Why Retiring Business Owners Balk at the Idea of Selling Their Company
For sellers, the concept of retirement can be better positioned as a "career transition" where a more gradual and accommodating succession plan is put in place.
Popular media tells us the baby boomers are looking forward to retiring, playing golf and spending winters in Arizona. However, my experience with business owners is entirely different.
I had a client who wanted to buy a supplier. The merger would create tremendous synergies and provide capacity for future expansion. The vendors, a husband and wife, were in their late 60s, and after 30 years of building the business, had admitted they were tired of running the day-to-day operations. They liked the idea of selling to my client because the companies were culturally similar, and their employees, including family, would be looked after. They also agreed the purchase price was fair.
But that didn’t mean they were willing to sell. The stumbling block was that the father’s identity was tied to the business. While he felt the merger was a good fit, he was honest enough to admit he had been working through the emotion of retirement and that it was a struggle for him.
On another management buyout we financed, the owner, in his 70s, had started the business in the early 1980s. The idea was to sell to the management team, which collectively had worked for the company for more than 50 years. One would think that all the issues would have been on the table. However, it took six months to close the deal. A week before the closing date, the owner excitedly came into work telling his team how he was close to landing a major new customer. This was his life. This should not be a surprise. After working so hard to create something of enduring value, where employees and their families are sustained and customers and suppliers rely on you, it’s extremely hard for company founders and business builders to walk away. Even though it might be the logical thing to do, sometimes it doesn’t work for the soul.
So how can the retiree’s interests be accommodated while allowing a new team to take over so that the business can grow?
This is where friendly deals involving management, family, customers or suppliers can have an advantage over an auction process. Since the parties know each other and trust has been established, all the interests can be brought forward: price, legacy, employees, continued involvement, timing of payment, security, you name it. The secret ingredients to having a successful transition is trust, good communication and an openness to explore alternative solutions.
In both examples, the parties were able to work through the issues and accommodate the various concerns. In the first case, the father stayed involved in product development, which is the part of his job he really loved. The wife stepped out of accounting and is now busy with various community activities. They received some of the purchase price up front, but left some skin in the game so that the father could share in the upside if the new products proved popular. In the second case, the parties decided a clear separation was better, although the vendor continues to consult in the industry and is coming up with new tech ideas of his own.
For some, the concept of retirement would be better rechristened "career transition." A more gradual and accommodating succession plan can have advantages to both seller and buyer, as the buyer might benefit from the vendor’s experience, and contacts might not have to pay the full purchase price up front. It’s an issue that will become increasingly important for businesses to navigate and for creative advisers to become educated about.