The suspense is killing me

[marylandcrab]

Hello! In reading through the threads here I think most of you get it, you really get it.

I've owned a business for many, many years now. High highs, low lows. It's like being bipolar without the benefit of a diagnosis or medication. The biz has done well, it's also absorbed every bit of our lives.

On vacation this summer I turned to hubby and said...I don't know how much more of this I can stand. I hate this company, I'm bored by what I do, I'm crushed by the responsibility to all our employees and accounts. I hate to sound selfish, it's done amazing things for us. However, I'm bored, frustrated and stressed all at once. It infiltrates every aspect of our lives.

Lo and behold we were approached by a competitor to sell not long after getting back. We've been through the range of emotions once it became a possibllity. We've come up in our minds, and using honest to god real figures and calculations, what we think it's worth. How it's valued by them may be a different story. We will soon hear the offer. And we have to decide if we sell, if we sell and have to stay on, how far to push negotiations. We have an idea for a different company if it's a lot, but not enough. I'm uncertain how we go on from here if the offer is completely unattractive. We're both now completely mentally ready to retire or at least take off a long stretch of time.

We're actually holding up, and I gave myself permission to feel whatever I feel because there is no way to not be excited or to protect myself from feeling disappointed if it doesn't work out. It's been very weird to have to run this business as if nothing is changing and make hiring decisions and business decisions as usual when everything could potentially change very quickly.

The countdown is on.

 

[ChiliPepr]

My fingers are crossed for you!! Hope the offer is all you want!

 

[East Texas]

We love the flexibility we have in retirement. We're no longer tied to a desk job, driving to and from work, having schedules and deadlines, and all the requirements of holding a steady job and managing a staff. These past six years have been incredible.

 

[donheff]

Interesting first post. Welcome and be sure to followup as the deal develops.

 

[Texas Proud]

I hope that you are looking at the value truthfully.... I work for a small company and the majority owner thinks that the company is worth many times what an independant appraiser has determined...

The problem is that most of the worth right now is based on him... if we lost him the company would struggle and if things were not changed it would go under within two years or so...


I also remember seeing a show about a small burger place that this old lady owned.... it had a total of 5 tables, but there were people lined up for lunch and dinner to get a burger... she wanted to sell her place which was an OLD SHACK for over $1 million dollars... she was viewing the value of her company way to high... of course, nobody bought...


I do hope that the company that wants to buy views yours as a valuable asset and is willing to pay top dollar...

 

[marylandcrab]

I hope that you are looking at the value truthfully
I do hope that the company that wants to buy views yours as a valuable asset and is willing to pay top dollar...

I hope so too. I'm sure we want more than they want to offer. I've checked my figures with several outsiders who gave me a range as well. We've never lost an account, and every time we've gone up against this competitor we have always won. They've also been trying to hire my key employees unsuccessfully. I think when they realized they couldn't beat us, their best bet was to buy us out.

We're just really small, we started from nothing working out of our house, and my motto was always grow as we could afford, we don't advertise or even have a website. Now we're in 2 states and 20 employees. Not huge by any standard, but way more than I ever dreamed when we started. The competitors were focused on a different aspect of our industry and we figured early on how to do something unique. Slowly but surely we kept getting one account after another as an unknown, and now 12 years later we're the leaders in our area. It was a lot of trial and error.

Though I'm suffering burn-out, I still have a lot of pride of what we've done just the two of us with no financial backing or loans of any kind. It has to be worth my while to have us leave a lucrative business. I just have ants in my pants now waiting.

After all the blood, sweat and tears we could both easily leave the pressure cooker for awhile. If it doesn't go through I will have to put my big girl panties back on and just find a way to remotivate myself. But the dream of retiring in my 40's is a glorious thought.

 

[wingfooted]

I can really empathize with your situation. The division I head up for MegaCo has been in divesture status since April as " an asset that has fully realized it's value". The process with potential buyers, investment bankers, lawyers, tax consultants, in addition to managing the business as an ongoing concern has been stressful. And in the end, the offers may not be enough and MegaCo will simply hang on.

If the sale closes there will be enough bonus payments in it for me and the DW to FIRE. If not, need to hang on for another couple of years. And what I've come to appreciate is a failed divesture effort gets you no respect within the corporate hierarchy.

Good luck with your business sale.

