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1 1 of 5 1/19/2007 2:27 PM Return to regular view Original Story URL: If the shoe fits Allen-Edmonds executive found the right pair to sell company By AVRUM D. LANK alank@journalsentinel.com Posted: Jan. 13, 2007 Before flying to Milwaukee in July, 2005, Michael McFadden slipped on a pair of well-worn, well-polished, up-scale business shoes. It was a choice worth millions. McFadden had come to meet John Stollenwerk, owner of the Allen-Edmonds Shoe Corp., who had decided to sell his company. Stollenwerk was pleased to see that McFadden was a customer. McFadden, managing director of Goldsmith, Agio, Helms & Lynner, a business brokerage in Minneapolis, also impressed Stollenwerk with his knowledge of commerce and his sunny, open style. Together with his footwear, that led to a successful pitch for the job of representing Allen-Edmonds. The job ended about a year later when Stollenwerk sold Allen-Edmonds for $123 million and paid McFadden a hefty fee. The deal was one of Wisconsin's most notable of 2006, resulting in the change of ownership of a venerable corporation and one of the strongest consumer brands based in the state. Winnowing the initial list of almost 90 potential suitors included construction of a special Web site, thousands of hours of work and more than $1 million in expenses beyond the undisclosed fee paid to McFadden. Stollenwerk and McFadden were key players in the drama, but directing it was the man in whose office the two met, Milwaukee attorney Peter Sommerhauser, a partner in the firm of Godfrey & Kahn.

2 2 of 5 1/19/2007 2:27 PM Prior to meeting McFadden, Stollenwerk had approached Sommerhauser and asked him to help sell the company. Sommerhauser has built his career doing such deals, and it has taught him a lesson: Smart businessmen know how to run a company, and how to sell its product, "but they don't have any clue when it comes to selling their business," he said. Stollenwerk agrees with that, and for the 66-year-old native Milwaukeean and lifelong entrepreneur, the choice of a lawyer to lead the transaction was obvious. He had known Sommerhauser for many years and the pair has served together on the board of the Northwestern Mutual Life Insurance Co. since "I saw him in action at NML," said Stollenwerk of the lawyer. "Once I talked to Peter, I let him carry it from there. You get the best people you can and you stay out of their way." After being hired by Stollenwerk, Sommerhauser had in his care a company that had been a Wisconsin fixture since Lean manufacturing Stollenwerk and some partners bought Allen-Edmonds in 1980 from descendents of the founders. Later on, Stollenwerk bought out his partners and built the brand into one recognized around the world. Unlike his competitors in the footwear industry, Stollenwerk has kept production in the U.S. Allen-Edmonds employs about 550 people in Wisconsin and Maine and makes more than 500,000 pairs of men's shoes a year. Thanks to the introduction of lean manufacturing and cell concepts, the company can make a pair in seven hours. Shoes are made to order, with the inventory of finished products kept very low. The shoes are handcrafted from imported leather and can sell for more than $300 a pair. During his tenure, Stollenwerk has seen a decline in the number of independent shoe stores interested in carrying the line, and his distribution channels have become limited. As a result, the company has opened a chain of retail stores that carry not only shoes but also upscale accessories. Sales are about $100 million annually. As he reached his mid-60s, Stollenwerk knew the company would need to invest in even more stores - at about $1 million each - to continue to grow. That meant "I would have to go to a bank and borrow a considerable amount of money," he said. He had done that in the past, and the idea of managing it in the future did not appeal to him. He has children, but none is interested in taking over the company, so his mind turned to other options. They were not hard to find. Around the time Stollenwerk was considering how to expand Allen-Edmonds, he was contacted by another Wisconsin shoemaker, Thomas W. Florsheim Jr., chairman and chief executive officer of the Weyco Group Inc. of Glendale. Florsheim came out to Port Washington and spoke with Stollenwerk about buying Allen-Edmonds. Weyco brands sell for considerably less than Allen-Edmonds, and the two companies were "a good fit

