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Thursday, May 17, 2012
Department: February 2008
Business for Sale
When planning an exit strategy means planning your life
Story by Sharon Frederick
It was 1968 when Jann and Mervin Bytheway met Buzz Oates in his new 40,000-square-foot building on Redding Avenue in Sacramento. The couple was launching a new wholesale business, fabricating custom window coverings such as the newly popular woven-wood blinds.
“That was a pivotal moment,” Jann says. “When I looked out at the space, I knew something big was happening. I knew my life was about to change.” It was the first of several decisions that transformed the small downtown window-shade shop, owned by Merv’s father, to the nearly $60 million business Jann would sell to Hunter Douglas in 2005. Bytheways Manufacturing had become the largest wholesaler of custom window coverings in Northern California.
At each major decision, the Bytheways chose change — from one new product challenge to the next and from a six-person family business to a 325-employee company. The transitions weren’t always easy, but the couple recognized, says Jann, that change was healthy and necessary if they were going to keep up with a rapidly changing consumer market.
As a result, the Bytheways were also willing to look at what could be the most difficult transition for any entrepreneur: leaving the business. Five years before the couple sold Bytheways Manufacturing, Jann and Merv started planning to retire and sell the business. Sadly, Merv became critically ill and died before those dreams could become a reality.
But, Jann followed through on their plans to prepare the business for sale. She acted as the president and general manager for the last three-and-a-half years as part of the sales agreement. She learned valuable lessons as a business owner and ticks them off on her fingers.
“First of all, get yourself ready years before you want to leave. If you don’t have your organization running like clockwork, you might need to re-evaluate when to sell. You’ve got to make it so that anybody who walks in can easily understand and fit into your company.”
Getting ready means doing a self-audit of the operation, identifying problems and developing solutions, says Bill Schlinkert, a corporate attorney and partner in San Francisco-based Farella Braun + Martel LLP, who worked with Jann on the sale of her business. “You get the maximum bang for the buck if you aggressively manage your business to be in an optimal position when you sell.”
In the case of the Bytheways, Jann and Merv had already done many of the right things. They had built a clear organization and a solid management team with key managers operating independently. “I’d tell our managers where I wanted to be at the end of the year, allow them to do it in their own ways, within the overall values of the company, and then hold them accountable,” Jann says. They also had good systems in place: a five-year plan, an excellent reputation for customer service and a record of profitability — all factors important to a prospective buyer.
The next step, Schlinkert says, is to assemble the team that can help you find and negotiate with a prospective buyer: often an accountant, attorney and investment banker. The Bytheways already had a trusted accountant, so she went looking for an attorney, like Schlinkert, who had experience in acquisitions.
Hunter Douglas, a market leader in window coverings, was a logical buyer, since the Bytheways had been fabricating its products since 1980. But the clincher for Jann was the fit in overall business philosophy and values. Jann wanted a buyer that would continue the business and provide stability for employees, who she says “had given it to us all these years.” The Hunter Douglas worldwide organization is built around a loose federation of small- to medium-sized companies, which gives local managers a great deal of autonomy.
She also wanted a company whose management she trusted and admired. “I have huge respect for both the worldwide and North American management teams of Hunter Douglas,” Jann says. “I was looking for integrity in a buyer, and if there had been any red flags about integrity, I would have rejected them.”
This is very different from the other common type of buyer, what Schlinkert calls “a consolidator, a financial buyer looking for an income stream and good will, but not a staff.” Understanding a potential buyer’s business model, motivation and how these match your priorities are essential steps in the selling process.
Also, develop a realistic expectation of what you can achieve. “You need to have a rough sense of your company’s value to a buyer,” Schlinkert says. “You can’t put up too many roadblocks, in terms of too high a price, or conditions and limitations that will turn off buyers.”
Despite the close fit between Bytheways and Hunter Douglas, the negotiation process was neither simple nor quick. Schlinkert describes it as a “slow dance” that took a couple of years. This is not unusual, he says, advising sellers to prepare for the long haul. “Sales can take years to complete, and they do fall through. The important thing for the owner is not to lose sight of business operations while working on a sale. You need to pay attention to your business, you need to pay attention to business cycles, and make sure you trigger a sale during the upside of a business cycle.”
Finally, adds Jann, an owner has to retain ultimate responsibility for the process of selling his or her business. “I have never taken the word of an attorney or accountant and just done what they suggested. They are there to advise. An owner has to add their own good judgment and make the ultimate decisions.”
