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Preparing for the Future - A Long-term Process“We talked often, and I listened to him. We diversified our product lines and made the business less dependent on me. From the beginning, he gave great advice on how, someday, this business could really be worth something.” — Dan Parker, Owner, C.I. Agent Solutions
An entrepreneur to the core, Dan Parker has never been afraid to change course to find success.
He founded C.I. Agent Solutions in 1998 to focus on the development of a polymer blend that solidifies spilled oil, gas, and diesel on contact. Over decades, Parker worked to perfect the core formulation, and never gave up his search for the right way to market it, even when it meant significant changes.
He took the same approach when, after 42 years in business for himself, Dan and his wife, Mary, realized it was time to consider the next five to ten years. As the company grew and gained market acceptance, Parker turned down numerous offers to sell, and even walked away from one deal after more than a year of negotiations when it became clear it wasn’t the right fit.
Over eight years, John Mascarich, Vice President of Investment Banking at Hilliard Lyons, stuck with Parker and ultimately found the ideal match.
“I told John that this can never be just about money,” Parker said. “I was hell-bent that my employees would be taken care of.”
Laying the groundwork
C.I. Agent Solutions was on a growth trajectory in 2009 when Parker engaged with Hilliard Lyons Investment Banking to explore a possible sale. The company had grown to more than 20 employees, and increasing sales and profits meant that longtime shareholders were receiving distributions in excess of their initial investment.
At the time, C.I. Agent was focused on the marine and spill-response industries – poised as an environmentally friendly solution for a large, labor-driven market. With several large acquisitive players consolidating the space, Parker determined the time was right to seek out a possible buyer — all he needed was an experienced financial adviser to help him through.
Hilliard Lyons prepared a detailed financial model and offering memorandum and identified a number of potential financial and strategic partners. After running a confidential, competitive process, multiple parties submitted offers that were within the range of values Hilliard Lyons provided at the onset.
C.I. Agent and Hilliard Lyons ultimately chose a publicly traded company, given its size and ability to close the transaction quickly. The deal wasn’t in the cards, though. Before the transaction could close, the acquirer’s CEO unexpectedly passed away, and the deal fizzled amid the transition to new leadership.
At that point, Parker and his team reassessed the situation.
“At the end of day, the big remediation players were selling man-hours,” Parker said. “There was no real economic need for our solution, and we were viewed as simply eliminating a small competitor.”
Taking the next step
With a renewed vigor for the business, Parker decided to change course and refocus the company’s efforts on new markets, specifically the electric utility industry. He reorganized the company, hired new staff, and placed a greater emphasis on sales and marketing, as well as C.I. Agent’s online presence.
Through it all, Mascarich was there to provide support and guidance.
“I’m pretty blunt, and either I like you and we stay friends, or you don’t even need to stay around,” Parker said, with a laugh.
“We met John and built a relationship pretty fast. Even though a deal didn’t happen the first time around, we became friends, we played golf or had lunch every quarter or so.
“He became a part of our team and gave an outside view of our financials every month and provided advice on what strategic direction take to build long-term value. He never gave up on us. For eight years, he stuck with us.”
From 2011 to 2014, Parker doubled his business, expanded margins, and hired key management that made the business less dependent on Parker and his personal customer relationships.
“One of the great things I’ve found about Dan as an entrepreneur is his ability to continually reinvent his company,” Mascarich said. “He had a great product, attracted great people, and was constantly working to find the right market.”
Over the years, Mascarich and Parker remained close, periodically meeting with the C.I. Agent management team and presenting to shareholders and board meetings. Hilliard Lyons morphed into an outsourced corporate development arm of C.I. Agent.
Like many successful businesses, as it grew, C.I. Agent began hitting the radar screens of investors and potential acquirers. Parker received numerous of calls and emails from prospects wanting to know more about the business.
For an owner-operator working 60-70 hours per week, it’s hard to know the real players from the “tire kickers,” so Parker and his team simply forwarded the inquiries to Hilliard Lyons. Mascarich would follow up with the credible ones, explaining the company was not for sale and had no real need for outside capital.
