How I Sold My Business: The Painful Process of Negotiation
The emotional aspects of exiting your business are sometimes underplayed. Laura Coe sold Litholink and learned how tough it can be.
Laura Coe knows a thing or two about excruciating pain. As co-founder of Litholink, a laboratory company that specializes in preventing kidney stones, the Chicago native helped create a thriving business built around one goal: reducing people's agony.
Then she sold her company—which taught her even more about pain.
"This is how I always describe it: take your worst real-estate negotiation on a house, and multiply it by a thousand," Coe says, when asked about the sale. "It was a very, very stressful experience. It just went around and around and around."
"This is how I always describe it: take your worst real-estate negotiation on a house, and multiply it by a thousand."
Was the process anything close to passing a kidney stone? Of course not. But there was no shortage of misery. "I'm really not kidding, I think there was a two-month period where the deal would be on, then off, once a day," Coe says. "I basically crawled my way to the finish line."
Launched in 1994, Litholink was the brainchild of Coe's father, one of the world's leading kidney stone doctors. Conducting research at the University of Chicago, Dr. Fredric Coe discovered that certain preventative techniques—from medication to diet to increased fluid intake—could drastically reduce the risk of kidney stones. A godsend for patients, his findings also meant billions of dollars in potential health-care savings.
At the heart of Dr. Coe's groundbreaking research was a database he started building way back in the 1970s. It contained information on each patient he ever saw, which allowed him to not only track their progress over many years, but identify treatment trends. Simply put, the business plan behind Litholink was to share that expertise with fellow doctors across the United States. The company would conduct detailed urine tests, add those results to the database, and generate algorithms outlining risk factors and treatment options.
"How do you take the world expert in a clinic somewhere and replicate his work so patients everywhere can receive just as good care?" asks Laura Coe. "That is basically what the company was."
Dr. Coe tapped his children to run his new business. Brian Coe, then 26, was CEO, while 24-year-old Laura, who had just finished graduate studies in philosophy, became COO. "It was a Microsoft Access database, 2.0, and it would crash every day," she laughs, recalling the early months of the company. "The database was brilliant at its core, but totally dysfunctional. It was our job to figure out how to scale this thing."
It didn't take them long. The family-run company quickly evolved into a leader in the lab-testing field, with an emphasis on customer service. "We were the first to do at-home testing kits," Coe says. “No one in the industry was doing color-coded reports, either. My thought was: 'These reports are ugly. We should make them pretty.’ ” A decade after launch, Litholink was testing more than 350,000 patients per month.
One competitor was especially interested in their success: LabCorp, a multi-billion-dollar network of global laboratories. It turned out Litholink, a minor player by comparison, was taking a noticeable chunk out of LabCorp's bottom line.
"Honestly, the phone just rang one day," Coe says. "A senior vice-president at LabCorp called because we were disrupting the urology side of their business, and they wanted to acquire us."
"A senior vice-president at LabCorp called because we were disrupting the urology side of their business, and they wanted to acquire us."
By that point—summer 2006—the family was already open to selling. The two major players in the industry, LabCorp and Quest Diagnostics, were rapidly scooping up smaller competitors. "We were feeling the pressure," Coe says. "Here we are, this little fish in a big pond."
In the end, they agreed to negotiate. "We realized we had a model that was replicable, and that made it valuable," Coe says. In fact, right before LabCorp came calling, Litholink had taken its successful kidney-stone model and applied it to osteoporosis.
"This technology—this ability to collect data over time and look at patients who are chronically ill over time—was transferable to other diseases," Coe says. "Because of that, we tried to make the case that we were more like a tech company and should be purchased at a multiple more like a tech company."
The LabCorp executive who made that first phone call understood their position. But the company’s acquisition team, true to form, was a force to be reckoned with. “It felt like David and Goliath,” Coe says. "I'd walk in in the morning and my brother would say: 'The deal is off.’ By lunchtime, he would say: 'The deal is back on.' It would go like that over and over.”
"I'd walk in in the morning and my brother would say: 'The deal is off.’ By lunchtime, he would say: 'The deal is back on.' It would go like that over and over.”
When the two sides eventually agreed on a dollar figure (the amount remains confidential), the real hard work was just beginning. "We did the diligence in our building," Coe recalls. "Every single, solitary piece of paper was pulled into a conference room. They would pick a random patient—from the first call all the way through—and check for every potential legal downfall and make sure we were doing everything aboveboard."
At one point, LabCorp got hung up on a particular detail: soil samples from Litholink's newly constructed headquarters. It insisted on a clause that protected the company if—in 20 years, perhaps—an employee sued over environmental contamination. "That was one of my favorites," Coe recalls. "I said: 'No way.' A liability lawsuit for something like that might be tenfold what we earned from the sale."
LabCorp eventually relented. “The biggest challenge was the emotional up and down: we're on, we're off, the sticking points, the arguing, the details about contracts, all the lawyers, the bills,” Coe says. “It is distracting from your main line of business. You're really not paying attention to what you're supposed to be doing."
“The biggest challenge was the emotional up and down: we're on, we're off, the sticking points, the arguing, the details about contracts, all the lawyers, the bills,”
If not for Brian, Coe says, the deal would have died. "We had audited books for the entire time, which my brother had insisted on,” she says. “If you want to exit your company one day, make sure your books are in beautiful shape. You can't prepare last-minute for due diligence. The reason our diligence went well is because we were really organized.”
The sale was finalized in November 2006, with LabCorp paying 60 per cent up front and 40 per cent on the back end. If Coe could do one thing differently, she says she would have negotiated a bigger upside on the back.
As it stood, she and her brother had to hit certain six-month milestones over two years to receive that 40 per cent, but there was no incentive for them to exceed those markers. "We were going to get hurt if we didn't show a certain level of profit, but our growth was huge and we easily could have gotten a better deal in there for an upside,” she says. “We just didn't think of it."
"Our growth was huge and we easily could have gotten a better deal in there for an upside.”
Coe left Litholink in 2009, immensely proud that the model she helped build is now being applied to multiple diseases. Today, she works as a life coach and host of the popular podcast, The Art of Authenticity. Her first book, Emotional Obesity: A Philosophical Guide to Lighten Your Life, was published in 2014.
"We didn't do the 'hundreds of millions of dollars' sale; we weren't that big of a company," she says. "But we got an incredible deal because we received a bigger multiple against earnings than most lab companies. It was absolutely enough. I am not going to be buying three homes and a jet plane, but we are totally comfortable."
Her biggest advice for fellow entrepreneurs ready to sell? As painful as things may get, the struggle pays off. "Buckle up, breathe, get some sleep, and try not to stress,” she says. “It's kind of like what I would say to parents of newborns: ‘It really will feel OK.’ ”
"Buckle up, breathe, get some sleep, and try not to stress,” she says. “It's kind of like what I would say to parents of newborns: ‘It really will feel OK.’ ”