Smart Business Dealmakers

Cyprium Partners’ John Sinnenberg

Fri, 22 Jun 2018 05:24:26 Z

John Sinnenberg’s first exposure to dealmaking was very hands-on. It was the early 1980s and all the financial modeling was done by hand. Sinnenberg was at Bankers Trust, where he worked on two of KKR’s first three deals.

“We had no computers, so if you were doing sensitivity analysis and you changed one thing, you had to redo everything,” he says. “It wasn’t a spreadsheet that updated everything for you. You had to think through the implications of what was going to happen when one input changed.”

From that thorough approach, Sinnenberg learned the intricacies of dealmaking as he served a variety of investment banking, trading and senior lending functions throughout the ’80s. He also worked at Barclays — even moving to London to work on the bank’s trading floor for a year.

When he returned home in 1989, Sinnenberg helped launch Barclays’ mezzanine capital group. Since then, he has founded several private investment firms focused on the middle market — including Key Principal Partners (which spun off KeyCorp’s mezzanine capital fund), and most recently, Cyprium Partners. Since the partners of Cyprium established their first investment vehicle in 1998, they’ve made 84 investments totaling more than $1.4 billion in capital.

Smart Business Dealmakers sat down recently with Sinnenberg to talk about his evolution as a dealmaker and the lessons he’s learned from deals good and bad.

How have you evolved as a dealmaker?

When I was starting out, I was unjustifiably overconfident, which you’re supposed to be in your youth. When you’re young and you’re negotiating investments, you want to win every point. But as you get older and more experienced with deals, you realize there are some points you really need to win, and the rest of them are just ego. Now I know the difference.

What’s the most important lesson you’ve learned?

To be successful in this business, you always need to be curious. Disruption can happen to most businesses, particularly with advances in technology, AI, big data, etc. If you’re not questioning what you’re doing, you can easily find yourself being disrupted. You can’t insulate yourself because you won’t know what growth opportunities you can achieve unless you’re curious.

What are some red flags to watch out for in a potential deal?

When we go in and talk to the owner of a business, our first question is not, ‘Tell me how much cash flow you’re generating. How are you going to pay us back?’ Our first question is, ‘What keeps you up at night?’ We don’t want their first question to be, ‘How much is it going to cost me?’ but, ‘How can you help me?’

If we don’t get that dialogue, we don’t have the right relationship. There are a lot of people who will just supply money for a return, but there’s risk associated with that if you don’t have the correct cultural matchup, so we always try to be on guard for that.

One of the things we do is we try to discern how the owners or CEOs view themselves. Do they have an outside board of directors? Who’s on that board of directors? A lot of people don’t, and they only listen to themselves. So we interview [board members] to see if the CEOs actually listen to their expertise.

The second thing we do is we interview the members of the management team individually. Some CEOs just leave the room and let the members of the management team speak, which is a good thing. And then there are CEOs who sit in the room, and the moment they hear something that’s inconsistent with the way they think, they jump in.

Because we make non-controlling investments, we want a good management team. It can’t just be one person. It’s not unusual to find one person who isn’t singing from the same hymnal, but if the CEO is the one who’s not in alignment, it’s a deal breaker.

How important is it for business leaders to be open to dealmaking opportunities?

It’s critical. You may not want to make an acquisition, but you may not know there’s a technology out there that could really enhance what you’re doing. You may not know there’s an entire customer segment that you’ve never thought about.

It’s not that you have to do deals, but you should always be curious. That curiosity may lead you to do deals, or it may lead you to the conclusion that you’re really not in as good of a competitive position, and you ought to be selling instead. But if you’re stuck with your blinders on, you don’t have an outside board of people you’re relying on to question you, you’re setting yourself up for potential failure.

What’s the best advice you’d give other dealmakers?

Do your due diligence. Make sure you call the references, and make sure you’re not just getting ‘everything was great’ references. That’s the most important thing. We want to know how a management team is going to behave if an unexpected development occurs, and they should want to know how we’re going to behave. People get a little reluctant sometimes to give you that information, so you have to be willing to walk away if you can’t satisfy those issues.

Learning about the business makes you much better prepared to react in a logical way when something either advantageous or adverse happens. A lot of people don’t like to think about that, but that matters to us.

How to reach: Cyprium Partners, www.cyprium.com

IMCD’s John Mastrantoni

Fri, 08 Jun 2018 06:16:20 Z

When John Mastrantoni started working at The M.F. Cachat Co. as a young sales rep in 1984, the specialty chemicals distributor was doing $2 million in sales. By the time Mastrantoni and two partners acquired the business through an owner-financed buyout in 2002, the business had blossomed to about $60 million.

As the company continued to grow, Mastrantoni wanted to figure out an exit strategy that would sustain M.F. Cachat’s success. Around the $300 million mark, he started looking for a buyer that could propel the company forward.

In June 2015, global specialty chemicals distributor IMCD acquired M.F. Cachat, which became IMCD US LLC, marking the first North American location for The Netherlands-based company. Mastrantoni stayed on board as president, where part of his role is leveraging his relationships to help the new owners make additional acquisitions.

Smart Business Dealmakers sat down with Mastrantoni to discuss his experience on the buying and selling sides of dealmaking. He shared his advice on how to maximize results and minimize surprises by preparing — personally and financially — for the sale of your business.

What items should be on a seller’s checklist?

