Merger & Acquisition Insights

Case Study: Acquire/Lease New Facility or Sell Business

Posted on July 29, 2015 by Spencer Tenney

Case Study: Acquire/Lease New Facility or Sell Business

Recently a transportation company on the West Coast came to Tenney Group with an issue. A real estate investor had made an offer on the building where the company operates. The facility had been purchased 20 years prior and the market value had since exploded. Accepting the offer was a no brainer. What to do with the business following the sale was less clear.

The real estate investor had a specific plan for the property, so leasing the space from the new owner was not an option. As the transportation business owner searched around the market for a new facility to rent/buy, he became discouraged. The rent market had become ridiculously expensive. He didn’t mind paying fair market rent for his facility when he was his own landlord. In light of the company’s modest financial performance, paying someone else was difficult to swallow. Other challenges that complicated the issue included:

  • The expense of moving the office.
  • The expense of modifying the new facility to meet the company’s needs.
  • The direct impact on the cash flow of the business resulting from the increased rent obligation.
  • The opportunity cost of not using the same time and resources toward a different investment vehicle that may provide better return.

The business owner owned multiple businesses. Of all of his investments, which included multiple transportation companies, the company in question produced the smallest return as a percent of sales. At this point the owner reached out to Tenney Group to explore options. We learned that the owner had a 90 day window to, either find a new facility and continue operating the business, sell the business, or liquidate the assets and close the doors.

The seller determined that it was not in his interest to buy a new facility because he believed the current real estate values were inflated and would inevitably adjust downward in the near future. Leasing was still an option. However, the process of defining exactly what would be required to keep the business moving forward brought clarity and perspective to the owner. He became less emotional about the business – detached…in a good way. Ultimately, his heart was not there. Just as important, the math was not there to support holding onto the business. He was not expecting to sell the business when the real estate investor came knocking on his door. This business owner was savvy enough to understand that holding on to the business would only diminish what he accomplished through the sale of the property. He refused to allow that to happen.

Fast Forward. After retaining Tenney Group to sell the company, the business was sold in 71 days. All of the employees were retained by the new buyer. *It was important to the owner to take care of his people. The owner pocketed an additional $500K in net proceeds from the sale he would otherwise have left on the table. From the combined sale of the property and business, he starts a new chapter of life with capital, energy, enthusiasm, and readiness for the next opportunity that might knock on his door.

 

 

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