Part 2 in a 5 part series of an interview with Alan Rose and Chris Bond; Alan and Chris represent business buyers and sellers, respectively.
Chris: The advantage of selling strategically is capturing that premium that we were talking about before (the premium paid by the buyer); the disadvantage could be that it limits your market. The advantage of a private sale is that you will often appeal to a broader market, because there could be many more financial-type buyers out there than strategic. Marketing the business, straight up, we see as a last resort, if even a decent resort for a seller. To me, "marketing the business," sounds tantamount to putting a "For Sale" sign on the business, which is rarely good for anybody. Customers, employees, vendors, all get very nervous when a business owner proactively markets the business for sale without disguising the name and identity of the operation.
Alan: In addition, on a strategic sale, often the legacy of the business is in jeopardy. Business owners have often spent their lifetime building an entity. To then see it absorbed into something else and a lot of their people that won’t make the transition, it hurts. It’s an emotional toll that not all business owners want to pay.
Ed: What I’m hearing is that there’s a variety of advantages and disadvantages; that both of you are aligned on the strategic selling process; that marketing is an approach, but is not customarily a desirable one. Is that correct?
Chris: Yes, certainly in my opinion.
Alan: Yes. Each path has advantages and disadvantages. On a strategic [sale], you may be able to obtain a higher price for the business, on the positive side. On the negative side, there is a more limited market, and often the people and the entity do not survive the transaction.
Ed: And as for the private sale, can you elaborate a bit more on the advantages and disadvantages of that?
Alan: The advantages of a private sale are, first, its private; having the "For Sale" sign in front of the company is avoided, whether it’s a private individual or even a management buyout. So it doesn’t hit the street, it doesn’t hit the market. The second advantage is the legacy, where the entity survives, the name on the door typically stays the same and the people are typically protected. On the negative side, the valuation tends to be lower than on a strategic sale, so the owner (seller) might leave some money on the table.
Chris: My interpretation of "private sale" was more of the confidential marketing of the business as opposed to "marketing the business." Alan may not have meant that; it could be selling strategically as we have discussed. "Marketing" meaning the private, confidential marketing of the business and then "private sale" being one of an internal nature.
Alan Rose, Yarmouth Venture Group
Yarmouth Venture Group engages with business managers who have proven leadership capabilities and the desire to achieve a majority ownership stake in a business they will operate. Our firm is positioned to be uniquely qualified to provide expertise and guidance throughout the difficult tasks of finding and acquiring the right company, the right way, and then successfully operating that company. www.yarmouthventuregroup.com
Chris Bond, Murphy Business
Murphy Business is a business brokerage firm that helps its clients value, sell and buy businesses. With six offices in New England, Murphy’s growing team prides itself on practicing its unifying mission: to assist businesspeople through incomparably fair, honest and expedient service. Murphy’s partners network tirelessly on their client’s behalf in an effort to consummate the best deal possible.