Radio Systems Corp. acquisition by private equity firm Clayton, Dubilier & Rice this past May was not Chris Chandler’s first sale process. And the Radio Systems CFO was able to use that past experience to maximize value when the company was sold.
Chandler says much of the company’s position during the process was dictated by its main owner and founder, who was a very patient seller.
“We've been approached all through the years and we really didn't start getting serious until around 2016,” Chandler says. “But when we did go out, he made it known to the potential buyers he set a price and he wasn't going to move off of it.”
Chandler says at one point an offer came in at five percent under the owner’s asking price. Though it seemed the other side believed the owner would cave, he instead walked away.
The company again went through a process in 2018 with the same stance from the owner — that he’d sell it if it's at the right price. One potential buyer got close to close and at the last minute tried to change the price. Once again, the company walked away. But they didn’t walk away emptyhanded. Instead the company learned some things during that process that would help them the next time around.
“We really didn't realize how much they would put the value on patents that were expiring,” Chandler says. “We had one patent that had a lot of secret sauce behind it and so we weren't too concerned because of the secret sauce we knew about. But we realized in both of those first two processes that that is one reason that the potential buyers discounted the price.”
Another area that was affecting the deal was one of the company’s categories wasn't performing as well. The company didn't pay much attention to it and didn't have a story behind why it was that way, so buyers took money off their offer.
So the company took those two learnings and when it did go back to the market at the end of 2019 , it came with a white paper for the patents and a plan for the category that was not performing as well. That helped the company get the value the owner had set.
Radio Systems Corp. started with the over 65 interested parties at the end of 2019. It whittled that down to 12, which it took visits from in February of 2020. Then there were three by the first week of March. The onset of the pandemic saw one of the potential buyers exit, leaving it with two, from which it chose Clayton, Dubilier & Rice.
One of the major takeaways from the string of processes was the need to proceed swiftly.
“Time does kill deals,” Chandler says. “It give people more opportunity to just continue to diligence. And if somebody's looking for a reason, maybe they're not ready to check off on the deal, we ran into that too.”
Chandler spoke at the recent Nashville Smart Business Dealmakers Conference, along with Bass, Berry & Sims M&A Partner Tatjana Paterno, Council Capital Managing General Partner Grant Jackson, Fifth Third Investment Bank Group Head Robert Schipper, and Advanced Care Partners Founder & CEO Greice Murphy, about sell-side considerations. Hit play on the video above to catch the full panel discussion.
