The owner of a telecommunications business which he had built up over 18 years wished to sell up and retire in 2001.
A trade buyer (perhaps on a fishing trip) had provisionally offered “top dollar” for the company only to walk away after a good look at the management accounts.
The business had a turnover of just over £1m, was profitable but had an indifferent balance sheet and the storm clouds of recession in this sector were gathering.
Deferring retirement plans the owner soldiered on, only to hit very choppy water and incur substantial losses. His final option was then to either wind up the company or sell to management who had been with him some time and knew the business well.
The business was first offered to management at too high a price, with a flawed earnout formula involving achievement of Sales not Gross Margin, and included the Owner staying on as Chairman post deal (conflict of interests).
The team (advised by Avocet) decided to turn down the offer to buy both because of these terms and the prospect of a further deterioration in market conditions.
Eighteen months later after downsizing and continued heavy losses the team was offered and accepted the business at a fraction of the former asking price, with the owner not staying on as Chairman and an earnout formula based on Gross Margin not Sales.
Avocet stayed in touch throughout this drawn out negotiation period and assisted in:
Following 3 years of losses modest pre tax profits were achieved in every month bar one in the 12 months following the deal. With the market now just starting to improve the Team seem ideally placed.
The refusal of the Management Team to get emotionally sucked in to the original unacceptable offer and their subsequent patience in waiting for more optimum conditions was rewarded.