The Inside Story
Our clients provided ground stabilization services with specialized technology. Barriers to entry were high and our client dominated this niche market.
The three owners were approached by a strategic buyer with an unsolicited offer for their company. The owners were flattered, but sought a second opinion from their external accountants, a prominent regional firm. The CPA firm recommended without hesitation that they speak to Sequoia to provide an opinion on the fairness of the offer.
After learning about the business and analyzing the offer, Sequoia suggested they were leaving significant money on the table and advised they do not accept. There were two problems with the offer. First, comparable industry transactions suggested a higher multiple of EBITDA was warranted and second, the proposed capital structure included up to fifty percent contingent consideration in the form of earn-outs.
Sequoia recommended conducting an effective auction process to generate competition for their company. During the process, a purchaser was chosen from the four finalists that resulted in a significant increase in the enterprise value with a reduction in the earn-out — the cash portion of the accepted offer was approximately threefold more than the original offer Sequoia evaluated.
Founded:
1990
Employees:
50
Affiliation:
Non-union
Revenue (CAD):
$22.0 million
EBITDA (CAD):
$4.5 million
Key Strategic Highlights
Industry Leader
The company was a niche sub-grade specialty contractor with a dominate market position.
Barriers to Entry
Barriers to entry were high due to the proprietary nature of the company’s specialized technology. This enabled the company to provide a superior service at a lower price than the competition — resulting in an exceptional industry reputation that was earned over many years.
Significant Backlog
The company had a significant backlog of awarded but uncomplete work that was attractive to buyers.