You should have well-audited financial statements, a normalized income statement and a quality of earnings statement. Clean up your receivables and inventory, and make sure your working capital and cash flow are being managed properly.

You have to have real, sustainable numbers that present value to a buyer. Otherwise, you’re going to discredit your ability to deliver those numbers, and it’s going to impact the price and the buyer’s desire to buy your company. The better you know your numbers, the more comfortable the buyer is going to be.

You want to convey confidence to the buyer about what he’s buying — just like your house. If you don’t clean your house, I’m not going to buy it; and if I am, I’m going to buy it cheap. But if I walk in and it’s been updated, cleaned and professionally landscaped, I want to buy this house because people took care of it. You should keep your business house in order every day, so that preparing for an event isn’t such a herculean effort.

What’s the most important lesson you’ve learned about selling a business?

Don’t get caught up in what you read in the papers about how much money you can get for your business. Really do some soul searching and decide what you want from the sale of your business. If you’re so fixated on, ‘I’ve got to get 10X EBITDA because my buddy got 10X EBITDA,’ then you’re going to limit buyers.

What do you really want/expect from the buyer — short-term, long-term, in terms of the impact to your people, to your organization, to your culture? Do you care? If you’ve got a great benefit package and all of a sudden, the new guy comes in and gives you a terrible benefit package, maybe you don’t care. But if you do care, because it’s the last decision you’re going to make that will impact your business, think clearly about what kind of buyer you want to buy your company.

So many people focus on the money first, and I’m not saying they shouldn’t. But then everything else is secondary, and then they’re disappointed: ‘I didn’t realize they were going to cut this or change that.’ Well, you weren’t asking those questions; you were too focused on how much money you were going to make. You’ve got to think through the impact on the people and not get so fixated on the accounting.

What were some key takeaways from your panel discussion at Aspire about selling a business?

People don’t always think about this, but depending on the amount of revenue involved, a sale can have an impact on your family — emotionally and financially. Even if the family doesn’t get any exposure to the deal, someone might feel they should, so it’s important to prepare for that.

Try to think through: What are you going to do after you sell? Do you want to stay home, or do you want to go back to work? Can you work for someone else? It’s important for an entrepreneur, who has been running a business all his life, to think about these things. A lot of these guys have an energy level of 110 percent, and all of a sudden, they’re not needed anymore.

You’re so involved with the deal that you’re not thinking about the personal consequences, outside of the fact that, ultimately, ‘I’m going to retire and I’m going to have a lot of money.’ But there’s a lot more to it than that.

How have you evolved as a dealmaker?

I’ve become more knowledgeable about the process. Preparation is key, and having strong financial advisers is key. I was fortunate to have good advisers and one of my partners is very strong financially, which made a big difference in us selling the company.

Now that we’re on the buying end, I’m seeing companies from the inside and realizing, in some cases, they’re not very well managed from a profitability standpoint. I’m shocked at how poorly some businesses are managed financially. They’re not prepared for a sale, and it puts a huge strain on the organization to get prepared.

What’s your outlook on the current dealmaking market?

From an M&A perspective, the U.S. economy has been very strong for a long time. I think companies want to grow and they’re struggling to grow, because the economy has only been growing two percent a year. Companies are looking to acquisition to fuel their growth because they can’t get organic growth on their own. At least, that’s the way it is in the chemical industry; there’s been a lot of consolidation, which drives up price.

Right now, the prices are good, but my concern is (the future). You typically go into recession every 10 years, and we’re right at the 10-year mark. You could say the recovery hasn’t been that strong, so this is not the typical cycle. You could say the Trump tax cuts are going to spur economic growth, but the reality is, the recession is coming.

So, do you pay a huge multiple today and then go into a recession tomorrow? I think there’s time left, but I wonder by the end of this year, if multiples start to go down based on global economic activity.

What advice would you share with dealmakers?

Every deal is specific to the individual, so everyone has to make their own decisions about what they value and what they want. Not that you shouldn’t listen to other people, but don’t make a deal based on what other people tell you. Make a deal based on what you think is the right thing to do for you and your family and your company.

How to reach: https://www.imcdus.com/

Kichler Lighting’s Dave Pamer

Fri, 25 May 2018 05:16:31 Z

Just a few months after their January acquisition by Masco Corp., the Kichler Lighting team is fully immersed in the integration.

“We’re drinking out of multiple firehoses at once,” says Dave Pamer, Kichler’s executive vice president of sales and the company’s internal point person for the transaction.

Pamer leverages a long history of dealmaking experience to help his team navigate the change. Before joining Kichlerin 1994, he worked for Prudential Capital Group, where he helped execute a variety of deals, from private placements to mezzanine deals to leveraged buyouts.

Through his dealmaking career, Pamer has seen both good deals and bad. So far, all the signs from this latest acquisition point to positive results.

“We feel that it’s a good cultural fit, and that’s important in terms of how well the integration will be executed,” he says. “There’s a sense of collaboration and working as a team. They’re respectful and asking for our input, which will contribute to the long-term success of the transaction.”

Smart Business Dealmakers spoke with Pamer to learn how preparation, delegation and communication can facilitate a smooth transaction.

What’s the most important lesson you learned from Kichler’s acquisition?

The more upfront preparation you have, the more you control the conversation. The more you’re able to clearly articulate the elements of a transaction that a buyer would be interested in, the better you can convey and create value for them.

