Valentines Day and the Heart of the Deal

Valentine’s Day is coming up, so it’s a good time to talk about liking your partner—your business partner that is. When it comes to selling a business, both parties need to ensure there is a good personality/cultural fit.

If you’re a seller, and your buyer is an individual, do some research on the buyer.  Have them provide a personal financial statement or a letter from their lender confirming they have resources to complete a deal of the size contemplated contingent upon specific terms of the deal. (Ideally your advisor will do this upfront work for you.) If your buyer is a company, check around, what is their reputation in the industry?  Google them, see what shows up, awards or lawsuits.

Next, set aside time for a social meeting; no negotiations.  Learn about the buyer’s strengths, their personality, and how they see themselves running the business.  For the corporate buyer, understand their philosophy.  Have they done prior acquisitions?  If possible, talk with the past sellers; did your buyer do what they said they would do throughout the deal?

As a seller, you’re considering handing over your legacy to this person or company.  Look for confidence that they will treat your employees appropriately and that they’re committed to the same level of quality as you or you may end up with some seller’s remorse.

And remember, you’re likely going to be working for this person or company for a six to 12 month transition period if not longer. I don’t care how big the organizations involved are—if the two main decision makers don’t get along, odds of success are lower.

As a buyer, you want many of the same assurances. You want to know the business is run ethically, you want to understand their business philosophy and that it has a good reputation in the marketplace, things that are not on the income statement and balance sheet.

What’s more, you want to understand the seller’s strengths and weaknesses.  Will you be able to fill the gap he or she is leaving? Will the business be missing some critical skills after the original owner is gone?

Take a hard look at culture fit. If you’re considering a company where the culture doesn’t match your style and expectations, I’d strongly recommend looking for a different opportunity. Cultures are very hard to change and you run the risk of losing key people in the process.

Several years ago we were managing a sale and had a strong offer on the table. But as we did our research, we found out the potential buyer had just parted ways with another business and hadn’t left on good terms. And, we learned he didn’t treat employees the way our client wanted his employees to be treated.

Even though the offer made financial sense, our client decided to pass. Naturally, the buyer was very upset. But at the end of the day we did him a good service.  Had he purchased the company, the lead employees would probably have quit and company performance would have declined.

Maybe one out of five times our client will take less money because they just like a certain individual or corporate buyer better. Money is a big piece of any deal, but legacy and cultural issues can many times override a financial decision. Many times it’s the heart that wins in the end.