Less than 25 percent of sales transactions close, so expert assistance is key
Ian Houghton, senior M&A advisor for Pacific M&A and Business Brokers Ltd., notes that, “all business deals are difficult to complete, which is why less than 25 percent of business transactions actually close.”
But businesses that seek professional advice have a much higher chance of closure, and Houghton uses the transaction by Pacific’s brokers of Citation Kitchens to the Skidmore Group as a case in point.
Knowing their exit plan would take several years to complete, Citation managing partner Kelly McCormack and his colleagues Joe Brkich and Matt Simpson worked closely with Houghton as well as their accountant, tax advisor and lawyer to prepare the initial steps of taking the business to market.
The forward-thinking partners had already spent two years working with Pacific in preparing for an acceptable valuation on the business. Their accounting methods were also adjusted to reflect a clearer representation of cash flows. “The critical step of working through these valuations set the stage for making Citation ready for market,” says Houghton. “Also, having carved out a strong market position with a strong brand reputation, they gave themselves time and patience for us to identify the right buyer.”
The partners also recognized they needed to support any buyer for at least one year after the sale. “Without a commitment to an extended post-closing training and transition period, the chances of a successful closing would have been significantly diminished,” says Houghton.
With Houghton’s senior M&A advisor guidance, the role of the partners at Citation was to continue to run and grow the business and be available for any activities required with qualified and motivated buyers. Pacific and Houghton then worked behind the scenes, involving the partners only when there was a serious qualified buyer.
Houghton says: “A business that is prepared properly will have a professional package prepared for review by buyers and all due diligence materials ready in the event an offer is presented.” However, this can only happen with complete support and transparency from the seller’s management team—and on that score, McCormack and his partners couldn’t have been more helpful.
To find a qualified and motivated buyer, Pacific sent a confidential blind communication to over 15,000 contacts ranging from individual high net worth buyers, private equity firms, and synergistic and strategic targets, along with lawyers, accountants and financial advisors. Also, 15 business transactional websites were utilized to promote Citation along with a targeted marketing campaign directed to similar buyer targets across North America.
As a result of this process, the right buyer proved to be the Skidmore Group, a family-based private equity fund. They had previously entered the market through the acquisition of Kitchen Art Design and wanted to identify similar targets. “A strong relationship was established early between the Citation shareholders and Skidmore’s acquisition team,” says Houghton. “From there, trust was established, a deal was agreed upon, and all parties worked diligently and in good faith through to a successful close in December of 2017.”
Today, McCormack looks back upon the three-year process and calls it “the best move we ever made” thanks to Pacific’s care and diligence: “You guys came through and we still thank you most every day.”
Houghton concludes: “Seeking professional advice, setting realistic expectations, giving yourself time and being willing to support the buyers are some of the key ingredients in achieving a successful business transaction—and Citation embraced these concepts for a most satisfying outcome.”