Jay Sachetti joined Jeff O’Brien, partner at Husch Blackwell and Dyanne Ross-Hanson, president of Exit Planning Strategies talked about the market for mergers and acquisitions, exit planning opportunities for companies that don’t end up for sale and how companies can maximize their eventual sale price during an early October panel at the first Upsize on Tap event at Summit Brewing Co. in St. Paul.
When the state Legislature passed a law requiring employers to provide paid leave and safe time for employees, Justin Bieganek started hearing differing details from friends, colleagues and peers.
UPSIZE STAGES: EXIT STRATEGIES
04 :: Sorting the buyers
Best buyer depends
on owner?s goals,
firm?s condition
Here?s another reason why business owners should talk with their team of advisers. They need to make their goals known.
Is it important to them what happens with their employees? Are they seeking the biggest payday possible or are they willing to take a smaller deal to help lighten their tax burden? The answers to these questions will often help determine what type of buyer is sought for your company.
When your broker sends out a package announcing your intent to sell your business, the broker will typically approach financial and strategic buyers. Some experts feel there are no blanket statements that can be made about the upsides and downsides of either type and they don?t necessarily recommend dealing with just one or the other.
But there are differences in the approach and motivation each type of buyer would take to your business. Strategic buyers are those vendors or competitors within your industry that would hope to acquire your company in order to expand their own. Financial buyers are looking to buy your business, grow it to a certain size, then turn around and sell it again at a profit.
Strategic buyers have experience running a similar type of business and would be buying for synergies. In theory they are qualified to take over your business and they?re capitalized and ready to buy in order to gain market share.
Your broker or other adviser can use government documents and SIC codes to identify potential strategic buyers and can also identify areas in which your company might be of the most benefit to a competitor. If the seller is in an explosive industry and wants to get out of day-to-day running the business, a strategic sale to a company that would benefit from the synergies of a sale might make sense.
The disadvantages of selling to a strategic buyer might include goals that differ from yours and a willingness to shake up the existing management team after a sale. For sellers that want to stay involved a strategic buyer might also not care about your perspective once a sale is completed.
If a business owner is looking to maximize financial return, a private industry fund looking to enter a specific industry might provide the best return. They?re typically looking for firms that are larger but might add smaller businesses to increase ownership in a given industry in their fund.
The advantage to a financial buyer is that there is money available. Your broker will likely have a pretty good handle on the financial buyers in your market that might be interested in such a deal.
In the last three or four years financial buyers have been aggressively pursuing and paying good prices for well-run businesses and winning many deals. There?s a lot of capital available from private equity firms.
But they?re also smart. They?re looking for businesses they can buy at a premium and for sufficient cash flow to service debt financing. They also don?t offer synergies such as existing sales forces or complementary expertise that can aid in growing your business once they own it. They?ll often leave existing management in place, but they also are in it to make a profit, and could shake up the business with a second sale.
Other options that exist include selling to employees through stock ownership plans and finding individual buyers that are interested in diversifying an existing business they already own or in running a company while in between executive positions.
One option that is becoming less prevalent for small businesses is the initial public offering of stock. With greater regulation and sometimes untenable expenses involved in going public small companies are doing so with far less frequency these days.
As the name suggests, Owatonna-based Kamp Automation looks for customers with a process they’d like to automate. It could be a small, inconvenient, tiny part that people can’t assemble. It could be a high-volume product so needed that the customer can’t find enough labor to produce it in the necessary quantities. “We’ll work anywhere from medical device companies to the seed industry for corn and soybeans,” says Kent Patterson, co-founder, president and CEO. “We just jump all over wherever there is custom automation.” The company started in his garage. Patterson and his partners built a machine. The company started to grow to the point where now it has 48 employees — and had a bunch of people and stuff in different locations. “We went from a garage to a shop to a shop and just kept moving to new places and signing leases,” he says. “We got to a point where it’s like, OK, this is getting big enough and sustainable — we felt that we wanted to look for our own space.’”
