With A Little Help From Your Friends

Negotiating the sale of your company is too important to leave to the professionals -- or to yourself.

By Wilson Harrell | 
 

If you've started a company and haven't yet sold it, rest assured, your day will come. As sure as there are catfish in Georgia, you'll get an offer. And when you do, take my word, you'll need some special help. I know; I've been there many times. After completing the sale of a subsidiary a few months ago, the lead lawyer for the other side asked me, "How many of these sessions have you been in?" I counted and found to my amazement that over the past three decades I have been involved in more than 60 acquisitions, mergers, or sellouts. That may or may not qualify me as a specialist, but in any case, I'd like to pass along to you some thoughts for which I have paid dearly over the years.

When your day comes, there is one question to get out of the way before you meet with anyone. Ask yourself, "What am I willing to sell?" If the answer is company assets, that's one thing. But if you are selling yourself, which is usually the case, then you have some homework to do. And I literally mean homework. At my first opportunity to sell out, I came within a gnat's hair of making a really stupid mistake.

It was in the late '60s, when stocks were selling at incredibly high multiples. Out of the blue, I was contacted by the people at Booz, Allen & Hamilton Inc., the management consulting firm, who told me they had a client who wanted to purchase my company for 40 times aftertax profits. That would have meant 20 million bucks to me personally. I couldn't believe my ears. I went rushing home, all excited, and told my wife, "We're rich, we're rich. Just think, we can buy tax-free municipals and have a lifetime income of over a million dollars a year." My wife, who is British and about as flappable as Churchill, said, "Well, I suppose that makes you very happy, old boy, but tell me, where will we live?" I thought for a moment and told her that we would probably live in Philadelphia, since that's where the acquiring company was located. "Do you really want to live in Philadelphia?" she asked, which caused me a moment of hesitation.

"Well, not really," I replied.

She was quiet for a minute and then asked me the kind of profound question that only wives think of: "Tell me, Wilson, what will we have then that we don't have now?"

I looked out our window at our yacht, parked at our dock on the beautiful Saugatuck River in Westport, Conn., and sheepishly answered, "Well, I can't think of anything right now, but what about all of that security?"

My wife nodded, smiled, and handed me a bomb: "To whom will you report?"

I took a deep breath, slowly exhaled, and said, "I didn't ask." Absolute silence. "But think of all that money, $20 million."

"I am," she said. "I am also thinking about how hard you have worked to reach this point where we do pretty well what we want to do, when we want to do it. I am also thinking of me and our four children and all the difficulties we are going to have trying to live with you working for someone else, living where you don't want to live, working with people you don't even know."

I bowed my head and raised my hands in surrender. The next day I went back to my office and informed Booz, Allen that I was not interested in continuing the sellout conversation. They thought I was nuts and said so. My bankers agreed, as did my accountants and my lawyer. But I have never regretted the decision I made that day.

Of course, some owners may not have the luxury of saying no. There comes a time in the life of most companies when the owner must face the reality that the company won't continue growing unless he either sells out, goes public, or takes another mortgage on the old homestead. So let's assume that you have decided that you should sell everything, including yourself. You have some important considerations to make before you start the negotiations.

First, who will negotiate? I suggest you eliminate any thought of letting your lawyer negotiate for you. Chances are he has never owned a business or sold one. Nor should you turn the job over to investment bankers. In order to make commissions, they will sell you out for anything, including Confederate money, which may turn out to be better than some of the junk paper they will try to palm off on you -- at least there's a chance the South will rise again.

A number of business-broker organizations specialize in evaluating and then negotiating the sale and mergers of companies for various fees and commissions. The competent ones can be helpful in restructuring your financial statement and determining values, but I would not let them handle the actual negotiations. I don't believe that they care a hoot about the person they are selling along with the business or about what happens to him right after the sale or merger.

So, if we eliminate lawyers, investment bankers, and professional business brokers, who is left? You? No way. Remember, you are selling yourself, which means that you are too close to be objective. The chances are you'll blow the whole deal over some insignificant detail. Let me suggest an alternative: find another company owner and ask him to handle the face-to-face negotiations for you. You can still call the shots, but you can do it better from the next room. I've tried this, and it works beautifully.

The first time I used this technique, I was not selling myself or the whole company, only the name, sales, and distribution of a single product, but the sale was to a major corporation. I knew with absolute certainty that if I were a principal in the meetings, I would probably blow my cool and the deal right along with it. Entrepreneurs weren't very popular at large companies in those days. Admitting that you were one was about the same as confessing that you were a piano player in a house of ill repute. So, rather than take a chance with my ego and their attitude, I called an old friend and fellow chief executive officer and asked him if he would handle the negotiations for me. It took a lot of persuading, but he finally agreed. I knew he could, and would, be objective, and I had been around him enough to know that he was smart as hell and that nobody was going to outnegotiate him. During all of the negotiating sessions, I was in the next room, wiping off sweat and praying. My friend would come in once in a while and hold my hand while he briefed me on what was going on. Occasionally, he even asked my opinion. And he worked out a fantastic deal. In later years, when I was in the business of acquiring companies, I employed a full-time negotiating team, but I wasn't on it -- I was still in the next room.

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