Interview with Eric Eaton
Interviewer: Andrew Zezas, SIOR
Following is the transcript of a CFO Studio interview between Andrew Zezas, CEO of New Jersey based Real Estate Strategies Corporation and finance executive, Eric Eaton, CEO of Egyptian Builders Consulting Group.
Visit www.CFOstudio.com to read about this interview and to watch the entire video interview.
Preparing Privately-Held Business Owners for Sales
Zezas: Hi this is Andrew Zezas, your host at CFO studio. I am joined today by Mr. Eric R. Eaton, CEO of Egyptian Builders Consulting Group. Mr. Eaton has more than 25 years’ experience as an international finance and operations executive in publishing, content development, financial services, and technology with companies including Time Warner, Meredith, Earl Graves, and Nexar Group. Eric is here today to talk to us about a very exciting concept, Preparing Privately-Held Business Owners for Sales. Eric, it’s wonderful to have you here on CFO studio.
Eaton: Andy thanks very much, pleasure to be here with you today.
Zezas: So Eric, you’ve got a pretty interesting background, you’ve been with some major companies, you’ve accomplished a lot. You’ve bought and sold companies and have gathered your experiences as I understand it primarily from the buy side?
Eaton: That’s correct.
Zezas: Yet you are here to talk to us today about providing counsel to sellers, tell me a little about your thoughts, you know, size of companies?
Eaton: Well Andy we were fortunate enough to gain a lot of experience by being on the buy side of understanding both sides of the transactions. We looked at approximately 50 target companies at over a period of time and executed a number of transactions, these involved companies in the range of revenue base anywhere between from 10-50 million revenue on an annual basis.
Zezas: So we’re talking about substance of companies?
Eaton: Yes, we are.
Zezas: As an advisor, as a seller advisor, share with me what you find to be the most important issues about what you have to educate owner managers in preparation for sale?
Eaton: In preparation for sale for the owner manager or prospective seller, generally it would be good for them to begin to take view of their business in a slightly different matter from what they may have traditionally looked at it. Generally with owner managed businesses, there’s a tendency from time to time that the owners take a very broad definition of what is considered in that business, and what I mean by that, is generally assets brought to bear in use of the business. There may be a number of personal assets involved, generally this could involve real estate, vehicles, and other elements of business capital in which the owners now need to look at to understand what are these elements have to be segregated in totally personal versus assets that are required in the business. In addition to that, in many owner managed businesses where they’ve had a lot of success, they tend to expand that success amongst their family members and they’ve been very generous. So you generally tend to find in the personnel ranks a lot of family members engaged in the business. Now owners and potential sellers have to address the fact that not in all cases would all family members or maybe none of the family members would move on in the transaction. And that’s not so much as to say that the prospective buyer is not interested, but they just may not be needed, so that’s also a good time for the owner manager to begin to prepare the fact that family members may not necessarily be moving on in the sales transaction.
Zezas: So what you’re really saying is, truly separating the difference between real business assets and other assets that may have been deployed in the business because it was a privately run business?
Eaton: That is correct.
Zezas: Okay, that makes a lot of sense. So you’ve educated the seller and now it’s time to begin crafting what it is we’ll be offering. How important is the offering document in the beginning of the process?
Eaton: Well the offering document is quite important and as to reiterate my previous statement, you know the owner manager has probably taken a very good first step, they’ve begun that initial preparation of understanding what the elements of the business are, and therefore they can translate that into an offering document so that there is no confusion once the first potential buyer comes along to understanding what is the business, what is it comprised of, what assets will move along in the context of the sale, which assets will move along, who the personnel involved, which parties would be staying, and which parties the potential buyers should look for to making sure they retain for the onward success of the business.
Zezas: So that offering document really creates a platform for discussion between buyer and seller and actually alerts prospective buyers as to whether this is the right business for them based upon how that document is structured?
Eaton: Absolutely, and if the offering document is well crafted or crafted correctly, it should play well into what a prospective buyer needs to do from their standpoint in terms of due diligence.
