Case Studies

Plumbing Company Gets Better Offer With Business Broker

Overview Of Situation

The owner/seller had tried to sell his business on his own, and successfully received an LOI (Letter of Intent) from a private equity group for several million dollars. All went well until just before closing when the owner/seller discovered that the LOI had several surprises in the terms that he missed. Specifically, the LOI value included “working capital” that was effectively cash back to the buyer, a stock rollover of 20% where he would buy back stock in the new company, and a “basket” which is a reserve for potential future liabilities. To his dismay, the cash at closing was nearly half of what he expected when all of these things came off the top. 18 months later after the deal died the owner/seller engaged Total Business Brokers to represent him as his Business Broker.

Approach & Solution

Total Business Brokers aggressively marketed the business to entrepreneurs, equity groups, and search funds. The business was marketed both on public business-for-sale websites such as bizbuysell.com, bizquest.com, loopnet.com, and others as well as non-public websites available only to private equity groups. Email blasts were also sent to the BizBuySell buyer email list and the Pacific Business Sales buyer email list. Total Business Brokers also prepared a comprehensive CIM (Confidential Information Memorandum) for the business. The CIM is a confidential prospectus that is sent to prospective buyers after they have signed an NDA and provided a financial.

Results & Conclusion

Six offers were presented to the seller/owner and the offer that was accepted was over $1.4 million higher than the LOI the seller had accepted 18 months earlier. The offer that was accepted had substantially higher cash at closing and better terms than the LOI that had been accepted and then fell through. The offer was in the form of a stock sale which provided significant tax benefits to the seller and the buyer used IRS 338(h) to recapture (step-up) the depreciation, thus minimizing the tax disadvantage of a stock sale to the buyer.

Sale Of Towing Company & Real Estate

Overview Of Situation

This mid-size 25-year-old towing company had good sales and profitability and the seller owned the real estate which was 3.6 acres including a small office and a large towing storage yard. The site was zoned and permitted for towing and storage and the city was no longer issuing permits for towing and storage yards. Towing and storage yards were becoming difficult to find because many cities were no longer issuing permits, thus making the property an ideal expansion acquisition for another towing company.

The owner/seller wanted to sell both the business and the real estate together. However, the real estate value was much higher than the business value, and the earnings from the business would not support the debt service for a new loan on the real estate and business. Thus, a conventional buyer would not be able to obtain financing for the business and real estate.

Approach & Solution

Total Business Broker was the Business Broker representing the Seller. Our strategy was to find a towing industry buyer with sufficient cash flow in their business, combined with this company, to cover the debt service of the SBA loans for the acquisition of the company and real estate. SBA lenders consider this an expansion loan and use the combined income from the parent company and the target company in underwriting the debt service and financial ratios. Thus, with an industry buyer, the acquisition of the business plus the real estate would pencil out for debt service and profitability.

Results & Conclusion

Our firm found a towing company that was expanding into the area and in need of another location with a yard. Total Business Broker ultimately procured the buyer, closing the transaction as a dual agent representing both buyer and seller.

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