As an owner, you are emotionally tied to your company. No doubt, you have invested years in building and running a business that has becomes an integral part of your life. And when you sell that business it becomes more than a straightforward transaction. For many owners, selling their business is like losing a loved one, an experience fraught with emotion. And those emotions can have a significant impact on the financial outcome of the sale.
According to Corum Senior Vice President Martin Lowrie, company owners experience a range of emotions when they sell. As an experienced advisor to tech company sellers, Lowrie sees sellers go through what he calls an "emotional rollercoaster" as they experience various stages of the sales process. This is illustrated in graphic below.
These emotional swings include:
- Apprehension. When sellers seriously consider selling their company, they start questioning whether it’s the right time to sell. They’re concerned about what will happen to their employees. They wonder what will happen when they give up control.
- Excitement. After making the decision to sell the company, and with the assistance of an advisor like Corum, sellers start getting excited as offers start to come in.
- Fear. Eventually the seller and buyer negotiate and then sign a Letter of Intent (LOI) formalizing the intent to enter into a sale of the company. Signing an LOI invariably begins a rapid downward trend in emotions with the start of due diligence. In essence, the buyer is now in control, and sellers often worry if they're prepared enough to meet the buyer’s information needs. In particular, they stress over having all the information the buyer wants and worry that they haven’t tracked financial metrics and KPIs the way the buyer expects.
- Anger. During due diligence, the buyer and their representatives evaluate the seller's company in detail, scrutinizing things like technology, IP, legal, HR, taxes, and the quality of earnings. This can lead sellers to feelings of frustration and anger if they feel they’re getting unwarranted questions, getting questioned repeatedly about the same things, or if there are disagreements over what the buyer's people see as deficiencies. If this stage becomes overly long and overly contentious it can lead sellers into a period of depression where emotional fatigue and deal fatigue start to set in. At that point sellers wonder if the process will ever end or whether the buyer will restructure ‒ or even renege on ‒ the deal.
- Hope and Optimism. As the due diligence process progresses and sellers start to see drafts of a Definitive Purchase Agreement and a plan for integrating the companies starts to form , they begin to become hopeful and optimistic, envisioning that the closing of the deal is on the horizon.
- Relief. Sellers experience a sense of relief as the deal nears completion and a closing date is set.
- Elation. The shareholders and employees are O.K with the deal. The deal closes and the proceeds of the sale are in the bank. Sellers are elated.
Understanding these emotional swings is important because emotions can get in the way of achieving an optimal deal. They can even kill it. Here are some things you can do to ensure that emotions do not get in the way of a deal.
1. Rely on experience. If you have gone through the sale of a company before, think about the points in the process where your emotions had a negative impact. Think about what you could have done differently to keep those emotions under control.
2. Know that buyers can be frustrating. It's likely there will times during the sales process when the buyer will frustrate you. It’s a normal part of the interaction between buyer and seller. Understanding that likelihood can help you react to those times in a controlled way. Don’t let ego get in the way of getting the deal done.
3. Transfer the emotional load to your advisors. An investment banker such as Corum is not only responsible for shepherding you through the process of a sale, but their team has years of experience that can help take the emotional load off your shoulders. They've been through the sales process many times and know when and how to handle issues and solve problems that could otherwise cause you undue stress.
4. Prepare for due diligence. The due diligence process is often the most stressful part of the sales process. Setting up a deal room with the right documents is crucial in getting through due diligence smoothly. Have a team in place to set up and maintain the deal room, and ensure there's a process in place to quickly and accurately respond to the buyer's requests for information. Remember, the more time it takes to respond to the buyer's request for information, the more pressure the buyer will place on you, and you will lose credibility with the buyer. Due diligence is when you will be under the most emotional stress. You want to spend as little time there as possible.
5. Stick to the facts. If negotiations with the buyer start getting emotional, turn the dialog back to facts. Facts drive better negotiations. And when you present those facts, be transparent. Presenting the truth, even if it's negative, fosters trust between the buyer and you, something that's an important factor in closing the deal.
6. Put the deal on hold, if needed. If emotions get the better of you, you can take advantage of Corum's hiatus program to put the deal on hold. You can then return to the process at a later time when you feel conditions and your emotions are more favorable to get the results you want. If you do put negotiations on hold, make sure that you have a path back to the table with the buyer and don’t burn any bridges.