Industry Roll-Up Accelerates Sale of Family-Owned Business
THE SITUATION: Well-established, $60MM revenue construction company of 20+ years needed advice and representation on the sale of their business to a private equity group as part of an industry roll-up merger.
This family-owned, highly competitive, capital-intensive business had one son working in a key role. Having started the business from the ground up, the owners were ready to retire.
Key Owner Questions
What is the value of our business?
After taxes, fees, and paying off debt, will selling the business provide enough liquidity to continue the lifestyle we have now as owners of the business?
Our son has worked in the business for years. How do we protect his future?
What changes can we make to increase the marketability and value of the business?
What is the process to sell our business and how do we time the sale given the cyclical nature of our business?
OUR APPROACH
Our Master Exit Plan® approach addressed the owners’ business, financial, and personal concerns:
Valuation: We performed in-depth quantitative and qualitative analyses to calculate the market enterprise value of $24.7MM, which includes the entire capital structure of equity and debt. The equity value, which includes all assets minus liabilities, was calculated to be $20MM. The valuation served as a basis to understand the expected proceeds if the company has an anticipated debt-free/cash-free structure when it is sold to a third party.
Optimization Plan: The valuation identified opportunities to improve the value and marketability of the business, such as adjusting their pricing strategy to capture overhead costs to improve profit margin, reorganizing the management team to move the son into a more senior role, elevating all systems for greater efficiency, and decreasing personal expenses run through the business.
Post-Ownership Plan: The post-ownership plan established their personal goals and created a baseline to determine their personal financial needs upon exit. This information was instrumental in establishing their exit timeline.
Personal Financial Plan: We created a financial plan for the owners, which reflected the sale of the business (net of all taxes, fees, and debt) and multiple deal structure scenarios, including a potential 15, 20, and 25 percent equity roll. The financial plan helped the owners to understand the financial impact of a sale and to assess risk and the impact of an equity roll.
Exit Strategy: Based on the valuation, their personal financial plans, and industry factors, the owners opted to engage in a formal mergers and acquisitions process.
Tax Mitigation and Estate Plan Review: We identified a strategy to minimize taxes on the sale of the business by executing an F-Reorganization strategy, which provides tax-deferred treatment on the equity roll.
Result
The project culminated in a highly competitive limited auction, successfully engaging 47 qualified buyers. This robust market interest generated three formal Letters of Intent (LOIs), providing the leverage necessary to secure a premier deal structure. The final transaction exceeded $30MM in total cash value, complemented by a strategic equity roll and comprehensive employment agreements for key personnel.