Your recent panel discussion at Aspire emphasized the importance of preparation when selling a business. What was another key takeaway from your session?

During the sale process, you should only be focused on two or three initiatives — versus when you’re not going through a sale, you’re focused on six or seven. It’s critical to execute well on a couple things while you’re going through the distraction, the uncertainty and the emotions of a transaction.

Those initiatives (you should focus on) should be around sustaining growth and earnings because a transaction is a prolonged process — and you don’t want to compromise growth and earnings throughout the process. Otherwise, the transaction becomes a new negotiation.

How do you keep your focus on those initiatives during an acquisition?

The ways you manage it best are:

Having clear priorities and managing to those priorities.
Communicating those priorities to the people that you’re dependent upon.
Delegating to your team by explaining why you need them to do these specific activities or priorities, while you’re doing something else.

Anybody that tells you it can be done extremely well would be misleading you, because something will inevitably fall through the cracks.

Why is it important for leaders to have a dealmaking mindset and be open to potential deals?

Five, 10, 15 years ago, I don’t think you had to be as cognizant of the deal community as you have to be today. The pace of business has changed so much, and I just think it’s better to be proactive than to have to respond to the moment. If you’re responding to the moment, you’re working hard to play catch-up. You compromise your preparation and execution by not being open to dealmaking. That doesn’t mean you have to be for sale, but being part of a network and understanding what’s happening in the marketplace is imperative today.

Talk about a deal that didn’t work out. What did it teach you?

Back in the late ’90s, while we were going through the due diligence process and negotiation, the market changed on us. The market for the products changed — the substrates that went into it, even the size of them changed — and yet, we continued to plow ahead with the acquisition.
The lesson learned is that it’s okay to walk away in the moment. Up until that point, all you’ve incurred is sunk cost. But if you continue to go forward in that transaction, knowing that the market dynamics have changed, now you’re creating losses going forward.

What’s the best advice you’d give other dealmakers?

This also came up in our panel session: Transparency and communication to your key people is not an option; it’s required. They can help drive more value for you in the acquisition if you include them in the process. Share information with them. It will make your life as a business owner easier because the outcome is likely to be more favorable than if you’re not transparent.

In the face of uncertainty and fear by your employees, if you don’t try to keep them close to you and provide reassurance, then your competitors and search firms will take that uncertainty and fear and put it on steroids. You risk losing good people who you still need to drive growth and sustain earnings.

I lost 36 percent of my sales management team in the Masco transaction because competitors and search firms came after my people and created fear and uncertainty.

What would you have done differently?

Maybe I could have done an even better job of reassuring, communicating and sharing — but there’s limits on what you’re able to share, so it’s a real catch-22.

I’ve tried to be open, reassuring and communicative throughout the entire process. I have good relationships with my team, but in the moment, when someone has a bird in the hand versus two in the bush, they’re going to make a judgment of what’s right for them.

How to reach: Kichler Lighting, www.kichler.com

J.W. Sean Dorsey

Fri, 11 May 2018 07:29:53 Z

J.W. Sean Dorsey has closed hundreds of deals over his 35-year career, helping familiar brands like Buffalo Wild Wings and 1-800-Contacts go public. But “everyone wants to talk about the Cleveland Indians,” says Dorsey — the founder and CEO of League Park Advisors, an investment banking boutique named after the original Indians stadium.

Long before he founded a handful of dealmaking firms in Cleveland, Dorsey began his career as an attorney. As a first-year associate at Baker & Hostetler LLP, Dorsey was part of the team that helped real estate developer Richard Jacobs purchase the Cleveland Indians for $35 million in 1986.

After transforming the struggling franchise into an American League powerhouse, Jacobs took the Indians public in 1998. Dorsey, who was a banker at McDonald Investments by then, helped orchestrate the first IPO in Major League Baseball history. To conduct due diligence for the deal, he spent five weeks on the road with Jacobs and Indians general manager John Hart, attending the team’s Fantasy Camp and spring training.

Dorsey was also part of the team that helped Jacobs sell the Indians to Larry Dolan for $320 million in 2000. His dealmaking aptitude kept expanding, as he ran M&A for KeyBanc Capital Markets and then led the investment banking and capital markets businesses at National City Corp. before becoming “a deal entrepreneur.” Now, through various dealmaking firms and partnerships, Dorsey remains on the frontlines — closing about 10 to 12 deals per year.

“A lot of times, people talk about what they did 20 years ago, but the deal business is always evolving,” Dorsey says. “Being relevant and fresh and on point are really critical aspects of the deal business. Staying passionate about it makes for a very interesting career.”

Smart Business Dealmakers sat down with this Master Dealmaker to discuss how the dealmaking business has shifted through the decades and the insights he’s learned along the way.

Cleveland through the decades

Back in the ‘80s, Cleveland was a large corporate headquarters town. There were a lot of large international banks here, and a lot of business was a function of those big companies. A lot of those big companies moved on, but left people who stayed here for the lifestyle. As a result, the infrastructure of private equity started to grow here.

Early on, a lot of the capital was debt-oriented and municipal finance, but the tax code changed in 1986 to stop deductibility of interest on these bonds — which morphed a lot of companies going into equity and hurt a lot of real estate.

