TOUGH CALL: M&A and You
A bustling mergers and acquisitions environment has you rethinking your family-owned company’s succession plan. What would you do?
As the owner of a third generation LBM dealer, you’ve always felt your future was about as solid as can be. Success, in your mind, would be determined by the extent to which you’re able to fill your father’s, and his father’s, shoes. While that task would be far from easy, it didn’t strike you as all that complicated. Provide quality materials at reasonable prices, and stand behind what you sell. Hire good people, pay them a fair wage and treat them well. And, above all, understand that you’ll succeed only to the extent that you help your customers succeed. Not easy, but far from complicated. Then, at some point in the future, when you feel ready to unplug from work, you’ll transfer the business to your daughter—who you’re confident will serve as a fine steward for your family’s legacy.
That was the plan, until recently, when the stars aligned in such a way that make it very attractive to buy or sell businesses. With healthy sales and margins, and a great reputation, you’ve been approached by several interested buyers. For now, your answer has been, “thanks for your interest, but I’m not looking to sell our family’s business.”
Then, during the LBM Distribution Conference last month, you learned more about the reasons for the velocity of mergers and acquisitions (M&A) in your industry. You heard from serial acquirers and investment pros who specialize in M&A, along with successful LBM dealers who’ve grown their companies by acquiring competitors that, for one reason or another, were ready to sell. And, you recall with a smile the story of an independent dealer who sold at a premium, then bought his company back at a fraction of the sale price. In short, one of your takeaways from the conference was the idea of buying and/or selling as a potential strategy for your business.
Another takeaway was a handful of business cards, each representing a different opportunity.
First, the card from a competitor in your market, who shared that he’s decided to start shopping his business, and would be open to an offer. From your perspective, his company is a bit of a mess, and would take a lot of work to get it in shape. Then again, it’s the only yard in an active area, so there’s plenty of upside potential—provided you could get it for the right price.
Next, the card from the VP of business development from a national chain. Armed with significant backing from a private equity firm, he said that they’ve had their eye on your company for a while, and would be prepared to make you a generous cash offer.
Last, the card from the M&A firm. The guy you spoke to assured you that his company could get you the maximum sale price for your company, which would offset any fees you’d pay them. And even if you’re not ready to sell today, he said that he could help you optimize your company’s value for a possible, eventual sale.
The cards are on the table. Which would you call?
|1. The competitor. You’ve no doubt you could make your competitor’s yard solidly profitable, which would enable you to pass a larger company on to your daughter.
2. The national chain. While you’d never considered selling before, you have nothing to lose by listening to their offer.
3. The M&A firm. A conversation with people who buy and sell companies for a living is a logical first step as you decide the best path forward for your company.
4. None. You have a succession plan in place that keeps your business in the family. Your best move is to neither buy nor sell, but to stay the course.
If you’d take a different plan of attack, email your suggested solution to [email protected]