A Strategic Acquisition Often Times Makes the Most Sense
On May 3, 2021 4Front Energy Solutions, Inc. acquired Paladin Plumbing. 4Front Energy Solutions, located in St. Louis Park, MN, provides HVAC installation, service and maintenance plus an electrical division that offers wiring services for remodeling, repairs, and electric vehicle charging. Adding plumbing to their portfolio of services was a natural fit. Transitions In Business was the M&A advisor with this transaction.
Oftentimes my clients, business sellers, will wonder what type of buyer will make the most sense for the future of their businesses. There are three main types of buyers:
Owner operator, an individual or individuals, that want to take over for the selling business owner
Financial buyer, such as a private equity group, that normally will acquire a business and will hold onto to it for 5-7 years to increase the value for its investors
Strategic Buyer, which is an existing business, that operates in the same industry or synergistic industry (such as 4Front Energy Solutions)
The main advantages of selling to a strategic buyer are:
1. Higher Value for the Business. Strategic buyers realize immediate synergies and cost benefits. Many times, strategic buyers will pay more than financial buyers.
2. Easier Financing. Usually, a strategic buyer is an established company with ready access to capital; loan approvals seem to go quicker.
3. Faster Selling Process. The process seems to move quickly with strategic buyers. With the Paladin acquisition, the business went to market mid-January and was under a Letter of Intent mid-February. The close was in early May. Normally a business sells in 6-12 months. Paladin Plumbing sold in under 3 months.
4. Better Opportunities for Employees. The strategic buyer is normally a larger firm with better employee benefits. This was the case with the Paladin Plumbing sale. The Paladin employees not only increased their benefit package, but they also will have better opportunity for growth.
5. Smoother Due Diligence. A strategic buyer understands your industry and more than likely will not require as much information during due diligence. This means due diligence should move quickly. Less headaches for you when selling your business.
Every business transaction is unique, and the perfect buyer may not necessarily be a strategic buyer for your business. Yet oftentimes they can be. Strategic buyers usually are larger than the businesses they acquire. This means your clients may gain access to a larger service team, better technology, and a wider array of services.
This article was written by Sam Thompson. Sam is the president and owner of Transitions In Business, a Minnesota based M&A firm that specializes in selling healthcare, business to business, transportation, manufacturing, distribution and construction/trade services companies. Sam is a Merger and Acquisition Master Intermediary (M&AMI) and a Certified Business Intermediary who has successfully guided countless business owners through the sale or merger of their company. Prior to becoming an intermediary, Sam was a successful CEO and business owner for 29 years before selling his $16 million business.