Deal or No Deal

Many entrepreneurs find that when seeking a buyer for their company, the right fit doesn’t always mean the highest bid.

After 43 years of operating the company that he and his brother Harvey created, Jack Miller sold the multi-million dollar business to a larger firm that offered more than money. The new owners were chosen after agreeing to the Millers’ non-negotiable terms that would ensure the financial security of their employees. Photo by Andreas Larsson

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W hen Doug Ellis decided three years ago to sell his industrial fabrics company, Southern Mills, he made a slightly unorthodox decision. He didn’t try to woo suitors with the biggest checkbooks. He scoured for buyers who would agree to keep his company running in his home state of Georgia.

For Ellis, it was a matter of pride. Over the years, he’d taken his father’s Atlanta-based business, which was established in 1925, and turned it into one of the state’s brightest success stories. Southern Mills manufactures revolutionary fire-retardant materials used by firemen, racecar drivers and military personnel all over the world. And he vowed to keep his business on-shore.

“I felt that it was my responsibility, both to the employees and the industry, to keep our company going,” Ellis says. That’s why he sold his company to Royal Ten Cate, a Netherlands-based textile firm that agreed to keep most of his Georgia factories open.

Developing an Exit Strategy
The lure of taking their business public continues to be a tantalizing proposition for many entrepreneurs, offering the potential for increased capital, further liquidity of stock options and greater media attention. But as they weigh the overall cost and time required to take their company public and evaluate the complexities of new corporate disclosure laws, such as the Sarbanes-Oxley Act, many business owners choose instead to sell their companies to larger firms.

Developing a sales strategy early — often a year before the expected sale date — remains an essential starting point. This is especially important for entrepreneurs with strong ties to their businesses and those who helped them grow. Key questions to consider include:

• Do you have your company’s records in order, preferably three years worth of financial information that has been audited by a reputable firm?
• Have you considered your specific goals for the sale? Are you seeking the highest asking price? Or, are assurances about the company’s future or the security of your employees more important?
• Do you intend to stay with the company after the sale or hand over all management duties to the buyer?
• Is it the right time to sell, when your company (and industry) is on the upswing, offering growth and expansion possibilities to potential suitors?

When brothers Jack and Harvey Miller, who spent 43 years growing their Illinois-based office supply company, Quill Corporation, decided to sell to Staples in 1998, they drafted non-negotiable conditions. Quill would become a distinctive entity within the Staples family; Quill’s management personnel would stay in place; and all employees would receive equal or better pay and benefits after the purchase.

“You absolutely need to find advisors — accountants, lawyers, and mergers and acquisitions specialists — who you can trust,” says Jack Miller, who stayed for 18 months after the sale of his company to make sure the transition went well and that Staples kept its word. “You need people who represent you and your interests over their commissions. That’s really how you’ll get the best deal possible.”

Choosing the Right Suitors
For Carolee Friedlander, the decision to sell her jewelry company, Carolee Designs, was a difficult one. It felt, she says, like the business equivalent of giving away her first child. But in 2001, lured by the desire to pursue personal goals, she began fielding offers.

PROCESSING the PROCEEDS

When Carolee Friedlander decided to sell her jewelry company, Carolee Designs, she gathered a group of accountants, lawyers and trust specialists to advise her how to best handle the proceeds of the sale. Her advisors suggested she create a series of trusts before the sale to maximize her earnings and minimize her tax burdens when her deal with the privately held Retail Brand Alliance was completed.

It’s an approach that Jim Tucker, a wealth advisor at Northern Trust in Atlanta, recommends to his clients. His advice for entrepreneurs about investing the proceeds from selling their company centers on four general areas:

• Avoid chasing fads. One day, it’s Internet stocks; the next, it’s emerging markets. What’s fashionable today loses favor (and profits) tomorrow.
• Develop a long-term strategy that takes into account relevant personal objectives, such as income needs, philanthropic goals and generational wealth transfer issues.
• Understand that a sound investment strategy will acknowledge the trade-off between risk and return. Risk can be managed through exposure to multiple asset classes and by employing managers with contrasting styles.
• Realize that taxes often are the biggest impediment to growing long-term wealth. A successful strategy will build a tax-efficient portfolio that maximizes after-tax total returns.

She started the process by tapping into her vast network of friends, industry associates and headhunters, probing as deeply as possible into her potential buyers’ financial positions, their values and the strengths of their corporate structures. Because her name would continue to be attached to the company, she wanted Carolee Designs to not only survive, but grow. Who, she wondered, had the capital to guide her jewelry into new retail outlets?

“It’s just like evaluating any other relationship in your life,” says Friedlander, who started her business on the kitchen counter of her Connecticut home in 1978. “There are no dumb questions. You have to ask lots of questions. And you have to listen very closely to their responses.”

Planning for the Next Phase of Life
Although many entrepreneurs focus on crunching numbers before a sale, Friedlander says it’s also important to determine how you will spend your time afterward.

“People who have built and been identified with a business should have some idea of what they’re going to do after they sell it. I’ve seen friends who haven’t, then they freak out when the sale is over,” Friedlander says.

Particularly for entrepreneurs whose identities are synonymous with their company, being happy after a sale involves having a plan for how you’ll spend your time.

For Friedlander, the decision was easy. She and nine other women formed a group in which they explore their financial and philanthropic interests. In June 2007, she also developed AccessCircles, a by-invitation network dedicated to enriching the health and financial expertise and overall life balance of all women.

Achieving Peace of Mind
Since selling Southern Mills, Ellis hasn’t looked back. By hiring the right team of consultants, drafting a concrete set of conditions for the sale and doing his homework on potential buyers, he achieved what many small business owners only dream of: a lucrative payout coupled with the peace of mind that he left his company in good hands.

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