With corporate balance sheets flush with cash, business performance on the upswing and a healthy thirst among buyers, now is an attractive time to sell a business.
“The cycle of business valuations is at a point that any business owner should certainly evaluate whether the timing is right,” said Greg Larson, senior vice president and director of commercial banking at Brown Deer-based Bank Mutual Corp.
Larson will moderate the panel discussion “Who is your ideal buyer?” at the 2016 BizTimes M&A Forum on April 21. The panelists are Lisa Reardon, chief executive officer and chairman of Brookfield-based OwnersEdge Inc.; Dave Strand, president and CEO of Wisconsin Oven Corp. in East Troy; and Mark Grosskopf, president, CEO and owner of Milwaukee-based New Resources Consulting. They will discuss the advantages and disadvantages of selling a business to different types of buyers.
If the owner is most concerned with leaving a legacy and preserving the business as it was built, selling to management or family members could be the best choice. When evaluating a sale to family members, the business owner should assess the passion, desire and capability of the relative to run the company, Larson said.
Managers often are key to the success of the business and the continuation of the owner’s established culture and operational style, he said. For an owner wishing to leave a legacy, selling a stake to managers or creating an Employee Stock Ownership Plan could be the best choice.
OwnersEdge is set up as an ESOP holding company. One of its subsidiaries, CC&N, started the company on the ESOP path in 1985.
“The ideal buyer being the employees, which is such a great benefit to them, requires the seller to truly have a passion for selling the business to employees,” Reardon said. “They have to really want to invest the time and energy and passion to help those employees become employee owners through ESOP without having that upfront investment.”
There are tax and growth benefits to forming an ESOP, which has allowed Reardon to launch a second business and drive expansion at both companies.
As a buyer, Owners Edge looks for companies that are a cultural fit, that will easily transition to ESOP ownership and that have strong succession plans, Reardon said.
An owner who wishes to extract the highest possible value from the sale of his or her business will likely want to consider selling to a strategic or private equity buyer.
Private equity firms usually inject a large amount of capital into the company to drive rapid growth, then sell the company after a four to five year investment horizon, at which time the owner could get a second payout, Larson said.
A strategic buyer likely will find efficiencies and redundancies that can allow it to find additional value in an acquisition, Larson said.
In the case of a private equity buyer, as well as a strategic buyer, the seller should expect to see transformative change at the business—and must be able to accept it, he said.
“You get a far better multiple if you sell strategically, so that’s the way to go if you want to capitalize on the best return,” Grosskopf said.
Grosskopf has sold several companies to strategic buyers, and has bought several companies as a financial buyer. He advised business owners to seek professional advice if needed, and stick to their objectives.
“It’s important to know what your number is and deal structure is to sell and then stick to it and be willing to say no,” he said.
Strand started and grew Wisconsin Oven, guiding it through the Great Recession and then selling it to a strategic buyer. He got 100 percent payout on that deal.
“The first time that I sold, the ideal buyer for me was somebody that was going to be hands off, because I was an owner, I had been in the business a long time, I didn’t want a lot of change,” he said.
Strand stayed on board and a few years later, Wisconsin Oven was sold again—to a private equity buyer. This time, he got an equity stake in the deal.
“Private equity was completely different because they were buying us as an overall strategic plan to improve their existing portfolio companies…and you no longer call every shot,” Strand said. “But they help you because they have a lot more resources.”
The M&A Forum is on Thursday, April 21. More information and registration is available at biztimes.com/maforum.
