Author Archives: Cameron Bishop

The One Thing CEOs Rarely Discuss But Often Struggle With…

The simple fact is that it’s lonely at the top.  

It’s hard for those who don’t run companies to understand.  Employees think the owner has it made because he/she’s the boss and makes the big money.  Even senior managers can’t understand it.  Until they move into the top job.  You have to live it to understand it.

Owning and running a company is a 24X7 job.  It’s an ongoing exercise in problem solving.  The pressure and stress can and often does take a toll.  Sleepless nights, health impact and burn out are regularly the outcome.

These symptoms are often the result when CEOs find that they have no one to turn to which is the case with nearly 2/3rds of all CEOs and company owners.  They have no one they can trust to discuss personal and business challenges.  Someone to help them separate the forest from the trees.  Spouses are rarely the answer.  They either don’t have the business or industry experience or, they are simply too biased and emotionally involved to provide balanced advice.  Subordinates usually can’t help for similar reasons.  They can be conflicted by their own ambitions, internal politics or the confidentiality required.  Lastly, friends are seldom the answer either.  Often, the challenges owners face involve matters that are confidential or outside the scope of their friends’ experience.

The fire hose of pressure and lack of a trusted advisor cause many owners to reach their limit of middle-of-the-night Head Noise.  It’s happening with alarming frequency.  Owners simply wake up one day and say “that’s it, I’m done.  I’m selling and retiring.”  Sadly, this is one of the worst possible outcomes for owners.  It usually results in one or more of the following…

·         Little advance preparation “staging” or preparing the company so that it can be sold at top value

·         Ultimately, a reduction in business value

·         Lack of a management succession plan

·         Incomplete financial or retirement plan

·         Inaccurate or non-existent trust and estate plan

·         Little or no life plan or defined life purpose once the company is sold

·         An emotional and often fractious sale and transition process

·         Worst of all, sometimes a failed sale process

The good news is, there are solutions. If only business owners would seek them out. Our experience has been those who need the help of a trusted advisor are least likely to know it, least willing to invest in the expertise but the most likely to realize top ROI on their investment.

Food for thought as we enter the new year.

Cameron Bishop is a partner with The Capitus Group. The firm specializes in staging and selling companies. We provide comprehensive business value enhancement and transition strategy solutions. Partners and Advisory Directors comprise an experienced team of business professionals who have successfully owned, run, grown and sold companies. Capitus utilizes proven value enhancement and risk reduction techniques to enable superior transition options.

8 Reasons Why it is so D@*# Hard to Buy a Business!

At Capitus Group, we hear it all the time.  Every week, people contact us when they decide they want to buy a business and they need help finding one to buy.  Or, for some, they own a business and they want to make a strategic acquisition but they don’t have a company identified to buy.

Many of these prospective buyers are highly skilled and successful in their career and financially qualified.  Most come from staff or division level positions in mid-size to large corporations.  They fund their business acquisition with cash from savings, retirement plans, inheritance or cashing in stock owned in their last company.  Most end up adding on bank or SBA debt.

They all think it will be easy to buy a business.  After all, how hard can it be to spend money?  For the vast majority, it is extremely difficult and they way under-estimate how long it will take.

 

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Here are a few of the reasons why completing an acquisition is a lot like winning the lottery:

  1. About 99.5% of business buyers have never been involved in buying a company.  Other than networking among friends, family, business associates and business brokers, they have no idea how to buy a business.  Consequently, many fail.  Or, they are not prepared to spend 6 months to 2 years in their search.
  2. They don’t follow the principle of “know what you know and do it.  Know what you don’t know and find an expert to do it for you.” In other words, they are unwilling to invest in the expertise they need to protect them in the deal, get the best deal and to actually get the deal done.
  3. Business buyers don’t understand that we are by no means in a buyer’s market.  Even though countless studies and forecasts continue to indicate that the boomer generation is selling off companies by the thousands, for the most part, this trend has yet to materialize.  For every quality business (meaning that it is profitable) with any scale and some degree of growth, the market is highly competitive.  Bidding wars ensue and prices get pushed up or buyers are forced to ignore trends and data that add undue risk to the deal.

You have to kiss a lot of frogs…

  1. First time business buyers don’t understand that they may have to look at dozens of deal books on businesses in order to find just one to pursue.  Worse, they may spend months doing research, due diligence and negotiating a deal only to lose it.  Only then do they realize that those lost months are really painful and they may have to risk it all again.  Many don’t have the stamina to continue.
  2. It is arguably true that more acquisitions die on the business deal points and the legal terms than on price.  Again, rookie business buyers, especially those who do not engage professional advisors, get caught up in the minutia or the principle of some deal point and lose sight of the big picture.
  3. Buying a business is an extraordinarily stressful and high pressure process.  For most buyers, their life savings and their future is at stake.  The emotions and the stress of the deal negotiations and diligence often cloud their judgement and force them to make decisions that cause them to lose the deal when professional advisors who are paid to maintain objectivity could have saved the deal by proposing alternatives or lending objective perspective.
  4. Many business buyers who leave the corporate world to buy a business do so for the wrong reason.  Their goal is not necessarily to buy and build a business.  That’s icing on the cake. Their primary goal is to buy an income.  They want to replace the big salary they had in the comfortable corporate world.  That shrinks the deal pool substantially.  The number of businesses that will provide the income they require all command a premium price.  That premium price most often forces the buyer to take on debt.  Once debt service is factored into the pro forma financial estimates, the owner can no longer afford to pull that big salary out of the business.
  5. There are about a billion ways that a deal can die.  To make it worse, about 99% of the reasons and ways deals die can’t be controlled, avoided or forecasted.  Inexperienced buyers simply have no understanding of the odds of making it past the finish line.

