25 Years of Disrupting 300 Years of Traditional M&A
February 19, 2018
Excerpt from Our New Book: How to Best Market Your Mid-Size Business For Sale
Just imagine: What would happen to your business if 99% of your target market didn’t know you exist? How could you bring your products and services to market by just letting a few select people know about them? Chances are it’s unlikely your company would prosper.
Woodbridge International approaches selling your business with the same mind-set. We are first and foremost aggressive marketers, who also know how to negotiate fiercely on behalf of our clients. We’ve disrupted the way midsized companies like yours are sold because we want to give our client the greatest number of attractive opportunities when they bring their most valuable asset to market.
M&A is long overdue for disruption
We believe business sellers have been under-served and short-changed by traditional M&A firms. They are structured to sell companies exactly the same way it has been done since the 1700s: via relationships, approaching a small group of buyers, and assigning deals to traditional investment bankers who are under the gun to bring in new business while they serve existing clients. Meanwhile, clients fail to receive the attention they deserve.
Industry specialists (traditional investment bankers) are focused on deals in one or two industries so their habit is to market their sell-side clients only to a few dozen buyers they judge to be suitable. Since traditional investment bankers are tied to a particular industry and its active buyers, it begs the question: Who are they really working for? If the banker has already closed multiple deals with a particular buyer, who are they really loyal to?
Also, since an industry-focused or boutique investment banker will only contact a small number of buyers, when one of these buyers makes an offer that is accepted by the seller, the buyer feels empowered to run the deal. When there isn’t much competition, a traditional investment banker will often permit the buyer to control the deal, fearing he will walk away if he is pushed too hard. This dynamic is bad news for a seller. If the banker becomes sympathetic to the buyer's issues and timing, the deal will inevitably drag out, and the advantage goes to the buyer. We must focus all parties on getting a deal closed on a closing date deadline. If the buyer is not cooperating we need to move to the next buyer or re-market.
Woodbridge International never allows a buyer to take control of a deal because we don’t have to: creating a global auction protects our clients from ever becoming dependent on a single buyer.
“Specializing in My Industry”
December 4, 2017
By Larry Reinharz
I met with a prospective client last week, we can call him Harry. Harry has grown a successful marketing company and after 25 years is ready sell and move on to his next chapter. The business has been successful, consistently earning $1 – $2 million in profits annually for the owner. Harry has evolved his pricing model and scope of services to reflect changes in the market; maintaining the same model and services over the years would have spelled disaster for the viability of the company.
Harry was intrigued by our confidential, broad-based global marketing approach for his company, but wondered out loud if a more specialized approach made sense. He said, “A firm that specializes in my industry will have a better sense as to how to position my business to buyers.”
Not an uncommon view. Many business owners we speak with share this view.
The question is, which buyers and how many?
Customarily, firms specializing in an industry go to a deeply researched, pre-determined list of buyers, anywhere from 50 – 300 buyers in total. When they create the marketing materials, they’re going to focus on key attributes that will excite this narrow buyer pool. In contrast, our firm customarily approaches 6,000 – 10,000 buyers globally on a confidential basis; this list also includes anywhere from 20 – 300 deeply researched buyers. The companies we sell generate anywhere from $5 – 150 Million of revenue, so think about all of the buyers globally that can acquire companies in this size range!
So how does this play out?
Earlier this year we sold a $60 million service company to a strategic buyer. We approached 7,100 buyers on a confidential basis, of whom 68 signed confidentiality agreements and received books and videos on the deal. From this pool of buyers we obtained 5 offers and closed a deal that exceeded our client’s expectations. About 18 months prior, the client had hired a well-known firm that “Specialized in his Industry.” That firm approached 69 buyers of whom 11 signed confidentiality agreements and received books (no videos). No offers were received from this buyer pool.
I shared this story with Harry. “Yeah, I get it,” he replied. “But an industry focused firm may position me more acutely since they’ll have more industry knowledge.”
