NuVescor President Randy Rua highlights successful recovery strategies used by businesses after the events of 2020 and what to do if you need to sell your business but your financial performance hasn’t fully recovered.

1) Steps businesses have taken to recover from the events of 2020.
Businesses that recovered well after the pandemic were those that did not solely rely on PPP money to cover their losses but instead raised their prices and streamlined their costs. Companies that waited to raise their prices and/or cut expenses until after their PPP money ran out now have two years of poor financial performance and weak current financial performance, making it difficult to sell their business for a good price. Businesses that used PPP money for investments like equipment and expansion fared better than those that only used it to cover costs or losses. In summary, businesses that acted like they didn’t receive PPP money and made necessary adjustments to strengthen their financial health recovered better than those that did not.

2) The metrics used by buyers to determine your business value. Buyers are now focusing on comparing pre-COVID key metrics to current key metrics such as gross margin, labor cost percentage of sales, and year-over-year growth rate to understand how well the business has recovered. While EBITDA for the last three years remains important, buyers are now placing more emphasis on current performance and future projections due to the volatility of the past few years.

3) The recent downturn in financial performance has increased buyer demand for profitable companies. Due to the pandemic, half of the companies listed for sale are distressed or potential turnaround opportunities. Strong companies are now receiving a significant amount of attention from buyers since they are fewer in number.

4) How to address buyer concerns about recent financial performance. To sell a business that has poor financial performance, it is important to show buyers a clear path to improvement, such as increasing pricing, cutting costs, or investing in new equipment. If a buyer cannot see a way to improve financial performance through implementing improvements, they are unlikely to purchase the business. It is also essential to find a buyer with the necessary skills, resources, and abilities to make the necessary changes. Finding this buyer is crucial to selling your business if you don’t have strong financial performance.

5) The factors that potential buyers look at when evaluating a business have changed post-pandemic. Buyers used to be fixated on a company’s EBITDA performance over the last three years. However, due to the pandemic, they are now looking at a company’s current profitability, cost metrics, and market demand to understand its potential for improvement. For performing companies, buyers are looking at the EBITDA for the last twelve months as the primary factor to determine the company’s value.

In the current market, it is not necessary to wait until 2024 or 2025 to have three good years of numbers to sell. Due to the pandemic, there are fewer good businesses on the market, so if a company is currently performing well, it is recommended that they consider selling now.

Companies that are not doing well need to make changes quickly or find a partner that can help them. NuVescor can assist in selling to a buyer who can make the necessary changes to get back to solid financial performance. The market is volatile, and to transition a business successfully extensive research to determine value and find the right buyer match is crucial.

If you need help with selling your business, NuVescor can help. Click here to get in touch with us.

When you’re thinking about selling your manufacturing business after many years building up a successful enterprise, it’s likely you have several goals in mind. Along with providing a solid financial future for your family, most manufacturing company founders want assurance their employees will be well taken care of after the sale closes. After all, if you’re like most private business owners, your workforce is like a second family to you!

When employees learn that their employer is being sold, it’s only natural they might feel anxious or worried. In fact, some business owners postpone selling the company because they’re concerned about what will happen to their valued employees and how they’ll respond to the news.

But selling to the right buyer—one that can accelerate the company’s growth, and ideally one that shares your values and vision—often opens the door to new opportunities for your current staff. The sale of IEQ Industries to Gallagher Fluid Seals provides an excellent case study on how employees can succeed and thrive under new ownership.

By taking a best practices approach, the buyer and seller together ensured a smooth transition for employees—helping to allay any fears and ensuring continuity for the business’s operations. These four approaches all played a role in a successful outcome.

1. Secure Key Leadership Continuity

Employees often find reassurance in knowing that some of the company’s key leaders are staying on board post-acquisition.

“There is comfort in the fact that my role is the same,” said Rich Garnaat, president and sales manager of IEQ. “My goal has always been to serve the owner and company in the best possible way, and I figured that mindset would come back to benefit me as well.”

Of course, it’s possible that some roles will change post-acquisition. But when key managers remain on board and display a genuine company-first mentality, it helps everyone else follow suit and adapt to the inevitable changes with less trepidation.

2. Communicate Openly and Thoughtfully

Garnaat believes transparent owner communication was a key component in alleviating employee stress about the sale of IEQ to Gallagher Fluid Seals.

“IEQ’s owner kept me informed and involved in the steps of selling the business,” he explained. “Talking about the potential sale wasn’t surprising or scary; it was a welcomed opportunity for me to help the owner get the business ready to sell.”

Garnaat believes it helped that he and the owner had a close personal relationship, based on trust. “That much early and open communication about selling may not make sense for another owner if the trust isn’t as strong,” he noted.

When you’re in the process of selling your manufacturing company, be sure you’re only confiding in key managers you’ve built a strong relationship with. Your close circle of confidants should only include people you trust not to disclose the information before you’re ready or leave the company in the midst of the negotiations and due diligence.

3. Choose Your Timing Wisely

Deciding when to inform employees of a potential sale is just as critical as deciding who to confide in. If you share the news with a broad group of employees too early in the process, before the negotiations and due diligence are very far along, you could send some team members running for the door out of fear that their future is now uncertain. And since a small percentage of transactions never come to closure, you could end up losing valued employees for no good reason.

It’s best to choose the timing of any communication wisely, to ensure your key managers stay on board throughout the successful completion of the sale and your entire staff stays focused on business as usual.

4. Develop and Communicate a Transition Plan

Once you’ve completed the negotiations and due diligence, it’s important for your team to understand what will and won’t change post-acquisition. Here again, your goal should be to ease any fears they may have about the upcoming transition.