Those are many of the reasons why so many people who do successfully get a deal done and in so doing, spend hundreds of thousands to millions of dollars, often ironically feel like they just won the lottery.

Cameron Bishop is a partner with The Capitus Group. The firm specializes in staging and selling companies.  We provide comprehensive business value enhancement and transition strategy solutions. Partners and Advisory Directors comprise an experienced team of business professionals who have successfully owned, run, grown and sold companies. Capitus utilizes proven value enhancement and risk reduction techniques to enable superior transition options.

 

 

Planning to sell your company? Has it been “staged” to sell?

What’s staging?  Think about it in terms of selling your home.  You hire a realtor to handle the sales and marketing.  Your realtor then brings in the agency’s expert decorator to stage your house.  In other words, your real estate agent brings in an expert to package your house.  They want to improve the chances that it will sell.  And, that it will sell for the highest possible price.

Here’s what the stager does when they come to your home:

  • Move furniture around or even take some pieces out
  • Paint walls
  • De-clutter table tops, counters tops and shelves
  • Remove family photos
  • Suggest changes in landscaping
  • Identify critical repairs
  • Recommend repairmen, painters, plumbers, etc. to do the work

Your business is no different!

You need to stage your business just like you do your house.

Over the years, I’ve been involved in buying 40 companies.  Mostly privately held, family or mom and pop-type businesses.  In nearly every case, by the time the deal was done, the business owner left money on the table.  They simply didn’t do anything or have any idea how to stage it to sell it for maximum value.

When you think about it, it’s really no surprise.  About 99% of business owners have never sold a business before.  They’ve spent their entire career working in their business.  Building it.  But not packaging it to sell it.

Then, one day, they often quite literally, wake up and decide to sell.  They have no idea how to go about selling it, don’t understand what needs to be done to sell it.  Or, even how truly difficult and emotionally draining it is to sell a company and how much impact that can have on their judgement and objectivity.

Probably most tragic in this scenario is the fact that most of these business owners need that money to retire.  Wealth manager tell me every day that their clients who own companies have the vast majority of their net worth tied up in the company.

Sadly, the vast majority of business owners don’t follow this simple mantra:  “Know what you know and do it.  Know what you don’t know and find an expert to do it for you.”

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Here’s what an expert business stager can do for your business:

  • Help you transition your business from one focused on minimizing taxes to one designed to maximize value
  • Help you to understand what your true personal cost of living is if you have been flushing a lot of personal expenses through the company
  • Assess talent and recommend changes in organizational structure
  • Develop and execute a management succession plan
  • Review and if necessary, re-state financials
  • Evaluate sales and marketing plans
  • Fine-tune your company’s Internet, website and social media presence
  • Identify areas of over spending or under spending that can affect value
  • Identify cost saving opportunities
  • Renegotiate vendor contracts
  • Recommend professionals and specialists to provide critical support services including M&A lawyers, wealth managers, trust & estate lawyers, CPAs, tax experts, financial planners, bankers, private equity investors, bankers and alternative financing sources

Those who bring in experts to help them stage and sell their company reap boundless rewards versus those who chose to “save money” and go it alone.

When working to extract maximum value for your single largest source of wealth, that’s not the time to be “penny-wise and pound foolish.”

When working to extract maximum value from your single largest source of wealth, that’s not the time to be “penny-wise and pound foolish.”

Cameron Bishop is a partner with The Capitus Group. The firm specializes in staging and selling companies.  We provide comprehensive business value enhancement and transition strategy solutions. Partners and Advisory Directors comprise an experienced team of business professionals who have successfully owned, run, grown and sold companies. Capitus utilizes proven value enhancement and risk reduction techniques to enable superior transition options.

 

Barry’s Story: The grass isn’t always greener on the other side of the American dream

He wasn’t born rich.  Started his career as a sales person selling a line of industrial products. Finally got the idea that he could do it better and struck off on his own when he was young enough not to know any better.  That’s Barry.  His story mirrors that of thousands of boomer generation business owners in America today.

Exit and transition planning is not a concept they knew about

At Capitus Group, we’ve come to know them.  For the last two years now, we have been focused on helping business owners like Barry prepare their companies for sale or transition.  These owners are mostly boomer generation.  Many, unfortunately for us and them, are already former business owners like our new friend Barry.

To be honest, there is real frustration for us in our business development efforts.  Our best potential clients are those who have already sold their companies.  They now have the gift of hindsight.  They now understand how we could have helped them.  In fact, if I had a dollar for every one of these former owners who responded to our description of our services with an “if only I had known about you before I sold” comment, I’d be able to retire rich.

Baseball, apple pie and Chevrolet.

The early years were a struggle, of course.  For most who live this independent business owner story, it didn’t come easy.  Long hours, sleepless nights full of head noise and constant uncertainty.  But, the business grew and he raised a family.

