10 Updates

You've Finally Sold Your Business: Now The Ugly Negotiations Really Begin

Feb 21 2014, 10:53am CST | by

For successful entrepreneurs, the idea of finally selling the business – an end to 18-hour days, no more worrying about making payroll, no more anxiety about having nearly all your net worth tied...

Filed under: news

 
 
 

21 weeks ago

You've Finally Sold Your Business: Now The Ugly Negotiations Really Begin

Feb 21 2014, 10:53am CST | by

For successful entrepreneurs, the idea of finally selling the business – an end to 18-hour days, no more worrying about making payroll, no more anxiety about having nearly all your net worth tied up in a single enterprise – can look like an oasis, a future of prosperity with few worries.

From the scores of founder sales I’ve been an advisor on over the past 25 years, I’ve observed that, indeed, life can be very good after selling one’s business. But – and this is a major “but” – closing of the transaction is just the beginning of a process than can take a handful of years and, in some surprising ways, be just as stressful as the period an entrepreneur spent building his or her company.

The culprit: earn-outs that keep a goodly chunk of your sale proceeds in limbo; and post-closing claims about taxes, undisclosed liabilities, intellectual property, the accuracy of financial statements and more.

Think that’s someone else’s problem and it won’t happen to you? Figure you and your lawyer will negotiate around all those post-closing efforts to chisel you out of a fat chunk of what you spent decades building? Think again.

A 2013 study by Shareholder Representative Services (SRS), a firm that manages escrow accounts and other post-closing issues in hundreds of transactions large and small, finds that two-thirds of deals have money disputes arise after the closing. A maddening number of these disputes are initiated in the final week of an escrow period, just when Mr. Almost-Retired-Entrepreneur was getting ready to pack his bags for a long and well-deserved vacation.

Some facts from the SRS study you need to know before selling your business:

–Of 420 deals the firm studied, the aggregate purchase price was $66.7 billion. But just 76% of that was paid out at closing. A whopping 13% was held back for earn-outs. And about 10% was held in escrow in case claims surfaced.

–Size of the deals studied: 39% were more than $100 million; 38% $25 million-to-$100 million; 23% were smaller than $25 million.

Software, IT services, business products and services, medical devices and biopharmaceuticals were among the sellers’ industries. Among buyers, 71% were public companies; 23% private or foreign; and 9% financial (as in private equity and more on that in a moment).

–In post-closing purchase price adjustments, buyers win 50% of the time, sellers win a favorable adjustment 22% of the time, and in the remainder there is either no adjustment or no claims arise. Two-to-one odds the seller gets nicked.

–Most claim sizes are less than $500,000, but SRS reports that in its 420-deal sample, 12% of the claims were $2 million or more, a handful more than $12 million. Painful.

–Is one kind of buyer more likely to make claims and seek to hold back money the selling entrepreneur was counting on? You guessed it: financial buyers like private equity firms file claims in 64% of their deals vs. 53% for privately-held buyers, 42% for public companies and 38% for foreign buyers. And the financial buyers seek a greater piece of funds in escrow when they make claims, too.

–Some good news for sellers. Time spent resolving claims in some instances has been reduced as contracts are better conceived. Most claims are reduced via negotiation.

–Earn-outs? Let’s hope you beat the average. Just 50% of non life-sciences sellers (life sciences deals are structured differently) hit their earn-out milestones, SRS reports, though a minority of those “failures” becomes “passes” after dispute and negotiation.

As you can see, your highly anticipated exit event can easily turn into an aggravation event. Good advisors and planning are crucial. But no matter how well a deal is structured, the morning after your closing party you add to your Founder/CEO job the title of CGPO, or Chief Getting Paid Officer.

Based on my own experience in negotiating deals and counseling sellers through the transaction and through life after the sale, here are four recommendations for avoiding post-sale battles:

1. Be honest with yourself about your company’s prospects. Even if you’ve talked a buyer into paying a price based on the upper range of performance, keep your own expectations reasonable, as you did when building the business./>/>

2. Communicate. Surprises often occur because buyer and seller haven’t been talking candidly, some even avoiding each other.

