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Case Study: Sales Assignment

Stonegate was retained by an international multi-billion dollar steel company to sell a stainless steel tube division in the United States.

Sales of the division, when Stonegate was retained, were $15 million with no EBITDA. Sales in the following year were projected to be $35 million with a projected EBITDA of $2 million. The additional sales and EBITDA were the result of adding a single significant customer. The division, while clearly improving from no EBITDA, had never achieved a “run rate” of $2 million EBITDA.

Stonegate contacted an initial group of approximately eight potential strategic acquirers. It did not contact the most logical buyer, who was the business’s major direct competitor and who also had the largest market share. The reason for not dealing with this competitor was concern over exposing our client’s confidential information to a key competitor.

Stonegate provided a Confidential Memorandum to the various interested parties. After initial discussions to determine their level of interest, Stonegate and a member of the selling Company visited the most interested buyers. A presentation, coupled with a question and answer session, occurred at each meeting.

The major competitor made contact with Stonegate but ultimately both Stonegate and the competitor chose not to pursue the acquisition.

Visits to the company by the potential buyers were coordinated and orchestrated by Stonegate. The negotiations with each prospective buyer were subsequently undertaken. Stonegate provided a requested valuation of $30 million and indicated that the seller would not accept anything less. The end result was that the business was sold for $28.5 million cash. This extraordinary price was achieved for several reasons:

Stonegate was able to secure the single most logical buyer for whom the acquisition had the greatest synergy in terms of purchasing and distribution economies as well as enjoying a complimentary fit of product line and manufacturing capability. The business being sold was worth absolutely the most to this particular buyer. Stonegate was able to discern that and convince the ultimate buyer that those synergies were worth paying for.

None of the buyers knew that the major competitor had chosen not to proceed. In fact, all of the buyers assumed that their competition was the major competitor. Stonegate obviously did not disabuse any of the potential buyers as to whom the real competition was.

Stonegate’s approach is to create a relationship with the potential buyer but not to make the potential buyer feel that they are in an outright auction process. This approach creates the opportunity for Stonegate to develop a rapport with the buyer. This more relaxed attitude and methodology has been demonstrated to be most effective in numerous circumstances.

 
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