Top Seller Misperceptions

Don't turn a good deal sour

As the public markets gyrate and the mergers and acquisition market becomes more attractive, it’s worth noting some common misconceptions of sellers in private equity deals that might railroad your deal.

Buyers, particularly those in private equity firms, often burst onto the scene fresh off their Ivy League MBAs or consultant gigs at top-tier investment banks, with roots in bean counting, finance and business development. Buyers convince themselves they have an edge over sellers (and sellers often concede).

Don’t let them intimidate you. Most buyers have rarely actually managed a business, managed people or been responsible for the P&L. In fact, most buyers are looking at an industry on a part-time basis with substantially less experience than a seller, who will often have decades of management and sector expertise. Give yourself a giant pep talk before meeting with buyers, and acknowledge and appreciate the background they bring to the table, but don’t underestimate the experience you’ve earned in the trenches.

You’ll Take the Money and Run

Sellers, particularly the founders and owners of a business, care deeply about the future of the company. You’ve raised and nurtured your business from conception, watched it grow, and are not about to give it away to just anybody.

As such, owners will favor buyers who are actively engaged and plan to treat the employees and customers well versus buyers who do not appear to have the employees’ or customers’ best interest at heart. You care intimately about what happens to the business you’ve nurtured and may even want to pop in from time to time. Work closely with PE firms that understand the value of reputation, and together you’ll have a better chance for long-term success.

Although sellers care about the future of the business, you don’t care so much that you will dramatically reduce the price for a “nice” or “well-intentioned” buyer. First-time buyers—usually individuals—mistakenly believe that a likeable personality and flash of a friendly smile is the ticket to getting you the seller to accept a discounted price. In addition, you would not forego a high multiple for the business—greater than five times—even if that purchase price meant the business would face financial hardships in the future. It’s still a business and mostly about valuation.

Don’t let them trade your star player (and it may even be you). Small businesses and even large businesses without strong operating systems are highly dependent upon the key managers within the organization. If you are a seller who also serves as the manager or the president/CEO, you represent an enormous risk for the business going forward, a risk that should not be underestimated by buyers. And this is doubly important if your sale includes an earnout provision based on the company’s future performance.

Good Managers are a Dime a Dozen

While there are tens of thousands of managers in the United States, managers with the right experience within a given industry—and who are a good fit with the company’s culture—are challenging to find. While finding the right talent can take three to 12 months, a bad hire can take 18 to 36 months to correct.

Be available to provide guidance when needed in the hiring process. Ultimately, the wrong manager in a transaction can be the one bad apple that spoils the bunch.

Every industry has its particular highlights, and every business will have its own quirks. Sellers often believe they can easily transfer their vast knowledge of the industry and the business to the buyers after a limited due-diligence period. Education takes time, and experience is earned the hard way. You can’t expect buyers to cram and then breeze through the final exam.

Businesses that undergo an acquisition or an investment by a private equity firm are still held accountable for achieving targeted financial results. As a seller, be sure the business has established budgets, sales goals, productivity requirements, and other operating expectations to avoid substantial cultural change post-acquisition. The good news: managers and employees who are not accustomed to a more structured environment will adapt well in a performance- based setting.

Numbers Don’t Tell the Whole Story

Buyers are predisposed to spending a lot of time with the financials of a business and less time evaluating the actual operating systems or meeting with employees (sellers also share the blame). While the numbers certainly provide a good overview of the cost structure of your business, they present only a partial view of the organization. Encourage your buyer to give equal consideration to the people, customers, brand and other “softer” elements of the business before you pitch the entire package.

Resist the impulse of what feels like a good deal and do your homework to avoid seller’s remorse. Far too often, sellers will connect with the first company to offer a reasonable deal and accept too low of a price for it, giving buyers an advantage. Frequently, there are at least five to six companies with a similar business model in the industry.

Larger industries that are fragmented have even more peers. Patient sellers who know they are in an attractive industry will investigate multiple buyers and locate the most well-run, highest-performing leaders that are at the top of the game. Emphasize discipline over gut feel.

Sellers often struggle to interact effectively with buyers due to education and experience gaps noted above. As a result, sellers can become distrustful of buyers, especially during the due-diligence process when they rigorously examine every line item and scrutinize your business practices. It is also not surprising to find minor differences between what was presented early in the process and what is uncovered during due diligence or offered in the final term sheet. These gaps, if addressed properly, should not result in significant distrust.

This article originally appeared in the January 2012 issue of Security Today.

Featured

  • AI Is Now the Leading Cybersecurity Concern for Security, IT Leaders

    Arctic Wolf recently published findings from its State of Cybersecurity: 2025 Trends Report, offering insights from a global survey of more than 1,200 senior IT and cybersecurity decision-makers across 15 countries. Conducted by Sapio Research, the report captures the realities, risks, and readiness strategies shaping the modern security landscape. Read Now

  • Analysis of AI Tools Shows 85 Percent Have Been Breached

    AI tools are becoming essential to modern work, but their fast, unmonitored adoption is creating a new kind of security risk. Recent surveys reveal a clear trend – employees are rapidly adopting consumer-facing AI tools without employer approval, IT oversight, or any clear security policies. According to Cybernews Business Digital Index, nearly 90% of analyzed AI tools have been exposed to data breaches, putting businesses at severe risk. Read Now

  • Software Vulnerabilities Surged 61 Percent in 2024, According to New Report

    Action1, a provider of autonomous endpoint management (AEM) solutions, today released its 2025 Software Vulnerability Ratings Report, revealing a 61% year-over-year surge in discovered software vulnerabilities and a 96% spike in exploited vulnerabilities throughout 2024, amid an increasingly aggressive threat landscape. Read Now

  • Motorola Solutions Named Official Safety Technology Supplier of the Ryder Cup through 2027

    Motorola Solutions has today been named the Official Safety Technology Supplier of the 2025 and 2027 Ryder Cup, professional golf’s renowned biennial team competition between the United States and Europe. Read Now

  • Evolving Cybersecurity Strategies

    Organizations are increasingly turning their attention to human-focused security approaches, as two out of three (68%) cybersecurity incidents involve people. Threat actors are shifting from targeting networks and systems to hacking humans via social engineering methods, living off human errors as their most prevalent attack vector. Whether manipulated or not, human cyber behavior is leveraged to gain backdoor access into systems. This mainly results from a lack of employee training and awareness about evolving attack techniques employed by malign actors. Read Now

New Products

  • A8V MIND

    A8V MIND

    Hexagon’s Geosystems presents a portable version of its Accur8vision detection system. A rugged all-in-one solution, the A8V MIND (Mobile Intrusion Detection) is designed to provide flexible protection of critical outdoor infrastructure and objects. Hexagon’s Accur8vision is a volumetric detection system that employs LiDAR technology to safeguard entire areas. Whenever it detects movement in a specified zone, it automatically differentiates a threat from a nonthreat, and immediately notifies security staff if necessary. Person detection is carried out within a radius of 80 meters from this device. Connected remotely via a portable computer device, it enables remote surveillance and does not depend on security staff patrolling the area.

  • AC Nio

    AC Nio

    Aiphone, a leading international manufacturer of intercom, access control, and emergency communication products, has introduced the AC Nio, its access control management software, an important addition to its new line of access control solutions.

  • FEP GameChanger

    FEP GameChanger

    Paige Datacom Solutions Introduces Important and Innovative Cabling Products GameChanger Cable, a proven and patented solution that significantly exceeds the reach of traditional category cable will now have a FEP/FEP construction.