Not every buyer has your company’s best interests at heart; some are private equity firms looking to strip assets or competitors wanting to shut you down. Learning how to vet a business buyer is a critical component of successful business exit planning. Read on to see why Pennsylvania business owners must evaluate an investor’s true intentions before signing a contract.
Back in 2004, Mervyns was a retail powerhouse with 18,000 people on the payroll.¹ It was a 55 year old institution that people actually liked. But everything changed when a group of investors bought the company. Just four years later, Mervyns was gone. Those 18,000 jobs vanished,² while the investors walked away with hundreds of millions of dollars. It is a story every business owner should read before they sign a sales contract.
The buyers in this case did not care about the clothes or the history. They saw the buildings. They split the company into two parts so that one side owned the real estate while the other ran the stores.3 Then, they raised the rent on the stores so high that the business could not keep up. They also took massive cash payments for themselves while the stores were drowning.4
By 2008, the company had to close its doors for good.5 Mervyns actually sued the people who bought it and called the whole deal a fraud.6 The buyers eventually paid $166 million to settle the case, but they still came out ahead in the end.7 The people who really lost were the workers and the towns that relied on those stores.
When you sell your business, you need to know who you are dealing with. Some buyers are competitors who just want your customers before they shut you down. Others are private equity firms that might look for ways to pull cash out fast so they can sell again in a few years.8 Then you have financial buyers who want a steady investment and management buyers who are your own employees. Your employees usually care the most, though they often have a harder time finding the money.
Before you shake hands with a buyer, ask them what their real plan is for your staff. Ask how long they plan to keep the company. Most importantly, ask to talk to the last person who sold a business to them.
My Invitation to You The Mervyns story is painful but it does not have to be your story. I offer a free Business Value Assessment. In one hour, we will look at your business through the eyes of a buyer. We can help you figure out what kind of buyer would be the right fit for what you have built. No pressure. Just an honest conversation.
Sources
¹ ABA Journal, “Mervyns Sues Its Ex-Owners Over ‘Fraudulent Transfer’ of Stores,” September 3, 2008. Available at: abajournal.com/news/article/mervyns_sues_its_ex_owners_over_fraudulent_transfer_of_stores/print/
² Ibid.
³ Ibid.
⁴ Ibid.
⁵ Ibid.
⁶ Ibid.
⁷ The New York Post, “Private equity firms settle Mervyns lawsuit,” 2012.
⁸ Small Business Administration, “Exit Planning with the Value Builder System™ Webinar,” February 2026. Available at: sba.gov/event/79756