Garnaat recommends engaging in clear and open communication with all staff. “When things are finalized and you know this is going to be the buyer, it’s ideal to bring in the buyer and have an employee meeting or several meetings to map out what the process is going to look like after the sale,” he said.

Ask the buyer to document a post-acquisition employee transition plan, with details on any planned changes to the organizational chart. This document can serve as your guide in having conversations with key employees about the transition. The better the buyer can paint and communicate the post-transition picture to the entire team, the more comfortable they will be going forward.

Even if you don’t agree with every change the buyer plans post-sale, it’s critical that you take an active role in helping key members of your management team prepare for what’s to come, so they in turn can help the entire workforce feel good about the ownership change.   

“Gallagher has been true to everything that was promised before the business sale closed,” Garnaat said. “Things have gone very smoothly and I’m incredibly pleased with the new ownership.”

While selling the business you’ve poured your heart and soul into is never an easy decision, if you follow a proven process to find and engage the right buyer, plan well, and engage in timely, transparent communication, you’ll be assured your employees are in good hands. That’s why it’s critical to partner with an investment banker that understands what it takes to build and sell a manufacturing business successfully.

For owners of manufacturing businesses in Michigan and across the country, that trusted partner is The NuVescor Group. We’re leaders in manufacturing mergers and acquisitions, helping founders find the right buyer, then guiding them through the process to achieve the optimal outcome, from start to finish. We have experience across the full spectrum of manufacturing business types, and we’ve successfully guided countless completed transactions.

NuVescor is the investment bank that middle market manufacturing companies turn to sage advice required to maximize their value and support the transaction process every step of the way. If you’re thinking about selling your manufacturing business, schedule a call to learn how our manufacturing M&A experts can help you achieve the best possible outcome!

Opting to sell your business during bankruptcy can enhance your ability to maximize the return for your creditors while potentially securing proceeds, as the company retains a value over its liquidation price to interested buyers. By collaborating with M&A firms to identify investors who perceive a higher value in your business, you may also improve your chances of obtaining bank support, as you demonstrate efforts to maximize the recovery of funds. Selling a business while in bankruptcy can be a complex process. However, it is possible to achieve a successful sale when you follow the following advice from our company President, Randy Rua.

Opting for bankruptcy paves the way for a revitalizing fresh start, providing an opportunity for a new buyer to revitalize the venture. They are able to acquire valuable assets, seize a loyal customer base, and seamlessly continue operations – all while shaking off any burdensome liabilities.

1) Work with a bankruptcy lawyer. Find an experienced lawyer to help you navigate the complex court approval process, and ensure a smooth and efficient sale, from initiation to completion.

2) Get a valuation of your business. Consult with an M&A firm to discover the value of your customer base and contracts, considering their potential worth to buyers. Additionally, prioritize appraisals on equipment and real estate, and recognize the significance of employees as valuable assets in the valuation process. A lot of buyers are willing to buy a bankrupt company because they get access to the employees and customer and vendor relationships an acquisition versus having to build from scratch. These things can have significant value to the right buyer.

3) Be informed of the two primary methods in bankruptcy to disclose information to prospective buyers. In a private party transaction, the court publicly reveals the agreed-upon terms after approval, thereby informing all potential creditors. The other method, the stalking horse process, involves a primary bidder submitting a purchase proposal, which becomes public for others to potentially outbid. To compensate the stalking horse bidder for their efforts, they receive a fee if someone outbids them in the end.

4) Work with an M&A firm that understands how to market your business. Find someone to translate the value of your business’s intangible and tangible assets to the market by effectively communicating your business’s worth and showcasing its unique strengths in the market.

5) Be prepared for this process to move quickly. You will need to give the bankruptcy court a timeline, and the goal is to have it done as fast as possible. An average sale of a company can take up to a year, but under these circumstances, it is better to move swiftly and target 60 to 90 days. Having an M&A firm that knows how to build a good data room and collect the information the buyers are looking for to have it ready to go helps move the process along and cut back on the back and forth. Furthermore, having all the purchase documents ready at the beginning greatly speeds up the process.

6) Choose to continue operating your business. The optimal scenario for a business encountering bankruptcy is to secure approval from the court to proceed with operations. This increases the company’s worth compared to a non-operational firm. The court may permit a limited time window, such as 90 days, for the company to find a buyer who can afford to keep it afloat, thus benefiting both parties involved. Navigating the delicate balance between operational continuity and potential value loss is crucial. Determine the timeline and weigh the potential financial setbacks of continuing, versus instantly ceasing operations.

7) Be prepared to answer questions. If your business is going bankrupt, be prepared to get the answers to the following questions to ensure the sale goes as seamlessly as possible.

1. What is the value of my business?
2. What are the assets and liabilities of my business?
3. What is the status of my bankruptcy proceeding?
4. What are the terms of the bankruptcy court’s approval for the sale?
5. Who are the potential buyers for my business?
6. What are the terms of the purchase agreement?
7. What are the tax implications of selling my business in bankruptcy?
8. How will the sale proceeds be distributed among creditors?
9. What are the risks associated with selling my business in bankruptcy?

Selling a business that is going bankrupt can be a daunting task, but it is not impossible. By following these tips, you can maximize the value of your business, find a suitable buyer, and ensure a smooth sale process. Remember to be transparent about your situation, find an M&A firm that is prepared to handle the sale of your business, and work quickly through the process. By taking the right steps, you can emerge from this experience with a sense of relief and the ability to move forward in your business and personal life.

If you need help with selling your business while in bankruptcy, NuVescor can help. Click here to get in touch with us.