Also, like so many of his generation, Barry had a phenomenal work ethic.  At the office by 6:00 a.m. and usually there until 7:00 p.m.  Lots of weekends, too.  Did this for over 3 decades.

As is often the case in this classic American story, the work paid off.  His business grew, he hired employees, diversified so that he had business lines in both B2B and consumer markets. Then, added even more sales people.

The fairy tale comes true

Seriously, this really happened.  Out of the blue, 2 guys in suits walked into his business.  They asked for a meeting and offered to buy the company.  Right there, on the spot.  They were private equity guys.  Big money. Doing a roll-up in his industry.  They had the money and the business model to justify an extraordinary multiple of profits.  They wanted to move fast.

Barry had no interest in selling.  He was doing well now.  In fact, like so many, he had never really even thought about selling.  Not seriously anyway.  Certainly, he had nothing even close to resembling an exit plan.  After all, the business was his life.  Literally. Think about it.  5 to 7 day weeks, 10 to 12 hour days for over 30 years.  Didn’t leave much time for hobbies.  Sure, there were nice dinners, good cars, big house, great vacations.  But, no hobbies, no other real interests besides family.  Plus, the prestige and social stature of being a successful business owner.  Of course, the kids were grown and gone.  No interest in dad’s business either.

But, the deal was irresistible.  He knew he’d never see that number again.  The buyers were in a hurry.  There was just no time to think about it or the post- sale ramifications. It was a dream negotiation and diligence process.  It was done in no time.  Something like 2 months.  And, there was the obligatory consulting contract for a smooth integration and transition.

Again, like so many stories we hear.  That consulting thing did not go well.  The new owners immediately started changing everything.  It was tough for Barry to watch.  His employees’ loyalty immediately flipped to the new owners.  Barry wasn’t the boss any more.  In fact, many weren’t even very friendly.  They felt that Barry had either abandoned or betrayed them.  Some felt that they deserved a share of Barry’s windfall and were resentful.

Barry’s consulting contract ran its course although the need for Barry’s assistance ended well before that.  Often left him sitting at a desk (not in his former office) with no authority and little to do.  These agreements are almost always a matter of decreasing need at an increasing rate over a matter of months.

For the first time in his adult life, Barry was no longer needed.  He didn’t know what to do with that.

In fact, he suddenly realized that he was lost.

He tried to find himself.  Actually moved to Mexico for a few years and lived in a hotel.  His wife wasn’t too crazy about that so she would come and go.  So, he finally moved back.

Still couldn’t figure out what he wanted to do so he went to work sorting mail for UPS.  Then, moved to a lake house several hours from home and worked some more for UPS in a local office.

The travel back and forth from the lake to home was taxing so he moved back home for good.  He seems to have found himself now.  He’s a house flipper.  Buys homes, fixes them up and resells them.  Does 4 or 5 a year.

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He doesn’t have the pressure of running a business anymore. But, somehow, I get the sense that he really misses that pressure.  And, the sense of being in “the game” every day.  Running the show.  Calling the shots.

As the old saying goes, “be careful what you wish for, you just might get it.”

At Capitus Group, we work to help our clients with every aspect of the exit and transition planning process.  This often includes an evaluation on what life looks like on the other side of the deal to help them to avoid experiencing Barry’s story.

Note: If you have an interesting and/or educational CEO story of Head Noise caliber, write to me at cbishop@capitusgroup.com. I’d love to speak with you and share your story in my Head Noise blog. You can tell your story either on the record or, without attribution.

Cameron Bishop is a partner with The Capitus Group. The firm provides comprehensive business value enhancement, exit planning and transition planning and strategy solutions. Partners and Advisory Directors comprise an experienced team of business professionals who have successfully owned, run, grown and sold companies. Capitus utilizes proven value enhancement and risk reduction techniques to enable superior transition options

What do you do when a key employee suddenly dies? 12 critical management actions

As a middle market-sized business owner or CEO, there’s arguably nothing worse to have to deal with than the sudden death of a key employee.  It gets worse if they are a long-term and loyal member of the team.  These folks are most often beloved by many throughout the company.

 

It is worse still if that person happens to have a high-profile position with strong customer relationships.  Perhaps this person is a key or top rain maker.

 

All of this terrible scenario is further complicated by the world we live in.  Instant access to information is both a blessing and a curse.  In the case of managing the news of the death of a key employee, it is almost exclusively the latter.

In this tragic situation, management has to act fast.  Rumors start, speculation can run rampant. Employees may panic.  And competitors will pounce on this new perceive vulnerability.   The vulnerability, of course, is something they manufacture through innuendo, feigned concern and thinly veiled expressions of sympathy.  Sadly, it works and companies lose customers.  Especially when the customer relationship is strongly tied to the personal relationship between the rain maker and the client.

Finally, as owner/CEO, the first inkling of the terrible news often arrives as rumor or speculation.  So, what do you do to manage this?  To be clear, it is something that does have to be managed.

