Case Studies for Enterprise Brokers

Case Study #1

A Manufacturer of wood products (Closet Systems, Offices both Home and Commercial and other custom cabinetry manufacturing) was interviewing business brokers after his 3-year and $10,000 up front fee listing had expired (with one of the largest M&A Firms in the USA) no sale and one low ball offer. 

He was looking for $1.5mm but was willing to go down to $1.3mm after being on the market for over 3 years. He wanted to sell the business and he was going to retain the building to collect rent for additional retirement income. I met with him, reviewed the financials, toured the facility and really took a deep dive into the operation. The comparable came in at around $1.5mm but the sales were trending upward, he had updated most of the equipment, had good management in place and only needed a buyer that could add CAD to take this to the next level.

I suggested $1.8mm as there were many more buyers than sellers (sellers’ market) and the risk for buyers was low due to many factors. I also told him that an individual buyer would pay more and he would receive more cash at closing from this type of buyer. There were many reasons this company was not a good candidate for a Private Equity Group and an individual buyer could fund the deal with an SBA 7a Loan. I also suggested he offer a Seller Second note to reduce an individual buyer down payment by $100k.  He did not want to carry any paper so we raised the asking price to $1.9mm.

The Business went to market as “Discretionary Earnings $450k buy with $250k down SBA Loan” and went under contract within a week with an individual buyer. The sellers Son was staying on in the business and I suggested that the seller assign the $100k note to his Son. Both the Bank and Buyer loved the idea as the sellers Son had an incentive to not only stay on but to make sure the business did well enough to pay the SBA loan and the Second note to the sellers Son.

Case Study #2

A 65-year-old owned a Seafood Restaurant with the Land and Building. Using another Broker, he sold the shares of Stock “Stock Sale” rather than an “Asset Sale”. After 2 years, the buyer defaulted on the note and the now 67-year-old seller foreclosed on the stock. To his surprise, with the stock came liens from the State and Federal Government that he now owed. He spent the next 2 years getting the restaurant making a profit again of approx $125k. At close to age 70 he was ready to sell again but wanted at least 50% down payment ($350k on a $700k ask price for building and business). He had the business listed with other brokers for a year with no offers. A lender I worked with proposed pre qualifying the business and building for a $500k SBA Backed 504 with 10% down to the buyer and selling the business Zero Down on a separate contract. The mortgage payment on the building 504 loan was amortized over 25 years so the mortgage payment was lower than the fair market rent for that building. We got this sold within a week to a Chain Restaurant Manager that used part of his 401k for the down payment, closed in 28 days and the seller received $500k down from the sale of the land and building and a note for $150k for the business. This was $150k more cash at close to seller that what he was trying to get on his own and close to his $700k ask price.

Case Study #3

A Screen-Printing Business with Real Estate was for sale with other Brokers for 4 years with no success at getting a sale. The ask price was $350k ($200k for building/ $150k for Business) with no mention of financing in the advertisements. We took the listing after we put a financing package together for 10% down on building with a SBA 504 loan, 10% down on the business (SBA 7a loan) and the seller taking a 10% on a 2^nd note on the business. A buyer could now buy the business and real estate for $35k down and the seller only had to carry a note for $15k, that’s $335k cash at closing for the seller. We got this sold within a month once we advertised it with the financing available to a Graphic Artist that used their 401k for the down payment.