Why a $100 Million Big Fish Would Want a $1 Million Small Fry
Your dream of selling your printing business to a bigger company and walking away with a mountain of cash is a viable one that can come true. It’s a scenario we often see in the financial news. Unfortunately, these headline-making deals don’t represent the majority of transactions. Although there are multiple metrics for “success,” approximately two-thirds of all mergers and acquisitions fail before they close.
As an M&A intermediary who helps buyers and sellers meet, I have witnessed why some deals work out and others don’t.
This uplifting story illustrates what a successful deal looks like. It explains why a company with annual revenues of $1 million was acquired by a firm with $100 million in annual sales.
The acquisition process didn’t unfold exactly as the small business owner originally envisioned. But in the end, the small-business owner received much more than a simple lump-sum payment. He received a chance to continue to grow the niche business he had established, while enjoying more financial security and time to spend with his family.
The key to this success story can be summed up in 1 word: Chemistry. Chemistry between a seller and a potential buyer can only begin to develop when the seller accepts that the process is less about him and his needs and more about what the buyer wants to achieve and how the seller can help facilitate that. Only then is a win-win deal possible.
Before we get to this deal’s happy ending, we must start at the down-in-the-dumps beginning.
Names of the businesses involved have been withheld because I guarantee every client complete confidentiality. Let’s call the small business owner Little Joe and the investor Big Bob.
Too Much Travel, Debt, and Trouble
When I met Little Joe at a conference, he seemed visibly stressed. As we talked, he told me about the terrific niche he had created in the label business by developing a special adhesive for produce, fish, and game. Because his product was unique, his business was booming and his margins were in the top-10 range of all printing businesses. It seemed as if he would have business coming in as long as he wanted it.
But Little Joe was running himself ragged. He had started the company on the West Coast where he met and married his wife, and started a family. To reduce costs, he moved the company inland to another state. Soon he was spending 75 percent of his time on the road, commuting between California and the company’s new location. He missed many of his children’s special moments in high school and feared missing them compete in collegiate athletics.
At the same time, the human resource side of Little Joe’s business was faltering. He had moved his operation to take advantage of lower wages. But in the process, his talent pool shrank. He had to interview 61 people just to find 11 employees and 75 percent of the applicants had criminal backgrounds.
When he approached me at an M&A seminar I conducted, Little Joe just wanted to chuck it all. He wanted to sell the business for the most money he could make, cover his debts, and leave the business behind. He was convinced his business life had reached a dead end.
He Couldn’t Hear Opportunity Knocking
When Little Joe came to me, I gave him a perspective he had lost sight of. Little Joe was an extremely knowledgeable technician with sales skills and he had created a highly profitable business.
Although he tried selling his business through a local business broker, he wasn’t having much luck. What Little Joe didn’t understand was that having a niche market and being profitable wasn’t enough.
An investor doesn’t buy a company based on what it’s done in the past; they invest because of what it can deliver them in the future.
An investor doesn’t buy a company based on what it’s done in the past; they invest because of what it can deliver them in the future. Share on XAcquiring companies look for synergistic opportunities in which the merged operations will deliver profits that exceed the sum of what each organization could achieve if they remained separate.
Cost savings and efficiencies result from the post-sale integration of redundant functions such as marketing, human resources, and accounting. Growth opportunities come from expansion into adjacent vertical markets, new products and territories, or the faster implementation of advanced technologies.
In the Big Bob/Little Joe acquisition process, our role was to foster a synergistic and strategic relationship that would achieve a winning outcome for both the seller and the buyer. We suggested constructing a deal in which Little Joe and his expertise would continue to be part of the company.
Little Joe wasn’t aware that many mergers and acquisitions involve more than cash. Because some buyers also value the expertise of the acquired company, it’s common for business owners to be hired in some capacity after the deal is done.
The first step toward a synergistic relationship is an independent, certified business valuation. This includes assessing the organization and market opportunities.
To establish trust with a potential investor, we gathered financial data that was independently verified. Then we created a prospectus (a confidential information memorandum–CIM) that detailed the strengths and market opportunities of Little Joe’s company.
With complete confidentiality, I contacted only those buyers that might be likely to build chemistry and an honest, synergistic relationship with the seller.
The process of selling a business should never begin with an email blast and mass-marketing promotion. Only careful research through a well-established network of investors can get the best results.
The process of selling Little Joe’s company didn’t happen overnight. For more than a year, Little Joe experienced all of the tension, fear, and self-doubts associated with big financial transactions.
Nevertheless, Little Joe trusted his advisory team and counted on them to see him through the process.
The amount of work that went into identifying Little Joe’s strengths paid off. We lined up eight potential buyers–three in Minnesota, two in California, and one each in Iowa, Texas, and Oklahoma.
Five of the potential buyers made offers. Little Joe countered one of the offers and a deal was made. Here are some of the benefits Little Joe received:
- He sold the business at a substantial profit. The investor, Big Bob, understood the upside of Little Joe’s business and the financial payment helped cover all of the outstanding debts.
- Little Joe was hired and highly motivated to lead the company. Big Bob believed in the deal and Little Joe’s expertise. Big Bob’s company was looking to expand its distribution network and they knew Little Joe could take them where they wanted to go. They hired Little Joe with a terrific compensation package and substantially reduced his travel time.
- Big Bob’s company retained all of Little Joe’s employees. Big Bob recognized that all of the people Little Joe had hired were good workers. So Big Bob relocated the whole crew to the new location.
After the deal was finalized, the company enjoyed fantastic sales. Little Joe felt energized and eagerly tapped new markets.
Lessons Learned
If you are thinking of selling your business, consider these three important takeaways from this story:
1. See the big picture. Because Little Joe didn’t work with strategic transitions every day, he didn’t realize he could sell the business and still be a part of it. Don’t undervalue yourself, but be careful not to be unrealistic or greedy. Investors won’t hand you a wad of cash without expecting a significant return on their investment.
2. Be patient. Little Joe felt ready to walk away several times before the deal was finalized. Most buyers today use sophisticated due diligence processes to reduce the risk that the deal will fail after the sale is final. The more you learn about what to expect during the sales process, the easier it will be to hang in there during the rough patches.
3. Trust your team. Many business owners try to navigate the transaction on their own. They become so immersed in learning how to sell the business, they don’t stay focused on keeping it profitable and growing. As the former owner of a printing business, I learned firsthand how important it is to hire experts with specific experience in strategic financial transitions.
Little Joe’s smartest strategic move was to surround himself with a qualified merger and acquisition (M&A) team who could handle the day-to-day details. When it came time to sell the business, Little Joe’s company was a top performer on paper. So he received a solid, market-driven price.
When it comes to finding the right buyer for your company, it’s all about establishing a strategic and synergistic relationship. Think win-win, and your dreams of a successful exit can come true.
For more information about our unique approach to finding the right buyer for your company and developing strategic opportunities, call me at 561-543-2323 for a confidential discussion.