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12 critical management actions:

  1. Make certain that you have complete contact information for your entire senior management team stored in your phone.  Cell phone and home phone numbers.  This should be done as part of an emergency management plan way in advance of any emergency.  Not at the time of one.
  2. Have an established calling tree so that your department managers know how to easily contact their key staff.
  3. Get yourself under control.  When this kind of news hits, you will likely be personally and deeply affected.  Even long term employer/employee relationships build strong emotional bonds. You may have lived through much of that employees major life events and know their family well.
  4. Move at lightning speed to get the facts and cut through the rumors and speculation.
  5. Get on the phone instantly and personally with each of your top managers to break the news and state the facts as to what happened.  Ask them to immediately call their top managers.
  6. Don’t let employees hear the news via Facebook, Twitter, Instagram, LinkedIn or a text message from some other employee.  Rightly or wrongly, many employees then see the company as uncaring, unfeeling and resent the fact that they learned such tragic news in such an impersonal way.  They may also begin to worry, speculate and spread unfounded rumors.  Many times these relate to the company’s decline or demise without the key person there.
  7. Schedule a senior management meeting first thing the next morning if the news came after work hours or immediately if the news came during the work day.  If held the next morning, ideally hold the meeting before regular work hours begin so that a full action and communication plan can be developed.  Also, this gives the management team the chance to share thoughts and feelings about the loss of this key member of the team.  This is the owner/CEO’s time to lead.
  8. Schedule a full company meeting for later that morning to again share the facts and present the plan to handle the rain maker’s clients and responsibilities.  Also, to allow members of the company to talk, ask questions and share their feelings.
  9. Divide and conquer with customer calls.  Create a script during the management meeting, give each top member of the management team a list of key customers with names and contact information.  Each manager should make immediate calls to personally inform clients about the death and explain how their account will be handled and reassure them of their value to the company and that they will be taken care of.  Every top customer should be contacted by the end of day one.
  10. Make certain to maintain an environment of accessible and open communications for employees to express their emotion.  Consider bringing in a grief counselor.
  11. Address the matter of the funeral.  If it will be held during the work week, consider communicating a policy that employees may attend at their own discretion.  Some will want to go and others will not.
  12. Consider holding a management gathering after business hours to honor and toast their lost friend, talk about the things that will be missed and share funny stories.  It’s a great part of the healing process that can boost sagging morale and allow for a quicker and more effective recovery.

 

Note: If you have an interesting and/or educational CEO story of Head Noise caliber, write to me at cbishop@capitusgroup.com. I’d love to speak with you and share your story in my Head Noise blog. You can tell your story either on the record or, without attribution.

Cameron Bishop is a partner with The Capitus Group. The firm provides comprehensive business value enhancement and transition strategy solutions. Partners and Advisory Directors comprise an experienced team of business professionals who have successfully owned, run, grown and sold companies. Capitus utilizes proven value enhancement and risk reduction techniques to enable superior transition options.

 

 

Thinking about transitioning from your business?

By Dave Raden and Cameron Bishop for Capitus Group

Let’s discus how to examine all potential options to meet your Personal Goals!

In a recent article, I discussed the importance of utilizing a formal transition process and provided an overview of a 4-Step Transition Plan for your business:

    • Discovery

  • Options Assessment

  • Strategy Selection
  • Plan Execution.

 

On the topic of Discovery, I broke Step 1 into two components.  The first article which addressed part of Step 1 covered Discovery-Personal Transition Preparation/Goal Setting with the second article covering Step 1 addressed Discovery-An Objective Evaluation of Your Company.  Part 2 focused on understanding where the company stands in its lifecycle today and what its value and risk parameters really are.

However, many times in the Discovery process, there is a significant gap between ownership’s goals and the current state of the company.  It is at this juncture that more in-depth analysis on both sides of the equation must occur.  This is essential to best determine and evaluate all potential options.

Assuming the delineation of ownership goals in Step 1, there may a need to conduct more in-depth financial planning, investment evaluation and work on the personal or non-financial goals.  For example, defining the role of family members in the business or even life after a transition.

With regard to the company, there may need to be a valuation performed as well.  Plus, a more detailed analysis covering what will be needed financially for the company to meet ownership goals and how that number can significantly affect non-financial ownership goals.

In Dave’s own case, he had a big disconnect between company and personal goals.  For his business to grow, he needed to take on substantial corporate debt which would have totaled almost 8 figures over 3-5 years.  The capital was needed to buy critical equipment.  But, that didn’t mesh well at all with his declining personal risk tolerance.

Both personal goals and corporate discovery issues must be understood to move forward.

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Step 2-Options Assessment

The output of Step 2 is a comprehensive list of realistic options to achieve ownership’s personal and financial goals.  This assessment includes the pros and cons of each option.

We at Capitus Group have found that the best way to identify all potential options involves assembling a team of specialists that is led by a Corporate Transition Specialist.  This individual works to not only recruit the team but to manage the team and to keep focused on ownership goals.

It is also important to note that the Transition Specialist should not have any conflicts of interest.  It is imperative that all options are evaluated in a fair and balanced manner. The advisory team might consist of the company’s accountant/CPA or CFO, business attorney, insurance broker, benefits provider, personal investment or wealth management advisor, personal trust attorney and any other pertinent resource or expert.

This team may also include an appropriate management representative.  While this team is usually separate from an Advisory Board or Board of Directors if the company has one, either should be considered another valuable resource and sounding board.

