Creative Solution to Client's Needs - A Case Study

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CREATIVE SOLUTION MEETS CLIENT’S NEEDS

A CASE STUDY

 

Ron Varner, Director Mergers & Acquisitions

BusinessQuest

 

The following case study demonstrates BusinessQuest’s flexible and creative approach to solving its clients needs and why our professional, client oriented problem solving culture sets us apart from the traditional transaction-based business brokerage firm.

 

Background: Importer and wholesaler of uniforms for law enforcement agencies, transportation agencies, and security firms was in need of a capital infusion to support operations or else it would be faced with selling the assets of the business at a discount.

 

The business supplies uniforms to major distributor/manufacturers that in turn sell to end users.  The Company provides product development and design, sourcing the order, necessary quality assurance, transportation, customs clearance, and the financial means to facilitate transactions.

 

The Company was founded in 2001 and operates from a 1,700 sq ft combination office and show room.  The business has four proprietary manufacturing sources in Asia that produce high quality and relative low cost merchandise.  Merchandise is shipped direct from the manufacturer to the distributor or customer and there is no need to warehouse any products.  The Company had a significant line of credit from a Bank that it relied on to finance operations.  Due to financial problems within the bank and the recent credit crisis, the line of credit was cancelled even thought the business was still profitable.  Due to the credit crisis and economic conditions, the business was unable to replace the line of credit. The lack of a credit line resulted in the need for the owner to personally provide financing.  As a result of limited resources, the owner had to place a limitation on the volume of business that he could personally finance which resulted in a reduced annual rate of sales and profitability.  What had been a very profitable, growing business quickly became a business that was unable to satisfy customer demand.  Unfortunately, this is all too common of a story for many small businesses in the recent credit crisis.

 

Engagement: The Company initially engaged BusinessQuest to sell the business with the current managing owner remaining with the business to interface with manufacturing suppliers and major customers.  The owner/founder believed that the business could be saved and sales re-energized with a sale to a buyer with the necessary working capital and access to financing.  In addition, there was a plan for product line expansion that could further increase sales and profitability that lacked only adequate financing.

 

Results:  BusinessQuest marketed the business and generated a large number of inquiries and potential buyers.  During this time period, the credit markets virtually evaporated and the company was in jeopardy due to the need for working capital.  In order to expedite a sale, the price was reduced and we notified all potential buyers that had done some initial due diligence of the price reduction.  We also emphasized the owners’ openness to alternative solutions.  Fifty percent of these responded with a high degree of interest in acquiring the business and a request to do further due diligence. 

 

At the forefront was a uniform distributor on the East coast.  This potential buyer felt that the company’s customers were all competitors of theirs and they would lose these customers in the event of an acquisition.  However, they were impressed with the company’s manufacturing sources, quality, and pricing.  Moreover, this east coast company had the financial strength to provide the company with necessary working capital needs. It became apparent that by working together, the two companies could increase sales, reduce costs and improve profits.  At this point we began discussions and subsequently negotiations, relative to a synergistic relationship between the two companies.  This resulted in a formal Strategic Alliance Agreement between the two companies whereby our west coast client would provide overseas product sourcing and production management, sales management for all of its accounts and the east coast strategic partner would provide financing, all necessary administrative activities, including billing/collections and pay all costs for both companies.  The strategic alliance agreement outlined how revenues, costs and profits would be recorded and allocated between the two companies. When the relationship between the west coast and east coast companies changed from buyer/seller to strategic partners, our role changed from business broker to consultant and BusinessQuest assisted in the coordination of negotiations and the development of a framework for the strategic alliance agreement.

 

The end result was that our client achieved his original goal of securing financing for the company and retaining his position only with the added benefit that the owner still retained ownership and control of his business.

 

Author: Mr. Varner is a Business Broker and the Director of Mergers & Acquisitions for BusinessQuest.  His background and experience includes executive leadership as President, COO, CFO, and Vice-President for both publicly and privately held manufacturing companies; acquisition, investment, and crisis management consulting; and management and mentoring for startup and emerging technology companies, including major fundings.  Ron has served as a Director for Wilshire International, Van Vorst Corporation, Southern Cross Industries and California Tackle Company, Inc.  BusinessQuest is a business valuation, exit planning and brokerage firm serving Southern California.