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Selling Up or Selling Out?

4 Lessons Learned by a Serial Entrepreneur

By Jennifer McNeill

When I started my career programming computers 30 years ago, I really had no idea where the IT industry was going or where it would lead me. Building and selling four companies over the past 25 years has been both rewarding and challenging. As I’m just starting to build my fifth company, I wonder if I’m crazy, neurotic or both. Each time I sell a company and move on, my four adult kids apparently have a pool going to bet how long it will be until I embark on another adventure.

Selling companies is not for the faint of heart. It takes an enormous amount of energy and preparation as well as nerves of steel. That being said, I’d have to say it seems as natural to me as any other responsibility I’ve had over the years. I’ve been labeled as a “serial entrepreneur” which was a term I had not considered a description of myself. If I were to describe myself I would say that I’m a mother first (now a grandmother) followed by someone who is absolutely passionate about business.

My first company was sold in 1990 and while it was very exciting, I was also very naive. One of the challenges for smaller to medium sized companies which are approached by larger firms is the excitement of being pursued while trying to manage what it really means to employees as well as to yourself.

Since that time, I’ve sold three more companies, two of them to large, publically traded companies. Each time I’ve gone through this process, I’ve learned a lot but there are some specific lessons that I wish I had known when the first company was sold so many years ago.

í Lesson 1:

Hire qualified legal counsel. It’s important to hire legal counsel with experience in mergers and acquisitions. Sometimes it’s tempting to use a lawyer just because they have worked for you in the past. Qualified legal counsel can assist you with negotiations, help you avoid pitfalls and provide overall risk management. It’s also very tempting to use a lower priced lawyer who has provided other legal services for you; however, you need specific expertise to ensure you are protected.

í Lesson 2:

Check out the buyer. You should perform due diligence on the company that is pursuing you. This seems counterproductive, doesn’t it? The fact is that many companies who are actively buying other companies get themselves into financial trouble because of their acquisitions. It’s important that the company has the financial means to meet the contractual agreement. Do your homework to determine how viable the company is, how many acquisitions they’ve done in the past and what their overall strategy is for future acquisitions. You should also be asking questions about how they will be absorbing your staff and how much experience they have in mergers and acquisitions.

An interesting sidenote: Sometimes, it doesn’t matter how much due diligence you perform on a company. The company who purchased our company in 2000 was a UK-based, publicly traded company with a market cap of $200 million pounds. They were on the FTSE 250 and had a very high rating with the Bank of Scotland. We were the second of 13 companies they bought in 18 months at which point they went bankrupt and were delisted.

Luckily, we took cash up front for our sale. The other 12 companies took stock and lost everything including their technology which they had sold in the transaction. This brings me to Lesson #3.

 

í Lesson 3:

Money talks. Maybe it’s because I’m married to a very frugal man that we were able to walk away with cash when other companies lost everything. I’d like to think it’s because of our lack of greed. It’s very tempting to take stock in a very large company as the overall purchase price will seem proportionally larger than a cash transaction. As tempting as this is, you have to consider this to be a significant risk. There is no guarantee that the company’s stock will increase in value. As well, most stock options are not vested for several years. This means you are not only tied to the buyer’s success but also you could sell your company and never receive
a dime.

í Lesson 4:

Soul search. Make sure that the reason you are selling the company is because you actually are willing to walk away. It may seem as though the buyer wants you to stay and you expect a long term connection with the company even though you are not the owner. The reality is that in a high percentage of acquisitions, buyers eventually get rid of the company or, at the minimum, the employees. Basically, the loyalty and passion you have for the business you built can’t be felt by a buyer.

Selling your company can be a very exciting and profitable venture. Just be sure to go through the process with realistic expectations and clear ideas of your expected outcome.
Good luck!

---

Pull Quote:

...in a high percentage of acquisitions,
buyers eventually get rid of the company or, at the minimum, the employees. Basically, the loyalty and passion you have for the business
you built can’t be felt by a buyer.

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