Selling Your Business - What Would Sam Zell Do?
Sam agreed to take an initial offer from Blackstone Private Equity at $48.50 per share with a break-up fee of $500 million. EOP, based on that bid would have a market cap of approximately $36 billion. This is where most privately held business owners stop. They put the word out through their professional network, get an introduction to an owner of another related business, and begin the process. If they get an offer, it is low and is driven down during the due diligence process because there is nothing to stop this behavior from a single buyer.
Back to Sam Zell. Sam tells his investment bankers to continue to solicit more buyers. Surprise, enter Vornado with the backing of a couple of very large private equity competitors of Blackstone. Their first counter offer is $52 per share. It goes back and forth with these heavyweights slugging it out. When the deal closed, Blackstone had increased their bid to $56 per share resulting in a market cap for shareholders of EOP totaling $39 billion. That is an increase of $3 billion over the initial bid.
As the rumors of the initial offer circulated, the stock rose from an average price of around $41 per share over the prior 3 months to the $48.50 level on the first bid. The final purchase price is a 36% premium over the pre deal pricing level.
We tell our clients that a competitive bid will produce a 20% premium or more over a single bid. In the case of a single non-solicited bid, the differences can be much greater as demonstrated by this example. The process will net the shareholders an additional $3 billion.
What can we learn here? Blackstone is a very smart buyer. They were trying to buy at a bargain. When they made their first offer they knew exactly what EOP was worth. Sam Zell is a very smart businessman. He knew that getting multiple buyers involved is the only way to maximize the sale proceeds for himself and his shareholders.
If you are a business owner and are approached by a buyer, do not think that your lawyer or accountant is going to do for you what the investment bankers did for Sam Zell. They will not contact hundreds of potential buyers and create the soft auction required to drive up your selling price. Don't get me wrong. Your attorney and your CPA will play critical roles in your business sale with their contract work and accounting work. However, the role of your investment banker or merger and acquisition advisor is to bring the right buyers to the table and then assist them is seeing the full value for your company.
Thanks for reading! If you know someone who could benefit from this, feel free to forward it to them! Not a subscriber yet? Like what you've read? Sign up to get future issues delivered straight to you: SUBSCRIBE
Until next time!
Dave Kauppi is the author of "Selling Your Software Company - an Insider's Guide to Achieving Strategic Value, editor of The Exit Strategist Newsletter, a Merger and Acquisition Advisor and President of MidMarket Capital, Inc. MMC is a private investment banking and business broker firm specializing in providing corporate finance and business intermediary services to entrepreneurs and middle market corporate clients in a variety of industries. The firm counsels clients in the areas of merger and acquisition and divestitures, achieving strategic value, deal structure and terms, competitive negotiations, and Letter of Intent Consulting. Dave is a Certified Business Intermediary (CBI), is a registered financial services advisor representative and securities agent with a Series 63 license. Dave graduated with a degree in finance from the Wharton School of Business, University of Pennsylvania. For more information or a free consultation please contact Dave Kauppi at (269)231-5772, email Dave Kauppi or visit our Web page MidMarket Capital. Click Here For Our New Book on Amazon