Lost in translation: The often tortuous trials of selling-up

Richard Farleigh
IT WAS depressing: the business was making continual losses. We’d tried everything we could think of, but nothing seemed to work. We’d made many mistakes and had an unfair share of bad luck. We reached a decision: find a buyer and sell it. The business was fundamentally sound, so in the right hands it had to have value.

Things went well and we found two serious buyers. I was running the process and got the dream result, a “bidding war”. The price went higher and higher – just what I wanted. I played my hand badly though and, overconfident, let one buyer drop out. I was happy the other would deal at £2m. Then I got the early morning phone call from the French buyer. “The contract is ready and all is agreed except…we are changing the purchase price.” “Oh really?” I asked. “What to?” Just a few seconds pause and he said softly, “Zero.” “Rien? What do you mean?” “I’m saying we’ll take it off your hands for you”. I was probably the rudest I’ve ever been in a business conversation, and I hope his English was good enough to understand my Australian response. I ended up selling to a third buyer at half a million.

An unhappy result, but selling a business is tricky. Even after things are agreed and contracts signed, the “due diligence” can throw up something the buyer is unhappy with. That nearly happened with one tech company we had when a patent wasn’t as complete as the buyer wanted. Fortunately, we convinced the buyers it was sufficient for their needs and they didn’t demand a price reduction.

Even your own staff can be tricky. Often the buyer wants key people to stay with the business. When a friend of mine sold a recruitment company she’d started years earlier, for a decent price, she was amazed when her top manager suddenly demanded about a third of the proceeds.

The manager was seen as very important to the business, but had never bought shares or done the start-up work. He’d always been on a good salary, and was even due to get a pay rise after the sale. The two were good friends but jealousy, greed and a sense of entitlement took over. He got his third.

For another company of mine, the problem was the bank. Our business had a lot of debt, but was profitable and gradually paying it off. We had been in slight breach of a few accounting ratios, but the bank had accepted this for years without complaint. It didn’t want to lose us as a customer if we refinanced elsewhere. Then we hit gold. The business was to be sold for a great return. What did the bank do? Knowing there was no point in us changing bank and that they’d be losing us as a customer, they started charging enormous “monthly fees” for our technical breach. I think they grabbed about thirty-five grand from us as we sold. And it wasn’t even a French bank.

Since the mid-1990s Richard Farleigh has operated as a business angel, backing more early-stage companies than anyone else in the United Kingdom. www.farleigh.com