The art of the deal

There are multitudes of reasons for selling a business. But the common denominator in any sale is that it takes a lot of time and an exceptional amount of paperwork. This account follows Jim Snyder, a grower who spent five years planning the sale of his business. This was not, by any means, a so-called fire sale. And his advice applies only to the premeditated sale.

After nearly 25 years of operating Riverbend Nursery in Riner, Va. (which includes 460,000 square feet of heated and unheated indoor growing space, according to the business’ website), Snyder and his wife Julie started seriously thinking about their future. Did they want to continue to work in the nursery they built together six or seven days a week for years to come? If not, what would they do with some free time? After some serious discussion, the husband-and-wife team decided they wanted to generate some flexibility and travel extensively, Snyder recalls.

“So we started developing an exit strategy, and my goal was to slow my work pace by age 55 to do some traveling for months at a time,” he says.
 

First steps

The plan from start to finish took five years. Once the decision was made to sell, Snyder identified a group of key people to help answer questions.

“We did that five years before the sale,” he says. “In our case, it was a couple of people we knew who had already sold their businesses.”

Next they contacted attorneys, an accountant and a banker whose business they didn’t use for their nursery or personal banking. They also talked to people outside the industry about selling a business. Snyder also asked business brokers what they looked for in a business.

“I asked them, ‘What can I do today to prepare myself to sell in a few years?’”

For anyone in the preliminary stages of contemplating a sale, Snyder says to ask yourself, “Am I really committed to this?”

“It takes a phenomenal amount of work. It was at least two to three times more work than I ever thought,” he says. “Once the decision to sell was made and the broker was chosen, our broker asked a lot of questions and asked for a lot of financial background information.”
 

Substantial preparation

Selling a business is not as simple as turning over a few years of financials, he adds.

“First, you must put your financials in a clear, businesslike manner. The typical small- or medium-sized grower doesn’t necessarily follow general accounting principles. If that’s the case, you have to redo or reformat your financials into a known, understandable format. And that takes a lot of work,” he says.

He also suggests having a price threshold in mind.

“But you have to peel out the emotion from that process,” he warns.

Understand that it’s an emotionally draining process, he adds.

“It’s mentally, physically and emotionally draining, especially if you started the business or have been involved in it for a long time,” he says. “This process may nag at you because you’re doing things behind closed doors and not telling employees.”

At the beginning of the five-year planning and selling process, Snyder considered what would happen if a buyer wanted to keep him on as CEO.

“It’s important to a prospective buyer that the business stands on its own. But it’s also important to relay what you bring to the business if you stay on with the company,” he says.

Three years prior to selling, he made sure the business was in a position that was already attractive and marketable. For some sellers, that means changing your viewpoint on profitability, he says. It also means presenting the nursery’s point of differentiation, as well as proving that you have a strong staff.
 

Choosing a broker

About a year before the nursery officially went on the market, Snyder interviewed three or four brokers to handle the sale. He asked each of them to describe the primary buyer to which they market. He gave each prospective broker three years of financials and asked them to provide a fair-market value.

“We got answers all over the board,” he says. “One had some ag experience, but the operation was much larger and it was part of a distress sale. But they all looked heavily at our current earnings and our EBITDA (earnings before interest, tax, depreciation and amortization) and tried to project future earnings.”

After the interview process, Snyder gravitated toward a broker who asked a lot of detailed questions and “seemed like they truly wanted to learn about the nursery,” he says.

One of the biggest lessons to keep in mind during this process: The fee or the highest selling price are not necessarily the best considerations when choosing a broker.
 

What to expect

During the buyer’s due diligence, they examine everything.

“Be prepared to discuss things that could be uncomfortable,” he says. “Of course, if you’ve disclosed everything, you have nothing to worry about.”

Create an accurate asset list. Find contracts and titles. Document everything.

“A buyer can look at anything and say, ‘Prove it,’” he says.

Snyder says he can’t stress enough the amount of work and time it takes to sell a business. Also expect compromises throughout the entire process. There are a few things he says he wished he’d known from the beginning.

“The buyer wants to set up the sale for his tax benefits, and the seller wants to set up the sale for his own tax benefits. You must understand the tax implications going in to this. I wish I knew more about that when I started.

Ask an accountant and your attorney — ones who are well-versed in mergers and acquisitions. Expect lots of legal fees. And I wish I would have asked to look at a boilerplate of a typical seller’s agreement. I may have had fewer surprises that way,” he explains.
 

A done deal

Superior Street Partners LLC, a private equity firm focused on the lower-middle market, purchased Riverbend Nursery.

Snyder remained with the company as CEO after the sale. His role hasn’t really changed, although he’s transitioning away from the daily operational duties and direct reports and moving to the role of strategic vision and business development. He’s on the board of directors with three of the owners.

“The group of owners who purchased the company has helped me grow professionally,” he says. “They all bring business aspects to the table that I clearly didn’t have. I now have a wealth of knowledge to pull from.”
 

After the sale

Once the sale was complete, Snyder told the staff.

“We waited until the day we closed. We had a meeting and the first thing we did was apologize for not saying anything,” he says. “Then we explained that it wasn’t a fire sale and we laid it all out there. We didn’t lose one employee.”

Snyder enacted an appreciation bonus for anyone who stayed on for a year after the sale.

“We took some of our proceeds and invested them back into our staff because they helped build this business. They helped make this possible for my wife and I, and we want them to share in the happiness.”

Kelli is editor of Nursery Management magazine.