Greenwich Capital Group LLC (“GCG”) hosted 30 business owners from some of the best private companies in the Detroit area earlier this month for an informative and engaging panel discussion.
Speaking on the panel were three former business owners who shared key takeaways from selling their private companies: Dan Cornwell of Cambridge Consulting Group; Paul Newman, previously of Dynamic Metals; and David Ploucha of Control-Tec. Moderating the panel was GCG’s CEO and Managing Director, Bob Coury. The panel provided invaluable insights throughout the evening and a unique perspective from owners who have been through the entire sale process.
The panelists answered questions focused on three different phases and their relative aspects of the process, including: (1) What they did right and wrong prior to starting their sale process, (2) their experience through the actual sale process, and (3) a glimpse into life post-transaction. Each panelist represented a different professional background and industry, offering diverse perspectives to the audience as they answered questions and engaged in conversation.
A few key takeaways for business owners included the following:
On the Pre-Sale Process:
- Focus on your company’s financial statements and accounting firm. Make sure your financials are in order and ready for intense scrutiny. The panelists touched on assessing the strength of the CFO as part of the preparation, since a weak CFO can cause significant disruption to the process.
- Plan ahead. It is important to get your tax planning and structuring in order, not months, but preferably years prior to starting a process.
- A succession plan is important, and the identified successor needs to be qualified and effective. A qualified succession team will make the business owner less critical to the future success of the business, which is important for those owners who do not wish to continue in an active role post-transaction.
- Be mindful to the company’s working capital and capital expenditures well ahead of commencing a sale process. Millions of dollars could be at risk for business owners who are sloppy with their working capital or who spend heavily on capex right before they sell.
On the Sale Process:
- Hire the right attorney. This was stated emphatically. Do not adhere to a short-term mentality and hire a cheaper lawyer to save money. Having the right attorney with considerable M&A experience in your corner is worth the additional expense.
- Once the process begins, it is critical to move quickly, especially once a buyer has been selected and you enter exclusivity. In order to stay ahead of the curve, business owners should be prepared for due diligence prior to contacting potential acquirers.
- Understand the buyers. Particularly when it comes to approaching Private Equity, it’s important to understand the groups with whom you are engaged. Observe how they handle the process and how they interact with your team. Have they executed a lot of deals? Do they have the right/relevant experience and track record of success? Ask for references and call them!
- Earnouts were regarded with some skepticism, however, one of the panelists stated that his shareholder group received the majority of their earnout.
On the Post-Sale:
- The panelists had a wide range of experiences post-transaction. One stated that the acquirer (an equity fund) changed the entire management team, resulting in a rapid and ill-fated decline of the company. Another panelist had a great experience where the acquirer empowered the organization to grow and leverage the additional resources to augment the business.
- Understand the expectations for you and your management team post-transaction. If you are having concerns regarding these expectations prior to closing, chances are high that you will have issues post-transaction.
- It is not unusual for your employees to be apprehensive about new ownership. You need to do what is best for the shareholders and try to protect your employees as best as possible. That said, transactions happen every day and most employees aren’t dramatically impacted.
In conclusion, the evening was informative, even for the former business owners in the audience who had already been through a transaction. We look forward to hosting another evening of insightful discussion in October 2019.