MARKET INSIGHTS
Closing the deal: it’s just the beginning By Larry Morgan
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lot of thought and effort goes into the sale of a business. But let’s skip ahead to the time when the buyer and seller come to terms and a contract is signed. This isn’t the end of the deal. In fact, for me, the buyer and even (occasionally) for the seller, it’s only the beginning. In this industry reputation is everything. Early on I realized my reputation was only as good as my most recent transaction. Put together 100 successful deals and nobody remembers. Put together one disastrous transaction and nobody forgets. So I make it a practice to revisit every transaction, not just for a few weeks, but in most cases for years. And it’s not a waste of time. In matching sellers with buyers, it’s crucial for me to know how previous transactions turned out. Was confidentiality maintained? Did the buyer make drastic changes? Did employees lose their jobs? Did the new owner lose customers? If there was an earn out, did my seller get paid? Did the buyer grow the business or was it ruined? Out of all my transactions I’ve only had two bad outcomes. As luck would have it, my very first transaction turned out to be a disaster for the buyer. It was an eight-unit, very profitable iconic operation with an owner that wanted to retire.
Remember the old saying, “if it works don’t fix it?” Well, the new owners chased the seller away after only one month. They made drastic and fatal changes to management and product mix, and it took years and another new owner to repair the damage. My second unhappy ending occurred years later. I sold a wellrun, profitable operation to a skilled operator who paid a fair price. The transaction went smoothly. The buyer maintained and even expanded the business. However, the seller had never really wanted to sell — family pressures finally made him sign the papers. Even though the deal had closed 15 years ago, the seller called me a month ago and bemoaned the sale of the company he wish he had kept. It remains a painful lesson and a sale I regret. Most transactions have happy endings. A smart buyer realizes that the former owner is a valuable asset. Most sellers remain in the community and are well known by all. Aware of this fact, one nationally known buyer maintained an office for the seller. But more than that, they encouraged him to come in, read the newspaper and have coffee. After a few months, most people had forgotten the company had changed hands. It was business as usual — just what the new owner wanted. The former owner’s office was
In this industry reputation is everything. Early on I realized my reputation was only as good as my most recent transaction.
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MARCH 2021 HARDWARE + BUILDING SUPPLY DEALER
kept for him until the day he died. Some people just won’t retire. One seller of a very large pro yard in the Southwest never left. Although the sale took place many months ago, the seller — now in his 80’s — still runs the company. He likes what he does and he likes to work. The sale allowed him to take his chips off the table but continue to play the game and run the company he loves. Who says you can’t have your cake and eat it too? Recently I closed a transaction in a small community in the Rockies. I’d worked with the owner for years, and several buyers had visited but none seemed to fit. Finally we found “Mr. Right.” A national firm seeking more than just another company to add to their ever expanding corporate footprint. They were looking for talent. This yard was their first acquisition in a state in which they wanted to expand. Plus, they found a young but experienced owner. A man who wanted to stay in the industry. The sale insured the owner’s financial security, meanwhile the buyer landed a seller who could one day move into a top management position in the corporation. A win-win deal. The kind I like. Larry Morgan is general manager of Mountain State Acquisitions. He has more than 25 years of experience advising building and construction industry clients on mergers and acquisitions. Learn more at Larrymorgan.net.
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