University of Northern Iowa



Are You Being Your Own Worst Enemy?

Posted on Monday, December 3rd, 2018

Many business owners believe that they want to sell their businesses to a third party when they
first start considering their business exits. Owners who want to start planning for a third-party
sale sometimes fear that tight-fisted buyers will be the primary enemy in the way of a successful
business exit. However, experience shows that it is business owners who are their own worst
enemy when pursuing third-party sales, because they succumb to two common Deal Killers.
Briefly, a Deal Killer is a negative aspect of the business or its owner that can kill a deal with a
third party if it isn’t resolved before the buyer learns about it. There are several Deal Killers, but
two common ones are:
1. An unwillingness to recruit the best possible players for the Deal Team.
2. Failure to preserve the company’s most valuable asset: key employees.
Consider the story of Maxwell deHaan, a business owner who became his own worst enemy
during the third-party sale process.
Maxwell deHaan was in the middle of exiting his business, deHaan Custom Tempering. His sons
Hogan (the company’s CPA and unofficial HR representative) and Dylan (a deal attorney), and
daughter Hildegard (a business consultant) worked diligently to position Maxwell to sell his
business within the next 12 months. They had taken pains to keep Maxwell as far away from
negotiations as possible, due to his short temper and refusal to agree to concessions. They were
in contact with a buyer willing to pay $16 million for the business, double what Maxwell needed
for financial independence, provided deHaan Custom Tempering successfully passed the buyer’s
strict due diligence protocol.
Hildegard and Dylan both agreed that for their father’s company to pass the protocol, they
would need to recruit additional advisors to address key business issues. When they approached
their father about this, he was livid.
“I spent all this money to get you all these degrees, and now you’re telling me you need more
help? Absolutely not. I’m not spending any more money on this. Get it done.”
As Hildegard and Dylan struggled to determine how they could get the company to pass the
buyer’s due diligence scrutiny, Maxwell ordered Hogan to inform company employees that he
would be leaving the business within the year and that the best performer would receive “5% of
the final sale price.” Hogan, who always strived to appease his father, carried out his duty.
Nearing the end of the buyer’s due diligence team’s review, Maxwell summoned Dylan and
Hildegard for their final report. Hildegard explained that they had managed to get the company
“as close to compliant as possible” with the buyer’s expectations given their limited deal
experience and resources. Dylan said that he would do his best to get the most money for the
business as possible.

As Maxwell berated Hildegard and Dylan, Hogan entered his office. He told Maxwell that
Jeffrey, who was the company’s top salesperson by far, had resigned. In his resignation letter,
Jeffrey said that Maxwell’s disregard for his years of hard work by offering a share of the final
sale price to “just anyone” was the final straw and that he was leaving the industry to pursue
opportunities that valued his work.
“Fine, one less paycheck to write,” Maxwell said in response. “It’s not my fault he’s having a
bad quarter right when I’m ready to leave.”
“Dad, this is a huge problem. The buyer thinks that Jeffrey is staying on with the company. Him
leaving is going to hurt this deal,” Dylan pleaded.
“I’m paying you to figure it out. So, figure it out.” Maxwell yelled.
The due diligence review team came and went, with deHaan Custom Tempering failing in
several crucial areas. Combined with Jeffrey’s departure, the best deal Dylan could negotiate
was for $7 million, provided Maxwell stayed with the business for five years to give the buyer
time to fill in the gaps Maxwell refused to address.
Maxwell demanded that his children decline the deal and take the business off the market, telling
them that he would fix the mess they created. But without his key employee, deHaan Custom
Tempering began to hemorrhage money. Maxwell never found a capable replacement for Jeffrey,
and his children—who grew weary of their father refusing their professional advice—left the
company one by one. Maxwell ended up liquidating the company for $2.5 million five years later.
A cavalier attitude toward Deal Killers is a common mistake business owners make. If you’d like
to discuss appropriate ways to avoid becoming your own worst enemy in the third-party sale
process, please contact us today.