Tough Issues Sellers Face
This month, we cover some tough issues that seller’s face – whether some potential buyers should be excluded and how to deal with employees regarding a potential business sale. These are challenging issues but ones that must be dealt with in many business sales.
As usual, we have included a recap of recent green industry merger & acquisition transactions. This indicates that there is an uptick in transactions, even if the green industry merger & acquisition market is not yet robust.
We are optimistic there will be further signs of improvement in the months to come.
One of the conversations we have with new clients or potential clients early on is to discuss the range of likely buyers for their business. We ask them for their insight and it is usually very helpful. We talk about all of the kinds of potential buyers – competitors, suppliers, customers, national companies, companies serving a neighboring geographic area and so forth. Oftentimes, this conversation leads to who they do not want to sell their business to. I find this to be a very interesting topic.
Why would someone trying to sell his or her business rule out a qualified potential buyer before even engaging in a dialogue? The answer usually lies in the highly competitive nature of the green industry. It is really hard to switch gears from being a fierce competitor to considering a business sale. A business owner may have built his entire marketing strategy around competing with a larger rival, pointing out the negatives of dealing with a larger corporate business. Whether or not you do at first, eventually, you probably will believe your own pitch that you offer a personalized level of service that a large corporation just cannot provide. You want the best for your customers. You want the best for your employees. Naturally, you want to sell your business to someone just like you.
If you really want to sell your business at the best price with the best terms, it is best not to limit the possibilities. Oftentimes, the large corporate entity is the only game in town when it comes to a potential acquisition – or at least may be willing and able to pay the best price because of synergies they project to realize (cash flow enhancements from additional revenue or cost reductions). In addition, this type of buyer usually has its financing in place making it possible to complete a transaction in much less time.
Believe it or not, such a transaction may be desirable for your customers and employees too. I don’t hold any illusions that large companies always offer the best service or anything like that. But a large company is definitely not interested in buying your business for the purpose of running off your customers. In most cases, they will be very interested in working with you to develop a strategy for retaining as many of them as possible. They may actually be interested in acquiring your business for the purpose of IMPROVING their service to customers in the area, giving a special opportunity for your employees. As difficult as it is to recruit and retain good employees these days, there is a very good chance that your employees are one of the assets of your business the acquiring company is most interested in. And of course, there may be some advantages to your employees when they become employed by a larger organization, especially in terms of benefits, a powerful motivator for many employees.
So before you answer the question about who you don’t want to sell your business to, be sure to ask yourself how important it is actually sell your business at the best price on the best terms and challenge your preconceptions about a sale to a competitor. It is possible you will discover that the competitor you dread selling to may be the best buyer – for all concerned.
In January, The Brickman Group announced the acquisition of The Green Plan of Broomfield, Colorado, a Denver suburb. The Green Plan, which had been owned by Jeffrey Pope since 1996, ranked number 138 on Lawn & Landscape’s list of the industry’s top 150 companies with 2008 revenue of $9.325 million, 80 full-time year-round employees and 110 season employees.
Pope, who along with his management team is remaining with Brickman, told us in late January that it “has gone great so far.” “I realized that in order to grow the company further, it meant either retooling the business model completely or partnering with a larger company,” he said “In my search for that partner, I found Brickman was the absolute best fit for my people and my customers. From a service perspective, it just made sense. Brickman’s culture matches our own, and the company brings processes and resources that will enable my team to continue to grow, while providing unparalleled service to our clients.”
Among major companies in the green industry, Brickman has been the most active acquirer in recent months. In October 2009, Brickman acquired D. Foley Landscape, Inc. in the Boston area.
In January, Yellowstone Landscape Group announced the acquisition of Texas Services, LTD by its Houston unit, BIO Landscape & Maintenance, Inc., the second tuck-in acquisition for BIO since its acquisition by Yellowstone, a portfolio company of GridIron Capital, LLC. Texas Services will operate as the tree care department of BIO. In announcing the acquisition, BIO described Texas Services as a sustainable tree care -focused lawn maintenance and landscaping company, serving Houston, Austin, San Antonio, Dallas and the surrounding areas. After the acquisition, BIO has approximately 440 employees and provides services in 15 central and southeast Texas counties.
In a post-script to the unsuccessful acquisition and subsequent closure of Smith & Hawken stores by The Scotts-Miracle Gro Company, Target Stores, Inc. announced that it had acquired the Smith & Hawken brand and other intellectual property from a subsidiary of Scott’s. Target has carried the “Smith & Hawken for Target” line of affordable outdoor furniture, gardening and décor solutions at Target stores nationwide and online at Target.com since 2006.
