WHY Greed IS Good.

By John Herubin, Managing Director

When the fictional character Gordon Gekko uttered the memorable line “Greed is Good” in the 1987 movie “Wall Street”, he proceeded to illuminate several examples where his premise is apparent in the business world (worth a first or second watch). But those who have seen the movie know his comments were disingenuous and his intentions reflected “greed” as more closely aligned with one of the purported traditional Seven Deadly Sins.

After having been involved in the M&A world for over twenty-five years, I can confirm that greed certainly exists in many circumstances. Taking a closer look though, I’ve come to realize that greed, in some situations, might have a positive outcome if there are good intentions behind it. Let me share with you several examples:

• We represented a 100-year-old family business that was down to the last two active cousins. They received an unsolicited offer to sell the business for $13MM. They confided to their financial advisor that if they could bump it to $15MM, they would accept the offer. The financial advisor contacted EdgePoint for an informed market valuation for comparison. We believed the business would be attractive to multiple buyers at $25MM. We were hired to run a competitive sale process that ultimately yielded a value of more than $35MM.

At the closing dinner celebrating the consummated transaction, I asked one of the cousins if he was pleased with the outcome. He said that the business had been successful for many years and had provided him with a comfortable lifestyle that would not be meaningfully affected had the company sold for $13 or $35MM. What was meaningful though, was the ability for him to take the additional sale proceeds and endow a chair at a medical college that would study the rare neurological disease that afflicted one of his close family members.

• Another scenario involved our representation of a second-generation company that turned out to be even more attractive to the buyer market than we anticipated. A bidding war (we like those) ensued that resulted in 2X where we originally valued the company. When we realized that we were getting to the top of the market in value, we asked the owner for permission to make one last request of additional proceeds from the lead buyer. He agreed and we were able to procure additional value from the ultimate buyer.

After closing the deal, the owner asked that we refrain from publicizing the transaction. He wanted to personally announce the deal to his employees at a large gathering he was planning (many of his key employees and managers already knew). At this meeting the owner, dressed as Santa Claus, handed checks to his employees amounting to $5,000 for every year each employee had worked at the company. Truck drivers, mechanics, administrative staff, and salespeople, among others, who in many instances had been working for the company for over twenty years, were said to be weeping. This generous show of gratitude was going to enhance retirement savings, help put children and grandchildren through college, pay off mortgages, and satisfy medical bills.

• Lastly, we are aware of an owner who grew a very profitable business out of the trunk of his car over several decades. Due to a variety of circumstances, he and his family decided to sell the family business. Despite the business’s abundant success, the founder lived an admittedly frugal lifestyle. Several of his children were active in the business and attested to their dad’s notorious frugality (a characteristic of many who grew up during the Great Depression). Upon selling the business for more money than he ever imagined, he “retired” to a new career as a philanthropist. He never forgot his meager roots and instilled that same sense of gratitude and giving back to the community in his children. The founder died suddenly and instead of taking their inherited wealth and living an extravagant lifestyle, which the wealth would have easily afforded, the children decided to honor their parents by establishing a family foundation. This foundation not only will support the charitable causes important to the founder and his children but is also being used as a tool to educate and involve the third-generation beneficiaries as stewards of the legacy of caring and community investment established by their parents’ grandfather.

The prerogative of the capitalist and perception of many regarding successful business owners is that they will seek the maximum amount of proceeds possible from a sale to indulge in their own materialistic desires. I’m sure Gordon Gekko would have been proud had this happened.

Instead, these individuals demonstrated selfless caring for others. These situations illustrate how ordinary people can achieve extraordinarily impactful outcomes with a giving heart. These selfless acts of generosity and kindness are often done with little fanfare or recognition.

Using a skilled and experienced investment banker can be greatly beneficial for maximizing value to achieve whatever financial and post-sale goals you have, greedy or not.  It’s been incredibly gratifying for us to know that these acts do occur, and our privilege to have played a meaningful role in facilitating our clients’ intentions.

© Copyrighted by John Herubin, Managing Director, EdgePoint Capital, merger & acquisition advisors. John can be reached at 216-342-5865 or on the web at www.edgepoint.com.