Case 1
Our client was a technology services
provider with good profit margins, but which had experienced flat growth the
previous 4 years. However, during those 4 years all of the company’s long-term
contracts had expired, and the company was successful in replacing them with new
business. We made sure to convey this story behind the numbers to all
prospective buyers. Our client’s price expectation was 5x EBITDA (earnings
before interest, taxes, depreciation and amortization). In the end the owner received six offers.
Three of the offers came from private equity groups. One of the private equity
groups already had portfolio companies in that industry, and the other two
wanted to acquire our client as a platform. In all of these offers, the owner
was offered cash for a majority of his stock, and was asked to keep a percentage
of the ownership as an incentive to grow the business. The other three offers
were from larger strategic buyers. In the end, our client accepted an offer from
a strategic buyer, for three reasons: (1) the offer exceeded the owner’s price
expectations, (2) the buyer only required the owner to stay for a short (2
month) transition period after the sale was closed, and (3) the buyer’s
excellent reputation in the industry gave the owner comfort that his employees
would be treated well after the acquisition was completed.
Case 2
Our client was a foreign marketing corporation that
engaged our firm to divest its US manufacturing subsidiary. The subsidiary’s
products were sold to end users in the US and a number of other countries. In
addition, the subsidiary also sold a significant percentage of its products back
to the parent company, which in turn marketed them along with many other
products. Due to the nature of the industry, confidentiality was of the utmost
importance to our client. Once we understood our client’s goals, we prepared
materials to document the complex intercompany arrangement, and marketed the
business worldwide. Ultimately the divestiture was accomplished successfully
with a multinational corporation as the buyer. As an added bonus, the seller
received the contract to market its former subsidiary’s products.
Case 3
Our
client was a successful manufacturing and distribution company. The owner was
still relatively young (around 40) when he engaged our firm to market his
company. The owner made a good living from the company. However, nearly all of
the owner’s net worth was tied up in the business. We contacted a wide array
of prospects, and the owner received offers from both financial and strategic
buyers. While the strategic offers were at good valuations, in the end the owner
accepted an offer from a private equity group. Under this structure, the owner
was cashed out for a majority of his stock, and retained a significant share of
the company. The buyer provided both expertise and capital to help the company
grow to the next level. The goal is to ultimately to take the company public or
sell it to a major strategic buyer. At that point the owner’s retained shares
should be worth far more than the shares he sold. This option allowed the owner
to “have his cake and eat it too”. The cash portion of the transaction was
more than enough to secure the owner’s future. At the same time he was able to
participate in the company’s growth and help create a second payday.
Case
4
Our
client was a distribution company that engaged our firm to market a subsidiary
that manufactured products that were not related to its core business. The
subsidiary had been acquired 3 years earlier and was highly leveraged. The
subsidiary was taking resources away from the parent company because servicing
the subsidiary’s debt was cutting into the parent’s credit line. In
addition, management at the parent company was allocating too much time to the
subsidiary, and not enough toward taking care of its primary business.
Ultimately the subsidiary was sold to a private equity group that owned several
portfolio companies in allied industries. The buyer had been looking to expand
into the same industry in which the subsidiary operated. The divestiture of the
subsidiary provided our client with a substantial amount of cash, and freed up
financial and personnel resources that had been devoted to the subsidiary.
Case 5
Our
client was an educational software company that was owned by a large
children’s photograph and portrait chain. This subsidiary was treated like a
“step-child,” and was losing $1,000,000 per year. However, the subsidiary
has a cadre of brilliant people and outstanding products. Our buyer search
discovered that one of the largest educational companies in the country had a
major problem. Whenever the company had to change the curriculum for a course,
it would take more than a year and several million dollars to accomplish the
change. Our client’s technology could accomplish the results in a 90-day
timeframe at a cost of less than $50,000. Because it solved a major problem, the
company was sold at a large premium comprised of 75% cash and 25% based on
future profits. All parties, the parent, the subsidiary and the buyer came out
winners.
Case
6
Our client was a well known
computer services and systems integration company and had an excellent
customer base in the government, education and corporate markets. The company
was growing very rapidly and, as a by-product, cash flow became its primary
problem. The owner/CEO spent long hours and tried various avenues to alleviate
this situation to no avail and the decision was made to sell the company.
