The 45/70 Rule in Small Company M&A - Revised and UpdatedBy Scott Dickes
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."
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.
Scott Dickes - General Partner
Scott founded Hadley Capital in 1998 with the objective of bringing a professional investment strategy to the small company market. Scott has spent the better part of two decades financing and growing small companies. It’s in his blood … he grew up visiting small companies on family vacations with his dad who was also a small company investor.
Scott works with Gillinder Glass, S&S, Custom Label, Harris Seeds, ISS, and W.C. Rouse, and was previously the chairman of the board of Packaging Specialists, JRI Industries and Kelatron, all former Hadley Capital companies.
He enjoys traveling with his family, flying (instrument rated pilot), rock climbing, golf, paddle tennis, and water skiing. Scott recently took up beekeeping as a hobby.
Scott is a Trustee of the Hadley School for the Blind (no affiliation). He holds a BA from Duke University and received his MBA from the Kellogg School of Management at Northwestern University. Scott and his wife have two teenage children.