Good Ideas From Shark Tank Deal

One of my colleagues in Cornerstone Alliance was front and center in a recent Shark Tank exercise.

A business that had been sold was put in front of four potential buyer groups. Each analyzed the information presented and came up with a hypothetical indication of interest and value they would offer for the business.

The exercise and discussion showed that the M&A process we use to sell companies can be effective. It also showed in detail how companies are reviewed by buyers.

The case study involved a midwest enterprise manufacturing a product from recycled plastics.

Here are some of my observations:

Management teams matter. The best values offered by the Shark participants resulted from confidence in the company because a management team would be remaining post transaction.

The team that had helped build the company was going to roll their capital stake in the enterprise – real or perceived – into the new entity and the new ownership. While the owner wanted to cash out, he had fostered a team that ran the operation. They knew their jobs, and did them well.

Why is this important? It helps a buyer feel confident betting on the future. It shows stability. It demonstrates belief that the company can grow.

Profitability really counts. The company was large enough, and managed well enough, to generate enough profit for a buyer to want it.

Sometimes owners are so focused on setting up an enterprise that supports their lifestyles that they ignore preparing for the future. This comes by developing systems, processes, equipment, and a management team that will support the enterprise in years ahead.

Profits are the result of a good operation. Assets are important, to be sure. But assets that produce revenues and profits are critical. This results from paying attention and focusing on net earnings.

A buyer wants profits, not just assets.

Telling the story, effectively. The Shark Tank “bids” for the company resulted from review of data and information presented by the M&A Broker in the confidential information memorandum. This is known as the CIM, The Book, the business summary. It generally is a 20- to 30-page presentation prepared by the advisor.

In this case, it was all theoretical but based on reality. The company story and presentation reflected in the CIM is the hook that gets buyers interested. A good story, told poorly, is not effective. Having a good M&A advisor skilled at communicating the opportunity makes a difference.

In the exercise, the offers varied wildly! The numbers were millions apart. How could this be?

M&A process makes a difference. The range of prices generated by the Shark Tank demonstrates how the same company, reviewed by multiple buyers, can provide owners a vast range of prices and terms.

The highest number may not be the best value. Terms can make a sale more effective. Having the “house in order” makes diligence more efficient. A quick closing can be accomplished.

Because an M&A process was used, managed by a good advisor, the case at the center of the exercise provided owners options.

Are you your best advisor? We know owners who thought they could get the best deal on their own only working with one buyer, usually one that approached them directly. This could be a major mistake.

We believe in developing a market for the company being sold, establishing a level playing field for buyers via good information and a fair schedule, so multiple parties can review the opportunity and generate offers.

Shark Tank is fun to observe, but it also raises some points to keep in mind. Give us a call and we can cover the bases with you more closely.

What our clients are saying...

“New Image Coatings, owners of Seal-Once, retained Business Transition Strategies in April of 2015 to locate a strategic buyer for the company. This was successfully completed during April of 2016 when we were acquired by UC Coatings of Buffalo, New York. Working at our side throughout this process were John Howe director, and Ken Schaefer, deputy director, of Business Transition Strategies. From the start of the project, where the information memorandum was developed, to helping us create the management presentation to acquirers, through negotiating the letter of intent and then the definitive agreement, they were there with me and our professional team every step of the way. It took nearly one year to the day to complete the project, but they never lost focus on my best interests and helped me keep my eye on business. This sale was very complex. It included transfer of trade secrets from the product developer, …as well as the transfer of a manufacturing and licensing agreement we had with the core compound producer… John and Ken marketed the company to a range of strategic acquirers, including a number of private equity groups and their platform companies, which ultimately resulted in an agreement with United Coatings… BTS’s level of expertise in the process and close attention to detail enabled us to successfully navigate the deal. I would recommend John Howe and Ken Schaefer to any company owner considering selling.”

- Hank Croteau

New Image Coatings