LBM Confidential: Buyers, sellers and the keys to a good match
If a lumberyard owner has decided to sell, the next question shouldn’t be: “How do I find a buyer?” The next question should be: “Of the buyers out there, which is the right one for me?”
Having assisted in nearly 100 transactions, my first and constant concern is confidentiality. Rumors of a sale make employees, customers, and even vendors nervous. Remember, even if you find the right buyer, there’s no guarantee the deal will succeed. This makes confidentiality even more important. Rumor of a sale can be bad, but news
of a failed sale can be a disaster.
Pick a buyer you can trust to maintain strict confidentiality throughout the entire transaction. Even with the right buyer at the table, the deal will take time. My quickest deal took four months. My longest took 19 years. Maintain confidentiality until the deal looks certain and key employees need to be informed.
Price, price and price.
We’ve all heard that old saying: “Everything’s for sale at the right price.” But the truth is that most things are for sale at the wrong price. You may have picked the perfect buyer, but if you have an unrealistic price, then you’re probably wasting your time. Agree on a ballpark price and terms before you spend a lot of time and money on due diligence.
I’ve found that the right buyer won’t make a low-ball offer. Even if they are a perfect match regarding corporate structure and philosophy, leaving money on the table will leave a bitter taste.
The right buyer is the buyer willing to pay the right price, and this buyer knows that the wrong price will leave a bitter taste in the mouth of the seller, perhaps for years to come.
Remember also that your desired price may be an emotional one, and your buyer isn’t buying based upon your needs. They’re buying based on their needs.
Every deal is different, but let’s look at a couple of examples.
Yard A started its drywall distributorship 10 years ago and it’s grown into a profitable business. Lots of employees have come and gone, and the decision is made to sell. The owner’s goal from day one was simply to make money. Then it’s a simple choice: You go with the buyer who pays the most money.
Other considerations still remain: How long does the new owner want you to stay around? Will you sign an employment agreement? Do you want cashed out? Are you willing to finance part of the purchase price? Are you willing to enter into an earn out agreement?
This is a case in which working with an intermediary or consultant proves valuable.
They have likely dealt with most if not all the major buyers in your industry. And while they shouldn’t reveal confidential details of past transaction, than can share with you which buyers pay the most, how good they are with confidentiality, and how smooth their transactions go.
HBSDealer and other industry publications are excellent sources to find the names of companies involved in acquisitions. Don’t hesitate to contact the owner and find out how they feel about the new buyer. Should you decide to go with their buyer, chances are your transaction will be a mirror of their transaction.
Now let’s look at Yard B. It’s been around for 75 years and there’s a picture of the founder hanging behind the owner’s desk. Many of the employees have worked in this iconic community-centric business for years and have become part of the owner’s family. Price may not be the owner’s top consideration. Picking a buyer who will protect the employees and grow the company might be as important here as the sales price.
A few years ago I completed a transaction in Texas in which there were three buyers. All were strong companies, good operators, and cash buyers. After spending considerable time getting to know each of the buyers the seller actually went with the lowest offer. Not much lower, but lower.
Why take less money? All the reasons above, plus: the buyer chosen was the one that agreed not to interfere with the day-to-day operations, make no personnel changes without the seller’s permission, and invest money in needed capital improvements.
Often times your best buyer is your best competitor. But tread lightly. Confidentiality can be extremely difficult in these cases. This buyer knows your market, your vendors, and probably many of your customers and employees. If they acquire your business then they eliminate a competitor. They avoid the costs and risks associated with a startup. But if the deal doesn’t go through, they know even more about you.