sell-your-company

Jacoline Loewen, director at Loewen & Partners, calls it “the red-face experience”—a testy exchange she’s experienced numerous times during her career as a broker of private-equity deals.

An owner-operator has reached a stage when he should step back from the business, either for the good of the firm, or for personal and family reasons.

But the owner, usually a man in late middle age, won’t hear it.

She recalls a 57-year-old inventor who’d turned a biotech patent into a $50-million-a-year enterprise. Family members worked in the company, but not in senior management; well-paid executives held those positions, but had no ownership stake and thus little motivation to rock the boat.

When Loewen met this entrepreneur, it was apparent trouble had been brewing for some time. He needed to push the firm to the next stage of growth, but seemed unwilling to take that step.

He also had complete control, and no one near him had the gumption to open his eyes to the emerging business threats. Loewen’s suspicions were confirmed when the man’s wife called to fret about the situation behind his back.

“None of them wanted to say, ‘The emperor has no clothes,’ ” she says. Brought in to present the possibility of bringing in a private equity investor, Loewen showed the owner, who’d been working since his late teens, a diagram on how the risk profile for owner-operated businesses rises sharply as an owner ages.

“He just got really angry,” she recalls, noting the rising colour in his cheeks. “He said, ‘This could apply to other 57-year-olds, but it doesn’t apply to me. I’m going to be working until I’m 90.’ ”

Cure Founder’s Syndrome

Most advisors who’ve dealt with entrepreneurs understand that for many, the sources of their drive and talent can turn into liabilities later in life.

They’re headstrong, tireless people whose sense of identity is tightly bound to the enterprise. And they have great faith in their own instincts. So when the time comes for an owner to think about selling the business or passing it to adult children or senior managers, experienced advisors must find ways to frame the transition as a positive opportunity to embark on future philanthropic or mentoring projects.

“The most challenging part of all this is seeing beyond the sale of the business,” observes Sue Van Der Hout, a director with Vestra Advisors and a family-enterprise instructor at the Schulich School of Business. “ ‘What am I going to be afterwards?’ That is the unspoken anxiety that many owners experience.”

Indeed, to persuade a client to sell all or part of the business, advisors must show the owner that such a decision offers crisp and sustainable solutions to potentially calamitous problems, including the absence of a suitable successor from within the family or the firm, and excessive exposure to business failure.

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