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A Tale of Missed Opportunity

Awareness of the Macro Environment & Taking Action Are Vital to Success

Real Estate

Industry

Residential Contractor

Manufacturing, Services

Category

Vertical

Summary

While serving as CFO, LeVert Management Consulting enabled a luxury real estate company to increase profitability by implementing strategic tax planning measures resulting in $1.2M in savings.

 

LMC also encouraged ownership to pursue a sale, and found a prospective buyer. Market data indicated the company’s value was between $45-100M. Instead of pursuing a sale, they decided to forge ahead with the company’s then-present vision and goals for continued expansion.

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Situation

Despite achieving success in the luxury category of residential real estate, with gross revenues of  $40M annually, this family-owned business was struggling to maintain profitability amid high overhead costs and taxes.

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Designing and manufacturing custom luxury homes was the core of this company's business. Additionally, the design, manufacture, and installation of custom interiors were also services they offered.

 

When they sought the services of LeVert Management Consulting, the company hoped to increase its profitability and achieve rapid growth simultaneously. This would be a tall order for any business, but the outlook was optimistic due to a strong market and earnest executives who were ready to put in the hard work to achieve their objectives.

Approach

  1. Saved the company $1M in by implementing specific measures to reduce taxes immediately/in the short-term.

  2. Created an overall tax strategy based upon projections in order to minimize taxes over the next 5 years.

  3. Crafted a corporate strategy for the family and coached the owner through its implementation. LMC advised ownership on integrating younger family members into the company and what their roles should entail, based upon a combination of individual strengths and business needs.

  4. Crafted strategy that would both maximize the owner’s financial position and allow continued market success leading a family business.

Results

  1. Immediately boosted profitability through the short-term tax measures, resulting in $1.2M saved in taxes.

  2. Projected to save the company another $1M in taxes through long-term financial forecasting and tax planning measures.

  3. Successfully leveraged additional assets of the family to produce positive outcomes for the company.

  4. Estimated company’s fair market value to be ~$45-100M based upon market data and acquisitions of comparable companies. Leveraged this knowledge to determine prospective buyers and initiated conversations. This resulted in one potential deal that ultimately never came to fruition due to the owner’s decision not to sell.

The Details

When we came onboard, this company had strong revenues despite needing to reduce costs and maintaining their rate growth concurrently.

 

Leveraging the tools provided through our financial strategy services enabled this family-owned business to increase profitability by improving accounting procedures and implementing strategic tax planning measures resulting in $1.2M in savings.

 

We also leveraged economic data and expertise in the market to discover that selling the company would have been a lucrative proposition. The data for comparable companies being acquired around this time indicated this company was worth an estimated $45-100M. LMC then initiated conversations with upper management and encouraged ownership to take advantage of the marketplace and sell the company. The company’s structure meant that a sale would have provided significant upside for ownership if they seized upon the timing.

 

This is where the story takes an unfortunate turn. The owner allowed the minutiae of the deal to overwhelm the process, and found certain stipulations unacceptable, which ultimately killed the deal. LMC was unable to persuade them to make some small changes that would neutralize the unwanted effects of the stipulations, and to continue moving the deal forward. Instead of pursuing a sale, they decided to forge ahead with the company’s then-present vision and goals for continued expansion.

 

Sadly, certain circumstances presented large obstacles to achieving those objectives that they were ultimately unable to overcome: 1) The market crashed, and 2) It crashed immediately following the company’s expansion.

 

This resulted in decimation of the company’s value and forced ownership to take a partner and forfeit over a significant amount of their equity in order to stay afloat. While the company survived for a time, the owner’s stake and financial position never fully recovered, and this story represents one of the biggest missed opportunities we’ve seen to date.

Services Provided in This Story

  • Financial Strategy Services

  • Business Strategy Services

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