Professional advisors who work with business owners have all witnessed or heard about “Seller’s Remorse.” Generally remorseful sellers are owners who sell before thinking about their post-business lives. After closing they feel empty and insignificant. While their businesses were ready to continue without the owner, the owner wasn’t ready, emotionally or psychologically, to continue without the business.
The less common type of remorseful seller is the one who does not make it to the closing before realizing that they are too emotionally attached to their companies to let go. One BEI Member remembers one such owner.
I once worked with an owner who told me he was eager to sell his company as soon as possible. Within a few months, we had put the company on the market and several buyers submitted offers in excess of my client’s financial security goal ($4 million). This competition kicked off a bidding war in which buyers pushed their bids from $4M, to $6M, and then to $9M and $11M.
I think it was at the $11M mark that the business owner disappeared. I don’t mean that he stopped returning phone calls or responding to emails. I mean that nobody—friends, family or colleagues—could locate him for days.
After much worry about his welfare, and some concern about how long the $11M offer would stay open, the owner reappeared. We were all relieved that he was alive and well, but I had to warn him that he was dangerously close to blowing the deal of a lifetime. His response took my breath away. ‘Call off the deal. I’ve thought long and hard about this and I don’t want to sell. I have no idea what I’d do with myself if I didn’t have my company.’ I called my client’s investment banker and had him withdraw from the transaction.”
Pulling the plug on the sale process likely cost this owner tens of thousands of dollars in fees and lost productivity. Much costlier was the emotional damage the owner caused his family and himself. If there is an element of good luck in this story, it is that this owner realized before the sale closed that he would be lost without his business.
Owners may also be tempted to abandon a deal (and some do) during the buyer’s due diligence. As you know, buyers use due diligence to assess a business as a possible investment and are intent on discovering, discussing, and not paying for, any deficiencies, warts, weaknesses, or unresolved issues that they uncover. Owners, on the other hand, can interpret the buyer’s actions as a sudden and vicious attack on the very culture of the company and the legacy the owner thought he was leaving. After all, this business is part of the fabric of the owner’s life. If the feeling of having one’s life’s work attacked isn’t bad enough, owners can realize, perhaps for the first time, that their business will be transformed forever in the hands of this buyer. Unprepared owners can be caught off-guard and react by calling off the deal.
What can you do to prevent these scenarios? As an advisor, you can make a number of suggestions or recommendations to owners who are interested in selling to an outside party. Click here for a list of six recommendations you can discuss with your clients.
At the heart of every recommendation is the owner becoming knowledgeable about and comfortable with the decision to sell (or not). Owners can benefit greatly from your input as an advisor experienced in Exit Planning. An owner’s other advisors (attorney, CPA, financial planner) are as unlikely to raise the topic as are the owner’s deal advisors (investment banker or business broker). In addition, Exit Planning advisors have access to consultants, owner-to-owner peer groups, and other resources to help owners make informed decisions to sell or stay. Seller’s remorse is a Deal Killer that owners need to tackle—perhaps with the help and support of spouse, family, and friends.
Whether the decision to sell or stay takes six days or six months is not important as long as owners don’t ignore the need to make a conscious decision and, until they make it, keep their businesses until they are ready to leave.