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The Emotional Aspects of Selling a Business

It’s a rare owner who can emerge from a business sale without paying a high emotional price

Jim Afinowich, M&AMI, CBI, Fox & Fin Financial Group, LC

Most owners have a strong personal connection to their company. It is not just the source of their income and wealth; it may also be a major source of their identity and purpose. If they built the business from scratch, they might liken that process to parenting – nurturing the company through sleepless nights, protecting it from threats, helping it recover from illness, leading and nudging it in the right direction, and preparing it to survive without them. Regardless of their motivation in selling, they will likely second-guess their decision over and over, up until, and for a time following, the closing.

The stress experienced in buying or selling a company often causes abrupt behavioral changes. Normally calm people become volatile. Expressive people become stoic. Confident people become vulnerable and defensive. Meek people become bold (but awkwardly so). And people who you think would sell their company to their worst enemy if he was the highest bidder will end up selling to the second-highest bidder – perhaps at a cost of hundreds of thousands of dollars – because they have decided that the top bidder is not their kind of people.

Roller-coaster. The separation anxiety that sellers experience is magnified by the emotional roller-coaster that both buyers and sellers must ride, and that is largely defined by the process of the transaction.

First, there is the courtship. The buyer and seller meet, find a certain amount of chemistry between them, and then fall in love (figuratively speaking), coming to an initial agreement as to price and terms.

Next, infatuation and optimism usually give way to less blissful emotions, as the parties negotiate the details of the transaction. The decline in bliss may lead to suspicion, resentment, anger and outright fury, as the parties proceed through the due diligence phase. Offended sellers ask Why does he want that? and Why doesn’t he appreciate what he’s buying? while skeptical buyers demand to know What is he hiding? and Why won’t he just give me what I need?

It is in anticipation of this critical moment, usually during the due diligence period – about five minutes after the buyer’s latest request for this or that scrap of minutiae is interpreted by the seller as calling his company an “ugly child” – that in the early stages of the deal we unfailingly deliver to our clients the “Three A.M. Speech” that goes something like this:

“Nick, some night, probably when we get near the closing and things are a little tense, at about 3:00 in the morning, you are going to sit up in bed, worrying about all of the negatives associated with this deal. You’re going to wonder why you’re doing this, are you getting enough for your business, will the buyers treat your employees and customers as well as you’ve treated them, what are you going to do if the deal goes through – or doesn’t. It’s natural to feel like that.”

At 3:15 A.M., it’s important for buyers and sellers (and their spouses, attorneys, CPAs, bartenders, et al.) to remember this law of business deals: No deal gets done unless the buyer thinks he’s paying too much and the seller thinks he’s giving it away.

When the parties are ready to tell each other to go to hell at the same time, they’re finally starting to think alike.