The Option Assessment Process

At this point after Discovery, ownership goals may fit into specific categories as exampled below:

  • After tax financial goals
  • Timeframe
  • Continuing personal business involvement
  • “Life after”
  • Family involvement in transition
  • Risk delineation
  • Desire to reward associates
  • Effect on associates
  • Desire to leave a “Legacy”Potential Transaction/Exit Strategies might include:
  • Intergenerational transfer
  • Internal management buy-out using external financing
  • Internal management earn-in over an extended period of time with limited external financing
  • External management earn-in over an extended period of time with limited external financing
  • ESOP
  • External sale/merger
    • Strategic buyer
    • Financial buyerIn order to properly evaluate the potential of the above strategies, the Transition Team must apply the ownership goals from Step 1 to each option to determine which match the best. Issues below are not a complete list but are some beginning items for the team to discuss:
  1. Intergenerational Transfer
    1. Are family members capable and willing to run the company? When?
    2. If multiple family members, who will be in charge?
    3. Family dispute resolution process
    4. Governance transfer process/timeframe/effect on associates
    5. Financing of the transfer
      1. Debt
      2. Owner carry
      3. Timeframe
      4. Ongoing owner guarantees
  2. Internal Management Buy-Out (MBO)
    1. Management capability
    2. How will the management team finance the acquisition?
    3. Team governance issues
    4. Owner carryback? Timeframe?
  3. Internal Management Earn-in
    1. Is the right person(s) with the skill set and proper cultural style in the company today?
    2. Will the person have some of their own skin-in-the-game from the beginning?
    3. Does the timeframe of buy-in agree with owner goals?
    4. What is the structure that allows for the company to help the buy-in process
    5. Governance and control issues
    6. Failure risk
  4. External Management Earn-In: This strategy has all of the issues from Section 3 except that the person(s) buying-in usually have not been vetted by the owner to the same extent as someone who has been with the company possibly for many years.
  5. ESOP
    1. Is the proper management in place for a successful ESOP?
    2. What amount of stock needs to be sold to the ESOP to meet owner financial goals?
    3. Is the external valuation high enough to meet ownership goals?
    4. Timeframe
    5. Does the debt needed to fund the transaction hamstring the company’s ability to grow enough to de-lever once the business has been heavily leverage to fund the buy-out?
    6. Ongoing risk
    7. Potential limits on future sale/exit options
  6. External Sale/Merger
    1. Does the after-tax net gain meet financial expectations relative to ownership goals and financial needs?
    2. Need to engage good transaction advisor
    3. Strategic Sale- usually yields better financial results
    4. Financial Sale-the buyer in this instance doesn’t have a strategic reason for the acquisition so without strategic opportunities or economies of scale, the price is usually lower.
    5. Is the management team capable and willing to support and run the business post transaction event?
    6. Asset vs stock sale issues
    7. Continuing involvement: Is ownership willing to continue in a consulting role for a period of time after the business is sold?
    8. Carryback: Is ownership willing to finance any part of the purchase price by carrying back some level of debt?

Once each of these strategies is evaluated against ownership goals, it may be necessary to spend time to prepare personally as wells as a corporately to maximize the final outcome. Often, we find that either the owners or the company, if not both, may not be ready at the time of evaluation for a successful transition to take place.

It is also important to understand that the work and preparation necessary to optimize value can often take several years or more. Some examples of essential preparation include: 

  • Training the younger generation to be able to effectively run the company on their own
  • If the company’s current value won’t meet owner expectations, a formal plan should be developed to increase corporate value while reducing corporate risk.
  • Hire a second-in-command who can take over in the future to allow for multiple transition options-i.e. external sale, MBO or even to assist an intergenerational transfer.

Peter Heydenrych of Corporate Finance Associates states: “Nothing enhances a buyer’s perception of value more than evidence of sustainable growth and a capable management team as the key to managing the risk.”

  • Evaluate changing the corporate legal structure for tax efficiency
  • Restructure corporate debt/equity structures

These are just a few tactics that, if applied early enough, can significantly enhance the probability of meeting or even exceeding ownership goals. 

In summary, utilizing an interdisciplinary team of experts to aid ownership in exploring all possible options to meet expectations is an essential element in achieving transition success.

It is very easy to become inertia bound and not adequately explore all options and each option’s impact on all stakeholders.  Thorough planning is difficult, time-consuming and sometimes painful work.  So much so that a 2015 poll by Harris Williams & Co. found that only 25.1% of respondents looking at a business transition indicated that they had a detailed transition plan in place.

In our next article, we will explore Step 3- Strategy Selection.  We will address the best way to use the transition team in tandem with ownership and management input.  The goal is to identify the right transition strategy along with an understanding of what tactics will need to be employed to optimize value and deliver a successful exit or transition.

Dave Raden and Cameron Bishop are partners with The Capitus Group. The firm provides comprehensive business value enhancement and transition strategy solutions. Partners and Advisory Directors comprise an experienced team of business professionals who have successfully owned, run, grown and sold companies. Capitus utilizes proven value enhancement and risk reduction techniques to enable superior transition options.

Copyright Capitus Group 2015

So, What if You Get Hit by a Bus and Have no Business Exit Plan?

Believe it or not, it happens. In fact, far more often than you would think.

