Sometimes a husband and wife don't need to say anything to know they're both thinking the same thing.
Martin Connell and Linda Haynes were on the phone in the kitchen of their Toronto home. On the other end of the line were representatives of a food company that had made an offer for Ace Bakery, the artisanal bread-maker the couple had started a decade earlier. The company grew to become one of Canada's top independent bakeries, with restaurants, supermarket chains and consumers stocking up on the more than 25 varieties of its European-style breads. Ace had recently begun shipping partially baked and then flash-frozen bread to grocery stores in Ontario, New York state and Michigan, but the couple knew further expansion would require more capital, more time and more sacrifice. They weren't sure they were up for it. And here was a keenly interested buyer that needed an answer. Now.
Connell and Haynes said no. "We just knew it wasn't going to be the right deal," says Haynes.
But that was five years and millions of dollars in sales ago. Since that tense phone call, the business has doubled in size, with 300 employees, seasoned managers, and annual revenues approaching $50 million and growing at a double-digit rate. What's more, Ace has become a major supermarket brand. So when the couple found themselves facing a similar dilemma last year—whether to inject the cash and effort needed to penetrate more markets in North America—they knew they were sitting on a much more valuable asset. They were also approaching retirement age (she's now 60, he's 66). "It was going to take a heck of a huge push to get the business to the next level," says Haynes.
It was time to sell. The trick was to get the deal done this time.
Ace was born out of Connell's habit of spending weekend mornings at the couple's country house near Caledon, Ontario, baking bread with his young daughter. It soon turned into a hobby, then a passion, with Connell striving to create the perfect baguette. The couple built a small bakehouse on the property and, after visiting bakeries in North America and Europe, started to think about launching their own bread-baking business.
In 1993, they opened a small bakery on the western edge of downtown Toronto using about $250,000 of their own money. Initially, the duo just wanted to raise funds for Calmeadow, their microlending charity. But Ace was a smash hit with Toronto gourmands and, four years later, they relocated to a 23,000-square-foot facility (which has since doubled in size) in north Toronto. Haynes, a former television producer, focused on product development and marketing while Connell oversaw operations. Within a decade, Ace's breads were being sold in grocery chains such as Loblaws in Canada and A&P in the United States, served in many of Toronto's best restaurants, and shipped partially frozen to luxury resorts in the Bahamas and elsewhere.
After the aborted sale in 2003, Connell and Haynes brought in Birch Hill Equity Partners, a Toronto-based private-equity firm, as an investor to help finance the ongoing expansion. Then, two years ago, they hired Philip Shaw, an experienced bakery operator from California, to take over the management of the business. His arrival allowed the founders to step further back like they'd wanted to, and Haynes threw herself into writing cookbooks while Connell grew increasingly involved with various charities.
But as Ace's growth continued unabated, the pair was soon back at a crossroads. By the summer of 2007, Ace needed a new capital injection to stay on its expansion path, and Haynes and Connell just didn't want to take on that gruelling task. The distribution and product mix were well established, and Ace was a household name with consumers in several North American cities—a rarity for a specialty bakery. "Most artisan bread companies end up being suppliers to private labels," says Connell, "but we were able to maintain our brand presence [in stores]. That's very attractive to buyers."
The first sale attempt had taught the pair some pitfalls to avoid. Back then, they simply started negotiating with the one company that had approached them. "It was just the three of us [including the general manager] involved in the conversations with the buyer," says Connell. "When you're a private company managed by the proprietors, there's a much more intense relationship that develops in a transaction." This time, Ace would formally put itself on the block to solicit competing offers, and it would bring in advisers to guide the sale.
Haynes and Connell also made sure to keep the process confidential internally until the deal was done. On the previous go-around, some managers were told about the impending deal, and anxiety spread through the office. When the sale fell through, many were relieved, but some worried about the company's fate.
The couple turned the process over to Shaw, who'd been through it before when he managed the sale of a Los Angeles bakery to a multinational. During that transaction, Shaw had hired Houlihan Lokey, an L.A.-based investment bank that closely tracks the food and beverage industry, to spearhead the sale and find interested buyers. Ace chose the bank, too, after hearing its pitch. Jay Novak, head of the consumer, food and retail unit at Houlihan Lokey, thought buyers would see potential to replicate Ace's rapid niche dominance in Canada in the larger U.S. market.
How to sell your business: Step-by-step advice from the experts for cashing in on what you've built
When to sell
Entrepreneurs tend to sell out because they've lost their passion, lack capital to fund growth or just want to retire. These are all potentially good reasons, says Pino Bacinello, president of Vancouver's Sunbelt Business Brokers Pacific, which helps companies manage sales and acquisitions. But they're often trumped by economic factors—or should be.
To determine if the moment is right for a sale, Bacinello takes clients through 50 "value drivers," from market penetration to inventory. "It may be wiser to hold and grow rather than sell and go," he says. "Or, if the reason for selling is lack of capital, financing may be the better option." Ask yourself, he advises, if you can deliver the four things buyers seek: a reasonable wage for the owner, a decent return on investment, a growth path for the business and enough cash flow to meet debt obligations. Then, if you still want to sell, heed these commandments:
Don't sell when you're down. "A buyer is buying the earnings stream," warns Bacinello. If your business is on a downswing, you'll get less than the company is worth. Best to hold on and work through the slump.
Plan ahead. An owner should start preparing for a sale two or three years in advance. It takes time to spruce up your warehouses and storefronts, and address such deficiencies as poor tax planning.
Respect the buyer. "Buyers are every bit as smart and astute as the seller," he says. "Don't think you're gonna find some dumb schmuck to buy your business."
Avoid surprises. Come clean with all pertinent information and make sure it's accurate. Any undisclosed financial or management issues will come out during the buyer's due diligence.
Get it done fast. "I've seen owners plan a vacation during the sale process," marvels Bacinello. "Every day that passes between an offer and closing diminishes the chance of the deal surviving." Buyers will move on if the seller is unfocused.
Don't forget to run the business. Bacinello sees it often: "The moment they put it up for sale, they take their eye off the ball." Remember that a sale is a lengthy process; a revenue drop even two quarters down the road may affect the sale price.
