This summer, Sauers Snow & Ice Management announced it had been sold to New York-based Orion Group, a commercial facility services company backed by private equity money.
The Sauers family – siblings Stephanie, Mike, and Joe – are no strangers to Snow Magazine readers. Located in Warminster, Pa., the company’s snow and ice management operation makes an annual appearance on The Top 100 list, they have contributed their insights to educational discussions and editorial content in the magazine. Company President Stephanie Sauers is a past recipient of The Leadership Award. Likewise, Sauers played a key role in the grassroots effort to get the Accredited Snow Contractors Association’s model legislation passed into law in Pennsylvania this summer.
Both Stephanie and Mike will remain on as president and director of sales, respectively. But brother Joe is transitioning out of the company’s daily operations to pursue other business interests. Joe and I sat down recently to discuss the M&A process and he provided a behind-the-scenes account of what an M&A is like from a seller’s point of view.
Were you shopping around for suitors, or did you get a cold call about a potential M&A sort of deal?
We first began receiving cold calls back in 2018-19, but it really wasn’t on our mind at that point in time. As we gained some recognition from industry associations – being on your Top 100 list, and things like that – that’s when I’d say the calls started to come in. Mike, Steph and I, we always would share with one another that so-and-so called. At first, we just wrote them off. We were doing our thing. We were comfortable. We had bigger aspirations and didn’t want to do anything prematurely. Our business had always been running pretty well and we saw the future potential. So, initially we were writing those guys off. We politely heard them out and said, “Thanks, but now is not the right time.”
We started thinking about (M&A) a little harder right before COVID. We connected with a broker – Generation Equity. We went to one of their seminars in the Philly region. We interviewed them and a few other brokers. We got some opinions of value. Heard about some of the ways these transactions could be structured. I personally was looking to make a move out of the business. I wasn’t desperate and needed to do it tomorrow, but I was ready for a change. Steph definitely wanted to stay, and I say Mike was flexible.
We said, let’s start the process. Everyone told us M&A was not an overnight process, and it could take as long as two years [to complete]. So, we decided to engage with a broker.
So, you began doing your due diligence?
Yes, I’d say that was accurate. We were seeing a lot of M&A activity [happening in the industry]. There was a flurry of activity and there were a lot of options. We wanted to capitalize on what we thought was good timing in the economy in general, as far as M&A activity, and also how our business was performing.
As you vetted brokers, what were you looking for? What was going to make you comfortable with having a group of strangers figure out the future of your business?
One of the main reasons we went with [Generational]Equity was their experience with companies at our size and the team they had behind them. They weren’t just a small, three-person M&A company. They were a legitimate firm.
While green and white companies weren’t their specialty – and I know there are brokers who specialize on companies in our industry – they did have experience with other companies that you’d know the names of. And I had gotten a referral from one of those business owners.
We got the sense from the [brokers] we talked to that, at the end of the day, they were all going out to the same group of buyers. The differentiator was how they were going to support us throughout the duration of the deal.
How did the fact there were three siblings engaged in this process impact decision making?
The funny thing is, we’ve been making decisions together for 20-plus years. And I can’t remember a time when it was two against one and the one was out voted. We’ll talk about [issues] for as long as they need to be talked about to get all three on board.
This decision, in particular, wasn’t let’s sit down and cast a vote and it’s all done. We needed all three of us aligned. You don’t want to get cold feet at the last minute. You really need to agree from the very beginning because it’s a such a big process.
So, you have the broker chosen. At this point, what was your biggest fear?
Our biggest fear was that word would get out prematurely and there would be negative ramifications, whether it’s inaccurate rumors, or employees getting nervous that something different was going on. So, confidentiality was a big factor.
With that said, how do you keep it on the down low?
The first step was the broker sends out a teaser with no company name on it. It simply identified us as a snow contractor in the Mid-Atlantic. Then the interested parties sign a non-disclosure agreement to receive a confidential investment memo, which they call a CIM.
