After building his business for twenty years, Stuart Crane sold it for $43M, which includes an extra million he got by using this one simple technique.
In this episode of Built to Sell Radio, you’ll hear the story of how Stuart achieved a great exit after a number of mistakes and missteps and he shares those with candour and humility.
Stuart built his software company for twenty years and recently sold it for forty-three million dollars, which equates to a little more than nine times earnings. Stuart also reveals one negotiation technique that netted him a million dollars in twelve hours — how’s that for an hourly wage!
Stuart Crane is a seasoned entrepreneur of 25+ years.
Stuart began his career in 1986 working at Battelle Memorial Institute, the world’s largest non‐profit research organization, in Columbus, Ohio. Specializing in technologies such as smart cards and automatic vehicle identification, Stuart moved into database management and software development work.
After leaving Battelle and building numerous database applications for business clients in the Columbus area, Stuart founded Definitive Homecare Solutions (DHS), a software company focusing on specialty pharmacy, in 1993. Stuart and his partner started the company with $400 and an office in Stuart’s basement, and they grew it successfully for over 20 years.
Stuart is currently retired and enjoys activities with his family, including two kids ages 12 and 14.
History of DHS
- DHS is a B2B software service company where the customers enter patient information and track it.
- When the business started as a company in 1993, Stuart and his business partner went 50/50.
- The goal was always to have no other outside investors and no debt, and they succeeded to do this for twenty years.
- The companies DHS acquired were their competitors, which together generated around $5M.
- A local attorney drew up the DHS partnership agreement between Jeff and Stuart, essentially a boilerplate buy sell agreement.
- The business went through two failed attempts at selling. One was with an M&A consultant representing them but it didn’t work out; and the other got to the point of negotiation, but the firm pulled out at the last minute.
- DHS had been approached by competitors, private equity, and strategic investors for ten years, all of whom wanted to buy the business.
- The triggering event for the sale of the business was the price offer.
- Stuart and Jeff decided to either sell the whole business or continue owning it. They were each making $2.5M a year in personal income.
Selling The Company
- The price of a company is what someone is willing to pay for it.
- DHS went through a blind auction, where no one knows what anyone else is bidding. The goal was sell their business for $40M.
- There were twenty-five bidders on the list at the blind auction. About half were private equity or financial, and the other half were strategic or competitors.
- After sending out the teaser for the sale, they had NDAs signed. Out of that process, 8-9 conference calls and meetings happened and 5-6 operation tours.
- The result was 6-7 bids on the business.
- LOI – letter of intent. This is the document that the acquirers complete to indicate their intention to buy the business.
- The DHS in-house lawyer worked 10-12 hour days for six weeks to run the due diligence process providing information to the buyer.
- The process took 60-70 days to get to a point where there was a stock purchase agreement each were happy with.
- If you only have one option (buyer), then you are not going to have the best result.
- The best result is having multiple options and the buyer knowing you have other options.
- ‘What is market?’ means what is standard and has happened before in this situation.
- Having market means having terms that have already been established by the market.
- It is important to have good advisors such as attorneys, accountants, and investment bankers. Some of the team will be your staff and others will be external hires.
- Trying to sell your company as a one-man operation is not going to get you the best result. You need people who have been there and done that.
- If you are the seller, everything is a big deal to you, so you need a team that is relaxed.
- The last thing you want to do is be involved in a proprietary deal. This is when someone knows they are the only acquirer at the table. This is the worst thing for a business owner because it means all the leverage is with the acquirer.
- DHS had a management team of 6 or 7 people, none of whom were informed about the selling process.
- The managers were brought in at the late stage in the SPA (stock purchase agreement), within 30 days of the closing date.
- Stuart tried to keep the details of the sale as low key as possible, as the employees could say things that weren’t true.
- The senior managers were told about the sale one by one.
- The remaining employees found out about the transaction the day of the close through a two-hour meeting and presentation.
- A total of $500K was allocated to the employees for bonuses, and they were paid at the close. The amount for each employee was based on years of service.
Links to Resources Mentioned
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