Our transactions are typically in the $10 million to $200 million range and most often are U.S.-based, although all of our sell-side transactions are marketed internationally. We have worked with such well-known companies as Alcoa and Kohlberg Kravis Roberts & Co., as well as foreign-based companies such as Hanwa International of Japan and FKI Industries based in the U.K. Click on the links below for some examples of our most successful transactions or what we would call our "Home-Run Sales."
Creating Intense Competition Among Buyers
Finding Indirect or “Adjacent” Buyers
Capitalizing on the Great “Moment of Desire"
Be Slow to Accept Exclusivity With One Buyer
Hang Tough on Important Deal Terms, Beyond Only Price
"Turnaround Sellers"
Early Acknowledgement of Troubled Times Really Pays
Creating Intense Competition Among Buyers
Every buyer has a responsibility to purchase a targeted company at the lowest possible purchase price. Even in those wonderful situations where, due to synergies between the two businesses, it is truly a 1+1=3 combination, the “extra” 1 doesn’t automatically get paid to the seller. The buyer will only stretch to maximum potential in pricing, if he must stretch, in order to win the deal.
Let us provide some real-life examples of how this works:
Same Suitor...Better Price
Several years ago a prospective client came to us with an offer in hand to buy his company for $10 million. The owner had a feeling the price was too low, but wasn’t sure what his company was worth. The company was growing tremendously, was extremely well run, and was in a niche that we knew many buyers would be excited about. Upon accepting the engagement we made it clear to the buyer that we were also talking to alternative suitors. In less than 30 days, the original buyer increased his proposal from $10 million to $25 million in cash at closing, plus another $15 million if certain prospective targets were met. The seller closed the deal about 60 days later, and has since gotten every dime of the additional $15 million.
It pays to be PATIENT, yet PERSISTENT
A couple of years ago our firm sold a consumer products company, which was headed for about a $12 million sales year, and was profitable at almost 1/3 of sales. The company was growing rapidly, and for its last completed year had only about $7 million in sales. We received 18 offers to buy the company, most at a $15-20 million purchase price level. (This equated to a pretax earnings purchase multiple of 5.5-6.5, on HISTORICAL earnings – but gave little heed to the tremendous growth in process.) We received 2 offers well north of $30 million – one at $32 million from a private equity firm with some related industry holdings, and one at $35 million from a strategic industry player. (Only these most competitive buyers were willing to pay a sensible price on current trends and immediate short-term prognosis.) The equity fund buyer was flexible on owner transition terms, was committed to a very fast closing timeline, and was generally positive and good to deal with, boding well for the future of the seller’s long term employees and the company he had built. Our client accepted their $32 million offer.
Finding Indirect or “Adjacent” Buyers
The best buyers in many cases are the players who are in an adjacent business space. They may be companies which serve the same customer base, but with very different products. They may be companies who have similar products, but have focused to date on a very different customer clientele – and who thus benefit from entrance to a new customer group.
Digging for the Best Buyer
We sold a general contractor which provided internal building and equipment design and build-out to material handling customers, like major warehousers and delivery services companies. Our client bid virtually every project each year (no “automatic” recurring business) and they were dependent upon major capital projects for utility of their services – both of which tended to reduce pricing in the minds of most buyers. However, our client had a very major project just under contract with an extremely desirable customer – Federal Express. The company was about $30 million in sales, and was profitable (pretax) in the high teens as a percentage of sales. The new Federal Express contract was for $60 million of work, to be done over a several year time-frame. We had about 25 offers for this seller, all at the $30-$35 million price point.
Fortunately, we were tenacious enough to keep looking for more and better buyers. At last we got some background information on what else Federal Express bought extensively as they built new facilities. For example, we learned that they spent vast amounts on sortation equipment, and on conveyor belting for use in these facilities. We targeted those slightly different types of manufacturers, who we hoped might get excited about the access to Federal Express. In one week, we got 3 offers in excess of $50 million. We closed that deal about 2 months later for $67 million – all cash! (The premium buyers were found!)
Capitalizing on the Great “Moment of Desire"
Every business owner is approached frequently by would-be buyers probing sale. If the owner courted each and every such prospect, it would be the ONLY thing he does in his business. 19 in 20 of such approaches are intermediaries trolling for new work, or are bargain-hunter “strategic buyers” – who look constantly and tirelessly for bargain deals in the marketplace.
