Acquisitions have been extremely important in the growth of Bernatello's Foods, the company's CFO Jayme Woehl told attendees at last year's Minneapolis Smart Business Dealmakers Conference. Three of the five of their frozen pizza brands were acquired via acquisition over the course of the last 20 or so years.
"Acquisitions have been very important part of our growth strategy as an organization and will continue to be in the future," Woehl says.
The company recently made an acquisition, which represented a strategic investment to increase capacity in the company's network. With two manufacturing facilities, one in Minnesota and one in Wisconsin, Bernatello's was facing the challenge of outgrowing their capacity at those two facilities. They had building plan in place, and were looking to expand at one of their facilities, which has the real estate to do so. Then he says they essentially stumbled across an opportunity from a contact they knew for an opportunity to purchase an existing business — a co-manufacturer of theirs that worked on branded products both for them and many of their competitors. He says it was a long process to close, in part because there was a lack of transaction experience on the seller side, as well as little professional support — in the form of an investment adviser — to make up for it.
"He brought to us this presentation on two pieces of paper and sat down and said, 'Hey, I've decided I'd like to sell my business are you interested in purchasing? I'm talking to a couple other buyer potential buyers as well,' he says. "It had option A, B, and C, and each one of those options had a different price tag assigned to it with different inclusion of what he was selling. So, the one was, here's my business as it exists today. Option B was I'm in the process of completing an expansion to my facility, if you want to wait until I'm done with that, here's what it's going to look like in terms of footprint and I'll sell you that, or if you want me to continue operating for a couple of years and add these customers, and this additional production line, that's option C."
Though the seller ran a successful business for a couple of decades and built something that that was very appealing to a buyer, the lack of knowledge regarding the selling process made things extremely challenging. For instance, from a preparation perspective, there were no historical financials presented, no KPIs, and no trusted legal adviser. That led to a lack of communication, transparency and collaboration between the parties.
Further, he says he had the sense that the seller was not emotionally or mentally prepared for the sale of the business.
"There are multiple times throughout the transaction that we as a buyer weren't convinced that this was going to go through," Woehl says. "And it wasn't necessarily because we were arguing over significant terms. It was that the seller started to get a glimmer, once we stepped in and started talking about our plans for his for his business, how we wanted to expand the business, what customers we wanted to target, new opportunities for automation in the plant. His eyes widened in the sense of, well, I could do this on my own, so why am I selling the business? And so just that emotional attachment. And I recognize that and I'm sympathetic to the fact that this was his baby. He had built this thing and worked on it over the last 20 years. So, it was very challenging for him to let go on that. But he clearly wasn't at the point of being mentally prepared to say, 'I'm ready to sell this business and move on to the next stage of my life.' So, that was another very challenging piece just to work through that and deal with through the transaction."
However, lacking the experience to move through a sale process is not something buyers are likely to hold against a seller of a business.
"An entrepreneur doesn't necessarily have the skill sets," he says. "They have the skill sets to run and manage a business and create this business, but not necessarily to sell the business. And that's OK. But recognizing their faults in that and bring the right people in to help them through that."
Buyers, he says, might need to deal with the ramifications of an inexperienced seller after close, affecting aspects of a deal such as the transfer of customer contracts.
"Things like that, we're dealing with the aftermath of that months later," Woehl says. "It just creates an extra level of challenge, certainly, within a deal."
Something Woehl says both buyers and sellers should consider is the impact of a deal to their team.
"High on the priority list for a lot of sellers is what is the culture that I'm leaving behind? What is the culture of the new organization that's acquiring? But don't overlook the impact of how significant that move is for your team, for your core management team, and for all of your employees down to rank-and-file employees," he says. "The level of fear and insecurity that can come from a transaction, and just the unknown and uncertainty, so don't overlook that."
