Working with Private Sellers
“Continue to remind yourself that this is an emotional process as much as anything else for the seller, I think it will help make the process go smoother.”
We cover topics such as whether to work with a private seller or an advisor, what happens to the leadership of the seller, and finding good deal representation.
Better to work with the Seller or an Advisor?
A double edged sword that could go either way.
Working with an advisor will be a lot more organized. They’re books will be more in order and the sellers will be more prepared, especially in the emotional aspect of exiting their business. However, it’s going to be a lot harder to negotiate. You can’t control the situation like you want to, so you don’t have much advantage anymore when you’re talking to an advisor.
Also, working directly with the seller will have unrealistic value expectations because of the emotions and pride attached to the business. Their lack of financial information or understanding will be one of the hardest things to deal with.
The best approach
When you are working with a private seller, you need to remember that this is an emotional process for them because more often than not, this is their life’s work. Showing empathy and sensitivity is in your best interest as that is what will help you get the deal done smoother and achieve a positive value creation outcome in the end.
What happens next?
What usually happens to the leadership of the seller will largely depend on what they want to happen. They can stick around and have successful careers in the organization, or if they don’t want to, try hard to get them on a consulting agreement. Maybe they can sign a 6 months to a year contract just to help in the change management process. Remember that these owners are going to be your best change agent in the transition because of the existing relationship that they have on the employees.
Best tip for sellers
Find good deal representation. In most cases, the CPA who put your taxes together for the last 20 years wouldn’t suffice. Find someone who can prepare you for valuation and someone you can talk to about emotional conversations and can prepare you for diligence.
Find a good M&A attorney. A family attorney wouldn’t work because most likely, they have never seen a Sales and Purchase Agreement, they wouldn’t understand the workings of reps and warranties and they don't understand the burden of preparing schedules for the SPA.
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