Fast-forward to today, whether it’s cryptocurrency or family offices or what’s going on with unitranche financing — the dealmaking business is always changing. That’s what I love about it; it’s never a stale business. That’s what makes it interesting.

Current deal environment

I tell people, ‘If you’re not successful in the deal business now, then you should not be in the deal business. ’It’s the best market I’ve seen in 35 years. Of course, there are always challenges — for example, it’s been a struggle to find second-tier venture money in town, but there are people trying to fill that space. Banks are lending, there’s plenty of private equity and lots of investment banking, so it’s a great time to be in the deal business.

Dealmaking motivation

What motivates me in selling a business is that I feel an obligation to help people reap the fruits of 20 or 30 years of labor — financial obligations, sacrifices, soccer games missed. On the buying side, you’re putting someone’s financial assets to work, and you need to get a return on them.

I like to think about the intrinsic nature of why you’re actually doing a deal. It’s not just the deal for me. It’s the people.

Essential deal ingredients

People make deals. So, the psychology of deals — how people think about what’s fair and what’s not fair — is fundamental to whether a deal happens or not. Integrity and honesty are the most important things to build your credibility as a dealmaker. Cleveland’s a small town, so people either trust you or they don’t.

One thing that deal people sometimes forget, in the expediency of trying to get deals done, is this whole issue of the business operating successfully after it’s bought or sold. So, the real issue around deals is transparency: Do buyers understand what they’re getting into, and do sellers understand what they’re doing? I like to think of myself as an expert guide who helps companies through the process of buying or selling a business.

The Last Word

There are three things investors want to see:

Demonstrated success, either from the business or its jockey.
A path to a real return that meets their expectations.
And most importantly, you need that jockey; you need the operator.

It’s not worth investing in a good business if you don’t have a person who can run it. The most important trait companies should look for in a funding partner is a common vision. Every deal is different, and every private equity firm has a different vision and a different perspective on your business. Most people tend to think that the money is interviewing you, but I like to turn it around: You should interview the money and make sure the fit is right.

How to reach:League Park Advisors, www.leaguepark.com

SunTrust’s Jim Geuther

Fri, 13 Apr 2018 04:36:41 Z

Business leaders are increasingly optimistic about growth in the economy and in their companies, according to the results of the annual Business Pulse Survey by SunTrust Banks Inc. While this growth presents plenty of dealmaking opportunities in the year ahead, it also poses a severe challenge as executives struggle to keep up with hiring demands.

“Attracting and retaining employees is the top challenge of 2018,” says Jim Geuther, Cleveland market president for SunTrust — which just opened its commercial bank office in Cleveland last August. “There’s a huge demand for employees that’s way outstripping the supply.”

Instead of just trying to fill positions, savvy dealmakers can position their companies for growth by strategically acquiring the talent they need. Geuther spoke with Smart Business Dealmakers about “acquihiring” and other important trends revealed in SunTrust’s survey results.

How would you describe the M&A market in Cleveland right now?

If I were to put one word around it, it would be: healthy. There are four macro factors that are driving dealmaking activity:

Business confidence. The SunTrust survey found that the majority [62 percent] of middle market leaders believe the U.S. economy is strong, and they’re even more optimistic [79 percent] about their own company’s strength. Obviously, employment is continuing to grow at a robust pace, and with unemployment being historically low, the demands for work are certainly outpacing the supply.
Strong market valuations. Public trading multiples across industry sectors are at all-time highs, and that sets the benchmark for private companies. We’re seeing M&A deals resulting in the private space with very strong valuations.
Constructive debt markets. Despite recent increases in interest rates, companies can still borrow at attractive rates, which generally facilitates higher purchase prices. Plus, banks are really well capitalized with an appetite to book more loans for healthy and high-growth companies.
Available capital. There are huge pools of private equity that have been raised in recent years, with fund managers eager to put the capital to work. The tax reform is also creating a pool of dollars for business owners to invest in their businesses for the long term.

What are the biggest trends, challenges and opportunities you see for Cleveland dealmakers this year?

A trend that really jumped out from another recent survey conducted by the National Center for the Middle Market and sponsored by SunTrust is that M&A is critical to the growth of many middle-market companies. In fact, 60 percent of companies surveyed view M&A as key to their growth strategy. All the 400 respondents either completed an acquisition or sale in the last three years or are highly likely to sell in the next three years.

The challenge is that most executives have very limited M&A experience. For those that are looking to buy, 70 percent have little or no prior experience in M&A. For companies that have sold or are likely to sell, 90 percent have little or no prior experience. But you don’t have to learn from the school of hard knocks. Rather, seek the advice of people who have been in this space. They can level the playing field by bringing their expert opinion to help you plan early on.

How have M&A and hiring become intertwined?

The war for talent is very real. In SunTrust’s Business Pulse Survey, nearly 50 percent of companies said that attracting and retaining employees is their top challenge, and this increased growth and confidence is increasing the demand for employees. Across industry sectors, any organization that’s looking for top talent is having a hard time finding it. So we’re seeing the trend of “acquihiring” becoming more common as companies look to acquire the talent they need. Whether a company is looking to add new product offerings, expand geographically or find a new business sector, they can add those capabilities through acquisition.

What are the keys to successfully closing an “acquihire” deal?

In all cases, planning drives results. My dad was a Boy Scout, so if I heard it once, I heard it a million times: Proper preparation prevents poor performance.

