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  • Merging a Privately Held Company into a Publicly Traded Company

    May 31, 2017

    A mergers & acquisitions firm serving the middle market has five potential groups to target for buyers for the companies it represents for sale.  The buyer groups are individual entrepreneurs, private equity firms, privately held companies, publicly traded companies, and nonprofit corporations.  A majority of transactions in the middle market involve the sale of a company to a party that plans to continue operations substantially similar to historical practices.  Profit & return on investment traditionally motivate this type of acquisition.  The same motivations apply to a buyer interested in merging another company into their business operations.   The merger can either be a horizontal merger, an acquisition intended to increase market share, or a vertical merger, an acquisition designed to either acquire a supplier or vender for the company’s products.   A larger number of transactions resulting in horizontal integration than vertical integration occur annually in the middle market.

    The following are historical examples of industries where IBA successfully facilitated mergers of its clients into publicly traded companies:

    Cannabis – A hot entrepreneurial industry in the Pacific Northwest is cannabis.   IBA is unique in the mergers & acquisitions industry in that it has successfully facilitated multiple transactions involving businesses directly or indirectly involved in the marijuana industry.  One of those transactions occurred in May 2017 when IBA successfully facilitated the merger of Seattle’s Hydro Spot into GrowGeneration Corporation.  Seattle’s Hydro Spot was a pioneer in Washington after the legalization of marijuana in the sale of hydroponic irrigation, lighting, ventilation, and nutrients to commercial operations & individuals interested in growing cannabis crops for sale through dispensaries and personal use.  A successful, first generation entrepreneur in the industry, IBA’s client decided an exit from the industry was in his best interest as the marketplace evolved in size & competition.   GrowGeneration (www.growgeneration.com), a publicly traded company (Ticker Symbol: GRWG) concentrating on the same marketplace, was a logical transaction partner who through the acquisition expanded its service footprint into Washington from California, Colorado, & Nevada.   The intelligent, ethical management of GrowGeneration makes it a company to watch as legalized marijuana spreads to additional states increasing demand for the support infrastructure needed to grow quality crops.

    Professional Practices – Earlier this year the Wall Street Journal reported that Mars, Inc., of candy bar fame, was buying Veterinary Centers of America (VCA) for $9.1 billion dollars.   This merger sparked watercooler conversations at IBA, as it provided a case example of a “big fish eating a medium fish after it had eaten smaller fish” in the world of mergers of acquisitions.   Unfortunately, IBA was not asked to facilitate negotiations in the Mars/VCA merger.  That would have been the biggest deal we had ever facilitated.  However, as one of the most trusted brands for the sale of veterinary hospitals in the Pacific Northwest, we were very familiar with VCA (www.vcahospitals.com), a chain of over 750 hospitals in 43 states & 5 Canadian provinces with the fabulous ticker symbol of WOOF, as the company had purchased multiple veterinary hospitals through IBA in the Pacific Northwest including Alderwood Companion Animal Hospital and Redmond Animal Hospital.  It will be interesting to see how the chain of veterinary hospitals does as part of a large conglomerate.

    Retail – Businesses need to evolve with changing consumer tastes and technology or they are destined to fail.  Thirty years ago, regular consumer practices often included a trip to the video store to grab a movie.   People at that time invested in home theaters and movie video libraries.   Entrepreneurs took advantage of consumer demand and built profitable, successful companies serving the marketplace.  One Pacific Northwest company that served the video rental marketplace for many years was IBA client, Encore Video, a company with a large chain of video stores in Washington.  However, by the 1990’s it became clear in our client’s “crystal ball” that ultimately there would only be two “heavyweights”, Blockbuster Video and Hollywood Video serving the market.   IBA was engaged and negotiations facilitated between the “heavyweights” for the market share & prime locations held by Encore Video.  A lucrative exit was achieved for our client long before streaming videos changed the marketplace ultimately knocking out both “heavyweights”.

    The sale of a privately held company to a publicly traded corporation can be an attractive & lucrative exit strategy for an entrepreneur.   It is very “cool” to tell family & friends you were bought by a company whose activities are tracked in the Wall Street Journal.  The privately held company needs to be of appropriate scale in terms of revenue & profits and/or have unique assets (locations, staff, patents, trademarks, or proprietary technology) to attract the interest of a publicly held company as an acquisition.  If this type of sale is desired, I encourage exclusively interviewing middle market business brokerage firms with experience with these types of transactions when seeking representation. The sale to a publicly traded company is a sophisticated process that requires knowledge, experience, and a strong skill set of deal negotiation & facilitation skills.   It is also a process where the broker will likely only get one opportunity to professionally present the idea to the publicly held company.  To use a baseball analogy, a business owner desiring a merger should make sure they send a #1 starter to the mound who can excel in terms of professionally presenting the potential acquisition in a persuasive manner the first couple of innings of the game, for if the business broker does not deliver the deal is likely dead.  As in many things, you only get one chance to make a 1st impression.

    IBA, the Pacific Northwest’s premier business brokerage firm since 1975, is available as an information resource to the media, business brokerage, and mergers & acquisitions community 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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