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Exit and Growth Strategies for Middle Market Businesses

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The Basics of A Partial Company Sale

By David Hulett | Aug 15, 2019

Business owners often think about exit as an all-or-nothing event. Yet in many situations selling only some of your business can achieve many of your exit goals. Here’s how.

The Basics of A Partial Company Sale

Selling less than 100% of your company is called a private recapitalization, or recap for short. Private recaps occur where the buyer acquires anywhere from 10% to 90% of the target company. A critical question is whether the buyer acquires a controlling interest in the company, meaning more than 50% of the voting stock. Whether or not you sell more than 50% largely impacts who is in charge of the day-to-day operations of the company.

Potential buyers include private equity groups (PEGs), family offices, and other companies.

Advantages of Selling a Piece of Your Company

Business owners are often surprised by the powerful advantages that can come with a partial sale of their company.

One: Get Cash and Reduce Personal Risk

The number one benefit of a partial sale is it offers an opportunity to convert some of your ownership into cash and reduce risk. We are finding that many entrepreneurs want to de-risk their lives but they are not ready to quit altogether.

A partial sale can allow for an entrepreneur to “take chips off the table” and still run the company.

Two: Keep a Portion of the Company for a Later Sale

The second most attractive benefit of a private recap is you maintain some ownership in the company to sell the rest of your ownership at a later date, typically to your new partner.

Three: Stay Involved with the Business…Or Not

If you want to remain fully involved in the business’s leadership and management, you potentially can. If you wish to scale back your participation to a purely strategic or advisory role, such as serving on the board of directors that too is commonly done. This benefit allows you to pursue any degree of involvement—as long as your buyer agrees with and supports the plan. The most common scenario is selling a portion of the company but remaining involved with day-to-day leadership.

Four: Secure Different Outcomes for Different Owners

If you have business partners, a private recap can allow different owners to pursue and achieve separate and incompatible individual goals. A partial sale can accommodate these differing goals, whereas a full company sale could not.

Five: Create an Equity Path for Top Employees

Another advantage of the partial sale is the ability to create an equity sharing plan for top employees who currently lack ownership. Within a partial company sale, an equity pool can be created to incentivize top employees.

Six: Gain a Powerful Partner

With any partial sale, a new business partner enters the picture. This new partner can revolutionize your company’s future: providing capital for expansion or acquisitions, opening doors to new markets, introducing cutting-edge technology, or injecting industry-leading leadership and experience. More modest benefits can include operating cost reductions and efficiency gains if the partner brings larger economies of scale or greater market credentials.

Conclusion and Next Steps

Private recaps are not for every owner or every company. A partial sale may receive a lower valuation multiple than might be achieved with a full sale, especially if the buyer is only acquiring a minority position. However, this potential disadvantage can be offset with the opportunity to pocket some liquidity now and retain ownership for the full sale at a later date.

Next time you find yourself asking, “Should I sell my company?” consider rephrasing that question to read “How much of my company should I sell?” CFA can help you answer that question.


M&A Quarterly News In The Hospitality and Leisure Industry Sector

By David Hulett | Jul 31, 2019

The report below gives a good overview of the third quarter M&A activity in the Hospitality and Leisure Industry Sector. M&A activity for North American based target companies in the Hospitality and Leisure sector for Q2 2019 included 66 closed deals, according to data published by industry data tracker FactSet.

One of the notable middle market transactions was announced in June when Cedar Fair LP acquired the Schlitterbahn Waterpark & Resort New Braunfels and the Schlitterbahn Waterpark Galveston from Waterpark Management Inc, doing business as Schlitterbahn Waterpark & Resort, for US$261 million in cash, subject to certain working capital adjustments. The transaction increases Cedar Fair’s portfolio expands its footprint in the Texas region and accelerates its growth and profitability. The acquired waterparks generated annual revenues of approximately US$68 million in 2018.

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M&A Quarterly News In The Hospitality and Leisure Industry Sector

By David Hulett | May 02, 2019

The report below gives a good overview of the second quarter M&A activity in the Hospitality and Leisure Industry Sector. M&A activity for North American based target companies in the Hospitality and Leisure sector for Q1 2019 included 64 closed deals, according to data published by industry data tracker FactSet.

One of the notable middle market transactions closed in January when A private group led by Elliott Management Corp and GFI Capital Resources Group, Inc. acquired Parker Hotel New York for US$420 million in cash. The transaction was funded from bank debt. The transaction would allow GFI Capital Resources Group to enhance its portfolio of hotel businesses.
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M&A Quarterly News In The Hospitality and Leisure Industry Sector

By David Hulett | Feb 19, 2019

The report below gives a good overview of the first quarter M&A activity in the Hospitality & Leisure Industry Sector. M&A activity for North American based target companies in the Hospitality and Leisure sector for Q4 2018 included 67 closed deals, according to data published by industry data tracker FactSet.

