I recently had the opportunity to see an IMAX presentation in 3D of “Everest”. It was a good film that conveyed in a mountain climbing context many of the elements necessary for successful representation of a privately held company. The movie starts with the assembly of the teams that will lead groups of mountain climbers in their ascent of Mount Everest. It is evident in the movie that at base camp there is a wide range of experience, knowledge, and problem solving ability in the groups leading paid ascents of the mountain. The same is true when selecting a business brokerage firm for representation in the sale of a privately held company or family business. In mountain climbing, there is no substitute for experience. This is also true when selling a business. In perfect conditions, many experienced mountain climbers can summit Mount Everest with appropriate support. However, perfect conditions rarely exist on the mountain. In perfect conditions, many entrepreneurs have the business acumen to sell their own business with support from their attorney & CPA, however perfect conditions rarely exist where a willing & able buyer is present while maintaining an environment of confidentiality about the potential transaction, negotiations are straight forward, and funding for the acquisition is obtained without obstacles.
The two week period associated with the end of a month and start of new month are traditionally busy at IBA with transactions being completed. The beginning of October was a typical month with multiple closings being facilitated by multiple brokers on the IBA transaction team. However, perhaps due to the change of seasons this month’s transactions experienced more turbulence than was normal related to issues that likely would only have been solved by a business broker with multiple years of experience successfully facilitating transactions and strong business acumen & problem solving ability. The following are brief descriptions of three situations that occurred at IBA in September related to transactions that are now successfully completed:
Failed Financing – A qualified buyer had reached agreement with our client for the purchase & sale of a business. All terms were agreed. Due diligence completed. The buyer had a lender that he was working with that expressed a desire & willingness to fund the transaction. Unfortunately, underwriting rejected the deal and the bank withdrew from the potential transaction. Frustration erupted on both sides of the transaction. The IBA broker facilitating the transaction calmly problem solved the situation by locating an alternative bank and facilitating funding of the transaction. This transaction would not have occurred without a business broker being in place who understood the dynamics of the current lending market and a network of bankers to contact who had worked with IBA previously and knew the quality of the businesses we represent as a firm.
Non Assumed Lease Liability – A qualified buyer had reached agreement with our client for the purchase & sale of a business. All terms were agreed. Due diligence completed. The landlord had approved the buyer financially as a tenant and drafted a lease assignment & assumption that was acceptable to all parties with the exception of one clause. The clause at issue related to a provision where the seller had agreed to return the space to its condition prior to first occupancy. The probability of this reconfiguration back to its prior condition was low to nonexistent due to the business buyer’s desire to occupy the space in its present configuration into the foreseeable future, the low likelihood that a future tenant would want the prior configuration (A specific use and not basic shell configuration), and the fact the single use building had been and would continue to be a target for purchase for development. The landlord started negotiations by asking IBA’s client, the seller, to pay for the potential remodel out of the proceeds of the sale. Our client knowing the low probability of this liability needing to be financially addressed refused. Negotiations were facilitated by IBA around the issue and a successful outcome achieved that involved deferred compensation from the sale for the seller and an indemnification clause. This transaction would not have occurred without a business broker with the commercial real estate knowledge and negotiation skills necessary to facilitate a solution that was satisfactory to all three parties vested in the situation. IBA is a respected member of the commercial real estate community. Not all business brokerage firms require their brokers to have real estate licenses. This can be problematic if a transaction involves the sale of real estate or the assignment or negotiation of a commercial real estate lease.
Alternative Voice Required – A qualified buyer had reached agreement with our client for the purchase & sale of a business. All terms were agreed. Due diligence completed. Funding secured. However, the buyer, a first time entrepreneur with significant corporate experience, developed “paralysis by analysis” and was unable to “pull the trigger” and complete the transaction on October 1. IBA’s lead broker on this transaction had worked diligently with both the buyer & seller for multiple months. Trust & rapport were not an issue. The solution was the introduction of another voice & perspective on the transaction. I, as the President of IBA, was asked by my broker to engage personally in the negotiations. A meeting was scheduled with the buyer to understand the relevant thoughts & concerns. Thoughts & concerns were addressed comprehensively in an environment of full disclosure. A meeting was scheduled between the buyer & seller facilitated by the broker & I to determine if a transaction was going to occur. A strategy to close the transaction was executed. The transaction was completed on October 12. This transaction would not have occurred without the ability to introduce another professional facilitator into the transaction. Value exists for clients of firms like IBA in the years of experience and depth of knowledge found in our associates. We have successfully completed over 4000 transactions as a firm and had the privilege of sitting in meetings and learning from some of the top attorneys & CPA’s in the region. There is no substitute for experience & knowledge in the sale of a privately held company or family owned business. It is also important to have the option to bring in an experienced closer whether you are trying to win the 7th game of the World Series or complete a sophisticated sale.
I watched Everest in an IMAX presentation in 3D. It was the perfect location to watch the film and conveyed a final element important to successfully completing sales of privately held companies and family businesses, environment. An emphasis is placed on creating the proper environment to facilitate negotiations & communication at IBA. Face to face meetings and telephone conversations are prioritized over other forms of communications. Email is a great administrative tool for communication, but less than optimum for nuanced communication, sales, and negotiations. People who fail to plan, plan to fail whether it is an ascent of Everest or the sale of a business. Details as small as the environment for and method of communication can be as important as the information conveyed.
It is my recommendation that entrepreneurs interview business brokers in a similar manner they would use when hiring a “key” employee and select the party that has the experience & knowledge to successfully complete the project.
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.