Learning The Art Of The Deal -- With A Little Help

Companies such as Veber Partners enable entrepreneurs such as Bob Valley to make smart purchase and investment decisions

Sunday, August 21 1998

By Jim Hill of The Oregonian staff

When Bob Valley came to the Portland area from New Jersey in search of a business to buy, he came well-equipped.

He had a master's degree in business administration from Harvard Business School, and he had held managerial posts in finance and operations in large corporations.

Displaced in 1995 when Eastman Kodak Co. sold the division in which he had been vice president of international operations, Valley's hefty severance package had given him the means to pursue his dream of buying and running his own company in the Northwest.

"I got to the point," he said, "where I could do a letter of intent on my own and do financial projections to determine whether the investment would pay off."

After months of scouting, he zeroed in on International Composites Corp., a Vancouver, Wash., manufacturer of specialty equipment for commercial printing presses. The company makes a fiberglass tube, or sleeve, that fits onto the cylinders of flexographic presses, making plating and printing operations faster, more flexible and more efficient.

Valley thought he had found the company he wanted to buy. To this point, he had done his own research, avoiding the cost of hiring professional advisers.

But like many buyers, even those with substantial business experience, he realized it was time to turn to experts for assistance. In Valley's situation, he faced making a formal purchase offer, negotiating terms of the deal and raising money to buy a 25-employee business he knew virtually nothing about managing.

He turned to Veber Partners, a nine-person Portland firm that provides private investment banking services for Northwest companies and clients. The company's roles include helping clients raise capital, arrange acquisitions and divestments, plan alliances and restructure.

Veber Partners is one of fewer than a dozen brokerages or financial services companies in the Portland area that provide investment banking functions. Its fees are tied tightly to its performance. The company gets paid more if it succeeds in closing a transaction or raising the full amount of money sought.

Investment banking firms vary widely in size and have different areas of emphasis. Veber Partners focuses mostly on companies with annual revenues of from $5 million to $50 million.


Buy, sell, raise capital
Gayle Veber, managing partner, said his company expends about equal effort helping clients raise capital and helping people buy or sell businesses. Veber knew when Valley came to the company that his new client was taking on a daunting task.

Valley needed advice to help him gain the knowledge and confidence to carry out the details of negotiating, financing and closing the deal. He was well aware that a serious mistake could cost him dearly.

Buyers and sellers of businesses, according to Veber, often underestimate the time and effort it will take to see the deal through to a successful conclusion.

"Buyers often get seduced by the opportunity and offer too high a price," he said. "They also often don't do enough investigation to fully assess the risks as well as the opportunities. Sometimes they are too optimistic. They need to be optimistic, but they also need to be thorough and cautious."

When a person sells a business, Veber said, "It's one of the biggest events of their lives, and they tend to approach it on a piecemeal basis. They react to offers rather than organizing a selling plan and taking a proactive approach."

Another problem, according to Veber, is that business owners approaching retirement often neglect to leave a strong management team in place to help run the company after the new owner takes over.

Frequently, the only alternative is for the seller to stay on for a while to advise the new owner. "But," Veber said, "if he'd had a stronger management team, the company would have been worth more."

Buyers and sellers usually find that more alternatives are possible in a transaction than they had anticipated and that far more homework is involved than they expected.

Valley's first step with Veber Partners was to take the seller's projections and his own expectations to the company and ask whether the deal was feasible.

Veber Partners, with partner Rodger Adams leading the effort under Gayle Veber's supervision, answered yes. Then the company helped Valley place a valuation on the company in preparation for a formal counteroffer to the seller's asking price.

With Adams' advice and assistance, Valley then negotiated the terms of the deal with the seller, Bill Thompson, who was respresented by his lawyer and a certified public accountant. Some rough spots arose along the way, but the parties kept talking and held the deal together.

Once the terms were agreed on, Valley and Adams turned to the task of raising money for the purchase.

In preparation, Adams helped Valley put together a financing memoradum, similar to a prospectus, for potential investors. "This forces a discipline on the buyer," Adams said, "to really think through his business plan."

The process helped Valley to learn much more about the Vancouver company, including impressions of customers and the opinions of industry experts.


Doing the homework helps
"He really did his homework," Adams said. "The people who finance these kinds of deals look to the buyer and have to have a high degree of confidence in the buyer."

Their efforts succeeded.

After approaching more than a half-dozen potential lenders, most of the financing was arranged through Rocky Mountain Capital Partners in Denver. Valley is paying another big chunk of the purchase price, over time, to Thompson, the seller. Also, Valley and two co-investors have put some of their own money into the venture.

Valley would not disclose the purchase price but said International Composites Corp. turned out to be a better and more expensive company than he expected to buy. The deal, subsequently, has left him facing a heavy debt load.

Looking back on a transaction process that took six months, both Valley and Thompson said they were satisfied with the deal's outcome.

"It took more time than I expected and was much more complicated than I thought it would be," Valley said. He said it would have been especially difficult to manage the deal without the investment banking firm, which provided two critical services: the contacts to find investors and raise the needed capital, and, equally important, "you get the objective opinion of an expert adviser."

Thompson, 58, said he sold his company partly for health reasons and so he could retire and spend more time with his four grandchildren.

"It took three times longer than I thought it would," he said. "It cost 10 times more money that I thought it would. Other than achieving the objective, it's not an experience I would wish on anybody."

Today, Valley has been the president and proud owner of International Composites Corp. for more than a year.

"It's taken a year to learn the business," he said. "I'm fortunate to be surrounded by a solid, five-person management team."

Valley works 60 hours a week. He worries about cash flow and whether the economy and his business will remain strong. With his two children in college, he has a business plan he hopes will help the company grow and prosper. The plan envisions new sleeve products, other printing-related products and expansion of the distribution network.

Valley expects he'll someday sell the company.

"Yeah, it's fun," he said. "But I never realized the pressure you're under."