Case Studies

Uncomfortable Family Reunion

A business owner, we'll call him John, grew his rebuilt truck parts business over 30 years to 20+MM – no small achievement. John's  company was a major employer in a small town. John himself was a celebrated benefactor at school fundraisers and church events. He was on a first name basis with nearly all of the town as they were either family, friends, employees, or all three. But time had taken its toll and John began to struggle with the daily regimen of running his company. His body would no longer do all that he demanded of it. So John started to look for his way out.

 

His way out went by the name of Greg. Greg's company was discovered after a long and detailed buyer search. And it was a perfect fit.

 

As the LOI was being lawyered into the definitive agreement, Greg hopped a plane, rented a car, and drove the 4.5 hours out into the hinterlands to review the operation one more time. On this visit, Greg found several inventory inconsistencies. Moreover, several employees were uncomfortable answering simple operational questions when he tried to clarify the situation. After he returned to his office, he interviewed and engaged the services of a professional, non-financial auditor. 

 

******************************

 

It turned out that Ralph, the general manager of one of the satellite offices, had been pilfering a small percentage of inventory for many years. He would sell his special "off the books" product to customers and pocket the money. This had grown to over $1MM in stolen inventory. Worse yet was that in order to pull off this scheme successfully over many years, Ralph had recruited several company employees to help him execute his "business within a business". 

 

Greg presented his findings to John.  Greg may have only been involved in a couple of acquisitions, but he understood that this problem would be a potential nightmare for him. Who was honest? Who belonged in jail? Which customers should be fired? Which would leave due to the turbulence? How deep would the impact on company morale be when this was made public?

 

Greg exited the purchase agreement with the sorrowful but understanding assent of John.

 

John abandoned his search for a buyer knowing that no one would buy a company with this much hair on it. He had bigger problems. His biggest worry wasn't the loss of a significant amount of money through theft. It wasn't the loss of a staggering amount through the transaction's failure. It wasn't the turmoil that would come with cleaning house. It wasn't the upheaval this would cause the community.

 
John's biggest worry was his wife's tears over her sister's rat of a husband, Ralph. Not to mention the family reunion they were hosting next month.
 

Minnesota related acquisition disasters

Minnesota related acquisition disasters (that we know of):

 

General Mills

Sell your acquisition (Leeann Chin restaurants) back to the founder after you lost a fortune because you did not know how to run it.  General Mills bought the restaurant business Leeann Chinn in 1985 and sold it back to her for a fraction of what they had paid a few years earlier.

 

(Privately held)

Treat the acquired company's employees so badly that they destroy 25 million dollars in inventory (the only real asset within the company) so that when it arrives in MN the only worth is in its scrap value.  No lawsuit could fix this disaster.  No names, protecting the guilty.


(Privately held)

Ignore your key man, the fellow who let you run your company profitably as an absentee owner for many years until you find a buyer at a high price and don't say anything about it to him.  Upon his accidental discovery of your pending sale, he accepts an offer from a competitor (that he has most likely ignored for many years out of loyalty to you).  This abrupt change in your knowledge based company (and he was the one with the knowledge) spooks your buyer and you never do sell your company.  It eventually closes its doors.  No names, protecting the guilty.

 

(Public company)

Buy a company so poorly suited to your operation that ten years later your shareholders are still feeling the pain so badly that the board refuses to consider acquisitions as a means to growth (even though your closest competitor has grown by one acquisition per year for ten years and are now ten times your size).

 

(Privately held)

Food manufacturing company acquires east coast food distribution company proving that their eyes were bigger than their stomach (felt compelled to use a food pun). Family loses control of the company.

 

 

And, while the following is a California-related acquisition disaster and not Minnesota, I had to include it because it is so spectacularly disastery (I may have just invented the word 'disastery')

 

Caterpillar

Caterpillar wrote down 75% of transaction value after only 11 months ($580M). Almost 100% of the acquired company's receivables were overdue at the time of the Caterpillar offer & the backlog of inventory & materials had grown dramatically prior to closing. The entire debacle cost them almost $1B (that's billion with a B)

 

We know there are more examples and we'd love to hear the stories you know. Contact Mike Tikkanen at 952.542.9318 or This e-mail address is being protected from spambots. You need JavaScript enabled to view it  and spin us a fine tale.

 

Workshops

 

The best of Packard Acquisitions research process & tools are available in presentations, online webinars, and non-brokered engagement options to leverage your team and current efforts towards low risk - high value transactions.

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