Okotoks, Alta. 鈥� Matchmaker, matchmaker, make me a match. Find me a find, catch me a catch.
Those are the opening lyrics to a song in the musical Fiddler on the Roof, but they could easily apply to the actions of Energy Auctions Inc., which has spent the last year going beyond its usual business of selling oilfield equipment. Since January, 2019, the company has been working on the sales of entire companies.
鈥淟ike everyone else, we diversified over the years,鈥� said Marlon Ellerby, owner, by phone on Dec. 13. Over the years they had different oil and gas service companies ask if anyone was interested in them, or if there was someone they could buy out. He was joined by Chad Carbno, who is looking after this part of the business.
鈥淲e鈥檙e as busy as busy can be,鈥� he said.
鈥淲e have Alberta companies looking into Saskatchewan. Saskatchewan鈥檚 busier, obviously. A little more friendly environment as opposed to what the environment was with the previous government. I think that鈥檚 probably attracting some of the Alberta buyers into the Saskatchewan market.
鈥淚f you can believe this, we have some U.S.-based companies looking to buy here, whether into Alberta or Saskatchewan, which is really odd, because you would think it would be going the other way with everything going on.鈥�
That coincides with a growing trend in the industry 鈥� that Texas isn鈥檛 as attractive as it once was. Ellerby said he had recently spoken to someone who said, 鈥淭he big bash is over down there. He said it鈥檚 coming to a grinding halt.鈥�
They are essentially acting as brokers, putting together deals. 鈥淲e have a division within Energy Auctions, called Marnet Consulting鈥� he said, noting there is an advantage of a 鈥楧ivision of Energy Auctions鈥� rather than creating a new entity. This way those who are familiar with Energy Auctions will be assured they will be still treated with the trust they have always known.
鈥淐had鈥檚 job is to find companies for sale and companies that are buying. If you have a valve company, and we have a company looking for a valve company, Chad will phone you and we鈥檒l start the ball rolling. Do you have a succession plan? Do you actually want to sell? Once we have that in place, we鈥檒l put together the proper documents between us and then start working on the forensics.鈥�
Virtual box
Important information needed includes the financials of the company for sale, and its history, to be put together in an 鈥渧irtual box鈥� to hand over to the potential purchaser.
鈥淲e have our own legal counsel we use. We have a third-party accounting firm, and we have a document writer that will put everything together into a folder that鈥檚 presentable,鈥� Ellerby said.
They also have a business valuator to determine the value of the business.
It鈥檚 important to put together a presentable offering. This can mean using other accounting firms or their own.
鈥淚 want them to be able to open up the email or Dropbox and it鈥檚 simple. If they want to know the EBITDA, it鈥檚 right here. If they want to know historical financials or asset values, all of that will be easy to get to and easy to read.鈥�
Ellerby noted that companies will do their own due diligence. 鈥淲e are not in any way, shape or form warrantying or misleading the buyer by saying these guys are worth this. We don鈥檛 do that.鈥�
鈥淭hey have to do their own forensics. Chad is very clear on that, and so am I.鈥�
Asked who pays their fees, they responded that the seller pays. 鈥淲e take a fee for selling,鈥� Ellerby said, similar to how they sell hardware.
鈥淎 lot of companies really appreciate our support and our system,鈥� Carbno said. 鈥淎 lot of these guys are skilled masters at running their business but have not put a lot of time into succession planning. They may not know how to sell their own business or how to market it, or who to contact to help.鈥�
As an example, Carbno said, 鈥淭hey might have a $30 million business, but don鈥檛 have a succession plan, they鈥檙e not 100 per cent sure someone can take it over within their company. They want to cash out, but they don鈥檛 want to close up shop and not look after the people that have been with them for 20 years. So they don鈥檛 know what to do. They don鈥檛 know how to sell it, or where to start. Where we come in is we give them structure, help them understand all the documents and what they鈥檙e going to need. And then we go out and try to make that match.鈥�
Ellerby noted that鈥檚 not always the case. Some companies are more prepared for transition than others. But for those who aren鈥檛, he noted, 鈥淭hey spent their whole life and time and heart and soul into that business. And now they鈥檙e 55 and up and going, 鈥業鈥檓 tired. I missed out on things in life and I want out. I鈥檝e never looked at it, because I鈥檝e always been full steam ahead, running my business. And then it comes to the day where, now what? That鈥檚 where we can come in and give them some structure and a little bit of comfort.
鈥淭his is a process. It doesn鈥檛 have to be a scary process, and there鈥檚 certain steps you have to follow in order to appease the prospective or potential buyers,鈥� he said. 鈥淎nd a lot of that is legal documents to protect everybody 鈥� confidentiality agreements, fee schedule agreements, all of that stuff.
Ellerby said most companies have the highly qualified accounting firms working with them already, so their audited finances are in order, making it more simple to put together.
They started in January, 2019, and have had offers on two deals. 鈥淭hese things take a long time, especially in this market. Right now, we have seven deals on the go, and are in the final stages with a third one,鈥� Ellerby said. 鈥淵ou鈥檙e looking at $5 to $200 million businesses. These things take patience. They are very, very cautious. If it isn鈥檛 the right fit, it doesn鈥檛 matter what the price is, they won鈥檛 do it.鈥�
Staying on
It鈥檚 typical for the previous owners to be asked to stay on for a length of time, running the business for a transition phase that can be from six to 18 months on a consultant basis, but you might also see an 鈥渆arn-out鈥� of 12 to 36 months when the final payout is made. The previous owner is incentivized to keep things going during that time.
Over the past decade, Pipeline Newshas reported on numerous buyouts structured like this, and it has been typical for the previous owners to be contracted to stay on for up to three years. However, most of those owners we鈥檝e spoken to were chafing by the end of that term, not being used to answering to someone else.
Ellerby noted that is common, but unfortunate. 鈥淥ne of the first things we say to the prospective seller, 鈥楾hey鈥檙e going to want you to stick around 12 to 24 months.鈥� Some say, 鈥楴ope, I鈥檓 planting my garden next year. And then there鈥檚 others that say they will stay around.鈥�
Typically, the previous owners will be well-compensated for staying on that period.
Carbno said some sellers are concerned there are 鈥渂ottom feeders鈥� out there, looking for depressed companies. And while there may be some that are looking for deals, he鈥檚 found a number of companies have a strategic plan, purposefully looking for this type of company in this area in this sort of financial situation that is looking to grow.
鈥淚f a company is priced right, and has realistic expectations on time frame, there are still a number of companies in Saskatchewan and Alberta that have a positive balance sheet that are looking to invest and grow.鈥�
The oil downturn which took hold of the industry in late 2014 has had a substantial impact on this whole process. Many entrepreneurs in the oilpatch who were getting close to retirement had to put their lives on hold and keep going instead of selling when they initially hoped to. In the meantime, a tremendous amount of equity and capital was eroded during the downturn.
But now, things are starting to look a little better after three brutal years (2015-2017). Ellerby said, 鈥淏alance sheets are actually pretty healthy.鈥�
鈥淚t鈥檚 starting to change a little bit. There鈥檚 no excitement, trust me, but this is an encouraging thing we鈥檙e seeing.鈥�
Carbno said, 鈥淚鈥檓 hearing there鈥檚 light at the end of the tunnel. A lot of guys are cautiously optimistic about 2020, not seeing tremendous growth, but expect to grow and have better years.鈥�
Asked what they鈥檙e looking for, the pair said they are currently specifically looking for electrical and instrument, valve, service rig, fluid transport, oilfield construction, as well as tech-related with unique and innovative tech.
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