 

[obgyn65]

Good luck with your choice, Marylandcab. Keep us informed.

We're actually holding up, and I gave myself permission to feel whatever I feel because there is no way to not be excited or to protect myself from feeling disappointed if it doesn't work out.

The countdown is on.

 

[Nords]

Welcome to the board, MC. Maybe your second career could be consulting for the company that buys your company.

We have an idea for a different company if it's a lot, but not enough. I'm uncertain how we go on from here if the offer is completely unattractive. We're both now completely mentally ready to retire or at least take off a long stretch of time.

I heard an entrepreneur last week who was working for a new startup. Part of his introduction was "I sold that company for $12M, started a second company, and sold that as well."

During the Q&A one of the more perceptive audience members said "If this guy has $12M then why is the startup talking to us instead of using his money?" The answer turned out to be that the second startup used up his $12M.

 

[East Texas]

....They've also been trying to hire my key employees unsuccessfully. I think when they realized they couldn't beat us, their best bet was to buy us out.

We're just really small, we started from nothing working out of our house, and my motto was always grow as we could afford, we don't advertise or even have a website. Now we're in 2 states and 20 employees.

Since so much of the value of your business is also your employees, have you discussed this sale with the employees or asked them if they, as a collective group, want to buy the company? The reason I'm asking is "sometimes" buyers go after a great company not to integrate it into their group; but, to eliminate it as competition by degrading the product or simply closing the doors.

You're facing an interesting challenge.

 

[Grizz]

Well, I could have written the OP's post myself. I also own a smallish business and have, over the past 4 years entertained 3 offers to sell and am currently being courted by 2 more (booming industry). I've learned that valuations are done using radically different methods, and we've had offers that were more than double what others were. The common denominator is that they always want management to stick around, and they always ask for a 5yr non compete, which you can usually lower to 3 with ease.

Never trust a business broker to give you a value. They take a fairly small percentage and so the difference between a quick easy sale of $5 million, and a much more labor intensive $10 million sale isn't always going to add up to much commission difference for them.

Go online and spend some time researching. You'll find similar businesses and the multiples (usually of EBITDA) that they've sold for. You will also find out whether the sales were asset or shares sales (tax wise a big deal here in Canada, not sure about U.S.) If there are publicly traded companies in the same industry, you can find out what their EBITDA numbers are and do a wee bit of math using their current share price to figure out what the market says is a fair multiple. For example, my industry has recently seen acquisitions in the 5.5 to 6x EBITDA range, and the math proves out on the public companies in the sector.

Another bit of advice. Genuinely try to be "business as usual". If you need new stationary with your logo on it, or a piece of equipment could use maintenance, just do it. You can always negotiate for expenses, especially larger purchases made after the year end financials that they've used for valuation

Best wishes as I know that this can be a really weird time.

 

[marylandcrab]

We're still in wait mode. I see multipliers all over the place, but our business is quite unique, there aren't many people who do exactly what we do. They'll be buying market share, plus our intellectual property. They said the valuation would take two weeks, but here we are a month later, and beyond a call to clarify some numbers several weeks ago, we've heard nothing.

We weren't trying to sell, they approached us. We also make quite a comfortable living, so I'm thinking it really has to be worth my while to give up a known, upwardly trending income. I asked for references and they told me no one ever asked for that before, and they now have not returned a follow up email asking for them. I've told them I'm not going to ask about money, but after the fact, how do they feel about the sale now, were they fairly treated, were they satisfied with the way it worked out. I think it's weird that they're stonewalling on references. Makes me think they don't have any. However, they are an enormous company, publically traded, and they grow through acquisitions.

I'm not sure what to read into them not getting back to us yet. I've speculated every reason under the sun. We are just carrying on. But a few decisions, like moving our office, have to wait. I can handle either one, and I've gotten through that burn out stage and the biz is running fine and dandy. I just hate being in limbo.

 

[Grizz]

Don't despair, you've probably figured out by now that there are a lot of people involved in M&A in a big public company. They all need to rubber stamp the deal, and their vacation times and other distractions WILL stretch things out. It's part of the culture of the big slow moving corporation. This may also be a glimpse into what it would be like as a branch manager (which I'll be amazed if they don't want you to be) in a public company. Decisions won't be as quick as you are accustomed to.

