One of the most important concepts that we cover in our exit planning conferences is the idea of casting a wide net when considering where to look for buyers. When asked who they expect will buy their company, quite often business owners are under the mistaken assumption that the ONLY buyer for their business will most likely come from inside their industry. Even more likely, it will be their key competitor.
From our years of experience, this way of thinking seriously limits the business owner’s opportunity to sell for a maximum return. In fact, in many cases, the owner will leave significant amounts of chips on the table by pursuing buyers in this fashion.
What we recommend is a much different approach, one that creates as large a buyer pool as feasible with many buyer types in consideration.
One possible group that many business owners are completely unaware of is private equity. These firms exist for one reason: To invest in businesses to help them grow, with the idea of eventually taking a much larger entity public or selling to another buyer.
This “partial sale” scenario is a win-win for all parties. Not only does it allow current ownership to cash out a portion of their stock initially, it also allows them to have a “second bite of the apple” later when the new organization is sold or taken public.
A perfect example of this in action was recently seen when PPC Partners acquired C.H. Guenther & Son:
PPC Partners has acquired C.H. Guenther & Son, Inc., San Antonio, Texas, a manufacturer of grain-based foods and seasoning products for the food service and retail segments. Founded in 1851, C.H. Guenther has a rich history in the food industry. Products manufactured by the company include artisan bread, buns, rolls, biscuits, gravy mixes, frozen appetizers, spices and desserts. The Company has been continuously owned by Guenther family members since its founding.
Although terms of the acquisition were not released, based on additional information, it is pretty clear that PPC will be using its investment in C.H. Guenther as a “platform” for future growth:
The current C.H. Guenther management team will continue to lead the company and no changes are planned for the company’s manufacturing footprint. In addition to opportunities for organic growth, Michael Nelson (investment partner with PPC Partners) said “PPC Partners sees the acquisition as a platform to continue to acquire complementary businesses.”
“C.H.G. is a clear market leader with an outstanding management team,” said Tony Pritzker, chairman and CEO of PPC Partners. “Combining our flexible capital base and industry knowledge with this management team will enable the company to generate new opportunities for growth while continuing the family legacy.”
I have taken the liberty of bolding a few key segments above to emphasize some points. First, clearly this is an entry point for PPC to gain a foothold in this industry niche, with a goal of expanding the holding via future acquisitions of “complementary” businesses.
What does this mean in layman’s terms? Simply this: PPC will be looking for businesses to invest in (most likely much smaller that C.H. Guenther) in this industry over the next 5-7 years to create a much larger entity.
Secondly, PPC, like most private equity firms that focus on acquisitions in the middle market, plans on maintaining the “family legacy” going forward.
For many of our clients, this is a critical issue. For a company like C.H. Guenther, with 167 years of continuous family ownership, this would be a huge concern. Clearly they found a partner that agrees and will maintain the legacy that generations have built in the business over time.
Many of the attendees at our conferences are under the mistaken impression that private equity firms only invest in “sexy” industries where growth is unlimited. Can there be any business less sexy than one manufacturing grain-based foods? Well, from PPC’s perspective, this partial sale must be fairly enticing for them to make this type of investment in it.
If the idea of casting a wide net for buyers intrigues you and the concept of an equity firm possibly being in your future is novel, then you need to attend a Generational Equity exit planning conference soon.
Our meetings are designed to educate business owners on all facets of buyers and M&A activity today and going forward. The time you spend there will be well worth the investment when you decide the time is right to sell your business.
To learn more about Generational Equity and our conferences, please use the following links:
And if I can leave one final thought with you, it would be this: Don’t sell yourself and your company short by assuming your buyer will be from your industry and/or will be one of your competitors. Ultimately your buyer may be from one of these two sets, but at the outset think far more broadly and don’t forget about private equity firms and partial sale strategies.
By Carl Doerksen, Director of Corporate Development at Generational Equity.
© 2018 Generational Equity, LLC. All Rights Reserved.
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