For Sale: The American Dream
Need help selling your company? Lots of folks out there claim they can help you get the most for your business. Don't believe everything you hear.
So, you quit your job and started your own company. Maybe -- a big maybe -- you'll be able to sell the business when it comes time to cash out.
Cal Brown is a salesman to the core of his New England bones. As a Sears employee for 21 years, he sold power tools, batteries, and fences. At Sears in 1981 he ranked among the top industrial-products salespeople in the whole United States. Brown, who is 55 years old, has a husky voice, a genial manner, and earnest blue eyes. His stock of wry stories is as much a part of his persona as his metal-frame glasses, which he tends to perch midway down the bridge of his nose. One of his stories is about a former coworker at Sears who hung a quotation on his office wall. "If you can't dazzle them with your brilliance," the quotation read, "baffle them with your bullshit."
During the 1980s, changes at Sears turned Brown (his given name is Calvin, but everyone calls him Cal) into an entrepreneur. In 1984, Sears halted the commercial sale of two of Brown's bread-and-butter products, batteries and fences, and his commission-based income plummeted. To moonlight for extra money, Brown started his own fence-installation business, the C&G Fence Co. He left Sears six years later to run C&G full-time -- and to pursue his own version of the entrepreneur's proverbial dream. He looked forward to earning more income on his own while creating equity in his business and being his own boss. "Just a happier life," he says, recalling his aspirations, "and I'd be more in charge of my own destiny."
As part of the evolution from employee to owner, Brown built an office next to his white Cape-style house in rural Litchfield, Maine. Within a decade C&G was selling $1.4 million worth of wooden, chain-link, and other kinds of fences annually, and Brown had eight people on the payroll year-round, plus a dozen reinforcements during the hectic summer season. But the more he thought about his company and his life -- the grueling 12-hour workdays in the summer, the strain of managing a growing business, and the cancer scares that both he and his wife had experienced within a few months of each other -- the more he wanted out.
"I'm not a businessperson," he says bluntly. "I'm a salesman. I don't like the day-to-day business operation."
His ticket out suddenly seemed at hand one day in December 1999, when another salesman, Brian Granger, called on Brown in Litchfield. Granger, who lives in upstate New York, was representing a Dallas-based company, Great Western Business Services Inc. "Very smooth, very credible," Brown would later say about Granger, who reminded Brown of John Travolta.
TICKET OUT: Eager to sell his fence-installation company, Cal Brown signed up with Great Western Business Services.
Great Western, as Granger explained, was not a business broker but a marketing service. To aid sellers of small businesses, it placed generic ads seeking buyers. Granger showed Brown some sample classified ads with this header: "OVER THREE BILLION $ WORTH OF BUSINESSES FOR SALE BY OWNERS." Great Western could match Brown with buyers that were hunting particularly for a business like C&G, Granger said.
Of course, before putting C&G on the market, Brown would want to know how much to ask for it. Granger offered to estimate C&G's market value on the spot. In addition, if Brown purchased Great Western's services, the company would perform a comprehensive evaluation of C&G as part of the deal. Never having sold a company or, for that matter, bought one, and not sure how much to ask for C&G, Brown was intrigued.
Granger did some quick calculations, plugging some financial data supplied by Brown into a series of Great Western formulas. C&G might fetch almost $1,175,000, Granger said. Looking back at the moment when the fullness of that figure dawned on him, Brown remembers having one thought. "I was thinking of getting rich quick," he recalls with a lopsided grin.
Despite the flush of excitement, Brown didn't pay the $8,975 fee Granger sought that day. When Granger returned to Litchfield in May of last year, however, Brown signed a Great Western contract and did write a check for that amount. Taking a deep breath, he set the asking price for C&G at $1,250,000.
As it turned out, though, Brown didn't get rich quick. Instead, he was greatly disappointed by what Great Western did -- or didn't do -- in return for his $8,975. Great Western supplied him with the names of four prospects, but Brown says he could reach only three of the prospects, and none was "remotely" interested in buying his business. Great Western also sent him a 28-page evaluation of C&G, which he found to be of little value.
That a veteran salesman like Brown would pay an up-front fee for the services that Great Western promised to provide is understandable, particularly considering the business-brokerage alternative. Five years ago up-front fees were virtually unknown in the realm of small-business brokerage, according to Tom West, author of The Business Reference Guide, which is published by the Business Brokerage Press, based in Concord, Mass. But in a survey this year of business brokers nationwide, West found that 35% were collecting such fees from their customers.
Advance fees have long been a fixture on Wall Street, at least at the top-of-the-line tier of the mergers-and-acquisitions world. The Wall Street deals, which produce the big headlines, are engineered by the likes of Morgan Stanley and Goldman Sachs and typically provide sellers with a menu of prospective buyers. Those deals totaled a mere 2,245 last year, according to Mergerstat, an M&A research company based in Los Angeles.
AGGRIEVED: Cal Brown demanded the refund of his $8,975 payment.
In contrast, 1.57 million small companies were offered for sale in 2000, according to West. Of those, 250,000 actually got sold. About a third of those sales were handled by business brokers, a mostly unregulated group with varying levels of sophistication and competence. And the remaining 1.32 million companies? They were probably turned over to family members, says West, or they just closed their doors. Given those odds, small-business owners who are looking to sell crave any kind of assistance and are vulnerable to any offer that has an air of legitimacy and a seemingly reasonable promise of success. Most owners, like Brown, have no previous experience selling a company and have little idea where to begin.
