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When starting a firm, think how you want to finish

Maria Zilberman//Daily Record Business Writer//August 2, 2012

When starting a firm, think how you want to finish

By Maria Zilberman

//Daily Record Business Writer

//August 2, 2012

After 30 years at the helm of Survice Engineering Co., James P. Foulk had to decide: What would happen to the business he’d built?

James B. Foulk (left), President and CEO of Chesapeake Testing, with his son Jeffery W. Foulk, President of SURVICE Engineering Company

“It’s easier to start the company than to get out of it,” said Foulk, who founded the Belcamp-based defense company in 1981, at the age of 47.

In 2011, he completed the transfer of ownership of the nearly 400-person business to his son, Jeffrey W. Foulk, but the decision to keep the business in the family was neither quick nor easy. Foulk and his wife, Nancy Foulk, spent nearly 10 years weighing options such as an employee stock ownership plan, merging or being acquired, or liquidating the company.

It’s a decision small business owners inevitably find themselves working through.

“The first thing any company ought to do is take a step back and develop a strategic plan for selling their business,” said Newt Fowler, a partner with Baltimore-based Rosenberg Martin Greenberg LLP, who heads the firm’s business transactions and technology practices.

Owners need to make sure they have a plan in place so that their business doesn’t suffer during the shopping and selling process.

“Once you make a decision that you’re going to go through the process of selling your company, that is your new full-time job,” Fowler said. “You’re not running your company, you’re not managing sales, you’re selling your company.”

About 80 percent of the firms Fowler works with come into the market to sell after being approached by a potential buyer, he said.

But jumping on the possibility without evaluating and marketing the business can undervalue the company, said Fowler, likening the process to selling a house.

“You don’t take the first person that walks through the Sunday open house,” he said.

That’s something Jason Hardebeck, executive director of the Greater Baltimore Technology Council and founder of WhoGlue Inc. knows.

Hardebeck, who founded WhoGlue in 2000, sold his company to Facebook in November 2011. The companies first interacted when Hardebeck, whose firm made social networking software for private groups, such as alumni associations, sued Facebook in 2009 for patent infringement. The suit was settled out of court in 2010.

“There wasn’t this idea that eventually Facebook would buy us,” he said. “I think they started to understand what we were doing, and so they broached the subject.”

Over the years, a number of companies had approached Hardebeck about buying his social networking technology patent. None of them seemed like the right fit because they weren’t interested in the whole, he said.

The idea of selling to the social media giant was floated before the lawsuit, but didn’t make much headway. What it did do was set the playing field: When Facebook later broached the subject, Hardebeck knew what his company was worth and Facebook knew how much he was asking — a figure that hasn’t been disclosed.

“You don’t necessarily have to sell 100 percent, if you can create a way to segregate or separate it,” he said.

Facebook sold back some assets to Hardebeck, who has reorganized as WhoGlue LLC.

Early on, Hardebeck registered his initial venture as a C corporation, a business structure that he said ultimately made it harder to get angel investment than if he had organized as a limited liability company.

“We didn’t need it at the time,” he said of the C corporation status. “It just adds a lot of complication, taxes and tax preparation.

“The more complicated your structure becomes, the more expensive and the more difficult it will be to sell, because you have to unwind everything,” he said.

Though Hardebeck’s company was acquired for its intellectual property — he has retained his employees — that’s not usually the case.

“There are some companies where what you’re selling is inventory, or what you’re selling is real estate, but the vast majority of the companies, what you’re selling is people,” said Fowler, the business attorney.

For Foulk, the people were precisely why he didn’t sell: His son and several others in senior management had been with the company for over 20 years and they were interested in continuing to run the business, he said.

But exiting the company didn’t mean retiring: In 2006, Foulk founded Belcamp-based Chesapeake Testing, which works with ballistics to test body armor, helmets and armored vehicles.

“Some people, after they go through this exit strategy they go fishing or something,” he said. “That would be much harder for me. I just redirected my thoughts and energies into something different.”



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