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Business Owners, CFOs, Family Offices, Private Equity

Selling? Look for a Buyer Who’s Walked a Mile in Your Shoes


In 1996, Sheng Yen and Nellie Lin acquired a sandal manufacturing company called Flojos from a family in Guadalajara, Mexico and moved the business from San Diego to Thousand Oaks, California.

Under the Lins’ leadership, Flojos — best known for its iconic criss-cross rubber sandals — expanded its product lines to include leather, sport, and fashion sandals for both men and women. The husband and wife team increased Flojos’ gross sales by more than 5x — from less than $4 million in 1997 to $20 million in 2015.

After two decades at the helm, Nellie and Sheng Yen began exploring their options to retire and exit the business.

Thanks to an introduction from their attorney, the Lins engaged Dave Richards of Keystone Business Advisors as their M&A advisor. Richards had twelve years of experience in helping business owners exit and had previously worked with consumer goods companies like Petunia Pickle Bottom and Koolaburra. Together, Richards and the Lins embarked on the process of finding the best buyer for Flojos.


Walking Before Running

Jake Maki, 12-year-old professional surfer and part of Team Flojos.
Jake Maki, 12-year-old professional surfer and part of Team Flojos.

Like most businesses approaching a sale, Flojos needed to get their financial house in order. “We worked extremely closely with the accounting team to do some financial recasting and prepare the business for going to market,” says Richards.

Richards and the Lins spent many hours organizing financial, operational, and legal documents to create an offering memorandum and a summary, or teaser, for the business.

Many of Flojos’ accounting practices were out of date. Contracts with suppliers, vendors, and customers were incomplete or missing. “We had to rectify the fact that most of their agreements, including those with customers and contract manufacturers, had been completed on a handshake basis,” says Richards.

Richards also helped the owners consolidate two sets of books into one financial statement and transfer hand-written accounting ledgers to digital records. “This posed some challenges for creating the teaser and added a lot of extra time to get through due diligence,” recalls Richards.


Stepping into the Market

Once the teaser was ready, Richards began reaching out to potential buyers. To ensure a competitive process and the best possible outcome for the owners, he cast a fairly wide net. In addition to approaching strategic and financial buyers he’d encountered in previous deals, Richards used Axial to research and engage other potential acquirers outside his personal network.

A few months later, Flojos had five serious prospective buyers: a strategic acquirer who had a manufacturing operation in China and wanted access to broader distribution in the US, two search funds (one of which had an operator with relevant industry experience), and two private equity groups.


Sizing Up the Competition

Each buyer brought a diverse set of strengths to the table, ranging from strong financial backgrounds to operational expertise.

Newly appointed CEO of Flojos and footwear industry expert John Dickinson in China during the due diligence process.

Throughout the courting process, the Lins had given careful thoughts to their retirement plans and their goals for the future of the business. “The most important things to the sellers in evaluating the potential buyers were price and terms, the buyer’s likelihood of continuing the legacy of the business successfully, and the buyer’s likelihood to actually get the deal done,” says Richards. Based on these priorities, The Courtney Group, a private equity firm based in Newport Beach, CA, quickly rose to the top of the buyer list.

The firm, led by President & CEO Tom Courtney, aggressively pursued the opportunity after Richards invited him to confidentially review the deal on Axial.

The Courtney Group has completed 20 investments, but had not invested in a footwear or apparel business. However, Courtney had a special interest in the consumer sector after getting to know footwear, apparel, and action sports industry executive John Dickinson.

Dickinson has 25 years of operating experience building brands including Maui and Sons, Vans, Candie’s, Globe International, and Authentic Brands.

“Having been in the industry for a long time, I knew Flojos had been very quietly doing good business, so I was definitely intrigued,” says Dickinson. Courtney and Dickinson decided to pursue the Flojos deal together, with The Courtney Group as the lead financial sponsor and Dickinson as the new CEO.

In the meantime, the prospective buyer list had shrunk from five to two: The Courtney Group (alongside Dickinson) and the other private equity firm. Since the two firms presented very similar financial offers, the Lins looked to other factors to determine who would be the final buyer.


A Foot Above the Rest

During management meetings, Dickinson and Courtney’s clear vision for the future of Flojos made a strong impression on Richards and the Lins.

“Keeping the brand integrity intact is very important to us,” says Dickinson. Flojos is already being sold by national and independent retailers, but Dickinson saw a lot of untapped market potential.  “I felt like Flojos could really benefit from some back-to-basics marketing,” says Dickinson. In his meetings with Richards and the Lins, he articulated concrete ideas to tell the brand story at the retail level, including shelf placement, contests, window advertising during back-to-school time, and more.

He and Courtney also shared their vision for expansion into international markets, which currently only account for about 9% of Flojos revenues. (Dickinson has experience in this realm too — he’s run similar businesses where international sales have accounted for 50% of revenues.)

“It became clear that they could make an impact on the business by doing things like introducing a closed-toed shoe line to help Flojos sales through the winter months,” says Richards. “John and Tom knew how to get the financing and were able to offer a fair and competitive price, but more important, they brought a lot of passion and expertise to the table.”


Moving Forward

After about two months of due diligence, the Lins decided to move forward with The Courtney Group and Dickinson. After the letter of intent was signed, The Courtney Group hired accounting firm Traverse LLC to perform a quality of earnings report and involved their legal team at Morrison Cohen to perform legal due diligence. The Courtney Group then arranged its financing with a senior term loan and revolving line of credit with Kansas City-based Academy Bank, subordinated debt and equity from C3 Capital (also of Kansas City), and purchase order financing and accounts receivable financing from Rosenthal & Rosenthal of New York and California.

The due diligence period lasted two months, during which time Courtney, Dickinson, and Sheng Yen Lin traveled to China together to observe and vet the manufacturing process at the company’s factory there.

Flojos agents, Sheng Yen Lin, John Dickinson and Tom Courtney at the end of the due diligence trip in China.

“While in China, it became clear that John knew what he was looking for in the supply chain process, because he had done it all before. Another buyer would have asked novice questions. I think that experience meant a lot to the seller,” says Richards.

The Courtney Group and Dickinson announced their acquisition of Flojos in January 2017.

For the Lins — who were ready for retirement but eager to see their business continue to flourish — one of the keys to securing such an ideal outcome was engaging a high-quality advisor early in the process. Richards’ commitment to preparing the business for sale well in advance of going to market, as well as identifying credible buyers beyond his personal network, enabled them to meet Courtney and Dickinson and move forward with the deal. Now, Flojos has the opportunity to maintain its brand heritage and grow with a great financial partner and industry-veteran CEO in place.

Flojos is the first closed deal The Courtney Group has sourced through its Axial membership. “Even though Dave Richards at Keystone Business Advisors is in Thousand Oaks, CA, just a two hours down the road from our firm in Newport Beach, we didn’t know each other,” says Courtney. “It’s a perfect example of how Axial is using its data and software to make highly valuable connections between entrepreneurs and the investment community.”

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