Case Study

High-End Specialty Tape Manufacturer

Case study

What do you do when you have three unsolicited knocks on the door?  Call Catapult, this is a prime example of how the Catapult Connect service can help you evaluate your next steps and maximize value if you decide to sell.

What made the business attractive to Buyer?
  • Steady annual growth revenue and profitability
  • Consistently improving margins
  • Long-term employees including plant management.
  • Diverse Product Mix in specialized niche
  • Marquis clients with limited concentration risk
  • Capacity growth available in term of space and labor
Challenges
  • Owner wanted to sell real estate, real estate had environmental issues attached and layout was not optimal for manufacturing
  • Past divorce settlement created de facto capital structure issues
  • Real estate loans (via a related legal entity) and business debt were cross collateralized
  • Owner perceived as the driver of all process improvement and efficiencies.
When did Greg DeSimone first meet the owner?

Greg first met with the owner 3 years prior at a conference.  He was invited to the conference by his financial advisor who had a long-term relationship with Greg.

Greg re-engaged to perform a market analysis 7 months prior to the transaction close as three companies known to the owner separately expressed interest in acquiring his company.

Why did the owners want to sell?

Actually, the owner did not want to sell.  He had five-plan in place with his financial advisor to achieve his retirement goals by age 65.  Once he received unsolicited interest from strategic competitors he knew and respected, he felt he owed it to himself and his family to explore whether the possible sale of business could help him achieve his retirement goals faster and take risk off the table.

Greg's Role and the Process:

Greg prepared an initial presentation to send to the three potential buyers which highlighted the company’s strengths, and growth potential in both revenue and improved margins.

Greg then solicited indications of interest (IOI’s) from the three potential buyers.  After conversations with buyers and providing some clarifying information we received one IOI that was interesting based on our initial market analysis and had the potential to allow the owner to accelerate his retirement plans.

Greg introduced the owner to an attorney with experience in M&A transactions who then support us in our negotiation and finalization of a Letter of Intent (LOI) that was acceptable to the buyer and the seller.

Greg managed the due diligence process via a secure virtual data room and weekly conference calls with the company, their advisors and the buyer’s PE firm and their 6 professional advisory firms over a three month process.

Throughout the process Greg worked with owner’s divorce attorney, and his ex-wife’s attorney to ensure the final agreement would satisfactorily finalize and close out the divorce settlement.

Additionally, since the buyer ultimately did not want the related real estate, Greg worked the owner’s banker to modify the cross-collateralization agreements to facilitate the sale and execution on a lease with the buyer.

Result:

The Owners successfully sold their business for a premium price (36% higher than our initial market analysis) with 85% cash at close an additional 15% upside via an earn-out within  2 years.  The buyer initially suggested a 7.5% reduction in purchase price due to issues raised during diligence.  Greg successfully negotiated that reduction to a deferral via an earn out with 7.5% additional upside.  The owner remained with the business  and accepted a leadership position with the new owners and an exciting employment package which enables him to benefit from the future growth of the business.   

    Postscript

    The client earned the first year earnout and is projected to earn the second year earn out in the 2nd quarter of the 2nd year.  All of that was accomplished during the COVID pandemic shutdowns.