A
large ($500 million) strategic player was selected as the buyer and the deal
was structured as all cash plus a mandatory 4-year employment contract for the
CEO. In addition, there was an open-ended earn out based on sales with the
expectation that the CEO would earn an additional $150,000 per year. After
the transaction was closed, the buyer decided to centralize all financial and
administrative functions and let the CEO concentrate on building revenue. As a
result of the CEO being freed up from the headaches of finance and
administration, he was able to devote full time to sales and marketing. The earn out
turned out to be almost $500,000 per year and the CEO retired after the
fourth year.
Case
7
Vinyl
window manufacturer. There were 3 top offers; the winner was from a private
equity group (i.e. a financial buyer) that specialized in manufacturing
companies. The deal was 5.3 times trailing twelve months ebitda. This was
paid as follows: Approximately 70 % cash, 10 % earn out, 20 % shares in the
company going forward split 15% to the younger partner who was staying on
full time and 5% to the older partner who was retiring but would keep a seat
on the board and consult part time. The buyer put substantial investment
into the company (the norm for financial buyers), so the percentages of
stock owned by the sellers will likely grow substantially in value.
Case
8
Promotional
Products
Manufacturer.
Buyer
was a
strategic
buyer in
the same
business,
but
based in
Germany.
Although
we
quoted
the
sellers
5 to 5.5
times
trailing
twelve
months
ebitda,
the
buyer
ended up
paying
over 6
times
ebitda
PLUS an
earn out
based on
growth
over the
next two
years.
An
outstanding
deal
that
closed
in a
record 4
month
timeframe.
Competition
among
buyers
worked
to get
the
price
higher.
The
owners
were
retired
parents
and 3
sons
that
worked
in the
business.
The sons
were
given 3
year
employment
contracts
to make
sure
that the
company
would
continue
to grow.
The
transaction
was
structured
to give
Sellers
maximum
tax
benefits.
Case
9
Software solutions company. We brought many offers, but the two
highest were as follows. One was a very good all cash offer.
Another one was comprised of about one half the cash of the
first offer, a very substantial note and and a very large block
of stock in the newly formed public company that would buy the
company. These owners were all under 40, and were willing to
take more risk for the higher upside potential.
Case
10
Specialty Pharmaceutical distributor. The company had a unique
business model and clear plan for growth. A Financial Buyer,
recognized the opportunity and bought company for 85% cash and
15% equity in the entity formed to acquire the business. The two
sellers had Consulting Contracts going forward, and were further
incentivized by the 15% shares. This company has continued to
grow rapidly, so the 15% is growing rapidly in value.
Case
11
Staffing company. $35MM in sales, but low profit margin. The
seller was in his 30s, and was unsure he could maintain the
company in an increasingly competitive industry environment and
with a large debt load and a questionable relationship with a
Factor. He sold 100% of the company to a strategic buyer and
competitor, an $800MM company. He has a five year employment
agreement with further incentive based bonuses, and is assured
that the company will be able to thrive. He is happy to be out
of a high pressure situation and that entailed headaches, debt,
tough relationships and personal guarantees.
Case
12
Restaurant chain. The owner built 6 franchise restaurants in two
states. None were in the city where the owner lived, thus he
operated them absentee with managers in place at each location.
The demands of his primary occupation became too burdensome
for the owner to oversee the restaurants, so he decided to sell
them. We sold the restaurants in two stages, three in one state
to one buyer and three in the other state the next year to a
different buyer. The owner was relieved of debt caused by rapid
over expansion.
Case
13
Software company. The owner built an SAP technology and
applications software company with offices in three nations. The
software product integrated third party software applications
with SAP for large projects. The owner needed a buyer to provide
the muscle to grow the business and take full advantage of the
substantial market potential of its products. The buyer was a
public company based in the US with a larger office in India.
The transaction was structured to take advantage of the Owner's
technical talents and to assure growth. The deal was comprised
of cash, a note, an earn out and an opportunity to obtain stock.
Case
14
Injection molding company. The seller built a good business but
did not have the capital to continue operations and was in a
difficult financial situation. We quickly found several
strategic buyers, and one of them closed the deal rapidly,
relieving the seller of his debt and personal guarantees, and
freeing him to pursue a new career. The buyer was located less
than 30 miles from the business and needed additional space and
capacity. The Seller had never heard of the Buyer.
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