What’s It Like to Sell Your Company: Entrepreneur MBA Podcast 1.4
David Froelich was Cofounder of Solaire Generation which designed and built large solar structures and carports. In 2016, Solaire was sold to a very large company called Sun Power. David talks about what the sale of his $25 million company was like on today’s, Entrepreneur MBA Podcast.
Stephen Halasnik from Financing Solutions interviews his good friend to learn what it was really like to sell a business.
The Entrepreneur MBA podcast’s purpose is to help EXISTING business owners grow their companies past the $10 million in revenue mark.
Introduction of Guest:
Today, I am excited to be speaking with David Froelich who is a close friend of mine whom I have known for 20 years. It seems that almost all of my guests that I have asked to come on the podcast have been friends that I have met through the Entrepreneurship Organization and David was no different. David and I have been in the same forum group which meets monthly for 5 hours to help support each other’s businesses, personal and family goals. I thought David would be a great guest because so many business owners today have never been through a sale of their company especially when it’s the sale of a smaller company.
Today’s Entrepreneur MBA Podcast Topic: What’s It Like to Sell Your Company.
Introduction of Host, Stephen Halasnik
Stephen Halasnik has built several successful companies over the $10 million mark including an Inc 500 fast-growing. He loves speaking with successful business leaders and learning about what makes them, and their businesses, tick. Stephen’s current company, Financing Solutions, makes getting a line of credit fast, easy, and inexpensive.
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Summary of Podcast
David started with a partner (Lawrence), Solaire Generation. Solaire was one of the first companies to design, built and install very large solar parking canopies.
He had been in the family textile business and then talked to a friend who was an architect about the idea of getting into the solar business.
Solaire eventually got to $25 million in revenue before it was sold.
Solaire’s advantage was that the canopies were beautifully designed versus the competition. The potential for parking solar canopies was tremendous but the advantage David and his partner saw was the ability to make them both pleasing to the eye and very functional which wasn’t being done at all.
The West coast had gotten a head start in parking solar canopies allowing for the east coast to be wide open. The west coast was already a very competitive solar parking canopy marketplace but the weather conditions on the east coast required better-designed parking solar canopies that the west companies were not prepared for.
West and east coast competitors failed due to their designs because of the varied east coast weather conditions and the beautiful design of Solaire’s parking solar canopies really became a true competitive advantage. Solaire raised the bar by make parking structures that were beautiful.
The first installation was a $3 million, 6 canopy installation at Johnson and Johnson which was so much bigger than David wanted for their first installation, but it went well.
2009 is when Solaire started and the first revenue was in 2010. 2013 was when they knew they had a sellable business but from the beginning, David/Lawrence thought their goal was to sell the business eventually.
Solaire just always did well from day one.
However, Solaire thought their average parking solar canopy would be 100/200 kilowatts or $200k-$500k per installation. The average customer ended being 7-10 times that size or 1 megawatt.
Solaire didn’t have to have as many projects as they thought they would need.
David was head of business development but overall was involved in everything.
Lawrence was involved in the design and vision.
They ended bringing on a 3rd partner who oversaw construction.
Lawrence was starting to get worried about the impact the federal subsidies would have on the marketplace when they ended the program in 2016 so Lawrence started looking for a potential buyer. Lawrence hired a financial advisory firm that thought Solaire was very sellable but after 12 months they didn’t make much headway.
Solaire’s business continued to grow tremendously but companies interested in Solaire at the time mistakenly thought that if Solaire was for sale that it was because the company/owners were desperate for money which wasn’t the case.
The amazing thing that happened with Solaire was that Solaire didn’t realize when they started that in the construction business, payment isn’t due until the project phases had been completed which meant that Solaire didn’t have to come up with a lot of money.
One of the problems David thought with Solaire was that each project was a one-time thing so there weren’t a lot of reoccurring clients.
The numbers the buyers were offering were ridiculously low.
A multiple is what buyers are willing to pay for your company and it is based on yearly sales or EBITA (earnings before income taxes). A lot of time the sale of a company is based on your industry multiple. i.e. 5 times yearly EBITA. However, not all deals are done this way. If someone offers you 5x EBITA then that means at the current sale it would take them or you, 5 years to make their money back.
Sun Power, a large public company, eventually bought Solaire and Sun Power gave Solaire the opportunity to grow even faster because Sun Power was a leader in solar panels installation.
Sun Power’s objective was to take Solaire off the market so that no one else could get in the market easily but Sun Power also thought they could filter existing leads down to Solaire.
It took 9 months for the sale of Solaire to take place. From start to finish.
The first meeting was at dinner. The dinner involved a lot of very tough questions from Sun and because Sun was public, their reporting/due diligence was intensive. It involved extensive requests for accounting reports, tax filings, and signed contracts. Pages and pages of questions.
The sale takes up so much time of the owner that it is like having a new full-time job. Lawrence worked full time on the sale while everyone else ran the company.
Sun Power had their own parking canopy, so David/Lawrence were worried that Sun City was just fishing for competitive information.
It took David about 6 months into the due diligence before he thought Solaire had a good chance of being sold to Solaire.
David felt that their business was really strong regardless if Solaire was sold.
Terms of the agreement said that the partners had to stay on board for 3 years which is normal in the sale. A percentage of the agreed sale price was paid upfront, but the rest was paid over 3 years, but it was guaranteed. In other company sales, it isn’t so concrete and there might be an earn-out.
David liked working at Sun Power but after 3 years a new opportunity presented itself.
David thought selling the company was a good decision looking back at the deal because it was the right move for him and the company.
David’s recommendation for the sale of your business:
- Your books must be up to date and accurate
- Be prepared to spend a lot of time in the sale, thus someone needs to run the business
- It really helps the whole team to understand each other’s jobs