For family business owners contemplating a possible sale or merger of their company, family issues are every bit as important as business issues in the decision-making process. I’d like to share what we learned when we sold our family business. First, a little background information.
We sold our second-generation paper converting company, Hayes Manufacturing Group of Neenah, Wis., in October 2001, when I was 55 years old. My father had started the business in 1968. My two brothers and I took over management of the company in the mid-’80s and grew the business to $70 million in sales with three manufacturing plants and 350 employees.
Our decision to sell our company was driven primarily by business rather than family concerns. The rapid consolidation among customers and suppliers in the latter half of the ’90s put us in a position of needing wider distribution to continue growing and affiliation with a paperboard producer to remain competitive. In short, we needed to align ourselves with a national or international company with recycled paperboard mills. We received offers from three strategic buyers and ultimately sold the company to Sonoco Products of Hartsville, S.C., an international packaging company. The sale process itself took about five months.
Selling a family business is a very emotional decision. No matter how compelling the business reasons for selling, the psychological dimension of family business ownership makes letting go very difficult. Here are some things we learned during the selling process.
1. The decision must be unanimous.
It’s critical that family business owners, particularly those working in the business, agree on the sale. We had had many opportunities over the years to sell our business but never really considered it because one or more of us wasn’t ready to let go. Once the decision is made and the process starts, any signs of family conflict can discourage current potential buyers as well as future buyers. If there isn’t consensus among the relatives about a sale, it’s better to hold off starting the sale process while family members work to resolve their differences. Selling is tough enough. Don’t risk tearing the family apart in the process.
2. Seek outside help.
Don’t try putting a value on the business or negotiating with a buyer yourself. Family business owners have too much emotion invested in their business to be objective about the value or to negotiate dispassionately with a buyer. Furthermore, a potential buyer may be a customer or supplier of the business—a friendly colleague. It’s very difficult for an owner to be objective with friends. Look to your professional advisers, board members or outside consultants to help set a value, market your company and negotiate with potential buyers. Hayes Manufacturing Group hired an investment banking firm to help us value and market our company and negotiate the sale. That was money well spent.
3. Be comfortable with change.
Understand from the start that once you sell your business, it’s no longer yours, and it will change. Regardless of how carefully you select a buyer, nobody will run the business in the same way as you did. If you continue to manage the business for a new owner, expect changes. A business buyer is looking for a return on investment, and even with a very profitable business, the new investment often requires some changes to justify the expenditure. If you aren’t interested in staying with the business after a change in ownership, be sure to pursue potential buyers who have the resources to take over management. This is often the difference between a strategic buyer and a financial buyer.
4. Have a game plan for life after the business.
If you decide to leave the business after a change in ownership, be sure you’ve given serious thought to what comes next. Selling the business may put money in your pocket, but it also strips you of the psychological benefits of business ownership. Retirement can be a double-edged sword: You no longer have the day-to-day worries of running a business, but your feeling of self-worth can suffer a blow. So have a plan in mind if you intend to walk away after the sale. If you plan to stay, your tenure will probably be shorter than you think. It’s tough working for someone else. Currently, I am a principal in a business and real estate investment company, along with my brothers Don, 56, and Bob, 52. In addition, I am an adviser to family businesses and serve as an adjunct faculty member at a local university.
Selling a family business is a huge decision. Taking care of the business side of the sale is generally easier than dealing with the family and emotional issues. For some family businesses, selling is simply not an option. For others, however, business or family concerns make a sale of the family business the best decision. If you are thinking along those lines, hopefully the ideas above can help guide your evaluation.
Family business adviser James R. Hayes, Ph.D., of Appleton, Wis., is a former second-generation owner of Hayes Manufacturing Group, which was sold in 2001 (jhayes@jhayesassociates.com).