The Offer: Part 10

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Given all that, you might wonder why we didn't think to approach Allied much sooner. I have asked myself that question. The reason is that, up to that point, we had been in defensive mode. We were so caught up in reacting to what other people were doing that we didn't see the potential solution right in front of our faces. I suspect that some of Allied's people may also have wondered what took us so long when we finally broached the idea of selling them the business. They reacted very positively. Although they weren't as familiar as some other firms were with recent developments in our industry, they knew the players. We suggested that they do some fact-finding on their own. They did and came back to us ready to do a deal, but then events took an unexpected turn.

Previously, Allied Capital had had little contact with anyone in the company other than Sam and me. Its people were unaware of the strength of our management team and didn't realize how well it functioned without the two of us. In our discussions, we noted that Sam and I had been out of operations for more than a year, and -- thanks to the hard work, skill, and dedication of our people -- we'd had one of the best years in our history. Allied's people asked, "With all this talent you have, what's your role going to be? What are you going to do after the sale?" Sam and I said we didn't know. "Well, you know what?" they said. "We don't want to buy your company. We want to do a leveraged buyout. We want you to leave a substantial amount of money in the company and become our partners. Then we want you to work with us to do acquisitions. We'll provide the financing. You'll provide the contacts and the industry expertise. If it goes well, there'll be a liquidity event in four to six years, and we'll all do very nicely." It was an appealing proposition. The shareholders -- Sam, Louis, me, and my wife, Elaine -- would get to cash in most of our stock while retaining a significant investment in the company. Sam and I would continue to work together to build the company into a major player in the industry. Employees at all levels would have opportunities to grow and take on new responsibilities while keeping the culture they had come to know and love. And I would be close enough to advise them if they wanted me to. With half a dozen interested buyers, we had a decision to make. The first step was to narrow the field. Sam, Louis, and I went into Sam's office, shut the door, turned off the phones, and opened a flip chart. We decided to begin by listing the various issues that were most important to us. We framed them as questions. There were five:

1. Which acquirer would be the best for our employees?
2. Which would be best for our customers?
3. Which would be best for us from a financial standpoint?
4. Which would be best for our lives going forward?
5. Which do we have the best chance of closing the deal with?

Next, we decided to rate the different groups according to how well we felt they addressed these issues. We wrote the five questions on five separate pages. Then, without conferring among ourselves, each of us gave each group a ranking from one to three on every question, with one being the best and three the worst. When we looked at the results, it was obvious that we all felt Allied Capital was far and away the best choice.

We signed a letter of intent in late August. In short order, Allied Capital sent in its own due diligence team, as well as a group of outside accountants to examine our books and some lawyers to go over our contracts. Things moved quickly from that point, although it didn't seem that way at the time, partly -- I'm sure -- because we had spent so much time on the Nova deal and its aftermath. It soon became clear that signing the contract, which I had considered so critical back in April with Nova, was nowhere near the end of the sale process. There were still all kinds of things that had to be worked out. At every step, I couldn't help noticing the enormous difference between negotiating with Allied and negotiating with Nova. I can sum up that difference in one word: trust. With Allied, we had it to begin with, and it got stronger as we went along. With Nova, I could now see, there had never been any trust, and any hints that it might have been developing had been an illusion.

In negotiations, Allied Capital's people were always willing to compromise and showed a real determination to get the deal done. They clearly wanted us to wind up with a deal we felt good about. Nova, I realized in retrospect, had constantly tried to beat us down. We would reach compromises with Allied Capital on 50 points, and the revised contract would come back with all 50 changes. We would negotiate 50 things with Nova, and the revised contract would come back with maybe 12 of them included and a dozen new changes no one had mentioned, most of them completely unacceptable. Looking back, we could thank our lucky stars that the Nova deal hadn't happened.

Even our timing turned out to be perfect, although we weren't sure about that at first. In the midst of our deliberations, the private equity market collapsed, and credit became as tight as a drum. We asked Allied Capital how those developments were going to affect the sale. We were told they would have no effect at all. The firm would honor the terms and spirit of our signed letter of intent, even though it had the legal right to back out. "This is unbelievable," I said to Sam. Thanks to our longtime relationship with Allied Capital, we had managed to escape the turmoil that was killing other deals left and right.

And so it came to pass that, on December 21, 2007, majority ownership in our three companies officially passed to Allied Capital, and our new lives began. What that has been like will be the subject of the next column.

Norm Brodsky is a veteran entrepreneur whose six businesses have included a three-time Inc. 500 company. His co-author is editor-at-large Bo Burlingham.

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