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.
Better Process, Better Outcomes
October 28, 2015
By Robert Koenig
When I started Woodbridge International in April of 1993, I had just completed the sale of my family business, Koenig Art Emporiums, an art supply and franchise business. It was a time of economic uncertainty, and I knew a number of displaced executives that were searching for businesses to buy. Having been a business owner that had gone through a sale process, and sensing a strong market opportunity, I initiated a buy-side oriented practice.
That was more than twenty-two years ago. Since that time, Woodbridge International has become the gold standard for global mid-market mergers and acquisitions. There is no other firm I know with our process, global reach and technology—not to mention our talented team.
Last week, that whole team came from around the world for our biennial meeting in New York. As I looked around the room and thought about where it all started, you would think I felt satisfaction. Instead, I felt a great sense of urgency. Urgency to complete deals for the clients we represent today–a record forty deals. Urgency to continue refining our process—that indeed, ironically, itself is built upon the necessity of urgency.
Here is why clients recommend us:
Our process begins with the client and ends with the client.
Everything we do is for the client. We're honest about what we can and can't do. We build a deep understanding of our client and their unique situation. We work transparently with the client's best interests at heart. That’s how we become a trusted advisor—because our clients know we understand them and that we advocate for them.
We are fanatical in our drive to get the best buyers for our client.
While our dealmakers have closed hundreds of deals, we do not let that previous success limit our thinking or our marketing. We market differently because we are different. Our team-based approach, with senior people throughout the entire process, combined with a relentless focus on broad, multi-channel marketing nets more buyers for our clients. We're not just a little bit biased here; we are indeed fanatical in search of the best buyers.
The process has real deadlines.
We’re not just fanatical about finding buyers; our scheduled process keeps them moving toward a close by driving them with strict deadlines. We have buyers submit questions by a certain date. We have a deadline to show an indication of interest with a value and deal structure by a certain date. We have management meetings tightly scheduled and ask for LOI’s by a deadline. This prepares the ultimate buyer for the final deadline: the closing date deadline. We know time kills all deals. With a deadline to close, buyers are induced to act swiftly during diligence to meet that deadline; there are always other buyers waiting in the wings.
Clients buy-in to co-ownership of deadlines.
This final point is not a subtle one. Because everything begins and ends with the client, and we not only say that but live it, our clients buy-in to their role to make things happen quickly. Once we understand a potential client and why they are selling, the education begins on the importance of deadlines on the outcome they are seeking. Clients get that. Plain and simple.
Truthfully, I am proud of what Woodbridge has become. Meeting with the team last week was energizing and exciting because I do believe we are differentiated and different. Though it's difficult to be satisfied when there is the raw fuel of client urgency already ignited for the future, I find satisfaction in knowing that our process, our urg'ncy will close deals and provide our clients with the best possible outcome. And providing outcomes is what Woodbridge does and will always do.
Owner Has Not Used Professional Sales & Marketing
September 15, 2015
By David Walsh
If you are a business owner contemplating a recapitalization or sale of your company, there is just a whole lot to think about. The first thing on every Entrepreneur's mind is “How much is my company worth?” Value is a strange thing because really, like beauty, value is in the eye of the beholder. Different buyers find value in different aspects of a business. That's why in order to unlock maximum value and create competition amongst buyers, you need to market broadly and gets lots of ‘beholders’.
To get ‘beholders,’ in the first place, you start with the marketing. A typical marketing plan to sell a business includes a document that is called a ‘book’ or ‘confidential information memo’ that describes the state of the owner's business in great detail. It often includes narrative, financials, pictures, and charts. There are all sorts of methods, styles, and content that different firms use to produce these books.
The one thing that a great number of these descriptive offering memorandums all have in common is a phrase that goes something along the lines of this:
“Owner has not used professional, dedicated sales and marketing resources.”
The paragraph where this statement shows up will then go on in greater detail to essentially implicate, and I loosely paraphrase here:
“Can you imagine how much revenue growth you could get if you, the buyer, just went out and hired a couple of sales folks?!”
