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Affinity Ventures has worked with many business owners, across multiple industry sectors, to find solutions to complex deal issues for almost 20 years. In that time, our team has successfully completed over 200 transactions, representing more than $2B in enterprise value. We can safely say that it is rare that a financial transaction goes “according to plan.” As you can see from the case studies, deal issues can and will arise. When they do, it pays to have experience on your side. Often, only the maturity and persistence of an experienced transaction team can lead a deal to completion. Flexibility, ingenuity and innovation is key. When all seems lost, it takes guts to say “what can we do?” In one case, customer concentration issues threatened to derail or discount the transaction. In another example, Affinity Ventures was there when a deal collapsed and quickly found another qualified buyer. The final example involves a company that others thought too small, but with the deal team thinking outside the box, Affinity Ventures was able to close the transaction at a premium. We have the ideas, the persistence and years of experience that you need.
Review our case studies to learn more about how we helped business owners like you find reasonable solutions to complex problems.
CONCENTRATION ISSUES IN THE OIL FIELD
Oilfield Services Company
The shareholders of this oil and gas (O&G) field service company wanted to divest 100% of the company for exit planning purposes. Both were in their mid-fifties and knew the timing was optimal due to the activity in the sector.
The company was established 20 years ago and although successful, had not taken time to consider a succession plan. There were no current employees who were capable of taking over the management responsibilities for the owner. The business was highly profitable and had experienced tremendous growth over the past 2 years, but success had created a concentration issue. It was obvious to all potential buyers that the owner would be a key element in sustaining the future cash flow of the company. As a result, he would likely be required to either retain some equity or accept certain sustainability clauses in the transaction.
Affinity Ventures pursued both strategic and private equity group (PEG) buyers. The company was too small to be considered a platform company by most PEGs, but could be a desirable add-on to an existing platform portfolio. For strategic buyers, the company would be easy to integrate and occupied a desirable and robust niche of the O&G sector.
The search for a qualified buyer identified a PEG backed group who had previously purchased a platform company in another region of the United States. They had been looking for a company in this region to expand their footprint. However, the recent growth rate and small size of the business made this transaction a challenge because most buyers look for a larger company when considering expansion outside of their existing operations. The solution to limiting risk for this group was a seller note with a one year maintenance earn-out, based on sustaining historical profitability. The owner was also willing to sign an employment agreement to remain the general manager for at least one year.
During the selling process and due diligence, the company continued to grow at an accelerated pace. Affinity Ventures was able to exceed its original valuation range by approximately 35%. The owner was able to earn 100% of the earn-out and decided to stay on with company for an extended period of time, due to the excellent working relationship they had developed. The new owners actually helped the seller attain the earn-out, bringing resources for better purchasing and systems that assisting in creating more back office efficiency.
NOW WHAT: A DEAL COLLAPSES
The General Partner (GP)/majority owner of a specialty hospital wanted to completely divest and transfer his equity into cash to be used in his global philanthropic projects. The remaining ownership was held by 11 physicians who treated their patients at the hospital.
The physician-owners did not want the GP to leave and also did not get along particularly well amongst themselves. They directly or indirectly controlled the majority of the patient procedures being performed at the hospital and thus the overall business success/failure of the facility. They were, from a practical standpoint, minority owners who were in control of the situation.
The Affinity Ventures proposal was presented, along with others and was accepted by both the GP and physician owners. Affinity brought in additional expertise as needed and went to work, the first challenge being that of obtaining sufficient unity amongst the physicians. The search for a qualified buyer resulted in an offer which was accepted by all owners, leading to a Letter of Intent and entry into the due diligence phase of the transaction. The potential buyer then attempted to re-trade the transaction terms in the midst of diligence for no valid reason, resulting in a complete collapse.
After tremendous effort, Affinity salvaged the project by identifying and introducing another buyer, ultimately resulting in a successful transaction satisfactory to all parties. The former GP is now able to engage in his philanthropic projects. The specialty hospital continues to thrive as one of the best in the country. The new GP is implementing his overall vision by synergistically incorporating the specialty hospital into a national network of outstanding health care facilities.
WHEN OTHERS SAID NO
Health Care Company
The owners of a successful home health care company decided to explore their options to possibly join with a well-capitalized partner which could help them to take advantage of the growth opportunities they saw for their business.
Although the company was obviously well run by the current principals, they had owned the business for only a relatively short period of time. Moreover, the majority owner was only 32 years of age, which raised concerns over his level and length of experience.
Affinity Ventures was engaged and marketed the firm to an array of financial and strategic investors and most of them decided to pass on the opportunity due to the challenges cites above. Affinity thought outside the box and approached financial and strategic investors who were not familiar with the home healthcare space and thus had no pre-conditioned bias toward the opportunity. The extra effort required to educate these new investors resulted in offers being received.
The owners accepted an offer from a control financial investor for an additional 20% premium above the amount they were seeking. They retained a minority ownership position. The owners have since benefited from the growth capital they were seeking with the added plus of sound business advice from their new partners. Today the company continues to grow and prosper due to the recapitalization and new partnership.