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  • M&A Applications to the Seebees Guiding Principles

    Nov 11, 2021

    I recently had the opportunity to visit the National Museum of the Pacific War, in Fredericksburg, Texas (https://www.pacificwarmuseum.org/) with my VP of Business Development, Curt Maier, on a trip to Austin, Texas.  If you have not been to the museum, I strongly recommend it as it does a superior job of telling the story of America’s Pacific theater experience during World War Two and honoring one of our greatest Navy Admirals, Chester W. Nimitz.  The visit was enhanced by being able to share it with Curt, a former Naval officer as a nuclear engineer in the submarine fleet under Admiral Rickover, and see it through his eyes for the first time.

    I had been to the museum previously, but one of the exhibits that caught my eye on this trip was the section on the important role the Navy Construction Battalion (commonly known at the Seabees) and the Army’s two construction divisions, the Quartermaster General and Army Corp of Engineers played in the successful military campaign against the Japanese Empire conducted by MacArthur and Nimitz.  These three units were responsible for building all the facilities, airfields, and roads necessary to maintain operations throughout the Asiatic-Pacific region, often creating projects on islands with limited development prior to their arrival.   One element that resonated with me in learning about their skilled execution under some of the most challenging conditions ever faced by construction personnel were the five principles that guided operations: speed, simplicity, consideration of materials, flexibility, and safety.  It dawned on me that these principles are also woven into IBA’s strategy for executing the successful sale of privately held companies and family businesses in the Pacific Northwest. The following is an overview of how they apply to a business sale:

    Speed – The expeditious construction of a new airfield in World War Two on a remote island in the Pacific was critical to facilitate continued forward deployment and engagement with the enemy.  Delay or failure on a project had the potential to cost lives and impact management of the effective and efficient supply chain necessary to take the battle to the Japanese.  Speed is also of the essence in the sale of a business.  Like a new airfield being built in an advanced position with limited air protection, a company is in an exposed position when it is being marketed for sale.  This risk enhanced position is created because it is not in the best interest of a business for it to be known in the public domain that an exit strategy is desired by ownership.  An experienced, knowledgeable, professional intermediary firm can mitigate this risk through the use of confidentiality agreements and best practices (similar to how aircover and anti-aircraft guns can protect a military facility under construction), but the risk cannot be eliminated of information reaching customers, employees, and vendors that a business is being sold. The best tactical solution to avoid losing valued staff, revenue, or suppliers during a business sale process  is to have the contemplated transaction remain off the radar of competition and to facilitate the sale in a timely manner. The best business brokerage firms have the ability to sell companies in three to nine months from entrance in the market to money changing hands.  Insider Note:  A clue to the confidence of a business brokerage firm in their abilities is the term of the listing agreement.  A six month agreement conveys a “can do” attitude while a two year engagement contract says “if the stars align, I might be able to sell this company”.

    Simplicity – The quickest path between two points is a straight line.  Knowledge, experience, and skill allow parties to assess a situation, formulate a strategy, and execute a solution.  In the construction of a communications facility, it did not make sense for the Seebees to send a team experienced in building bridges.   The same is true with the sale of a business.  The best business broker to employ is one who has successfully completed similar transactions in the past.  A business broker with hospitality industry experience is the right person to enlist for valuation and transition of the liquor license of a full-service restaurant.  They are not the right person to value and sell a manufacturing company with government contracts that need to be transferred.  It is always prudent to ask for examples of previous completed transactions in a specific industry and references before sending a business broker out to “take a hill”. The following page of our website (https://ibainc.com/industries-served/) provides a list of the industries where IBA has experienced, knowledgeable brokers prepared to sell companies including samples of our prior successful performance in the spaces.

