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AVOID THE EMOTIONAL DEAL BREAKER

By: John W. Albee, J.D.

What is an emotional deal breaker? It does not involve the purchase price, covenants or other traditional contract terms. However, it does impact many sale transactions. It occurs when an issue of emotional importance is not effectively managed and alters or stifles a transaction.

Often a business becomes one with its owner. The business often serves as a financial support system, as well as a platform for daily activities, social events and general human interaction. Over decades of operating a business, recreational time spent by owners becomes aligned with the business. This can occur while attending sporting events, employee/client parties and entertainment, trade conferences and seminars, etc.

We have witnessed many transactions that change significantly in scope and substance, some not closing at all, because of an emotional deal breaker.

Here’s a real life example of a recent transaction that did not close where we represented a seller.

In short, the transaction did not close because the seller would not agree to pass along the company-owned luxury skybox sports tickets to the new ownership group. To the seller, these tickets represented the community of sports fans, memories with friends and family, and even the familiar “angles” of watching the sporting events that were woven into the seller’s lifestyle. Those experiences were not for sale.
To the buyers, it was a frightening sign that the seller was not fully transferring the business. The buyers also saw the close connection between the economic and emotional aspect of a business as something that needed to be transferred in order to succeed.

It is important for a counselor to advise a seller on the emotional aspects of a transaction, identify solutions and help implement changes prior to bringing a business to market.

We counsel sellers to allow us to perform a pre-sale diagnostic report of common economic and emotional issues that arise during the sale process. We then advise them as to how to minimize the impact of emotional elements of a business transaction and how to protect what is important to them.

The emotional deal breaker is almost always avoidable with proper advanced planning.

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