3. No let up: expect to work just as hard in the earn–out period as you did building the business. Take care leading up to the sale to retain key employees so you’re not managing with an inferior crew post-sale.

4. Steel yourself. Even with these steps, conflicts with buyers will arise. Don’t be emotional. Negotiate hard and you’ll maximize your return.

Good luck!

In coming weeks in this space, I will be writing more about exit strategies for owner-entrepreneurs. And I welcome your comments both here and to me directly at CEO@verit.com

Mary Josephs is the founder and CEO of Verit Advisors, a Chicago-based investment banking firm specializing in ESOPs . She led ESOP advisory groups at Bank of America, ABN AMRO LaSalle Corporate Finance and LaSalle National Bank.

Source: Forbes Business

 
Update
10

6 weeks ago

RM47mil KWSG contributions still unclaimed

Jun 9 2014 7:54am CDT | Source: Business Times Malaysia

Cambodia's Famous Battambang Circus
KUALA LUMPUR: About RM47 million of contributions in the Teachers Provident Fund (KWSG) still remain unclaimed, the Dewan Rakyat was told tod ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
9

6 weeks ago

Gold shop lost almost RM1mil

Jun 9 2014 3:50am CDT | Source: Business Times Malaysia

Melbourne Rising Media Launch
KANGAR: A gold shop owner lost almost RM1 million after after the safe on in his shop was broken into by ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
8

6 weeks ago

Motion to debate MAS losses in Dewan Rakyat rejected

Jun 9 2014 3:39am CDT | Source: Business Times Malaysia

Federal Aviation Administration Bans All US Flights To Israel
KUALA LUMPUR: AN emergency motion to debate the losses incurred by Malaysia Airlines last year, amounting to RM1.2 billion was rejected by the Dewan Rakyat to ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
7

6 weeks ago

MH370 Tragedy: Hisham: RM27.6 mil spent on 1st phase of SAR

Jun 9 2014 2:11am CDT | Source: Business Times Malaysia

KUALA LUMPUR: Malaysia spent some RM27.6 million in its first phase of the search operations for missing Malaysia Airline flight MH370, said Acting Transport Minister, Datuk Se ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
6

6 weeks ago

9.1m litres of diesel seized in a month

Jun 8 2014 1:11am CDT | Source: Business Times Malaysia

INDIA-CHINA-DIPLOMACY-TRADE
PUTRAJAYA: The Domestic Trade, Cooperatives, and Consumerism ministry has seized some 9.1 million litres of diesel and property worth RM58 million since mounting ‘Operasi Diesel Selatan’ in the southern states l ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
5

7 weeks ago

Girl, 9, awarded RM2.78m compensation for medical negligence

Jun 6 2014 4:56am CDT | Source: Business Times Malaysia

Government Weekly Cabinet Meeting
KUALA LUMPUR: A nine-year-old girl who suffered brain damage during her birth at a government hospital was awarded over RM2.78 million in comp ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
4

7 weeks ago

Malaysia's total trade in April up 12pc

Jun 5 2014 11:52pm CDT | Source: Business Times Malaysia

KUALA LUMPUR: Malaysia's total trade in April 2014 rose by 12 per cent from a year ago to RM123.86 billion due to growing trading activities, International Trade and Industr ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
3

7 weeks ago

Works Ministry to spend RM20m for upgrading works at 50 accident black spots

Jun 4 2014 11:35pm CDT | Source: Business Times Malaysia

Iskandar Johor Open - Previews
JOHOR BARU: The Works Ministry will implement upgrading works at 50 accident prone locations in the country that have been identified this year involving an allocation of RM20 mill ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
2

7 weeks ago

Najib launches loan scheme for Ramadan traders

Jun 4 2014 10:24pm CDT | Source: Business Times Malaysia

EurAsia Cup presented by DRB-HICOM - Day One
PUTRAJAYA: Prime Minister Datuk Seri Najib Razak today launches RM45 million Ramadan B ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
1

7 weeks ago

Residents bring up objection against Kidex to Suhakam

Jun 4 2014 4:49am CDT | Source: Business Times Malaysia

PETALING JAYA: A group of 20 Petaling Jaya residents held a meeting with the Human Rights Commission of Malaysia (Suhakam) over their objection against the proposed RM2.2 billi ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 

Don't miss ...

