Three years ago, the purchase of a business went like this.
Challenge:
The buyer submitted an LOI. To motivate the seller during the sales process, a clause was created whereby the seller could earn additional compensation on all new client contracts. At the close of sale, the buyer discovered that the “new” client contracts were bad, the company was inefficient, undercapitalized, and understaffed.
Approach:
The buyer spent the first two years making good on bad contracts, investing in systems, processes, and human capital. As a result, the financial statements of the first two years were not attractive to any potential buyers.
In year three, the company yielded great results and hit its stride. With two years of subpar performance, followed by an extremely good year, the market was confused on how to view the future projections for the company. Furthermore, the company was 70% project base and 30% recurring revenue.
Result:
The Vant Group was engaged to sell this company purchased three years ago by the client. Instead of putting a ceiling on the value, TVG tied a fixed multiple to the last twelve months of cash flow. Since the company was growing each month and the lower months were dropping off, the value of the company increased by three-fold which made financing options limited.
TVG identified a buyer who wanted to gain entry to this space and ultimately closed the deal with non-traditional bank financing.