by John Howe
One of my colleagues in Cornerstone Alliance was front and center in a recent Shark Tank exercise.
A business that had been sold was put in front of four potential buyer groups. Each analyzed the information presented and came up with a hypothetical indication of interest and value they would offer for the business.
The exercise and discussion showed that the M&A process we use to sell companies can be effective. It also showed in detail how companies are reviewed by buyers.
The case study involved a midwest enterprise manufacturing a product from recycled plastics.
Here are some of my observations:
Management teams matter. The best values offered by the Shark participants resulted from confidence in the company because a management team would be remaining post transaction.
The team that had helped build the company was going to roll their capital stake in the enterprise – real or perceived – into the new entity and the new ownership. While the owner wanted to cash out, he had fostered a team that ran the operation. They knew their jobs, and did them well.
Why is this important? It helps a buyer feel confident betting on the future. It shows stability. It demonstrates belief that the company can grow.
Profitability really counts. The company was large enough, and managed well enough, to generate enough profit for a buyer to want it.
Sometimes owners are so focused on setting up an enterprise that supports their lifestyles that they ignore preparing for the future. This comes by developing systems, processes, equipment, and a management team that will support the enterprise in years ahead.
Profits are the result of a good operation. Assets are important, to be sure. But assets that produce revenues and profits are critical. This results from paying attention and focusing on net earnings.
A buyer wants profits, not just assets.
Telling the story, effectively. The Shark Tank “bids” for the company resulted from review of data and information presented by the M&A Broker in the confidential information memorandum. This is known as the CIM, The Book, the business summary. It generally is a 20- to 30-page presentation prepared by the advisor.
In this case, it was all theoretical but based on reality. The company story and presentation reflected in the CIM is the hook that gets buyers interested. A good story, told poorly, is not effective. Having a good M&A advisor skilled at communicating the opportunity makes a difference.
In the exercise, the offers varied wildly! The numbers were millions apart. How could this be?
M&A process makes a difference. The range of prices generated by the Shark Tank demonstrates how the same company, reviewed by multiple buyers, can provide owners a vast range of prices and terms.
The highest number may not be the best value. Terms can make a sale more effective. Having the “house in order” makes diligence more efficient. A quick closing can be accomplished.
Because an M&A process was used, managed by a good advisor, the case at the center of the exercise provided owners options.
Are you your best advisor? We know owners who thought they could get the best deal on their own only working with one buyer, usually one that approached them directly. This could be a major mistake.
We believe in developing a market for the company being sold, establishing a level playing field for buyers via good information and a fair schedule, so multiple parties can review the opportunity and generate offers.
Shark Tank is fun to observe, but it also raises some points to keep in mind. Give us a call and we can cover the bases with you more closely.
"The entire process went smoothly and professionally. The BTS team kept me fully informed at every step. They worked hard and were effective in bringing the deal home."
"Skip and I continue to be grateful for all you have done to make the sale of Pure Flow come to fruition."
"BTS’s level of expertise in the process and close attention to detail enabled us to successfully navigate the deal."
"These types of transactions are often long and complicated and I doubt it could have been successfully completed without your close ongoing involvement."
"The outside objective point of view that you have brought us has been invaluable as we prepare for the rapid growth."
"John then found the right buyer and coordinated a seamless transition—he doesn’t miss a single detail."
"John immediately identified our strengths and experiences and discussed a business that ultimately was more in line with our goals."
"The BTS team came in, evaluated everything in a professional and thankfully non-threatening manner."
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Good Ideas From Shark Tank Deal
One of my colleagues in Cornerstone Alliance was front and center in a recent Shark Tank exercise. A business that had been sold was put in front of four potential buyer groups.
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Precision Machining Company
Initially, liquidation was a serious consideration. It would offer a quick exit but would hurt loyal employees and disrupt the customers who had come to rely on its quality production.
Green Product Company
Our client owners could dig in for the long haul…However, this would take five years or more. Owners simply lacked the horsepower to do it.
Water Purification Company and Young Buyers
Owners decided they wanted to retire. They also wanted to be fair to the staff who had been loyal to them. Could the company be sold, the staff retained and the facility remain in use?
Magnetics Company with High Profile Customers
(T)he manufacturer would need to focus on growing EBITDA to capture interest from major strategic buyers and achieve a higher multiple of earnings.