I left my first stint in investment banking for the less glamorous world of automotive equipment distribution.
Going from suits and boardrooms to jeans and paint booth pits was quite a transition, but it helped me realize what more and more people are finding out: the path to wealth is often found in owning a blue collar, service-oriented business, and then eventually selling that business. But if you’re reading this, there’s a good chance you already know that.
In my case, the catalyst to leave investment banking was to join my family’s 30-year-old automotive equipment company following a strategic buyer’s interest in purchasing the business. I loved the idea of working with my family, and it was a truly great experience.
At the time, I felt my banking experience would be helpful in the sales process and I would like to experience it firsthand, which is also how I got back into banking. But until that initial acquisition interest, my family had not fully realized how valuable our company would appear to outside buyers.
In fact, it was such a niche business that selling had never become a serious discussion. After all, who would buy a business in an industry that 99% of the country has never thought about? Spoiler alert: There was a ton of interest from all sorts of potential buyers.
Distribution is sometimes overlooked as the key cog it is in the automotive aftermarket ecosystem.
Whether you sell coatings and parts, paint booths and frame machines, or alignment equipment and compressors, you’re vital to the success of your customers. They rely on you to help them make money, plain and simple. Now, with massive levels of consolidation among your customers---be they collision repair centers, tire stores or car dealerships---you’re at a bit of a crossroads yourself. As your customers get bigger and more sophisticated, they expect you to do the same---or exit the industry.
This “grow or go” conundrum is leading to significant M&A activity among the distribution companies that service those customers. Consolidation is underway, and valuations are high.
In short, despite all the challenges you face in the business world right now, it’s a good time to be an owner---and potential seller---of a distribution company in the automotive space.
So, if you’re open to selling your distribution business but not sure where to start, here are some things to think about from someone who’s been involved as both a seller and a banker.
The first order of business is to make sure your organization is ready for a transaction. Here are some steps to do just that:
Consult an investment bank or M&A advisor:
Find the right team to market your business and have your back throughout the M&A process. Your investment bank is an extension of you and your company in the marketplace, so make sure you are well represented.
Look for investment banks that specialize in your space and market. It certainly helps when they’re familiar with your industry, its valuation trends and its buyers. Some key things my family and I considered when selecting our investment bank included industry experience and expertise, a high-quality team, FINRA licensing and a good cultural fit.
The right investment bank will help you focus on the right metrics to get you where you want to go, even if you’re not there yet. They will also help guide you through some of the less obvious potential pitfalls that come with selling a distribution business, such as informing your suppliers beforehand and working with them to ensure a smooth transition.
That’s what my family did, and it ended up opening a whole new world of potential buyers, allowing us to maximize the business’s value and find the right partners for long-term growth and success.
Get your finances in order:
One of the biggest factors hampering transactions from taking place is less-than-stellar financial records. If that sounds familiar, don’t fret!
When we sold our family business, we recognized our financials were lacking in sophistication and brought in an ace CPA firm to help. It made a significant impact and changed the entire selling process for the better. In our case, we were introduced to our accounting firm by our investment bank. If you don’t have an accountant, ask your investment banker to refer you to one.
Stay focused on growth:
When a sale is looming, it is easy for owners to focus on that sale as much or more than the daily operations of the business itself. This is a major trap. Keep pushing the growth!
Doing this will ensure you get the best valuation possible and avoid any cold feet from buyers at the finish line. Stability within the business throughout the M&A process is key. Rely on your investment bank to handle the sales process while you concentrate on running your business.
Map out the future:
Some owners want to be done with their business entirely and ride off into the sunset that is retirement. And that’s perfectly OK. Others don’t want to get out entirely, but they’d like to take some money off the table and find the right partners to fuel growth within the business.
Both cases attract two entirely different types of buyers. Based on what you want your business to look like after the sale, your investment bank or M&A advisor will help you find the right partner. In our case, we wanted to keep some skin in the game and play a major role in the company’s future growth.
Selling your distribution business is an exciting proposition, but there are many moving parts and roadblocks that can make the process daunting. You’ve dedicated blood, sweat, tears and---perhaps most importantly---a lot of time to your business. Nailing the transaction to ensure all that hard work is rewarded properly is paramount. After all, you don’t want to fumble at the goal line following a beautiful 99-yard return, right?
Selling your business can often be a once-in-a-lifetime opportunity, so when that opportunity comes, make sure it’s executed properly. Find yourself the right partners and maximize your valuation. You’ve worked hard to get here, now finish strong!
Cole Strandberg is a principal with FOCUS Investment Banking, specializing in automotive aftermarket mergers and acquisitions. Cole works closely with automotive equipment providers, paint jobbers and collision centers. For more information, contact him at cole.strandberg@focusbankers.com or (561) 400-1015.
Cole Strandberg