Once the management practices and strategic plan is solid, and you have positioned the business to move forward with a liquidity event, what are the next steps?
We continue the consultative process with the ownership group to clearly understand their goals from a transaction.
There are numerous variations to each of these, but the following are the basic options:
● Strategic Buyer - These are industry players that have a strategic reason for acquiring your business. They typically are interested in buying 100% of your business, but some will take a minority or slight majority position with the rights to purchase more of the company at a later date. Pro - This type of deal allows you to be part of something on a scale that you never even imagined. Con - Typically, you lose much or all of your companies identity in this type of deal.
● Financial Buyer - These potential suitors are Private Equity Groups, Family Offices, etc., that may or may not have any other businesses in our industry. They will sometimes take a minority position in the company but are typically interested in a majority position and sometimes 100% of the company. The most common model being used today is for them to take a strong majority position in the company but look for the previous owner to retain about 20% of the business. Pro - This model provides the primary owner(s) with a liquidity event with the next generation or management team having a vested interest in the future success of the company, but with a strong partner from both financial and resource perspectives. Con - Financial groups have a less personal decision making process that isn’t typically found in the private ownership environment. This often becomes a pro but the change can be painful for an organization.
There are many Pro’s and Con’s to each option, and it’s important for the ownership group to understand these relative to their own personal objectives.
What are the most important things for ownership to consider when making their decision on these options?
Sellers and buyers should clearly know the opportunity points which may include:
● Shared resources
● Expanding market share or brand
● Enhancing functional and leadership capabilities
● New capital to invest in expansion and growth
● Competitive advantage
● Enhancing the customer and consumer experience and reach new ones
● Expanding into new domestic and/or global market channels
● New product growth
The culture and behaviors of an acquirer are also critical to consider. It’s imperative that you know what you are signing up for, and what the post closing future will look like. Successful businesses in our industry are all about the people. Cultural and behavioral differences are often the culprit of unsuccessful deals.
Overall, business fit and strategy drive deals, but the alignment of culture, people, and core values get you to the finish line and help indicate future success for all parties going forward.
This can be a difficult and emotional process to go through, so here’s our advice to clients: This will be one of the most emotional experiences in your professional life, and usually will happen just once. There are many complexities, frustrations and a personal investment during the negotiation, due diligence, closing, and post-transaction. It will be an emotional roller coaster as you work through the process, but experienced advisors can help you prepare and navigate these unchartered waters to your benefit.
Many people ask us how long the deal process typically takes. The length of time varies, heavily depending on the focus and sophistication of both sides, but once the value enhancing process is completed, a deal typically takes 120 to 180 days to complete from start to finish.
It is important to think about the closing of a deal as a new beginning versus an end. Typically, you are going to have a vested interest going forward for some period of time.
It’s great to take some chips off the table, but this new beginning can be fun and a breath of fresh air when approached correctly. Having been a part of dozens of deals, our experience can successfully guide you through an earn-out, or with your next bite at the apple depending on the type of transaction you choose.
In 2017, Julie Krivanek of Krivanek Consulting Inc. in Denver and Steve Grinstead of The Grinstead Group in Dallas partnered to help owners looking to sell their businesses.
This is part three of four in a series of stories for produce businesses and their business partners, written by Krivanek and Grinstead.