Maximizing Value in a Corporate Sale: Quality of Management

You undertake the sale of your company. How does the quality of your management team impact potential buyers’ perception of the company’s quality of earnings and growth potential, and thus its value?

In the vast majority of cases, the CEO and/or owner of a company does not stay for long after a sale.

There are many reasons for an owner or CEO to depart after selling their company;

  • It’s hard to work for someone else once you’ve been the boss
  • Difference in operating styles
  • You’re too expensive
  • You want to retire
  • You just took home a lot of money and you don’t want to work anymore……

The result is that potential buyers will determine the value of your company WITHOUT YOUR PARTICIPATION.

If your business is reliant on YOU, potential buyers will correctly think that the loss of your services could disrupt the continuity and capability of the company’s management function. Decisions made without you might not be as good, creating risk to quality of earnings. Without you driving the business, there is a risk that growth will slow or cease.

If you have invested time, effort and money in a superb management team, this risk to quality of earnings and growth potential are mitigated. The people who have been operating and driving the business day-to-day will be there after you leave.

Potential buyers will see a cohesive management team and be able to rationally assume that the business will not do worse under their ownership than it has in the past. If buyers are confident in their own abilities and resources, they may assume that your company will do even better post-acquisition.

This is true even if a potential buyer is a private equity firm that requires you to maintain an equity stake in the business and continue to run it as a condition of closing. If the company is dependent on YOU and you leave for any reason, the PE firm is at risk if there is no team to maintain operational continuity of THEIR company.

When you sell a business, you and your team will meet with the potential buyers’ team for a management review. If your team members speak at least 70% of the time, and demonstrate their abilities to potential buyers, you are on your way to maximizing value.

A truly critical negotiating lever is also created when you demonstrate to potential buyers that you have a high-quality management team. Your business is successful and runs well in your absence, so your motivation to sell is not as high as it might be. YOU DON’T HAVE TO SELL! This is a more controllable negotiating lever than competing bids.

If you do not have a quality management team you will still be able to sell your company. You just won’t maximize value.