How to ride the emotional rollercoaster of a business exit

Stephen Frazer is the founder partner of corporate financial consultants Frazer Hall. He has worked in mergers and acquisitions for 20 years, personally completing more than 100 buy or sell transactions. In this guest blog, he shares his expert analysis of the emotional rollercoaster that is selling a business, how different personalities respond to the pressure and how we professionals can best help our clients through the process.

One of the things that I love about our role is the diversity of personalities with whom we deal – entrepreneurs and business owners come in all shapes and sizes and can approach a sale of their business in very different ways.

However, before I give my completely unscientific and unproven psychological analysis of personalities, let’s start with what seems to bind them. Most of my clients have spotted an opportunity, held their breath and (figuratively) jumped off the top diving board. The majority have endured some tough times and come through them. They largely care about their staff and their customers, don’t like spending money unnecessarily, but do have an instinct to make a profit. These are the people that mostly hail from normal, not terribly privileged backgrounds and I suspect that statistically, for every one of them that succeeds financially, there must be dozens if not hundreds, that don’t.

So where do the differences lie? In equal measure, we find that a mix of very extrovert, equally introverted, volatile, calm, analytical, emotional, aggressive and non-aggressive people tend to run owner-managed companies. Twenty years ago, our clients were almost all men; in a relatively short time, I have found the mix to be probably 70:30 of men to women. An improvement in the mix for sure, but regrettably we are not there yet.

Like all of us, the personality types are brought most sharply into relief under stress and given that for most, the sale of their company is the largest economic event of their life, it is hardly surprising that the sale process can be stressful. Lack of familiarity with the process, critical scrutiny by the buyer, price negotiations and the uncertainty of a deal completing can all lead to a sense of lack of control. As much as positioning the business, negotiation with buyers and running the deal process, it is our job as advisers to give that control back to our clients, through a mix of information, re-assurance and protection – largely through frequent and relevant communication.

We regularly present the table below to illustrate the rollercoaster that is the company sale process.

The emotions, reasons and timing will vary between people, but a sale process can lurch from the interesting and amusing to exhausting and stressful. Let me give you a straw poll of various reactions a small price reduction, say around 3% to 5% of the sale price, brought about by the buyer discovering something in the accounts that affects value:

David takes the view that he is still getting a decent price for the deal. He needs assurance that this is not the first of many price chips, but the company was in fact under-provided in that area, so the price adjustment seems reasonable. His instruction is to get on with the deal and get it over the line please.
Angelina blames the accountant for an error and the buyer for being picky; she suggests that I feed back her annoyance to the buyer and decline the price reduction in no uncertain terms!
Victoria wants to understand the derivation of the under-provision and resultant price chip and if she is to agree with the revised deal wants something in return, in another area where the business may perform strongly, and full value has yet to be recognised.
Brad weighs up the possibility of bringing another buyer to the table or withdrawing from the sale.

The case and outcomes are based on actual situations that we have encountered (although the names have been changed!). Whilst individual situations and behaviour will differ, the emotions will still be strong across all types of people. Add to this, the increase in workload, pressure on keeping profits and revenue strong (no one wants to see these dip during the sale process) and concealing the process from employees and customers (some of whom are, doubtless, personal friends), it is easy to see why this can be hard on the seller.

In summary, deal-related stress is common, but there is a second part of the sale to evoke high levels of emotion and this centres on giving up the business. Some have found it to be a very defining part of their life, around which everything else revolves. The loss of this ownership (especially watching the change in stewardship) was once described to me by a friend and seller thus:

“Overnight, I went from being Charlie Big-Potato to just another retired guy. Over a month, I went from taking dozens of calls daily, to taking none. Over a month, I went from being someone, to being no-one. It’s the change in status and respect that got to me.”

Per my comments, above, I think that there are the two major emotional triggers in a deal process, the first being that of the stress arising from the process and the second, being the loss of that very important aspect of an owner’s life. Of course, there are others and for some, these two points may not apply, but I have to say that they feature regularly as stress triggers in the behaviour of clients.

What can an owner do about them?

Firstly, prepare for the sale process and do not rush into it. Working with your financial planner to assess your financial requirements to calculate whether the seller can afford to retire and maintain their chosen lifestyle, contemplating life post-sale (factor in the probable requirement to support the buyer for a period after the deal), organising the company to be in best shape ahead of taking it to market and collating the likely information requirements of the buyer all contribute to both control over the process and for life after business ownership.
Set the parameters on price and support – know your desired and walk-away prices and acceptable deal structures, ie. how much support you are prepared to give to buyers and for how long. The seller will then have certainty as to when they will and will not transact.
Have a spouse, partner, individual or several individuals that can listen. Beware the would-be expert helpers that push loads of advice your way – a subject like this gives the wrong people a great opportunity to showboat and conflicting or bad advice can be counter-productive to the sale process. Use the friend or family member more to discuss the emotions that are being encountered, feelings about the sale and what is wanted out of it.
Finally, pick trustworthy professional advisers, not those that will just try and force an owner into a sale. The corporate finance (or M&A) adviser and lawyer should be calm, strong when needed, but most importantly, trustworthy in their judgement, fully onside and prepared to tell the owner to walk away, if it is warranted.

To conclude, the sale process can be stressful from many angles and from the perspective of a seller, it can be very emotional. However, good preparation, a listening friend and competent advisers can significantly mitigate these pressures.

Clarion’s pioneering study ‘Enough Now’ helps successful business owners understand and prepare for the impact of selling a business and allow professional advisors to better support them through the challenging process.

Read the full report or for information on how we can support you through a business sale, please contact Ella Davies at [email protected] or call 01625 466360