 

<a href="/latest_stories/all/all/30" rel="author">Forbes</a>
Forbes is among the most trusted resources for the world's business and investment leaders, providing them the uncompromising commentary, concise analysis, relevant tools and real-time reporting they need to succeed at work, profit from investing and have fun with the rewards of winning.

 

blog comments powered by Disqus

Latest stories

Common pesticide puts three generations at health risk
Washington, July 25 (IANS) If your ancestors were exposed to a common pesticide - widely used the world over during the 1970s as a safer replacement for DDT and still in use in many countries - this may lead to adult onset of kidney disease, ovarian disease and obesity in future generations.
 
 
Watch videos on any surface with smartphone projector
London, July 25 (IANS) Love watching videos on your smartphone? Now share them with friends via "Smart Phone Projector".
 
 
Only 8.2 percent of our DNA functional: Study
London, July 25 (IANS) Debunking earlier figures stating that 80 percent of our genome has some biochemical function, Oxford researchers now report that only 8.2 percent of our DNA is functional.
 
 
Virus linked to obesity and diabetes found
New York, July 25 (IANS) Biologists have discovered an extremely widespread virus that could be as old as humans and could play a major role in obesity and diabetes.
 
 
 

Latest from the Network

Common pesticide puts three generations at health risk
Washington, July 25 (IANS) If your ancestors were exposed to a common pesticide - widely used the world over during the 1970s as a safer replacement for DDT and still in use in many countries - this may lead to adult...
Read more on Business Balla
 
Watch videos on any surface with smartphone projector
London, July 25 (IANS) Love watching videos on your smartphone? Now share them with friends via "Smart Phone Projector". This device lets you display your footage on any surface. A little cardboard box with a lens,...
Read more on Apple Balla
 
Khloe Kardashian's new beau 'softie'
Los Angeles, July 25 (IANS) Reality TV star show Khloe Kardarshian says her rapper boyfriend Karim Kharbouch, known by his stage name French Montana, is a "softie". The 30-year-old star, who filed for divorce from...
Read more on Celebrity Balla
 
'The Great Gatsby' themed bridal shower for Snooki
New York, July 25 (IANS) Reality TV star Nicole Polizzi, popular as Snooki, celebrated her upcoming nuptials to fiancé Jionni LaValle with bridal shower themed on "The Great Gatsby" here. Snooki, who is set to...
Read more on Celebrity Balla
 
Only 8.2 percent of our DNA functional: Study
London, July 25 (IANS) Debunking earlier figures stating that 80 percent of our genome has some biochemical function, Oxford researchers now report that only 8.2 percent of our DNA is functional. The rest of our...
Read more on Apple Balla
 
India at Commonwealth Games Friday
Glasgow, July 25 (IANS) India, having already won seven medals on the first day and its badminton and table tennis teams too doing well, will look forward to earning more glory across various disciplines at the...
Read more on Sport Balla
 
Virus linked to obesity and diabetes found
New York, July 25 (IANS) Biologists have discovered an extremely widespread virus that could be as old as humans and could play a major role in obesity and diabetes. More than half of the world's population is host to...
Read more on Apple Balla
 
Australia sends military, police to MH17 crash site
Canberra, July 25 (IANS) Australian military personnel along with armed police will be deployed to secure the Malaysia Airlines flight MH17 crash site in eastern Ukraine, Australian Prime Minister Tony Abbott said...
Read more on Politics Balla
 
Chris Pratt's '80s inspiration in Guardians
Chris Pratt says being a child of the 1980s helped him to prepare for 'Guardians of the Galaxy'. The new Marvel movie makes many references to '80s pop culture and the soundtrack is largely comprised of hit songs from...
Read more on Movie Balla
 
Earth missed solar catastrophe two years ago: NASA
Washington, July 25 (IANS) In a sensational revelation, NASA has said that the Earth had a near miss July 23 last year with a giant solar flare or Coronal Mass Ejection (CME) from the most powerful solar storm on the...
Read more on Apple Balla