Case Study #61: Turning Tragedy Into Triumph
The top two reasons that business owners start moving towards a sale are:
- An unsolicited offer
- A major health issue
The second reason is what confronted Sandy Hansen Wolff in 2003 when her husband was diagnosed with leukemia. He owned a business called AgVenture Feed and Seed that sold to regional dairy and beef farms. It had great customers and solid employees, but had already begun to suffer from the health problems which took him away from his business before the diagnosis.
A Perfect Storm
The fear turned into a reality when Sandy’s husband passed away, leaving her as a 30 year-old widow in charge of a company with $1M in annual revenue but no documented systems or procedures, in a field that is male-dominated and which she had no expertise or experience in.
Additionally, the business had recently taken on debt to buy out a partner, which included a $500,000 loan (secured against Sandy’s home) as well as a 7-year payout.
Not only were there no policies and procedures written down, but employees didn’t even know what the margins were, or what they should be in comparison to the marketplace.
Sandy realized that her hope of restoring the business and getting it ready to sell in a few months, which was what her husband’s advice had been, was not reasonable. She was going to have to get in with both feet.
Making Changes
From the pressure of the debt and with a desire to do something different in a fairly traditional industry, Sandy started moving in the direction of the “gig economy” long before that was a phrase anyone knew. Instead of keeping functions and processes and staff in-house, wherever she could, she subbed out work to contractors. A lot of skeptics scoffed at her, particularly because of her lack of expertise, but not only did the move stabilize finances for the company, it began to be imitated by other players in the business.
She slowly grew the business to a high of $8M in 2018, founding another business along the way, New Heritage Feed Co. It was a chicken feed business that was using the infrastructure and relationships of the existing parent company to grow and thrive.
A Sale?
But, even as she got more and more excited and engaged in New Heritage, Sandy found herself slowing down with AgVenture, and taking a cue from books she’s read before about running businesses, she knew it might indicate it was time to sell. She’d long since gone beyond rescuing the business to creating something that provided an ongoing and serious livelihood for her and her team.
There were also some discouraging changes in the marketplace. Many farms were becoming corporate and some of the smaller farmers who didn’t sell out just sold up and left their farms.
She had had some discussions before with one of the feed manufacturers but the discussions had always ended with, “we don’t buy our retail partners.” They were singing a different tune when Sandy called this time, in part because New Heritage was selling its own products that were starting to cut into the orders of this manufacturer.
Getting Serious
A first meeting led to a second in which an NDA was signed and they started to move towards a sale. Sandy had seen that other similar businesses tended to get 4-5X EBITDA and along with this expectation she set out three conditions of the sale:
- She wanted her employees treated well
- She wanted the process to be amiable
- She didn’t want to know the plans for the business after she left
Unfortunately, the first offer was unacceptable, with one of the members of the buying team clearly designated to play “bad cop” in the negotiation process. It was refused but the second offer was also unacceptable, with an even more insulting offer for New Heritage, which was not part of the original deal, it being a separate entity.
Sandy thought that at such a price she could just continue to run the business herself and walked.
Five minutes later, as she was driving away from the buyer’s corporate headquarters, their broker called, insisting that they wanted to do a deal. Sandy pointed out that she had too, but the lowball tactics and manipulation had to go.
The buyer realized that their tactics were not working and came to something that everyone was agreeable to, which included an all cash upfront deal for Sandy, along with a 1% bonus on all gross sales for all customers that stayed with the new owners.
The best part, when Sandy signed the papers she was free to go: no earnout, no transition period, in part because she did what her late husband had not done: empowered her staff with processes and procedures so that they could run the company without her.
Lessons Learned
Sandy has an inspiring story, and offers some worthwhile takeaways:
- Don’t be afraid to innovate, even in a traditional industry — by seeing the savings that could accrue with subcontractors Sandy took a risk that ended up paying off. What cost-cutting measures might make sense for you that you’ve never considered?
- Document, document, document — even though she took over a $1M business, it was one that couldn’t be sold. By taking the time to create procedures, she created a company that could be sold.
- Stand your ground — Sandy remembered a key rule of negotiation: always be willing to walk away. This led the buyer to realize she was not going to be fooled by lowball tactics and brought the deal to a happy conclusion for everyone.
Have you had a health scare that has made you uncertain about your business? We’ve worked with many similar situations before and would love to help. Give us a call.
