Subscribe to "Family Wealth Matters"
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
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
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.