Earlier this week, Josh Patrick wrote a great opinion piece in the NY Times, entitled, “It’s O.K. to Sell Your Business to the Highest Bidder.”
Business owners often have a close emotional relationship with their business – their “baby” – and their employees, whom they view like family. In many ways, this is a positive relationship. Caring for your business, your employees and your customers is one of the best ways to get dedication and a stable, growing, going concern. If your employees sense that you, as the business owner, don’t care much for them or the customers more than as an ATM, why would you expect them to do any better?
What happens when that dedicated owner decides to sell? The owner wants the business to continue to take care of the valued employees and long-standing customers, and to maintain its sterling reputation (especially if the business is eponymously named; I don’t imagine Michael Dell is too happy hearing, “Dell is terrible!”). These owners often are willing to take a lower price for a buyer who will do so. I commend the motivation, that an owner who could sell a business for $2MM (or $200MM) is willing to give up 10% or more of their personal payout to take care of employees and customers who will no longer be theirs.
The problem is, it rarely works. The new buyer has no legal commitment to maintain anything, and the buyer is always purchasing the business for its own internal reasons. This new acquisition will fit in the new owner’s business as the purchaser foresees, no matter what they say to the seller.
Patrick advocates taking the highest offer you can, since:
- You have no control over what the buyer will do anyways
- The best thing for you to do is to detach emotionally from the business
Get the best deal you can, as it will have zero positive impact on what happens to you and the business afterwards.
While I agree with Patrick, I would take it one step further. The highest offer is most likely to BE the one to continue your path. Why would this be? The buyer wants your business for its value:
- The cash flow from the business
- The higher value of your business mixed with the buyer’s business
- Some assets your business has: technology, employees (“acquihire”), customer lists.
- They can get more cash out of your business than you can, because they can run it better.
In truth, 1, 2 and 3 are all the same. They want the cash and assets in your business that are worth more to them than they are to you.
No matter which one you look at, you have no control. But numbers 2 – combination value – and 3 – the key assets of your business – are the situations most likely to require them to preserve employee and customer relationships to execute on their strategy. Ironically, those are the exact same situations most likely to lead to a higher valuation and bid.
So Patrick had it half-right. You should take the highest bid because it is in your own best interests and will not negatively affect your employees. But you should do so because it most likely will positively affect your employees and customers.