A Seller's Emotions During the M&A Process

As a business owner, you are emotionally tied to your company. You've spent years building and operating a business that has become an integral part of your life. Therefore, selling that business is more than just a straightforward transaction; for many owners, it feels like losing a loved one, making the experience fraught with emotion. These emotions can significantly impact the financial outcome of the sale.

Enrique Dominguez, Managing Partner at Codify, notes that company owners experience a wide range of emotions when selling their businesses. As an experienced advisor to tech company sellers, he often observes sellers navigating what he calls an "emotional rollercoaster" throughout the sales process. This is illustrated in the graphic below.

The emotional swings sellers typically go through include:

• Apprehension. When considering a sale, sellers often question whether it's the right time to sell. They worry about the future of their employees and what will happen once they relinquish control.

• Excitement. After deciding to sell, and with the help of an advisor like Codify, sellers begin to feel excited as they start receiving offers.

• Fear. Once negotiations begin and a Letter of Intent (LOI) is signed, the emotional state of sellers can take a downturn during the due diligence process. Now, the buyer is in control, and sellers may fear they are unprepared to meet the buyer's information needs, stressing over whether they have tracked financial metrics and key performance indicators (KPIs) correctly.

• Anger. During due diligence, buyers scrutinize every detail of the seller's company, including technology, intellectual property, legal matters, human resources, taxes, and earnings quality. This scrutiny can lead to feelings of frustration and anger for sellers, especially if they feel they are being asked unnecessary questions or if there are repeated inquiries about the same topics. If this stage becomes overly lengthy and contentious, sellers may experience emotional fatigue and doubt about the culmination of the deal. They might wonder if the process will ever end or if the buyer will restructure or even back out of the deal.

• Hope and Optimism. As due diligence progresses and sellers see drafts of the Definitive Purchase Agreement, a plan for integrating the companies begins to take shape. This can boost their hope and optimism, making them envision the closing of the deal on the horizon.

• Relief. Sellers feel a sense of relief as the deal approaches completion and a closing date is finalized.

• Elation. Once the deal has closed, and the sale proceeds are in the bank, sellers often feel elated, especially when shareholders and employees are on board with the sale.

Understanding these emotional swings is critical, as emotions can hinder the achievement of an optimal deal and, in some cases, derail it altogether. Here are some steps you can take to ensure emotions do not interfere with the deal:

1. Rely on Experience. If you’ve previously sold a company, reflect on points in that process where your emotions negatively affected the outcome. Consider what you could have done differently to keep those feelings in check.

2. Expect Frustrations with Buyers. During the sales process, you may encounter frustrating moments with the buyer. Recognizing this likelihood can help you respond in a controlled manner. Don’t let your ego obstruct the deal.

3. Delegate Emotional Responsibility to Advisors. An investment banker, such as Codify, can help guide you through the sale process and alleviate some emotional burdens. Their extensive experience means they know how to address issues and solve problems that could cause you undue stress.

4. Prepare for Due Diligence. The due diligence phase is often the most stressful. It's crucial to set up a well-organized deal room with the necessary documents to facilitate a smooth process. Assemble a team to manage the deal room and ensure that there is a procedure to respond quickly and accurately to the buyer’s requests for information. Remember that delays in responding to information requests can increase pressure from the buyer and diminish your credibility.

5. Stick to the Facts. If negotiations become emotional, redirect the conversation toward factual discussions. Relying on facts can facilitate better negotiations and keep emotions in check.

6. Put the deal on hold, if needed. If emotions get the better of you, you can take advantage of Codify's hiatus program to put the deal on hold. You can then return to the process at a later time when you feel conditions and your emotions are more favorable to get the results you want. If you do put negotiations on hold, ensure that you have a clear path back to the table with the buyer and avoid burning any bridges.

   
   

By recognizing these emotional stages and employing strategies to manage them, sellers can navigate the M&A process more effectively and work toward a successful outcome.