    Consideration of Materials  –  Completion of a construction project requires appropriate materials in sufficient quantity.   For example, if concrete is to be utilized proximity to water is an important consideration.   The materials that go into the successful sale of a business are knowledge, experience, ability, and money.  The first three are traditionally obtained from a party’s advisor team (Attorney, CPA, Business Broker, etc.).  A smart party in a business brokerage transaction will utilize these resources in a manner that conserves money recognizing that different professionals have different compensation models either favoring fixed or contingent costs.  It is generally smart to utilize contingent cost advisors first before accruing expenses that need to be paid whether a deal is completed or not.   As an example, business terms of a transaction (e.g., price) should be negotiated first between the buyer & seller before engaging an attorney to negotiate the terms of a non-competition agreement or CPA tax allocation.  Why?  Because, if agreement is not reached on price then nothing else matters.  Frequently, business brokers work on a contingent fee basis being paid only if a deal is successfully completed.  These professionals can often be used at no cost to either the buyer or seller to see if it is possible to get to “Yes” and shake hands on the basic structure of a deal.  Insider Note: It is prudent for a party trying to buy a business to ask the intermediary trying to put the transaction together, how they are being paid by their client.  Business brokers paid 100% on a commission basis at time of sale, have a vested interest in getting a deal done that both the buyer & seller feel is “win-win”. Conversely, an intermediary who is being paid a monthly retainer may have a financial interest in having a transaction take longer or engaging with more parties, potentially on “fools’ errands” for the their paying client.

    Flexibility – No two construction projects are exactly alike, as site, labor, and material considerations are never exactly the same.  The ability to be flexible and not rigid is fundamental to avoiding issues that will cause future problems. Similarly, no two business sale deals are exactly the same.  The best mergers & acquisitions intermediaries in the business are superior problem solvers.  The ability to “think out of the box” and pull from prior transactional experience is invaluable in deal navigation from valuation to marketing to negotiations to closing.  Caution should be employed when engaging with anyone who suggests an “one size fits all” approach to business sales.

    Safety – The principles of contemplating all potential outcomes, developing appropriate contingency plans, and employing best practices are foundational elements for any successful military operation during war.  In a business sale, a business broker should employ the same priorities.  The professional intermediary should be able to assess market conditions and provide superior recognizance related to the price point a deal has a probability of being made, utilize an appropriate non-disclosure strategy to mitigate risk of a sale becoming known in the public domain before a public announcement is desired, facilitate comprehensive negotiations that address all relevant deal components, and insure known and potential trailing liabilities are addressed in the legal documentation with attention to detail.  In a professionally facilitated deal, the parties should complete the transaction in full sunlight supported by a strong team of advisors with the executed agreement archived and rarely referenced again.  Post transaction issues generally only surface, if the transaction was not done right creating a scenario for the seller where money is at risk after the transaction is completed.

    The United States military has been generally recognized as the gold standard in the world for close to a century.  The strength of the organization is the skill, knowledge, and experience of the personnel.  IBA would like to take a moment to recognize all Americans who have served this nation in the Army, Navy, Air Force, or Coast Guard this Veteran’s Day, including my father who served in the Army and grandfather the Navy.   We are honored as a firm to have a veteran on our team in Curt Maier and to serve the community of veterans that are entrepreneurs after completing their time in the military.   We recently sold a business to a former West Point graduate who served in Afghanistan, have a client presently who was active in the Washington National Guard for an extended period of time, sold another business with several former military owners who continued to support the armed services in the private sector through fulfilling government contracts, often requiring top secret clearances in the technology space, and are presently working with multiple people deployed overseas who are exploring buying a business or franchise when they return stateside and end their service.   We are committed to serving this group and welcome all calls of need to IBA in our areas of expertise.  We also emulate the military in the goal to be the gold standard in terms of ability, knowledge, and experience in the business brokerage community.

    IBA, the Pacific Northwest’s premier business brokerage firm since 1975, is available as an information resource to the media, business brokerage, mergers & acquisitions, and real estate  communities on subjects relevant to the purchase & sale of privately held companies and family owned businesses.  IBA is recognized as one of the best business brokerage firms in the nation based on its long track record of successfully negotiating “win-win” business sale transactions in environments of full disclosure employing “best practices”.

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