Mergers and acquisitions for mom and pop

While splashy headlines tout the success of midsized mergers and acquisitions throughout New England, Rhode Island small businesses are sharing the recent M&A boom. From bakeries to hair salons to day care centers, the deal-making marketplace is strong. These companies innovate, scale and grow their businesses just like their larger counterparts.

Often driving the decision to buy-sell-merge is the vision of retirement by the owner or a change in circumstances that makes owning a business difficult.

One child care business was successfully operated by a family team. When one family member stepped away and the remaining family lacked the passion to run the business, the logical move was to sell to a trusted employee.

There are always a multitude of steps in the sale and acquisition process, from structuring a new entity to obtaining or leveraging financing to transferring ownership – all without disturbing the ongoing operations.

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Timing is everything when it comes to small M&A deals. An accomplished baker recently found running his successful business tedious and spirit-crushing. He located a business-savvy buyer interested in purchasing the one-site bakery with visions of future expansion. The baker remained as a valued employee using his creative baking talents. It was a match made in heaven. The deal involved determining the most tax-advantageous structure for the purchase price, securing suitable bank financing, and handling the details of the transition of the lease, employees, branding and licensing.

It can be hard to let go of the business, even when the time is right.

In another circumstance, a hair salon owner lost her zest for the day-to-day business functions and sought to stay at home with her young child. She sold the business to an up-and-coming stylist, leveraging tax-advantageous opportunities. Eventually, she rented a chair at a different salon to reignite her love of cosmetology and hair styling. The new owner relished the planning for her new venture. It was another perfect match.

Beyond the financial goals of expanding to multiple locations and maximizing profits, some owners enjoy the flexibility to be one’s own boss and the immense personal reward of building a thriving company.

Owning a business often becomes an integral part of one’s psyche, self-worth and overall mantra. It can be hard to let go of the business, even when the time is right. The biggest hurdles in selling a mom-and-pop venture are intertwined with emotions and feelings.

While business leaders and top talent are frequently asked, as part of the deal, to remain involved for a year or two, the day will come when the owner needs to find his or her motivation to get out of bed every day. During that transition, acquirers must focus on identifying and developing new leadership, talent and future hires.

Professional services such as dentists, certified public accountants and veterinarians are frequently among the family-owned and small businesses with activity in the M&A world. Specific to these service companies is a focus on securing client/customer lists; attention to confidentiality, non-competition, non-solicitation and non-interference agreements; and ensuring a successful transfer of books of business. Transitioning these businesses involves not only valuations and price points, but also culture and communications conversations to guarantee a seamless experience for clients, patients and customers.

While the ups-and-downs of M&A for mom-and-pop shops may be similar to midsized company deals, the ultimate decisions on financing and tax-savings strategies must reflect the particular sensitivities, nuances and interpersonal dynamics inherent in small and family-owned companies. n

Amy E. Stratton is partner at the Providence law firm of Moonan, Stratton & Waldman, where she works with small-business owners on M&A and succession planning, as well as estate/elder planning and estate administration.