The third blog in our series of consulting case studies takes a look at an unusual situation for four businesses going to market as one company and discusses how Green Hasson Janks’ Consulting Team assisted in converting their financial statements to reflect as if they had operated as one. Recent work with this client involved:
- Assembling one set of financial statements from four disparate entities
- Examining and making the case for overhead elimination that better reflected the four as if they operated as one
- Creating a set of adjustments to the income statement that demonstrated adjustments to EBITDA that a new owner would not incur
Green Hasson Janks (GHJ) was retained to assist the client(s), four geographically disparate, food-related companies that co-branded themselves and went to market together, to react to a buyer inquiry and create value as they considered a transaction. The principal engagement was to first create a set of financial statements that reflected how the businesses would look if they operated as one company and then find adjustments to profitability that would enhance value. Once work began, it became rapidly apparent that the four sets of books were each kept differently and with differing qualities of reporting.
When the financial buyer approached our clients, it indicated that all four owners had to go along with a sale for it to close. The group was the keystone to a West Coast strategy that complemented an East Coast rollup that had been ongoing for several years.
In addition to the work completed on the clients’ financial statements, GHJ also provided advice relating to the transaction itself. The advice included getting all the owners on the same page in terms of relative ownership in the pro forma entity. The owners of the different businesses were somewhat diverse in age, ranging from mid-40s to over 70 years old.
For the clients, GHJ examined each of the clients’ books and records and assembled them in a parallel, comparable and coherent format. After putting the financial statements into a format that made for good comparison, the Consulting Team was able to then consolidate them in a way that eliminated intercompany transactions (of which there were many).
The team then focused on the transaction and further examined the consolidated financials to find and demonstrate expenses that a new owner would not incur. Examples of these elements are:
- Back-office eliminations and staffing up one back office to reflect the combined size of the businesses
- Recognition of better buying power as one entity instead of as four; and
- A pro forma presentation that demonstrated the elimination of the entire overhead structure as the buyer was planning on using the overhead structure it had created
Once GHJ had completed these normalized adjustments to the clients’ operating performance, the Consulting Team then considered what the operations of the combined businesses would look like to a strategic buyer.
Although the sponsor was a financial buyer rolling up the niche, it was really a strategic buyer looking to roll up key market share of the West Coast market in one deal given the size of all of the acquired entities.
Finally, the Consulting Team advised the owners of the various entities on how best to share the valuation of the combined entity at the closing of a transaction. Given the differences in size and relative operating performance, each owner had a different view of the sharing arrangements. Also, given that it was an “all or nothing” deal, each owner had leverage to bring and to bear over the others.
The owners supported the work, once they saw the importance and the value-creating results of what the Consulting Team proposed to do for them. The support came particularly fast, as there was a buyer at the table and their efforts needed to move quickly to not lose the buyer.
The transaction closed successfully and at a far higher valuation than the owners believed they would have collectively received had they not gone through the activity Green Hasson Janks proposed.
This is an example of the entire Consulting Practice, Transaction Advisory Services and Strategic Advisory Teams worked hand-in-hand to holistically serve a client to achieve a great outcome.