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PSYCHOLOGICAL FACTORS
As anyone with experience in the world of M&A knows, the toughest adversary most sellers face is themselves. It's true -- your cast of mind is likely to be the most crucial factor in determining how well the transaction goes. And there's a good reason why I address this topic before I even discuss the sell decision: Psychological factors can, and often do, seriously undermine owners during the preliminary stages. Most commonly, business owners or executives who should sell decide against it, and down the road they bitterly rue the missed opportunity.
You might think of yourself as a clear-headed, savvy businessman, one who is accustomed to competitive stress, adversarial negotiations, and difficult decision making. But the process of selling your company is apt to push buttons like nothing else. Even rational, well-balanced businesspeople have certain blind spots, ego issues, or mixed feelings that come to the fore when they decide to sell their companies. You are so identified with the business that it is nearly impossible to be objective.
In fact, the great difficulty for most owners to put aside their psychological baggage is among the best arguments for hiring a broker. Hiring one or more advisers to help sell the company will greatly increase your chances of success. (Besides, most business owners have little day-to-day experience with the complexities of M&A.)
As they say, "Forewarned is forearmed." So I'll fill you in on the main mental traps to look out for -- in yourself and in the other partners or executives.
"Separation anxiety." In a way, the business you have created is tantamount to your baby. Leaving the business -- even if you make a lot of money from the sale -- is still tough. You may have spent many years of your time and effort building the company. Now, someone else will be in control of your creation. Sometimes an owner will end up sabotaging a deal because he can't bear to let go.
Anxiousness. It's common for business owners to become too anxious during the selling process, either because of worry, stress, or even sheer excitement. As a result, you may tend to immediately blurt out your plans and reactions. The problem is that buyers will see you as desperate to sell or as vulnerable to poor judgment.
Unrealism. Nearly every owner thinks his or hers is the best little business in the country. Most commonly, they overestimate what the company could fetch. Often this tendency is coupled with a stubborn streak, so they refuse to even get a valuation. As a result, the business stays on the block for years and grows more and more tarnished in the eyes of the market.
Oversensitivity. When talking to advisers or potential buyers, you will hear criticisms. They will inevitably find faults with your business. After all, this is what a buyer is supposed to do in order to lower the valuation. And advisers will point out faults to show that their services are needed. Which they are. Remember, these professionals spend every day doing such deals. And since no business is perfect -- there are always problems -- you want your advisers to point out the weak spots. While it is tempting to be defensive, this is usually counterproductive. So try to thicken your skin, at least temporarily.
Guilt. Once your people know you're looking to sell, a certain amount of apprehension is natural, from the shop floor or mailroom on up to your top managers. That is, new ownership always entails the risk of layoffs. This can complicate situations and color your judgment, especially if you have enjoyed a mutually loyal relationship with your employees.
Contrariness. If you stay with the company after the acquisition, you'll face a huge, fundamental adjustment. So expect some chafing. Previous owners find getting used to working for someone else takes time -- even if you and the acquiring company share the same cultural values. Sometimes former owners become highly "difficult" to deal with, which can be self-destructive -- especially in earn-out situations. One well-known example is H. Ross Perot, who proved to be a holy terror at GM after he sold them EDS. Ultimately, he made out all right -- but don't assume you'll be so fortunate.
