Helping Strategic Buyers Think Like Private Equity Firms

In 1981, veteran baker and Tribeca Oven founder Peter Lobel came to New York City from Zimbabwe and opened a bakery just as awareness and appreciation for authentic artisan breads and rolls was increasing in America. The family-owned business has continued to grow and expand, including the development of an innovative process in which they bake bread to 85% of completion and then flash freeze, allowing bread to be heated quickly and served fresh by restaurants and supermarkets.

In 2014, the family owners decided it was time to get some liquidity in what had become a successful company. With a strong track record of successful outcomes in the sales of family businesses, Carl Marks Advisors was engaged as sell side M&A and financial advisor to Tribeca Oven during a sale process. C.H. Guenther & Son, Inc, a producer of a variety of branded and consumer food products for retail and food service customers, acquired the business.

Mr. Lobel was looking to exit the business and realize the value that had been created. His two younger partners, Marc Essenfeld, the CEO and George Erasmus, Executive Vice President of Innovation, wanted to generate some liquidity as well, but also sought to remain involved in the operations of the business while maintaining some level of ownership.

Carl Marks Advisors generated significant interest in Tribeca Oven from both strategic buyers and private equity firms. After a disciplined and competitive bidding process, Carl Marks Advisors facilitated the sale of Tribeca Oven to the preferred buyer, C.H. Guenther & Son, at a double digit multiple. However, there were a few challenges to overcome in order to align the goals of the sellers and C.H. Guenther & Son. It is typical for C.H. Guenther & Son to purchase 100% of a company, fund acquisitions with internal capital (or all equity), and buy companies to grow and hold, not to sell.

To meet this challenge, the team at Carl Marks Advisors created a new and innovative concept – the Strategic LBO. This approach allowed management to have a vested interest in Tribeca Oven post-closing, and utilized intercompany leverage to give management significant equity participation going forward. The Strategic LBO also implemented a put/call provision to allow management to get liquidity from their shares after a period of time, as the company met performance goals. This structure mirrors transactions usually only seen in leveraged buyouts led by private equity firms, and it resulted in increasing valuations that aligned Tribeca Oven’s management with C.H. Guenther & Son as they continue to grow the business together.

• When considering an exit, it is beneficial for sellers to have an open mind and to review all of the available options. In a competitive bidding process for a family business, it is especially important to consider the expectations of each member of the family and other key constituents in order to make sure a sale meets the needs of all parties.
• It is important to consult professionals with experience selling family businesses as early in the decision making process as possible. Preparing the company to sell before going to market is extremely important. This helps to ensure that the business is as attractive as possible to strategic buyers and financial sponsors. An experienced advisor can lead a company through the necessary steps to prepare for a sale that realizes optimal outcomes.
• Life for management can be quite different with a strategic buyer versus a financial sponsor. Often, a strategic buyer has a longer horizon and thus is willing to invest resources to grow the company over time. That is not always the case with private equity firms who need to exit the business after three to five years and return capital to their investors. The Strategic LBO allows the family owners to minimize personal financial risk while giving them participation in the firm’s upside.