For an entrepreneur who has worked decades to build his or her business, the prospect of letting go and selling the company can be a difficult one. Let’s face it: You’re giving up the baby you’ve spent years raising and nurturing into a mature company.

As baby boomers in Iowa continue to wrinkle and gray, more business owners than ever before will be facing decisions about transitioning their companies to family, employees or third-party buyers. 

The current economic market is a strong one for merger and acquisition transactions, both for buyers and for sellers, said Steve Jacobs, president of BCC Advisers in Des Moines.

“We have a huge number of baby boomers who are retiring, so we have a lot of business owners between the ages of 60 and 75 who are going to need to transition their business,” Jacobs said. 

National sources also point to a strong merger and acquisition climate for small businesses. According to online small business marketplace BizBuySell, the median small business asking price has increased by 13 percent in the past year, while the median sale price increased 12 percent. 

We spoke with two former business owners in Greater Des Moines along with a merger partner who have gone through the process. They share their stories about what it takes to find the right fit in a buyer or merger partner. Additionally, we asked Jacobs to weigh in on the themes he’s seeing locally.  

Third-party buyer or ESOP?   

Depending on the seller’s motivation, a sale to a third-party buyer can be advantageous to the seller because it generally generates more cash at closing for the seller, Jacobs said. 

“Having said that, states like Iowa have created an economic incentive for business owners to sell to employee stock ownership plans (ESOPs). (The state) actually pays for part of the cost of setting it up,” Jacobs said. 

“It really depends a great deal on what the seller’s motivations are,” he said. “If the seller just wants to maximize price and is not as concerned with other stakeholder interests, then generally selling to a third party will accomplish that and will maximize the monetary compensation an owner gets for the business.” 

If a business owner is really interested in rewarding employees and keeping the business in a community, then assessing the opportunity of selling it to management or employees through an ESOP makes a great deal of sense, Jacobs said. 

“However, when you do that, typically the seller takes on more risk because in those types of transactions there’s not as much equity or ability to borrow,” he said. “They’ll probably have to carry seller financing for a significant portion of the sale, which creates more risk.” 

Private equity sales 

Private equity firms represent a significant pool of potential buyers in the market, and they do not necessarily have to purchase a 100 percent stake in the company, said Tom Cavanaugh, a director with BCC Advisers. 

“In the past, you may have seen sales to employees where the owner had to finance that with owner financing, whereas now you’ve got some opportunities to seek out the private equity buyers that can back a management team,” Cavanaugh said. “So it’s kind of a blend of selling to employees and selling to a third party.” 

There are probably more than 5,000 private equity firms around the country seeking out deals, and most of them have multiple companies in their portfolios, Jacobs said. 

“So when you add all that up, they are not only financial buyers, they can also be synergistic buyers because if they’ve got a portfolio company that’s consistent with the company you’re selling, then they can add your company on,” he said. “Or if the attributes of the selling company are strong enough, they just might make that investment in that company as a platform company and grow it and sell it.”

In some instances, a seller may be able to retain some equity in the business through involvement with a private equity firm, enabling the seller an opportunity to sell those shares at a higher price down the road, Jacobs added. “But not every private company fits into that kind of situation,” he said. 

Will a sale to a private equity firm generate a better return for a seller? A lot depends upon the kind of return on investment the private equity firm requires. 

“If it meets the hurdles, they’ll pay a good price,” Jacobs said. “But a corporate buyer can tend to generate more synergies (that a private equity firm). So a corporate buyer may be able to take the earnings of a company they acquire and generate a significantly greater return on the same amount of sales. That’s how a corporation is in a position to pay a higher price when there is a lot of synergy. But sometimes those synergies work out, and sometimes they don’t.” 

Planning for a sale 

Ideally, business owners should plan the sale of their company several years in advance, although that doesn’t happen often, Jacobs said. 

“That means getting their financial house in order and really put themselves in a position where a buyer is able to evaluate the value drivers of the business,” he said.

