The founder of IBA, G. William Ososke, shared abundant sage wisdom gained from years of experience successfully facilitating transactions as a professional intermediary and managing the firm’s deep & talented team of business brokers with me first as a business broker, later as the managing broker of the company’s Washington territory, and finally as his successor as the President & CEO of IBA. 26 years into the profession, I still frequently hear his voice in my head when contemplating the correct action from a menu of choices. One reoccurring theme in his guidance was to LISTEN. This advice came in a variety of sayings, analogies, and case examples. Two of my favorites include “You have two ears and one mouth, listen twice as much as you talk” and “No one has ever listened themselves out of a deal”.
This advice is a wonderful starting point for anyone in sales. Listening to a customer is fundamental to being able to satisfy their needs. In professional business sales negotiations, the advanced level of listening involves combining hearing with empathy. This composite of two actions can be difficult for goal oriented, confident, individuals who are used to achieving their objectives including the buyer, seller, lawyers, bank, and intermediaries in a transaction involving a privately held company or family business.
The following is a synopsis of a few of the areas where empathy is frequently warranted in a transaction involving the purchase and sale of a business.
Price – The classic business definition of a “fair” price is what equally motivated parties would agree to in an arm’s length transaction. Unfortunately, business buyers and sellers rarely negotiate without emotion on price. At a most basic level, the buyer wants to buy the business at the lowest price possible and the seller wants to sell at the highest price possible. Arriving at a figure both find satisfactory requires listening and thoughtful communication or feathers have a probability of getting ruffled. Mental & emotional elements often not being communicated include a buyer not wanting to be taken advantage of and/or fear of pulling the trigger on investment with personal accountability and a seller who sees the price as quantification of their life work and/or the realization that the value may not facilitate desired post transaction goals (e.g., retirement). Recognition of these common thoughts and appropriate empathetic responses can help get parties to shake hands on deal value.
Transition Training/Consulting – Business purchase & sale transactions are unique when compared with almost any other type of transaction in that they frequently require the parties to work together for a period of time after the deal is completed in order to facilitate a smooth transfer of ownership in the best interest of the company. Think of it this way, a buyer can buy the most beautiful view home in the most exclusive area, never meet the seller, and have a very limited possibility of a negative outcome post purchase. However, if a business buyer purchases as simple a business as a neighborhood café known for their chili and the recipe and preparation process is not passed down, the likelihood of retaining customers who come regularly to the business to eat is greatly diminished. The continued success of a business post sale is commonly a concern of both the buyer and seller. The buyer, obviously, wants to maintain and grow the business they are acquiring in order to obtain their desired return on investment. The seller is often equally concerned about the future of the business as they do not wish to have their employees, customers, vendors, and the company’s reputation detrimentally impacted by the sale. Empathy for these concerns on both sides of the table and by the business broker facilitating the deal can help pave the way for putting an executive management transition plan in place that allows the parties the best chance to achieve their goals.
Seller Financing or an Escrow Holdback – It is common for a buyer and/or their bank to desire for a portion of the sale price to be financed by the seller or held in escrow for a period of time to have a vehicle to address trailing liabilities. Inclusion of this component in a deal is often prudent business practice, however, the request frequently creates fear on the seller side of the transaction, often fanned by legal counsel. Why does it create fear? The reason speaks to the fact that attorneys commonly focus on the worst possible outcomes (e.g., buyers who through poor management damage a business, fail to pay their liabilities or manipulate the representations and warranties to create opportunities for a post transaction price discount). These situations occur, but they are a rarity, at least in IBA facilitated transactions, based on the environment of full disclosure and best practices we employ in facilitating transactions. Regardless, it is important that buyers and bankers remember that seller financing or a holdback is a request requiring a seller to take a position of risk exposure and that empathy in addressing valid concerns is warranted.
Representations & Warranties – Frequently the most confrontational element of a business purchase & sale transaction relates to the representations and warranties section of the legal documentation. All buyers want comprehensive representations and warranties because “they do not know, what they do not know” while the seller has insider knowledge. Sellers, traditionally are comfortable taking responsibility for what occurred while they were at the helm of the ship, but do not wish to take responsibility for what they do not know, potentially should have known, or what occurs under the buyer’s executive management at the company. The modifier often used to help bridge this gap is the legal phrase “to the best of my knowledge”. This phrase protects a seller against the possibility that they did not know a municipal code in an area where they infrequently did business or for employee practices (e.g., backing into a vacant parked car and driving away without reporting the damage out of fear of repercussions) that were not communicated. Attorneys have the ability to create adversarial relationships where they did not previously exist. Empathy by parties and their counsel for the concerns on the other side of the table can help reduce expenses and make the formalization of a deal less confrontational.
Deal Stress
The more time, energy, and expense invested in a transaction by the parties the greater the stress. Stress changes people. Normally congenial people can become short tempered. Additional expense with CPA’s, attorneys, and associated with financing and investors can be viewed as much more significant than similar expense spent earlier. It is important to remember that the longer a pot is on the stove the hotter the temperature maintained over a longer period of time. This is also true in terms of the temperature often found in buyers, sellers, attorneys, bankers, and business brokers. It is important for everyone to remain focused on the desired outcome, empathetic to each other’s world, and not to “sweat the small stuff” that inevitably will force itself front and center when least desired.
Empathy is an important element in a civil society. A higher percentage of M&A deals get done when empathy is prevalent in the transaction. It is also VERY important to extend empathy to all in your community. “Unless you have walked in another person’s shoes”, you generally do not have the full picture of what they are experiencing. This is true whether you selling or buying a business, a parent facing autumn without traditional education for your children, a child unable to go to school or participate in activities they enjoy, or a teacher facing autumn where they are unable to teach as they were trained and desire. I encourage everyone to ask questions and listen. I am confident you will understand the speaker’s position better and increase the potential of a positive outcome.
IBA, the Pacific Northwest’s premier business brokerage firm since 1975, is available as an information resource to the media, business brokerage, mergers & acquisitions, and real estate communities 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 based on its long track record of successfully negotiating “win-win” business sale transactions in environments of full disclosure employing “best practices”.