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  • Decision Points in the Sale of a Privately Held Company (A True Story)

    May 11, 2015

    In the autumn of 2006, I met for the first time with the owner of a well established, niche manufacturing company with an excellent reputation and specialized equipment that facilitated a competitive advantage in the marketplace. The owner was approaching retirement age and beginning to plan for a succession of ownership for his company. He engaged IBA to evaluate his company and a professional opinion of its estimated market value was provided. The value was less than the owner desired as a sale price, so he elected to continue to own & operate the company rather than have our firm market the company in pursuit of a buyer. A decision of this nature is a common occurrence in our interaction with entrepreneurs and one that we easily accept because the reality is that in most situations owners of profitable, privately held companies will be financially ahead if they own their company another year and sell the next year.

    A positive communication channel was maintained between IBA and the business owner throughout the remainder of the decade including our firm purchasing products from the company. However, despite time marching on, urgency to sell increasing, and a general desire to work together on the project, the business owner and IBA were never able to agree on a price to bring the company on the market. IBA, as valuation experts relating to market values for manufacturing & distribution companies in the Pacific Northwest and a company facilitating transactions in that market niche on a regular basis, held one opinion of the value of the company. The owner of the business held a higher one.

    Eventually, the business owner elected to go another direction and engaged a business broker that was willing to list the business at his desired price. Unfortunately, that business broker was unable to complete a transaction on terms acceptable to the business owner.

    Time continued to march on, the business owner aged gracefully, new competition entered the market, customer preferences changed, the specialized equipment that had been an advantage became antiquated, and business ownership did not change hands.
    This spring I found a message on my desk from a salesman from the company inquiring if we wanted to purchase some more products. I elected to respond to the inquiry by contacting the owner. We had a pleasant conversation where he shared he had tried to sell the company unsuccessfully. I indicated that he probably selected the wrong business broker to represent him & the company. He indicated that may have been the case, but did not engage in conversation related to employing IBA to sell the company. Several weeks later, I learned that the company was being liquidated and that the only asset not being sold in that process was the customer list which had been sold to a competitor in an agreement where a percentage of sales would be paid to the previous owner based on customer retention over a period of several years.

    The company described in this story at one time would have generated a seven figure value in the mergers & acquisitions marketplace. It ultimately sold for a small percentage of that value. The decision to sell a privately held company is commonly made for a combination of financial, mental, emotional, and physical reasons. IBA has a reputation for facilitating transactions at the high end of the market value range in an environment of full disclosure, integrity, and “best practices”. We also have a reputation for passing on representation opportunities at values that cannot be justified to buyers, accounting professionals, and banks.

    IBA, the Pacific Northwest’s premier business brokerage firm since 1975, is available as an information resource to the media, business brokerage, and mergers & acquisitions community on subjects relevant to the purchase & sale of privately held companies and family owned businesses. IBA is recognized as one of the best business brokerage firms in the nation in terms of successfully negotiating transactions that are “win-win” in an environment of full disclosure between the parties.

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