The issue is they will tightly position the company towards that small set of buyers they’re approaching…that’s who they’re thinking of and nobody else! They’re not thinking of peripheral buyers or buyers that make no logical sense – for example:
A couple of months ago we sold a $12 million trade organization at 13x EBITDA, the next best offers were 8x. The ultimate buyer was a payment processing business owned by a $64 billion private equity group. To this day we and our former clients do not see the fit. What we did see is that the payment processing company wanted our client’s business so badly, for their own reasons and not what brilliant Investment Bankers were telling them, that they paid 13x EBITDA cash at closing. This was a 62% premium over the 2nd best offer.
One of the reasons Harry has been successful is that he has tweaked and changed his business to reflect his evolving market. The only constant is change, so going to the same or smaller buyer pool time after time will not yield the best deal in the market.
In order to see a buyer’s best offer, buyers need to feel pressure. They need to fear losing Harry’s beautiful company to somebody else. The payment processing business that ultimately paid 13x EBITDA had submitted an initial offer of 8x – it was the competitive process that moved them up to 13x. The more horses in the race, the better for Harry.
From $8 Million to $16.25 Million in 153 Days
February 17, 2017
By Larry Reinharz
One of the companies we sold last month was a $22MM distribution business generating $2.5MM of adjusted EBITDA; the company was flat, no real growth over the past several years.
Prior to hiring us the owner was trying to sell the company on his own; the buyer ultimately could not fund the deal they had negotiated, $8MM of cash with a $4MM 3 year earn out.
Once all of the materials were prepared we initiated our confidential global auction and obtained 329 interested buyers. From this pool we had 277 buyers sign confidentiality agreements and obtain the book and video. From this pool we obtained 29 offers for the company ranging from $8.3MM to $16.9MM, all varying terms and structure. We brought in the 12 strongest buyers for meetings and phone calls and ended up closing the deal for $16.25MM in cash with a strategic buyer.
The entire process took 153 days; so 5 months for us to double the amount of cash the owner realized from the sale of his business.
A Benefit of International Buyers
February 16, 2017
By Larry Reinharz
We’re often asked about International buyers; they’re so anxious to get into the U.S. that they’ll pay more than U.S. buyers.
On a recent deal we closed this year this perception became reality for one of our clients; an International buyer paid a significant premium for our client’s company in the U.S. compared with the other final bids from domestic strategic and financial buyers.
The International buyer was anxious to get into the U.S. and our client had some proprietary technology that would save them years and millions in R&D, so the premium they paid made economic sense for them.
A key to getting the deal done was Woodbridge International’s on-the-ground presence. We worked closely with the International buyer; same time zone, same language, familiarity with cultural nuances, etc.
Our client did not know the International buyer, nor did he initially feel there was a high likelihood that the best deal would be from an International buyer. However, he did believe in our confidential global auction and felt it was the only way for him to be exposed to the best deal on the planet.
A Study of Two Deals – the Dangers of Delay
February 13, 2017
By Larry Reinharz
Two of the deals we closed recently had similar characteristics, however with vastly different outcomes for our clients.
Similarities: Both clients hired us to sell their companies which they both had founded and owned 100%. Their companies were both enjoying excellent growth trends, realizing record revenues growth and profits. The owners were 7 years apart, in their late 40’s and early 50’s and had no succession plan. Both of them wished to sell because they felt the next major phase of growth involved skill-sets they didn’t have or didn’t desire to obtain. While their businesses were trending well, they wished to cash out and transition their companies to buyers they felt could continue to grow their respective companies. Both companies also had customer concentration issues, losing their largest customer would materially change their companies.
Differences: Client A walked away with 90% of his deal in cash, which amounted to $37,000,000 in cash and Client B walked away with 8% of his deal in cash, which in his case amounted to $300,000 in cash.
Why the difference?
Client B had a 6 week delay obtaining necessary financial statements for the buyer to complete their due diligence.
After the 6 week delay in obtaining Financial Information for Client B, we still obtained 10 offers ranging from $6 – $12 Million, Client B signed a Letter of Intent with the strongest buyer for $12,000,000 in cash; approximately one month after signing the Letter of Intent Client B lost his biggest customer, so that now the company dropped from $2 Million of EBITDA to break-even.
