IS IT TIME TO SELL THE COMPANY?
December 6, 2012
A Forrest Firm Q+A with Jess Eberdt, TempusDurham
The Forrest Firm works with a host of businesses, from startups to mature businesses, providing risk management and legal advisory services to businesses across an array of corporate legal issues such as corporate acquisitions and divestitures, employment law, commercial real estate, contracts, and intellectual property.
In the course of servicing our clients, we often field questions pertaining to the possible sale of a company. Of course, there is no perfect, one size fits all answer for this question, however, there is wisdom to be gained from picking the brains of those who have successfully gone through the process. We turn to a longtime friend and advisor, Jess Eberdt, to address some of these issues. The former CEO of one of the Research Triangle’s greatest homegrown successes, Parata Systems, LLC, Jess has partnered with Doug Townsend to form Tempus Durham, a downtown Durham-based consultancy focused on preparing companies for proper alignment for potential investment, management needs, and exit strategies.
We sat down recently with Jess to discuss some of the considerations that entrepreneurs and executives need to explore to attract capital that may be critical to their future success. In today’s Forrest Firm Q+A, we’ll focus on the possible divestiture of a company.
James Forrest: “You shared some of your insights around the things that angel investors look for vetting an investment in a startup company. Walk us through what you see when mature companies are considering a possible sale of its stock or assets.”
Jess Eberdt: “Mature companies have many of the same concerns of startups, but they are often viewed through the lens of experience and dealing with new challenges down the road. Typically, we see a lot of closely-held private companies—sole owners or small partnerships—in this space, headed up by people in later stages of life. They are facing things like illnesses, potential retirement, succession issues, and more, including big shifts in their market and the emergence of new competitors, technologies, products, and services that shape their company’s success.
Due to the closely-held nature of the business, they find themselves isolated, without a proper sounding board. They are at an inflection point, and they are unsure of what to do next. That’s where we and others come in to give them the perspective they need. In short, we hold a mirror up to them, in order to show them where they need to go.”
James Forrest: “So how is this mirror different to that which you hold up to startup companies?”
Jess Eberdt: “It’s the same in that we simply get them to a place where they can be objective about their business. That’s the big value of bringing somebody in to help you evaluate where you are in the life cycle of a closely-held company. It’s different in that we do a more reflective analysis—in addition to looking forward, we look at how they got where they are. We take a look at the management team, for example—is it poised to lead the company in a new direction, or is new blood needed.
Companies need that same level of external understanding, gained from competitive analysis, looking at marketplace needs and their urgency, and how they are meeting these challenges currently. This determines the forward-thinking options for investment or sale.
James Forrest: “Speaking of selling the business, we often hear about ‘dressing companies up’ for sale. How does this work?”
Jess Eberdt: “Well, it doesn’t! Yes, we often hear this term, ‘dressing up,’ and I’m here to tell you that investors see right through these things. The business is what it is, and so is its market. You can’t hide the negatives. So, often, selling simply isn’t the answer, but fortunately, it’s almost never the only answer for mature companies looking to improve their situation.
To determine their options, many times the leaders at mature companies need to go back to the mentality they had in their successful startup days. They almost need to throw away parts of the past and approach the future, looking at things the way startups do. Mature companies need answers to questions like, do we have the right services, the right operations, the right management team? What’s going on in the market—what is the market telling us?”
James Forrest: “What do you see as the biggest challenge for leaders of mature companies at these inflection points?”
Jess Eberdt: “Above all else, it’s so hard for companies to get out of their exclusively inward focus, driven by getting stuck in the day-to-day execution of the business as it is. This leads to a failure to check the pulse of customers and the market, and then react not in limited ways, but with a proper strategy.
Business is business, and the companies who realize that they need to step back, take a fresh look at the landscape, and evaluate options for raising capital and bringing in new blood—in the form of both money and people—position themselves for greater success. It’s amazing how decisions deliver better outcomes when executives take a broad, external view of their business.”