This 30+ year old construction company had excellent sales and profitability which resulted in a very favorable valuation. The company had many government contracts with local cities and counties that would be difficult to transfer in an Asset Sale, and a Stock Sale presented challenges with respect to potential successor liabilities and loss of depreciation. We, as their dedicated construction business broker, represented the Seller and Buyer as a dual agent Business Broker in the transaction which was structured as a stock sale with a IRS 338h structure to obtain full market value for the depreciation of the assets.
Situation & Challenges
- Many of the company’s contracts were government contracts and subcontracts with general contractors which would require transfer and assignment of contracts. Assignment or transfer of contracts could result in the government agencies or general contractors putting the jobs out for a new bid.
- The company also had a product trademark that would need to be transferred.
- The company required a contractor’s license to operate the company.
- The company, while very profitable, had a large A/R and inventory which when added to the total purchase price made the transaction large.
- Industry buyers were offering either not interested or offering low figures for the acquisition.
- We structured the sale as a stock purchase to preserve the contracts and the contractor’s license.
- In order to preserve the full market depreciation value of the equipment and other assets the buyer and seller agreed to utilize a IRS 338 (h) to recapitalize the assets thus allowing the buyer to step up the depreciation value of the assets.
- We obtained financing through an SBA lender that included A/R and inventory and when combined with a seller note kept the down payment very reasonable.
- The seller agreed to act as the RMO (Responsible Managing Officer) for the company’s contractors license until the buyer could obtain their own contractor’s license. Learn more about how to sell your construction business as the RMO.
- We delivered offers from two non industry buyers that were competitive.
- The successful buyer had related construction experience as well as experience as a senior executive in a manufacturing company.
- The transaction had challenges with financing from one bank falling through, and the second bank delivering an excellent financing package.
- The buyer was able to purchase the business with a very low down payment with SBA financing for the business plus A.R and inventory. Learn about how Pacific Business Sales can save you 30% off taxes for your construction business sale.