Planning maximizes the likelihood of success and leads to less stress. So many of the business owners we work with have devoted a tremendous amount of time and effort to developing a strategic business plan — but they don’t invest the same time and energy in developing a plan for transition. All companies will transition in some way, shape, or form — whether that be an ownership transition, a management transition, a full or partial sale. It’s going to happen, so plan for it.

My advice is to play chess, not checkers. You have to approach deals in a very strategic way, so start early and plan with the end in mind. You have to make cultural fit a significant piece of your strategy. Have a well-thought-out process for making sure there’s cultural alignment. Anything that doesn’t match culturally, you’ve got to be willing to walk away from.

How to reach: SunTrust, www.suntrust.com

View infographic of survey results here.

Partners in growth

Fri, 06 Apr 2018 05:42:36 Z

David Coury thought he found the perfect strategic buyer to capitalize on his company’s incredible growth. UroGPO, a group purchasing organization for urologists, had multiplied its membership from eight practices in 2013 to more than 500. To climb to the next level of growth and give investors a return on their initial investment, Coury just needed to close the transaction.

However, in the eighth inning of the deal, he hit a major snag.

“We were getting ready to start closing, and there was a shift in culture of what we would have to do moving forward if we were to go work under their umbrella, and it just didn’t feel right,” says Coury, CEO of UroGPO. “The people, the culture, the focus, the ingenuity, and the entrepreneurship that’s inside this company is our success — and it was all about to be stripped with the buyer that I had selected.”

So Coury decided to do something out of the norm. He went back to one of the other bidders, private equity firm Nautic Partners, and finalized a deal with them in late January 2018.

Smart Business Dealmakers talked with Coury about UroGPO’s growth and why it was time to turn to private equity.

Prepare for launch

The idea of reporting to someone else was a strange concept to Coury, who has only ever worked for his father or himself. He had just sold his long-term care pharmacy and started a specialty pharmacy when a group of urologists approached him in 2013 with the idea to start UroGPO.

Wanting to take advantage of a slew of new pharmaceuticals hitting the market, these urologists saw a need to get organized so they could learn how to use emerging medications to treat patients more effectively.

“The timing was really, really right for an organization to get these urologists together,” says Coury, explaining that UroGPO initially launched in response to new prostate cancer medications. Since then, the company has expanded to cover other pharmaceuticals, devices and medical supplies that urologists use to treat myriad conditions.

“To get investors wasn’t the difficult part,” Coury says. “To organize a lot of high-energy, entrepreneurial, strong-minded urologists to move in one direction — that was probably the largest challenge.”

But because UroGPO specialized exclusively in urology, doctors began to jump onboard. The young company found an edge over larger, more diversified Fortune20 companies like McKesson, Cardinal Health and AmerisourceBergen that also own urology GPOs.

“We weren’t creating a new business,” Coury says. “We were coming into a mature marketplace, but we just focused a little bit better than our competitors. We were able to take the lion’s share of the business from them in just a couple of years. We are by far the largest urology GPO and most likely the largest urology company in the country now.”

Surround yourself with support

In all of Coury’s business transactions, the common factor for success was surrounding himself with great people.

“I don’t think any deal gets done if there’s not a talented team with a plan to carry the business forward,” Coury says. “In each instance, I had a team of people around me that were intelligent, hardworking and knew more about the industry than I did. My job was just to let them run and keep it between the lines.”

To support your internal team during a transaction, Coury says it’s critical to surround yourself with a seasoned team of advisers who can help orchestrate the deal, so your employees can focus on the business. Coury’s advisers included Pepper Hamilton (a Philadelphia-based law firm with experience in health care and in GPO transactions), Harris Williams (an M&A-focused investment bank in Richmond, Virginia) and Pease & Associates, a Cleveland accounting firm.

“The best way to avoid red flags and downfalls is to have professionals around you pointing them out,” Coury says. “If you try to run on your own, you’re going to miss a lot and leave a lot on the table.”

Coury could have easily gotten caught up in the deal with the strategic buyer, but it would have sacrificed the culture that made UroGPO successful in the first place. That’s why he reconsidered and partnered with a private equity firm instead.

“Thankfully, I realized that the culture of who is about to be your partner is as important as anything,” he says. “As we went through the process, all of us felt that Nautic Partners was the best cultural fit for our team.”

In fact, one of Nautic’s first recommendations was reinforcing the UroGPO team to accommodate continued growth, Coury said. “One of the first things they told me was, ‘Build out a staff. You’re running so hard, no wonder you wanted to go the strategic route.’ So, we’re bringing on a full-time CFO, and we’ve hired three people in the last month to round out the company.”

Check your emotions

Coury’s approach to dealmaking has matured with each transaction, as he’s learned not to operate out of fear or anger.

“I learned not to be so reactive to every probing question from prospective buyers,” he says. “If somebody’s about to spend a bunch of money, they’re going to look at the warts as much as they’re going to look at your smile. Don’t get offended. It’s not an emotional thing. When you buy something, you want to know what you’re buying. Keep your emotions in control, look at this as an opportunity and enjoy the process. Be proud of what you’ve accomplished, because somebody wants to buy you for a reason.”

Initially, Coury had hesitations about partnering with a private equity firm because of the stigma that they’d take over. But because he took the extra time to secure a cultural fit, he realized that Nautic wanted to partner with UroGPO so they could add resources to accentuate the business, not take it over.

