Bring me a rock

David Tolson //August 9, 2011//

Bring me a rock

David Tolson //August 9, 2011//

We’ve probably all worked for a boss or a client who can be difficult to please. It’s even more challenging when he or she plays a game called “Bring me a Rock.”

The game consists of you doing your work and getting what you think the “boss” wants, only to present it to him and find out that it isn’t quite what he wanted. As a result, he gives you some vague notion of what’s wrong with the rock you brought him, and it ends with you walking back to find another rock. After several iterations of this, you find that no rock is good enough, despite how well you’ve clarified the objectives during each iteration.

It’s one thing to deal with this in a job scenario, but it’s an entirely different and dangerous animal when the seller does it in a merger or acquisition.
For many sellers, this is your greatest asset and often, it stands between you and retirement. As a result, you want to make sure that you get maximum value for it.

Assessing your personal financial condition before you enter the market to sell can do several things for you. First, it can help set your mind at ease by knowing exactly what you need to get out of a transaction. Selling your baby will be hard enough. You do not need to complicate it by not having as many questions answered about your financial well-being before the letter of intent. Additionally, it can help you avoid making catastrophic mistakes in the deal process such as continuing to negotiate once an issue has been settled.

It’s easy to sit back and do some “rough math” to assess where you stand financially. You can use some conservative numbers and you start to feel pretty good about yourself. Unfortunately, and as we are witnessing today, the markets are not linear! Most of our quick and dirty calculations, as well as web-based quick calculators assume that the markets are linear; a fatal flaw in any financial analysis.

But to truly get comfortable and set your mind at ease, you need a sophisticated financial advisor who can run some complex financial models with various levels of sensitivities. Given the recent significant volatility the markets are experiencing, this analysis becomes more critical than ever. No one can predict what’s going to happen, but smart financial advisors will help you think through the world of possibilities, including the parade of horribles, to make sure that you’re still okay in retirement.

An example: Your investment banker begins negotiations in earnest with a buyer (or multiple buyers), and you start to feel like you’ve got something that’s going to hit your retirement needs based on your quick calculation. As you are negotiating the finer points, you start to wonder if the business is worth more than what is being discussed.

 Additionally, you start to think about retirement and start to have some questions around “is it enough?” If your investment banker has done their job by running a reasonable process and provided you with a good sense for where the market values your business (as well as having negotiated a great deal for you), then the deal you’ve selected should be the right deal.

More specifically, let’s say that you inform your investment banker that you need a consulting agreement for the next three years, and that consulting agreement should pay you $250,000 per year. The investment banker works his magic and comes back with what you want. The issue is settled. Then, several days go by, and you come back to the investment banker and tell him you need $350,000 per year and a 4-5 year agreement. The problem created deals with a matter of trust.

 Mergers and acquisitions are based on a degree of trust. To get the most value in terms of consulting agreements and overall value, the buyer must feel like they trust the business and the owner selling it. If the seller starts to renegotiate previously settled issues or “trade up,” it will turn the buyers interest from excitement to dread.

In some cases, the buyer will just back away from the transaction and claim that they are not comfortable with proceeding any further with the transaction, as they may view this activity as a measure of bad faith. Moreover, they may view you, the seller, as being less than reputable and therefore your business brand may be tainted in their eyes.

There are times when it is appropriate to re-address certain issues in a deal but you can do yourself a favor but doing some homework upfront. By clearly understanding your personal financial situation and what you want versus need out of a transaction and have a financial advisor work with you to assess the different possibilities and sensitivities, you can rest more easily knowing that the deal doesn’t hinge on one small issue.
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David Tolson is Managing Director of CapitalValue Advisors, LLC ( Since 1992 David has worked in small and middle market based businesses in operations, sales, and marketing, and has extensive experience in appraisals and mergers and acquisition. He is widely regarded as an expert in middle market private company valuation. He is also the co-author with Chris Younger of “Harvest: The Definitive Guide to Selling Your Company” (, available at