Terry Stephens contacted us to sell his company. Terry was in his sixties, but was burned out and wanted to spend more time with his family. The company he built was one of the finest in his industry and generating approximately R45-million in cash flow each year. In the end, Terry decided to use another firm to help sell his company.
We did not hear from Terry for two and a half years. Then, out of the blue, Terry called and asked if I had time to talk. When we sat down, Terry shared the experience he had in trying to sell his business.
Terry’s story is one commonly heard in investment banking circles. The intermediary Terry selected did not do any advance planning or development of a comprehensive road map for the investment banking process. The intermediary was focused on taking Terry’s company to market as quickly as possible. Because Terry and his advisors did not have a well thought out marketing program for the company, the intermediary only came up with two potential buyers for Terry’s business. This was astonishing given the reputation and financial performance of Terry’s company. It turned out the intermediary had not proactively marketed the company or run an investment banking auction process. Instead, the intermediary worked on finding one buyer at a time.
The first buyer was an individual who owned a similar company in Terry’s industry. The buyer and seller entered into a due diligence and documentation before anyone thought to determine if the buyer was financially qualified to purchase Terry’s company. In the end he was not. By that time, Terry had spent over R600,000 in legal and accounting fees.
After this deal fell through, Terry’s intermediary arranged meetings with another buyer and Terry went down the due diligence track again. While the second buyer was financially qualified, the purchase price right, but the terms the buyer proposed were unacceptable. At this point, Terry was so frustrated he terminated the sale process and took his company off the market after spending nearly 20 hours a week of 12 months on these two transactions.
To add insult to injury, the intermediary sued Terry claiming he was owed a success fee since he delivered a “ready, will, and able buyer.” the judge three the lawsuit out, but it cost Terry R525,000 in legal fees to defend himself.
In the meantime, because Terry was not able to remain focus on his business during the sales process, his company’s financial performance deteriorated. By the end of the sale process, the company had lost 30% of its revenues and was in the red. As a result, the company was no longer saleable. Terry had to commit himself to rebuild his business, realign his management team, and get the company back on track.
Terry called us to admit he made a mistake and that it cost him dearly. The good news, is that Terry did not lose his business or sell his company only to discover it did not accomplish any of his personal goals. The good news is Terry got a second chance, many business owners do not. In a few years, when the company is back at its peak, Terry will be in a position to avoid his past mistakes and exit his business the right way.
The key is developing and executing successful exit plans for private business owners, to achieve these three key goals:
· Developing and implementing a good exit plan.
· Create a comprehensive exit plan custom-tailored to meet each business owner’s individual needs.
· Successfully execute the plan.
Family Legacies www.family-legacies.com is a multidisciplinary family business consulting company. Our consultants are leaders in their respective fields including; Family Business Consulting, Strategic Planning, Financial Planning, Wealth & Risk Management, Corporate Finance, Business Transitions & Exit Planning - Buy, Improve, Grow & Sell Businesses, Commercial & Family Law, Executive Coaching, Leadership Development & Facilitation, providing our clients with a professional and integrated multi-disciplinary service.