“I don’t have to necessarily change the way I operate, because that’s what they bought, that’s what they invested in and that’s what they partnered with: with me, this team, and our strategy,” Coury says. “It is a different feel with private equity, but they’re collaborative, they want to help, and they’ve got resources and contacts across the country. Ultimately, I think we knocked it out of the park with Nautic.”

Today, UroGPO has 13 employees and a membership of more than 3,200 urologists in 49 states — representing approximately 60 percent of community-based urologists across the country. Now, with the support of a likeminded private equity partner, UroGPO is positioned to keep growing, never resting on its laurels.

“Complacency will eat you up,” Coury says. “If you’re humming along and you’ve got your customers and you’re not growing or being innovative or coming up with new strategies to stay up with industry norms — if something goes wrong, you’re done. You can’t rest on your laurels just because it worked the last few years. You always have to be forward-thinking, growing the company, because if you get complacent, you run the risk of not being able to dig out.”

How to reach: UroGPO, http://urogpo.us.com/

Zapis Capital Group's Lee Zapis

Fri, 09 Mar 2018 03:05:36 Z

Lee Zapis has invested in more than 20 companies since 2003, but he knows it takes more than just capital to build an outstanding business. That’s why Zapis Capital Group prefers to take an active role in its portfolio companies, providing strategic advice and resources in addition to equity investments.

“Our ideal investment is backing a business development professional that has identified a solution to a problem in their industry, but needs a partner to help them achieve their vision,” says Zapis, who focuses on early/seed stage technology companies. “I prefer to find ones that we can really help add value to, besides just writing a check.”

Zapis spoke with Smart Business Dealmakers to share his keys for dealmaking, his outlook on Northeast Ohio’s capital market and his advice for entrepreneurs and executives who are trying to raise capital.

How would you describe the capital market in Northeast Ohio today?

Everyone complains that there’s not enough early/seed stage money for startups. We have groups like Flashstarts, North Coast Angel Fund and JumpStart that do a lot for early-stage companies, but there’s not a lot of money out there for people who have an idea and have spent some time and effort and their own money to develop that idea.

What challenges do you see for investors in 2018?

I like to think of myself as an optimist, but I see storm clouds on the horizon. We’re in the eighth year of economic expansion. One of these days, it’s going to go south, and I think there’ll be more opportunities for us when that happens, because valuations will come down and we’ll be in a better position. We have the luxury of being patient because we only invest our own money and don’t have to worry about limited partners or specific time horizons for an exit.

What’s your advice for entrepreneurs and executives trying to raise capital in this environment?

Talk to as many potential investors as possible. The more people you talk to, the better your chances of finding the right investment partner that you’re comfortable with, that can bring value to you.

It’s like buying a house: The more houses you look at, the more you find what you like and don’t like. You develop a sense of what’s important to certain investors. Not every investor is going to line up with your needs or your vision.

For the most part, people in Northeast Ohio are very willing to give advice. So, if there’s a deal I see that really doesn’t fit our criteria, but I know somebody who it would, I’m happy to make those introductions because the more success there is in Northeast Ohio, the better it is for everyone.

What drives your approach to dealmaking?

The three most important things when it comes to dealmaking are people, people and people. I have to like the entrepreneurs and enjoy being in their company before I’ll consider investing in their venture. A lot of it is an intuitive gut feeling; some people you connect with and other people, for whatever reason, there’s not that connection, so you just have to spend time with them, getting to know them, learning about their background, what drives them and what motivates them.

Ron Cohen, the founder of the accounting firm, Cohen & Co., told me several years ago, ‘Life’s too short to work with a--holes.’ That's become my mantra. Somebody might have the greatest idea ever, it could be a billion-dollar business, but if that guy’s a jerk, it’s not worth it.

The times when (deals haven’t) worked for me was when I ignored the people equation and fell in love with the idea and thought, ‘Oh, we can fix the people.’ No, you can’t fix the people. You might alter the business idea, but you’re not going to fix the people.

What do you know now, through experience, that you wish you would have known when you made your first deal?

I wish I’d had a larger network of experts to work with back then. The more smart people you can lean on and call on for their insight and vision, the better. Obviously, the older you get, the more people you come in contact with, the broader your network gets. Of course, tools and technologies today like LinkedIn have helped.

Trying to expand that network is important for everyone. I like to have a network that is pretty broad and diverse in the sense that there’s people I know from a lot of different industries, from the media business which I spent most of my career in, to the music industry, to early-stage technology startups and software. I think the broader and more diverse your network, the more valuable it becomes.

How to reach: Zapis Capital, www.zapiscapital.com

Millcraft's Travis Mlakar

Fri, 23 Feb 2018 10:11:52 Z

Travis Mlakar views every acquisition as a new addition to his family. In the last five years, he’s led seven acquisitions to expand Millcraft, a family-owned paper distribution company based in Cleveland since 1920. The largest deal, in 2013, doubled Millcraft’s revenue and increased its headcount by nearly 60 percent, while helping it diversify into packaging and digital printing products.

But Mlakar says the success of a deal isn’t about the products or capabilities a business acquires. The most critical assets are the employees.

“An acquisition is all about the people,” Mlakar says. “They will make or break the acquisition. The leader needs to focus on the people, then let them focus on integrating the two companies.”

