M&A Advisory Firms – Why You Need One If You Are Selling Your Company
Last month a completed transaction was announced that really caught my eye. This happened for two reasons. First, it was a restaurant acquiring another restaurant and the fact that a private equity firm backed the acquirer (more on this later). The second reason, and the one that really hit me, was how complex and involved this transaction must have been. You will see what I mean when you get to the details.
The transaction I am referring to was the acquisition of three Cadillac Ranch All American Bar & Grills by Granite City Food & Brewery. Here are just a few details of the transaction from the official press release:
“Granite City Food & Brewery has acquired the assets of three Cadillac Ranch All American Bar & Grill restaurants for approximately $3.3 million. The company also acquired certain Cadillac Ranch intellectual property from Restaurant Entertainment Group for approximately $1.5 million.
Fifth Third Bank provided a $5.0 million delayed draw term loan, which Granite City drew in full to fund the acquisitions. Fifth Third Bank also further increased Granite City’s line of credit from $7.0 million to $12.0 million, bringing the total credit facility to $22.0 million. The amount available under the line of credit will decrease by $2.0 million upon the first to occur of Granite City’s planned sale-leaseback of its real property in Troy, Michigan, or April 30, 2012.”
So let me ask you a question as the owner of a privately held company: Could you have constructed the specifics of this deal on your own? My guess would be that most business owners, who are experts at running their own businesses, would have no clue about how to create a deal structure like this and how to negotiate so that it actually closes.
Deal Structure Is Key
It is deals like this that make having a trusted M&A advisor working with you so vital (and trust me, most deals end up being far more complicated than most business owners can imagine).
Generational Equity has closed more deals in the lower-middle market space than any other firm during the past several years (don’t take my word for it, click here to see the official third-party league tables).
I wish I could tell you that our deals are usually all-cash transactions. Although a few are, the vast majority have some form of deal structure that is a combination of cash, notes, stock, earn-outs, non-competes, consulting agreements, etc.
The sheer complexity of finding an optimal buyer and structuring a deal to your benefit without professional aid is nearly impossible. This is especially the case in a transaction like this.
Granite City Food & Brewery is funded by Dallas-based private equity firm CIC Partners. And this brings me to my initial point: Equity firms that are doing roll-ups in an industry (acquiring platform companies and then bolting on add-ons to them) are usually looking for specific types of companies to acquire. In order to get your investment opportunity in front of the right firms, at the right time and in the right format, you truly need advisors skilled in dealing with these types of buyers.
If your offering memorandum does not clearly spell out why your company would be a great fit, or if it is not formatted in a way that equity firms like to see information presented in, chances are good that you will not sell to an optimal buyer.
Generational Equity understands that many entrepreneurs choose to sell their companies on their own. Although we don’t recommend this, we do have information that can help you if you are out there without representation.
First, we have written a series of whitepapers that are designed to hit key topics relating to selling your company effectively. If you would like to see a list of them, please click here and feel free to download any of interest to you (we would recommend that you download them all).
Secondly, we also offer free, no-obligation workshops that are designed to provide business owners with key information about finding and negotiating with optimal buyers. Folks who attend our sessions often tell us that they are the most informative business conferences they have ever been to. If you would like to learn more, please click here.
No matter what you do, either selling on your own or using a professional advisor, recognize that most transactions end up being far more complex than you could ever imagine. The key will be staying flexible and negotiating in a spirit of win-win. If you do both of these, chances are better that you will eventually sell your company.
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