How Do You Find The Right Buyer For Furniture Companies?

originally published in Furniture Today

As mergers & acquisition advisors, our primary job is to sell furniture/home furnishings businesses. Key to the job is finding buyers, which requires a combination of skill, art and luck. As Ralph Stump (our founder and my grandfather) used to say, “The harder I work, the luckier I get.”

We work daily to identify and cultivate relationships with buyers from all different sectors, from strategic buyers to private equity buyers, local to international, household names to private under the radar.

Our team focuses on the following items when finding buyers to efficiently close deals:

Money: It requires money to make a deal, so we are always qualifying prospective buyers regarding the amount of capital they have and are willing to invest. We also look for experience with prior acquisitions as evidence of willingness to pull the trigger. For PE funds, we can quickly research public records to find out the depth of their capital pool. Close rates can also be an important barometer.

Sound investment thesis: We talk with buyers continually about their reasons for wanting to make an investment in our industry. Do they want high-end goods or promotional products? E-commerce? Retail? Omnichannel? A killer product development team? The more we know and can assess the underlying thesis, the quicker we can effectively play matchmaker and find a win-win transaction.

Valuation criteria: Many buyers are attracted to low valuation businesses, or as one active CEO buyer reminds us, he wants a ‘deal.’ Some buyers want to pay a market multiple for steady earnings or an enhanced multiple for impressive profit growth. Understanding buyers’ proclivities about valuation helps avoid awkward confrontations and negotiations down the road.

‘No-go’ zones: Understanding non-negotiable buyer positions — such as unions, non-GAAP accounting, and geography — is key. One client refuses to invest in California due to potential issues creating a tax nexus. Many furniture companies are actively moving to Mexico, while others refuse. By understanding these positions, it prevents wasting time in the marketing process. Time kills deals.

Banking/debt read: We are increasingly working with banks and other lenders to assess the amount of debt potentially available to support an acquisition. This analysis focuses on the underlying asset base of the seller, the consistency of the earnings and the industry dynamics. Getting this work done early speeds up the process for the buyer. In today’s environment of elevated Fed scrutiny of lenders, this is an important piece of work.

QofE: Increasingly we are encouraging sellers to have a Quality of Earnings prepared by a third party before the sale process. This authenticates the underlying numbers, provides the prospective buyers with a reliable view of the seller and helps speed the underwriting process by avoiding unexpected irregularities in the financial statements. It also gives the buyer confidence that the seller is a genuine seller and heightens the probability of a smooth closing.

Deals are happening. The better the planning, the higher probability of success.