Selling Your Business? Beware, the Grass May Look Greener Over the Hill

By Roy Russell, Founder and CEO, Ascertus Limited

The motivation for entrepreneurs to sell their businesses can be many. Mine was to grow my already successful, 12 year old document management solutions firm by being a part of a larger corporation. The notion of leveraging the support of the parent company to improve the offering and catapult the prospects – not simply of the business, but also of the staff – was appealing. At the time, the sale had all the makings of a “dream deal” – my offering complemented the business of the parent company, the buyer was committed to the acquisition, my plan for the business was approved, and I had assurance that my staff would be retained.

However, the lustre of being acquired for bigger and better achievements soon dulled. I realised that although I was retained to manage the new business unit, this did not come close to satiating my ‘entrepreneurial’ appetite. Two years later, I bought my company back, re-registered the name and transferred the staff back, under Transfer of Undertakings (Protection of Employment) (TUPE) regulations. Today, we are a growing business in the legal sector offering tailored information and document lifecycle management solutions to legal departments and law firms.

Often unspoken, there can be drawbacks to selling your business:

• Title, but no authority – Of course, I was heading the legal technology solutions business, post the acquisition. I was responsible for meeting revenue targets, driving sales, supporting overall growth objectives of the parent company and so on. But I quickly found that my authority was significantly curtailed compared to when I was CEO of an independent business. For instance, I did not have the freedom to hire new personnel to support sales and marketing initiatives. There was a long drawn budgetary and approval process to negotiate – despite that we had business opportunities waiting in the wings.

A business requires agility, it’s important to be able to make decisions quickly to take advantage of new opportunities that present themselves unexpectedly.

• Acquisition drivers of the acquiring organisation can change – Most acquisitions have a strategic purpose, but that can very quickly change. In my case, the business was acquired because the parent company had plans to increase its presence in Europe. Leveraging our contacts, capabilities and client base would provide the company a foot in the door to offer other solutions to the legal sector in the region. It was a sound strategy.

However, due to a change in top management at the parent company within months of acquiring Ascertus, it was deemed by the new bosses that information and document management wasn’t necessarily an area that they particularly wanted to pursue after all. The company decided to concentrate on its core business in the US.

The point here is that a business can be devalued in a flash – not because it doesn’t have potential, but because corporate objectives change. Today, we are thriving – we have customers of the calibre of John Lewis, Nissan Europe, BBC Worldwide and many other well-recognised brands.

• Legal due diligence is a killer – Due diligence by an acquiring company is not only exhaustive; it can be a daunting process too. The amount of legal paperwork we went through – given the size of business – was astonishing. I’m not belittling the value of the exercise. For the parent company, it’s about reducing risk – but it needs to be proportionate to the value of the acquisition.

In hind sight, I recollect being wary of the extent of the scale of legal paperwork, considering the size of my business and the ensuing legal costs. To dutifully meet the legal requirements, it meant reduced attention on the business, simply because there weren’t enough hours in the day to do justice to both.

• Lack of financial visibility and transparency – In a privately owned business, one may not have full control over income, but one does have a complete handle on expenses. So you can resort to financial measures to ensure that the books balance at all times. As a division of a larger organisation, financial visibility is lacking. For example, it wasn’t possible to know what proportion of costs related to administrative staff, IT infrastructure and office space was being accrued to my business. This in turn impacted bottom line. Costs are not necessarily equitably spread across all the business divisions.

This lack of transparency frustrated me. As an entrepreneur, I prefer to have my finger on the pulse of the business – and know everything, warts and all!

• Employee welfare – When one founds a business, there is a personal connection with the employees, they don’t merely constitute head count. Consequently, there is a sense of loyalty and feeling of responsibility for their well-being. Being part of a larger organisation, it was disturbing that people who had been working in my business for many years, had extensive experience of the field and were in fact important to maintaining existing customer accounts were often moved across the organisation to balance head count. This was counterproductive to the business.

Clearly, I speak from my own experience, and hind sight is always 20:20. Perhaps my biggest predicament being part of a ‘corporate’ was that it greatly dampened my ‘entrepreneurial’ spirit. However, it was a great learning curve – and as a business we’ve come out stronger and better.  We have the market opportunity, a solid customer base, great people in the company and a drive and passion for what we do – in my book, all the ingredients for success!