Quality Aircraft Accessories, Inc. (“QAA”) is a leading supplier of engine accessory parts to the general aviation aircraft industry. QAA repairs and refurbishes aircraft engine components, such as generators, magnetos, fuel and hydraulic pumps, and turbochargers, in addition to selling new OEM parts as a stocking distributor. QAA has a Class 1 & 2 FAA license as well as EASA approval allowing it to repair and service all mechanical, hydraulic and electrical accessories for all aircraft types. QAA’s headquarters and operations are in Tulsa, Oklahoma.
Hastings Equity Partners led an investment group that was the winning bidder. Hastings completed a recapitalization of QAA in October 2008. Justin and Lorie Hicks, founders of QAA, retained an equity stake and will continue to be involved in the business.
More Than Just a Business and Transaction – It’s Real People, Real Lives, Real Dreams.
The Quality Aircraft Accessories (QAA) assignment was a great project. It was successful, rewarding, and all the right pieces just seemed to come together.
The owner-sellers—Justin and Lorie Hicks—are great people and were wonderful to work with. Justin started the business in 1999 after working for many years as a laborer in an aircraft engine accessories repair shop. With his personal savings, he “hung a shingle” with a commitment to exceptional quality and lightning-fast turnaround. That was a tough combination to pull off, but he did it with amazing consistency.
Simple marketing efforts enticed customers to try QAA. Quality and speed turned them into loyal customers and enthusiastic referral sources. The result was revenue growth rates exceeding 15 percent every year, even in the recession year of 2002. By 2008, the business was becoming quite large and increasingly international. The venture was a smashing success in every respect, but the couple’s vision of what they really wanted in life was changing.
Justin and Lorie were working six days a week without a vacation – 10 years and not a single vacation. The fruits of their labor were a company that dominated its niche and gave them personal financial freedom. Having accomplished these things, it was time to regain some quality of life. They wanted to spend more time with each other and with family, do some traveling and take up some hobbies.
The first thing they did was consult their longtime accounting and tax advisor – Pat Kuykendall. Their next call was to Acquisition Advisors.
Challenge #1: Sellers were active in management of the business.
The primary challenge was the incredibly high level of involvement the owner-sellers had in the day-to-day operation of the business. When the seller is active, buyers are leery of how the business will perform if and when the seller departs. Similarly, if the seller is running the business, who will operate it after the purchase?
Contrary to popular belief, most buyers don’t have business managers sitting on a shelf somewhere ready to take over a newly acquired business. The preference is for the seller to be passive while the business is being operated by a non-owner. That is, the manager will simply continue to run the business after the ownership change.
To deal with this challenge, Acquisition Advisors educated the seller about the issue and how it could impact the deal. Once the sellers fully understood the extent to which this issue could impede them from reaching their new goal, they were receptive to mitigation strategies. The easy choice was for the couple to continue to be involved. But what about the freedom they desired?
The highest value these sellers could provide was their immense experience and expertise. And they could provide this without working every day. So, what if we found a capable manager to run the day-to-day operations and allowed the sellers to move into a board-level/expert advisor-type role? It made sense.
Acquisition Advisors used its considerable Rolodex and located a highly respected industry veteran who was a top-tier manager for a large global aerospace company. He loved his job but wanted to become an owner. That was not possible with his employer. The short story is that we introduced him to both the winning buyer and the seller and he is now the day-to-day manager of the business. He owns a piece of QAA and the sellers retained an ownership position and provide a board level/expert advisory role as needed. The result was a win-win for all. The Hickses got what they wanted and the new buyers got what they wanted – lower transition management risk.
Challenge #2: Extreme desire to keep the project confidential
Like most smart sellers, Justin and Lori didn’t want or need their employees, customers, bankers, competitors or even family members to be distracted by the possibility of changes at QAA. Still, they wanted to reach their new vision for the future. The question became “How can we get the job done in the manner we want it done?”
Acquisition Advisors is accustomed to dealing with the issues of confidentiality. In this case, we took it to a bit of an extreme, with no AA representative ever visiting the business during business hours. This eliminated one source of potential suspicion on the part of the employees. Second, no buyer viewed the business during hours of operation. All buyer tours were conducted after hours. When you have a great business and sellers who care about its ongoing success, buyers are willing to jump through a few hoops.
Challenge #3: Rapidly rising aviation fuel prices
Timing would have it that aviation fuel (avgas) prices were rising at unprecedented levels during the time we were trying to close a transaction. Buyers were greatly concerned about the impact that prices could have on QAA’s business. When buyer uncertainty rises, purchase prices fall. If just one or a few buyers have difficulty with a particular issue, we simply work with buyers who don’t have the concern, but in this case all buyers had this concern.
If the seller is willing to share some of the risk, the seller can gain the opportunity to “earn back” some of the lost purchase price. In the case of QAA, it had a choice—“help” the buyer(s) deal with this issue or take the business off the market until the avgas price cloud passed. But the Hickses wanted to get the project over with, so we structured part of the purchase price to be contingent on the future performance of the business. If the avgas impact fears never materialize, the sellers will get extra payments. If, on the other hand, the business suffers, the buyer avoided overpaying. The structure worked, seemed to be fair to both parties, and allowed the deal to get done even while the issue loomed. All parties were happy.
Note: Since closing, average gas prices have fallen sharply. Our deal structure will allow the sellers to ultimately get a price they would have received if the issue never existed!
Acquisition Advisors did a tremendous job helping us evaluate our options and put the new structure in place. They screened scores of industry and financial buyers and we selected Hastings Equity. We could not be more comfortable with our deal.
Tulsa, Oklahoma, USA
Boston, MA, USA