What would you do? I had been working with the Seller for two years, one buyer had gotten almost to the finish line and dropped out; others looked and said, “Not enough information,” or words to that effect and dropped out.
But I believed in this company, believed in the profit potential, and believed that the Sellers were pursuing this transaction because they were tired and just wanted to retire.
Finally, in January 2007, a signed Offer to Purchase. But… (isn’t there always a “but”?), the Buyer was unable to close until June. Then, July.
My Seller was patient. After all, he had made a good living and acquired a healthy net worth from this business over 30 years. He had convinced me that the business would produce a healthy top line and a moderate bottom line if sold to the right Buyer. My judgment was based on long experience in the construction business and respect for the Seller. Not on the books, because the books were designed for the owners’ convenience, not to facilitate a sale. Information was sketchy.
Let’s review the impediments, the misfortunes and the mistakes. The first Buyer knew nothing about the construction business. Despite successful small business ownership, when it came to retainage, bonding and union employees, they soon determined that the business was above their heads. Probably right.
Most buyers had no money. My Sellers were unwilling to finance people who ought to have the money; but they had some interest in nurturing a good, younger buyer. This could have been the chance of a lifetime for someone, or so I thought. No one was coming forward.
Then, in December, the right Buyer showed up. We could wait until summer to close. All we had to do was produce a reasonable backlog, and an adequate amount was already “on the books.” The price we agreed to was more than the price the Seller thought he would get when we started talking two years before, the result of better records and some good years.
When it came down to closing, the Buyer’s insurance physical indicated cancer. The week before closing, the backlog fell apart when a key job was cancelled.
What was happening!! The bank said closing would be on Friday, then Tuesday, then next Friday. What a nightmare.
Finally, the Buyer decided to forge on ahead. I don’t know what prompted him to proceed when all the signs pointed to another failure on my part. But it happened and the Seller was completely taken out with no carryback.
Three months later, here is the situation: the backlog is fine. Further tests proved no cancer. Whew!
We projected a 25% margin and modest growth. In the first 12 weeks, the business has developed more net margin than was expected for the full year. The bank debt will be paid off in a year. Growth that we thought would be 10% is expected to be nearly 100% in the first year.
The Seller is working hard to make the business successful for the Buyer, without any financial incentive—he wants to make a “good deal.” The Buyer’s experience gives him a running start.
My belief that this was a good business, despite all the signs trying to tell me to back away and give up, turned out to be conservative. This is a terrific business and a terrific deal for both the Buyer and Seller. Persistence paid off. Once in a while, you need to have validation of your initial judgment.