Beware of the owner who says s/he is retiring. I had an acquaintance who bought a business and subsequently had the owner get bored and open another business just like the one he sold – one year later. He also had experiences with owners who claimed they wanted to retire, but later balked as the talks grew more serious. He told me, “If an owner says he is retiring, ask for proof. Did they buy a retirement home somewhere? If so, ask to see the deed or the executed loan documents. If you don’t ENSURE the owner is ready to tire, you can spend a large sum of money on due diligence, attorneys, accountants, etc. only to have them seize up before signing on the dotted line.”
I remembered he said that but I almost bought a business from someone who said he was retiring. I thought it was different because he had tried to bring someone in as a member of the senior management team in order to have the guy learn the business and facilitate an easier purchase with the bank as it would then be a management buyout instead of a regular sell. (Banks like management buyouts. Who knows the business better than the management team? The numberof unknowns decrease and hence, the risk decreases. As an aside, private equity funds and mezzanine funds like management buyouts too. For the same reasons.)
Anyway, to make a long story short, we were never able to interview the employees. He always hemmed and hawed when we tried to schedule the meeting. This despite the fact that the bank had given us a loan commitment and we had scheduled a closing date. He refused to sign the Purchase Agreement, complaining over little items in the Agreement. Thus, we should have seen the writing on the wall when he said he just couldn’t sign the deal, 2 weeks before we were due to close. Of course, he claimed he just couldn’t get comfortable with the terms in the Agreement. But when people want something, it’s amazing how agreeable they can be. When they don’t truly want it, all sorts of excuses and roadblocks arise.
So, just a word to the wise, if you have an owner who is relatively young (late 40’s, 50’s, or even early 60’s) and in good health, who says the reason they want to sell is because they are ready to retire, BE HIGHLY SUSPECT. They may just be testing the waters to see what kind of interest they can generate in their business. Or they may think they are ready, but when it looks really serious, they just can’t stand to part with their baby.
Option: Join the Management Team
On a positive note, one way around this, for those who have patience, less means, and/or really like the business, is to join the management team and work out a transition agreement. If the owner gets comfortable with how you operate (or help operate) the business, you build trust. The “retiring” owner will feel more comfortable selling his/her business to someone s/he knows. And you get the opportunity to conduct due diligence on the company’s dime – while drawing a paycheck. It can be a win/win for both. It allows the owner time to come to terms with selling the baby, and it enables the buyer to really get to see the business and industry from an inside perspective.
If you or your company has or has considered an acquisition strategy, now is the time to pursue it. Need some help on determining or implementing that strategy, call me at 404-642-0509 or message me through the contact form. Otherwise, good luck!