Location: Richmond, VA
Industry: Commercial Fire Alarm & Sprinkler Systems
EBITDA Multiple: 5.4
Transaction Amount (Business): $2.15M
Lead Advisor: Michael Metzger

Maximizing Gains: How the M&A Competitive Bid Process Secured an Extra $600k
for a Commercial Fire Alarm & Sprinkler Systems Company

Lessons Learned from the Transaction:

Strategic Planning: The owners’ journey highlights the importance of preparing for an M&A transaction well in advance. Conducting annual Broker’s Opinion of Value (BOV) updates and understanding the key drivers of a company’s value can empower owners to maximize their business’s worth when the time comes to sell.

Competitive Bidding: Creating a competitive environment with multiple potential buyers can significantly benefit sellers. In this case, leveraging the presence of several strategic buyers led to an additional $600K in negotiation. Competition encourages buyers to offer more attractive terms.

Aligning with M&A Advisors: Small business owners unfamiliar with M&A intricacies can greatly benefit from partnering with experienced M&A advisors. These advisors provide valuable guidance, ensure sellers get the best deal, and facilitate effective communication between stakeholders.

In the realm of mergers and acquisitions, businesses often face the need for strategic growth or exit. The M&A bid process, coupled with expert guidance from an M&A advisor, can wield a profound influence on the outcome of a transaction, as illustrated by two partners operating a Commercial Fire Alarm & Sprinkler Systems company.

This transaction, a strategic acquisition, saw the company, a player in the fire safety industry located in Richmond, VA, with an EBITDA of $400K and an EBITDA multiple of 5.4, being acquired for $2.15M (excluding real estate) by a much larger national strategic buyer.

The motivations behind the sale were rooted in the evolution of the business’s owners. Skilled technicians turned entrepreneurs, they found their true passion in the technical work rather than the intricacies of running a business. This realization prompted them to explore a sale opportunity.

Their strategic objectives revolved around maximizing the sale price and finding a buyer who not only appreciated their company’s values and culture but also seamlessly integrated with their dedicated workforce.

The M&A journey began seven years prior to completion, marked by annual Broker’s Opinion of Value (BOV) updates that illuminated the value drivers of the business. Over time, the owners dedicated their efforts to bolstering sales and margins, positioning the company for an optimal value when it was ready to go to market.

In 2022, as they prepared to list the business, they were approached by a strategic buyer. This prompted a consultation with an Mike Metzger to explore the potential transaction. Subsequently, two more strategic buyers expressed interest, culminating in a competitive bidding environment.

Three competitive bids were received, enabling the sellers to choose the buyer most aligned with their strategic objectives. Navigating due diligence and negotiations proved pivotal, as the sellers, though skilled technicians, lacked prior experience in business transactions. The competitive environment facilitated an additional $600K in negotiations. During the due diligence phase, a comprehensive process was managed, incorporating the buyer’s well-defined procedures, ensuring business continuity for the sellers.

Valuation centered on a market-based approach, emphasizing the strategic advantages for the buyer, which translated into a higher than expected sale price.

Effective communication and relationship building played a crucial role throughout the transaction, maintaining transparency and fostering positive interactions.

Post-transaction, the owners were retained and offered employment contracts, aligning with the buyer’s expertise in seamless ownership transition.

Key lessons learned underscored the importance of addressing working capital early to avert surprises in later stages, particularly in larger deals. The advice for businesses contemplating similar transactions emphasized the indispensable role of an experienced M&A advisor in navigating the complexities of the process.

In summary, the M&A bid process stands as a potent instrument for achieving business growth and attracting multiple offers. With adept guidance and a sound strategy, businesses can harness these opportunities to their advantage, exemplified by the success of the company.

Recommendations for Similar Sellers:

Profitable, well-managed small businesses are appealing targets for strategic acquisitions by larger firms. Owners considering a sale should take the following steps:

Start Early: Begin preparing for a potential sale well in advance. Understand the value drivers of your business, optimize operations, and enhance financial performance to maximize the sale price.

Leverage Competitive Bidding: Explore multiple potential buyers to create a competitive environment. This can lead to more attractive offers and better terms.

Partner with an M&A Advisor: Engage an experienced M&A advisor to guide you through the complex process. Advisors can help you navigate negotiations, manage due diligence, and facilitate effective communication among stakeholders.

The Current M&A Landscape:

The current M&A landscape reveals a notable trend of larger firms acquiring smaller, profitable businesses to achieve their growth targets. These larger companies seek small businesses with strong market presence, proven customer relationships, diverse revenue streams, and ideally, recurring revenue. Labor challenges have led some acquiring firms to focus on “buying the team.” In this environment, small business owners with well-run companies have an opportunity to explore strategic acquisition opportunities.