However, sometimes, the buyer is real, has money, and is serious in intent. Owners need to remain alert and be ready to capitalize on the rare and golden opportunity that will some day come along. When you sense that you have a real and enthusiastic suitor, who is likely to pay the premium – get help. Professional intermediaries will in virtually every case justify their fees in significantly increased pricing.
Making a Prudent Move
Our firm performed consulting services for one of the nation’s largest unemployment service companies for several years. This company was approached a couple of times every year by well-heeled and very substantial providers of other services to the Fortune 500. Our client had relationships with about half of the Fortune 500, with the unemployment consulting services they provided.
We entertained proposals from several of these suitors over the years – but our client’s mindset as to “price” was extremely high, so most we ended up passing on. Finally, about 3 years ago, our client was approached by a slightly small, but very well-capitalized publicly held suitor, with a substantial war chest for just such an acquisition. Our client at the time was slightly over $30 million in sales. They hired us to help in negotiations. We sold the company to the public suitor for $80 million – all cash! On the same day, the same buyer also purchased our largest unemployment-consulting competitor – which was larger than our client, and more profitable. The competitor got $40 million, on the same day that we got $80 million for sale – so their investment in professional help paid off!
Over the years our firm had probably been paid about $100,000 per year for services to consult and consider proposals. The $80 million they got for that sale made their expense to review alternatives show as a pretty prudent move. Our client would tell you that they never would have achieved that superb pricing without our help. They capitalized on the moment – like true premium professional management! (By the way, that client was 100% owned by an ESOP. Happy day for a lot of long-term, hard-working employees – who built that great company!)
Be Slow to Accept Exclusivity With One Buyer
Buyers are often quick to submit a "letter of intent." Such letter generally describes price, and asks for seller "permission" to begin due diligence. In the same document, the buyer requests seller to agree to a commitment to deal only with them, as the exclusive buyer. Others must be told of such exclusive arrangements, with no further courtship, or information to, any other buyers.
This arrangement works only to the advantage of the buyer – and immediately weakens the seller position. We often request a nonrefundable deposit before acceptance of exclusivity. Or we go directly to a firm definitive agreement. If all else fails, we at least try to go to a very detailed letter of intent, with all significant matters worked out and agreed – before committing.
We recently closed a sale for a client who had been talking to and courting the same buyer for over 2 years. The company was a mineral products company, with an excellent competitive buyer market. However, the one buyer they had been talking to (for a long time) could never seem to formally decide to pull the trigger. We were hired to help, and we brought in numerous alternative buyers. When the original suitor returned, with a markedly higher all-cash price, we still wouldn't sign with them until we had a deposit. (It was the only way we could be comfortable that they actually would continue through closing – and if they were unwilling to take that plunge, we had a half dozen other, even stronger strategic suitors, who we were confident we could reach agreement with). We received a deposit and improved terms, and closed the deal 60 days later.
We represented a 70-year-old owner in sale of his company and it was a difficult transaction, due to a very heavy single customer dependency, but we ended up with several strong offers. One of the offers was for $13 million for 75% of the company. We had 2 other offers at around $15 – 16M for 100%. Our seller, at the age of 70, was not eager to keep holding a 25% interest. The offer for 75% came from an equity group, with one young executive who was to step in as CEO. None of the suitors at this point had volunteered a deposit, in spite of our requests. The young eager executive who was to run the show for the 75% equity group pulled $50k from his personal savings account to put as a nonrefundable deposit on the deal. (By non-refundable – this would only be the case for a discretionary change of heart by the buyer. If the information we had provided proved to be untrue or materially incorrect – the buyer would have gotten the money back). In spite of the relatively small size of this deposit, our client was impressed by the firm decision the young man had made, and by his confidence that he could close – and that his equity fund would stand behind him. Our seller accepted his deal.
For Retained Equity – Protect Your Backside
Today many of the offers in the buying marketplace are coming from well-funded equity groups. These groups often prefer to leave some portion of the equity in the hands of the seller and their top management. Such seller-retained equity typically varies in percentage – but most common sizes of amounts to be retained would be 10% to 30% of equity. These retained equity interests can be a wonderful boon to the seller who wants to stay on for a few years – or even to the departing seller who has lots of confidence in the future of his company.
