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  • Selling A Distribution or Wholesale Company

    Nov 8, 2017

    Holiday retail sales in November & December of 2016 exceeded $655 billion in the United States.  This year retail sales are anticipated to increase approximately 4% with total revenues approaching $680 billion.  However, these figures only tell the last chapter of the economic story associated with the holiday shopping season.   The story starts with the manufacture of the products and includes the distribution of the products to brick & mortar retail stores and E-commerce retailers across the nation.

    Distribution companies come in a spectrum of forms.  Each with unique issues that need to be addressed in the sale process.  IBA, a 42-year-old business brokerage firm that specializes in the sale of distribution & wholesale businesses, has successfully facilitated numerous transactions in this industry niche in the Pacific Northwest gaining the experience & knowledge necessary to achieve premium values in the marketplace and professionally facilitate transactions employing “best practices”.

    The following four past sale transactions from IBA’s history provide illustrations of the different types of distribution companies that exist and some of the unique issues associated with their sale.

    Dickinson Equipment Company was an industrial distribution company specializing in the sale of air compressors that had been fortuitously located in Seattle, Washington in the 1990’s when IBA facilitated its sale. The reason this was fortunate was that Seattle is the corporate headquarters for Starbucks and the company’s distribution agreement with Sullair, the manufacturer of a quality line of industrial air compressors, contained a clause that assigned sales responsibility for any customer that had a corporate headquarters in the represented territory to the distributor responsible for the geographic area.   Early in the history of Starbucks, Dickinson Equipment Company established a mutually beneficial vendor relationship with Starbucks because every Starbucks store required at least one air compressor and Dickinson Equipment Company represented an industrial component desired by Starbucks.  As Starbucks opened stores across the United States and eventually internationally, Dickinson Equipment Company benefited with revenue generated from each air compressor delivered due to the verbiage of their contract with the manufacturer.  This example is provided to illustrate the importance of a wholesale company’s distribution agreement to the value of the business at time of sale.  The value of this company would have been significantly less if the company did not “own” the Starbucks account and/or the relationship was not assignable to an ownership successor. Knowledge & experience are required to properly value intangible assets like distribution agreements and to facilitate their transfer or assignment in a business sale.   Representation by a mergers & acquisitions professional with relevant industry experience is one way a business owner can insure the best possible results are achieved in the sale of a wholesale company.  Relevant to the subject of the assignment or transfer of a distribution agreement, one of the motivations for a stock acquisition by a business buyer, is the preservation of contracts through a transition of ownership.   This is especially true when government contracts are involved that took significant time & energy to secure and/or have a significant time or quantity of product to be delivered remaining.   Facilitation of a stock sale has a level of complexity not found in an asset sale transaction.  If a stock sale is desired by a business owner, it is STRONGLY recommended that a business brokerage firm with numerous transactions under their belt facilitating stock sales be engaged.  Relying on a business broker who has only facilitated asset sales to facilitate a stock sale is like sending a little leaguer up to bat in the World Series.

    Floral & Hardy was one of the premier wholesale florists in Washington when IBA facilitated the sale of the company.  This example is provided because it illustrates a strategic acquisition of a company in the mergers & acquisitions marketplace.  Strategic acquisitions come in one of three forms in the purchase of a distribution company.   In the case of Floral & Hardy, the strategic acquirer was a company that owned rose plantations in Ecuador that was interested in establishing a sales channel for the sale of its product.   Strategic acquirers can also come in the form of a competitor wishing to increase revenue & market share (e.g., Alaska Airlines acquisition of Virgin America) or a retail business acquiring a major supplier to control product, supply, and pricing.  In addition, wholesale companies are commonly purchased by individual entrepreneurs and private equity firms.  It is important, if a business sale at the high end of the market is desired, to select a business broker to that has the ability, experience & knowledge necessary to create a comprehensive, competitive marketplace for the company

    Pedag USA was a distribution company with an evolving customer marketplace when IBA facilitated the sale of the company.   Pedag USA is the exclusive distribution arm of Schelchen GmbH, a German footwear accessory manufacturing company, for the United States with an historic sales channel focused on retail stores.  In the last decade, a consumer evolution has occurred where less products are purchased in brick & mortar retail stores and more products are purchased online.   In recognition of this change in consumer purchasing habits, ownership of Pedag USA focused its efforts on establishing product placement on Amazon, Jet.com, and other E-commerce websites resulting in significant growth in revenues & profitability.   This example is provided for two reasons.  First, it was provided to highlight that business valuation is a subjective science requiring knowledge and experience with accounting & financial models, the ability to determine the impact future potential & exclusive distribution rights have on company value, and incorporate market conditions into the analysis.   Only a business brokerage firm that has successfully facilitated numerous sales of distribution & wholesale companies will have the ability to incorporate market conditions into the valuation process.  The second reason the Pedag USA transaction was selected was to provide an example of a wholesale company distributing a foreign manufactured product. The successful facilitation of this type of transaction often requires knowledge of business practices & laws relevant to the country where products are manufactured and the ability to facilitate communication and mergers & acquisitions activity across international borders.

    CPC Equipment was a distribution company specializing in the sale of lockers & storage systems to general contractors building school, apartments, condominiums, and government buildings when IBA facilitated the sale of the company.  This transaction was selected to illustrate that business value can be found in secured contracts.  In the case of CPC Equipment, the buyer of the business purchased/inherited future projects & revenues multiple years on the horizon involving general contractors who solicitated bids in advance of the need for lockers & storage systems for budgeting purposes, but only desired delivery of the product shortly before construction was completed. These valuable purchase orders required sales & administrative labor up front, but only incurred significant cost shortly before product delivery was desired.   Valuing this asset as part of a business sale requires knowledge & experience.

    As evidenced by the examples provided, the sale of a distribution company is a sophisticated process requiring knowledge & experience facilitating transactions in the industry segment and an understanding of current market conditions in the mergers & acquisitions marketplace.   The highest values, smoothest transactions, and most timely sales of wholesale & distribution companies are achieved by the top business brokers serving this marketplace.  If you are interested in selling a wholesale or distribution company, the professionals at IBA would welcome the opportunity to be included in the interview process where you select a business brokerage firm.  From that point forward, the burden is on IBA to demonstrate why we have been the preferred choice for professional representation of owners of wholesale & distribution companies for 42 years in the Washington, Oregon, & Alaska.

    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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