75 is the new 70.
The basic tenants of this blog post from 2012 remain - is the owner a sincere seller?
But, as the baby boomers age, and perhaps as I age also, the rule has moved from 70 to 75 years old. This was confirmed on a recent call with an 83-year old business owner. The business owner told me he was only speaking with me because he recognizes that, as some point, he won't be able to work any more: "Please call back next year - maybe I will be sick then."
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Over the years, Hadley Capital has developed an age-based rule to help us screen potential deals: if the owner/operator of a small company is less than 45 years old or more than 70 years old, the seller is not sincerely interested in selling at a market valuation.
Owner-Operator: this rule only applies to an owner who works at their company; it does not apply to absentee owners.
Age: Younger owners (less than 45 yoa) are only interested in selling if they get a "huge" price for their company. Otherwise, they prefer to continue running and owning their company.
Older owners (70+ yoa) are often so passionate about their business that they can't see themselves retiring in order to play more golf, spend more time with their grandchildren, etc. Their personal identity is so closely tied to their company that is difficult to separate the two.
Market Valuation: Both younger and older owners will sell if the price is way more than the business is worth – both on a market basis and what the owner thinks it's worth. Few buyers, including Hadley Capital, are in the business of over-paying for companies.
Like any rule, there are exceptions and we have seen a few over the years, generally related to severe health issues. The owner-operator is diagnosed with disease X and needs to get his ducks in a row. Of course, this is never an ideal time to sell a business.
If you are an owner-operator who is less than 45 years old or more than 70 we would still like to speak with you, but please be prepared to convince us that you are a sincere seller.
