Taking Back Your Business

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In late 2003, Judith M. von Seldeneck walked into her boss’s office with a bold proposition: sell me back my old firm for a lot less than you paid for it five years ago, she told him, and I’ll be on my way.

Her boss agreed to the proposal.

The economy had just gone through a rough patch, and AccuStaff, the company that had acquired her firm, Diversified Search, was struggling, she said. A few months after that discussion, she was again the sole owner of Diversified Search, the executive recruiting firm she started in 1974 and runs today. While she declined to discuss prices, Ms. von Seldeneck said she bought her firm back for less than half of what AccuStaff, then a large staffing firm that is now part of Adecco, had paid her for it.

“We bought it in the spring of 2004 just as the economy was about to get really good,” she said. “We realized how great it was to be free.”

Ms. von Seldeneck was far from alone in wanting to buy back her firm. Entrepreneurs who have seen the companies they founded, built and sold hurt by some combination of bad management and a bad economy often get the urge to take back control.

This is one of those times. There has been an increased interest in entrepreneurs buying back their companies over the last three years — just as there was during past downturns. The reasons usually seem straightforward: the companies are worth less now, other investments for the money you made offer little return, and for many people the desire to be back running a company — “being relevant” as one adviser put it — is stronger than ever.

“You don’t tend to see as many management buyouts when the market is growing and the business is booming,” said Bruce Cameron, president and chief executive of Berkshire Capital, a boutique mergers and acquisitions firm. “You do see them in times when firms have made acquisitions and they’re trying to retrench.”

Ms. von Seldeneck said AccuStaff had been on an acquisition spree in the five years after it bought Diversified Search, but her firm was an obvious candidate to be spun off. It was the only retained search firm — meaning it worked on behalf of a company, not a prospective employee, to fill a job — and that mismatch, she felt, gave her the opportunity get out cheaply. Her timing was great, and the firm has now been profitable for 37 years.

But price is only one of the reasons entrepreneurs are lured back to buying their old firms. And focusing just on the value of the deal carries plenty of risks.

Stephen G. Salley, the head of the family business center at GenSpring Family Offices, a wealth management firm, said founders should think more deeply before giving it another go. The reasons are that they tend to romanticize what it was like to run their company — forgetting all the late nights and stress of personally securing loans — and feel that in bad economic times they need to swoop in and save what they built. He said his goal was to dissuade clients from pursuing a buyback.

“If you were looking at it rationally, you’d say it doesn’t matter that this was my business,” Mr. Salley said. “The question is, Is this where I’d put $40 million today and what could I do with the same dollar amount elsewhere? Repurchasing the family business is as much an emotional decision as it is an economic one.”

Over the last few years, Mr. Salley said, he has had many clients come to him to discuss offers to buy back their former businesses, and he is proud that so far he has persuaded every one not to do it.

“Your family sold for a reason and very seldom was it just for the money,” he said he tells them. “You made the decision to get out and now you’re essentially saying you want to remarry an ex-wife 10 years after the fact.”

In most cases, business owners are not like Ms. von Seldeneck, who remained working at her firm. They sold and left, and the company a former owner wants to buy back, even if it carries his name, is fundamentally different.