“From the beginning, I advised Dan that the company was worth more to own that it was to sell,” Mascarich said. “The business was debt-free, had extraordinarily high margins, and had virtually no capital requirements – so cash was distributed to the shareholders like clockwork.”
A potential match
Throughout its history, C.I. Agent was always seeking out new markets and new applications for its core technology. One such venture introduced the company to a large, regional, family-owned company that was selling into similar markets. What started out as back-of-the-napkin plan to combine the best of both companies eventually lead to discussions of a possible sale.
“I thought the time was right,” Parker said. “I was in my mid-60s, and while I had plenty of passion left to run the business, I realized to really take the company to the next level, the company was going to need disciplined administrative functions. I am an entrepreneur and inventor, a tinkerer – for the business to reach its full potential, it needed to outgrow me.”
So Hilliard Lyons provided necessary non-disclosure agreements and historical financial data and models that showed the company’s past growth and future potential – in the language and format that buyers seek. C.I. Agent and Hilliard Lyons negotiated a deal that provided some cash at closing and allowed Parker to transition out of the business over the next five to ten years, but it was highly dependent on a number of factors out of his control.
“Earn-outs are always tricky,” said Mascarich. “Unfortunately, in a lot of smaller deals, they are a necessary evil to bridge the gap between buyer and seller. I always advise clients that they have to be comfortable with the deal at the closing – if you don’t get another nickel, you have to be able to sleep at night.”
In this case, as negotiations wore on for over a year, Parker realized “it was a marriage that was not going to work.” While it ended up being a significant distraction and incurred some out-of-pocket legal costs, ultimately the choice to part ways was best for both parties.
But not long after that amicable split, C.I. Agent got an unsolicited call from Justrite Manufacturing, a portfolio company of Audax Group, a large, Boston-based private equity firm.
Given Hilliard Lyons’ previous experience with Audax, Mascarich advised Parker that if he was indeed considering a transaction, Justrite’s team were experienced, professional buyers with the ability and resources to close a deal quickly.
Within days after executing a NDA and sharing some financial information, Justrite sent its CEO to Louisville to learn more. He met with Parker and other managers and owners on a Monday, and by the next week provided a letter of intent to acquire the business in a substantially all-cash offer. The deal allowed Parker to return to his shareholders – who had been behind him for years – 40 times their original investments.
“God kept putting business after business in front of us with offers. He kept telling me I needed to do something else with my life. With this offer, I realized He had sent his last message and it was time to move on,” he said.
Parker said Mascarich’s guidance and patience were key in achieving such a successful result.
“We talked often, and I listened to him. We diversified our product lines and made the business less dependent on me,” he said. “From the beginning, he gave great advice on how, someday, this business could really be worth something.”
Beyond financial value, Parker wanted the sale to benefit all involved, from his family to his shareholders to his staff.
“A lot of folks in my business are transaction-oriented,” Mascarich said.
“But in the markets we’re in, and the types of businesses we deal with – smaller, family businesses, entrepreneur-driven organizations – that mentality doesn’t work. For over 160 years, Hilliard Lyons has been a relationship-driven firm, not a high-volume deal shop.”
After a transition period, Dan and his wife plan to make the next phase of their lives about mission work. They can do so knowing that the company they built will continue to thrive and that they made the right decision – with support, resources, and long-term guidance from Hilliard Lyons.
About Hilliard Lyons Investment Banking
Hilliard Lyons Investment Banking employs a full-service model that brings Wall Street resources and experience to our Main Street clients. Our team’s breadth and depth of experience enables us to deliver superior results to both public and private companies in the greater Midwest and Southeast. With offices in Louisville, Kentucky, and Cincinnati our Senior Investment Bankers focus on advising lower middle-market and emerging growth companies in Mergers & Acquisitions, Capital Raising, and Business Valuation.
Visit www.hlinvestmentbanking.com for more information. Hilliard Lyons Investment Banking is a division of J.J.B. Hilliard, W.L. Lyons, LLC, a full service financial services firm headquartered in Louisville.
For additional information, contact John A. Mascarich at firstname.lastname@example.org or 502-588-8409.