Unfortunately, in Client B’s case, he was also personally guaranteeing $5 Million of debt and the banks were getting concerned; his loans ended up in the problem areas and he was spending his time fielding calls from bank lawyers. After exhausting all lender take- out possibilities, we found him a strategic buyer that wanted his capacity and geography; if the company performs according to plan over the next few years client B will obtain approximately $8 Million of cash, although nothing is guaranteed.
In both of the situations outlined above, both owners had the good sense to capitalize on their record revenues and profits; the difference is one had timely financial information and one did not.
Unfortunately we have too many stories similar to this one to share; once you’ve decided to sell your company, consult an M&A professional on which information needs to be obtained, which timelines need to be met, etc.…
Which side do you want to be on?
June 3, 2016
By Robert Koenig
Please meet our great team in India.
The Usual Suspects
April 6, 2016
By Robert Koenig
When Claude Rains declares “Round up the usual suspects” in Casablanca he really could have been talking about the average approach to lower middle market M&A. That is to say, most firms focus on roughly 100-150 likely buyers when they market a company for sale.
I built my firm, Woodbridge International, differently.
My thinking was, back in 1993, that broad-based, aggressive, multi-channel marketing was the key to finding more buyers. I knew that competition drove price. Over the years this core belief has quietly established Woodbridge International as the most unique, client-centric firm serving the lower middle market.
At the core of our beliefs, among many other things, is the fundamental agreement our team lives by: that we will never know enough about potential buyers to take a narrow approach. How is that for you?
What we're saying in fact is “we don't know”
When you break this admission down into its components, this fearless embrace of the unknown in fact gives our clients a great deal of confidence in our approach. Here is why.
- We don't presume to know the client's industry better than they do – the client is the expert in their business, we are the expert marketers of businesses for sale
- We don't presume to know the current acquisition strategy of every direct Strategic buyer because we believe there are thousands of potential Strategic Buyers
- We don't presume to know Related Industry Buyers acquisition and growth strategies because we believe there are thousands of potential Related Industry Buyers
- We don't presume to know every Private Equity Firm's or Family office's investment criteria and portfolio — we know there are billions of dollars seeking good companies and thousands of firms looking at our deals
Our team approach is built on thoroughly exploring each these possibilities with our clients, conducting exhaustive buyer research, and producing buyer target lists that are routinely 4000-6000 potential buyers.
We want more buyers because more buyers give our clients the opportunity to extract the maximum value in a sale transaction. And in the end what we've found is that 75% of the time our clients had never heard of their ultimate buyer.
That's why we don't just cover a couple of hundred ‘likely’ buyers. Our experience is that it's also absolutely critical to round up the UN-usual suspects.
“I’m selling too soon.”
February 10, 2016
By Larry Reinharz
We recently obtained a new client, an IT Hardware and Service provider. The five owners, aged late 40's to early 50's, started the company in 2006, and this year will realize approximately $75MM of revenue with very healthy profit margins. The company has a strong backlog and enormous growth prospects. While they take turns running the company as CEO, all of the owners meet regularly and are very cohesive. The current CEO is very excited about the company’s growth prospects, and he and his partners all enjoy what they do (“I haven't worked a day in my life!”).
So why do they want to sell the company?
The current CEO told me a story about him and his brother going back 30 years ago. They opened a few retail stores in an entertainment niche (It was legal! I'm being vague here for confidentiality purposes) and grew to five locations–the sky seemed to be the limit. At that point, there were about 100 retail stores in their market area in the same niche. A larger chain then approached them with a very healthy cash buyout, and him and his brother turned it down—“the sky's the limit, we're making lots of money and opening new stores, why would we sell now?”
About two years later, there were approximately 1,500 retail stores in the same niche, and the competition was intense; the stores became money-losing entities, and the two brothers lost the bulk of their investment in the stores.
So, this CEO and his partners would prefer to “sell too soon” and secure their financial future.
Going from zero to $75MM in ten years eats up cash, so the owners have plowed back the bulk of the profits into the company to finance its growth. They are similar to the bulk of our clients who have reinvested to grow their companies, and the biggest segment of their net worth is their business interest.
