From the Desk of Tom West: SEC Suit

The letter to members of the M&A Source from Len Krick (see previous blog entry) should be read by all business brokers. We don’t know how far this will go and more importantly, what the ramifications will be. The unfortunate part of this is that Len is one of the good guys. He is a leader in the profession, always willing to share, works hard, has been very successful, does nothing wrong,…and look what happens.

If this case didn’t have so much importance in the workings of our business, we could say, “Well, these things happen.” Of course, in this case, Len had nothing to do with what happened over the past five years. The deal closed that long ago. But, because of the asset sale changing to a stock sale, Len is in the middle. He had no decision in the change and informed all of the parties of the situation and his concern. They went ahead and paid him, and now, due apparently to the poor decision-making of the new owner (the buyer’s son-in-law), the seller, Len, and Len’s firm have been sued.

Hopefully this case will die a quick death and court will see what actually happened and dismiss it. But, as Len points out, if it goes further, we may all pay the price. As he also points out, this could impact even the main street practitioner. The local Subway shop may be an S-Corp or even a C-Corp. Business brokers, despite what some think, do not have to be, and should not have to be, SEC licensed. Also, as Len points out, once the lawyers and accountants get involved, they may decide, and properly so, that the asset sale should be a sale of stock for tax or other reasons. I hope that Len wins big time and that the “no action” letter is completely endorsed by the powers that be.

The Supreme Court started all this by deciding that a stock was a stock rather than a business was a business. To believe that stockbrokers should handle the sale of the local Subway because it is a corporation is ridiculous.

My hope would be that if this litigation continues, all business brokers would rally behind Len. I will keep everyone posted on this most important matter.

On the plus side, business seems to picking up – slowly but surely, as the saying goes. It has been a rough winter here in New England, the Northeast and the Midwest. Even the South and the West Coast have serious weather issues. We all know that spring is around the corner. Now is the time to close down the computer, get in your car and drive all around town and look at all of the businesses waiting to be sold. Mail, call, telephone – I don’t care how you do it — contact the owners. If you can’t break away from the computer you will have to hire someone to do it for you. When I see that low number of listings, on average; that each business broker has in his or her inventory, I want to smash all of the machines.

If the owner of a business has a reasonable reason for selling, understands that the marketplace determines the price (even if he doesn’t want to accept it), list it – you can always give it back. None of us are smart enough to know what sells; what the owner might accept for his or her business; or what a buyer might be willing to pay for the business of his or her dreams. Yes, the numbers are important, but pride of ownership is just as important. The old cliché that the business sells when the tire hits the curb is as true today as it was 20 years ago. Today’s broker is just not willing to believe that. Instead of going over the numbers with a buyer, why not put him or her in your car and show them a business or two – or maybe even three.