Western Reserve Partners’ David D. Dunstan
Find the best pathway to maximize the value of your business
David D. Dunstan has been involved in some high-profile M&A transactions over the years. In 2003, he helped OfficeMax founder Michael Feuer sell the company for $1.5 billion. He also worked with the Cleveland Indians on the ball club‘s late-1990s IPO. Dunstan says he very much enjoyed working on those deals, but they don’t get to the heart of what he loves about dealmaking.
“I enjoy the environment, the opportunity to help companies at that critical juncture make decisions that influence that company, their families and their shareholders for generations,” says Dunstan, president and managing director at Western Reserve Partners. “I’ve enjoyed that dynamic my entire career.”
Business owners often struggle knowing when it’s the right time to sell their business. Dunstan focuses on building relationships that enable both he and his client to understand the best steps to take to maximize the value of their business.
In this edition of Dealmakers Live, we spoke to Dunstan about how to find the right time to sell your business, the key questions you need to ask and how to ensure the deal meets your expectations once its closes. What follows is a transcript of the above video, edited for readability.
Making the decision to sell
The most challenging aspect of a merger or acquisition transaction for a business owner is making that first decision to sell the business. Business owners are often known by their company. They often started it or certainly run it. The connection to it is significant. It’s almost like a family member. That type of connection makes it very difficult, if it’s multi-generational, whatever the circumstances might be, it makes it very difficult to make that decision to pursue the sale of a business.
Honestly, as my career has evolved over time, my time and attention is really spent on developing relationships with those companies, helping them through that process, giving them comfort with regard to how the process will play out. What should the valuation look like? The types of alternatives they have. Educating them so when they make the decision, they are fully informed, have all the information they need to make the best decision for them and then execute it at the right time. If it’s not now, it might be a year, three, five or 10 years from now. But it’s easier to make that decision when you’re fully informed as to what your options are and have someone you trust giving you that advice.
When is the right time?
We find when working with clients that they struggle often with when to go to market. Part of it is, well, I’m growing, my business is growing. It’s always going to be worth more next year or next quarter. I’m going to land a new customer next quarter. Maybe I should wait. There is often some truth to that. As companies grow, they become worth more money, ideally. But there is also risk to that and maybe the growth doesn’t come as planned. Maybe there is a competitive threat that wasn’t known.
Maybe there is an external factor that changes their business or their market that negatively impacts value. We often sit down with our clients, talk about their options, what their options are and talk about the timing. We want to determine when would be the ideal time for the company and if that lines up well, also, with a robust M&A market, all the better. But it is very important to work with that client and get them comfortable with the sale process, get them prepared for it and then execute it on the right timeline. If that means waiting a quarter or two, that’s understandable.
But if that client is saying every quarter, I think I need to wait, I think I need to wait, there might be something in their psyche that is holding them back. You have to be there to help them. What is holding them back? If it’s a good reason, great. But if it’s not, encourage them to pursue that opportunity, take advantage of a really strong M&A market, take advantage of a well-performing company and capture that value. It’s a fine line, but we try to help our clients understand those dynamics and make the best decision for them.
Be clear about what really matters
It’s very important in an M&A process to have a discussion right upfront about the critical components of the transaction to that client. It could be around valuation, it could be around brand, it could be around retaining certain people, certain facilities. It could be a variety of things that are uniquely important to that client that are deal-breakers. In this environment, we can extract those things, we can make those things happen.
Buyers are aggressive and they want to cater to that seller’s needs. So having that conversation upfront is very important. Understanding really what’s critical to our client and making sure the buyer understands that and is willing to agree to those conditions and those terms upfront while we still have a competitive process, is an important component.
Also understanding with our client where there is a gray area. Where is there some flexibility? Where can we negotiate around the edges and maybe give here or there to accomplish something more important to the client? That is important. It’s all part of that M&A process, the preparation phase as well as the negotiation phase with the buyer and knowing where you can draw a hard line and where you have flexibility. That communication, it’s really critical to have that relationship with your client and that open communication in order to get the best outcome.