WorkWise: Buyer hitches: Who's to take charge?

January 23, 2014 

Morton Grove, Ill.’s Jeff Mariola (left), Digital BrandWorks LLC CEO, discusses with his vice president of brand relations, Greg Sizelove (right), how the window was closing when he bought the business. Credit: Digital BrandWorks LLC

Whether you’re a buyer or seller, the crisis manager in you will emerge if a sale is going south. You’ve invested in the process and don’t want the sale to fall through.

When Jeff Mariola, the CEO of Digital BrandWorks LLC in Morton Grove, Ill., bought the business, the digital consultancy was his first. He’d been managing it during the year for the two founding serial entrepreneurs, who became somewhat distant from their fast-growing business. As it shifted from e-commerce to consumer, Mariola indicates, the young owners, lacking management experience, “didn’t quite understand it.”

He believed it had to change course in less than 60 days, because the founders weren’t going to add capital and, in his eyes, profitability would be declining.

Mariola raced into action as the $17 million business continued to grow very quickly. He had to convince the founders to sell – “I had to put real pressure on them” – persuade the five original investors in the business that he knew what he was doing so he could retain their investment, and recruit the board he was forming, one member at a time, all the while hunting for and securing $1.3 million seed money.

“If I hadn’t put the group together to buy the business,” Mariola says, “the entrepreneurs wouldn’t have been able to find a (new) buyer fast enough and I probably would have moved on myself.”

Eli Goodrich also encountered a major hitch when selling his networking and app development business. Today, as president of Game Changer Sales Inc., in Huntington, N.Y., where he prospects, sells and consults on sales, he comments that “value is always the biggest issue. You find that what the person is selling is not exactly what he’s representing.” His buyers, long-term clients, disagreed with his $100,000 sale price. Like Mariola with his sellers and related parties, Goodrich embarked on a campaign to educate them about points they’d missed, which doing due diligence would have uncovered.

“There is almost a guaranteed revenue stream,” he told them. “Profitability is built into the model, and you have the opportunity to sell more through your existing business if the accounts grow.” He showed them the contracts, the lack of which, he says, would “devalue the price of a business.”

He closed at $250,000.

“Most (buyers) don’t do due diligence,” Mariola continues. “They meet and discuss the term sheet without seeing the actual accounting, reviewing customers and interviewing them. Price changes based on findings.”

Richard Hayman, now a CEO coach in Rockville, Md., has been involved in eight transactions as a buyer or seller and did his due diligence when he and his brother were selling their point-of-sale (cash register) business. They had six exit strategies. “Certain things happen in business,” he observes, “for which there’s no amount of money you could pay to get that education.” Their buyer was rolling seven businesses into one. Hayman could see that the companies had different products, which promised no synergy and high costs. Even worse, the buyer would lend the seller $4 million to run the company to repay the buyer.

Meanwhile, Hayman traveled, finding the buyer’s dealerships with “warts, raising red flags and (revealing) tricks they were pulling,” he points out. The buyer was also contradicting himself. Hayman dubbed the guy “a snake” and subsequently closed with another person for considerably more money.

Whether you’re buying or selling a business, prepare to jump through hoops – or move on – if a hitch materializes.

Mildred L. Culp of WorkWise® welcomes your questions at culp@workwise.net.

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