Stone Capital's Model
Investment Banking Style
Stone Capital was created as a superior alternative to combat the rarely successful passive strategy beholden to business brokers – an antiquated model that places the broker’s interest ahead of the broker’s clients. Our mission is to represent quality, not quantity. We believe the intermediary-client relationship is imperative to achieving a sale, and we require each of our prospective clients to attest their commitment to our active process before becoming a Stone Capital client.
Assuming you understand and agree with the valuation, the next step is preliminary due diligence. Here, we will perform non-intrusive research into aspects of your business that may have been discovered during the appraisal. Because we only list sellable companies, preliminary due diligence helps both parties save time and money by seeking non-fixable “dealbreakers” that could prevent your company from selling.
If your company passes preliminary due diligence, you will be offered a contract for sell-side intermediary services. All clients must sign an agreement, attesting full cooperation before the intermediary sell-side contract can be executed. We stake our reputation on quality relationships and only accept clients who want to sell their company at the highest possible price.
Once the contract is signed, we work together to create a tailored strategy built on Stone Capital’s core strategic model. Retaining our strategic framework, we customize the marketing process that provides the highest probability for success considering your company, industry, most-likely buyer analysis, and other relevant factors.
Prospect screening and marketing content creation are the next steps. Using an active process, we strategically target prospective buyers who are willing, able, and likely to acquire your company. Stone Capital has relationships with numerous private equity companies, family offices, private investment companies, and high net worth individuals looking for acquisition opportunities. Unlike business brokers who “blast” one-page advertisements that lead to information leakage, we contractually agree to distribute marketing collateral to companies or persons that we have mutually agreed upon. At Stone Capital, we understand the severity of information leakage and use every preventive measure to protect confidentiality. Moreover, your information will be sent to screened prospects who are willing-and-able to acquire your firm.
Instead of a one or two-page advertisement, Stone Capital uses a wall street investment-banking format to create sophisticated and appealing deliverables not found in the markets we serve. Two important marketing pieces Stone Capital will create for your company include the blind teaser (the “Teaser”) and the confidential business report (the “Report”). The Teaser is a one-page sheet that provides prospective buyers with enough information to determine whether they are interested in moving forward. Our Teaser is not comparable to a business broker advertisement. We customize the Teaser and carefully align the context, information, and graphics to your most likely buyer, in a professional and attractive format.
Aligned with the Teaser, we also create your Report, which is an in-depth report aimed to get a prospect “90 percent there,” a phrase we will explain shortly. The Report is similar to a business plan’s comprehensiveness, providing the prospective buyer a foundational overview of your company, its history, drivers, employees, historical performance, financial projections, opportunities, and other details that both inform and excite the prospect about your company.
When the marketing collateral is completed, and the prospect list has been approved, the marketing process begins. The marketing process can range from a one-step auction method to a more relaxed, informal plan. Your tailored strategy will determine which approach is taken. Most marketing processes follow a similar path, as follows.
We distribute the Teaser along with a non-disclosure agreement (“NDA”) to approved prospects. Prospects who are interested in learning more about your company will sign and return the NDA to us. Upon receipt of an executed NDA, we issue your Report to the party legally bound to the NDA. The objective at this stage is to give enough information – the Report – so that the prospect is “90 percent there” to make a yes or no decision.
A formal timeline will include critical deadlines for prospects to make indications of interest, whereas an informal plan will be less rigid. Regardless of the plan, our goal is to secure a letter of intent (“LOI”) from a willing-and-able buyer motivated and aligned to close on the transaction. An LOI is a non-binding offer stating key deal terms. We seek to procure multiple LOIs to increase the price, terms, or quality of the potential buyer. A passive approach, on the other hand, is designed to all but eliminate multiple LOIs, to the detriment of the seller.
Once you have signed an LOI, the buyer will begin their due diligence (“BDD”). BDD typically lasts from 60-90 days, and the nature of BDD will depend largely on the size of the transaction. For larger transactions, buyers may hire outside accounting firms to perform a quality of earnings analysis, otherwise known as a “QoE,” to certify to the buyer that the financial information you have provided is accurate. Regardless of the size, BDD is intense, demanding, and carries significant seller risk.
As BDD begins, you will receive an extensive list of items to provide the buyer to close the transaction. Delays in providing information will, at best, push back the closing date, and at worst, unravel the deal entirely. Any “holes” or unfavorable information not previously disclosed to the buyer will assuredly require a price adjustment. LOI prices never go up but often go down.
Stone Capital’s buy-side approach to our sell-side clients prevents these holes from occurring. We spend a generous amount of time and resources upfront to protect your LOI price and to improve your chances of closing. No other intermediaries in the markets we serve employ this high-level, client-focused approach. Business brokers perform no upfront due diligence, and their clients often succumb to significant price reductions during the BDD process.