It is often said that buyers acquire management, not assets. While some may view this as an over-simplification, the truth is buyers’ bids are often heavily dependent on their confidence in the seller’s management team’s ability to generate the expected future cash flows. Even in those rare cases where a buyer intends to replace current management, they’ll still pay more when there is a competent and dependable management team in place that can smoothly and profitably navigate a transition to new ownership and leadership.
We have seen several situations where buyers have expressed concern over management’s ability to successfully execute post-acquisition:
- The owner is a key executive, and he/she intends to leave upon the sale.
- Past success of the business has been a result of personal relationships of a founder who does not intend to remain with the company (customers, suppliers, human resources).
- Projections assume successful execution of difficult tasks that the management team has not accomplished in the past.
Accordingly, we recommend sellers undertake an honest and candid review of their management team long before they plan to sell and, and consider taking the following:
- Ask what an objective buyer would think about your management team.
- Fill executive skill gaps where they exist. This may require hiring a new CEO, President, COO, CFO or other upper-level manager. It may also mean certain members of existing management need to be replaced.
- Once you have the right team in place, sellers should also provide the right financial incentives so your team is on your side, motivated to perform well during a sale process and willing to commit to staying after closing.
It can be a challenging investment of effort and resources to ensure you have the right management team in place with the right incentives. As we have seen numerous times in the past, taking the time to deal with these important management issues, well in advance of a sale, always results in a higher price and a smoother sale process.
Have a great day everyone.
Managing Director, Aerospace