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  • Selling a Company in a Merger

    Jan 14, 2020

    Benjamin Franklin famously said, “In this world nothing can be said to be certain, except death and taxes”.   The entrepreneurial opportunity associated with the certainty of death, especially given the aging baby boomer population, was a topic of discussion in a recent merger successfully facilitated by IBA. The merger was between two Pacific Northwest companies that manufacture cemetery monuments with the acquisition of Premier Memorial (www.premiermemorial.com) and Oregon Granite Monument & Memorial (http://www.oregonmonument.com/) by Pacific Coast Memorials (https://pacificcoastmemorials.com/).

    A merger is traditionally a more sophisticated transaction to negotiate than a sale to an owner-operator.  IBA, as the oldest business brokerage firm in the Pacific Northwest, has successfully facilitated 100’s of company mergers in its 45-year history.   Successful mergers facilitated by our experienced, knowledgeable team of highly skilled professionals in Q4 of 2019 included transactions in the technology, retail, E-commerce, manufacturing, and food service sectors.  Q1 of 2020 has our team working on projects where successful entrepreneurs will likely execute exit strategies involving the sale of their privately held companies in merger transactions in the technology, construction, food service, and marine industries.

    The following are some of the elements warranting consideration when negotiating/facilitating a merger:

    1. Corporate Culture – I recently attended a wonderful event focused on corporate culture hosted by the Cantillon Club (https://www.cantillon.club/) moderated by the Club’s founder, Dave Carroll. Positive company culture contributes significantly to employee & customer retention.  This commonly translates into improving revenues, profits, and market share under the right executive leadership. Revenues, profits, market share, loyal customers, and quality employees are all motivations for acquisition by a corporate buyer.  However, successfully merging two corporate cultures requires comparative analysis and strategic planning. A positive evolution for employees with increased pay, benefits, and/or opportunities is generally well received and increases the probability of retention post acquisition. Enhanced products, services, capabilities, and/or locations results in positive perception of a merger by customers and the marketplace.  A merger is a business marriage.  It is recommended that company goals & objectives be in alignment before tying the knot.  Just like marriage, if one party is saying “Yes” for only financial reasons, the merger is likely destined for turbulence in the future.
    2. Synergistic Benefits – One of the motivations for a merger is the synergistic benefits that result from combining the two companies. Benefits from merging two companies can include the elimination of redundant expenses to increase profitability; enhanced product or service offerings to customers; and/or obtaining patents, technology, or other intellectual property. The ability to successfully articulate these benefits can motivate a buyer to complete a transaction and/or enhance the value paid for a company.
    3. Increased Market Share – It can be VERY expensive to increase market share. Growth by horizontal integration (acquiring one’s competitors) can be a cost effective way to create growth opportunities, eliminate competition, and tailor advertising & marketing programs to be more effective & efficient.
    4. Real Estate – Some business models require specific locations to be successful. Business acquisitions are sometimes required to obtain “50 Yard Line” locations conducive to business success.   For example, IBA is recognized as one of the premier business brokerage firms serving the marine industry.  Boat repair yards with water access and moorage have scarcity in the market.   Frequently, the only way to obtain a coveted location is to buy a company and occupy the real estate.
    5. Supply or Distribution – Vertical integration involves purchasing a company before or after a business in the supply chain. IBA recently facilitated a transaction where a wholesale distribution company with United States rights to an exclusive line of products purchased a retail channel to sell its products. This acquisition creates unique opportunities to increase profit margins and marketing opportunities for the parent company. We also recently participated in a transaction where a manufacturer acquired another business to obtain better control of a supply chain for critical products associated with its manufacturing process. The more control an entrepreneur has of their marketplace the higher the probability of success.
    6. Profits – Business is the ultimate competitive sport. Performance results are documented annually on tax returns filed with the Internal Revenue Service.  Winners in the game of entrepreneurship will pay taxes at the end of the year.   As Ben Franklin said, they are not avoidable. I have yet to meet a business owner that was not cognizant of and motivated to enhance company performance year over year.  Every entrepreneur I know is in the game to win. America is the greatest environment in the world for entrepreneurship.  Success stories from the baby boomer generation in the game who built companies in the Pacific Northwest include Bill Gates, Paul Allen, Howard Schultz, Jeff Bezos, Jeff Brotman, and Phil Knight.  This pantheon of regional success should be respected & admired.  The question is who is this century’s Bill Gates?  My guess is that they are already well on their way to climbing to the top of their mountaintop.

    Selling a business in a corporate merger for a premium value requires knowledge, experience, and a high professional skill set.   Successful entrepreneurs recognize that achievement often occurs not because they take on the project themselves, but because they hired the right person for the project.   IBA has sold more businesses in the Pacific Northwest than any other professional intermediary firm.   If you are interested in selling your business through merger in 2020, we would welcome the opportunity to provide an overview of our client services.  100% of IBA’s fees are payable upon performance at the completion of the transaction.

    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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