Case Study
Joe’s Home Roofers acquired by ABC Capital Partners
INTRODUCING JOE’S HOME ROOFERS
Joe has been thinking about how to take some capital out of the roofing company he founded in 2010. This is his last three year’s Profit & Loss Statement:
Joe has a son working in the business but is not comfortable having the son take over the whole business. Joe is 55, and feels he’d like to be retired by 60-62 years of age. He’s making a nice living and needs that income to keep his lifestyle where he wants it. Nice job, Joe!
ROOFING M&A ADVISOR -- MATCHMAKER
Joe gets emails every week from groups talking about buying his business. But he can’t just sell it!
Finally, he takes a call from an M&A Advisor (such as the Shannon Group), who represents most of the Private Equity Groups who are already in the Roofing business. The Advisor asks Joe a dozen or so questions, and builds a profile on Joe’s Home Roofers, which he shares (anonymously) with several dozen Private Equity buyers with roofing platforms. These Groups have already shared their criteria for investment with the Advisor, so he knows which ones may be interested.
PRIVATE EQUITY GROUP OWNS (OR IS IN THE PROCESS OF BUILDING) A ROOFING PLATFORM IN THE REGION
ABC Capital Partners has $1.5 billion invested in several platforms, one of which is O’Brien’s Roofing Group. O’Brien’s is all over the region, in locations not too far from Joe’s Home Roofers. Each of these members of O’Brien’s Roofing Group has their own brand name and territory. And they work somewhat autonomously, with assistance from the Group managers.
ABC asks the matchmaker to schedule a Zoom call with Joe, who accepts. They introduce each other, and decide they like each other’s way of doing business. ABC sends an NDA for both parties to sign. Next comes a wish list of information, such as financial data, employee pay, major customers, sales split between roofing and siding and windows, etc.
On the second call, ABC explains how they would propose moving forward. After some analysis on their part, and exchange of more information, they like what they’re seeing. They send Joe a Letter of Intent.
LETTER OF INTENT
The Letter of Intent proposes:
Joe’s company has a value to them of $4mm.
The value is based on $1mm net profit adjusted for depreciation, extra expenses, etc., also known as EBITDA, and a multiple of 4.
They would ask Joe to stay on and run the operation at a negotiated salary and bonus plan.
They would agree to keep current staff at their current pay and bonus/commission levels.
They agree to rent the office/warehouse that Joe owns personally from Joe at market rates.
They would ask Joe to re-invest 20-30% of his value into the platform company.
Joe has agreed that 25% is a good “Roll-Over” number for him, so at closing:
Joe gets $4mm
Joe invests $1mm back into O’Brien’s Roofing equity (deferring tax on $1mm)
CLOSING AND AFTER
Post-closing, Joe is now part of a larger group. He should be able to benefit from group purchasing, cheaper workmen’s comp insurance, better access to capital, and a whole new set of partners with expertise in accounting, marketing, CRM, purchasing, estimating, best roofing practices, etc.
Joe is now free to be a roofer, to follow up on opportunities he hasn’t had time for, to spend less time playing with QuickBooks, etc.
His equity investment grows due to his own efforts, as well as due to the efforts of others. His actions can also increase his bonus/commission income.
Joe’s income streams might look like this:
This is intended to be a quick primer on working with Private Equity Roofing Platforms and Rolling over equity from a sale of your business. No guarantees, of course. But this kind of a deal keeps the owner in cash and in the game. He’s still the boss. He’s taken on a very strong financial partner. He can sleep better at night. He can spend time on roofing instead of administering. And if so inclined, work together with his/her new partners on expanding product lines, customer lists and even other markets through further acquisitions. He or she will likely become a better roofer, setting up a stronger legacy for the next generation.
Kevin Townsell - Shannon Group
(716) 563-1781
Kevin@ShannonGroup.biz