Buy Side – Fortune 500 Divestiture
CASE STUDY: Buy Side – Fortune 500 Divestiture
Cornerstone’s Challenge: Buying out Goliath
Our clients managed the Ro-Flo compressor line under GE’s Oil and Gas division. While the product line generated approximately $4.0MM+ in revenue for GE, our clients knew it was a tiny portion of the business. They felt confident they could provide better customer service and grow the line if they could get out from under the time-consuming red tape that often comes part and parcel with massive corporations. Their idea: buy the line and run it themselves.
We knew we had no small amount of challenges to overcome. 1) Our clients had never owned a business before—something that would make lenders wary. 2) They didn’t have sufficient money to make the acquisition on their own. 3) They didn’t want to risk losing their jobs. And, 4) GE wasn’t even looking to sell in the first place.
Our Approach: Persistence
1. Make an Inquiry. We sent a letter to GE informing them we had a confidential buyer interested in acquiring the Ro-Flo product line. GE wrote back—not for sale.
2. Be Persistent. We sent a second letter indicating that if they changed their mind, our buyers would be interested in pursuing the acquisition until a stated date and time. GE responded just 15 minutes before the given deadline.
3. Maintain Confidentiality. GE’s representatives pushed us hard to reveal the buyer. We gave them assurances we represented individual buyers, not a strategic competitor, but we protected our clients’ identities.
4. Find a Financial Backer. Once GE accepted the offer, our clients had to get aggressive about financing. Goodwill exceeded assets by a ratio of six-to-one, and every lender they spoke with wanted at least $1MM down. We connected our clients to an angel investor group Cornerstone had a relationship with. They saw the value in the deal and made the purchase possible.
Results: Persistence Pays Off
Today, Ro-Flo can accurately bill itself as the leading supplier of rotary vane compressors to the oil and gas market. Our clients added an additional product line and drastically increased both sales and profitability. The angel investors realized returns immediately and have since sold off their ownership percentage to another equity group at a solid return. Meanwhile our clients are doing what they love and calling their own shots.