For example, in the scenario we just discussed for the seller who accepted a 13M offer for 75% of his company it worked out wonderfully for both parties. About one year later, almost to the day, the equity fund came back to buy the remaining 25% at an agreed contract price of 4 x pretax cash flow (slightly below the original price for the other 75% - but reasonable to our seller - given the one customer concentration). The company had done so extremely well during that one year that the last 25% brought our seller over $7 million. Our client was happy, and the buyer now has a parade of inquiries from new funds, eager to take the company onward and upward.
One of the first retained equity deals we did was almost 10 years ago – for an industrial painting company. The owner had set a particularly generous bonus for our firm if total proceeds exceeded a certain (very high) threshold. None of us ever expected to get to that total pricing, but we negotiated a strong and long-lived bonus for our seller client, if the company continued to increase profits. The net result was payment to our seller (and to us) for about 6 years post closing. (Our seller used to joke with us that he couldn't believe how much he was paying – and for how long it continued – but he said it was his happiest big expense every year!)
Hang Tough on Important Deal Terms, Beyond Only Price
A couple of years ago we were working with a systems integrator who had a great offer from a large British suitor. We accepted the offer, and continued through negotiation of the Definitive agreement. On closing day, the buyer, their top three management staff, and their counsel all came from London for closing. However, at the last possible moment, they made a major change to the deal. We had negotiated a limitation of 20% of total deal price on all seller indemnifications. We had agreed to indemnify the buyer very fairly, but, because such indemnifications included reps and warranties on uninvestigated environmental conditions, both on land and on certain building sites, we felt the "cap" on those exposures was an important cap. (Exposure was unlikely – but still possible.) Although it is common for international buyers to resist such caps (limitations are common in the US, but rare in Europe) – we had discussed the matter in detail and had clearly agreed with the buyers upon a fixed ceiling amount. (If that had not been agreed upon, we would not have accepted the offer).
When the British buyers came to closing, they brought a Definitive in which they had removed our "cap." (They said their Board had approved the transaction, but only with removal of the cap on indemnifications.) We told them we were sorry for their long trip, but such change was not acceptable, and we would now terminate the letter of intent and return to other buyers. They spent the next half-day on the phone with executives and Board members from their home – and they did go ahead and close, next day, with our "cap" reinstated.
"Turnaround Sellers" - Harder Job, but Do-able,
with Focus on the Right Assets and the Buyers Who Want Them
Over the years, our firm has done a good number of sales for companies losing money – or not making much. It's a different buyer market – and a tougher one to locate and identify – but it is out there, if you're creative and industrious enough to find it.
Several years ago, we sold a metal stamping company, which had been playing with the notion of sale and talking with us about it for over 5 years. During those years the company had continued to grow top line, but their industry was increasingly plagued by very intense international competition, and the jobs they took, to hold up top line, had decreased consistently in profit margins.
They finally hired our firm to sell them. But unfortunately, about a month after we were hired, they were thrown into involuntary bankruptcy. Luckily, we were able to get appointed by the federal bankruptcy judge, to continue representing them in sale. We got the job done, and we achieved enough on sale to pay off all banks, pay off all trade creditors, and pay some to shareholders. However, the total was almost $30 million less than what our original estimate had been years earlier. (This in spite of the fact that we got great competition for the deal – with more bond-posted bidders on the final auction, according to the federal bankruptcy judge, than he had EVER seen in such a proceeding).
Early Acknowledgement of Troubled Times Really Pays
A couple of years ago we sold a midwestern plastic injection molder with $15 million in sales, and very strong asset base (our owner estimated $12 – 15M in possible liquidation value). The company was actually losing money – but had very high depreciation, and its cash flow was around $1 million per year.
We talked to a huge range of potential buyers for that company, but 9 of 10 buyers passed, due to the high asset value relative to earnings. We finally found half-a-dozen good suitors who were ready to be competitive in an attempt to buy. The final contenders generally thought the company might be worth $5M for actual earnings value, but they also realized that even worst case, if the venture failed – it could probably bring $11 – 12M in liquidation. The winning buyer paid $13 million cash for the entity.
Since sale, the company has continued to do modestly better, and has now well justified the $13 million price tag as a very modest multiple for a growing and improving venture.
