Calder Capital focuses on the sell-side representation of small West Michigan-based manufacturing companies. Wondering how to sell your manufacturing business? Here is a textbook case study describing Calder Capital closed on the sale of a recent manufacturing business-for-sale engagement in less than five months.
Time Line & Story:
April – Max Friar is introduced to the owner. At age 40, the owner of this profitable machine manufacturer was burned out and had a vision for another company he desperately wanted to start. The challenge was that the mental burden of ownership of his current company plus the day-to-day stress of oversight had all but zapped his energy. Although his current company was doing amazingly well (cash flow $500,000+) and his weekly time investment was limited to approximately 20 hours, his inability to fully execute his vision and passion made his business feel like a prison.
He started his company out of a passion to manufacture the highest quality machines ten years prior. The company grew in both sales and profits every year, even through the Great Recession. Â At the time the company was doing approximately $1.8MM in sales and cash flowed $500K+.
May – Pre-Sale Planning revealed that the company was highly marketable, largely due to its strong cash flow, growth trend, and niche market. Based on our experience and the conducting of a thorough business valuation we believed that the owner would receive approximately $1.5-2.0MM for the business, the range being largely dependent on transaction structure.
May – July – Marketing, Buyer Identification & Negotiation. Due to the attractive nature of the business, the marketing of the company was not difficult. The Company was marketed using the standard practice for a business of this size and type – targeted email blasts, postings on M&A listing sites, discussions with buyers in our broker network, etc. Typically when individual buyers see a company with these characteristics they flock to it.
After approximately 10 showings we had enough interest to begin requesting formal letters of intent (LOIs). We set a deadline for receipt and ended up receiving three (3) LOIs. We immediately threw out one low-ball offer. The two remaining LOIs were interestingly very similar in price and structure. We ended up choosing to move forward with an individual buyer due to: a) the owner’s comfort/trust in him; b) his flexibility in a transition; and c) his offer was the strongest in terms of guaranteed payment (no earn-out). Before signing a final LOI, the buyer and seller met 2-3 times to negotiate some of the finer details and build trust. We can’t say enough about having the buyer and seller spend time together prior to the closing. As a firm, we feel it is very important for buyers/sellers to “peel back the onion layers” with each other. This is a small business. It’s not always pretty. Trust and no surprises. That’s how to get a deal to the finish line.
August – Closing the Transaction. During August we assisted the buyer and seller through due diligence. Because this was a stock transaction, the buyer was highly concerned with ensuring that there were no skeletons in the closet. Despite representing the seller, we made sure to help the buyer with due diligence. Oftentimes brokers fail to realize that many buyers have never purchased a company before. If you are going to satisfy your client’s goal of selling their company, you need to make sure that you are able to help the buyers in good faith. Once due diligence ended and the final purchase agreement and schedules had been negotiated we met at the seller’s attorney’s office for a brief, professional closing. Afterward, we all shared a beer at Founders!
We are happy to say that our client received the high end of our valuation assessment in guaranteed funds.
Closing Comments:
I enjoyed this transaction tremendously, particularly getting to know the seller personally and learning about the evolution of the business. This is your classic successful seat-of-your-pants entrepreneur scenario. The seller founded his company out of a passion to produce the highest quality machines in his industry. Despite failed partnerships, lost and changed friendships and other small business challenges, he was determined every day to grow and improve. He hired employees, then a manager. He bought equipment. He learned about eCommerce. He learned about supply chains and negotiating with vendors. The best part is that he treated people right. He created jobs, respected his employees’ personal lives, and made accommodations so that they enjoyed working with him. He took care of them.
But slowly, steadily, “entrepreneurial creep” entered his life. Managing the company was not fun anymore. It was stressful. He couldn’t create, be free, be left alone anymore. Making money hand-over-fist was not worth the emotional and mental burden of ownership. So he decided to sell. And we helped him the right way. And it worked out great for all.
Testimonial
“At all times during the process, I found Max Friar to be honest, dependable, hard-working, genuine, professional, and thoughtful. Max took the time to get to know me, my business, and my goals. What struck me the most about Max was his determinedness, communication skills, and ability to handle stressful situations with ease. He was also always available, usually immediately, to attend to my questions and concerns. Something I view as paramount- feeling like l was a priority. Max prioritized me and my company and that speaks volumes about his integrity.”
– Founder, Machine Manufacturing Company, West Michigan