Situation: A CEO has an opportunity to combine with another business to expand their market geographically. A lead to work with the current owner to manage the transition has been identified. A second option is to bring in a new manager from the outside to manage the transition and the expanded business. How do you construct a deal to expand?

Advice from the CEOs:

• Basics that are needed prior to initiating negotiations:
  • Define what the seller wants – both financially from the sale and in terms of ongoing involvement in and support of the business.
    • Without a lengthy transition period, the value of the business is not significant. The value is in the current owner’s relationships – both with clients and his team. It is critical to retain both.
  • The other big question is what the seller wants personally.
    • Is it legacy? Is it the opportunity to transfer knowledge?
    • The seller knows the CEO’s company and approached them about a sale. Play on this.
  • Are there potential complications to the deal?
    • Do any non-compete clauses exist with other companies?
    • Do other agreements exist that impact the value of the acquisition?
• What other aspects of the deal does the group recommend?
  • Within the new organization, put the current owner under the recommended lead. This gives the lead more prestige and demonstrates trust. It also raises the bar for the lead.
  • A bonus is that the current owner and the lead get along. This will facilitate the current owner’s mentoring of the lead – like the child that he wishes would have taken over the business.
  • The current owner is a savvy businessperson, and the existing relationship between the seller and the lead will facilitate his ability to pass this knowledge on to the lead.
  • The current owner’s key assets are his connections and knowledge of the business. This will include subtle aspects to the business of which only the current owner is aware.
• The option to bring in an outside office manager potentially complicates the situation.
  • Bringing in an outside office manager to manage both the lead and the current owner is the worst case – the most likely to blow up.
  • This arrangement puts the current owner two reports away from the CEO.
  • With an additional person involved, the personal dynamics become more complex. Keep it simple.

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