As the current CEO told me, “We're passionate about our business, which has been the driving force behind our success. At the same time, you never can predict the future. Our business is doing far better than any of us ever thought it would, so we'd be foolish to miss out on securing the financial well–beings of our families if we did not strike while the iron is hot.”
Captured! Drawing Attention to Your Company in Print and Video
January 27, 2016
By Lori Green
There's a lot of noise to break through when bringing a company to market. Every week buyers and investors are targeted by hundreds investment bankers, attorneys, brokers and sellers themselves. All have companies or ventures to promote, but the first hurdle is to capture attention for their deal.
We hear regularly from buyers that our marketing materials do an impressive job in highlighting the strengths of our clients' companies and differentiating them from the crowd. These are important achievements in today's global marketplace, where so many deals are vying for attention.
We depend on our clients to provide us with all the information we need to develop a complete and accurate descriptive memorandum (“book”) on the company. Describing your company’s products, services, operations and personnel and — most importantly — growth opportunities is critical to winning buyer interest and eliciting the best offers. Without a seller's energy and responsiveness in supplying all the financial and other data we request, we're unable to do our best work in presenting the company to sophisticated strategic and financial buyers around the world.
Woodbridge has pioneered the use of video in mergers and acquisitions as a way of allowing buyers to meet the seller and see the business in action. Using media in this way brings the company right to the buyer's screen. It also accelerates the deal process. In fact, quite a few buyers have told us they were persuaded to bid on our client’s company after watching the marketing video we produced.
Our marketing videos are only 2-3 minutes long and illustrate your company’s chief selling points. The book and video complement each other and work together to attract buyer interest and generate momentum from the very beginning of the process. Of course, we require a buyer to sign a Confidentiality Agreement before receiving either the book or video.
Our ground-breaking approach to “packaging” the companies we bring to market is not only unique in the M&A industry — it engages buyers visually and activates them to move quickly in submitting a competitive offer.
Value is in the Eye of the Beholder
November 3, 2015
By Don Krier
There are two top of mind of issues that we hear from our clients over and over:
- What's the value of my business?
- How do we keep it confidential?
Let's first address value today. We can talk about confidentiality tomorrow.
You have come to a point where you are ready to sell. What you have is what you have, in other words, you are not going to look to make any changes to the business to improve it at this point to sell it. We hear that comment frequently.
The client says, I know I need to add salespeople, the website needs revamping, the company needs to add new equipment/technology, the new owner can do these things. Clearly, all of these things add value and buyers are ALWAYS looking to find ways to improve the business.
In fact, much of what we do in “selling” the business is highlighting how the business is positioned and what improvements can be made to take the company to the next level. When selling, beauty truly is in the eye of the beholder. Over the past 20+ years representing clients, buyers are looking for opportunity to improve upon what is already there. So no matter how the company is currently positioned, one thing is common: you have to be able to outline the next move. Where does the company go from here?
Years ago, we had a business we were representing that was beating all the averages. The business had above market gross profit margin and EBITDA. The revenue generated per employee was 3x's the industry standard. The company had a diversified customer base, growing sales, broad & expanding product offering. The company was near perfect!
While we successfully sold the business, some of the comments were not what you would have anticipated from buyers. Some of the buyers were actually afraid of the company because it seemed too perfect. One buyer told me he felt the company ran like a Swiss watch, and if he opened up the back and touched anything, it would all spring apart. He did not see anything that he could improve upon, he had no value added that he brought to the table; he was not the high bidder, and the company went to someone else.
Opportunity lies in what can be done with the business in the future. If you can answer that question, you will gain the interest from the best of buyers. Notice the plural in the word “buyer.”
You have to have competition? Don’t try to sell your company with just one buyer. Competition will give you confidence as you talk with multiple buyers. Buyers will become quite aware that they are in competition for the business and that is a wonderful position to be in as it provides the needed leverage to maximize the selling price.
So don't make the mistake of comparing your company with the one down the street or the one in the Wall Street Journal. The value of your company is a one-off situation and, for that matter, is the most important value of any company because it represents the dollars that is most meaningful to you.
Identify the opportunities and sell by creating a competitive environment.
We can help you with both of those and maximize the value in the process.