My All-Time Favorite M&A Deal – The One That Didn’t Sell
In my 30 years of selling manufacturing companies, I think this is the transaction that I’m most proud of. It’s the story of a listing that did not sell. It’s the story of true grit, determination, and friendship forged during the most challenging time in the client’s history. My all-time favorite M&A Deal is the one that didn’t sell.
Background:
I visited this manufacturing plant in July of 2022. I toured both the existing facility and the new building next door that was still being constructed. The equipment was first-class. This Seller understood the importance of quality machine tools. Although the plant was beautifully laid out, they were busting at the seams. Every machine was running, and every worker was busy. It was apparent why they needed a new building.
I interacted with several team leaders. Everyone knew the business well and what it took to be the best in their industry. After the visit, my firm concluded our valuation and told the owner it wasn’t time to sell yet. The new building would more than triple its capacity. It was clearly not in his best interest to go to market before that available capacity was filled, and based on what I saw, that would not take long.
Fast Forward to January 2024:
Although the building was supposed to be completed within a month of my visit, it was still not completed. Even though my client was paying approximately $47,000 per month for the construction loan, no certificate of occupancy was issued because of construction violations.
Through no fault of their own, the company was facing foreclosure, with the bank calling the note and their line of credit. The out-of-pocket construction costs and paying the mortgage on a building they couldn’t occupy left them without operating capital. As a result, they closed their doors while trying to find a path forward.
The Listing:
We learned what transpired during a listing follow-up communication with our potential client. Although we don’t normally deal with manufacturing companies in distress, I knew the quality of this company, the quality of its products, the design genius of its founder, and the cult-like internet following the company previously enjoyed. We, therefore, agreed to list them.
The Founder’s Mandate:
While filing for bankruptcy would have been the easiest thing for the founder to do, his character wouldn’t allow him to take the easy way out. The mandate he provided to Accelerated Manufacturing Brokers, Inc. was to find a buyer who understood the brand and its laser focus on quality but also one who wanted to make the creditors whole to protect the brand’s reputation. This was like trying to find a needle in a haystack.
Potential Acquirers:
We hit our marketing target with plenty of interested parties with related experience. The problem was that they either wanted to simply buy the patents or acquire the debt and foreclose, then sell the equipment and real estate to make their profit. Neither was a good result for my client.
The LOI:
This client entered into an LOI with a company that claimed they would make the bank and the other creditors whole. As we proceeded through due diligence, it became apparent that their goal was identical to other buyers we had kicked to the curb. They wanted to buy for the lowest price possible and then sell everything to enrich themselves. They, too, were kicked to the curb.
A Better Path Forward:
Instead of focusing on finding another buyer, my firm’s attention turned to how we might help this company reopen. Was it possible to engage with the bank so the company would be granted some breathing room to restart? Could the jobs return to this community? Was there too much damage done to the brand because of the shutdown? Reopening was clearly a better path for all concerned. It’s a result we are proud to have helped facilitate.
The Company brought back a core set of prior workers to reopen. They added employees every week as orders came flooding in. The founder’s grit, determination, and character are paying off. They’re building old orders for customers who got burned in the shutdown. They’re paying their vendors. My favorite part is the workers having their jobs back before Christmas and reading the rave product reviews online. Of course the customers are raving because these are the BEST MADE TRACTOR ATTACHMENTS MADE IN THE USA!
Friends For Life:
I made no money on this one, but I made friends for life, and I couldn’t be happier. This is like an “It’s a Wonderful Life” comeback story. If you have never watched that movie, I hope you do this holiday season. It’s everything right in the world. This company is experiencing a fabulous comeback with new products on the drawing board. They’re building back smarter. If anyone is still waiting for their demise, here is my advice: DON’T HOLD YOUR BREATH. There will be no stopping my amazing friend and his team.