“In addition to that, when we sit down with a client, we talk to them about what their criteria are. They’re all interested in money: How much can I get out of my business? And some of them have lofty ideas on the valuations they should get because one of their buddies told them they got a ten-multiple (sale price) and they probably didn’t. But we do our homework on the front end to make sure we know what the value drivers of the company are … and who should be qualified buyers for our client.” 

Bankers, much like buyers, are “cautiously aggressive” about finding deals, Jacobs said. “Clearly, the alternative to loans (for acquisitions) is bond investments, and those returns are very low,” he said. “So they’re anxious to make loans, and when you have a good transaction ... funding is available at very good terms.”  

The companies:  

Direct Communications Inc. 

After turning 65, Nile Cornelison fielded probably at least one pitch each month from potential buyers seeking to acquire his Urbandale-based company, Direct Communications Inc. A drag racing competitor in his younger years, Cornelison founded the company in 1982 as a database resource for the performance automotive and accessories industry. 

“We had gotten to the point financially where we were attractive to acquiring companies; we also got to a point in market share in the performance and accessories segment of the automotive aftermarket,” he said. “So we were occupying a very good space there; we were a big player there, but that doesn’t mean much if you can’t turn it into something else at some point.” 

Cornelison, now 71, in July completed the sale of DCi to ARI Network Services Inc., which is based in Milwaukee. 

“I had some real simple criteria for this process to discover what I call a ‘one plus one equals three’ company,” he said. “I wanted it to be a synergistic buyer as opposed to a financial buyer, and one that would be good for the employees, the customers and ourselves as the owners.” 

The process of selling the company really began about 15 years ago as Cornelison was working on succession planning for the company with his accountant. “That was when I went out to find the key person who would ultimately succeed me —- Mark Toebben (the company’s president),” he said. 

Then, about three years ago, he pulled his former accountant out of retirement to review the company’s financial statements in preparation for a sale. It was that accountant who suggested contracting with a merger and acquisition specialist. Cornelison subsequently hired BCC Advisers, which he said “was probably the smartest move I ever made.” 

To better understand DCi’s business, BCC Advisers accompanied DCi to an annual industry trade show in Las Vegas, BCC’s Jacobs said. “We went out there and listened to DCi’s pitch and what clients had to say about DCi,” Jacobs said. “We just got a real good picture of what the business looked like, and we were also able to identify potential partners.” 

Determining whether there was a cultural fit was one of the first and most important steps that led the family-owned company to choose ARI, Cornelison said. “And of course the Midwest values of this Milwaukee-based company were important,” he said. “We had alternatives on both coasts, but it was like talking to a different planet.” 

Advice he has for owners who are considering selling? At the top is carefully researching the investment adviser or M&A firm, “because as an entrepreneur you have a tendency to think you’re smart enough to do it yourself,” he said. “But in hindsight, I think that’s rarely true.”  

A second piece of advice: Be patient; it’s going to take longer than you think. And along with a good M&A adviser, have good accountants and attorneys to handle the many complexities of the deal. 

“Selling a company in hindsight is not a walk in the park; it takes up a huge amount of energy, especially in the last two or three months,” Cornelison said. “As it gets to the crescendo, it just gets more intense.” 

Cornelison anticipates being on board with the company another six months as he helps wind up some longer-term projects. 

“Quite frankly, some of the pieces that we’re now able to bring together because of the two companies being together is opening up opportunities that would have taken strategic partnerships to accomplish in the past,” he said. “Now it’s all inside our four walls, and it makes more sense. My issue is refining and handing off those efforts.” 

Consumer Safety Technology 

After co-owning and operating an ignition interlock company for 30 years, Scot Lewton knew it was time to move on with the sale of Consumer Safety Technology Inc. 

“What influenced (the decision to sell) most was that we had a CEO who had a buyout coming up in a couple of years,” Lewton said. “So we needed to establish a value for the company, and that’s when we got (BCC Advisers) involved. Then (BCC) came to us and said, if we’re going to go that far, why don’t we see if we can actually find a buyer, because the valuation was such that it would have been difficult for us to finance a buyout of the CEO.” 

