Should We Sell?

TS:Great to see you guys too. So Alan and Lisë, would you mind giving the listeners a little bit of background on yourselves?
LS:Sure. I'll jump in. Happy to. So as you said, I'm the partner in charge of the Center for Individual and Organizational Performance, which we lovingly CIOP and that also includes the Center for Family Business. And what we do is we help family-owned, closely held businesses to transition and certainly selling your business is a pretty significant transition. So we really like to be able to help our business owners to think through these sorts of issues. And I'm just delighted to be here today to chat with you.
TS:Sounds great. Thanks, Lisë. And Alan, and yourself?
AW:Thanks, Tim. As Tim mentioned earlier, I'm managing director of capital markets for the firm, and I get involved with a lot of our clients who are looking to raise capital for their business debt, equity, mezzanine financing, or looking at a corporate finance event, the merger, acquisition, the vestiture, strategic alliance, joint venture, etc. Prior to EisnerAmper, I actually spent a number of years on Wall Street doing corporate finance transactions. So I've probably been involved in five or $6 billion of deals in my career. So, I've been through a lot of transactions, both in the public and the private markets.
TS:Well, it's great to have you both here on the show. I know I couldn't ask for two better people to talk about this subject. And as we're going through, so you're a business owner, like what are some questions that a business should be asking if they're even thinking of selling at all?
AW:Tim, let me kick it off first. And I think selling a business for a lot of privately held business owners is an amazing and important step in their lives. You might do it once, maybe twice in your life. And I think companies that are prepared to sell that just don't wake up on Monday morning and say, "I want to sell my business on Thursday," that's probably not the way to do it. I think you want to understand the marketplace. You want to understand how your business is performing. Why do you want to sell? Is it a great time because multiples are very high in your industry?

Are you getting on in years and you want to liquidate your holdings and move on and go play golf or sit on the beach? You have to understand why. A lot of companies are generational. I know Lisë works with a lot of companies that have gone to two or three generations. And as you know, it's really tough for a business to go from generation one to two to three. So I think you have to understand why you want to sell and why is a good time to do it.
LS:I absolutely agree with what Alan's saying there, and it's actually not all about the money. And I think that that's a common mistake that a lot of business owners make is that they go into this idea that, "I'm going to make a lot of money here and then all will be right with my world." But in fact, the research indicates that approximately 80% of people who sell their businesses are not necessarily satisfied with the transaction. One, maybe they don't get as much as they were dreaming about getting. But two, once they've sold their business, they don't know what to do with themselves, and they're not prepared for the actual transition itself.

How do they gracefully move to the business? What do they do about the employees that are left there? Is whoever's acquiring the business going to maintain their family members in other positions in the company and so on? So when we're working with a business, we really try to get them to expand their thinking about the why, why they're doing this and what could things look like later. So, let's talk about not just the financial side and the market side, which is all very important, but think about what do you need out of this transaction to feel whole.

Do you need to have a plan for what you're going to do after this occurs? Do you need to be able to find something else to occupy your mind? Do you need a certain amount of financial return from the business to support your lifestyle? So there's just a lot of questions to be asked.
AW:And Tim, just to add one other point to that. Depending upon the age of the business owner, certain business owners want to sell and be totally removed from the business. Other business owners would like to sell and still be involved. And a lot of the involvement of the prior management team depends upon whether the company is sold to a strategic buyer or a financial buyer or private equity fund. Usually if you sell to a strategic buyer, a lot of the senior management positions become superfluous because they're not going to be necessary in the combined company.

And if you sell to a private equity sponsor, they usually want a good number of the team to stay on because they're not going to run the business on a day to day basis. The management team is, and they like to have some continuity. So, I think the business owner has to ask himself or herself that question before they go into the process.
TS:No. That's perfect. And Lisë, Alan, I thank you so much for the insight on that as well. And one of the things to bring up, obviously this is a big component of it is the pandemic has seen everyone rethink exit strategies in businesses. So can you offer any advice to those thinking of selling and maybe some helpful hints?
LS:Yeah, I would say, it is true. The pandemic is made some people stop and say, "Do I really want to be doing this?" And I would caution about making that kind of totally life altering decision right now in the midst of some things that are pretty crazy. This really speaks to really some of the points that Alan was making. Don't let the pandemic itself drive the decision making. Start to look at all the different options that you have, take a look at what it is that you really need, look at how other people have gone through this sort of a transaction.

And surround yourself with very good advisors so that this is not just an emotional or a knee jerk reaction to some of these very tough times that some companies have gone through, but rather it's a well thought out strategy so that you can get your return on your lifetime's investment.
AW:And Tim, just to add on to what Lisë said, you have a situation now where outside of COVID, we were looking at a time because of the demographics of probably the greatest generational transfer of wealth and I think you saw a lot of business owners who wanted to sell because of COVID, because of the pressure of COVID on their business. And if you look at the M&A marketplace over the last 20 months, the level of deal activity has been off the charts. It's the frothiest market that many of us have seen in our careers and how much longer is going to continue, I'm not sure.
But all things considered, it's a great time to be a seller because of the amount of capital that strategic buyers have and the amount of dry powder on the sidelines for private equity funds.
TS:I couldn't agree with you more on that, Alan. And honestly, Lisë, Alan, thank you so much for being part of this first episode here. Thank you for the valuable information you've provided our listeners today. And thank you for are listening to The Bottom Line, part of the EisnerAmper Podcast Series. Visit eisneramper.com for more information on this and a host of other topics and join us for our next podcast where we will cover how to prepare to sell your business.

^{Transcribed by Rev.com}