3 3 of 5 1/19/2007 2:27 PM when you look at our portfolio," Florsheim said. "We had a good conversation. He said he wanted to think about it, there might be some interest." Not just any buyer Instead, Stollenwerk decided to cast a wider net and contacted Sommerhauser. Stollenwerk had a few conditions for a sale. While it might have resulted in a higher price, he did not just want to sell the brand name to a company that would integrate production of Allen-Edmonds shoes with its own factories. He was also concerned with protecting his management group, keeping production in the U.S. and maintaining the quality of the shoes. And he wanted to keep the sales process quiet, especially around Milwaukee. Once all of that was understood, Sommerhauser got to work, with the first step finding a broker. He brought in five brokers, three from New York City and one each from Chicago and Minneapolis. All gave a preliminary estimate of what they thought Allen-Edmonds was worth, and the prices were within 20% of each other. McFadden was selected because, in addition to his choice in footwear, Stollenwerk said he liked his Midwestern flavor. Sommerhauser then negotiated a contract with McFadden's firm, calling for a sliding scale commission, with a higher percentage to be paid the more the company brought. The next step was spreading the word among potential buyers. This was done extremely deliberately and, at first, without naming Allen-Edmonds as the company in question. Organizations were contacted by McFadden's firm and told in general terms the type of company it had been hired to sell. Two kinds of potential buyers were approached: strategic, other companies in the shoe or retail business such as Weyco; and financial, investment funds interesting in acquiring companies that they can build up and later sell at a profit. Stollenwerk was heavily engaged in deciding who to contact, approving the final list of about 60, and removing 25 to 30 potential buyers. Eventually, 19 organizations submitted bids. They did so after being given more information about the company, including its name and some finances, and signing agreements to keep the data confidential. Weyco signed such an agreement, but dropped out of the bidding when it became apparent that the price would be higher than it was willing to pay, said Florsheim. "In the old days, five years ago or more, a strategic buyer could typically pay more than a private-equity company," he said. "In today's environment, it is really hard for us strategic buyers, so much private-equity money is flying around that the multiples have really gone up." Even so, there was a large variation - more than 200% - between the high and low prices submitted by the 19 firms.

4 4 of 5 1/19/2007 2:27 PM "To get a third of the people to come back is unusual," said McFadden, but the spread in prices was not. "Middle-market deals are an inefficient marketplace," he said. Every buyer "brings different opinions and different biases." From the 19 offers, four private-equity and two strategic buyers were selected to enter the next round. That included access to a so-called "data room" and a presentation by Stollenwerk and company management. The presentations, one for each candidate, were at Godfrey & Kahn in a room lined with Allen-Edmonds shoes. 'Data room' The "data room," on the other hand, was virtual - a controlled access Web site containing 425 megabytes of information, with "every conceivable contract or document that has any meaning," said Sommerhauser. The room is "really kind of an insurance policy for the seller," because it means the buyer cannot later claim some information was withheld, he said. Before computerization became widespread, such information was actually gathered on paper and made available to buyers in a room. Now, it is easier for all concerned as buyers can scan and analyze data on their laptops and office computers. Computerization also helps the sellers because they can track which potential buyers are examining what documents, said Sommerhauser and his partner Patricia Falb, who also worked on the deal. Sommerhauser and Falb had drawn up a purchase offer which was presented to potential buyers, with the price left blank. When they were returned after access to the data room, all the prices offered were within 5%. It then came down to a matter of chemistry between Stollenwerk and the final buyer to select the winner. Stollenwerk, who had decided he would like to remain with the company for a while and retain a small amount of equity, settled on Goldner Hawn Johnson & Morrison Inc., an investment company in Minneapolis, choosing it over another investment company on the East Coast, which he and others involved declined to name. Stollenwerk liked the Midwestern location and attitude of Goldner Hawn, and was impressed with the credentials of managing partner Mike Sweeney, who had a history in retail operations. 'The Hammer' Sommerhauser, however, played his cards carefully as the yearlong process came to an end with a closing on July 22, "I call Pete 'The Hammer,' " said Sweeney. "He is a tough, smart lawyer. He really protected John's total interest really well." "They kept multiple potential buyers of the business in play while Pete negotiated the purchase agreement," said Sweeney, who has done more than 20 such transactions. "The contract that they got for John Stollenwerk was as seller-favorable as any we ever agreed to. They knew what an attractive

5 5 of 5 1/19/2007 2:27 PM company Allen-Edmonds was, and that gave them a certain strength." On the other hand, "they had chosen us as their partner. They didn't want us to get so frustrated with the negotiations that we just walked away, but also wanted to know that we didn't leave any money on the table," he said. "That is what Sommerhauser and McFadden are great at, knowing how far to push. John (Stollenwerk) knows an awful lot about shelling shoes, but Sommerhauser and McFadden know an awful lot about how to get the most for a company." Stollenwerk appreciated that. During the entire process, he never got a bill from Sommerhauser. When the deal was all over, he sent the lawyer his fee - $1 million. Buy a link here From the Jan. 14, 2007 editions of the Milwaukee Journal Sentinel Have an opinion on this story? Write a letter to the editor or start an online forum. Subscribe today and receive 4 weeks free! Sign up now. 2006, Journal Sentinel Inc. All rights reserved. Produced by Journal Interactive Privacy Policy Journal Sentinel Inc. is a subsidiary of Journal Communications.