In the next 10 to 15 years, many business owners will reach retirement. Some will transition their business to their children and (or) an existing manager. However, many business owners will find themselves without a clear succession plan, either because their children are disinterested in the business, or because their existing managers don’t have the financial resources to complete the transaction. In these situations, business owners will likely sell to an outside buyer.
Business owners may attempt to sell their business themselves or hire a professional advisor to assist. Such advisors are often referred to as business brokers, merger and acquisition intermediaries or investment bankers – all terms used to describe the “dealmaker” who helps connect business buyers and sellers. While many advisors provide valuable resources, a handful of “seminar” firms employ deceptive practices to lure clients into engagements with steep up-front fees.
These so-called merger and acquisition firms regularly conduct free all-day seminars for business owners who want to learn more about selling their company. Most attendees are small, private business owners with companies that generate $1 million to $25 million in annual revenue. During the seminar, attendees are enticed by how their business could be purchased by a large international company, U.S. company or private equity group for an extraordinary amount of money. These seminars suggest that the fundamental principals of business valuation somehow do not apply with their "premium buyers".
So what's the catch? These firms won't sell a vast majority of the businesses they engage, let alone for the values suggested in the seminar. Rather, they make most of their money in up-front fees, typically $37,500 to $50,000. And of course, clearly stated in their contract, they make no representations or warranties that they can sell the business at all.
The originator of this deceptive seminar model was Irvine, California-based The Geneva Companies. But their seminar program ended when Jeoffrey L. Robinson, attorney at Robinson, Calcagnie & Robinson (http://www.orangecountylaw.com/) led an unfair business practices class action against The Geneva Companies, in which he litigated a 45 million dollar recovery against the company. Unfortunately, other seminar companies are still out there making false promises, wasting business owners’ time and resources.
But there is good news. There are many professional and reputable dealmakers across the country who work hard to sell businesses. They range from the sole practitioner broker who focuses on smaller "mom and pop" businesses, to larger investment banks that specialize in a particular industry. Many of these firms do charge modest up-front fees for performing a business valuation and (or) initiation of a marketing campaign. However, the difference is that a reputable firm earns most of their fee as a commission after successfully completing a sale.
So how do you differentiate the good from the bad? Ask the firm what their success record is. How many engagements did they take last year and what percentage did they successfully sell? Ask for a list of references from past clients. Rely on your trusted advisors (attorneys, accountants and bankers) to recommend a firm to you.
And, above all, remember if what you're hearing sounds too good to be true, it probably is.
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