Crallé & Company

A New York Distributor of Specialty Office Equipment
has been sold for $80 million to a
(with revenues of approximately $1.5 billion)
The undersigned advised the company in this transaction.

Crallé & Company

The Situation     Formed in 1966, the company had grown to one of the largest such distributors in the United States, with revenues approaching $70 million.  A well-known Wall Street underwriter recently had proposed taking the company public.

Like most successful private companies, the owner had developed management policies to maximize cash flow by minimizing current income taxes.  Inventory valuation and fixed asset accounting, for example, were kept consciously not according to generally accepted accounting principles, although were maintained consistently for tax reporting.  Financial statements for loan covenant compliance were reviewed by a CPA but not audited.  Operating results would be virtually indecipherable to most stock-market investors without substantial restatement and explanation.

Crallé & Company advised that, because of such complications, a public offering would not achieve maximum capitalized value for stockholders.  In order to capture the true value of the company the owner would have to negotiate one-on-one with a financial or industry buyer.

The Process     The company had never been comprehensively analyzed or documented in a manner that a sophisticated observer would expect.  Crallé & Company prepared an overview memorandum, positioning the company to appeal to the target audience.  Crallé restructured reported financial results to reflect the metrics typical of private-equity buyers, identified and added back certain private-company expenses, and described operations in a manner suitable for acquisition professionals to vet the proposed valuation--and, later, to solicit policy-level endorsement within their own organization.

Crallé managed contact with prospective buyers and every phase of negotiations.

The Outcome     The first prospective buyer’s bid of $65 million at closing (plus a difficult to achieve earnout) reflected the firm’s reluctance to accept EPS dilution.  Indeed, the firm was unwilling to address many issues important to the entrepreneur-owner.

The second bidder’s valuation of $80 million at closing acknowledged the target company’s importance to the buyer’s own national competitive strategy.  Every issue of importance to the seller was addressed satisfactorily.  Because the seller’s tax basis was near zero, the transaction was carefully structured to defer current income taxes, as well as to meet pooling-of-interests criteria.

Crallé memorialized the evolving transaction during negotiations, assisted the bidders during their analysis and due diligence reviews, coordinated legal counsel during documentation (including development of representations and warranties, and the non-compete agreement) and guided the transaction to a successful scheduled closing.

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Crallé & Company, Incorporated
Bronxville, New York