Research shows that not more than 30% of private company owners have spent any time developing an exit plan. Or, in the alternative, a family transition plan.

What happens if you die unexpectedly? What happens to your business? To your employees? To your family.

I can tell you, it very often does not work out well for anyone involved.

Here are two recent, real-world examples.

A sole proprietor of a retail and B to C landscaping business in a small town about an hour away died unexpectedly. He had no exit plan. Worse, like most small company business owners, he had no strong number two manager. He’d spent no time or money investing in training a successor or, even someone to be a secondary keeper of business knowledge and process.

He and his wife had been married for nearly 40 years and had one daughter.   His wife had never worked in the business and his daughter was a successful and tenured senior manager in a multi-billion dollar company. Plus, she was on the fast track for further advancement.

And, then, her father died. Her mother was inconsolable and had no experience in the business world. His daughter was forced to quit her job, spend countless hours away from her home, husband and two young children for nearly 18 months while she worked in her father’s business to help her mother wind the business down, liquidate inventory and close it.

With all the knowledge and customer relationships dying with the owner, the business had no value. His wife walked away with nothing. His daughter sacrificed her career. His employees all lost their jobs.

All for the lack of any kind of advance exit and succession planning.

 

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Another case

A man spends over 20 years building a heating and air condition repair and installation business in a major Midwestern city. He grows his business to include 10 men and company 10 trucks working for him from his leased corporate headquarters.

Again in this case, the business owner died suddenly. He had no exit plan, no succession plan and no one else who knew anything about running the business. Or, who even had access to his books and records other than his bookkeeper.

His 10 employees came to work as usual one morning. But, the boss was a no show. After some time, they learned that he had died. They were directionless. And, they were no longer motivated to work because they had no idea whether or not they would continue to get paid.

Again, the grieving wife, with no business experience much less HVAC repair and installation experience, was forced to take over the business.  Or, in this case, what was left of the business.  In no time at all, 2 of the former employees left the company, took the customers that they had relationships with and formed their own company.

The end result, once again, was a company with no value so the man’s wife was left with no wealth creation outcome from a business her husband had spent decades building. And, she was forced to deal with a failing business that she knew nothing about while dealing with the sudden loss of her husband.

The upside to a well-structured exit or transition plan is extraordinary in both a reduction of the potential emotional toll on your family, the protection of employees and your business legacy and the ROI on enhanced business valuation.

The commitment in time and the modest expense combine for an incredible business value.

Note: If you have an interesting and/or educational CEO story of Head Noise caliber, write to me at cbishop@capitusgroup.com. I’d love to speak with you and share your story in my Head Noise blog. You can tell your story either on the record or, without attribution.

Cameron Bishop is a partner with The Capitus Group. The firm provides comprehensive business value enhancement and transition strategy solutions. Partners and Advisory Directors comprise an experienced team of business professionals who have successfully owned, run, grown and sold companies. Capitus utilizes proven value enhancement and risk reduction techniques to enable superior transition options.

 

These 10 Steps Will Help Insure Successful Deal Integration

In the world of M&A, virtually everyone everywhere focuses on and talks exclusively about the acquisition. Research, diligence, negotiation, pricing and asset purchase agreement terms and strategy.

For most, it’s all about the hunt.

Ironically, the hard work—and the make-it-or-break-it aspect of every deal– is successful integration.

The integration process, if not handled properly can be a field of land mines or a ticking time bomb. The potential for trouble, mistakes and obstacles is endless and infinitely variable.

Many, many deals that go smoothly on the front end, collapse and fail on the back end during integration. Most often, the reasons have a great deal to do with arrogance, ego and personalities. That’s true on both the buyer side and the seller side. However, most often, it’s a buyer attitude of we’re right, you’re wrong and it’s my way or the highway.

 

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So, how do you reduce the chances for an integration melt down?

  • The first and most critical step is for the buy-side team to begin the acquisition process with a deal team. Assemble a team of department heads representing all key parts of the company including senior management (preferably the CEO or at least the senior division executive) HR, Production, IT, CFO, senior sales and/or marketing, Operations, Digital, PR, etc.
  • Have the deal team review and sign off on the NDA so they know what the confidentiality guidelines are that they will be working under. Then, provide them with a copy of any deal book or Offering Memorandum on the business for sale.
  • Assign each member of the deal team with the job of conducting diligence in their area of specialty or focus and make it clear that they will need to develop the integration plan for their department or area of authority and responsibility.
  • Schedule mandatory and frequent meetings with the entire deal team and require each to report on diligence progress and integration strategy for the entire team to hear and learn from. It is absolutely amazing how often it happens that one department head presents a report on diligence findings and integration plans that affect another department in a way that no one would have expected or could have anticipated. But, without that cross department knowledge in advance of the deal closing, major unintended expenses or problems can occur.
  • Senior management should repeatedly drive home the fact that the deal team is charged with the job of identifying processes, programs, strategies and tactics that the company being acquired does better than the buyer. The message should be loud and clear that it is not a case of everything we do is right and everything the seller does is wrong. The buyer team should also be working to identify key talent and key knowledge keepers in the selling company as well as ways to retain them.
  • Include the diligence team in as many face-to-face meetings with the seller’s management team as possible. The more they get to know each other and understand their counterparts as people and managers, the smoother the integration process can go. People begin to see people rather than the amorphous business.
  • Develop and complete a very detailed integration plan of almost military precision. It must include a very specific time-table that has been established and vetted well before the deal closes. This plan should address every business discipline and department.
  • Once the deal is done, communicate like crazy—at least daily in the first few weeks– with all employees about what has happened, why and what the future plans are for the merged businesses. After all, even employees on the buyer side will be nervous. There is always speculation about what any deal can mean for them.
  • Manage by walking around both the buyer company and the seller company. Ask questions, shut up and listen. The rumor mill runs wild during the first critical months of any business integration. If not addressed fast and specifically, they can become a cancer on the business. Again, communicate from the top with great frequency and specificity. Repeat the questions heard and answer them for everyone in open communication across the merged company.
  • Continue to hold deal/integration team meetings for at least 6 months after the deal is done. Make attendance mandatory for every deal team member.

