Private, Closely-held Family Business: Optimizing Liquidity
Rod Essen, a Reynolds Advisory Partners Managing Director, advised three generations of the Knott family in resolving conflicting liquidity demands within the family and three separate businesses. When the decision was made to sell one of the family's businesses, Mr. Essen faced the challenging task of extracting the most attractive offer from the most logical buyer.
Introduced by a trusted family attorney, Mr. Essen looked forward to meeting the Knott family, one of Orange County's famous families. As a result of establishing both a highly-regarded food processing business as well as the Knott's Berry Farm Amusement Park, Don and Miriam Knott were legends in California and beyond. The family business originated in Orange County when orange groves still out-numbered housing developments. Over the years, the Knotts developed a well-respected reputation for growing and processing fruit for jams and jellies as well as for building a thriving restaurant business, famous for its chicken dinners. In response to the long lines of would-be diners, the Knotts developed an arcade for the restaurant guests who were waiting for their tables. Over the years, the entertaining games and rides proved to be a classic case of the “tail wagging the dog” whereby the amusement park business overtook the food business and became a serious competitor to a neighboring Orange County venue founded by a now well-known cartoonist.
At the time of Mr. Essen's introduction, the family faced competing capital demands for the various businesses within Knotts Enterprises. The demand for bigger and faster rides at the amusement park competed with the desires of the food business management to expand beyond the western United States and become a truly national business--similar to its major competitors. To further complicate matters, the three generations of the Knott family had conflicting financial goals. Some desired immediate liquidity while others were willing to re-invest in the family's businesses. After ruling out an IPO, the family ultimately agreed to sell the Knott's Berry Farm Food business to a strategic partner capable of expanding its operations nationally, thus maximizing the potential value of the food business. Strategically, selling the food business allowed the family to meet several objectives since the sale proceeds would generate the capital necessary to provide liquidity to certain family members while allowing more investment in the amusement park.
Mr. Essen and his investment banking team completed a thorough analysis of the company and prepared a comprehensive memorandum. When Con Agra's Hunt/Wesson Division was considered as a potential buyer, the team learned that Knott's management had previously held discussions with Hunt/Wesson, which was also a local Orange County company. In order to generate a competitive offer from Con Agra, the banking team contacted a variety of prospective acquirers across the U.S., the U.K. and Europe. Ultimately, this strategy paid off. The Hunt/Wesson Division's executives convinced the Con Agra corporate staff that the opportunity to acquire their long time business friends just down the freeway might soon be lost to a major eastern competitor or worse, perhaps to a British or European competitor. This resulted in an attractive winning bid from Con Agra and ultimately a completed transaction. Anecdotally, in the final negotiations, the Con Agra-Hunt/Wesson team was able to extract their own “pound of flesh.” Given their local knowledge of the food business, they were well aware of the superb Knott's chicken dinners and insisted that the final deal terms include the right to receive several hundred free employee dinners!
As Mr. Essen travels the mid-west and eastern states of the U.S., he is pleased to see Knott's famous boysenberry jams and preserves in restaurants and supermarkets everywhere.