ABC Corporation was a healthcare cost containment company operating under XYZ Holdings with publicly traded debt instruments. When XYZ was taken over by the SEC for securities fraud, ABC became an operating company under the receivership of SAMPLE CO on behalf of the Federal Government. When we became involved with ABC, SAMPLE CO had a stalking horse bidder for the assets of ABC and was actively negotiating an asset purchase agreement at $3.2MM. SAMPLE CO had received at least two valuations from valuation/investment banking firms that pegged the value of the company around this level. We won the engagement over the other larger investment banking firms including one who had presented a valuation.

We were hired to identify and bring to the table over-bidders for the assets of the company in what was to be an auction process. Other than our monthly fee, our compensation was based on a relatively high percentage of any upside we were able to generate. In this situation, the usually complicated dynamic of working with the business owner and management was further complicated by the necessity of complying with the constraints and mandates of the Receiver and the Federal Court. The challenge of succeeding was accentuated by a financial restatement and reduction in forecast midway through the process.

The traditional business model for healthcare cost containment companies is the negotiation of inflated out of network hospital bills in excess of the Medicare, HMO, or PPO rates. What we discovered through our engagement with ABC management was that they had developed a very unique technology that enabled them to transform this traditional business model and offer a highly beneficial opportunity to dramatically cut and control healthcare costs on behalf of self-insured employers. One of the elements that was key to our success was our ability to translate internal “company/industry speak” into language that clarified the business opportunity.

The bond of trust that JOHN SMITH, JANE JONES and I were able to forge was also of critical importance. As John put it at some point along the way, “I can’t spin you, because if you spin my spin, our information will not be credible.” This was very important as we worked customer by customer through the revised forecast. It prepared me to speak knowledgably with every buyer about every client. The ability to tell the story and have it be substantiated by the facts is always a key to success.

This was also true of our relationship with SAMPLE CO’S OWNERS. Through our review of the proposed asset purchase agreement, we were able to substantially re-write important provisions of the asset purchase agreement to increase the form of payment, the timing of payment and the certainty of close all of which were in doubt based on the original document format.

We did our work very well. The company sold at auction for $7.05MM with an all-cash, fifteen day close.

The owners of METAL CO have been long time business associates (25 years). We recently sold their fabrication and construction division allowing the owners to focus on the traditional core business of metals distribution. Selling a high overhead, project based construction business can be a challenging endeavor for a variety of financial reasons and operating reasons. Financially, these companies are typified by irregular revenues and frequently go through construction boom and bust cycles. Operationally, the transaction must embrace the complexities of licensing and the assignment or assumption of existing construction contracts. (In this case, an employee leasing agreement had to be arranged so that OLDCOcould complete certain projects that could not be assigned using NEWCO employees).

It was necessary to highlight the strong track record of construction performance, loyal recurring customers, strong divisional management and prospective backlog to entice interest in the company. Navigating the divestiture of a division of a small company carries even greater complexities, since all of the assets of the business need to be appropriately allocated between OLDCO and NEWCO. These assets include staff, inventory, equipment, website, company naming rights and even customers that buy from each side of the business. Working with the transactional law attorneys to formalize the business terms into the binding legal documents that adequately protect both parties is an important element of our role to bring a transaction to a successful close. In this case, we were introduced both parties to their respective legal counsel.

All of these elements came into play in the successful completion of this transaction in April 2014.

Continuing Involvement: Sadly, shortly after the sale was complete, one of the partners passed away as a result of a long illness. We continue to advise NEWCO OWNER on a retained consulting basis regarding strategic business matters and on issues related to the effective implementation of the buy sell agreement.

We were retained by LABELCO to assist them with identifying acquisition opportunities (buy-side representation). We successfully acquired ADDONCO as a result of our work together. In this case, the selling company was a packaging and label company that was in a moderate degree of financial distress as a result of having lost a key customer on the label side of their business. LABELCO acquired the assets of the label division.

ADDONCO was a valuable strategic acquisition for purposes of more than just revenue accretion. The company had a presence in an as yet unpenetrated market segment and catapulted LABELCO into a new desirable manufacturing technology, HP Digital Printing.

One of the important challenges of this transaction was earning and retaining the seller’s trust throughout the process. ADDONCO had a strong track record of success and the selling owner was sensitive to the risk of being taken advantage of due to the financial condition of the company. The trust we built with the seller helped them have confidence that they could divulge information about their real concerns to us as the intermediary even though we were not representing them in the sale. In turn, we were able to help them get comfortable bringing up their concerns directly with the Principles at LABELCO. Our ability to get the parties to trust each other diffused what could have been deal damaging issues.

To this day, after more than two years, LABELCO and the former owner of ADDONCO have a strong working relationship that allows them to collaborate on opportunities to cross-sell packaging and labels.

Continuing Involvement: LABELCO has retained Talley Capital Group to find additional acquisition opportunities. We have considered several opportunities and are actively working on additional leads.

JAMES JONES and METALCO were long time clients of Talley & Company. Talley & Company introduced Andy Peters to JAMES when he was considering selling his business to retire. A year after the initial introduction, JAMES initiated contact with a strategic competitor and divulged a target price for the sale of the business. Unfortunately, this disclosure was made prior to JAMES soliciting our involvement. We initiated our Value Analysis process to determine the reasonable selling range for the business. Based on Andy Peters’ operating experience in similar businesses, we were able to identify unique value drivers in this niche manufacturing enterprise that allowed us to conclude that a fair transaction value could be 30-80% greater.

When the strategic competitor was approached with this information they acknowledged the value drivers and, in addition, could have realized substantial synergistic benefits. They did not, however, engage constructively in creating a win-win transaction. Instead they responded by proposing that we market the company and “come back and give them last look.” We decided to go to market and prepared a Confidential Information Memorandum.

We marketed the company 1) on the internet, 2) directly to other strategic acquirers and 3) to select private equity groups. Several buyers expressed interest in the company at the same value range as the strategic acquirer.

When we were unable to convince other buyers to recognize the strategic value and opportunity we had identified, we approached JAMES with the idea that we might be able to raise the capital necessary to acquire the company. Based on his long history as a client of Talley & Company and my experience in similar industries, Jim quickly warmed to the idea that this might be a good option for him.

When we presented the package we quickly raised the capital and acquired bank financing to make an offer to JAMES. We offered to acquire the assets of the company at the low end of the original value analysis range (a 30% premium over Jim’s original expectation) with an earn-out provision that would result in a total consideration in the middle of the range.

We were simultaneously introduced to HOMEAUTOCARECO more than one of our business associates in Southern California. The founders of HOMEAUTOCARECO had passed and the trustees were considering a prospective sale of the business assets. The trustees interviewed a number of business brokers including Talley Capital Group. The other business brokers suggested that they would “sell it on the internet.” Based on our evaluation, we concluded that the business was not salable for an amount greater than the asset value.

Unfortunately, it is not uncommon for our analysis to reveal that the proceeds of a business are not sufficient to meet an owner’s needs. The trustees understood our analysis and questioned if there were not some way that the 30 year legacy of the business could be salvaged.

Continuing Involvement: Talley Capital Group has been retained by the Estate and is managing a restructuring of the company which will include outsourcing of all manufacturing operations. This strategy will have a double benefit. 1) We will increase the value of the business placing it on a more stable financial footing. 2) We will enable the trustees to monetize the single largest estate asset, the property currently occupied by the business entity.