In a world in which most corporate finance and investment professionals use financial ratios, business plans, peer groups comparisons, and investment models as important measures for a company’s valuation and investment case, it can all come across a bit abstract.
Therefore, it’s crucial for advisors to invest time and give ample attention and support to the sentiment and emotions sellers will experience. They could easily become overwhelmed by and throughout a transaction process.
A first crucial aspect refers to how a business owner looks at a potential transaction:
- How does s/he see the profile of the ideal buyer or investor? What is such profile based on beyond knowledge of the sector, or understanding of its dynamic and ecosystem?
- What does s/he expect in terms of “chemistry” between parties? How is “right” chemistry defined in terms of norms and values, integrity, character, personalities, and vision? Is it a judgement made within minutes which is hard to reverse?
- How does the entrepreneur feel about his changing position – sharing or relinquishing control?
- How does the business owner see his company evolve after a full or partial sale and what is the footprint or legacy in terms of business s/he wants to leave?
Secondly, there are the emotional and “philosophical” elements related to what it will mean for the entrepreneur once the transaction process is successfully concluded. Let’s not forget that the (partial) sale of a business will typically result in a “liquidity event” that might leave business owners with more wealth than they feel comfortable consuming. Alternatively, it represents the end of their professional careers or a major overhaul of who they are and where they fit in. That sentiment is especially felt on that crucial decision-making moment called closing.
Hence the importance why this should be discussed prior to a transaction process: how does the entrepreneur see his own personal future and that of his family, what makes him “tick”, how does s/he define his larger sense of purpose? How does s/he anticipates the disappearance of their status as founder, business owner, executive, and employer as well as all the positive things that will replace these?
Entrepreneurs also need to be talked through the emotional roller coaster that the transaction process itself will become: its defining and decisive moments, disappointments and heights, the intensity and emotions they evoke, and the energy the process requires. A roller coaster of hard negotiations, strategies, tactics, financial and legal technicalities, rigorous questions and exhaustive due diligence process. But also how to build candour and trust with potential investors or acquirers throughout the deal process. In other words, business owners need to be fully aware and prepared how each of the phases is going to affect him and impact the people surrounding him.
In this context, they need to understand how investment professionals think, how they assess the risks of a deal, how they see the fundamental dynamics, qualities, and value of a business as many a dealmaker underestimates what the emotional impact is when the owner’s life work, decades of risk-taking, building relationships, and earned status in their community will be reduced to a “single number”. On the other hand, advisors need to build a rapport with potential investors or acquirers to probe to what extent a match between their experience and the business, an alignment with the management team, the leadership and the culture, and a fit with the character and expertise of the professionals executing daily has been established.
Lastly, let’s not underestimate the vital importance for the buying or investing party to put enough emphasis on “recognising or honouring” the business owner, entrepreneur, or the management, as well as the tremendous energy and effort that has gone into creating the business. Not only this has a high motivational impact to the company’s staff and future management, but makes the “parting” process for the entrepreneur psychologically and emotionally more smooth and acceptable. From an advisor’s point of view, this requires coaching of the acquirer to treat carefully and treat the seller with deep respect.
Some will argue these aspects only apply to small business owners, yet our experience has taught us that irrespective of the size of their company, entrepreneurs will go through very similar emotions.
Advisors play a crucial for their clients in navigating the more emotional aspects of transactional processes. Not only do those aspects define to large extent the process’ structure and momentum, but more importantly the roles one has and takes on as an advisor throughout the process. It’s not just about focusing on these aspects, but making them an integral part of the process and approach to a transaction in order to maximise value, price and success of a transaction.
Since 2002, donedeal assists entrepreneurs and serial entrepreneurs in growing, strategic repositioning, and exiting current ventures, in identifying, acquiring or investing in new ventures or lifestyle interests, or in screening the performance of ventures already invested in. donedeal offers transactional acumen and expertise in dealmaking, structuring transactions and financing solutions to family and private offices. donedeal is a Game Changers Awards 2018 and a 2017 Deal Maker of the Year Award recipient.
donedeal has fused financial, rational and emotional elements into its transactional approach. We see our role as close and loyal confidants, who offer independent, authentic, and unbiased advice to our clients throughout the whole transactional process while structuring creative solutions around the business owner’s ambitions.
Moreover, we invest a great deal in the relationship with our clients in order to know what makes them “tick”, and to earn their trust and respect. We have put a lot of emphasis in building a network in the financial community in order to have in-depth knowledge of their latest focus and drivers for successful acquisitions or investments. This allows us to be pillars to our clients and their team and to continue advising them in view of their next steps: new (investment) opportunities and projects, thus supporting the quality of their entrepreneurial life after the transaction.
Gert Van der Linden