One of the notable middle market transactions was closed in December when Pamplona Capital Management LLP, a subsidiary of Pamplona PE Investments Holding Ltd, acquired Latham Pool Products, Inc., a portfolio company of Wynnchurch Capital LLC and Franklin Square Holdings LP, for US$375 million in cash. The acquisition is in line with Pamplona Capital Management’s investment strategy. Following the transaction, Wynnchurch Capital LLC would retain minority stake in Latham Pool Products. Founded in 1956, Latham Pool Products is located in Latham, New York and manufactures inground residential swimming pools and components.

The hospitality sector has benefitted from a strong economy, which has enabled hotels and motels across the globe to continue to increase rate pricing.

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M&A Quarterly News In The Hospitality and Leisure Industry Sector

By David Hulett | Oct 23, 2018

The report below gives a good overview of the fourth quarter M&A activity in the Hospitality & Leisure Industry Sector.  M&A activity for North American based target companies in the Hospitality and Leisure sector for Q3 2018 included 43 closed deals, according to data published by industry data tracker FactSet.

One of the notable middle market transactions closed in August when Xenia Hotels & Resorts Inc acquired the business and assets related to the Ritz-Carlton hotel in Denver from The Ritz-Carlton Hotel Co LLC, a subsidiary of Marriott International Inc for US$100.2 million in cash. Funding for the transaction was provided by Xenia Hotels’ existing cash resources. The acquisition expands Xenia Hotels & Resorts Inc’s hotel management business. The Ritz-Carlton Denver is located in Colorado and owns and operates hotels and resorts.

Both business travel and leisure travel have been on a solid upward trend for decades now. This is driven, in part, by a growing economy and increased efficiencies in booking travel.

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M&A Quarterly News In The Hospitality and Leisure Industry Sector

By David Hulett | Aug 08, 2018

The report below presents you with a good overview on the third quarter M&A activity in the Hospitality & Leisure Industry Sector.  M&A activity for North American based target companies in the Hospitality and Leisure sector for Q2 2018 included 70 closed deals, according to data published by industry data tracker FactSet.

One of the notable middle market transactions was announced in June when a private group led by MLB Advanced Media LP and The Seidler Co LLC, doing business as Seidler Equity Partners acquired Rawlings Sporting Goods Co, Inc., a subsidiary of K2, Inc. and ultimately owned by Newell Brands, Inc. for US$395 million. The acquisition complements MLB Advanced Media LP’s brands in the sports industry and strengthens The Seidler Co’s investment portfolio. Founded in 1887, Rawlings Sporting Goods is located in St. Louis, Missouri and manufactures & markets sports equipment and apparel.

The Restaurant Performance Index (RPI), a monthly composite index that tracks the health of and the outlook for the U.S. restaurant industry, posted a modest decline in Q2. The RPI stood at 101.2 in May, down slightly from April’s level of 101.3. Read more »


LOI – The Engagement Ring of the M&A World

By David Hulett | Oct 16, 2012

Shaking HandsYou were introduced by mutual acquaintances and have been “dating” for a while now.  Via probing questions and answers you realize you are compatible, synergistic and seemingly a perfect fit.  It’s time to move to the next step… the engagement ring?  No… the letter of intent, or LOI.

In the mergers and acquisitions world, the LOI is a legal document which spells out the initial price and terms upon which a buyer acquires a company.  In M&A, rarely is the balance of power between a buyer and seller even.  Prior to the signing of an LOI, the seller is more in control of the process.  They are negotiating for the best possible price and deal terms and are usually speaking with more than one potential suitor.  With competitive bidding underway, the seller has the ability to negotiate his sale price upward.  Favorable deal terms are part of this negotiating process.  However, once the buyer has been selected and a letter of intent signed, power shifts.

Exclusivity is a normal component of the LOI.  Once a letter of intent has been signed, the seller is no longer allowed to engage in dialog with other potential suitors.  This exclusivity lasts from 30 to as long as 90 days, during which the buyer and his legal team begin the due diligence process.  During this process, the buyer makes certain that representations about the company are true and complete.  During due diligence, the buyer isn’t necessarily looking for more “good stuff”, but generally seeks out that which may have a negative impact on the acquisition, deal terms and purchase price.  The buyer usually has more control during this phase of the M&A process.  You’ll rarely see the purchase price negotiated up during due diligence.

Do all engagements end in marriage? No.  Do all LOI’s end in closed M&A transactions?  No.  LOIs give both the buyer and the seller time to decide “should we make the commitment final?”

Posted by David Hulett.

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