The Vulnerable Seller

Here is something counter-intuitive for a great many sellers of high-growth and mid-market privately-held businesses. If you want to maximise the price on exit, you need to maximise your vulnerability. Yet most sellers have spent years doing the exact opposite.

Vulnerability is largely a function of a seller’s self-worth (“I won’t allow the sale outcome to influence how I think about myself”), giving yourself permission to be vulnerable and the quality of your support system (friends, family, advisers and acquaintances). Hence any transition plan in the lead up to the start of the exit process, needs to address all three aspects, in advance, alongside:

• Any fractured personal relationships (spouse/partner/family members)
• Any past, present or future “private promises” made by the business to fellow shareholders, managers and family members (financial or no-financial)
• Any private grievances (key clients, key business partners, key suppliers) or events (disputes, potential regulatory breaches etc.) that might reasonably give the buyer cause for alarm in due diligence or god forbid, post-sale.

You are rightly proud of the business that you have built. You have had proprietary control of the reins (people, capital, resources). Your control has given you power (discretionary authority) and protection (preeing eyes). The “4 P’s”. Now a buyer (strategic or financial) is being asked to make an informed judgement on the value of your business to their ideal future. What is the sum of your pride, your proprietary control, your power and your protection worth to them?

A buyer can rarely understand it (quality of your people and management, quantum of uncertainty, competitive threats) clearly without you being voluntarily vulnerable (trust). You cannot negotiate successfully without putting yourself in a position of vulnerability (willing at any point to walk away from a proposed deal), irrespective of the consequences (financial, non-financial, business or personal). That requires a mix of internal and external attention as early as possible in the transition process. If appropriate, hiring someone, who has successfully dealt with those issues in their own business and who can help navigate you through the process. Almost certainly, not an internal figure, nor your corporate finance adviser. Someone, whose skills, behaviours and expertise are strongly aligned to your discrete personal and business needs.

? James Berkeley 2017. All Rights Reserved.