That obviously has our company name and financials. And at that point we knew you really couldn’t control people talking to their colleagues or friends about business. So, we knew as soon as that started getting out that the clock was ticking on something potentially getting released.
To our knowledge, we didn’t hear any premature rumors, and certainly nothing that came to the attention of our customers or our employees. Then it gets to the point of how we were going to share the news strategically to different parties.
This is right before COVID. Did the pandemic provide any obstacles in pursing an M&A deal or was it a benefit to the process? Or was it a non-factor?
COVID itself was a non-factor in the M&A. We signed the brokerage agreement prior to COVID. So, I guess that was in the summer of 2019. We had that winter season (2019-2020), which wasn’t gangbusters. So, we assessed the situation and we said between the low-snow season and COVID it doesn’t make sense to go out to market right now. Instead, let’s spend the summer of 2020 preparing to have a great winter for the 2020-21 season and then we’ll go to market in the spring of 2021.
While there was still M&A activity going on during COVID, there was still uncertainty with everyone and everything. It was more coming off a light-snow season wasn’t presenting our numbers in the best light. We knew we had one chance to go out and put our best foot forward.
Again, we weren’t desperate to sell. We weren’t in distress. Things were going well, so we said let’s keep improving and growing the business for another season.
How many companies did the broker bring to you to consider, and what was important to you in finding a partner to align with?
Well, at the top of the funnel they marketed it to over a 1,000 [companies], both strategic acquire – another person in the industry – and financial acquire, which would be your typical private-equity firm.
So, out of that funnel about 120 Non-Disclosure Agreements (NDAs) were signed. They received the CIM, and out of them 50% of those scheduled phone calls. Some of those calls the broker handled. Others that were more serious me, Steph and/or Mike would be on the call. Once we thought we had exhausted anyone who we thought would be interested, we established a Call-For-Offers date where the broker sets a deadline and establishes the terms we wanted to see outlined in the Indication Of Interest (IOI). We had approximately 10 to 15 offers that we narrowed down to a Top 5. We analyzed them all, had some conversations and chose one of those.
Did it come down to just the one company? Or did you have a few you needed to have real serious discussions about?
The Top 3 – I’d even say the Top 5 – were all really close. There were different factors of financial needs. Some were financial buyers. Some were strategic buyers. We were looking at the pros and cons of each of their offers. I know everyone says they’re looking for someone who will take care of their employees. But the truth is that was our biggest factor. No. 1, some of our employees have been with us from the very beginning, and No. 2 we knew we weren’t going to walk away from the business. We were going to stay involved. So, we really needed the employees to stay with us to continue our success. We wanted to work with someone who we saw a lot of growth opportunity … We thought our employees would like that, as well.
We all know how to plow snow, but how are you going to manage the business when you own it? That’s what we were trying to answer when we questioned each of the bidders.
What was the biggest lesson you learned about your company going through this process?
One thing, not everyone likes snow as much as we do. Out of that funnel of 120 people to only get 5 to 10 bids … A lot of them were only interested in the landscaping aspect of the business.
That’s interesting, because while snow is volatile because of winter’s unpredictability, the margins are a lot better with snow and ice management.
Everyone was very impressed with our margins and admitted they knew landscaping didn’t have margins anywhere near this, and that landscaping was a loss-leader for a lot of companies. Still, they wanted it. Specifically, the companies that needed to go out and get financing. They couldn’t get their bankers on board due to snow’s volatility and seasonality. Some of the more well-capitalized buyers or those who knew the industry, it didn’t faze them as much because they knew the potential. So that was eye opening.
How long did the negotiation – the back and forth – take before you had a solid contract to consider?
It took a couple of weeks. We requested one or two meetings. We could have signed right away but we wanted to get to know [the buyers] a little more before we settled anything.
There is a twist, though … The company we initially selected backed out during due diligence.
Tell me about that.
