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New Succession Strategy Tried

At 60 years old, Tom Moore, founder and owner of General Lab & Cleanroom Supply in Newbury Park, is pursuing a strategy that will allow him to achieve personal liquidity when he decides to retire in the future. He’s not thinking of selling his 20-year-old company to his employees, selling to an outside investor or grooming a successor from within, instead he’s following a different approach called the Partnership Roll-Up Model – a term coined by the advisory firm Consolidation Partners in Westlake Village, which is helping him with the undertaking. “We are in the process of partnering with other companies that have synergy with our business- that offer similar or complimentary products- and through that model, when we do sell, the whole will be worth much more than the sum of its parts,” said Moore. Michael Stark, Managing Partner at Consolidation Partners, said the strategy is becoming a growing trend as baby boomers near retirement age find that, in today’s economy their companies are worth a lot less than they had anticipated. “Were finding that when baby boomers don’t have a succession plan the only thing they can do is sell the business and close their doors, and right now it’s not a good time to sell a business,” said Stark. “The partnership roll-up model allows for much better liquidity options.” Under the roll-up model, General Lab, a major supplier of laboratory and quality control supplies for the medical device, pharmaceutical, biotech, cosmetic and nutraceutical industries in the San Fernando Valley, will partner with other companies under a new LLC, with the goal of being able to achieve what generally cannot be accomplished by a single company. “Our goal is to bring together a group of companies whose collective revenue is $50 million, which could mean bringing together four or five companies,” said Moore. Getting clients General Lab, whose major clients in the Valley include biotech giant Amgen and One Lambda, is currently in talks with companies in San Diego and Simi Valley, among other parts of the state. These partnerships would allow General Lab to expand the products and services that it offers to its existing clients, and also sell its products to the other member companies’ clients. By partnering with a company in San Diego, the company could also reach new customers in the area’s booming biotech sector, which it has not been able to do up until now. “It’s a strategy that will allow us to reach our growth objectives,” said Moore. “We want to increase sales by double digits each year.” Stark said a successful partnership roll-up translates into an expanded client base for the group, allowing it to grow in new markets, and results in improved profits through the combination of resources and best practices, all while the owners retain their independence and ownership of their companies. When it comes time to sell, the companies are worth much more. “Once consolidated and a larger national company, EBITDA is significantly increased and the company will receive a higher valuation multiple than a smaller, local or regional company, thus substantially increasing the value of the group,” he said. First success The model has been proven many times before; in fact it was the huge success that Irvine- based Advantage Sales & Marketing, Inc. experienced with the model, what led to the creation of Consolidation Partners. Entrepreneur Sonny King founded ASM, a food brokerage company in 1987 and by 1996 the company was making $10 million in annual revenues. Through a partnership roll-up, ASM created a new LLC partnering with other food brokers in 2004, which allowed the company to grow significantly. A majority of the company was sold in 2006 for $1.05 billion, and the company was sold again about six weeks ago for $1.8 billion. Bob Vesely, CFO of ASM during the ten years that the company experienced its tremendous growth, is one of the principals at Consolidation Partners. The firm’s mission, Stark said, is to act as the sponsor company and provide advisory services to businesses seeking to pursue opportunities to roll-up or consolidate multiple companies in a fragmented industry. But the partnership roll-up is a long term strategy, and in today’s economy those who have failed to put a succession plan in place often find that they don’t’ have the time to make this model a viable option, according to Matt Coletta, managing partner at Business Sales & Acquisitions, a business brokerage firm based in Woodland Hills. “This model can be a good option for certain people who are working on a longer timeline, unfortunately a lot of people don’t do succession planning,” said Coletta. “The majority of the businesses we are seeing today are looking to sell right away because they are either burned out or have certain capital requirements and they just want to sell what they can, get out and move on.” Thinking ahead Moore, however, is one of those business owners who like to think ahead. His grown children are not interested in the family business and in assessing his retirement options down the road, he decided that pursuing the roll –up model seemed like the most lucrative option, he said. The strategy will require the member companies that join Moore to commit to a five-year plan before anyone can sell. During the first 18 months of the consolidation process the member companies will work to align their operations and consolidate key functions such as HR, IT, Finance and Accounting, and share best practices that will help improve profits for the group, he said. Most importantly, said Moore, all of the companies’ owners will remain in control of their operations. Consolidation Partners will work with the companies throughout the process. “Consolidation Partners helps create harmony and collaboration among the owners, so we can focus on growing our businesses,” Moore said.

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