A privately held services company shouldn’t overlook the possibility of selling or merging with a larger player to obtain liquidity and maximize shareholder value.

Even in difficult economic times, it’s still possible to find precisely the right buyer for your company, according to George M. Shea, a FOCUS Partner, who shares an instructive sales experience in a new article, “The Biggest Sale of His Life: How One Small Business Owner Persevered and Sold His Company.”
 

By all accounts, Ben Meluskey didn’t have a reason to worry. His business was doing well; sales were up, employees and stockholders were happy, and his key vendor relationship was working smoothly. Yet, when Ben called me to sit down with him and discuss different alternatives for the future of his company, he clearly was concerned. You see, Ben’s business, while growing and highly profitable, was not one that was avidly coveted by outsiders, such as venture capitalists or investment banking underwriters seeking IPO candidates.

From its inception, Leland, Inc. had been a service business dependent upon one major vendor, with revenues that were often unpredictable. The company sold and implemented software systems made by other people to smaller manufacturing firms that most outsiders had never heard of. Although Leland had no patents or proprietary technology, the firm did have a strong reputation for getting the job done on time and at the right price.

Ben knew he had something good, but didn’t want to continue in it forever. Fast approaching retirement, he needed to develop and create an “exit” strategy where he could gain liquidity or the funds necessary for him to have a successful retirement.

THE SOLUTION - PRIVATE SALE

Ben called us because of our expertise in working with private, information technology service companies like his. We urged him to consider a carefully planned, systematic process under which we would prepare Leland for, and then execute, a sale of the business to companies we knew would be interested in his market. We also advised him that he was at least six months away from being ready to start this process, and gave him a “homework” assignment to make his company a better sales candidate.

Almost six months later to the day, Ben called and said he was ready! We showed the company to a discrete number of players, most of whom were seriously interested in acquiring Leland. To Ben’s surprise, we obtained four strong offers and had our choice of potential partners. But then, of course, things never go as smoothly as planned.

BACK FROM DISASTER(S)

Leland signed a Letter of Intent with the buyer willing to provide the best deal -- a strong, publicly-held Midwestern firm -- whose business was taking off dramatically and was a “high flyer” on Wall Street. Unfortunately, during the final due diligence period, our high flyer started to gets its wing clipped and diverted attention away from the sales transaction. Time went on and on and on and still no closing!

Fortunately, the other potential buyers had not lost interest, and we obtained a matching offer from one of them. Ben was feeling good again, and so was I. But then…

Two weeks before the closing, I received a strange phone call from the President of the buyer, BDM International, who informed me that the company itself was being acquired by an even larger player, TRW. They still wanted to do the deal, but the closing would be held up. As a result, we had a second sale on our hands to TRW’s management team. Fortunately, we were able to navigate this perilous shore and return the good ship Leland to safe harbor.

Finally, a good four months later than it should have, TRW/BDM bought our client, Leland, Inc. The good news is that the wait was worth it. Ben and the shareholders came away with a great deal, and the new companies worked well together

COULD THIS WORK FOR YOU?

If you’re a privately held services company, don’t overlook the avenue of selling or merging your firm with a larger player to obtain liquidity and maximize shareholder value. Even in difficult economic times, it’s still possible to find the right buyer for your company. In the words of Ben Meluskey, “If you’ve got a strong business and a knowledgeable advisor, you can get the value you want – if you stick with it!”

With 30+ years of industry experience in acquisitions and divestitures, private placements of capital, business development and strategic planning and operations, George acted as a principal or facilitator in over 100 transactions. For the past 14 years, he ran a boutique investment bank in Atlanta and Jacksonville, acting as a finder and consultant in new business development activities. George also arranged the largest single infusion of equity capital ($25 Million) in Georgia’s history into an early stage technology-based company, a transaction named “Venture Capital Deal of the Year.”

For more information, contact George M. Shea at 904-491-1757 or via e-mail at george.shea@focusbankers.com.