It came down to the financing behind the scenes. Basically, he told us [the banks] were on board and they understood [snow and ice management] was a seasonal business … We have seasonal contracts, so we have measures in place for that. Ultimately, the financing behind the scenes backed out. That was mid-to-late summer of 2021. So, winter was knocking on the door again. The broker went back to the top five guys and informed them we were going back on the market in the spring. So, we went through this past winter. Again, it was no big deal. We just figured it wasn’t meant to be. We weren’t under any pressure and had more than enough work to keep us busy. The plan was to reconvene in late February and update the financials in the offering memo to go back out in the spring.
Here we are Spring 2022 and a different broker cold-called me with an interested buyer and were we interested in taking a 30-minute phone call? We talked and really liked him. So we set up another meeting with our broker and had a more in-depth call. We really loved what we were hearing and their vision.
They put in an offer that met all of the requests we outlined – flexibility, Steph staying on [as president], Mike being the director of sales, me transitioning out of the business. They were well capitalized, so they were ready to close.
They flew in and we spent a few hours with them at our office. It was really important for Steph to be comfortable with who she would be reporting to. Again, making sure they’d keep all of the employees, and that they had a vision for the company.
We went with them and we’re very happy we did.
At any point did you, Mike, or Steph question what you were doing and instead opt to figure everything out and keep the company?
How did you manage those second thoughts?
You do that by keeping the big picture in view. We’re halfway through the due diligence, 4 weeks into an 8-week process … Everyone told us it was going to be intense, but you never know how intense it’s going to be until you’re in it. We’re digging up documents from 20 years ago. We’re on conference calls with their team of six attorneys and four accountants and we’re outnumbered on every phone call. But it was okay. You just tell the truth and answer their questions. Their job is to make sure there aren’t any skeletons in our closets. We’ve always run a very clean company and we didn’t have anything to hide. We just had to get it all out on paper and in the conference calls.
Any time it got too intense, or we got frustrated, Orion was really good about telling us to take a day to chill. They knew how stressful it could be for the sellers and helped us manage through that without causing any unnecessary stress.
At what point did you tell your team and brought them into the picture?
We consulted with Orion to find out from them, from their experience, what has worked well in the past. They recommended taking the top three or four people – who ever is at the top of the chain – take them out to lunch and break the news to them.
And we had to do that a couple of weeks prior to the scheduled close. So that was a little nerve racking because [the deal] could always fall apart at the last minute. So, we sat down and told them. They had mixed reactions, and some of them said they figured this day was coming sooner or later. Others were a bit more hesitant and had concerns. We heard them out and let them voice their concerns. We then told them we were going to bring in Orion’s CEO the next week so they could hear it straight from their mouths. And we gave them Orion’s contact info incase they wanted to reach out one-on-one. So, we made that intro, and that helped. Then we told the rest of the team at a company meeting at a later point closer to the close date. This gave us enough time to have our top-tier people build up some confidence [with the transition].
This process requires a lot of due diligence and going over your operations with a fine-tooth comb. So, what’s harder: ISO certification or an M&A?
[Laughs] Well, Steph handles all of the ISO stuff, but I think an M&A is bit more challenging.[Laughs]
The due diligence is quite in depth. They conducted criminal background checks on all of us. They called and interviewed our Top 10 customers. There were multiple meetings where they flew in to talk just about our customers. Then they’d fly in and want to talk about our service providers. They were really trying to identify any gaps, risks or things that weren’t held together well and would eventually fall apart in our business.
What advice would you give an industry colleague who tomorrow receives a cold call from a broker or private-equity firm?
My advice is to take the call. Hear them out, especially if you think you have any level of interest in going through the process in the next three to five years. Keep in mind it is a long process and one that should not be rushed. Know before you get into it that it’s going to take some time, and you want to time it so that the due diligence process takes place when you have some free time … which I know is difficult for any business owner. There’s no way we could have done this during the height of the snow season. The hours we spent preparing everything and responding to info requests, it felt like we were in the peak season.
Also, have an open mind and don’t be afraid to tell them what you’re looking for – do you want to stay on with the business, concerns, etc. Take your time through the process and find a buyer who best aligns with your desires.