Capital Ideas | Corporate Finance Associates | Newsletter Q4 2017

 
Capital Ideas for Middle Market Businesses

Family Business

By David Sinyard, Managing Director and Principal
Atlanta Office
Corporate Finance Associates

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Family-owned businesses are a significant and dynamic part of the US economy. According to the U.S. Bureau of the Census, about 90 percent of American businesses are family-owned or controlled. From two-person partnerships to large firms, family controlled businesses account for half of the nation's employment and half of the GDP. With family businesses come advantages and disadvantages over other business entities in terms of culture, focus on the future, commitment to quality and the care and concern for employees.

What are Some Advantages?

  • Family members often have the same core values as you and your company. If family members are in line with the kind of business you are running and hold the same interests, you can work together as a family to achieve common goals. You would not have to spend as much time training new employees about the aims of your company.
  • You have a personal relationship with family members. There is a distinct advantage of hiring a person you have known for years versus a stranger. You know the strengths and weaknesses of a family member which helps in managing them and knowing exactly where to place them in your organization.
  • Family Businesses tend to be patient capitalists. They tend to build conservatively over the years which results in much less risky and foolish behavior.

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Planning for the Sale of Your Business: Strengthening your Management Team

 

By Robert St. Germain, Managing Director and Principal
Columbus Office
Corporate Finance Associates

Strength and depth of management is always a critical factor when selling a company. If the owner is key to every aspect of the business and will not be staying post-close, many prospective buyers will be reluctant to purchase or invest in the company; and that reluctance will be enhanced if the second tier management team is weak or, even worse, non-existent.

Will Your Business Fail if You Leave?

Your business is at great risk if its continued success relies too heavily on you, the owner. Such a risk will be reflected in a reduced valuation by potential buyers, assuming you can even elicit an offer. From a buyer’s perspective, a more attractive company is one in which customer relationships and operational proficiencies are distributed among a broader set of employees and not concentrated in a single individual. So, to prepare for a sale of your business, here are a few helpful tips:

  • Hire, train and enable your second tier management team to run the company without you.
  • Have a contingency plan in place for dealing with the sudden disappearance of key employees.

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Featured Acquisition - CFA Omaha

The Situation:

Precision, Inc., is a manufacturer of components for the material handling industry. In 2014, with an eye on diversification, Precision acquired Kossuth Fabricators (KOFAB), a manufacturer of proprietary material handling products used in the production of food, with a focus on the baking industry. The acquisition of KOFAB was successful for Precision and they determined they need to continue to build their Food Division through further acquisitions but did not have a dedicated, in-house M&A team to support their acquisition efforts.

The Solution:

Precision engaged the services of the professionals in the CFA office in Omaha to serve as their exclusive M&A advisor. After meeting with the Precision’s management team, CFA developed a list of suitable acquisition targets for Precision: target companies had to be complementary, not competitive, with KOFAB and geographic diversity was sought as well. Additionally, it was critical to find targets who sold to a different customer base the KOFAB. CFA identified a number of suitable candidates and began contacting them in the summer of 2016. After conversations with approximately six candidates, Precision focused its attention on Meyer Industries, Inc., based in San Antonio, a manufacturer of custom processing equipment for the food industry. Meyer was a good fit because its products and customers were synergistic with KOFAB. The CEO of Meyer was looking to retire but wanted to ensure the well-being of his company and its employees.

Precision and CFA were able to negotiate a mutually agreeable price and terms with Meyer Industries’ shareholders and create a “win-win” situation for buyer and seller. The transaction was completed in June, 2017, approximately one-year from CFA’s initial contact with Meyer Industries. Meyer’s CEO was able to retire after a six-month transitional period, Meyer’s employees will soon become employee shareholders in the Precision’s ESOP (Precision is a 100% employee owned company), and KOFAB and Meyer are poised to grow significantly and become a major manufacturing presence in the food processing industry.

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