image Credit: Mackenzie Marco

Ask any business owner what the primary goal of a sale process is, and chances are their top answer will be to maximize purchase price. And that’s understandable; a big payday is clearly one of the top reasons owners sell their business. But price is not the only factor you should consider when evaluating exit alternatives. In fact, I have seen several transactions where top dollar did not win the day. Savvy sellers recognize there is more to maximize in an exit transaction than purchase price alone. In Chapter 3, I profiled the sale of New Castle, an Ontario-based metal stamping company, to Advanced Engineering, a rapidly growing U.S.-based consolidator. One of the main factors that contributed to New Castle’s successful sale was that its owners took the time to get to know the leadership team at Advanced Engineering before closing the transaction and established a clear set of expectations for the sellers’ involvement in the business post-closing. Unless you are an absentee owner who is completely disconnected from your business, all buyers will want you to stay involved in the company in some capacity for at least a twelve- to eighteen-month transition period. This is designed to ensure that the business smoothly shifts into its next phase of ownership without losing valuable customer, vendor, or employee relationships. At its essence, buyers want to make sure the sellers deliver, and they as acquirers receive, the full value of the business. Many business owners fall into two camps regarding their involvement post-closing. On the one hand, many nod along but don’t fully understand or internalize what the buyers expect of them post-closing, assuming that it will all work out just fine and that they’ll happily do whatever is asked of them once they have millions of dollars in their bank account. These sellers are in for a rude awakening when, after closing, they are now accountable to the new buyer. They no longer have carte blanche to make the decisions they used to take for granted, and they now must answer to a higher authority when things don’t go according to plan. Many business owners who were not actively involved in defining their post-closing role with the buyer prior to consummating the deal choose to leave their companies prematurely, jeopardizing the success of the transaction and often leaving deferred compensation on the table. On the other hand, some business owners are paralyzed into never selling their business by the fear of losing their independence and becoming part of a larger reporting structure. Many entrepreneurs have left jobs in corporate America, or never took them in the first place, because of their desire to control their own destiny. It is this drive that leads to new businesses being formed every day around the world. So how can they be comfortable with the idea that they’ll now have a “boss”? Business owners in both camps should heed the same advice. First, take the time to really get to know your potential acquirers to determine where the highest level of trust lies, and then fully engage in meaningful planning with the selected buyer about the duration and expanse of your role post-closing. By taking this step seriously as part of their sale process, New Castle’s owners knew exactly what they were signing up for in their four-year transition plan with Advanced Engineering. Bolstered by their team of next-generation leaders who would step up as the owners stepped back, New Castle’s owners were fully on-board with the reporting structure and operational responsibilities and constraints that existed under Advanced Engineering’s ownership. As a result, the transaction was a clear success for both the sellers and the buyer. As you consider which potential buyer to acquire your business, here are some examples of factors beyond purchase price that should also be weighed:

  • Agreement on your role post-closing

  • Purchase price consideration (structure and timing)

  • Culture fit

  • Buyer’s reputation

  • Alignment of strategic vision

  • Financial wherewithal

  • Market reaction to the deal

  • Employee reaction to the deal

  • Synergies

  • Indemnification terms


* * *


In this article series, I share excerpts and stories from my book, The $100 Million Exit. I hope you enjoyed this post — if you did and want to connect, you can reach me via email at jonathan@brabrandenterprises.com or connect with me at https://www.linkedin.com/in/jbrabrand/. Also, you can find my book on Amazon here: https://www.amazon.com/dp/1641375175

©2020 by Jonathan Brabrand. Proudly created with Wix.com