Deal Structure

Deal Structure – Value in Transparency

Selling a Business – Woes to Heroes Challenge: Reporting Financials / Partner Disputes Due to partnership conflicts, a

Selling a Business – Woes to Heroes

Challenge: Reporting Financials / Partner Disputes

Due to partnership conflicts, a client went from being a passive minority investor to an active majority owner in a short amount of time. This was in an industry where they had limited knowledge. To further complicate the selling process, late paying customers and a non-traditional accounting approach made year-end financials appear drastically different from the health of the business, which would cause great pause for lenders. Given that a majority of business transfer deals are financed through some type of third-party financing, and saddled with the financial limitations of the company, it was obvious that the buyer pool could be limited, which in turn could increase the time to close. However, the seller was anxious to sell quickly, so we had to balance the seller, the business hurdles, and marketplace.

Approach: Expanded Deal Structure / Demonstrated Value

Established Expectations – Because of the late-paying customer and non-traditional accounting methods, we understood the lending climate would be limited at best if not non-existent. For this reason, we informed the seller that a significant amount of seller financing would potentially be involved. We provided an estimate of value as well as an expected deal structure before engagement ensuring the seller would be open to all types of offers and to lay the foundation that a full-price all-cash offer would be the exception and not the norm.

Told the Story – While every buyer could see the financials were on a decline, the company still had some great assets. 1) The company still had multiple strong accounts, 2) they were focused in a very niche industry within the IT sector, and 3) they still had multiple channels of revenue. The core of the company was still intact and with a focused growth strategy, a new buyer could easily return the company to producing higher revenues.

Focused Marketing Search – Given the issues of the company, we understood a generic buyer probably would not be the best buyer to target. We knew we either needed a strategic partner who understood the assets of the company and could create synergies or an IT professional who wanted to run his own operation.

Result: 
Received 3 competing offers | Closed in 4 ½ months | Seller received 94% of asking price

  • An IT professional purchased the company using a ROBS (Rollover for Business Startups).
  • The purchase price comprised of equity from the buyer and a seller note.
  • Since no outside banks were used, we were able to have a quick close and save time.

 

 

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