This is a psychological question, not a business one.
I.e., only you can decide how important the future of the company is to you after you're gone.
I.e., if your conscience is going to make you miserable while you're sipping margaritas in Cancun, don't do it.
I.e., good deals are few and far between, and you may kick yourself (and your conscience) if another one doesn't come along.
I.e., you could die tomorrow and your successor might run your company into the ground; how will you prevent that?
No one can tell you (and your conscience) what is "right" or "wrong," but, personally, I'm a believer in TMR (take the money and run).
If guilt weighs too heavy, call those customers and offer to donate a chunk of your cash to their favorite charity. (kidding)
Categories: M&A and Financing
Our company sells a very targeted ASP application to suppliers of the automotive industry. It basically runs their business for them and is setup so that they pay no upfront cost for hardware of software. We charge a small transaction fee for the services we provide through the software. We sell primarily to a number of vendors in the same industry who are themselves competing for the same set of clients. Because our application is a "pay as you go" model, some of our customer pay a lot per month (i.e. 15K) while other pay a much smaller amount.
A while ago, we were approached by one of our major customers who wanted to buy our company. We signed NDAs etc. and provided them very limited data with respect to who the client base was. We primarily provided revenue data that was not broken out by customer nor did we provide any customer related data. They made us a pretty decent offer but I declined to do the deal because I fealt that the company that would be buying us was not a software company and doing this type of deal would panic the rest of our customer base because we had sold out to their competitor.
My question is - is this irrational thinking? I have spent 20 years building this product and client base. At some point I would like to take some chips off the table (I hate that term but I just used it :) Should I decline all offers from any of my existing customers on the basis that my other customers would go through the roof? I tell this story to some of my business associates and they think I am crazy to turn down an offer like I had. They say "don't worry about what your existing customers will think - it won't be your problem" My conscience tells me otherwise. Interested to hear other people's thoughts.
This is a psychological question, not a business one.
Im in a very similar position of having built up a niche software company over a 20 year period. It is highly likely that offers to buy your company are going to be few and far between. I would recommend considering the deal. While challenging, it is certainly possible to have a customer as a/the shareholder while still serving other customers. I would think the acquiring company would want to see you continue to be successful. Talk to them about how you could deal with the perceived conflict and keep the business thriving in future - then take their money :)
All good advice here. As Bruce says, this is more a psycological question than anything else.
It's very very commen that entrepreneur of company's they have built up feel a strong sense of loyaly toward them. But remember to think about your future/retirement here as well. I'm no private wealth expert by any means, but having all your chips as you put it, on one table is risky, particularly going into the later stages of life, so being a bit more diversified would reduce this risk.
Of course you probably have a very valid case about the customer base potentially being eroded if a competitor to them buys, and its nice to see a boss who has their employees futures in mind.
If the company who approached you is not a software company then why is it buying yours? It must have some benefit to their existing business or at least aligned with their business.
You can choose to be on the advisory board of the company (or as a consultant) after acquisition and of course if they allow, if you do not want your customers lose the faith.
I think it is worth considering the deal. You can also ask questions to the company as why they want to buy it and what they are going to do in future with it.
Manoj Shinde - Reflection Software Solutions Pvt. Ltd.
Manoj makes some very good points, and his advice is worth considering. However, there's also a potential downside to involvement post-sale: When you are only a title, or even a minority stockholder, you have no control over what the new company does. I know, that's obvious, but maybe not so obvious is the fact that the new owners may do things that you don't like; you will be powerless to make changes, and you may not want your name associated with their decisions. As one of my best mentors once told me, if you don't own more than 50%, you're just cannon fodder. I'd still take the money and run. :-)
Also what are your future plans ? If you have a rock solid plan and you need the cash, go for it and sell your company.
Chris, Developer, http://www.chrisranjana.com , Software company. Web development.
IMO, the key drivers to selling include:
- Are you tired of the company? More critically, are you tired of the industry? Do you want to move on and find something new? Maybe you've always thought that building a startup in (say) alternative energy or wholesale cabbage trading would be "cool" yet you've been stuck in your current vertical all these years.
- Is the offer large enough that you have "FU Money"? As Scott Burns said in a recent blog posting: You are wealthy when more money won’t change where you live, what you eat, what you wear, what you drive, or who you sleep with.
- Do you want to continue working at the company? If your goal is to bring in money to sell a portion so you can diversify your holdings yet continue to run and grow the company... I'd run away quickly. Think about the next buyer when you want to sell the balance of the company. Said another way, selling 20% of the company today means you still own 80% yet the company with 20% ownership has way more control than you want.
My bottom line: Plan to sell 100%; I'll second Bruce's comment re: totally exit the company. If you can't "retire" or move to another industry once you've sold, think about the industry relationships you have and view the deal from your current customer's eyes. Once you sell the technology to a competitor, they will likely hate you and you'll be mentally blacklisted; don't plan to sell them anything at your next company. They will all say, "What have you done for me today butthead?" not "I enjoyed our 15 year relationship and the long list of personal sacrifices you made to give me real value all those years."
Don't forget that any time you are dealing with one prospective buyer, you are leaving money on the table. If you are willing to sell your company, you may be able to realize a much higher price by simply getting one additional bidder. An M&A firm or business broker can facilitate that process for you. Don't leave money on the table if you can help it.
I agree that $1M in revenues is generally below the threshold that interests your typical middle-market investment bank, but not always. They might take it on, but your minimum fee may be in the $200-300K range and often there will be a commitment fee/retainer in the $40-50K range as well to ensure that you are serious.
Business brokers will jump through hoops to pick up a $1M revenue business, and will usually charge a flat 10% fee of the price as an exit fee. However, brokers typically do not have the expertise or contacts to deal with high-tech companies in general. I have some experience here too and I see brokers as typically dealing in the retail side of the world.
I'd be happy to kick it around with you in real-time if you would like. I am not a vertical expert in either ASPs nor the automotive space, but i do have deep expertise in software, and I am in fact an M&A advisor. If I can't help you maybe I can give you some pointers on how to proceed.