Emotional Attachment
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One of the recurring themes that I encounter while doing divestiture transactions for privately owned companies Is the emotional attachment of the owning individual or family. In one case for example, the owner of a well-known restaurant franchises business was hoping to sell it for $X (in order to create some cash for loan restructuring for some malls he was building). However (and after having gone through an elaborate divestiture and DD process) he received an offer of 2X, double what he expected. This made him “feel” that perhaps there is more to his business than he had initially estimated, and decided not to sell, but instead to retain and grow the business. In your opinion, how can such emotional attachments be detected early on in the M&A process before expensing so much time and resources, and how can it be subverted?
This is really timely and relevant in a lot of privately owned, long-standing, family businesses and entities and a great question. I think this comes down to asking the right questions early on in DD and ensuring the intent and outcomes align. I feel that the emotional attachment is often tied to the personal identity, legacy and control that someone has had. A nostalgic component, that has to be as carefully change managed as any other aspect of the deal.
Perhaps asking questions that go beyond the dollars and sense of the deal and tie into the emotional aspect of the opportunity would help?
-What does this business mean to you personally?
-What do you hope life looks like after the sale?
-What would you do / are you looking forward to with the time, energy, or capital freed up by selling?These types of questions may help surface if the owner is truly ready to let go, or if they’re still emotionally tied to the business. I think it’s about reframing the decision as a way to create capacity and opportunity. By letting go, what doors open? That could mean more time for family, the ability to pursue new ventures, or simply the freedom to step back and enjoy what they’ve built aside from financial gain. Re-position it instead of “what am I giving up?” to “what am I gaining?” to help ease that fear.
One additional lever that could help in practice is a deal exit fee. Even with thoughtful questioning and alignment work of the kind Jenna set out, there will always be a small percentage of owners who have a change of heart late in the process. A well-structured exit fee (calibrated to due diligence and advisory costs rather than punitive levels) can help protect against wasted financial and time resources for the buyer, while also serving as a psychological token of commitment for the seller. Knowing there is a tangible cost to walking away once certain milestones are reached can prompt the owner to confront their emotional attachment earlier, rather than backing out only after the buyer has fully invested in the process.
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