With deal activity as high as it is, many of the business owners who have sold their companies recently now have a significant amount of money they'd like to put to work. However, David Sowerby, managing director and portfolio manager at Ancora, has some words of wisdom to those eager soon-to-be investors.
“Take your time,” Sowerby says. “You've had a significant liquidity event. Your net worth was very much concentrated in your own company that you ran. You had your hands on the steering wheel. It wasn't valued every day and now you need to take your time to think about what you're going to do with your the proceeds from your sale.”
Sowerby also notes that business owners’ post-exit popularity will intensify because there will be people eager to court the money earned from the sale. But rather than jump into the first investment scheme that sounds interesting, he says take the time to develop an investment policy statement, which lays out the framework or the game plan for an investment portfolio. It should answer simple but important questions, such as how much should be invested and where. There will also be other investment opportunities to consider.
“You probably are going to come across a number of individual private deals on your own, he says. “Perhaps carve-out five, maybe 10 percent of your portfolio for your own private deals that you will come across. That's always very interesting, but have that be very well-balanced with your traditional investments that are going to be the key to your own personal lifestyle and the legacy that you want to leave, perhaps to nonprofits given how much the proceeds are from your sale.”
Sowerby says business owners, after their exit, will likely be intimately involved in their investment portfolio, but, unlike with their businesses, they won't have their hands on the steering wheel to the same degree.
“Recognizing that you give up some of your autonomy versus when you ran the company yourself, is important because you'll be able to value your portfolio probably daily. Don't be surprised if the value of the portfolio, because we have good markets and bad markets, that your portfolio could go down 10, 15 percent if it's a diversified, balanced portfolio. It probably happened at some point in time with your own company, but you didn't give it as much day-to-day concern because you were controlling your outcome and you had a long-term perspective. Apply the same principle to your well-diversified public and private portfolio, particularly with common stocks, that the value can go up and down. It's hard. You can't control it entirely. But you can have enough control to put yourself in a good position. But that really takes quite a bit of learning experience.”
On the Smart Business Dealmakers Podcast, Sowerby offered his sense of the current M&A market, why Michigan’s deal activity is outpacing the broader U.S. market, and steps both new and seasoned investors should consider before making financial commitments. Hit play on the podcast to hear the full interview.