The anatomy of an acquisition
Reliable Manufacturing Co. Inc., which was based in Bloomfield, had seen many ups and downs in the aviation industry over 50 years in business.
Reliable made precision parts, mainly complex components used in commercial airline engines. Mark Gregoretti, whose family owned the company, said the industry was already headed “down the toilet” at the turn of the century. Then came the Sept. 11 terrorist attacks. The company”™s bottom line was losing altitude fast.
Mark Gregoretti”™s father, Gordon, went without taking a paycheck for a few years. The Gregorettis made tough decisions in staffing and pricing and became a better company. From the depths, the company grew stronger and had a record year in 2006. That”™s when the younger Gregoretti broached the topic of selling. At first, his father laughed off the idea, but Mark Gregoretti noted that selling from a position of strength rather than distress was the way to go. If a certain sale price could be met, his father said, then he”™d be interested.
Like many companies, Reliable sought a third party to facilitate the sale for them by identifying a buyer, handling negotiations and trying to keep under wraps the fact that the company was even on the market. Buyers similarly seek someone to identify potential purchases or negotiate a deal with a specific company. Mark Gregoretti contracted Carter Morse & Mathias, a Southport-based investment bank.
Step one in the sale of a company is the simple decision of when to sell, according to the firm. Often, companies are sold simply when the highest price is available. Personal and family reasons are often a deciding factor as is the need for more capital to expand or improve a company. Once the process is under way, a firm handling an acquisition must then assess the company they are selling, seeing what”™s there, assessing value and really digging in to check financial assumptions and make sure the books are kept not only accurately but also easily understandable and accessible.
“I learned more in that process than in 16 years working with my father,” Gregoretti said, noting the firm helped the company streamline financial paperwork and even create new records of parts and existing customers a potential buyer might want to see. “We never really had that, a lot of that was kept in our heads.”
Finding a buyer in the world of acquisitions is not as simple as posting a “For Sale” sign on the front lawn and often requires a third party to facilitate the deal. Michael Carter, managing director of Carter Morse & Mathias, said that a company selling on its own is often faced with two simple options: calling direct competitors and offering the company for sale or putting the company up for “broad auction” which lets the cat out of the bag terms of the privacy of the seller.
What Carter does is set up a “controlled auction.”
“You may be approaching five to 15 buyers, pre-identified, pre-screened,” he said. “They all have a very specific reason why they”™d want to buy your company.”
After identifying potential buyers domestically and internationally, a firm then undertakes a crucial and creative part of the acquisition process: marketing. Mark Gregoretti called it writing “the story of the business.” “Buyers come in and they are pretty savvy,” he said. “They are willing to spend the money, but they want to know the story, the potential.”
Carter said that developing a narrative around the company is essential to maximize excitement about the company. “The objective is to generate a lot of understanding and appreciation for the company”™s value,” he said. On the reverse, marketing a buyer increases the likelihood of a deal being closed.
An agency perhaps offers the most for both sides in the negotiating process. There are often terms and conditions to consider when drafting an agreement and many deal-specific minutiae are gone over with the specificity of a legal document. Even after a deal is agreed upon, there are a lot of details to be worked out for both sides. “It”™s very rare someone says, ”˜Here”™s $10 million, goodbye and good luck,” Carter said.
The final due diligence period arrives and it”™s time to sign on the dotted line. “Something always comes up at the last moment,” Carter said. When he linked up Reliable with a buyer, for example, it was in 2008, just as the recession was taking hold. Carter was able to keep it together, according to Gregoretti, and ensured a strong final price (which was not disclosed). Gregoretti felt the price was a fair one for both sides, particularly given the economy at the time, December 2008, shortly after the collapse of Bear Stearns and Lehman Brothers. “When you get a big offer, you have to take it because it may never come again,” he said.
In the end, Eastford-based Whitcraft L.L.C. acquired Reliable. Investors included Golub Capital and Ironwood Capital which provided $25 million of mezzanine funding.
Gregoretti recently reached out to Carter and his group again, this time as a buyer seeking a company that fits his needs. “Selling a business gives you a perspective in this process,” he said. “You don”™t want to buy the wrong company.”