Opportunity Knocks
A little over a week ago, on a Monday night, I was having dinner with a friend and we were discussing business, as usual, and more specifically the line of business he is in. While his line of business in not part of my core focus, I do have an involvement in the industry.
Anyway, during out discussion he mentioned that a particular company was for sale. This company, which is listed and trading on the stock market, owns, as one part of its business, a national franchise operation with 139 franchised stores. We discussed the sale a little and I did some quick and dirty calculations in my head as to what I estimated their earning potential would be, as well as what I expected the asking price to be for the business. Based upon my guesstimate, the business appeared that it would be a good acquisition. I had estimated a rough purchase figure of $20 million.
As the company that presently owns the franchise does not really have an understanding of the particular industry of the franchise, a lack of interest and various mistakes have been made, which has eaten into profitability. The business has potential.
Discussing the possibility some more, my friend said he thought that there was already a buyer and that the deal was being finalised that Friday. I thought about it some more, but didn’t do further investigation, as I thought the deal had passed.
On Tuesday this week however, another acquaintance mentioned that the deal hadn’t gone through as yet and that the company was still on the market. They also mentioned that they had heard the company was seeking around $7 million. I know what you are thinking, either I have no idea, or the $7 million was way off. I thought it couldn’t be right either, but was assured that was the amount they had heard.
Still being skeptical, I sent them away to find out further information and some contact details for me. They came back pretty quickly and said that the $7 million was still the figure being discussed. I went and did some research on the company.
After not being able to get any contact details from my friend, I started making my own inquiries via the company, until I got to the investment bank handling the deal.
It turns out the company was evaluating its operations and core business, and had commissioned the investment bank to perform an evaluation of the franchised operation and make a recomendation to the sale or retention of the business. After some discussion with the banker handling the sale, I found out that the sale had not gone through, and that the descision for sale or retention had not been made.
Now it turns out that the investment bank had also been in negotiation with potential buyers and that they had one waiting in the wings, so to speak, should the decision be to sell the business. The problem from my perspective was that the decision was being announced the net day and also, should the decision be to sell the business, the expected sale price would not be $7 million, but closer to my original guesstimate of $20 million, more specifically in the vicinity of $20 million - $24 million.
If I was interested, I would have to have my offer and finances prepared by the next day. Needless to say, this was not really an option; for one thing, there was insufficient time to do any real evaluation of all the necessary details, not to mention arrange capital.
The conversation didn’t end there though, as he was telling me various aspects of the business, and some of the synergies required to make it successful again. I briefly outlined some thoughts I had on what I would have done with the business and he seemed quite impressed. The conversation ended with me telling him basically ‘oh well, there is insufficient time for me to proceed’. However, he said that they may like to talk with me further next week, after the announcement of the sale or retention.
Now, I am not holding my breath, there could be numerous reasons for wanting to discuss things further, only time will tell whether anything eventuates from it.
So, was the exercise a waste of time? Not at all, I enjoy this kind of thing. Just because the information was not totally accurate, price wise is not an issue, as you always need to confirm details. At the least, I have made some new contacts and that is always valuable, as that is where the original information came from and where many more will no doubt follow.
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