Calder Capital focuses on the sell-side representation of small West Michigan-based distribution companies. Wondering how to sell your distribution business? Here is a case study of how our principal, Max Friar, consummated the sale of a distribution business in less than three months for more than expected!
Time Line & Story:
December – Max Friar is introduced to owner. At over 80s years old, the owner of this established rubber products distribution company has decided it’s time to sell his business. The motivation could best be described as not having a successor and looking out for the best interest of the employees and preservation of the company’s legacy.
January – Pre-Sale Planning revealed that the distribution company was highly marketable, largely due to its strong cash flow, growth trend and the fact that the business ran efficiently independent of the owner’s involvement. In fact, most of the year the owner spent sailing in the Bahamas or Southern Florida. We conducted a business valuation that revealed that the company was worth approximately $3 million dollars. We also conducted a confidential market survey of over 40 buyers. As a result, we were able to predict a plausible structure that we knew was reality because the structure was constructed based on actual market feedback.
February – March – Marketing, Buyer Identification & Negotiation. When we launched the project, the business received immediate attention from buyers. In fact, during the month of February over 90 buyers inquired. Because we had spent significant time preparing the business for sale and understanding the likely deal structure, we knew what criteria we needed from in a buyer including financial capabilities. It is important to understand the financial capability of buyers as not doing so can be a huge time waster for all parties involved. By understanding this, we were immediately able to disqualify half of the buyers.
Due to the fact that the owner was living out of state during this process, we setup a series of conference calls between the buyers and the owner so that they could get to know each other and ask the appropriate questions. It was very beneficial to do this; most small business acquisitions are very personal in nature and we’ve found that if buyers and sellers do not “jive” it is rare that the transaction will progress.
As March approached we requested that interested buyers submit letters of intent (LOIs) or proposals by March 8 if they wanted a chance to meet the owner upon his temporary return to Michigan during the week of March 22. By the deadline we had received 28 offers – a personal record. While we want to be cordial to everyone, there are certain ‘tests’ that the buyers must go through if they are going to “win” the business. By running an efficient for-sale process, we are able to “take control” of the process for our clients, create a true market which yields the best results unequivocally.
During the week of March 22 we set up six meetings with the buyers that had submitted the best proposals. These meetings were approximately 2-3 hours in length at the facility of the seller. This allowed the buyer and seller to meet, ask questions and get a feel for the business. Towards the middle of the week we had met with all the buyers. We asked the buyers whether they desired to change their proposal based on the physical meetings. We then selected the buyer that we desired to work with, got confirmation that they wanted to move forward as promised and executed an LOI. To ensure the validity of their confirmation, we asked for and received a sizable good faith deposit at time the LOI was fully executed. Again, this is another buyer test to ensure sincerity.
April- May – Closing the Transaction. During April we assisted the buyer and seller through due diligence. As is typical there were a few hiccups on both sides along the way, however in general it was smooth sailing. The closing occurred during the first week in May. In total, it took only 2.5 months from start to finish. In the end, the sale price exceeded initial expectations both in terms of value and structure. We believe that this largely in part to the highly marketable business and the limited auction style process. We got the deal done faster and for more money than the owner would have without us. That makes us feel good about what we do.
Less is more: less time equals more buyers and more money. If you are representing a profitable business that has withstood the test of time then buyers will be interested. It is critical that you prepare the business, present the business professionally, expose the business confidentially to as many buyers as possible and make a plan to corral the buyers into a process that allows you to leverage their offers and interest to the advantage of your client. That is the only way to sell a business.
Max’s Closing Comments:
What a fantastic experience this was. The owner and his family are some of the nicest, most genuine people I have ever met. They cared about the employees, customers and community immensely. This spirit shined throughout the transaction.
I had to great fortune to go sailing with them right after the transaction closed. We sailed around the Florida Keys for 7 days.
“I found Max to be very valuable in keeping all parties on track and helping our team through issues as they arose. I pleased to say that my business sold for a price higher than I expected after being on the market only 2.5 months! Overall I am very pleased to recommend Max Friar for a sale or acquisition of a business.”
Founder, Distribution Business