Savvy buyers, though, aren't having any of this without some investigation. Their thinking is simple. Fundamentally, it is this: if it was so easy, why wouldn't the owner have already done it? After all, the entrepreneur who built the company certainly knows the most about the operation and its potential? So why hasn’t the owner already put their cash flow to work to get more cash flow?
It's a good question.
If you're an owner thinking about selling your business, you need to review how you acquire and keep customers. If there are improvements you could make, I strongly suggest you consider making them now, well in advance of hardcore sale preparation.
Start by asking yourself a few basic questions like:
- How do I obtain customers today?
- What does customer acquisition cost me?
- How much of my business is repeat vs. one time vs. contract?
- What is my average customer ‘life’?
- Where in the organization do my customer relationships reside?
- Does my organization ‘sell’ or ‘take orders’?
- Does my customer profitability vary, and why?
By getting a deep understanding of these points and who in your organization is doing the work to acquire and retain customers, you can get a sense of the expense required to really dedicate resources towards customer acquisition, retention, revenue growth, and, most importantly, if the potential numbers will reflect favorably in enterprise value.
When you have the basic framework of how things work today, you can create a simple model to understand what the economic value will be, how to set compensation goals, and how to measure their effectiveness. The enterprise value of one sales person at $40,000 total target compensation annually can be figured like this:
(Base Salary + Commission + Overhead) * EBITDA multiple
Where EBITDA multiple is the expected value multiple of the company.
For this example, if an owner hired a sales person who earned $20,000 base and $20,000 in commission with a 15% overhead, at a total cost of $46,000, and the EBITDA multiple of the company is an estimated 4 times or 4X, the overall enterprise value or cost of hiring a sales person is $184,000. In order for this to be a good investment, the owner needs to model current and projected revenue, gross margin, operating expenses, and EBITDA and have a return greater than this level.
For this example, to keep things simple, let's assume that every dollar this owner's new sales person generates in revenue translates to 15% of EBITDA.
For a business owner to break even on their investment, their new sales person must generate at least $306,667 in topline revenue, at equivalent gross margins to the average of the business.
There are many other things to consider, including ramp up time, training, management, systems, compensation plans, etc. But growth in revenue and earnings drives not only interest in an owner's business but overall value. The more an owner can demonstrate how it's working rather than how it MIGHT work, and the stronger the EBITDA, the higher the EBITDA multiple will climb.
To give you a sense of the difference a carefully planned sales strategy could make in to your exit, consider if an owner discovered, in the example we're working with, that they could impact EBITDA positively by a net $50K on an annual basis by hiring a sales person. That resulting difference in value with $3M of EBITDA at a multiple of 4X might move that company to a $3.05M EBITDA at a multiple of 4.1X or a difference of $488K.
That's a lot of lettuce.
Now of course, it's more complicated than just that. But the point is to explore your options and invest wisely to demonstrate that the scalability and return is there. What I see time and time again is that small- to mid-size companies often ignore this until it's too late. Hiring professional sales & marketing people can help an owner to:
- Outsell natural customer attrition
- Capture new potential revenue sources/geographies
- Take market share from competitors
- Reduce reliance on key and or large customers that swing revenue levels
- Increase customer lifespan
- Bring important customer and market information back into the operation
There is no doubt that understanding the numbers takes work. Reach out to your accountant, exit planner or advisor for help if you need it. And on the sales/selling side, it is work to understand, hire, train, and manage the resources. On the flip side, there is greater access than ever to outsourced services that can help a business owner develop a sales team and the necessary review points and resulting cadence requirements to get the right outcomes.
Why am I asking you to focus here? Because you've spent years building this business and you deserve the highest value when you sell. Building a competent sales resource or team will likely bring tremendous returns in terms of buyer interest. Think more ‘beholders’ which creates that price competition to drive value.
Then your advisor can put this statement in your confidential information memo:
“Owner HAS professional, dedicated sales and marketing resources that drive year over year revenue and profitability growth”