Closing Postponed: Strategic Buyer Bitten By Snakes in Empty File Cabinet

Klue Delivery, Inc. started in 1983 with one truck driven by the founder, Lackovah Klue.

Lack is a great guy, hard worker and takes good care of his people. Great service brought great local growth. Almost every year he would add another truck and hire another driver. He was hands on and even in recent years he would often make deliveries personally.

Rather than replacing older trucks, he hired a full time mechanic to wrench on the fleet.

He didn’t trust computers so record keeping was largely on yellow pads festooned with stapled receipts. His current computer system was obsolete 10 years ago and slower than I-5 @ 5:00PM.

Lack was burning out trying to keep up with managing over his head. Time to sell. He tried to sell a couple of times. Some lookers but no takers.

Lack was referred to us and we started the business analysis process.

The bookkeeper actually has books. Books full of entries and she plugs numbers between the spread sheets and the boat-anchor computer.

We sifted through records, Tax Returns, hand done customer files and “The Books” and after several months, we came up with a supportable $4,000,000.00 value.

Concurrently, we identified potential Purchasers and gave them a taste of what was on the horizon.

We knew that transaction design would be a challenge.

• The company was set up as a C-Corporation and even though the Seller was now in his 60s, his CPA hadn’t advised him to convert to an S-Corp for tax saving benefits at the time of the sale. An asset sale would cost him nearly half of the proceeds in Federal Tax. Converting now would take 5 years to gain a full benefit.
• The Company was debt free and all the assets were fully depreciated. This would benefit a Buyer of the assets and would require an incentive to purchase the Stock and not the assets.
• The business model would need to be revamped requiring intensive transition training of the existing staff.
• The Seller wore several hats and would need to be replaced by two key positions.

With the above in mind, at about 6 months into the project a perfect fit strategic Buyer emerged.

The Buyer’s business was in the same service sector but very leading edge in their systems, equipment and management philosophy.  

As anticipated, Due Diligence was very difficult. The existing records, missing documents, non-existent asset history and needed appraisals triggered several revisions to a Letter of Intent. The snakes in the empty file cabinet kept putting off the close.  This sale really required a strategic buyer to make it through the due diligence.

This case is an extreme example of not being prepared.

The dedication of the Strategic buyer and the Seller reinforced the reality that if you have a Willing Seller and a Willing Buyer a deal can be made.

The above lack of preparation cost the Seller over $1,000,000.00.

Havsumklues from the above:

1. Look ahead. Talk to your CPA MANY years ahead of when you plan on selling.
2. Talk with a fiduciary financial planner or Astrologer at the same time. Get a feel for how much you will need when you hang up your gun.
3. Look at your business as a Buyer. What would you want to see in Due Diligence?
4. Look at your business as a Banker. Would you finance your company?
5. Do you have Policies & Procedures written down?
6. Replace yourself unless you want to stay and work for a new Owner.
7. OR Call us to do 1, 2, 3 & 4 above