The system is the star: how the IBG process brings top dollar in a business sale

Jim Afinowich

The first deal involved the $120 million sale of Alpine Valley Bread, a pioneer in the U.S. organic bread vertical.

When we first met with the owner, he asked, “Can you get me $20 million?” Similar to our response to Barty, we said, “No, not today. But if you want to take some time, do some things with the company, we can get you more.”

The first and best thing we did for him was to help get his business ready to sell, before going to market, and in the following 18 months he did literally everything we suggested, and it paid off in multiple ways.

Make no mistake: It was already a very attractive company, with sales doubling every year, and in the middle of the process Alpine products started appearing on Walmart shelves. To keep up, we brought in a financial analyst who for six months worked full-time on that deal, constantly updating and recasting the data, and we had extremely detailed financials that validated a hockey stick-shaped growth trajectory. By the time we hit the market, 18 months after our initial meeting with the owner, we and the company were totally prepared.

We had also performed substantial research on potential buyers – not just who was in the industry, but who really had a need for that company. Alpine had distinguished itself as a star in producing organic bread at the same time that the nation’s two largest bakers were underperforming with that product line. With white bread sales declining and organics on the rise, a key step was identifying strategic buyers that would benefit most from purchasing Alpine.

All of these steps were consistent with our normal process of preparing and marketing a company. We sent a letter to prospects that included the exact time schedule and deadline for submitting letters of intent, and we received qualified expressions of interest from more than a dozen buyers.

The ultimate buyer, Flowers Foods – at that time, the #2 baker in the country – responded to our process letter and said, “We can’t meet that schedule. You’re going to have to push back your deadline.” We said, “No, that’s our deadline. We have plenty of other players, and if you want to be in on Alpine Valley Bread, you will need to adjust your schedule.” They did, and they won the Alpine sweepstakes.

As we mentioned earlier, at our first meeting with the owner, he mentioned a selling price of $20 million. Eighteen months later, after he had implemented our suggested changes, we thought the company would bring $45-50 million from a qualified buyer. But then Flowers Foods got serious, and then a competitor, Rudy’s Organic, sold for $65 million. That created a new floor for Alpine that, amplified by the competitive bidding environment that our process created, delivered the ultimate $120 million selling price.

Jim Kuykendall

In contrast to the sale of Alpine Valley Bread, which has been reported in detail in multiple M&A trade publications, the specifics of the second example require that we discuss it only in general or hypothetical terms. With a nod to fans of roadrunner-and-coyote cartoons, we will call the subject company “ACME.”

Sometimes a seller, such as ACME, will come to us with a buyer already lined up, at least in their mind, and they will ask us to simply help them get the deal across the finish line. In this case, a potential buyer had made an offer – a low one, based on our analysis – to buy the company.

At that point we invoked the IBG mantra, “One buyer is no buyer,” and explained that, by not going with just one party, the seller might be able to choose from competing buyers and maximize the value of the sale.

In short, we told the seller to allow us to run our complete process, where we go to market and talk to multiple qualified prospects (both financial and strategic buyers), in order to make sure that we know how the market views the business and what the market is likely to bear for that opportunity.

In evaluating potential buyers, we look for two kinds of fit: financial and cultural. As important as the first is in any deal, the second is often very important to the seller, especially in a founder-owned business. Many owners have spent decades of their blood, sweat, and tears building the company, and they want a buyer that will preserve their legacy, care for their employees, and treat their customers in the right way. That was the case with ACME’s owner, which is one reason the first offer was appealing.

However, a good cultural fit was not the owner’s only criterion, and the possibility of realizing in a buyer the best of both worlds – top dollar and good character fit – prompted him to engage IBG and our sale process.

In the initial phase of the ACME deal, we approached dozens of prospective buyers and received more than a dozen initial indications of interest, followed by several letters of intent. The owner narrowed the field to three before picking his favorite. ACME’s owner quickly appreciated not being forced into a corner, as he would have been by a single prospect, and he was free to evaluate the relative merits of three good buyers and offers.

As sometimes occurs in the early stages of a sale, one of the other finalists asked whether we were willing to shortcut the process and deal with them exclusively (“Can we do this faster? Can we move ahead in line?”). While there is nothing unethical or otherwise untoward with such a request, the IBG answer is “no”; we want to ensure that we have spoken to multiple prospects and are not favoring one over the others. In the ACME deal, we held firm to our process and talked to every prospect that looked like a potential match, and our stubbornness will yield maximum value for the seller.

Recognizing our commitment to our process, the buyers knew they were competing against each other, and as a result we were able to move the needle significantly higher. By identifying multiple buyers and creating a competitive bidding situation, the offer ended up being more than a 230% increase in the value. That is a real benefit of letting us run our complete process and go to market properly.