By STS Capital
In a recent episode of Everyday MBA, host Kevin Craine spoke with Andy Harris, STS President of North American Strategies and Managing Director, about what truly drives (and destroys) value in a business sale and reveals the misalignment trap. With 30 years of experience as a CEO and advisor to private business owners, Andy shares a practical framework for achieving an Extraordinary Exit™.
Although many best practices were shared, one of the key topics of the conversation is a concept Andy refers to as the misalignment trap, a hidden but critical risk that can quietly undermine even the strongest companies during a sale process. From founder dependency to shareholder disagreement, he explains how misalignment erodes buyer confidence, reduces valuation, and often prevents deals from closing at all.
The discussion also explores how business owners can avoid this trap by preparing early, aligning stakeholders, and building businesses that can thrive independently of their founders.
Key insights from the conversation:
- The Hidden Value Destroyer: Misalignment appears in two main forms: founder dependency (where the business cannot operate without the owner) and stakeholder misalignment (where shareholders, partners, or leadership teams are not aligned on the purpose and goals of an exit).
- Eliminating Founder Risk to Unlock Buyer Confidence: Andy emphasizes that buyers heavily discount businesses that depend on a single individual. Building a strong leadership team, documented processes, and clear succession planning significantly reduces risk and increases valuation.
- Start With Exit Readiness: Businesses that are “exit-ready” tend to be more resilient, more valuable, and more attractive to strategic buyers, even if a sale is years away.
- Define Required vs Preferred Outcomes Early: Before engaging the market, founders should clearly define what must be achieved versus what would be ideal. This clarity ensures alignment across shareholders and helps guide decision-making during negotiations, reducing friction later in the process.
- Strategic vs Financial Buyers: Financial buyers typically pay based on market multiples, while strategic buyers may pay significantly more when they identify synergies that transform both businesses.
- Creating Competitive Tension to Drive Valuation: When multiple strategic buyers are engaged and competing, offers can rise significantly beyond initial expectations, sometimes by 30%, 50%, or even more.
- Looking Beyond the Headline Price: Structure matters: cash vs rollover equity, tax implications, working capital terms, and legal protections can dramatically change the real value a founder receives.
- The Right Advisors Are Essential: Andy stresses that experienced sell-side advisors, like STS Capital Partners, play an important role in managing complexity, maintaining alignment, and ensuring that founders achieve both financial and personal objectives during a sale process.
Ultimately, the conversation reinforces a central message: Extraordinary Exits™ are not accidental, they are engineered. And the first step is avoiding the misalignment trap that quietly destroys value long before a deal ever reaches the table.
Listen to the full podcast here.