Even with this seemingly simple integration process, there are no guarantees that a deal won’t collapse for unanticipated reasons. But, a planned, organized, disciplined process that assigns responsibility and ownership to a team dramatically improves the odds of success.

Note: If you have an interesting and/or educational CEO story of Head Noise caliber, write to me at cbishop@capitusgroup.com. I’d love to speak with you and share your story in my Head Noise blog. You can tell your story either on the record or, without attribution.

Cameron Bishop is a partner with The Capitus Group. The firm provides comprehensive business value enhancement and transition strategy solutions. Partners and Advisory Directors comprise an experienced team of business professionals who have successfully owned, run, grown and sold companies. Capitus utilizes proven value enhancement and risk reduction techniques to enable superior transition options.

 

Deal Team 6: A study in Acquisition Precision

Currently, I am advising an industrial manufacturing company on the sale of a division. This project reminds me of the disciplined process our deal team at Primedia/Intertec used for many years to execute probably 30 plus buy/sell transactions over just a few years. Back in the day, we essentially functioned as a deal factory while we executed a leveraged roll-up business model for a PE firm.

On a consistent basis, we were evaluating, negotiating, integrating and selling businesses. Often, we had 4 to 6 deals in one stage or another of the process at any one time.

Working with this volume of deals lead us, over time, to develop a highly disciplined M&A and deal integration process. Our process was totally dependent on an internal team of experts. That team functioned like a well-oiled machine, required a tremendous amount of mutual trust and over-the-top inter-team communications.

Most often, the team consisted of at least 6 executives/department experts. They included:

  • CEO/President
  • VP of M&A and Strategic Planning
  • CFO
  • CTO
  • VP of Production and Manufacturing
  • Division Executive who would own responsibility for the business once acquire

With my current industrial manufacturing client, we recently met with a potential strategic acquirer who is also on an aggressive acquisition growth track. They arrived for a meeting with my client and, like we used to do back in the day, brought in their corporate team of experts. Deal Team 6.

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They had clearly done their homework on the business, reviewed all of the material on the business in detail. They proceeded to utilize meeting time in a highly efficient and effective manner to extract the maximum amount of diligence information.

This company’s M&A/deal team worked in tandem. They easily played off of each other’s questions, based on the answers they received. So often, an unexpected answer to one specialized department question has ramifications for another discipline in the company that can often have serious ramifications for the successful integration of the business if not fully explored.

In all cases, the CEO wisely deferred to his team to go through their specialized diligence check lists. At the right time, he would add the appropriate context or clarification question as required to fill in the blanks on a big picture basis. This gave him invaluable info needed to best assess how this potential acquisition would fit with his company strategically, technically and, not to be under-emphasized, culturally.

Here are 4 key reasons why this disciplined team approach to acquisition assessment is so effective and leads to a much higher rate of successful business integration.

  • Every member of the team, hears all questions and answers. This builds a broad understanding of and far deeper background on the business than can possibly be gained from reading a Deal Book or gaining knowledge second-hand from someone who was there.
  • Each Deal Team 6 member gains an understanding of the business on an intuitive level as well. They see the facilities and gain an intangible perspective on the business that can only be developed by meeting the selling company management face-to-face. There’s an element of context and intent that adds invaluable color to what otherwise might simply be a sterile, factual or suspicious answer to a question. To put it another way, it’s one thing to look at a photo of the Eifel Tower but something completely different to experience it in person.
  • Once the deal is done, The Deal Team 6 then owns the responsibility to effectively integrate the new business into the parent company. There is a tremendous art and science to deal integration that I will address in a separate blog.   Needless-to-say, deal integration success improves exponentially with a Deal Team in place and a highly organized and disciplined process.
  • If the CEO allows his Deal Team 6 to openly assess the Strengths, Weaknesses, Opportunities and Threats of the deal at the end of the diligence process and those attributes are heard and fully vetted, the Team becomes more cohesive and motivated to deliver results because they were heard and concerns and ideas were addressed should the CEO choose to close the deal.

Merger, acquisition and integration work is a combination of art and science. It is infinitely more effective and successful if approached on a team basis, leveraging the collective knowledge and experience and, with a rigorous process in place.

Note: If you have an interesting and/or educational CEO story of Head Noise caliber, write to me at cbishop@capitusgroup.com. I’d love to speak with you and share your story in my Head Noise blog. You can tell your story either on the record or, without attribution.