Even after the offer, there will be a long process of due diligence where they'll dig deeper into your financials, and look much more closely at your equipment to ensure that they are getting what you say they are getting.

From what you have said, you've got a great business. I'd leave them alone. Be somewhat aloof, dignified, try to keep conversations positive and on "big picture" topics.

I don't know what you mean by "references". References for what? Please explain. If my hunch is correct, you are asking to speak with others who have sold out to them. I wouldn't pursue that as I think that it could be construed as a sign of distrust on your part. Remember, the folks who are talking with you got to where they are not always because they are the brightest bulbs, but more likely because they LOVE their company and are very loyal to it.

I'm 42 and plan to keep working at fast moving stressful stuff like I currently do until about 50, then figure out what I want to do as money really won't be a big driver at that point. Essentially I look at selling to a big public company as a 7 or 8 yr experiment to see how much I can do with their big juicy available growth capital. Heck maybe I'll end up as a VP of something interesting. I'll give it an honest shot with my best efforts, but if I screw it up, or if their business model is stifling, at least there will be lots of cash in the bank, and very little barrier to me going back into my current business although on a much smaller, more manageable level.

Back to the valuation topic. One of the businesses that I am currently in negotiations is uber-huge as well. They also have a strong history of growing through acquisition. I was able to do some detective work by going online and reading their quarterly earnings calls for the last yr or so. In my case, the amount paid for the 3 acquisitions that they had recently made were only referred to as an aggregate sum. The individual prices weren't disclosed, BUT, later on in the call they made mention of the immediate EBITDA that the acquisitions would add to revenues. Some quick math revealed the average multiple paid for their most recent acquisitions. It gives me a very good idea of where the end of their negotiating rope is.

I'm interested in hearing how your deal ends up. Good Luck!

 

[marylandcrab]

Ironically enough they sent the offer over yesterday. It was so bad, it was below my worst case scenario. It was .8 revenues. It was basically 2 years income that we currently earn plus if we worked for them for 2 years we'd make 1/3 of what we earn and if they don't totally screw up the accounts and lose them we can earn another years salary paid out over 5 years at 2% interest. Plus, they want us to pay off the company vehicles before closing, but let them have them. Plus key employees MUST sign non competes for it to go through.

No thanks. I'm the sole owner, but hubby and I are a team. I told him I'm walking, no renegotiations required, but he and our lawyer are going to talk to them. I backed out of participating. They have to triple the offer to even catch my interest. It was insulting. Our lawyer gasped, said it was a slap in the face, and wasn't even written legally or in a way that made us believe they even understood our business at all.

I asked for references because I don't trust them. And that was a gut feeling from their reputation in our industry. After that offer now I know why they didn't get back to me, they must not have any. I realize their business model is throwing out lots of lowball offers and seeing if anything sticks.

Now I will focus our sales team on crushing them.

 

[Ronstar]

Ironically enough they sent the offer over yesterday. It was so bad, it was below my worst case scenario. It was .8 revenues. It was basically 2 years income that we currently earn plus if we worked for them for 2 years we'd make 1/3 of what we earn and if they don't totally screw up the accounts and lose them we can earn another years salary paid out over 5 years at 2% interest. Plus, they want us to pay off the company vehicles before closing, but let them have them. Plus key employees MUST sign non competes for it to go through.

No thanks. I'm the sole owner, but hubby and I are a team. I told him I'm walking, no renegotiations required, but he and our lawyer are going to talk to them. I backed out of participating. They have to triple the offer to even catch my interest. It was insulting. Our lawyer gasped, said it was a slap in the face, and wasn't even written legally or in a way that made us believe they even understood our business at all.

I asked for references because I don't trust them. And that was a gut feeling from their reputation in our industry. After that offer now I know why they didn't get back to me, they must not have any. I realize their business model is throwing out lots of lowball offers and seeing if anything sticks.

Now I will focus our sales team on crushing them.

Sounds like they are being unreasonable. You're better off sticking around for 2 years and giving the company to your employees.

 

[Aiming_4_55]

.... It was insulting. Our lawyer gasped, said it was a slap in the face...
Now I will focus our sales team on crushing them.

Sorry to hear about the low ball offer.

If your lawyer said it was a slap in the face.... why waste the time to talk. Talk 2 minutes on a letter, Thanks, but no thanks.

