Case Study

Well-known lighting and video rental company for entertainment venues

Case study

A leading provider of commercial lighting solutions for theatres, schools and event planners received that proverbial knock on the door from a strategic industry competitor backed by a private equity firm.  The company’s attorney saw this as perfect fit for the Catapult Connect service and made the introduction.

What made the business attractive to Buyer?
  • Recognized leader in the entertainment lighting industry for nearly 30 years in the Boston area, a challenging market for national competitors to enter.
  • Long term relationships with marque clients including: performing arts companies, production companies, educational institutions and event planners.
  • A team of lighting designers and production professionals with 10-20 years of service with the company.
  • An owner who is a nationally known expert in the industry.
Challenges
  • Company had no plans to sell before being approached.
  • Low to moderate growth in the years prior to sale.
  • Company lacked successful outbound sales process.
  • Shareholders recently purchased a new building, the financing of which required owner occupancy.
How did the company respond to the unsolicited inquiry?
First Greg worked with management to educate them on their options. Next, Greg prepared an overview information package to provide the Buyer with a financial summary and highlight key attributes while protecting confidential information. Greg also identified for the Buyer several areas where cost savings related to a merger and one-time expenses related to the facilities move would improve the financial picture going forward, making the deal more attractive.
Why did the owner decide to sell?
The majority shareholder decided a sale was the best path as he realized the national company brought resources the Company lacked. Since the two minority shareholders had previously planned their retirement dates within twelve months, a merger gave the remaining shareholder an immediate management team to replace the departing co-owners. All of the shareholders decided the merger worked economically for them and for the long-term future of the business.
How did the building situation complicate the potential transition?

Since the owners had not contemplated a sale of the business when they purchased the building, they agreed to SBA financing that provided a larger loan to value but required the Company be the primary tenant.

The large national bank was uncooperative in transitioning the financing from an owner-occupied SBA loan to an investment real estate loan. Greg tapped into his network of banking contacts to find a responsive local lender willing to provide sufficient terms to enable the sellers to move forward with the transaction.

Successful results
Greg DeSimone assisted with the market analysis, marketing package, deal negotiations and due diligence necessary to bring about a deal with a buyer based in Las Vegas, owned by a New York based private equity firm with a CFO in Texas, and a due diligence team from a national CPA firm based in Chicago.
The Process

Greg worked with the Seller to vet the Buyer and prepare a package of information to gauge the buyer’s interest. Since they had not been contemplating a sale, Greg worked with the owners to determine an appropriate value range for the potential transaction.

The Buyer provided an initial offer toward the lower end of the acceptable range. Greg helped the Sellers craft a counteroffer which raised the gross and net value of the offer, provided for employment contracts and a long-term lease on the building to provide sufficient cash flow for the building mortgage.

In order to arrive at a mutual agreeable deal price, Greg worked closely with Buyer and Seller to propose a structure which was tax efficient for the Corporation and its individual shareholders as well as meeting certain objectives of the private equity investors funding the Buyer. Value was carefully structured between purchase price, building lease and employment agreements.

Greg worked with the company’s sole proprietor CPA through the extensive due diligence performed by a national CPA firm.

Greg worked with Seller’s counsel to ensure legal agreements between Buyer and Seller, as well as lender and Realty Trust reflected the negotiated agreements and satisfied the needs of the various constituencies.

The final transaction reflected an attractive multiple of earnings and a long-term lease at market rates providing the owners with a cash exit and a bright future for the business, its employees and stakeholders.