Q&A with Jim Lawson, Managing Director and Co-chairman

What size of businesses do you typically represent?
Typically we represent companies with revenues of $10 million to $1 billion, with enterprise values of $25 million to $500 million. 

Does your firm have an industry focus or are you more generalists?
Our 121 mergers and acquisition (M&A) professionals are mostly divided into 12 industry groups, but we also have a group of generalist bankers. The 12 industry groups are as follows: aerospace and defense, auto and truck, building and construction, business services, chemicals, consumer, electronics, financial institutions, food, industrials, technology, and transportation and logistics.

What geographic region does your firm cover?
We cover North America, Europe, and Asia (specifically China, India and Japan).

What are the components to your compensation for your service?
We charge an initial non-refundable retainer (generally 5% to 10% of all fees) and a success fee (90% to 95%) of total fees. In some cases we charge monthly retainers. 

Describe the main service that your firm provides.
We primarily provide M&A and capital raising services. M&A services include working with owners, companies, groups or individuals to buy or sell companies with both majority and minority ownership positions. We also provide formal opinions and valuations of various sorts on M&A transactions and general advice on strategic and tactical options.

Capital raising services are focused on raising senior debt, junior debt, and/or equity capital. Most of these capital raises are related to selling equity or recapitalizing the company. 

What have you found to be the single largest factor in getting the highest price and terms for your client?
To maximize selling price and terms we encourage the arrangement of two or more strategic buyers motivated to buy a business to ensure a competitive process and the best price and terms for our client.

What is a common misconception that you find among your clients?
 A common misconception is that buyers need only to do high level due diligence before buying a company. The M&A market has become very sophisticated. Additionally, many buyers are borrowing money to fund the acquisition. Sophisticated buyers and lenders require extensive due diligence. The reason to perform a quality strategic and operational review and plan (as discussed below) is to prepare the company to not only withstand a detailed due diligence process, but to impress potential buyers.

Describe a successful transaction.
In 2007, a company approached us to sell their largest subsidiary. They had attempted to sell this subsidiary on their own during the previous 12 months and were able to execute a letter of intent with each of their buyers, but were not able to close for various reasons. Unfortunately, the company was highly leveraged and the lenders grew tired of this process and put the company into Chapter 11. Lincoln International was hired with the goal of moving the sale process very quickly and obtaining a price high enough to bring the company into the black. Amazingly, Lincoln International was able to sale the business in only five months, and was able to orchestrate a competitive auction with a previously unidentified foreign strategic buyer, which resulted in the highest offer the company had yet been offered. The banks were fully paid back and the company with its remaining businesses emerged from bankruptcy with a future.

Discuss a difficult-to-close transaction.
In late 2006, Lincoln International was hired to a sell a privately owned company that was in the construction industry. The company had a very good niche and was experiencing strong growth. The issue was that the building and construction industry in the United States was experiencing a sharp decline. While the performance of the business was strong, the concern was that the general decline in building and construction would catch up with the company. Moreover, many of the logical buyers were experiencing a decline in their own businesses and they were choosing to focus internally and not consider any acquisitions. Using ingenuity to outperform, we were able to get a premium price by focusing on three points.
First, we very carefully described and marketed the unique niche of this company and the reasons why they would not be impacted by the general downturn in building and construction. Many investment bankers do not get as granular and specific as we do when needed.
Second, we aggressively marketed to the buyers that were the best fit. The ultimate buyer had initially turned down the deal. This included making personal visits to the buyer to turn around their initial negative decision.
Third, we structured the deal in a way that gave the seller an initial good price with the ability to get a great price under circumstances that are clearly defined, measurable and achievable.
Describe a tense moment at the closing table.
The day before a sale of a private company to a financial buyer, we were at a pre-closing meeting making sure that the various documents were in order. At that meeting, we were informed that the lender had cut the amount of loan they were willing to provide and therefore the buyer was requesting the price be decreased. When the buyer refused to close without the price decrease we continued to insist the price remain the same. In the end we were able to convince the buyer to purchase the company at the original price by bridging the lending shortfall with some additional equity. 

Have you ever saved a client of yours from a fraudulent buyer?
A key part of our selling process and value-add is to carefully screen buyers. We start the process by developing a detailed buyers list. We only include companies on this list that are reputable, and we vet any companies suggested by the client to confirm financial capabilities and reputation. Not only are fraudulent buyers eliminated from the process early, but undesirable buyers for such characteristics as weak financial capability or history of lowering the price at the end of the process are also eliminated.

What can a client do to maximize their company’s valuation or enhance the business sales experience?
To maximize your company’s valuation and ultimately enhance the sales experience, you should complete a strategic review, track your current and prospective contracts, deal with liabilities, and hire an investment banker.

If not already done, perform a strategic and tactical review and plan. The review section should include an audit of your company’s strengths and weaknesses. Consider using an outside group. The plan section should set forth programs to capitalize on strengths and correct or improve weaknesses. One area of particular focus should be evaluating management and hiring new or additional people to fix issues. In most cases, management is the most important determinant of the success of a company.

If there are key contracts (current or prospective), think about the timing with the bias to have a sale process after these key contracts are signed.

If there are any contingent liabilities, rather than ignore them or hope the buyer will overlook them, you should address them. For example, do not ignore environmental problems, instead remediate them or get insurance coverage.
Hire an experienced investment banker. The cost is small relative to the potential increase in value that can be gained by 1) running a smooth process, 2) effectively contacting buyers and 3) being an effective and unemotional negotiator at the appropriate times for effective leveraging during negotiations.
To further enhance the sales experience, take time to fully and honestly discuss the process in significant detail before embarking on the sale process. If expectations are inconsistent with the market, a sales process is doomed to failure, which is a waste of time for everybody and generally hurts the business being sold.

What should a business owner do if they are potentially interested in using the services of your firm?
Call me at (312) 506-2714. I will direct you to the best team at our firm for your unique situation.