SM2 was contacted in March of 2015 by the trusted advisor of a family located in the North Central Region of the U.S. The family was a franchised retailer of heavy machinery (C-Corp) that was generating revenue in excess of $50mm annually and was under severe duress due to a legal conflict with one of the manufacturers. The family was less than two weeks away from a court hearing where the manufacturer (that represented 80% of their business) was seeking a summary judgment to revoke the franchise. This would have effectively destroyed the value of the business with exception of the hard assets.

Within a matter of days, the firm was retained to negotiate a stay of legal action (with assistance of seller’s attorney) with the manufacturer and arrange for a sale of the company.

SM2 met with the franchisors corporate office and was able to successfully negotiate a settlement with the Manufacturer to hold off legal action provided that SM2 would immediately take the company to market in search of a (to be approved) buyer that would purchase 100% of the ongoing concern of the business. As part of the agreement, SM2 was to provide detailed monthly progress reports to the manufacturer.

SM2 took the company to market on an expedited basis and began discussions with multiple strategic buyers. Ultimately, those discussions were taken exclusive with one buyer who was already an approved franchisee of the same manufacturer.

After numerous face-to-face meetings and phone conferences between the buyer and SM2, a preliminary deal was agreed upon. The next order of business was for SM2 to address the double taxation issue faced by the seller as a result of their C-Corp status. SM2 then hired a certified business valuation firm to conduct a formal valuation of the company specifically with the purpose of forming a defensible value of the company’s personal goodwill. This figure, once established and allocated for in the APA (asset purchase agreement) would eliminate the double taxation issue for the seller and instead be taxed one-time at the prevailing capital gains rate for that portion that would be allocated towards the personal goodwill. In this case, that number was nearly $2mm dollars which saved the seller approximately $600,000 in taxes.

During this time, buyer concurrently conducted a successful due diligence period, and the transaction moved forward to a closing at the 4 month mark. 2 months before the deadline agreed to in the settlement between the seller and manufacturer.

Deal structure was all-cash, with a substantial multiple of EBIDTA paid for goodwill. Parts & Used inventory at cost, New Inventory at invoice minus pre-paid incentives, long-term lease of real estate at market value, and employment agreements at market compensation with benefits for the two active sellers. Manufacturer approved buyer and formally dropped all legal actions against seller.