My biggest business mistake – nearly
It was 3am on a long night. Deal closure, final last minute crossing t’s and dotting i’s. The business that I and my merry team of dedicated, hard-working, highly talented men and women had spent the last 12 years building, was about to be sold.
February 2000, the peak of the IT dotcom bubble. IT stocks were on a relentless drive up, and we were being purchased by a Nasdaq-quoted software business in a part-cash part-paper deal.
The purchaser’s share price was set for the deal at $64, but over the last few days has dropped a little to around $61. Was there a revised last minute deal to be done for 100% cash?
Yes, but naturally at a reduced total value (about 20% less if I remember correctly). We had an hour to discuss and decide.
It’s difficult to make key decisions at 4am but we listened to our advisors, weighed up the pros and cons, decided the small drop in share price was no more than a blip (and unlikely to drop by more than 20% at most), and went for the cash and paper option.
THE BUBBLE BURSTS
Two months later and we had the first chance to cash in some shares. The delay was the time taken to transfer the shares and a ‘closed period’ – we were designated as having insider knowledge (even though we didn’t) and couldn’t trade. And now the share price had dropped to $50…
Of course, the dotcom bubble had burst, and the share price continued its decline over the next six months. It bottomed out at around $16, a mere 25% of the nominal price we’d supposedly been paid for the business.
The story does however have a happy ending. The share price did subsequently increase. Our acquirer was bought by another, and a year or so later the value was back to where we’d started. But that was lucky.
WHAT DID I DO WRONG?
- I had concluded that the better price would be achieved via the cash and paper deal.
- I didn’t push as hard as I could have post-acquisition to get the shares transferred more quickly.
WHAT LESSONS DID I LEARN?
- A bird in the hand is worth two in the bush. Cash is bankable, and having all your wealth tied up in one stock over which you have no control is high risk.
- Try not to put yourself into a situation where you have to make a critical decsion at 4am. We could have predicted this issue and thought it through beforehand.
- Listen to your advisors but rely on your own judgement – particularly if their goals are not 100% aligned with yours.
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