Samtan Engineering Corp. was, at the time President Jon Petromelis joined it, a small business in what he called a very good sector with a lot of large customers. He brought in operations help and they started building the foundation of the business. Six years later, he says they tripled the sales and increased profit 10 times. That, he told attendees at this year's Boston Smart Business Dealmakers Conference, got the company noticed. However, the company, with owners who were not involved in the business, was not for sale.
"We weren't ready for sale," Petromelis says. "We didn't plan a sale." We didn't have a banker or anything. And we got noticed by a portfolio company in the industry that wanted to build manufacturers all over the country that sold to our customer base. And before we knew it, we had an offer. And we started thinking about, now what the heck do we do? We don't even know what this company is worth."
The two brothers who owned the business, however, weren't sure they wanted to sell. Petromelis says he spent a lot of time with them to determine if this was the right opportunity, and if they were ready to get out.
"And that took a long time because it was an emotional thing for them," he says. "It was their dad's business. And once we got past that, we contracted with a valuation firm to value the business. And I think that was an important piece of this because that gave us the range of what we can get for this business. And before we knew it, we had an LOI and we had a deal."
The offer started out as not traditional — some money up front, some money over time. They didn't like that and backed away. The buyer then returned with an all-cash offer, which everyone was happy with, so the deal closed at the end of December. At the time of the Conference, Petromelis said he was transitioning out of the business.
If they had more time on their hands, they wouldn't have done some of the things they did in the process, he says. For instance, the valuation process was something that they were able to do quickly. They had strong financials and a strong controller, but they were not GAAP statements. That was a problem in the deal.
"Nobody could get their heads around the fact that we hadn't had an audited statement, we hadn't had a reviewed statement, no footnotes — it wasn't a requirement of our banking," he says. "But it was it was clean, it's a clean business. But when you're getting to sell a business, everybody talks about US GAAP, or exceptions to US GAAP. And I'm like, 'Well, we don't have either.' I don't know what the exceptions are, we've never been audited. So, we finally settled on the income tax basis of accounting. So, that took a while to get everyone comfortable with and had we had more time, we certainly would have had audited statements."
One of the more important decisions was getting a team together quickly. The first thought was to go to their law firm that had the ability to do acquisitions. However, they were not transaction guys. He was able to convince ownership to use a transaction firm. That, he says, really helped a lot.
"Going to someone that does this for a living is a lot different than someone that does it at different points in time," Petromelis says. "So, we were able to get a really good team together with a bank behind us. We had tax and accounting, good firms in that regard. So, we built a good team."
That team, he says, reviewed the transaction and worked with owners on how the taxes would be dealt with. But something was missing. Businesses, he says, should have a good standing certificate. It's a very simple thing, he says, but everyone messes it up in deals if they're not paying attention. In Massachusetts, there's a system called MassTaxConnect through which companies can pay their fees. That's a good thing, unless a company hasn't filed a sales tax return.
"We were exempt from sales tax from what we did, so it wasn't an issue, but we never file a sales tax return," he says. "So, we were scrambling to get that done quickly. It was only a couple of years. And that was a surprise that came up. And when you think about getting your house in order and the work that you need to do as far as internal due diligence before you do a deal, if you've done it long in advance, you look at these issues. But that was a surprise that came to us, and we were able to get through it and get the good standing and that didn't slow down the deal in any way. But it was definitely a surprise."
When there's time to prepare, there's a lot that can be done to improve the business before taking it to market. However, the one thing he tells those looking for advice on selling their business is to remember to run the company during the process.
"This is a long process, it's a difficult process, and you've got to make key decisions," Petromelis says. "That's the one thing that I always remembered. It's very easy to buy a company and very hard to make it do what you think afterwards. But it's very difficult to sell a company and to not take your eye off the business because the deal could die. And so we spent a lot of time continuing to push and manage the business, and the sales were growing straight up to through the deal. It's been a successful transition. So, time is always helpful in these things, but we certainly didn't have that. But we didn't take our eye off the ball during that process."
