Case Studies
Sale of Specialty Building Products Distributor to PE-Backed Strategic Buyer
Our client, a co-owned specialty building products distribution company based in a major southeastern market, received an unsolicited letter of intent from a well-capitalized private equity-backed strategic acquirer — a national platform in the building products space backed by a large middle market PE firm with significant committed capital and an extensive acquisition track record. The buyers were sophisticated, the LOI was aggressive in its terms, and the sellers faced an immediate tension: two of the owners wanted to remain involved in the business post-close through rollover equity and employment agreements, while the third was seeking a clean exit. Aligning the interests of sellers with fundamentally different post-close objectives — while negotiating against a seasoned acquirer with significant deal experience — required both technical precision and careful client counseling from day one.
We began by stress-testing the LOI's economic terms on behalf of the sellers. The buyer's $22 million purchase price was structured as cash-free, debt-free with a net working capital adjustment mechanism — a framework that creates significant downside risk for sellers if the net working capital peg (“NWC peg”) is set aggressively or if the post-close true-up process is not carefully managed. We negotiated the target NWC peg, the adjustment escrow mechanics, and the release triggers to protect against a buyer-favorable interpretation that could have meaningfully eroded the headline price.
The rollover equity component required particular attention. The LOI proposed that two of the owners each roll a meaningful portion of their proceeds back into the buyer's holding company in the form of participating preferred securities accruing yield at a fixed annual rate — a structure that, while pari-passu with the PE sponsor's own investment, carried meaningful implications for how and when those dollars would be returned. We counseled our clients on the economics of the rollover structure, negotiated protections around the participating preferred terms, and worked with tax counsel to structure the rollover in the most tax-advantaged manner available — including analysis of potential Section 1045 rollover treatment and installment sale considerations for the exiting owner.
We simultaneously managed the employment agreement negotiations for the two continuing owners, ensuring that market-based compensation terms, non-compete scope and duration, and severance protections were locked in concurrently with the definitive purchase agreement rather than deferred to post-close — a common and costly mistake for sellers who treat employment terms as secondary to the deal itself.
On the due diligence front, we organized and managed the seller-side data room, pre-identified potential issues in advance of buyer diligence requests, and coached the clients on customer and supplier reference calls — a diligence item specifically called out in the LOI. We also scrutinized the exclusivity provision, which bound not only the company but all officers, directors, employees, advisors, and equity holders from engaging with any competing acquirer, and negotiated carve-outs and termination rights to ensure the sellers retained leverage if the buyer failed to perform.
The transaction closed on schedule within the timeline contemplated by the letter of intent. The sellers achieved the full $22 million headline purchase price with a NWC peg negotiated at a level that reflected normalized historical performance rather than the buyer's initial proposal, and an escrow structure with a defined release schedule that protected the sellers' liquidity post-close. The two continuing owners entered into employment agreements with compensation, equity incentive, and severance terms negotiated prior to closing, and the rollover equity was structured to minimize immediate tax recognition. The exiting owner received his full cash consideration at closing with a clean separation. All sellers left the closing table having achieved their respective objectives.
This case study is provided for illustrative purposes and describes the nature of services rendered. Certain details have been generalized to preserve client confidentiality.