Heartland Business Transitions, Inc. provides intermediary and investment banking services for the critical transitions faced by businesses – mergers, acquisitions, business sales and ownership successions.

CASE STUDIES

An Experienced M&A Advisor Yields Value for Sellers 

Critical Takeaways

Heartland Business Transitions is an experienced M&A advisor that can –

  • Execute an active auction to ensure the best buyer for the seller.

  • Negotiate terms that reflect contingent outcomes as well as the best case, hence maximizing seller value.

  • Work to keep buyer and seller focused on the goal of a close, even in the face of unexpected delays.

  • Strive to ensure mulitple deal "wins" as with the equity opportunity we presented to our client's founder.

The Situation

The shareholders of a fast-growing, Midwest-based food processing business approached Heartland Business Transitions to identify a deal that maximized returns with a buyer that could take their business to the next level.

Our client faced a challenge in selling that came from the absence of a significant proprietary product. Almost all of their products were produced on a contractual basis. This challenge was compounded because a single customer made up 50% of their sales.

Approach

Initially we assumed that the likely buyer would be found amongst strategic players in the food processing industry. When interest levels did not reach what we expected, we used our creativity and resources to target buyers outside of the primary group. Our efforts generated signed Confidentiality Agreements by 137 strategic and financial buyers and nine offers by the time we accepted an LOI.

After getting the LOI signed, two problems emerged with the sale. The first was that there was a significant shortfall in the EBITDA from the projected figures. The second, and most critical, concern came from the announcement that another company was acquiring the customer that accounted for 50% of our client’s revenue. Since there was uncertainty about what would happen to their contract after the acquisition, the deal was not able to close until it was determined that the contract would be renewed.

Results

Not only did our client successfully transition the business to include new ownership, they got an excellent price with a very favorable deal structure. The buyer was a private equity group that specialized in the food industry, rather than a strategic buyer. We were able to locate the buyer through our marketing efforts and sell the company for a price in excess of six times EBITDA.

The company was sold at a premium because of our auction process between nine competing buyers. This competitive auction process, included three rounds of bids between the buyers, created a sense of urgency that led to our client receiving a premium sale price and structure.

Our deal structure expertise produced a number of gains for our client. For example, clauses inserted into sales adjustments ended up being a very important way we helped our client. Because of the unforeseen 300-day extension in due diligence, this stipulation allowed the closing value to be one million dollars higher than it would have been absent the clause. This addition also allowed for the sellers to save an additional $400,000 in taxes.

Further, we provided a co-investment opportunity in the new company for the sellers, negotiated a warrant with options that would be fully-vested under extremely modest growth and provided for significant upside equity participation in the new company for management.

The buyer was a great fit for the sellers, the Company’s future and for the Company’s founder. The founder’s equity had been diminished as he raised money to expand his business. The new owner essentially recapitalized the business with the founder. This significantly increased the equity stake of the founder. The buyer provided the capital to grow the company into the business that the founder had originally envisioned.