When Emotions Run Hot

kathlene thiel headshotKathy Thiel is a Certified Business Intermediary and Certified Valuation Analyst with almost 40 years’ experience in business. She obtained a BA in Economics from Union College in Schenectady and her early career was in sales and marketing for Procter & Gamble, Johnson & Johnson, and AT&T. Desiring to become an entrepreneur, she bought a business, The Knowledge Network, Inc., which she owned for over 14 years. After the successful sale of that company, she earned an MBA from Union Graduate College and started ThielGroup – a business sales, consulting, and valuation company. Since that time Kathy has assisted in the sale of and performed valuation services for numerous companies in various industries throughout Upstate New York.

Fact Pattern

Industry: Industrial Distributorship         Size by Revenue: $8,000,000

Offering Price/Terms: $4,500,000 all cash

Problematic Characteristics: 50% concentration with one Fortune 100 customer. Non-owner President with potentially serious illness and no successor in place.

History

This business was over 30 years old and was held in a trust due to the death of the owner (not the President). Prior to approaching the ThielGroup, the company had two failed transactions with other advisors. One was close to a closing but the buyer mis-represented the cash available for their equity injection and was unable to close. Another deal failed due to its major customer’s work stoppage. After that we were engaged by the company’s attorney/CEO.

What Happened?

After many discussions with potential buyers – most not comfortable with the customer concentration – we found a team of two individuals who presented us with a mutually agreeable LOI. When COIVD hit, one of the buyers backed out leaving the other one uncertain on proceeding. The remaining buyer asked for several 30-day pauses in the process to see how the economy/company was going to be impacted by COVID. He ultimately decided to move forward on his own.

How Was It Resolved?

The buyer wanted terms on the two major company risks as noted above. As the company did not have contracts that could be transferred but had a stable 30-year relationship, the seller agreed to a discounted price instead of a contingent payment on that business.

The other major risk was handled by a contingent seller note based on the president’s ability to continue to provide his services for three years. An employment contract for the president with strict provisions around termination was given to protect the seller.

Sale Price/Terms: $3,700,000 with $500,000 5-year contingent seller note; 3-year employment contract with the President; $500,000 reps and warranties escrow for 2 years

What Was the Takeaway?

When there are major issues that come up it is important to have commitment to the deal on both sides of the table. The intermediary is key here. Besides our client (in this case the seller) we must create relationships with the other side (the buyer) to understand and acknowledge their concerns and work to creatively find a mutually agreeable solution – usually a compromise or creative deal terms – that keeps people at the table and the deal moving. The other major role we play is to act as a buffer when emotions run hot which happened many times throughout this deal. We also need to be able to mitigate the impact of overly aggressive attorneys who play hardball to protect their client at the expense of the deal blowing up – not a good result for their client. The intermediary must be able to be on an equal footing with the attorney in the mind of the parties’ Bottom line – we made it to the finish line, and it was not the deal we started with, but it was enough to make our clients happy!