Have Your CEO (and Management Team) In Place (To Sell or Not to Sell Your Business — a series)

Selling Your Business:

To sell your business, I recommend that you present the deal with a CEO and management team in place through the first few years post-transaction.

Simply put, this can be done in two ways: you are the CEO and you agree to continue running the business for a year or two, or you have a CEO and management team in place.  Either way, you will dramatically increase the universe of potential buyers if you have a CEO and management team in place (vice versa if you expect the buyer to bring a CEO).  If you agree to remain as CEO post-transaction, I actually think most seller CEO’s might overestimate the downside of this scenario.  I think it usually isn’t that bad because: a) time flies and a year will go by very quickly, b) some of the stress goes away because your income is no longer affected so dramatically, c) frankly, it can help you get the sale done and if you have to leave earlier (or if the seller wants you to leave earlier), you can manage through that, and d) you might like continuing to manage the business (depends upon your new owners) more than you thought because it keeps you engaged in a familiar endeavor.

Sometimes it can work out without a CEO.   But, there is no scenario that it hurts you if you have a CEO in place.  Even if the acquiring company has a CEO and management team that they would prefer, you can graciously offer to step away at the transaction or phase out the hired CEO.  In large company transactions, I have seen private equity firms bring in a new CEO about 18 months before an anticipated sale with the explicit mission to manage the company through the sale and then for a few years afterward to give the acquirer time to find someone new.  Please let go of your dream to sell your business and ride off into the sunset.

Benefits of Having a CEO and Management Team in Place:

  • More bandwidth to manage the sale.  If you have a CEO, you can work on the transaction while the CEO keeps the business on track.  The sale process is much more difficult and time-consuming than most first-time sellers realize and you cannot have enough extra help during the process.
  • Minimize disruption.  A sale is risky for the buyer because there are many potential disruptions for customers, employees, and others.  If the management has to change, that adds a huge level of risk to the transition.
  • Most buyers are not CEO’s.  For businesses above $1m in EBITDA, most of the potential buyers are not people who will want to run the business themselves (search fund buyers are one exception).  You limit your universe of buyers
  • Finding a good CEO is hard work.  If you have done the work, that adds value to your business.  If a buyer has to find a CEO, it’s another cost of the transaction to him.  It may be the cost that drives him to prefer spending his time on another purchase rather than yours.

I have bought businesses both with and without management teams, but it required a degree of luck to have a management team ready.  I have also had to pass on many good opportunities because I did not have anyone to manage the business.  On the other hand, I know of business owners where it took hiring 2 or 3 different CEO’s before they found the CEO they trusted to manage the business through a transaction.

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