Selling an ESOP: How Remington Products Sold To Private Equity
Dealmaking has never been a priority for Rhonda Newman. But after Remington Products Co. received an unsolicited and very attractive offer from a New York-based private equity firm, Newman felt she had to respond.
"ESOPs, by their very nature, can be somewhat risk-averse," says Newman, president and CEO of the Wadsworth-based designer and manufacturer of branded and private label orthotics. "When you're dealing with employee retirement funds, it's hard to look at using resources or taking on loans to acquire businesses."
Instead of making an acquisition, this was a potential opportunity to sell to private equity and infuse capital into a company that Newman believed was poised to grow.
"We thought maybe this was the right time in the company's timeframe," Newman says. "So the board and the trustees decided to kick off a limited process with Cascade Partners. Since we got this unsolicited inquiry that was quite a bit higher multiple than we were anticipating based on our current valuation, let's explore the opportunity."
Here's an inside look at how Newman worked with investment bank Cascade Partners to make a deal with a firm that has a history of helping Ohio companies achieve significant growth.
Conduct a process
Prior to engaging Cascade, Remington struggled between accepting the New York offer and checking the market to ensure it was getting the right value. The company was focused on getting an attractive price for the business as well as partnering with the right team to build on its history of success, which dates back to 1934. Concerned about confidentiality issues if a full sales process was pursued, the unsolicited offer was nearly accepted.
Remington decided against doing anything rash and reached out to Cascade to act as its sell-side adviser and conduct a thorough process.
"We developed a deep understanding of the objectives the leadership team and board of directors wanted to achieve during the sales process, and then undertook and successfully completed a sales, due diligence, legal and closing process that accomplished those objectives," says Cascade Managing Director Ken Marblestone.
"Experienced investment banking firms who align their interests with those of the client create value by performing a market check and creating a competitive bidding process with the best potential buyers for the company," Marblestone adds. "This helps with price and achieving the best and right overall deal and partner for the business owner."
Cascade conducted considerable upfront research and completed several pre-marketing conversations as it focused on the highest potential buyers, thereby reducing confidentiality concerns and keeping an aggressive time frame.
"We can help mitigate the time allocated by the senior management team to the deal process, understand the target market and how to effectively highlight the company's history, bring to life its strategic plan and, importantly, dramatically increase the seller's likelihood of closing the deal at agreeable terms for both parties," Marblestone says.
Crafting a bright future
Remington went through a fairly swift process with Cascade as a number of private equity firms, family-owned businesses and strategic buyers were considered.
"We ended up with a handful of management presentations to go to the next level," Newman says. "When we went through that, Gridiron stood out."
Gridiron Capital is a New Canaan, Conn.-based investment firm that has a history of partnering with Ohio companies and achieving strong growth, including LeafFilter Gutter Protection in Hudson and Performance Health and Wellness in Akron.
"They have the No. 1 podiatrist-recommended insoles and orthotic products for the consumer and they produce them themselves," says Joe Saldutti, Gridiron's managing director. "A lot of these companies will outsource to China, but they've got a wholly owned facility in Wadsworth and then another wholly owned facility that isn't outsourced that they own in Vietnam. We profiled really well in terms of the value we could bring broadening the product line, continuing their innovation, attacking new channels, expanding e-commerce and certain retail channels and expanding internationally."
The transaction with Gridiron moved quickly, going from letter of intent to closing in only 50 days.
The fact that it was an ESOP transaction added a layer of complexity, making the speed with which the deal got completed all the more impressive.
"What can happen if it is not done properly is a lot of people make a lot of money and then they can all walk out the door," Saldutti says. "You're left with a company that's not very functional."
To avoid that scenario, Saldutti worked with Newman and her leadership team prior to closing to craft a structure where employees would feel good about the deal.
"They had an opportunity post our investment when we got a chance to meet all the employees and it was made public to the employees to reinvest into the company," Saldutti says. "It turned out that more than 50% of the employee base — from the shop floor workers through the office folks, sales and marketing and obviously the management team — did invest back into the company."
Newman is looking forward to a bright future for the 168-employee company.
"Not only were the employees' retirement plans fully funded, but we found a partner that was committed to keeping jobs in Northeast Ohio, keeping the business here and investing in putting resources in the business to grow it," Newman says.
As seen in Smart Business and written by Mark Scott.