The "D" Factors in Buying or Selling a Boomer Business

Increasingly we are seeing articles about the half a million baby boomers who own private companies that are going to either change ownership or leadership over the next decade. By and large, the boomer entrepreneurs that we deal with aren’t overly excited about either exiting their business through the outright sale or bringing in professional management to take the helm. They think and act as if they are 50 not 60 years old. They like the status quo.

Over the last five years we have been involved in several aborted transactions that involved an ageing entrepreneur who said he wanted to sell his business. It has led us to:

  1. Create a publication targeted to potential sellers. A few years ago, we published, “When Should You Sell Your Business?” as a guide to the prospective clients. (Please contact us, if you would like to have a copy.); and
  2. The creation of  The “D” Factor analysis. From now on, we will take on divestiture assignments of founding, aging boomers only under the following circumstances:

Death

A health scare is not enough; we’ve had too many entrepreneurs miraculously feel incredibly better and unwilling to complete a sale once one is in prospect. We mean DEATH. Their estate is almost certain to be a willing seller. We haven’t encountered too many situations where the deceased entrepreneur has been able to control the decision to sell the business from the grave.

Divorce

There are two types of divorce situations that create a transaction; namely, marital divorce and shareholder divorces / disputes. Both of these situations are acrimonious and time sensitive, but a deal will be done.

Despair

These are tough deals, as this entrepreneur has made the BIG mistake of not selling when his business was thriving. His despair is experiencing a declining shareholder value coupled by the likelihood that his “friendly” banker wants an equity infusion. Black despair is the banker calling the loan. These are difficult deals to complete, as, more times than not, the businesses need a brain infusion as well as a balance sheet fix. Divestiture This is our favourite “D” Factor, but realistically it doesn’t pertain to a selling founder but rather a corporate sale of a non-core asset, or a private equity investor’s sale of a portfolio company. These sellers are committed and serious. The odds that a deal will be completed are high.

Conclusion

Over the next five years, we should begin to see increasing deal flow from the aging baby boomer. A succession consultant recently told us that his succession seminars are beginning to attract growing numbers of aging entrepreneurs who aren’t yet ready to sell, but want to prepare for a possible sale in two or three year’s time. Meanwhile, our advice to potential buyers and equity sponsors is to pay attention to the “D” Factor when considering the purchase of a privately owned boomer business. It takes a willing seller to do a deal, and most founding entrepreneurs are, at best, reluctant sellers as their persona and egos are wrapped up in the business. Look for a selling, serial entrepreneur. They like to create shareholder wealth, and a liquidity event is their scorecard.