Information

Time on Market: 13 months

Client Objective: Owner 1: “Sell my company so I can retire and play golf.” Owner 2: “Sell my company so I can travel with my family and then start another venture.”

Discovery Meeting: The two partners started this business in 2013. Both had recently had some health issues and decided it was time to consider selling the company. The older partner was ready to retire, and the younger partner wanted to start another company. They had been approached by a strategic buyer that made an offer with a very attractive purchase price, however, it was 100% seller note so they declined. We provided our opinion of value and were informed that it was significantly less than the offer they had received. We explained that the value of a company varies greatly depending on the buyer and that very likely the offer they had received was inflated to make up for the fact that it was 100% seller note. The owners had been referred to us, so we suggested performing a 90-day market test and then reevaluating.

Assessment: The business had customers in 26 states that were companies with 5 to 500 employees with seemingly very little customer concentration. The company had year over year growth with 96% of revenue being monthly recurring on a 3-year contract. Additionally, the company was extremely scalable and had a 3% customer attrition rate which is excellent. The only challenge we saw initially was the target purchase price.

Deal Process: We targeted over 100 potential strategic buyers and filtered those down to the top five. We enticed offers from all five buyers and they all came in very close to our opinion of value. We countered and after several negotiations, two buyers increased their offers significantly. We advised our clients to select the offer with the most cash at close.

Major Challenge: The buyer hired KPMG to perform their due diligence. We were preparing to enter the legal phase when the buyer reached out with some bad news. KPMG had discovered that the company had 40% customer concentration because one customer owned several other companies that were also customers. The risk of losing this customer caused the buyer concern and they wanted to renegotiate the purchase price. We spoke with our clients, and they became extremely upset with the buyer and said they would not agree to a reduction. They said they had never been concerned about losing that client. We asked them why and they told us.

Solution: We explained to the buyer that this large customer had proven to be very loyal over the last 9 years because the services they provide them helped them become more efficient which allowed them to grow rapidly. This customer now acquires several companies a year, so they are always adding new locations and increasing their monthly spend. This meant it would be difficult and expensive to switch all their locations to a competitor, not to mention the fact that they were a very happy customer.

Result: Closed transaction for 39% over market value.

Conclusion: At ATK Ventures, we listen to you as our client and leverage our experience to help Maximize Your Exit!