NOTE: The author, John Ziss, partner at TREC Ventures was formerly SVP at Kurtz Bros, Inc and influential in leading the deal described below.
Acquiring any business is a complex, high pressure and often nerve-wracking venture, especially for a family business with limited M&A experience. There are several moving parts, multiple interests to consider and every deal is different.
The strategic acquisition of Earth ‘N Wood Products, Inc. by Kurtz Bros., Inc. is the story of two long-standing family businesses (40 and 75 years respectively), stepping outside their traditional business models to create added value for each other.
While the deal took just under a year to complete, it provided a wealth of insight into what went right, what was learned, and in the end, the perseverance it takes to see through a successful acquisition. We broke the entire process down into four key steps:
Deal Sourcing / Preliminary Due Diligence
Letter of Intent
Formal Due DIligence
Deal Sourcing / Preliminary Due Diligence
Kurtz Bros, based in Ohio, is the largest manufacturer and distributor of bulk recycled landscape materials in their region. The company was intent on expanding their coverage, and were actively seeking similar operations in neighboring areas.
The process began with what private equity groups refer to as proprietary sourcing of deals — cold calling business owners that meet Kurtz’s criteria for acquisition and gauge the other business’ interest in selling.
Earth ‘N Wood Products was identified as not only having a bigger retail customer base than Kurtz, but also for a robust e-commerce platform. And they were interested in selling. The informal discussions and preliminary due diligence, (which took four months, due to external business commitments) allowed Kurtz to discover several broad synergies between the two groups and make the decision to proceed.
Letter of Intent (LOI)
The individuals leading this deal had to gain internal support from shareholders and the advisory board to move forward with this acquisition. Because Kurtz Bros. had limited experience in business acquisitions, and the deal size was larger than anything they had taken on previously, it was essential to earn the trust and support of ownership. This was accomplished in two ways:
1. Presenting a strategy on how this acquisition would unlock value through synergies, retail sales growth, and expanding the company’s geographic position.
2. Welcoming the board of advisors and other business leaders to offer their opinions on the deal.
With the support of ownership and blessings from the group’s financial institution, a letter of intent (LOI) was drafted and the hard negotiations of the deal began. There were many points during this phase where the deal came close to dying, but in the end, the two groups found common ground and signed the LOI to move forward with formal due diligence.
Formal Due Diligence
Upon signing the LOI, a three-month formal due diligence process was conducted by the team at Kurtz. To effectively and efficiently execute this process, Kurtz developed a roadmap to guide the team, which included expert third party members brought in to assist in three key areas— Legal (LOI, Purchase Agreements and advisement), Environmental (Compliance and Property) and CPA (Quality of Earnings and tax guidance). Kurtz also laid out a formal checklist, addressing all critical items to be reviewed during this period, as well as potential items that would be non-negotiable.
Kurz’s findings in this phase led to additional negotiations that were ultimately resolved.
At the end of March 2019, Kurtz Bros signed the purchase agreements and formally took over the Earth ‘N Woods business
In the end, the deal allowed KBI to double down on its eCommerce strategy and expand into territories that were previously out of reach. There were also many important lessons learned along the way:
Be efficient in presenting information
Anticipate challenging topics during the LOI and formal diligence process
Follow a thorough diligence checklist
And most important, be resilient. The deal may be close to dying many times throughout any negotiations, but it’s only really dead when you decide to walk away.
At TREC ventures, we are always seeking investment opportunities that align with our core values of creating more livable and sustainable communities. If you represent a property development or technology business that meets those criteria, it would be great to connect.