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MEDIA - PRESS COVERAGE |
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Selling to employees can be a sticky situation
SOURCE: Green Bay Press Gazette, January 13, 2008
By Scott Bushkie
Perhaps you have a core management team—a few key individuals whose experience and dedication help make your business a success. Now let’s suppose you’re planning to retire in a few years and you’d like to give these managers an opportunity to buy your company.
Proceed with caution.
Selling your business to employees can be very rewarding. Done right, it gives them a chance to own their own business. Not only that, but it helps protect your legacy. These are people who believe in your vision and understand company culture.
But done wrong, attempting a management buyout can be extremely detrimental to your business. You can take a company that has a positive culture and good relations between the owner and management and end up with a large rift between the two.
Imagine Sam, a fictional business owner who plans to retire in about five years. Sam gathers his key managers and encourages them to start saving and planning if they want to buy the company.
Now let’s imagine Sam five years later. How much has changed in his life?
Maybe business is going gangbusters, and he’s having so much fun he can’t bear to leave. Maybe the economy has shifted and business value no longer supports Sam’s retirement plans. Perhaps Sam has been through a divorce or had another child or gone through any number of life changes that could impact his decision to sell.
How will his team react when Sam changes his mind? Expect ill will, to be sure. Some may even leave, impacting operations and hurting business value.
Timing isn’t the only pitfall. Confidentiality is always a concern, as leaking news that your business is for sale can cause problems with customers, vendors and other employees.
Money is a sensitive issue too. You may get into negotiations and find your management team doesn’t want to pay fair market value, expecting a discount because they feel they helped you build the company.
Now let’s suppose Sam is ready to sell. Because he wants to get fair market value, his intermediary takes the business to market as normal. With multiple buyers at the table, Sam is guaranteed the best price.
But if expectations aren’t set up right, his management team may feel betrayed.
Then there’s financing. It’s unlikely your managers have enough cash to fund an acquisition.
Fortunately, lenders generally offer favorable terms in management buyouts. These people know the business and have already proven they have what it takes to be successful.
The alternatives are seller financing (more opportunity for bad feelings) or partnership with a private equity group or angel investment group.
No matter how you approach it, selling to employees is a sensitive process that takes the assistance of the right business professionals (attorneys, business intermediaries and accountants along with careful timing and approach. |
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