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A New York Distributor of
Specialty Office Equipment
has been sold for $80 million to a
NASDAQ firm
(with revenues of approximately $1.5 billion)
The undersigned advised the company in this
transaction.
Crallé & Company
The Situation
Formed in 1966, the company had grown to one of the
largest such distributors in the United States, with
revenues approaching $70 million. A well-known
Wall Street underwriter recently had proposed taking
the company public.
Like most successful private companies, the owner
had developed management policies to maximize cash
flow by minimizing current income taxes.
Inventory valuation and fixed asset accounting, for
example, were kept consciously not according to
generally accepted accounting principles, although
were maintained consistently for tax reporting.
Financial statements for loan covenant compliance
were reviewed by a CPA but not audited.
Operating results would be virtually indecipherable
to most stock-market investors without substantial
restatement and explanation.
Crallé & Company advised that, because of such
complications, a public offering would not achieve
maximum capitalized value for stockholders. In
order to capture the true value of the company the
owner would have to negotiate one-on-one with a
financial or industry buyer.
The Process
The company had never been comprehensively analyzed
or documented in a manner that a sophisticated
observer would expect. Crallé & Company
prepared an overview memorandum, positioning the
company to appeal to the target audience.
Crallé restructured reported financial results to
reflect the metrics typical of private-equity
buyers, identified and added back certain
private-company expenses, and described operations
in a manner suitable for acquisition professionals
to vet the proposed valuation--and, later, to
solicit policy-level endorsement within their own
organization.
Crallé managed contact with prospective buyers
and every phase of negotiations.
The Outcome
The first prospective buyer’s bid of $65 million at
closing (plus a difficult to achieve earnout)
reflected the firm’s reluctance to accept EPS
dilution. Indeed, the firm was unwilling to
address many issues important to the
entrepreneur-owner.
The second bidder’s valuation of $80 million at
closing acknowledged the target company’s importance
to the buyer’s own national competitive strategy.
Every issue of importance to the seller was
addressed satisfactorily. Because the seller’s
tax basis was near zero, the transaction was
carefully structured to defer current income taxes,
as well as to meet pooling-of-interests criteria.
Crallé memorialized the evolving transaction
during negotiations, assisted the bidders during
their analysis and due diligence reviews,
coordinated legal counsel during documentation
(including development of representations and
warranties, and the non-compete agreement) and
guided the transaction to a successful scheduled
closing.
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Crallé & Company, Incorporated
Bronxville, New York
914-779-3331
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