Commonwealth M&A’s Strategy and Execution Secures High-Value Sale for Electrical Contractor

At Commonwealth M&A, we provide personalized and sophisticated M&A consulting services for lower-middle market businesses, leveraging our combined experience as a tax/M&A attorney and in corporate finance to help our clients. We draw on that experience to provide a level of sophisticated strategies and tactics not typically seen outside of large transactions. 

Our client, an electrical contractor specializing in generator maintenance and installation for residential properties, approached us with a unique set of needs. This family-run business, managed by a husband and wife nearing retirement, sought a seamless transition that would allow them to retire comfortably, while ensuring their employees were well taken care of.

The client operated within the electrical contracting industry, focusing specifically on generator maintenance and installation for residential customers. When they first approached us, they were uncertain about their readiness to retire, but wanted to begin exploring their options. Introduced to us through a lawyer contact, their primary goal was to retire comfortably, while being able to walk away from the business immediately. Additionally, they wanted to ensure the new buyer would retain their employees, providing them with benefits and increasing their vacation time. Their ideal outcome was to sell the business at a high multiple and walk away with peace of mind.

The Challenge

One of the main challenges was the clients’ deep involvement in the day-to-day operations. In situations like this, it can be difficult to find a buyer willing to allow them an immediate exit since they are so integral to the success of the business. For this reason, we advised them that it was best to stay involved for a little while longer after the acquisition, and to keep their options open in order to negotiate the best sale price.

Furthermore, while the owners had been deciding internally what they wanted to do, the business experienced a significant decline in the trailing 12 months EBITDA¹, a factor that can have a material effect on the sale price. However, our goal was to achieve a sale in the upper percentile of what similar businesses typically sell for, despite these challenges. 

¹EBITDA = Earnings Before Interest Taxes Depreciation and Amortization; a key metric used to determine how lower-middle market businesses are valued.

The Process

Our process began with a valuation of the business to determine the individual factors that affect the business’ value. We also began strategizing how to present these factors, and the business as a whole to potential buyers. 

“We had several focused discovery sessions so [Commonwealth] would best understand our business and find interested buyers that would be a good fit,” said the owner. “Rick and Joe did their homework on both the industry and our company to present our business in a professional and enticing way to prospective buyers.”

We then compiled a list of approximately 100+ potential buyers through our network, intensive research, and industry knowledge, including leveraging private equity conferences to identify interested parties. Growing our personal networks of potential buyers is a consistent focus for us throughout the year, so that when a client signs on with us, we often already have some potential buyers in mind.

In the meantime, we also began working on the marketing materials (or Confidential Information Memorandum “CIM”) for the company. The primary goal is to figure out what the business’ story is — what makes the company attractive to buyers? For this company, the primary points were the over 20 years in business, the strong industry tailwinds, and the fact that it had never lost money in any of those years. This was partly due to their business model: essentially, whenever the company installed a generator, they signed the customer up for a maintenance contract, bringing in consistent recurring revenue that made for a very healthy business, financially. 

In addition to this, there were substantial growth opportunities, as it was still a “mom and pop shop” that could quickly grow with more investment into the company. We packed all of these points into our marketing materials in order to tell this story to potential buyers and highlight the many positive aspects of the business. Then, we simultaneously contacted everyone on our buyer list, keeping the company anonymous but presenting some information about the company to gauge interest. 

Once we received responses from interested buyers and those buyers signed an NDA, we sent them the marketing materials to pitch the company, and timely and thoroughly answered their detailed questions. Ultimately, we sourced the actual buyer through a personal relationship, adding significant value to the deal.

“Commonwealth used their experience and strong negotiation skills to advocate in our best interest,” said the owner. “Successfully accomplishing better and higher multiplier offers from buyers after their original offers were presented.”

The Results

The business was successfully sold in ~6 months, achieving a valuation multiple in the greater than 90th percentile. The process moved quickly — we had initial contact with the client in May, then signed the client in August and immediately began preparing our buyer list, contacting the potential buyers in September. By mid-October, we had received multiple offers, with a Letter of Intent signed in November. The transaction ultimately closed in mid-February of the following year, marking just six months from signed contract to closed transaction. Part of the reason for the speed of this sale is that one of our main priorities is to reach out to buyers who have an extensive resume of closing deals, rather than dragging them out, changing terms, or being indecisive.

As can be the case in many transactions, we helped resolve several contentious conversations and negotiations that arose along the way. We stepped in to help our client navigate the situation and ensure that everyone involved got to an amicable resolution. 

Our client valued our proactive communication, and the steps we took throughout the process to keep them informed and educate them on the intricacies and details of the process. For every client, our goal is to represent them like it is our own business, and in our eyes, this is one of the reasons that this deal worked out so well in everyone’s favor, despite a few complications along the way.

“We would not hesitate to sing their praises,” said the owner. “They worked out a great deal for us, and we could not be happier with their efforts, drive, professionalism, and patience — mostly with me and my millions of questions, and unlimited positivity. They are both go-getters that do whatever is needed to get the best deal for their clients.”