The Buy-Sell process is not easy, my friends, but it’s not impossible to do! The key to success includes plenty of preparation and planning. In my years of experience as a rep, and in speaking on this topic and consulting to many rep firm buyers and sellers, I estimate that only about 50% have been successful. And the 50% that were successful usually experienced some glitches or underwent major changes during the buyout period.

What makes a successful Buy-Sell? A plan with good detail and clear expectations helps; always ask “what if,” and have solid contingency steps in place. The best plans start years in advance of the actual transition phase. As an owner of a rep firm, you should always maintain a succession/transition plan, even if you just recently took ownership of the company! Be vigilant in your planning — things will work out much better this way than if you were to suddenly say, “Hey, I’m thinking of retiring this year… now what?!”

My advice is to always start with the needs of the Seller. Next, look at what ‘type’ of Buy-Sell you have. There are two basic types of a rep firm buy-sell. One is an internal purchase where employees buy out the owner of the firm. The other is an external purchase where someone outside the company (typically another rep company) purchases the rep firm. Both can be tricky.

There are three parts of a typical Buy-Sell. The following example is called, “It is what it is.”

Valuation. This is usually the tough part and should be done first. It is the key point in which trust is established (or not!). In my opinion, there is no such thing as a ‘firm fixed’ deal with an established fixed price for the rep firm. With the volatility in the rep business these days, a firm fixed price just does not make sense, unless it is a quick sale, and the value is some fraction of one times annual commissions. I think that the ‘target’ price actually is one times annual commissions, unless there is some large asset or large liability involved. For our example, let’s say your firm has an annual commission revenue of $1,000,000. The ‘target’ value is just that, if nothing changes over the buyout time (how likely is that?).

Structure of the Deal. With the no firm fixed deal concept, the seller (owner) is paid 20% of the total annual commission per year, over 5 years. Or 10% over 10 years, or 14.29% over 7 years, or basically, whatever the buyer(s) can handle with respect to rep firm cash flow. Using the example of $1Mil and 5 years, the seller would get $200,000 (20%) per year for each year of the deal. That is, if nothing changes and the commission income remains at $1Mil for each of the five years. Not likely. In this, ‘no guarantee’ method, the buyers are only responsible for the percentage, and if income goes up or down, they still pay 20%, not a firm fixed monthly income. Successful buyer(s) should increase the business, and the seller would then receive MORE than the anticipated $1Mil over the five years. You may consider a cap to this, but that would also require the consideration of a minimum (floor) which IS guaranteed. There are several ways to structure these payments, not just a true stock purchase. With this method, the seller is paid exactly like a rep firm is paid commissions: by performance of the company.

Making it Work. Prepare for lots of time, and you will need to advise all of your manufacturers of the plan, and go to most of their offices/factories to explain the plan in detail, and emphasize why it is good for them. Your customers, distributors and dealers will be less concerned and less involved, and they will ask “will our parts still ship on time?” and “will our price still be the same?” None the less, you should (proudly) tell them about the transition and plans for the future and how the rep firm service level will remain the same (or get better) for them. Do not discount nor neglect the internal impacts — your TEAM. Be certain to over communicate with all of your employees about the plan, the transition, and how it will (positively) impact them and their jobs. Explain in detail the challenges they will face and expectations you have. This is vital to a successful transition.

Sellers: You must have ultimate trust in your buyers. You must ‘let go’ and not only transition the business, but also transition the extremely, successfully close relationships you have with the principals and customers. Let go, and get out of the way — let them (the buyers) call the shots.

Also, get professional help — and I don’t mean Dr. Phil or Jerry Springer. You should consult with your accountant, a good rep attorney, and perhaps even a tax attorney. MANA can help too, and we also have a list of 24 attorneys that are very experienced in this field.

Buying-Selling a rep firm can work. Remember to have a detailed plan (in advance), clear expectations, high levels of trust, and good contingency steps — and you will win. Good luck!