Dan Lubeck: Triumphant transactions

Dan Lubeck, founder and managing director, Solis Capital Partners

Dan Lubeck, founder and managing director, Solis Capital Partners

The sale of a private company typically is a life-changing event for the stakeholders. Its impact transcends multiple aspects of the sellers’ lives — finances, time and balance to name a few.

For investors in privately held companies, recognition and incorporation of these factors is fundamental to success. It enables the investor to structure transactions that meet the needs of the sellers and that have realistic post-closing expectations.

As important as this is to the investor, we believe it is equally important for the selling stakeholders. Sale transactions have a much higher likelihood of closure and success when the sellers have a clear vision of their personal goals in the transaction. We want sellers to describe the lives they desire at the close and after — their true aspirations. A successful sale structure will address those aspirations, while also meeting the needs of the investors and debt providers.

Developing the vision

Ironically, it is common for sellers not to have a clear or complete vision for their desired post-sale lives. If so, developing this vision becomes an important part of the early discussions. We often suggest a simple but powerful exercise where sellers describe their current lives, the lives they desire and how the transaction will advance or deliver them there.     

While valuation and terms are key considerations, there are others that frequently are relevant.

Time and balance

Sellers must honestly assess if and how much they want to work after the close. If they want to continue to work, how do they want to spend their work time? Where do they most and least enjoy spending their work time? Where is their work time the most valuable? For sellers of companies they tightly control, are they truly ready to partially or completely let go? Old habits — particularly ones that have been effective and created a lot of wealth — die hard. Driving these questions are nonwork interests, relations and passions to which the sellers would like to give more time. Hopefully, for the sellers and for the transaction, they have many of these.

Health

It is better to sell your company while you have the time and capacity to enjoy it.

Wealth diversification

This is a frequent aspiration for sellers we transact with. It is common that a seller’s largest asset is his ownership stake in the company, most often created over a long time period. It may make sense for those sellers to take some chips off the table, even if their company is poised for ongoing success. One of my wisest friends, who is a manager of significant wealth, once said, “All of my rich friends sold early.”

Partnering

A very common aspiration for sellers we transact with, and one we greatly appreciate, is the desire to partner to facilitate growth and improvement. In these transactions, sellers accomplish partial realization, address other aspirations and continue to lead the company — but now with the added support of a new, interest-aligned partner.

Working capital

Another common feature of partnering structures is provision of working capital. These transactions typically are driven by growth, and meeting the sellers’ aspirations of adequate working capital is essential.       

Key employees

Sellers often aspire to reward and protect key employees. This can be accommodated in many ways.

If you are contemplating selling part or all of your business, these steps can help create a clear vision of your future and how to make that vision a reality with a successful transaction.

Dan Lubeck is founder and managing director of Solis Capital Partners (www.soliscapital.com), a private equity firm headquartered in Newport Beach, Calif. Solis focuses on disciplined investment in lower-middle-market companies. Lubeck was a transactional attorney, and has lectured at prominent universities and business schools around the world. Reach him at [email protected]

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