In this article for Valley Business FRONT, Jim Mullens, Managing Director with Bundy Group, shares key insights for business owners looking to understand more about the mergers & acquisitions process.
Mergers and acquisitions grow companies. A merger is the coming together of two companies, whereas an acquisition is where a larger company swallows up a smaller one. Jim Mullens said that acquisitions most touted in the media are hostile takeovers, but he said “99% are friendly, where everybody wants to do the deal.” In fact, he has never participated in a hostile deal. Typically, he said, those are larger transactions in the billions, not millions, of dollars.
Mullens said the majority of deals are successful and get to closing, a cycle that takes typically six to 12 months from engaging the investment bank as an advisor. There is a lot of work to do to “get the house in order,” both operationally and financially, Mullens said. Success depends on many variables, such as a fair price, the transition period, and whether the seller is staying with the company moving forward.
Factors that can derail a deal include sellers changing their minds, too small of a buyer pool, the overall economic situation, and events out of everyone’s control like COVID. Sometimes the offer “doesn’t get the seller to where they want to be financially,” the owner gets sick, or the company loses a large customer during the sales cycle.
M&A have been at an “all time high the past two years,” said Mullens, “the best ever.” Buyers have been paying a premium, and opportunistic sellers have sold earlier than planned. In today’s tight labor market, buyers retain most if not all employees. “When buying a business, usually employees are at the top of the asset list,” said Mullens.
Four specific sectors Mullens mentioned as having a lot of M&A activity are business services, health care, technology, and manufacturing. All types of business can be involved in M&A, though. “Anything that is a viable business earning cash” is game, he said.
An investment bank like the Bundy Group plays an important role in an M&A. It represents sellers when they go to market to sell the business, finds buyers, and helps walk clients through the involved and complicated process. The investment bank brings multiple buyers to the table at the same time. Once a winner is chosen, the buyer has 60-90 days for due diligence such as in-depth looking at company records, and even talking to customers and employees.
Mullens said it is important to keep the owner focused on running the business so that the company is at its best at sale time, while the investment bank takes care of details of the deal.
The Bundy Group started in Roanoke 33 years ago and has expanded to have offices in Charlotte and New York. Most investment bankers have backgrounds in finance and often have MBAs, said Mullens. Investment banks earn their money through “success fees” (a.k.a. commissions) at closing, and sometimes through monthly retainers or equity in the new company.
While each investment banker specializes in an area of expertise, one of the biggest challenges is being a “jack of all trades,” said Mullens. “You have to learn a particular business inside and out before taking it to market,” he said. “You have to understand the nuances to be able to relate them to 30, 50, 100 buyers.”
Said Mullens, “Every deal is a standout to me because so much work goes into it.” Still, he recounts a couple of notable success stories. He represented Roanoke Sprinkler as a buyer (see A Brief Case Study below), then when the company was looking to sell it came back to him for that deal. Last year, the Bundy Group combined three companies into one and sold it to one buyer. “By combining them, we got a large premium price,” he said.
The M&A scene in the Roanoke region is “active,” said Mullens, but there is not a critical mass of businesses selling so there are “not a bunch of deals here every year.” One of the most common scenarios Mullens encounters is a business owner aged 55-70 who is looking to exit the business to retire or move on to new things.
Mullens sees the future of M&A strong through the end of this year. Inflation, a potential recession, and a resurgence of COVID are certainly variables that could “change the M&A landscape,” he said. Still, he feels it will continue to be a strong M&A environment. “People will always be selling their businesses,” said Mullens. “It is never going to go away.”
Ten years ago, John Corliss reached out to the Bundy Group with a targeted list of acquisition wants. He was living in Indianapolis and wanted to return to the Roanoke area. Corliss kept in touch with Jim Mullens, Managing Partner, about opportunities in the specialty electric business. Between then and 2018, Corliss looked at over 100 non-disclosure agreements and had 20 conversations with companies for sale, but when Mullens brought Roanoke Sprinkler to him things clicked. Corliss had a friend in the sprinkler business in Indianapolis, so he was familiar with it, and Mullens specialized in the fire protection industry.
“Jim represented the business 100% accurately,” said Corliss. Corliss closed the deal to purchase Roanoke Sprinkler in June of 2018. In December of 2021, a potential buyer contacted Corliss. Due to family circumstances, he was open to selling Roanoke Sprinkler, and the business value was greater than Corliss anticipated. But, as Corliss said, “it is always harder to sell something than to buy something,” so he realized he needed help from someone who understood acquisitions in more detail.
Corliss reached back out to Mullens after interviewing five or six other people. On the buying side, he had found Mullens “fair and competent.”
“I needed Jim as the sales side representative to put together the strategic plan to go to market,” Corliss said. This, plus Mullens’ relationships in the industry, generated multiple buyers and offers, and Corliss ultimately sold Roanoke Sprinkler to Summit Fire and Security. Corliss was pleased with Summit’s strong offer and its path to grow the business Corliss had worked to build. “It was a good fit,” said Corliss. “There was synergy.”
Likening the transaction to a buying or selling a house using a Realtor, Corliss said, “it is easier to have someone else negotiate for you because that person is not emotionally involved,” and s/he knows the “ins and outs” of the business.”
This article, by Jennifer Poff Cooper, appeared in the September 2022 issue of Valley Business FRONT as "Exit Strategies." Download a PDF of the issue at https://issuu.com/berryfield5/docs/vbfront_sep22.