Partial sale or merger – relationships are important
Wednesday, September 5, 2007/
Mergers, sales, partial sale – success in all is defined by one factor: a good working relationship.
When selling a business in its entirety, the priorities are fairly clear – price is the priority, treatment of staff and customers a concern. When selling part of a business or contemplating a merger, things are far more complicated.
There are lots of good reasons to look for partial sales or investments and plenty of good businesses looking to attract the right investors. However it is important to identify what you want out of the ownership-sharing arrangement before you go into it.
While price is still an important issue, it is far from the defining factor. Mergers are often referred to as marriages, and in this regard the purchase pricing is about as relevant to the long-term success as the dowry.
It can be the focus of much discussion, negotiation and offence, but it is a transaction that occurs outside the new business and will add little to its future success. Indeed it may be a better long-term strategy to negotiate that the funds available be apportioned in part to the existing owner and in part to a new allocation of shares in the business.
It is also very important to consider the compatibility of the various parties involved. They need to share the same goals both in terms of ownership and in the direction of the business. It is also important to consider the non-cash contributions that the various parties can make to the business.
In some cases these may be factored into the share allocation. If so, it is worth considering under what sort of performance conditions they will be allocated. Too often people have invited other parties into the ownership structure for strategic reasons, only to have the potential gains not realised and then being left with some undesirable shareholders.
A merger is effectively the sale of two (or more) businesses in exchange for partial ownership in a larger business. Again the relative value of the original businesses in relation to the new business is a sensitive issue with the shareholders, but of little practical concern for the new business – unless of course key stakeholders are unhappy as a result.
A partnership formed to acquire a business can be considered in a similar light. In all cases it is sensible to approach the negotiations with a view to the long-term relationship and potential value, rather than grabbing a larger slice of the pie. Otherwise you may find you have a larger share of a terminally-ill business.
So when considering a partial sale or purchase of a business, make sure you have a good working relationship with your fellow owners, then work on negotiating the details. If the relationship between the parties is strained during this process, then seriously consider whether your futures are better together or apart.
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