Case Study #2
Mid-Large Roofing Contractor
SCENARIO: “PEG”
Commercial Re-roofer, all retail, very little new construction.
Revenues: $70mm, EBITDA: $10mm, Revenue and EBITDA trends slow and steady upward.
Founder-owned, owner willing to lease property back to the new business at market rates.
EXIT STRATEGY:
Sell to an expanding PEG for multiple of 7x = $70mm.
Roll 30% equity back into the new business = $21mm.
Take $49mm off the table at closing.
In the meantime, your company maintains its brand name, and your people are doing at least as well as before the transaction. You’re the CEO, making a good living plus incentives over the five years. (This 5-year period might be a good time to share more of your responsibilities with your management team to enhance responsibilities and accountability).
With $70mm in revenues, your company will likely lead a new consolidation platform going forward. The investing PEG will share not only its investment dollars and acumen, but also its expertise in areas in which you’re not particularly strong. For example: Marketing? Hiring/Training? SEO? Estimating? Expanding to other markets? Expanding within your market by adding services? Acquisitions? They also provide shared services including: Accounting, Purchasing, Budgeting, M&A, etc.
SECOND BITE OF THE APPLE
The money you invest via rollover at closing has the same equity value as outside investors’ cash. According to most PEGs I’ve spoken to, the expected return multiple on your $21mm investment = 2x-4x over 5 years.
In other words, assuming 3x … you can expect a $63mm payday five years after closing. No guarantees, of course. But this is what drives the Private Equity world.
The owner will be able to diversify his wealth outside of the business, thereby reducing risk.
If the owner is older, selling to private equity can mitigate the risk associated with a lack of succession, which could otherwise lead to a 'fire sale.'
Kevin Townsell - Shannon Group
(716) 563-1781
Kevin@ShannonGroup.biz