Consumer Safety Technology was a spinoff of Combined Systems Technology Inc, a Clive-based technology company that Lewton joined in 1982 with two partners. 

The idea for entering the ignition interlock business was sparked after one of the company’s employees was arrested for drunken driving. Researching the market for the devices, the partners found the technology to be antiquated and the business models equally outdated. So they started Consumer Safety Technology in 1988 and five years later introduced their first Intoxalock system. 

“About three years before we sold the business (in 2012), we created another device that actually had GPS capabilities and a camera as well as a cellphone in it to provide an alert to a probation officer,” Lewton said. “So basically real-time reporting, and that’s becoming the standard now as well.” 

After sending out 25 packets to potential buyers for both companies, Lewton and his business partner interviewed three prospective buyers, and eventually they chose the highest bidder, a private equity company named ClearLight Partners LLC. 

“When we looked at ClearLight’s portfolio, they were very diverse; they had a juice company, a textbook company and about six or seven other companies in their portfolio,” Lewton recalled. 

“They were pleasant to work with and straightforward. It was a nice match; they were going to put quite a bit of money into the company to get it squared away in terms of management and facilities. And they came in at the highest bid, which keeps you interested.” 

Working with an adviser and having both companies’ financial records in good order were among the key elements to a smooth sale, Lewton said. 

“I would have had no concept on how to take the business out and sell it like that, so involving (BCC) was critical for us to maximize the opportunity,” he said. 

The due diligence process took about 10 months, which was faster than he had expected. “I think that probably had to do with (the fact that) our CFO at the time had all the i’s dotted and t’s crossed - and our CPA had done all the audited financials. … So it had to do with the team doing a fantastic job of going from point A to point Z.”  


For Chris Honkomp, the new talent gained from merging three companies into one comprehensive business, technology and financial advisory firm was one of the big payoffs of the process. 

Cedar Rapids-based Bergan, Paulsen & Co. and a sister company, Networking Solutions, completed a merger on July 1 with KDV, a Minneapolis-based certified public accounting firm. The resulting company, BerganKDV, is a regional player with about 300 employees in seven offices in Minnesota and Iowa. 

“The biggest upside was the people we were adding,” said Honkomp, who traded his managing partner title with Bergan Paulsen to become CEO of BerganKDV. Probably the biggest challenge was addressing the natural anxiety involved in making such a major change. “Just keeping people informed and updated and answering their questions in a sincere and candid way I think was very helpful,” he said. 

“We spent a lot of time talking about how we would be structured, the roles each person would have and the leadership team,” said Honkomp, who is based in the firm’s Cedar Rapids office. “We spent the last seven or eight months working out the teams so there wouldn’t be any surprises.” 

Growth through a merger or acquisition is something that Bergan Paulsen was always on the lookout for, but it was a matter of finding just the right partner, Honkomp said. In January 2013, Bergan Paulsen merged with Johnston-based Gegner Co. P.C., giving it a presence in Central Iowa. Other than that merger, the firm hadn’t made an acquisition since 1999 when it acquired a small firm in Cedar Rapids, Honkomp said. 

“I think everybody is always attracted to growth in general, just the revenue growth and becoming bigger and more profitable, but it can’t be just that,” he said. “As we looked across the table (at KDV), we said we’d really like to have them on our team, and felt that we would be a better, stronger organization.” 

Although the firms were initially introduced through an industry consultant, BerganKDV relied on its own expertise in M&A guidance to complete the transaction, Honkomp said. 

Honkomp said he views the M&A market in Iowa as active, and it’s only going to get busier. 

“It’s definitely a seller's market,” he said. “Banks are hungry for new business and willing to provide loans. There are a lot of factors lined up for deals, and we expect that to continue into early 2016. The big thing is it’s going to be an extremely busy area for the next 10 years because there will be a lot of businesses changing hands as the baby boomer generation retires.”