One Client, Two Buyers
A distribution client generated over $30 million a year in revenue out of one warehouse location with one sales force and one fleet of delivery trucks. Their product lines included:
- Cigarettes and Tobacco Products
- Snacks, Candy and Chips
- Fresh and Frozen Meats and Fish
- Fresh, Canned and Frozen Food Products
What made this distributor unique was they sold these diverse products to two entirely different market segments: Restaurants and Convenience Stores. Unfortunately, the company was only making a little over $400,000 a year with a lot of capital tied up in the business. In looking for larger similar companies as prospective buyers, we discovered there were no other companies in the entire US that carried the same types and range of products AND served the same two totally different and distinctive markets.
Restructuring Leads to Marketability
With only $400,000 in earnings, the business was not worth a great deal of money over and above the value of the A/R, inventory and hard assets. However, we came up with the idea of splitting the company into two divisions and selling them to two entirely different buyers: 1) one that already handled cigarettes and Tobacco Products and Snacks, candy and chips with existing distribution into convenience stores, and 2) the other buyer being an entity that already handled the other product lines and sold to restaurants in the same market area. When we viewed the marketing with this approach in mind, we found we had three very solid prospective buyers on the cigarette, tobacco and snack side and four equally solid buyers on the restaurant distribution side of things.
We segmented the company’s books and separated revenues on a divisional basis. We did not show any warehousing, delivery or sales expense and prepared the two different divisions’ financial statements just showing Gross Profit numbers. Devoid of warehousing, trucking and sales expense, the Gross Profit numbers were many, many times greater than the $400,000 of operating profit.
Different Divisions = Different Potential Buyers
We used the two divisional Gross Profit statements and approached competitors in both market segments. Our story was quite simple: We will sell you this division and you can fit it into your already existing warehousing, trucking and sales structure with very little increase in costs and a large percentage of the Gross Profit should drop directly to your bottom line. We emphasized the idea that with increased volume, their purchasing power would go up with the probability that they could increase the Gross Profit via lower Cost of Goods Sold. The story made perfect sense as they already had trucks and salespeople in the same market area, and in many cases they were already selling some products to exactly the same customers.
To make a long story short, the two buyers never asked for, or ever saw, the internal operating books, records and marginal profit. Both buyers ended up paying cash with aggregate purchase prices many, many times what the Company was worth if sold as one operating business.
For a more in depth look into this topic, consider reading How ASG Finds Buyers.