Banking & Finance and Manufacturing

M&A firm stresses preparation before purchase

Rua Associates utilizes exit planning to increase close rates, buyer/seller satisfaction.

April 7, 2017
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Before he started Rua Associates, Randy Rua was on the brink of quitting the mergers and acquisitions business.

He had worked for five years at various M&A firms, and while he loved helping buyers and sellers achieve their dreams, he noticed a persistent problem. The long-term success rates after a merger or acquisition hovered around 25 percent.

This number was the industry average.

“I would follow up with clients after they sold, and … they found out there were more taxes they had to pay than expected, or the new owner was not a good fit for the company,” Rua said.

“I was going to leave the industry because you work really hard to sell and then only 25 percent of the people are happy with the results.”

Then Rua heard about exit planning, a certification that allows an M&A advisor to help entrepreneurs prepare for the sale of their company to maximize value and minimize risk.

He earned the certification, followed by a certified business planner designation. Soon, he realized he could take the knowledge of both certifications, calling it a preparation-based model, and apply them in his own M&A firm.

In 2010, he launched Rua Associates, now headquartered at 201 W. Washington Ave., Suite 255, in Zeeland, with a second office at 157 S. Kalamazoo Mall Drive, Suite 116, in Kalamazoo.

The company with 12 employees closed 13 transactions in 2016 and earned total revenue of $1.2 million, up from $900,000 in 2015.

Rua said he and his team early in the process established ground rules for the way they would do business with clients: They would be humble, authentic and transparent; they would love learning, have a desire to help and be driven to succeed.

The first set of values is paramount, he said.

“Humble, authentic and transparent comes down to how we interact with our clients,” he said. “They want to know the facts, not our opinions, per se. Many times, the best decision is not to sell, and we are very comfortable with that.

“We have to be a team. If (our employees) were all paid based on closing, how are we going to be transparent enough to impact sales positively?”

To ensure that transparency, Rua decided to hire employees, not contractors, and compensate them with salaries rather than commissions.

“Our model would not be feasible if we had a commission-based company or independent contractors, like in real estate,” he said. “We have to work as a team, and with commission, you can’t really do that, because you’re competing against each other.”

Rua said his firm began to succeed almost immediately.

“The (companies) I was taking to market were having great success — 80 percent close rates, way above industry average,” he said. “We’re now having 100 percent of our clients say it was a good transaction.

“We stopped offering any other way to go to market. That’s how we ended up where we are today. For the last three years, we’ve been running that process with preparation.”

Rua Associates recently acquired M&A firm NuVescor Group, in Bridgewater Place at 333 Bridge St. NW, Suite 810, in Grand Rapids.

“I used to work for NuVescor,” Rua said. “They were doing larger transactions than Rua, and we were friendly competitors. But they didn’t have a prep process, and their success rates were industry average.

“Since we bought NuVescor, we implemented our prep process, and their success rates have gone way up.”

Rua said he plans to hire another employee for NuVescor this year. The two firms will remain separate brands with separate specialties.

“NuVescor … represents $1 million or above transactions,” he said. “They are regional and do deals in Detroit and Chicago. All our transactions are in this area.”

Rua Associates mainly serves manufacturing, distribution and business-to-business services companies, but Rua said the company gets client referrals from all different industries and works with almost anyone who wants help.

“One of the things we do to help our clients is we try to educate them on the market side,” he said. “Before we do a transaction, we try to help them understand the marketplace through a market survey. We collect data on types of buyers out there, what they’re paying, what deal structures are out there and whether buyers are doing cash or financing.

“We have quite a few clients who come to us who already have a buyer. But the market survey is a useful tool for those who don’t or even those who think they do.”

Rua said it’s easy to find buyers in this market but not always easy to find a good fit.

“Closing a transaction is only half the battle,” he said. “We focus on working with our clients to help them understand who the right buyer would be.”

In this market, Rua said there are plenty of buyers with capital and private equity to invest, but sellers are hanging onto their businesses.

“The majority of businesses, over half, are owned by baby boomers, and the supply is not out yet, because they’re still working their business,” he said. “At some point, those scales will tip as the baby boomers retire and sell, and there won’t be as many buyers but lots of sellers.”

One of the biggest blunders in the M&A business, Rua said, is firms pushing buyers and sellers to work together during the transaction.

“Emotions get high during transactions,” he said. “Both parties want to make a deal and want to protect themselves while, at the same time, build a relationship.

“Our job is to shield them, so they can build that relationship and make a transaction without the regret after the deal.”

Rua said buyers and sellers also often wait too long before coming to an M&A firm to start the process.

“Even if they’re three to five years out, they need to educate themselves.

“People wait until they think they’re ready to sell, and then they find out they’re not ready. We’d rather they came to us earlier on in the process to avoid that.”

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