Out-Performing on Price: Synergy, Scale & Competition

The Challenge

The Company (CPSI—Everett, WA)—a regional player in a fast-growing industrial services sector—had already received a purchase offer from a national corporation, when the owner contacted us. The offer appeared to be at a reasonable multiple of earnings, but the Company had two divisions (industrial services and commissioned “manufacturer’s rep” sales)—and the buyer was offering to purchase only the services division. There were no other qualified buyers currently involved.
AdvantEdge Advisors - Investment Bankers - Computer Power & Service, Inc. acquired by JEB, Inc.

The AdvantEdge Solution

We advised the seller that: (1) he should put negotiations on hold and immediately obtain professional M&A representation; (2) we recommended having a confidential, independent 3rd-party business valuation before proceeding; (3) we expected the valuation would show the Company’s two divisions were much more valuable sold together rather than separately (because of synergies, larger size and diversification); and finally that (4) we were confident that “casting the net wider” in marketing, and that orchestrating a competitive buying process, would yield a much higher offer than the one in hand. Formal valuation for the two divisions together in fact came back at 1.9X the total of the original offer applied to both divisions. We advised the Client that, because of market interest in his sector, we saw reasonable prospects of achieving still more: perhaps 2.2X the original offer.

The Results

Through confidential and highly-targeted marketing to and preliminary negotiations with a broad national set of private equity (financial) and corporate (strategic) buyers, we winnowed the field within a few months to four who made written offers. Then, the two most interested buyers countered one another several times, to yield a final accepted offer.  That offer was slightly more than 3X the original offer, and exceeded the highest pre-sale estimated value by 32%. The original buyer remained in the picture for an initial written offer, but then dropped out of the competition, to continue pursuing its strategy of negotiating one-on-one with other sellers—a successful strategy from the professional buyer’s point of view, but one which could have been very costly for our client, had he not engaged AdvantEdge Advisors.

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