In the sale of a business, the greatest
value of attorneys and CPAs may be their ability to respect what their clients
are going through
By
Jim Afinowich
October 2007 —
Phone calls from corporate and transactional attorneys are everyday occurrences
at our office, especially when the sale of a client’s company is nearing
completion. But this call was a little different.
“Doug” was calling not to discuss a contract provision or a step in the due
diligence process, but to let off a little steam that had built up in his
relationship with “Nick,” our common client, who was in the home stretch of the
sale of his $15 million wholesale produce company.
“I
don’t know what’s going on with Nick,” Doug began, with a touch of exasperation
in his voice. “He’s been a friend of mine and a client of our law firm for more
than ten years, and he’s always been the consummate business owner – a solid
thinker, a clear communicator, and a reasonable risk taker who never let
emotions keep him from making good business decisions.” Doug paused, presumably
for a sip of coffee. “But ever since this sale began to look like it was going
to happen, he’s not the same Nick.”
“What do you mean, Doug?” I asked, pretending not to know the answer.
“I
don’t know where to start,” he replied. “I mean, for two years he’s been telling
me that he was finally ready to sell out and what he was going to do after the
company sold, and he seemed to feel good about this deal. But, Jim, here he is,
about to sell his business for a million dollars more than it’s worth, with
everything looking good, and he’s become an absolute basket case.
“Nick’s usually a really nice guy, but yesterday he screamed at my secretary
because when he called I was meeting with another client. Last night he called
me at home to tell me, for the third time this week, that he wasn’t sure if this
was a good deal and maybe he was making a big mistake. And then he started
ranting about the buyer and wanting to know why they’re asking for the
maintenance records on his refrigeration units and why they don’t seem to
appreciate how great a company they’re buying and, if they’re that kind of
people, how will they treat his employees and customers and on and on. I finally
had to cut him off and said, ‘Who are you and what have you done with Nick?’
“Jim, you talk to him every day, probably more often than I do. What’s going on
with him?”
I’m
pretty sure Doug couldn’t hear me smiling over the phone. Nick’s behavior wasn’t
a surprise; in fact, it was predictable.
“Doug, what’s going on with Nick is this,” I answered. “He’s selling his
business.”
There was a long pause. “It’s really that tough on a person?” Doug asked.
“Unless you’ve been there, it’s hard to appreciate what he’s going through,” I
said. “Take all of the fears and other emotions of life’s major events – raising
children, getting divorced, selling your house, buying a new house, packing and
moving, losing a close family member, forfeiting your identity, and knowing that
it’s all going to happen and it’s all your doing – and you’ll begin to get an
idea of what’s going on in Nick’s head.”
Another pause.
“Well,” said Doug. “I’ve gone through all of those things, but not at the same
time. No wonder he’s struggling. What do I do about it?”
The
advice I gave to Doug is pretty universal, because it’s a rare business owner
who can emerge from a business sale or purchase without having paid a high
emotional price. To maximize the value of the professional services they provide
their business clients who are in this situation, attorneys and CPAs should
remain mindful of and try to respond to the emotional side of a client’s
business transaction.
Emotional considerations. Most owners have a strong personal connection to
their company. It is not just the source of their income and wealth; it may also
be a major source of their identity and purpose. If they built the business from
scratch, they might liken that process to parenting – nurturing the company
through sleepless nights, protecting it from threats, helping it recover from
illness, constantly leading and nudging it in the right direction, and preparing
it to survive without them. Regardless of their motivation in selling, they will
likely revisit that motivation and second-guess their decision over and over, up
until, and probably for a time following, the closing.
The
stress experienced in buying or selling a company often causes abrupt behavioral
changes. Normally calm people become volatile. Expressive people become stoic.
Confident people become vulnerable and defensive. Meek people become bold (but
awkwardly so). Normally accessible people go into hiding. People who normally
keep you at or beyond arm’s length become clingy. And people who you think would
sell their company to their worst enemy if he was the highest bidder will end up
selling to the second-highest bidder – perhaps at a cost of hundreds of
thousands of dollars – because they have decided that the top bidder is not
their kind of people.
Roller-coaster. The separation anxiety that sellers experience is magnified
by the emotional roller-coaster that both buyers and sellers must ride, and that
is largely defined by the process of the transaction.
First, there is the courtship. The buyer and seller meet, find a certain amount
of chemistry between them, and then fall in love (figuratively speaking), coming
to an initial agreement as to price and terms.
Next, infatuation and optimism usually give way to less blissful emotions, as
the parties negotiate the details of the transaction.
The
decline in bliss may lead to suspicion, resentment, anger and outright fury, as
the parties proceed through the due diligence phase. Offended sellers ask Why
does he want that? and Why doesn’t he appreciate what he’s buying?
while skeptical buyers demand to know What is he hiding? and Why won’t
he just give me what I need?
It
is sometime during the due diligence period – about five minutes after the
buyer’s latest request for this or that scrap of minutiae is interpreted by the
seller as calling his company an “ugly child” – that the parties’ professional
advisors can make their biggest impact. When the buyer-seller relationship
appears headed for the rocky shoals, whether the ship returns to safer waters
may depend on whether the attorneys and CPAs view themselves as “consensus
builders,” focused on helping their client get what he or she ultimately wants
(i.e., to buy or sell the company), or as “stake drivers” who may inflate the
importance of the deal’s risky aspects to the point that their clients are
needlessly (and perhaps harmfully) scared away from completing a deal that they
really want.
Professionals’ role. Whether a deal is good or bad is a determination that
professionals should leave to the parties – no matter how unhinged their party
may appear to be. Attorneys and CPAs should do their jobs – tell their clients
what they need to know in order to make a sound business decision – and not
mistake the clients’ emotional volatility for an unspoken plea to have their
professionals “rescue” them from the deal.
In
the early stages of a deal, we unfailingly deliver to our clients the “Three
A.M. Speech,” which goes something like this: “Nick, some night, probably when
we get near the closing and things are a little tense, at about three o’clock in
the morning, you are going to sit up in bed, worrying about all of the negatives
associated with this deal. You’re going to wonder why you’re doing this, are you
getting enough for your business, will the buyers treat your employees and
customers as good as you’ve treated them, what are you going to do if the deal
goes through, what are you going to do if it doesn’t. You will be in a panic.
It’s natural to feel like that, everybody goes through it, but good deals get
done anyway.”
Despite our most encouraging attempts to relieve our clients’ anxieties in
advance, on the morning of their Three A.M. awakening, they will call us or you
to share their panic. How we respond is key.
Buffer. If the call comes to you, before you reply to your client’s ravings,
remember this virtually irrefutable law of business deals: No deal gets done
unless the buyer thinks he’s paying too much and the seller thinks he’s giving
it away.
Attorneys and CPAs, like business brokers, need to be emotional buffers. From
offer through closing, the broker provides the greatest value to everyone
involved as he or she manages the emotional ups and downs of the process.
Attorneys and CPAs can make a huge contribution to that effort, if they will
remember the strain that their clients are experiencing and understand that,
regardless of the personalities of the parties and the nuances of the deal,
emotional volatility goes with the territory. As I concluded long ago, when the
parties are telling each other to go to hell at the same time, they’re finally
starting to think alike. |