 

[Grizz]

Bummer about the crummy offer, but at least the offer was so ridiculous that it could be dismissed quickly and allow you to get back to work.

I guess it's too late now, but as someone who has been through this a few times I'd advise you to not bother getting your lawyer or accountant involved until after you think that the offer has some merit.

 

[FreeAtLast]

Sorry that the offer was so low. Perhaps you can list the business for sale and get other offers.

 

[marylandcrab]

Grizz - I agree. I just said I was done. However, if dh needs to do it to be able to move on, then I'm okay with that. I have a new employee starting tomorrow so I won't even be around during the call.

We recalculated our goals without selling the business, and we figured we're on a 7 year countdown. This process got us to look at things we'd never really looked at, figured out where to tweak, made us realize how good and solid the business was and it sparked some new ideas. I would never sell unless it was really worth our while and would allow us to retire. Plus, now I have a new target to take down. They want to buy us because we have always won in every account where we were both involved. I will now go after their existing business and displace them there. In dealing with them, I now get even more why they can't beat us.

I'm probably still too emotional to just hand this business over to someone else. We were the ones who have put in all our savings to cover payroll at times, had the kids at 6 and 8 stuffing envelopes, had my mom set up a filing system, my dad (who died a few years ago) is the one who had us define ourselves and our customer service. I'm proud of what we have built, and while everyone would tell me it's just business, it's personal to me too.

So while it was like imagining I won the lottery, it won't be that easy for us.

 

[Milton]

Sorry to hear that things didn't work out as you had wished.

Our lawyer gasped, said it was a slap in the face.

Your lawyer needs to get a grip. His or her role is to provide objective professional advice, not to wind up the client's emotions with silly statements like that.

I see multipliers all over the place, but our business is quite unique, there aren't many people who do exactly what we do.

What are the barriers to entry?

They'll be buying market share, plus our intellectual property.

I could be wrong, but the above suggests strongly that the majority of the value is actually 'goodwill': which is very subjective and notoriously difficult to value.

We were the ones who have put in all our savings to cover payroll at times, had the kids at 6 and 8 stuffing envelopes, had my mom set up a filing system, my dad (who died a few years ago) is the one who had us define ourselves and our customer service. I'm proud of what we have built, and while everyone would tell me it's just business, it's personal to me too.

Past 'sweat equity' is well and good; but it is of no interest to any potential purchaser, and thus does not contribute to the sale value of a business.

I asked for references and they told me no one ever asked for that before, and they now have not returned a follow up email asking for them. I've told them I'm not going to ask about money, but after the fact, how do they feel about the sale now, were they fairly treated, were they satisfied with the way it worked out.

Selling a business is not much different than selling a house. After the sale, the purchaser gets to do what they want (e.g., remodelling, downsizing the workforce, etc.) and the buyer has no say in things. I wouldn't worry about "references".

It sounds to me like you're not ready to let go. That's fine. Keep doing what you are doing and don't worry about selling, it's no more than an unnecessary distraction.

 

[Texas Proud]

I am with you... no need to even acknowledge an offer that was so low...


As an example... if I had a house for sale at $100,000 (a reasonable amount) and someone came in with an offer for $75,000... I would not even respond... not worth my time.... there is no way they are going to come close to the minimum number I would want, so there is no reason to negotiate...

 

[travelover]

I think they did you a favor. You were getting a little bored with the enterprise and this juiced things up. Go get 'em.

 

[marylandcrab]

Things got interesting again. Renegotiated and their next offer came up substantially to where I think we can begin discussions on final numbers. I guess the low ball is just the megacorp way, just not how I do business. So we wait and see.

 

[Chuckanut]

Well, at least you know they have no problems taking advantage of you if you let them. To be for-warned is to be for-armed.

 

[Rambler]

Things got interesting again. Renegotiated and their next offer came up substantially to where I think we can begin discussions on final numbers. I guess the low ball is just the megacorp way, just not how I do business. So we wait and see.

Don't know what kind of business you are in, but I believe that if you are in the ballpark of 5-6x EBIT, that's a reasonable starting point. We've acquired many companies over the years, and I've seen multiples of anywhere from 4-9x EBIT. It really depends on the quality of the business, the segment, recent growth trends and future growth potential.

good luck with the next round!

R