Why You Won't Sell Your Business

 
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Maine model-ship maker
Issue: October 1991

Price: $365,000; inquiries: More than 200

Status: Sold

"To say the response [to Inc.'s page] has been overwhelming is an understatement," wrote broker Don Giancola last December. "We received our earliest responses from the Chicago area. Maybe there are a lot of landlocked sailors in the Midwest. You might also be interested in the diversity of the people who responded. In addition to the typical potential buyer, we received serious inquiries from presidents of two publicly traded companies and from William Seidman, former head of the FDIC. We now have multiple offers to purchase the company. A very highly qualified buyer (and Inc. reader) will be closing on the transaction December 31, 1991." The sale did close (for slightly less than the asking price), with the company going to a woman who aims to bring more sophisticated marketing to the business by capitalizing on her background as a strategic planner. Her husband, head of human resources worldwide for Motorola, wants to take early retirement and was anxious to move to the Maine coast.

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Arizona AM radio station
Issue: November 1991

Price: $650,000; inquiries: 100

Status: Still for sale

Responses came from all over the country, says the broker, as well as from Nova Scotia. He's optimistic that one of the inquiries will turn into an offer. A reli-gious-radio-station group, based in Santa Ana, Calif., with stations nationwide, was very interested but wasn't satisfied with the signal at night. Two lawyers, one from Chicago, one from New York City, are seriously considering purchase.

* * *

New Hampshire country store
Issue: December 1991

Price: $325,000; inquiries: 30

Status: Sold

"Readers all over the country have called to inquire about the store," wrote broker Gerry Sears shortly after the article appeared. "There are a considerable number of dreamers out there, and the talks with the people who have called have been very productive. To date, I have sent out 22 initial packets and have received several secondary responses." By this past February, Sears had a buyer.

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Minor-league baseball franchise
Issue: January 1992

Price: $2.5 million to $3 million; inquiries: 60

Status: Sale pending

Early response was vigorous. Also, several other deals by this broker (sales of other teams) have been initiated, thanks to the article.

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SAME OLD STORY

An open letter to businessowners -- and would-be sellers -- everywhere

Editor's note: Among the most articulate commentators on Business for Sale results was Susan Pravda, a mergers-and-acquisitions specialist with the Boston law firm of Varet Marcus & Fink. Here's what she wrote when we asked, Why haven't more of these companies been sold?

1. Bad timing. The market window this update deals with -- from late 1990 through early 1992 -- was probably the worst period in the past two decades for buying and selling small businesses. After the overheated mergers-and-acquisitions climate of the late 1980s, the market came to a jolting halt.

On the sellers' side, owners were still living in the high-priced days of the '80s, thinking that if their country-club friends were able to get eight times earnings for their companies, why couldn't they? On the buyers' side, prospective purchasers were paralyzed by a combination of fear about the economy and the unavailability of financing. (Many banks stopped lending to finance the working capital of existing businesses and were certainly not interested in financing acquisitions.) Prospective buyers also were spooked by the number of failing deals and bankruptcies.

2. Unrealistic prices. It is a classic problem in the sale of small to midsize companies that sellers are unrealistic and inflexible about the price of their businesses. To them, the business is a precious thing, bound up with their ego.

But even if a business is looked at from a nonemotional perspective, an owner can justify a higher valuation of the business than the prospective buyer can. From an economic point of view, the value of a business is based on its cash flow, discounted to take into account the risk that the cash flow will not remain stable or continue its upward trend. That risk is attributable to a variety of factors: the economy (Rocky Mountain outdoor-goods discounter); the change in customers (small-town weekly); even the weather (Florida fishing pier). For the current owner, those risks do not appear to be so great: he or she has a history of business performance, and even past troubles seem diminished in significance. For the new buyer, the unknown and the uncertain, coupled with imperfect knowledge about the business, result in a greater perception of risk -- and hence a larger discount.

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