When the Parts are Worth More Than the Whole

When the Parts are Worth More Than the Whole

I had been working with Jim for about five months since the time he had contacted me. I felt good about working with Jim, because he was referred to me from someone in the convenience store industry. Jim said he interviewed another company who specializes in the selling of convenience stores, fuel wholesalers and petroleum related businesses (there are only about 3-4 of us in the U.S. who do what I do) and although they were very capable, he felt my background and working with our boutique firm fit his business better.

Jim was enjoyable to work with. He had been very successful and over the years and had built a profitable business consisting of convenience stores, a tank wagon business with bulk plants, a fuel wholesale business and a transportation business. I was familiar with Jim’s business and had just sold another business likes Jim’s less than a year before.

We went through the usual steps of collecting the needed information about each of the businesses and doing the market valuation on each of the businesses and then combining the information together to come up with a market value for the group of the businesses, because Jim wanted to sell the convenience stores, tank wagon business and bulk plants and transportation business together so he could exit the business and retire.

By the time we had finished the market valuation we had identified who the buyers of the businesses would be and were ready to begin contacting each of the buyers. (In our firm we don’t do auctions or structured sales as they are called. Instead, we pinpoint a list of prospective buyers who have to meet certain qualifications so that the process is kept confidential and not disruptive to the operations of the business).

Several of the buyers we contacted were interested in the businesses and we continued to provide them with additional information to work towards and offer. We were able to produce 3 separate offers in the form of an LOI (Letter of Intent). Jim was happy that in less than a month we were able to produce 3 LOI’s all of which were close to the asking price Jim had wanted for the businesses. There was one company that stood out about the others and Jim chose this company to go forward with. The LOI was refined to where both Jim and the buyer were in agreement on the price and the terms of the businesses being sold and the LOI was signed, and we were then moving into the due diligence phase of the sale and purchase agreement.

The due diligence phase of the selling of a business can be the most difficult part of the process for a seller, because they are required to share with the buyer information that will substantiate why the business is doing what it is doing, and it gives the buyer an opportunity to look behind the curtain and see the quality of the business too. It was during this time that the buyer discovered during their research that one of the bulk plants used in the tank wagon business was contaminated. After working in the petroleum industry for over 20 years contamination is not a surprise to me, however this situation was bad and the buyer said they were still interested in the convenience stores, but not the tank wagon, wholesale fuel and transportation businesses because of the of the contaminated bulk plant and other items discovered during their due diligence.

The buyer then submitted a new LOI reflecting the price they would pay for the convenience stores without the other businesses, which was a good offer but less than their original offer, because it did not include the other businesses.

To say Jim was disappointed would be an understatement. However, in the beginning I had spoken to Jim about something like this possibly happening, because when you mix multiple businesses together you reduce the number of buyers who will want to purchase a mixture of businesses. Most buyers are what we call “Pure Play” buyers. Meaning they only operate in one category, and they are very good at their category of business.

You see Jim was only thinking about getting out of business and retiring. He wasn’t thinking about putting the most amount of money in his pocket. He was focused on exiting the business and he had mentally checked out and wanted to have one sale and be done. When in reality if the businesses had been separated and sold individually there was a good chance, he would have received a much higher asking price. This is what we call “The parts are worth more than the whole”.

Would selling each business individually solved the contamination problem? No, but Jim would have had multiple buyers who would have paid top dollar to acquire a business in their category. Yes, selling multiple businesses is more work than just having one sale, but then again how many times are you going to sell your business and retire?

To learn more about Jim and others like him send me an email at Terry@TerryMonroe.com and mention this article and I will send you a FREE copy of my book “Hidden Wealth” The Secret to Getting Top Dollar for Your Business. It is packed full of stories of what not to do in the selling of your business.

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