Barry Wood sold two virtually identical businesses over an 18 year period. The first was external and the second, internal. His exits clearly show the differences in an as close to apples-to-apples comparison as possible. The pros and cons may surprise.
When the time comes, do you want to sell your business externally, or internally to your employees or family members?
Once you decide, a little piece of you may always wonder how the other option would have played out. That’s why the story of Barry Wood is such an interesting case study. Wood is a door guy, who started M&I Door Systems in 1995, sold M&I in 1998, and then started another – virtually identical – door business in 2003, only to sell it in 2013.
Wood sold his first door business externally and his second internally, so his two exits allow us to see clearly the differences between these two types of sale with an as close to apples-to-apples comparison as possible. The pros and cons of selling externally rather than internally may surprise you.
You may be wondering how your Value Builder Score affects your likelihood of a successful external vs. internal exit. Generally speaking, the higher your Value Builder Score, the more likely you are to have a business that will be attractive to both internal and external buyers. To get your Value Builder Score, complete this questionnaire.
About Barry Wood
Barry Wood is CEO of Ontario Excavac Inc., a leading provider of hydro-excavation, infrastructure, renewal and improvement services to the utilities sector in south-central Ontario. Wood is an experienced, engaging and energetic CEO. He has a solid record of leading the acquisition of small to mid-sized manufacturing, distribution and service businesses and then growing and evolving them into polished and valued legacy businesses. Wood has worked internationally, setting up joint ventures in Asia and Europe, and he has worked with customers and suppliers ranging from the small to the largest multi-national companies. Wood has successfully bought four businesses in succession situations and executed two start-ups. He is a recognized leader in implementing continuous improvement and lean enterprise practices.
Some Highlights Of The Show
Business: M&I Door Systems
2:12: “M&I Door Systems was a business that we bought in 1995 … focused in a specific niche market … high traffic areas, big industrial doors.”
4:20: “I had lost a pile of money in the business I had previously bought. They actually gave me a sweat equity interest in this business with the opportunity to earn more.”
5:50: “We realized that the American company wanted to acquire us so much that they probably fully priced our business out for the three or four years. Even if we hit all of our marks, we realistically wouldn’t have gotten more than they were offering us in 1998 for that business. It just made a lot of sense to sell at that point.”
6:50: “We got a call from their business development person … ‘We’d like to meet to talk about buying your business.’ That was the start of the conversation.”
8:01: Talking negotiation.
10:05: “We actually sold that business two and a half years later for three times what we paid for it… Our EBITA had probably increased from our acquisition about 30%. It would have been about eight, nine times EBITA when we sold it.
12:20: “They allowed our product line to cannibalize their product line because ours inherently was a better product … head cutting rather than really understanding how this business could add value to their business.”
14:33: The re-constituted business approaching $20 million a year.
16:07: “I had some strong feelings about the people who had been displaced, who had lost their jobs, and saw a great opportunity to do something together with them again and put the fun back into it, if you will.”
18:45: “It was just in great hands and I saw another opportunity, which is the business I’m currently CEO of… I wanted to exit TNR Doors, and get liquidity from my investment there and reinvest in Ontario Excavac, and at the same time it opened up an opportunity for other managers and employees in that business to take on my equity stake, which I was selling.”
20:24: “[The VCs] were ready to leave something on the table for the sake of the success story for the employees of that business.”
23:25: Employees with equity stake.
27:24: Lessons learned from a serial entrepreneur.
29:37: Click to Tweet: On this episode of #BuiltToSell we’re talking the tipping basket + reps and warranties. “These are areas where an acquirer with proper legal council will seek some type of protection post acquisition.”
32:30: Click to Tweet: Don’t make this critical error! Get a deal lawyer to represent you during an #acquisition.
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