Cameron Bishop is a partner with The Capitus Group. The firm provides comprehensive business value enhancement and transition strategy solutions. Partners and Advisory Directors comprise an experienced team of business professionals who have successfully owned, run, grown and sold companies. Capitus utilizes proven value enhancement and risk reduction techniques to enable superior transition options.

 

Thinking about transitioning from your business?

 

By Dave Raden

Principle, Capitus Group

Let’s talk about how to increase Corporate Value and decrease Business Risk?

In a recent article, I provided an overview of a 4-Step Transition Plan for your business:

  • Discovery
  • Options Assessment
  • Strategy Selection

 

  1. Plan Execution. And then a following article discussed the first part of Discovery-Personal Transition Preparation.The second part of the Discovery step involves an objective evaluation of your company including understanding where the company lies in its lifecycle and what its value and risk parameters really are. It is very important to understand how to properly use Corporate Valuation Enhancement along with Business Risk Reduction concepts to ensure that you are achieving the personal ownership goals described in my previous article.Let’s start by understanding where your company is in its business lifecycle. Let’s define the stages as:
  • Early
  • Growth
  • Mature
  • Regeneration
  • Transition For today’s discussion we will assume that most companies looking to transition are not in the “Early” stage. But knowing what stage in which your company currently resides is important to know in to preparing for the final “Transition” stage.   Below are specific challenges of the other three stages:
  •  
Growth Maturity Regeneration
Challenges Profit/Value Strategy   Focus/Execution Competitive Strategy Reassessment
Resource Allocation   Infrastructure Development Maintain and Optimize Reconfiguration
Capital Requirements   Capital Structure Complexity Maximize Capital Efficiency Re-Evaluate Needs
Human Resources   Build Professional Mgmt. Team Maximize HR Efficiency Match to New Needs
Prod/Svc. Development   Expand Product Offering Optimize Quality and Service Create New Offerings
Systems   Scalable Systems w/ Metrics Refine/Improve Systems Match to new needs

 

 

Please be aware that the lines between these three stages may overlap. For example, in a manufacturing company I owned in the flexible packaging industry, we were a mature 30 year old business growing top line revenue over 10%. But we were really in a Regeneration stage.

We had six color presses in a market demanding up to 10 color print capability. If we didn’t spend millions in the near future on new equipment, our business would be lost to our competition. Frankly we also needed to do significant work in all of the challenges above in blue under the Regeneration box.

At that point in time, while our historic revenue and EBITDA growth looked good, our business risk was high which could potentially negatively affect corporate value.

So to enhance value through risk reduction, a process of objective evaluation of the specific functional areas of business needs to be initiated. There are several tools that can be employed that range from using due diligence checklists to computerized models.

As an example of one such tool, we have found that a model developed by Kenneth J Sanginario of Corporate Value Metrics that is called the VOP, (Value Opportunity Profile), not only gives a current corporate value baseline but also designates risk areas that are stated in three levels of importance. Also, it provides guidance on the potential increase in corporate value if improvements are made. The specific issues that need improvement can then be incorporated in your business plan.

To utilize the VOP, you first enter financial information for at least three but preferably the last five years along with expected future growth potential.

Then over four hundred questions are posed to your management team in the following eight functional business areas:

  • People
  • Leadership
  • Sales
  • Operations
  • Finance
  • Marketing
  • Planning
  • Legal

This model was designed by corporate valuation experts so it gives a baseline valuation from the uploaded financial information and answers from your company team. While it then lists specific things that need improvement in a prioritized list, the developers realized that rarely can all of these be accomplished at once. You can “what if” the model with those issues you want to tackle first and see how much value improvement can occur with successful execution.

The take away after using a process to delineate where your company truly resides in its lifecycle. It helps you to develop a baseline value and examines current business risk along with some ways to reduce it. Further, it allows for better preparation to assess your transition options in Stage 2 of our process.

Whether you are beginning to prepare for a transition or just want to make your company more “saleable”, utilizing a formal process will help to enhance your EBITDA and reduce future business risk.

To quote Gary Miller of GEM Strategy Management, “Begin planning early, prepare your company to go to market, select an interdisciplinary team of experts who can work together, monitor the team with a lead consultant and execute the plan when the timing is right.

Planning to meet ownership goals is not something to start a few months before a potential exit. It is a process that can take from two to five years to successfully execute.

Next time we will explore Stage 2-Options Assessment. We will discuss how to put the right team together to make sure all viable options are put on the table that will best assure that ownership goals are met.

Note: If you have an interesting and/or educational CEO story of Head Noise caliber, write to me at cbishop@capitusgroup.com or to the author of this article, Dave Raden at draden@capitusgroup.comI’d love to speak with you and share your story in my Head Noise blog. You can tell your story either on the record or, without attribution.

Cameron Bishop is a partner with The Capitus Group. The firm provides comprehensive business value enhancement and transition strategy solutions. Partners and Advisory Directors comprise an experienced team of business professionals who have successfully owned, run, grown and sold companies. Capitus utilizes proven value enhancement and risk reduction techniques to enable superior transition options.

 

 

 

 

 

 

www.capitusgroup.com