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Strategic Financial Options for Closely-Held Businesses

profile5The calls come mostly from intermediaries on behalf of a strategic investor who has identified your company as an attractive match. Others come from a supplier or customer who wants you to be aware of a potential opportunity to buy or invest in a struggling producer. Some private equity firms have even made direct approaches to talk about your taking some money off the table and continuing to control the business. Is it just stirring the pot or is there something that might be of real interest?

You’re pretty well informed about how businesses like yours are valued and what strings are attached to raising capital. There is plenty of loose talk about multiples of normalized EBITDA for a debt-free balance sheet with a net asset adjustment for net assets or working capital at closing. You know that non-control investors want some form of downside protection and a put at fair value in five years to get their return if there is no sale.

Even with a keen awareness of activity in your industry, there is quite a lot that is not obvious. What did they really get and what did it really cost? What were the stumbling blocks and the types of issues that they wish they had addressed earlier? There are always factors which can and do have a material impact on deal structures and whether the transaction can even be completed.

Making the most of your situation begins with knowing your strategic financial options and having reliable information specifically relevant to what you might want to do. We work with business owners to answer these questions.

  • Can I improve the financing arrangements that I already have?
  • How attractive is our company to a strategic or private equity investor?
  • What is a realistic valuation for raising equity or selling the company?
  • What would the structure/cost be for subordinated debt to relieve bank pressure?
  • Which investors/lenders/buyers would be most interested and most valuable?
  • How should we finance an acquisition or our expansion plans?
  • How could we recapitalize for partial cash-out or to buy-out a partner?
  • What other alternatives should we be aware of?

StrategicFinancial5MidMarket’s value proposition is to bring our knowledge and insight to conduct a thoughtful analysis that you can use to accomplish your goals. We deliver relevant market data and valuable information along with sound independent advice aimed only at your best interests. We do that on a timely and cost effective basis that in no way limits your flexibility or ties you to a commitment to us. Let us show you what we have done for so many business owners for over 30 years and how we can make that valuable resource work for your advantage.

Pass the cranberries, please

Cranberries_SmallClement Pappas and Lassonde Industries will share a special Thanksgiving this year. The Pappas family is big in cranberry products and publicly-traded Lassonde saw an opportunity to bulk-up. The result was a cash purchase at 8.3x cash flow with a recipe for succession and continuing meaningful ownership stake.

After pocketing $400 million and keeping nearly 20% of what is now a subsidiary of a strategic partner parent company, the third generation secured the roles of CEO and EVP to continue to lead the 630 employees who owed their livelihoods to the second generation brothers who built the business into a private label powerhouse.

Brothers Dean and Peter Pappas took over the business in the mid-1960s when their father Clement passed. He had arrived at Ellis Island in 1914 and founded the business in 1942 after working with his own brothers for several years.

I had the pleasure of meeting Dean and Peter to work on occasional estate planning and acquisition projects as they systematically transformed the business into a national player. Peter fell ill and passed in 2010. The company continued to expand and invest with a long view.

With a strong competitive position and industry dynamics confirming the merit of its strategic direction, it was entirely logical for a suitor eager to satisfy public shareholders’ thirst for growth to come calling for the critical mass to support national customers throughout North America and benefit from combined logistics, distribution, purchasing and other economies of scale. In early summer 2011 the terms were set for a structure that provides for all the major elements of the issues facing multi-family businesses.

The company clearly valued at a handsome premium in reward for growth and an operating margin of 15%. The max of cash proceeds of $400 million and a continuing equity position allowed the family shareholders maximum flexibility for current needs and future generations to benefit from the business combination while the third generation stays at the helm. That is quite a meal.

cocktail-napkin3MidMarket appreciates that the complexities family business owners face today make it increasingly important for them to be able to rely upon highly experienced advisors dedicated solely to the best interests of the family. We invite you to contact us to find out how we can be of value to you.