Avoiding Scams on your Company
May 10, 2013 at 10:57 AM
Few things rankle me more than people who give my industry a bad name. Whether through sloth, incompetence or bad intent these characters dupe business owners out of their time and money and taint the M&A industry.
An especially odious example is the out-of-town “expert” who charges upfront fees of $30,000 to $70,000 in return for a business valuation and a lot of (to-be-broken) promises.
Here is how the scam plays out: The business owner receives an attractive, high-end 4-color brochure announcing a “limited time” presentation of a team of experienced M&A professionals who will sell their business. Pictures of attractive retirement age couples strolling into the sunset help emphasize the ease of getting from here to there.
The presentation takes place at a hotel near the airport because the presenters are always from somewhere else – the most common states being New York, Texas, Florida, California and North Carolina. A group of five to twenty business owners makes the visit worthwhile.
The presentation begins. A highly impressive, seasoned and eloquent presenter takes the stage. He is impeccably dressed in a suit and tie, has gray hair and a pleasing demeanor. His past business dealings include a stint at a Fortune 50 like Exxon, GE or IBM. This speaker’s job is to mesmerize and bond.
He (always a he) mesmerizes with his firm’s ability to find business buyers from overseas; Europe and Asia are the most common. These foreign buyers use their boatloads of overvalued currency and strong desire to gain a foothold in the USA to overpay. The trick is to know how and where to find these buyers – and since the firm has the network, everyone wins!
The presenter bonds with the audience through his self-assured tone, the firm’s extensive transaction experience and an empathetic desire to help the business owners in the audience who want to sell (then stroll off into the sunset) but aren’t sure where to start.
The presentation concludes with a highly-charged and emotional appeal to the owners to take that bold step forward and begin the process of moving forward.
One can feel the adrenaline.
Exit the suit, enter the hard closers.
The mood changes rapidly.
The hard closers are one-on-one and, if need be, in your face. They push, cajole, laugh, demand, question- the objective is for the business owner to take that bold step forward and COMMIT.
Commit to a business valuation and potential engagement to sell. It requires a check - $30,000, $50,000 – up to $70,000.
Most owners walk away but for those who don’t it is bad, bad, bad.
The valuations I’ve seen from these out-of-state firms are mediocre as to content and conclusions. A better valuation could have been provided by a local firm for a fraction of the cost, or from an investment bank like Sunbelt for even free. If the business owners signs up for an engagement to sell then they are contractually locked-in for 1-2 years, find that Mr. Personality is replaced by a second-rate person, and – as luck would have it - all the foreign buyers just don’t seem to be interested.
The best upfront action is for the business owner to throw the brochure in the garbage and let the scammers seek their fortune elsewhere.
There is nothing wrong with wanting to sell for maximum price then stroll off into the sunset. For those Minnesota- and Wisconsin-based owners with revenue between $5-$50 million, their best bet to confidentially maximize their net after-tax cash from sale is to use a local investment bank.
Written by Dan Mulvaney (Sunbelt Business Advisor)