Why selling a business is more emotional than you might think
When we start to talk to shareholders about the process of selling their business, we always explain to them how long the process can be and how physically and emotionally wearing it is for vendors.
To some extent the impact can be mitigated by diligent planning and preparation but even the best prepared shareholders going through the process for the first time are shocked and horrified by the depth, detail, and repetition inherent in a financial and legal due diligence exercise. It doesn’t matter how much I warn them, they are always shocked and horrified!
They are often also surprised by the emotional toll that the process takes on them over the period of a deal. Towards the end of a transaction process my role is frequently as much one of counsellor as adviser, and I thought it was worth a few moments reflection on what elements of selling their business create the pressure and stress that particularly impacts vendors.
The process of selling a business is inherently uncertain. At the outset you cannot know that someone will be interested in it, what they might be prepared to pay for it and what they might want it for. Even once a buyer has been identified and a price agreed, the deal is not “done” until the legal agreements are signed, and the money is in the bank. The whole process can easily take between 6 months and a year and for the whole of that time there is no certainty about the outcome. More than most people, successful entrepreneurs with established businesses have become used to being in control of their environment. The uncertainty of the early days have evaporated and they are very much masters or mistresses of their own destiny. Far from being comfortable with the uncertainty of the process, they find it profoundly uncomfortable and the longer a process goes on, the more difficult they typically find it.
This is a corollary of the uncertainty. A successful deal is the outcome of willing buyer meeting willing seller and free will on both sides resulting in a deal which is mutually acceptable. Vendors are not in control of the “other side” and the frustration which often arises from a perception that acquirers or investors are being unreasonable, slow, dense, focussed on the wrong things, unable to “take a view” and unduly influenced by their advisers can be intense and prolonged. There is often a strong desire to bring things to a head by issuing ultimatums or threatening to walk away but these simply don’t work in context, and can have the converse effect of forcing a vendor to back down or to lose a deal which they (really) wanted to do. Accordingly, vendors are obliged to trust their advisers and bite their tongues which is neither natural nor easy and can be very stressful.
Many vendors will have undertaken acquisitions in the past and go into a process believing that they understand how it is going to be. For larger deals however, and particularly where a private equity acquirer or investor is involved, the level of diligence and the degree of complexity can be far greater than they have ever experienced. The Vendor is forced into a situation where they have to trust others to help them evaluate whether a deal is good or bad and whether the other side is being fair or unfair, reasonable or unreasonable. For some vendors ego can be a factor at play and a fear that they are somehow being “done over” or made to look stupid can create an environment of distrust which can undo a transaction entirely. I have known vendors walk away from an excellent set of terms because of the sense that the other side was not honouring the deal they thought they were doing and because they couldn’t trust them. The occasional tendency of private equity firms to “chip” is particularly risky in context of a trust-challenged entrepreneur
My advice to any vendor is to tell as few people within the business as possible that they are in a disposal process. The reason is simple, it isn’t just vendors who hate uncertainty and if a team is worrying about what is going to happen next at a point where it is not possible to reassure them, it will make them stressed and unable to focus fully on their jobs. It is kinder for a vendor to spare individuals that uncertainty for as long as possible, ideally until immediately after the deal is done and the acquirer can step in and reassure them as to the rosiness of their futures. It is also better for the business…. To most vendors this feels like lying, often for months and months and often to people that they have worked with for years and have a personal as well as a business relationship with. It just feels wrong, even though it is right. It is stressful and difficult and requires the support of family and advisers to cope with.
However much a vendor wants to vend, they typically have mixed feelings about selling their business. They cannot look forward with confidence to the future yet because the deal is not done. They might start looking at brochures for boats or villas, but they cannot do anything about buying one until the money is in the bank. They cannot think themselves fully into a different future because of the uncertainty over whether the deal will deliver. For some vendors there is an almost superstitious refusal to do anything which might “jinx” a deal which means they won’t even talk to a wealth adviser in advance of completion. But this leaves them in a personal limbo. They cannot focus as they have for years, often decades, on the business and their plans for it and they cannot commit to a new, uncertain future. This leaves them with a conceptual vacuum in imagining their future which often leads to fear that they are making a mistake, won’t be able to fill their days and will have no purpose. Worse, they often cannot talk to people they usually confide in or discuss things with because the fact of the deal is still a secret. This is perhaps the most difficult aspect for an exiting shareholder of the whole process and one which requires the support of family and advisers.
Very few vendors regret doing their deal. Once the ink is dry and the money is in the bank, they quickly move on to enjoying the fruits of their labours. Teams understand that shareholders have to retire, and they quickly move on in their thinking and their loyalties; if they don’t like a new regime in the business, they will leave. Even the process, looking back from the sunlit uplands of post-completion, doesn’t seem quite so long or quite so bad. But in the same way would-be vendors are advised to prepare their businesses for exit, they should also prepare themselves for the process. Think about how it will feel to go through the process and to come out the other end. Make decisions about advisers not only based on their industry knowledge and experience, but also on your ability to trust them and their advice to you as an individual and prepare your family for a bit of a roller coaster !
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