Negotiations related to the purchase and sale of a privately held company or family business traditionally involve the price of the business, the financial components for payment of the price, the period of time the seller will work with the buyer to smoothly transition ownership/management of the business, tax allocation, and the terms of a non-competition agreement executed by the seller with the buyer. Knowledge and experience should allow a professional business broker to successfully facilitate parties to reach agreement on these transactional elements in a “good faith” negotiation. However, periodically negotiations will venture into an unexpected venue where cultural and non-financial deal terms need to be negotiated. These situations require a business broker willing to listen to the motivations and concerns of both parties and problem solve appropriately.
The following is an example of an unexpected negotiation that I facilitated at IBA:
An owner of Japanese heritage hired me to sell his business to facilitate retirement. The business was profitable, had excellent market share, and a good reputation. As part of the process associated with bringing the business to market, lists were assembled of the assets included and excluded from the sale. The list of excluded assets included an aquarium that was home to several koi. The aquarium and koi had been given to the owner by his son as a gift. The aquarium was located in an area of the business where its removal would not be noticed by customers or result in cost to the buyer replace. The lists were shared with buyers evaluating the business for sale. As a business broker, I viewed the aquarium as a personal item and had no concern about its exclusion from the sale.
A buyer was located for the business and negotiations facilitated in “good faith” between the parties. Agreement was reached conceptually on all the traditional deal terms. The transaction appeared headed down the path to another business sale successfully facilitated by IBA. However when the purchase & sale agreement was presented by the buyer, an individual of Chinese heritage, for consideration by the seller it included the transaction term that the aquarium and koi would be included in the sale. Recognizing the personal value of the aquarium and koi to my client, I inquired to the buyer why a desire existed to acquire this personal item. The buyer explained to me that water is a powerful Feng Shui element promoting good business, prosperity, and wealth and that koi bring good fortune, success, and prosperity to their caregivers. Removal of the aquarium and koi from the business, in the opinion of the buyer, could result in hardship for the business after the transaction is completed.
Empathetic to both parties sincere motivation for retaining the aquarium and koi, I facilitated conversation about the issue. Both parties strongly desired the aquarium and koi. No split of the items was acceptable as a solution. The transaction appeared destined to fail over an issue that had no significant financial value to the seller in the context of the greater transaction or importance to the business in terms of customer or vendor interaction. However, at the 11th hour the seller’s motivation to retire superseded his desire to retain his son’s present and he agreed to include the aquarium and koi in the sale. The business, which was sold in the 1990’s, remains successful to this day.
The situation provided an excellent case example at our firm of how cultural and personal issues can impact negotiations. The purchase and sale of a privately held company or family business is a transaction built on a foundation of entrepreneurship and investment, but it is often the non-traditional deal terms that need to be professionally facilitated to successfully navigate a business sale from listing to closing.
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.
Savvy analysis , For what it’s worth , others a IRS 1120S , my business filled out a sample document here