I have recently been involved with three situations where the owner of a company assumed that the logical buyer for the firm was a key employee and/or the management team. Here’s what happened:
- The general manager wasn’t interested at all in ownership. The GM liked their salary and benefits without any more risk or responsibility.
- The management team wanted to own the business but balked at signing any personal guarantees or putting up personal collateral (to the seller and the bank).
- The employees started hedging on their buy-in program because they don’t understand the concept of equity. In other words, in their opinion, a dollar in cash is worth more three dollars in equity because you can save or spend the dollar today.
In the first two cases, this opened up the opportunity for outside buyers. In the latter, it caused the owners to consider an overture from a large, strategic buyer. Something they might not have done a year or two ago.
The concept of preparing a business for sale starts with planning and part of that planning, an important part, includes determining who the logical buyer is. And, as the above points illustrate, it often isn’t whom the owner thinks or hopes it is. Even more pronounced is the disparity when an owner of a small business believes as large corporation will swoop in and buy his or her company for an outrageously high price.