Recently, Jeff Gershman, Chairman of the Board, of Gershman Mortgage & Gershman Investment Corp., sold Gershman Commercial Real Estate, a brokerage and property management company. Through his law practice, he's had a lot of experience with buying and selling companies, including family businesses. But when it came to selling his own business, navigating the path forward was a unique challenge that required some help.
Gershman says the real estate management company was an important part of their business, he says, and was the first business that his father started. In tandem with that company, they acquired and developed a number of properties, and the real estate business was instrumental in the operation and management of those properties. After 70 years and when it was well into the second generation, some family members had migrated on to other things until the last family member in it had reached an age at which he didn't want to retire, but he didn't want to have the responsibility of running it anymore. That led to the decision to sell it.
"We debated a number of issues: Do we take it to the market? Do we do we talk to employees? We had a good group of employees and upper management who were running the company who had interest in buying it," he said during the St. Louis Smart Business Dealmakers Conference. "So, we decided to focus on discussions with our current employees. And the CEO at that time was the one who wound up buying it with several others."
Because the company's CEO was buying it, he knew the business very well, and all parties agreed to the initial steps to improve efficiencies and address lingering issues.
"It was just generally sort of a cleanup of certain things that are typically attendant to the way a lot of family businesses are operated," Gershman says. "But this was no longer going to be a family business. It was it was bought by the CEO. So, he wanted some things consolidated and some efficiencies put in place. And we recognized that, didn't disagree with that at all. And we both work together to do that."
Still, having an internal buyer didn't mean the entire process went smoothly.
"The problem with having an internal buyer is he knows where all the bodies are buried," he says. "So, there are things you might do in a negotiation with an arms-length buyer that you can't do with an internal buyer who knows your business really well. On the other hand, we thought things will go quickly because there's a lot of education that we don't need to do. And in fact, this deal took over a year and a half to do. And when I looked back on it, I realized that's because he knew the business so well. He recognized where the weaknesses were and where the strengths were, maybe even to a better extent than we did. So, it took a while to come to agreement on a number of issues such as value, terms of the deal, what's the down payment, what's the earnout, is there an earnout, what are the conditions under which the earnout would be fully achieved, that sort of stuff. So, our deal took a long time, much longer than I've seen most deals take in the sale of a family business."
While Gershman had deal experience, the family leaned on an outside adviser through the process. The value of that, he says, was when the family might have different ideas from each other or different perspectives — from whether to take the company to market or who gets the Cardinals tickets — there was an experienced, objective person to provide the common industry practice.
"That helped bring people together," he says. "It was important that we have consensus. We had a tie-breaking mechanism; nobody really wanted to use a tie breaking mechanism. We hoped that we could bring people together on key issues. We were able to do that on virtually every issue. It involved compromise here and there by one family member or another on different aspects of the deal."