Now with more than 250 employees, 17 locations and more than $250 million in revenue, the fourth-generation paper company continues to evolve as the Millcraft “family” grows.

Smart Business Dealmakers spoke with Mlakar about getting people involved in acquisitions and leveraging their input to shape the success of a deal.

What are your keys to a successful acquisition?

Be willing to walk away. If you get so attached to the (desire) to make the deal, you will make a bad deal. But, if you set yourself up with well-defined boundaries and “walk away” lines, then you will have the discipline to structure the deal the right way.
Be honest and transparent. Make sure you uncover what the challenges will be and put contingency plans in place to mitigate those.
Get your people involved. Give them a sense of ownership. If people are kept out of the loop, it will fuel fear and concern for the unknown.

How do you get people involved before a deal is finalized?

We created a broad, cross-functional team that we brought into the loop during the due diligence process. As it became apparent that the deal was going to happen, we continued to expand the size of the team.

We taught them throughout the process that a deal is not done until the paper is signed. We pushed them to understand the sensitivity of the information and be responsible with what they learned. This taught the team a valuable lesson in managing the highs and lows of acquisitions.

In the end, our team was about twice the size of what a normal due diligence team would have been and included two or three people from each department.

I let our team know that they were responsible for the tactical aspect: How many people would we need to add in each department? How many additional trucks would we need? What were the issues with inventory? Did we have enough hardware? How would we train? I let our team answer those questions. We focused on what they needed to be successful. This made sure that each person took ownership in their departments.

Who helped you become a successful dealmaker, and what did they teach you?

I was very fortunate to be surrounded by a number of folks who helped me, including my father, our board of directors, our management team and our bank. I would not overlook your financial partner during an acquisition. They have been through a lot of them. They see what works and what doesn’t. They know what to look for. Leverage them. Ask them what they feel are critical steps.

I also learned so much from the team we involved in doing the due diligence and integrating the acquisition: What concerns did they have? What were they excited about? The best advice I received was from listening to everyone and making sure I had respect for their perspective.

What do you know now that you wish you knew when you led your first acquisition?

Negotiate face-to-face. Don’t do it over the phone. I would also recommend when you have conversations, write down in plain English what you have agreed to and keep a list of what you are still discussing. Make sure everyone shares the same notes. During our acquisitions, I had a wonderful partner from our law firm who brought the idea that we needed to negotiate and agree on all the points to the deal in plain English before the lawyers started translating it into legalese. By understanding the deal in words we could understand, we always had something to refer back to. It made the process much easier.

Additionally, it is critical to have both parties sit down when you think are you done and say, ‘OK, what could possibly come up as a question that we have not addressed?’ Go through the exercise to make sure that you don’t have disputes later that will tear at the working fabric and culture you are trying to build.

What other advice can you share from one dealmaker to another?

Great people and good relationships are incredibly valuable assets. They are hard to find and take years to develop. Making an acquisition to bring those things to your company is worth more than any capital asset you will acquire. In six to 12 months after your acquisition, the inventory will be sold, the receivables will be collected, the cash will have changed hands, but what will be left are the people. Focus on them. They are what you are acquiring for the long term.

How to reach: Millcraft, www.millcraft.com

KeyBank's Kip Clarke

Thu, 08 Feb 2018 04:10:05 Z

In a lot of ways, Kip Clarke says, dealmaking is like a game of poker.

“There’s a lot of gamesmanship involved, and the skilled buyer or seller appreciates how that game plays out,” says Clarke, president of KeyBank’s Midwest region and Cleveland market.

Clarke has been advising buyers and sellers across multiple industry sectors for the last 35 years, closing more than 250 M&A transactions valued at more than $15 billion. He joined Key in 1994 through its acquisition of his firm, and he later built and co-led Key’s M&A group.

Sharing lessons from decades of dealmaking experience, Clarke spoke with Smart Business Dealmakersabout his strategies for mastering the game.

What are your keys to a successful acquisition?

Strategize. Any good acquisition has to be consistent with a broader corporate strategy. Underlying the strategy, there needs to be a series of assumptions. Within those assumptions, there needs to be a thesis around a deal: Why is this so important to us? People get drawn to the numbers, but if they have a thesis that the market is moving in a certain direction and this acquisition will position them better for it, then that’s a rudder that can keep them centered during the process.

Plan. Any plan relies on a series of assumptions. As soon as one of the assumptions changes, you need to see if the plan should change. Let’s say your assumption was that you were in an exclusive negotiation and you had strong bargaining power because there was no other more logical buyer. But then you learn that another credible buyer has emerged. That would require a different game plan: Do you need to start moving a little faster, or change the structure of the deal to offer more upside? How much are you really willing to pay?

The risk is that sometimes people fall in love with a deal, but they don’t have a game plan and they haven’t listed out their assumptions. Then they get whipped into a frenzy and the bidding goes up and the next thing you know, they’ve overpaid and they’re not sure how they got there. It’s important to have these assumptions dictate how much time and energy you spend.

Prioritize. Don’t chew up a lot of time and seller angst around items that are seldom issues. There are typically one or two big assumptions underlying the strategy and execution; you’ve got to see through the haze of many numbers, decks and advisers to stay focused on what’s most important.

