Gary Murray started Sylvest Management Systems Corp., a computer systems integration company, out of his home in 1987. Within a few years, the Landover, Maryland, company was sprouting at a rate of 45% a year and by 1996 had revenues of $107.5 million. Sylvest had reached the point where it was using all of its cash for internal growth, but it also wanted to expand through acquisitions. The solution? Look for a company to buy. “While preparing to make an acquisition, our investment bankers said, ‘By the way, there are some people who are also looking to grow, who might be interested in buying you,” recalls Murray. “‘Selling would involve the same level of effort that you’re already planning to go through to bring in outside capital. Would you be interested in having others look at you?’ We said OK.”
After much deliberation, Murray and his partners put the company on the auction block, and last year, Sylvest was purchased by Federal Data Corp., a systems integration firm, for an undisclosed sum.
“The decision [to sell] is the most emotional part,” says Murray. “It’s like parting with the baby you gave birth to– so you just don’t give that up easily. But going through it, I felt better because I didn’t have to sell.”
Although Federal wasn’t the highest bidder, it won out because Murray believed it offered the synergy “to take Sylvest to a higher level.”
Murray signed a mostly cash deal that was not contingent upon Sylvest’s future earnings. He also maintains a consulting relationship with his former company.
In 1997, mergers and acquisitions were at a record level for the third year in a row, over $700 billion in transactions, according to Colin Gabriel, author of How to Sell Your Business–and Get What You Want!And megadeals aren’t all that are contributing to these numbers.
Small-business owners are growing more savvy about cashing in their business for profit. diligence to ensure that as the seller, you The trick is to do the necessary due diligence to ensure that as the seller, you come out on top.
If you make the classic mistakes sellers make rushing to a close with the very first buyer who offers a deal, for instance–you can end up like Henry Shropshire, a realtor and owner of H.D. Gholston Associated Properties Inc. based in Alexandria, Virginia. As part of their semi-retirement goals, which included moving from Washington, D.C., to North Carolina, Shropshire and his wife purchased Elite Postal Services in Raleigh in 1993. Shropshire commuted while managing Elite and after three years, the business was doing nearly $100,000 in annual sales. But in 1996 his wife decided she didn’t want to move south after all, plus Shropshire found himself spending time in the Virgin Islands looking after property damaged in a hurricane. He didn’t have time for the business, so he put it on the market. Although it was valued at 2.5 times its earnings, Shropshire sold Elite for less than $50,000. The sale netted him more than double his original