Zezas: Makes perfect sense. Eric, you have shared with me in the past that for a privately held owner to sell his or her business it is an emotional process and a personal transaction as much as it is a business transaction, how engaged should the buyer be with the seller from an emotional perspective?
Eaton: Well from an emotional perspective, very emotional from the seller’s standpoint, but the potential buyer needs to understand coming into the transaction that this is someone who is about to conclude what may have been their life’s work. And it is almost tad amount to a situation where you’re coming in to marry the daughter.
Zezas: To what?
Eaton: Marry the daughter.
Zezas: Marry the daughter, I love that.
Eaton: There must be a great connection between the buyer and the seller, in that regard, because the seller wants to be comfortable on a number of fronts. They want to be comfortable with who they’re turning their business over to, they want to be comfortable and understanding that they will have provided for and the buyer will continue with certain individuals even outside of the seller’s family would will continue in the business, the seller will very much want to know how the employees will be treated going forward. In many cases we find that the deal is not so much positioned on the fact of the winning party or the successful buyer offering the most money. It’s a basis of the fact that in the end, that in the entirety of the transaction, that the seller is going to be comfortable with the buyer going forward.
Zezas: Interesting, interesting. That’s not to suggest that money and the sale price aren’t important, but you’re saying that of equal or sometime of greater importance is this emotional component?
Zezas: Very interesting, interesting. Ok so, buyer and seller are negotiating a sale, very often there’s a discussion about what happens or rather what position the seller would take in the company on post-closing basis? And we’ve seen short term arrangements on a post-closing integration basis, we’ve seen long-term contracts, I know every transaction is different, but generally speaking what is your typical advice to a seller as it relates to post-closing and his involvement with the company?
Eaton: That’s an interesting question. I think what you will find is that in many cases with sellers most are ready to move on to their next big event in life, and they really don’t have a desire to maintain any continuing activities with the business. There are some cases where it may make sense for a seller to maintain a relationship beyond what one would consider to be customary transition or integration period of 90-100 days. And in those cases the seller has to be very clear and to make sure they understand that the roles are going to be different on signing day plus 1 by virtually from the fact that they go from being the person who was the chief decision maker and called all the shots. Now they are actually working for somebody else, and for many that could prove to be a difficult transaction. You know sometimes it works, but many will recognize that “I am moving to a different stage in my life, and therefore I should move on.” So once the customary integration and transition period has concluded, they are very happy to move along.
Zezas: And your recommendation typically is that there should be some integration period?
Zezas: And the question should there be another period and that depends on a lot of ?
Eaton: It’s always very helpful. I mean from the mundane, to making sure that that all the keys to the building have passed ends, to situations that the owner manager or the seller will also be around for the necessary transitions off to key customers or key clients in the way.
Zezas: Sure, that makes a lot of sense. So Eric, with respect to conclusions and advice that you would give to sellers on a general basis given all of various emotional components, what would be the punch line you would say to a seller, what should he or see be thinking about in advance for preparing for the sale?
Eaton: Well, preparation is key because I believe what the seller is going to find very quickly is that in decision to sell, this is very much an emotional decision and can be very stressful. Preparation is the key to that because what you don’t want to do to is accidently introduce more stress into what is already a very emotional and stressful setting. What happens in all business sales situations is that the money will take care of itself; evaluation is a science no matter what the business is, the appropriate evaluation will work itself out. The things that take more work will be one in the preparation, dealing with the emotional aspects, and making sure that no undue stress is introduced into the process.
Zezas: So hire the right advisors so that evaluation can in fact take care of itself?
Eaton: That is correct.
Zezas: You’re respective of how complicated your business may be or how complicated you think it may be, but prepare and minimize the stress during the transaction?
Zezas: I think that’s good advice Eric.
Zezas: Listen, I want to thank you for appearing with us on CFO studio. I know you’ve been here before, we’re glad to have you here again, and I hope you’ll come back and see us a third time.
Eaton: Absolutely, it was a pleasure. Thank you very much.
Zezas: This is Andrew Zezas, your host at CFO studio, with Eric Eaton saying thank you very much for watching, we’ll see you again.
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