For buyers, Principium provides assistance and counsel in strategic planning, identifying potential acquisition targets, due diligence and planning for successful integration of acquisitions.
For sellers, Principium provides assistance and counsel in evaluating strategic alternatives, identifying and negotiating with potential acquirers and assisting with transactions from due diligence through the closing process.
We understand that the decision to buy or sell your business is a profound one, and we pledge to work with you in a professional and confidential manner while we help you navigate this often confusing process.
Whether you have immediate plans to buy or sell a business or may sometime in the future, we would welcome the opportunity to talk with you about your business.
There are many reasons for maintaining confidentiality in the business sale process. Business owners rightly worry that both employees and customers may leave or become disaffected. They also fear that competitors will take advantage of the situation. Issues with employees, customers or competitors can damage the business, reduce the likelihood of a sale actually being completed and damage the business even if a sale never takes place.
So how is the best way to handle telling your employees that you are selling your business?
In deciding when to tell employees about a pending sale, one thing to remember is that you do not have absolute control over confidentiality. The further into the process you go, the more people know about a transaction, including people associated somehow with your attorney, your CPA, your banker, etc. Unsuccessful potential buyers (or their advisors) may, intentionally or unintentionally violate a confidentiality agreement. Accordingly, we encourage business sellers to have a contingency plan for what they will say to their employees if word gets out about a pending sale. One way to address the subject is to state the obvious – that, based on your personal situation, that you have given some thought to selling, but that nothing is imminent.
The easiest and most direct thing that can be done to avoid this major pitfall is to be honest about what you are doing – as soon as it makes sense for you to do so. Of course, this is a topic you will also want to discuss with the buyer of your business. He or she will likely be very motivated to retain as many employees as possible and will likely want the opportunity to meet employees and address their concerns.
For an employee, few things are worse than getting blind-sided with news that could significantly alter their lives. Being forthright in a timely manner with your employees can help to control the rumor mill. Every owner should have a good understanding of each of his or her employees and be able to break the news at the proper time and in a manner that best fits the situation. This can take the form of a group meeting in a conference room or, if more appropriate, individual meetings with employees.
Another concern your employees may have is time. Once the employees have the full understanding of what is happening it is very important to give them as much time as possible. If the employees don’t want to stay on with the company, they will need time to find new employment. Considerations an employer may want to make can include flexible hours or even time off to look for a new job. Depending on the situation, a severance package could greatly help a valued employee have a chance to find employment and get back into a steady job.
The last important piece for consideration is to help employees who either leave or will lose their jobs under new ownership to find employment. Writing a letter of recommendation and being a reference that an employee can put on his or her resume can be extremely helpful. The green industry is a small world and simply picking up the phone and calling a colleague in the business on behalf of your former employee is another option. A phone call costs nothing, but can make a tremendous difference in the lives of everyone involved.
A little planning mixed with basic human consideration and compassion can alleviate many of the problems that often arise during the sale of a business. No plan can ever perfectly fit each individual case, but approaching your employees with respect and compassion is a great place to start.
First of all, the impact would not be felt in any meaningful way until 2014. The proposal is written to be a stimulus for investment in small business, not mergers and acquisitions. Second, comparatively few small business merger and acquisition transactions involve the sale of stock. For a host of reasons, buyers rarely want to buy stock. Those reasons, among others, include the tax treatment of the buyer and concerns about assumption of liabilities.
This provision is more likely to benefit investment in “small business,” as defined, by venture capital and similar groups, than it is a typical small business owners.
By the way, there is a seven-part definition of a qualifying small business, one of which is total assets of less than $50 million.
The original stimulus package, consisting of a waiver of guaranty fees and an increase in the portion of most loans guaranteed from 75% to 90% ran out late in 2009 when the allocated funds had been used. Recognizing the success of the program, Congress extended the program through February, but the available funds have once again been depleted causing the SBA to implement a waiting list of sorts which will be used when and if Congress extends the program.
President Obama has advocated extended the fee waiver and higher guaranteed portion of SBA loans through the end of 2010, along with other actions including changing the definition of small business and using TARP funds for a program to encourage community banks to lend to small business. Despite the success of the stimulus program on SBA lending, given the deficit and the political environment, there can be no guarantees that the stimulus provisions will be extended again.