Let’s say you’ve identified that customers and culture are most important. What you need to focus on in the early part of the due diligence is metrics related to customers and culture. Stage those early in the process instead of saying, ‘Here’s a due diligence request that’s 25 pages long.’ Sometimes buyers get so wrapped up in wanting to be thorough that they don’t prioritize what’s most important, and then they want to negotiate around every single point — which can really destroy goodwill. Many times, deals fall apart because folks get too tied into the minutiae, but if you get the big things right, you’re good.

What’s the most import M&A lesson you’ve learned?

Pulling together a successful deal is both a science and an art. It requires knowledge of industry and market subtleties, the ability to analyze a multitude of complex factors and a deep understanding of the other party.

Deals are all about information asymmetry. The seller knows everything — the good, the bad, the ugly — and the buyer’s job is to get to the point where they know as much as they possibly can, and hopefully everything, by the time it closes. The reason why things don’t go well is because there are things that buyers didn’t look at until they got to the close.

For example, there may be a seller that is thinking about selling because they’re nervous that the internet is going to fundamentally change their business. That’s probably not a risk that they’re going to openly talk about to a buyer, so there’s natural asymmetry. You’re not necessarily going to tell everybody about every scrape on a car you’re selling.

There are motivations and sensitivities on both sides. Pay attention to the signals — it is a poker game.

If dealmaking is a poker game, what are the tells to watch for?

Let’s say you’re visiting a management team, and they’re giving a presentation on their business. You can tell how carefully scripted and rehearsed it is by paying attention. If the material is flawlessly put together, you can tell they’ve been through this a number of times and there doesn’t seem to be an emotional connection, the signal is: ‘Maybe we’re not in an exclusive process here. We need to be careful about how much time and money we put into this.’

Alternatively, you meet with folks and have a great dialogue, they’re very engaged, they’re pulling material together informally. It’s not highly rehearsed or scripted. The signal is: ‘Maybe this is not being shopped broadly; maybe this is an opportunity to get something at less than full market price.’ But the risk is also: ‘Maybe these guys haven’t really taken a look inside their own closet for skeletons.’

Read the tea leaves: How engaged are they with you? What questions are they asking? How easy is it to get information? The whole process is a tapestry, and there’s all sorts of interesting poker elements. That’s why a big best practice is to make sure you get the principals face-to-face as much as you can, because the more intermediaries you have in the way, the more the signals can get confusing and the poker game gets complicated.

How to reach: KeyBank, www.key.com

All Pro Freight's Chris Haas

Fri, 26 Jan 2018 03:30:13 Z

Chris Haas spent a decade growing All Pro Freight Systems Inc. at a “grinding” pace until he realized that growth by acquisition could multiply his capacity more quickly.

Haas targeted a couple local transportation companies similar to Avon-based All Pro whose owners were nearing retirement. He made his first acquisition in 1998, followed by a second in 2000 — catapulting his business to new levels of growth.

“Acquisitions can be a fluid way to add $10-15 million to your top line,” says Haas, president and CEO. “You could go out and get a customer like PepsiCo and add $15-20 million in logistics business, but those are few and far between and not easy to come by. With an acquisition, the growth comes to you.”

In 2012, All Pro acquired an Elyria-based trucking company that specialized in hazardous material transport because Haas needed hazmat-endorsed drivers to meet customers’ increasing demands. The company has 225 employees and runs about a million square feet of warehouse and distribution space.

Currently eyeing his next acquisition, Haas shares his strategies for making every M&A transaction a win-win.

What was the most important lesson you learned from your first acquisition?

You definitely have to check your ego at the door, and don’t come on too strong when you’re dealing with people. I set up a couple lunches (with the owner of the company I was targeting for acquisition) to lay the groundwork that we were interested in a merger. In order to make a deal work, you can’t be the strong arm. You’ve got to show that you really care about the people and the culture of their company.

I found out, early on, that a deal has to be good for both people. It’s not like buying a car or a house, where you just try to get it for the cheapest price. You’ve got to make sure that there’s enough incentive in it for them.

In our case, we were young and growing, and with the help of their customers and employees, we could accelerate our growth and provide more royalty back to their owners. If they could provide 10 truckloads a day for their customers, we could provide 100, and because of that, we were able to explode the business. It was a win-win for everybody.

What’s your key to a successful acquisition?

The potential for growth. We want to take that company and continue to grow it at the pace we’re growing ours. Typically, we’ve been the bigger company with more assets and more drivers, so we can usually accelerate the growth of the business we acquire. With that comes economy of scale, so not only do you blow up the sales growth of their company, but you cut back on redundancies, and those dollars go right to the bottom line.

What are some oversights that could quickly derail a transaction?

Assuming too much. I think that truthfulness in an acquisition is probably the most important thing. I try to be very upfront and straightforward with people we’re acquiring about what we need and what we don’t need, so before the deal’s done, all those pieces are in place.

In an acquisition, the culture of the company could mean way more to the deal than the dollars and cents, especially if you’re in growth mode and you need people to continue the growth. If their culture lines up with what we’re trying to do, it’s a lot easier. But if it doesn’t, you’ve got to draw the line.

Sometimes the best deal is the one you don’t make. So many people let their ego get in the way — they want this, they want that — and if things don’t line up, they try to force it and it creates a lot of problems. Our acquisitions are good for both sides, long-term, and that makes everybody happy.

How to reach:All Pro Freight Systems Inc., http://allprofreight.com/