In past articles we have described one type of deal structure: the partial sale. This deal structure is used primarily by equity firms, and it encourages existing ownership and management to stay with the acquired entity post-acquisition. They are “encouraged” to do this by retaining an equity stake in the company (usually less than 50%). This allows them to participate in the growth and expansion of the company without assuming 100% of the risk going forward. It is also beneficial because typically the equity firm will provide professional management, financial engineering, and marketing/sales talent that the original entity would not have had access to.
But, most importantly, it also allows existing ownership and management teams to participate in a “second bite of the apple” later when a much larger organization is either taken public or sold again. This secondary liquidity event can be quite profitable for original owners. So it is a great structure if you have plans to grow your business but need access to capital/talent to do so.
According to their website, Beekman “is dedicated to bringing capital and operational resources to small and middle-market companies through its team of seasoned private equity professionals and experienced industry operating partners.” Essentially Beekman is an equity firm that specializes in investing in small privately held companies with the goal of helping them grow.
Here is the description of the philosophy that guides them in their acquisition plans:
“A critical component to our investment philosophy is developing and maintaining a true partnership with management. The Principals of our firm along with our Industry Partners bring over 250 years of management, operating and financial experience to our portfolio companies. Together with existing management, we will endeavor to create long-term, sustainable value by actively working with and supporting our companies in four critical areas: Strategy, Management, Operations, and Finance.”
I have highlighted the phrase “true partnership with management” for a reason. Beekman, like hundreds of other equity firms that specialize in investing in smaller companies, do so by partnering with businesses that have maxed out their growth potential internally and need the expertise and capital these firms bring to their investments. If this describes your situation, then finding a partner like Beekman could be very beneficial.
NorthStar “is a leading provider of residential security alarm installation and monitoring services with more than $1.0 million of recurring monthly revenue. Founded in 2000 and headquartered in Orem, Utah, NorthStar has grown rapidly in recent years, and is currently one of the 40 largest security alarm companies in the United States.”
According to the press release, Beekman has been interested in the security alarm industry for several years. They obviously did their homework during this timeframe and looked for a platform company like NorthStar that although is obviously healthy and growing, still has significant growth opportunities in front of it.
The key phrase in the press release, though, is this:
“Company management participated on the deal, and will maintain a significant ownership interest.”
As I described earlier, this deal structure is a true win-win for both parties. Beekman now has a partner that allows it to expand further in the security alarm industry, and NorthStar founder Jason Christensen, as well as his management team, now has the capital and professional leadership needed to reach the next level in the company’s growth.
Many entrepreneurs who attend a Generational Equity M&A seminars assume that a 100% sale is the only route they can take. In fact, quite often when we take clients to market, they are pleased to learn that there are buyers who are willing and interested in allowing them to stay with the company for 3-5 years to help it continue growing.
We meet business owners all the time that are from one end of the spectrum to the other in terms of motivations for retaining us. Some folks are just tired, burned out, and ready to retire and move on. If that describes where you are in life, we can help you.
Others, though, come to the realization that they really would like to help their legacy reach its potential and decide that working alongside a partner would be quite rewarding, both emotionally and financially. If this is where you might be, we likewise can help you.
Generational Equity is the leading lower middle-market M&A advisory firm in North America. Don’t just take my word for it, look at the latest M&A ranking tables compiled by Thomson Reuters. Chances are good that our M&A professionals can help you find buyers and/or investors for your business as well.
Of course not every business is a likely candidate to be acquired by a private equity group (PEG). However, without the aid of an experienced M&A advisor, you could be missing out on all sorts of buyer groups. Don’t make that mistake. Contact us and we will help ensure you don’t!
Carl Doerksen is the Director of Corporate Development at Generational Equity.
© 2013 Generational Equity, LLC All Rights Reserved
Greetings Mike. Thank you for the captivating and compelling presentation you made at the Phoenix presentation last week. Over many years in business yours was the most informative and well-presented presentation, on any subject, that I have ever attended! Your energy and enthusiasm combined with your concise and captivating support of your positions with easily understood examples and data was compelling.Pete L.
We will highly recommend Generational Equity and Musa Jagne to any business owner about to embark on the same process.Karen S. Williams, CFO, BW Manufacturing
Michael worked tirelessly, He followed every lead meticulously and urgently to make sure nothing was missed.Robert Evans, President and CEO of Mealtracker Dietary Software
The process was much more involved than I expected and your help, experience and advice was a big factor in making the negotiations go as smoothly as possible.Terry D. Wickman, President, Keytroller
Generational Equity educated and informed us – so that we could be on the upside of a good decision (to sell).Bil MacLeslie, CEO, ipHouse
Tom Staszak is one of the most professional people I have dealt with in my last forty years of business. You’ve got a great group of people and you have built a truly professional organization.Michael J Polarek, President, Paragon Packaging
Generational Equity’s assistance was invaluable in compiling and marketing our business.Bil MacLeslie, CEO, ipHouse
Bruce and I wanted to take this opportunity to thank Generational Equity for assigning Musa Jagne to our transaction. In Bruce’s words, “Musa did one hell of a job for us!”Karen S. Williams, CFO, BW Manufacturing
I quickly recognized that Don was working for Sharpe Mixers above all else, and held our interests above others.Jay Dinnison, Owner of Sharpe Mixers
We thank you Eric and Generational Equity making our dream come true.Larry Moore, Owner, A Company Portable Restrooms
We are very happy with the end result, and are very happy to be able to move forward with all of our future growth plans.Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
Thank you again for all your guidance and support. Any company will achieve what they intend, if they have you on their team!Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
I couldn’t have asked for a better team than Michael and Deborah. We couldn’t have done it without them.Robert Evans, President and CEO of Mealtracker Dietary Software
I wanted to write you a quick letter to express our appreciation and our delight on the outcome of helping us through the process of our recent sale. We are very happy with the end result, and are very happy to be able to move forward with all of our future growth plans.Terry D. Wickman, President, Keytroller
I must say that I have never worked with a more driven, competent and focused individual as Don Ho.Jay Dinnison, Owner of Sharpe Mixers
We knew it would be a difficult task to have someone really understand our business and our market, prior to researching a possible buyer, so it was imperative that we found someone of your caliber, with definite proven experience in this area.Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
We are extremely pleased with the way Generational Equity handled the sale of our company. Your associates, Tom and Chris, did an outstanding job of getting us (me) through the process.Michael J Polarek, President, Paragon Packaging
Your wisdom and experience were invaluable to me during this once-in-a-lifetime transaction.Ralph Noblin, President of Noblin & Associates
I would like to thank you and your firm, Generational Equity, for being our valued advisors in our journey.Bil MacLeslie, CEO, ipHouse
Thanks again Phil and feel free to have a future client call me if they would like a referral. You are a true professional!Andy Graham, Vice President, Modern Heating & Plumbing
The help you provided us during each step of this process made us feel very comfortable and confident we were selecting the right approach to transition our Company.Andy Graham, Vice President, Modern Heating & Plumbing
We were happy to see the interest in our company and what we cherished has not just a valuable company but an important company to the communities we served in.Larry Moore, Owner, A Company Portable Restrooms
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