David Dodson, president of Falcon Capital Corporation, pursued an acquisition with Auto Palace, a subsidiary of Rite Aid in 1995. Having graduated from Stanford Business school in 1987, Dodson began work with a $17 million acquisition with Smith Alarm Systems in Dallas. After being sold in 1994, Dodson began looking for new work. After pursuing the Auto Palace acquisition for nearly two months, many felt the sale would be a “race” among all the bidders. He sincerely thought that Rite Aid was trying to hold up his progress and worked diligently to earn meetings with management.
He was told there were up to 3 serious bidders. First of all, they were wary of how he would finance his acquisition. He had potential equity investors from Falcon - however, none definite. Peter Bartlett, the investment banker, that worked with Dodson to organize the financial issues, felt that was a big concern for ADAP. He felt it would be unlikely for Dodson to raise $20-25 million. Because their last attempt at sale failed, Rite Aid was hesitant about going into negotiations yet again. Dodson decided from the start that his bid would contain a “little bit of wiggle room.”
Each bidder was given a 2 hour management presentation and after that presentation, they were expected to place a new bid within 10 days. Dodson prepared heavily for this meeting by studying store by store profit and loss statements and balance sheets. He sorts through leases, workers’ compensation claims, union agreements and pension/health benefit plans. Lastly, he viewed employee severance agreements. After review of these materials, he decided on 25% of total equity set aside for management.
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Before meeting, he still had several concerns, he believed more needed to be done with due diligence to date. He didn’t feel he was knowledgeable enough with large retail organizations. And he has to hire someone to explain financial records to him. Lastly, his concern for financing the deal were still apparent. Overall, Dodson did a great deal of negotiation. He showed his concerns while working towards them by conduct several on-site due diligence report. In his January 2 letter, he offered a range of a bid, while explaining the need for future reports.
He also took time to explain his need to meet further with the management group. He also went on to explain who the investors were from Falcon: “seven private investors who have extensive experience with acquisitions of this size and larger. Our equity capabilities exceed those required to adequately finance this transaction, and we foresee no problems in financing a well-structured proposal. ” The time he took to explain who these people are would have given me even greater confidence as a member of AADP management’s group because of his great confidence and concern in future company success.
His structural proposal composed a management buy-out with employee participation. This was a great move by Dodson showing the company he had hopes to continue their success, not restructure it. With this decision, most employees would stay in place and would participate actively in the company’s success. He was aware they were looking for qualified buyers who could meet price expectations opposed to a standard auction. And acknowledged that he bid a higher bid, just to win. By understanding that throughout the process, I believe Dodson offered great reasoning behind his intent with the company.
Ultimately, his diligence towards comprehension of finances and great work in ensuring employees jobs, offered him a great standing with management in deciding in who would earn this company’s rights. In his January 19, letter, he includes a list of principals of Falcon Capital that would be openly involved. Once again, stating that they intend to fulfill all the obligations they have agreed to willingly. This offers even more assurance on the company’s side in that, Dodson is being completely up-front about who is financing this and what their intentions are in doing so.
This offers a great understanding and business relationship with presentation in this fashion. In conclusion, Dodson approached the issue of buying ADAP in a professional manner. He offered great reasoning to management of his positive future business dealings with their company. He assured people their jobs and a bright future to look to with their participation actively within the company’s future success. Overall, his business dealings with this company were admirable at the least.
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