Your Biggest Sale ... Ever! -- Part One
Your Biggest Sale ... Ever! -- Part Two
Your Biggest Sale ... Ever! -- Part Three
n many instances, the outright sale of the business is not sought, but rather the preferred mode of divestiture is to "take the company public" or to simply attract "outside" equity investors. The owner/managers can retain a substantial position in the business, but can both broaden its capital base as well as gaining deeper management expertise. Of course, it is always to be recognized that bringing in "outside" investors — i.e., "going public" — can mean focusing on the "almighty quarter" rather than the "almighty dollar." It means having to share the direction and strategy of the enterprise with "others" regardless of the defined contractual relationships; "outside" investors have significant statutory and common law rights.
When an initial public offering (IPO) of more than $5.0 million of equity is required, the services of knowledgeable legal counsel and investment bankers are mandatory. However, for financing below this ceiling, streamlined procedures are now available to the smaller business and entrepreneur making private placements less onerous. The SEC published Regulation D in 1982 delineating the rules for smaller equity offerings exempt from Federal registration. Rules 504, 505 and 506 provide the most popular methods for emerging businesses to raise capital from private investors via a Private Placement Memorandum (PPM). A Limited Partnership Offering (LPO) or a Form U-7, Small Corporate Offering Registration (SCOR) are alternatives meeting specific organizational profiles. While many utilizing these "streamlined procedures" may still be more comfortable working with seasoned professional advisors, "do-it-yourself" resources are available for the smaller business seeking a low-cost offering of private shares of stock. For example, Prestige IPO1 (Intrepid Securities, Inc.) in Arcadia, California, and Cambridge Financial Services2 in Largo, Florida offer software and advisory services and can be accessed via the Internet.
In addition to the established venture capital firms,3 the Office of Advocacy of the Small Business Administration (SBA) has now established The Angel Capital Electronic Network (ACE-Net),4 an innovative Internet-based listing service providing information to angel investors on promising small businesses seeking to raise $250,000 to $5.0 million in equity financing. This service is maintained by The Whittemore School of Business and Economics at the University of New Hampshire. Additional sources of financing for the smaller business and entrepreneurs are identified and linked on The Business Forum Online® "Powerfu1 Resources on the Web for the Emerging Business and Entrepreneurs"5 (Financial Resources for the Smaller Business).
Finally, the preferred mode of divestiture may be to privately negotiate the sale of the venture to a buyout group. This kind of transaction has ascended to prominence during the past 15 years; there is scarcely a reader of the financial press who is not familiar with the pyrotechnics surrounding the $25.0 billion buyout of RJR Nabisco, Inc. in December 1988 by Kohlberg Kravis Roberts & Company (KKR). However, corporate buyouts are no longer limited to simply the mega-deals. Observing the competition to invest in large corporations escalate, a number of buyout groups are now focusing on smaller and middle-market businesses.
The Saugatuck Capital Company in Stamford, Connecticut has just launched a $125 million fundraising for their fourth partnership. Owen S. Crihfield, Managing Director, emphasizes that they are seeking "new investment opportunities where it is possible to build outstanding companies in partnership with exceptional managers. Our investment horizon is from three to seven years and our typical investment size is from $3 to $10 million." Saugatuck is seeking consolidating and fragmented industries, financial and business services, specialty manufacturing, telecommunications, and consumer and specialty retailing.
Similarly, Swander Pace Capital, LLC ("SPC"), an affiliate of the management consulting firm, Swander Pace & Co., in San Francisco, is raising $75 million targeted towards equity investments of $2 to $8 million to fund expansions and buyouts of consumer products companies. Andrew H. Richards, Managing Director, stresses that SPC "is a private equity firm that specializes in later-stage venture investments and buyouts of branded consumer products companies. SPC acts as a value-added investor, working closely with management teams to generate profitable growth by leveraging the firm's financial and industry expertise."
Thus, there are a diversity of ways to effect your biggest sale ... ever! Our primary lesson is that the successful execution of this sale is often the principal objective of the venture; day-to-day operations are to be focused continually upon this objective. But this is a sophisticated and time-consuming process, and it is rarely too early to begin to assemble a superior advisory team and initiate careful preparations for this singular event. Don't let the big one get away!
2 URL: http://pages.prodigy.com/capital
3 National Venture Capital Association, URL: http://www.nvca.org
4 URL: https://ace-net.sr.unh.edu/welcome.html
5 URL: http://www.businessforum.com/bookmarks.html
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