Consortium Sale: Strategy for Business Owners to Increase Value

July 1, 2022

It is common for the Bundy Group team to be in confidential discussions with multiple owners in the same industry at the same time. These owners are contemplating hiring Bundy Group to represent them in a sale and often ask how our team can drive the utmost value in a sale process. In these unique situations, we propose a consortium sale as a means to capture enhanced value. In short, this occurs by partnering with at least one other business in a sale and engaging Bundy Group’s investment banking team to manage the consolidated sale process.

What is a consortium sale?

A consortium sale is taking two or more companies in the same industry and presenting them together to the buyers market. On the surface, presenting two or more companies in a sale can appear straightforward and simple. However, a material amount of preparation, communication, and vision are required of all key parties to execute on this strategy. As an investment banking advisor, Bundy Group assists with these key steps.

Step I: Consortium identification

First, candidates need to be selected for the consortium. In Bundy Group’s prior transactions, consortiums were formed not just along industry lines but also based on pre-existing relationships that owners had with one another. It is easier to get excited about teaming up with another business in a sale if you, as an owner, have a lot of respect and affection for the other consortium candidate(s) and have a complementary, not competitive, fit with the other organization(s).

While Bundy Group might suggest a strong candidate based on our experience and knowledge of the situation, the consortium parties decide who is included in the collective sale. It is important to note that in a consortium sale the candidates will not formally merge or integrate prior to a transaction. Instead, they will be presented together as one platform acquisition opportunity.

Step II: Preparation and presentation

To successfully execute and deliver enhanced value in a consortium sale, the following key positioning points must be addressed:

  • Explain why these companies integrate well as a consortium. Articulate how these firms will operate together post-close and the synergies that they will realize together once they are formally under one umbrella.
  • Ensure that the owners of the respective companies agree on motivation and end goals. Disagreements and lack of alignment in a consortium sale can create significant issues and reduce the chances of a strong outcome.
  • Define the best buyer options to increase valuation and certainty to close. Whether strategic buyers or financial sponsors, the best market of buyers should be defined prior to starting a process.
  • Drive competition so that buyers are motivated to present aggressive valuations for the consolidated consortium platform.
  • Manage the process with a focus on milestones, diligence-worthy materials, and momentum. A more disciplined sale process increases the likelihood of an optimal outcome.

Why a consortium approach?

To answer this question, we will reference the typical financial sponsor playbook for acquisitions. A financial sponsor’s goal is to buy a platform (i.e. first investment) at a buyer-friendly valuation and to complete add-on acquisitions at even lower valuation multiples. This arbitrage strategy allows financial sponsors to create enhanced returns, though at the expense of the sellers.

With a consortium strategy, Bundy Group is flipping the financial sponsor approach on its head to benefit business owners and sellers in the following ways:

  • A consortium sale can result in a higher valuation by leveraging the arbitrage benefit to the seller’s advantage.
  • A consortium sale can generate interest from buyers who might not pursue the company in an individual acquisition scenario.

The Pacific Consortium case study

In 2021, three companies in the equipment, energy, and industrial service segments formed a consortium affectionately called the Pacific Consortium. Those firms were Industrial Electric Machinery, A+ Electric Motors, and Reed Electric. As highlighted earlier, these organizations fit the recommended rule of thumb: they had complementary service offerings, operated in the Western U.S, and did not compete. In addition, each of the firms had similar organizational cultures and values. The owners of each organization had an established relationship with one another prior to the sale process and had profound respect for each other’s firms.

These three consortium members, operating under the same organizational structure post-close, would realize a tremendous amount of growth, revenue, and cost cooperation. Individually, these organizations were frequently approached by buyers already active in their segments or who wanted a platform in the industry.

Bundy Group had existing relationships with all three firms through our tenured experience in the space. Over a five-month period, we ran a streamlined process with the Pacific team members that included both financial sponsor and strategic buyer interest. Our goals were to close by December 31, 2021, to focus on a group of strong-fit buyers, and to obtain a premium valuation for all consortium members.

Accomplishing all three goals, the Pacific Consortium sale closed with Integrated Power Services, a financial sponsor-backed strategic buyer, who desperately sought a strong Western U.S presence. Once the purchase agreement was signed, IPS became the leading electro-mechanical services player in the Western U.S. and the Pacific management team was tasked with leading IPS’ Western U.S. operations.

Finally, the Pacific Consortium shareholders elected to reinvest in the IPS platform, anticipating a second bite of the apple when IPS is sold by its current financial sponsor owner to another party.

Bundy Group’s role in a consortium sale

With proprietary experience in the consortium approach and successful client transactions of this structure, Bundy Group is capable of successfully:

  • Managing the consortium transaction process
  • Delivering buyers who will aggressively compete
  • Facilitating communications between all consortium partners
  • Advising clients on ways to drive value and organizational strength
  • Articulating the vision for how consortium candidates can successfully operate together and why a buyer can pay a premium value and still obtain their return objectives

In summary, Bundy Group’s end goals are to fully represent the consortium clients and their interests, to drive value, and to find best fit buyer for the consortium’s future benefit.

“After the Bundy Group team and I developed the idea of the Pacific consortium, the Bundy Group team worked flawlessly and in a collaborative fashion with the respective Pacific firms to manage a highly competitive sale process.” Spencer added, “At the conclusion of the transaction, we had a great new partner in IPS and a Pacific valuation that was significantly higher due to a consortium sale versus selling each company individually. We could not have been happier with the outcome that the Bundy Group team delivered.”

Spencer Wiggins, CEO & Majority Owner, Industrial Electric Machinery

While the consortium approach may not be a reliable opportunity for every business, there are many firms across a range of industries that could benefit from this strategy. It can be a tremendous way for an owner that is considering a sale to obtain a significantly enhanced value. Give thought to other businesses that may be candidates for a consortium partnership with you, consider contacting those owners to begin a conversation, and schedule an informal discussion with the Bundy Group team to explore this potential opportunity.

About Bundy Group

Bundy Group is an industry-focused investment bank that specializes in representing business owners and management teams in business sales, acquisitions, and capital raises. The team of highly experienced investment bankers leverages extensive industry knowledge and experience to provide hands-on guidance to clients through every phase of the transaction. With more than 250 closed deals over the past 33 years, Bundy Group’s primary goals are to provide high quality options and actionable insights and to deliver an optimal strategic fit at a premium value for our clients.

Bundy Group Securities, LLC, is a registered broker-dealer and member of FINRA and SIPC. Check the background of Bundy Group Securities, LLC at FINRA's BrokerCheck. Testimonials may not be representative of the experience of other customers and are no guarantee of future performance or success.

© 2022 Bundy Group | Bundy Group, LLC - All Rights Reserved
Built by Vantage