When running a business for a private equity owner, Maysteel Industries CEO Kevin Matkin says what's often important when preparing for a sale depends on the buyer type. For a financial buyer, it’s often about the debt structure and how much room there is to move the business forward organically. For a strategic buyer, it's more about integration — how the two companies come together, the impact on employees, and how it moves forward as one. But the differences go beyond that.
When selling a business from one PE firm to another, for instance, he says the primary concern is the shared vision.
“How are we moving this business forward? How are we growing the business? And that can come lots of different ways,” Matkin says. “That can be organic or inorganic. You can come with lots of different strategies, markets. How are you going to move the business forward? So, you got to have a shared vision. A lot of that comes through a lot of different discussions, not just in a LOI. It comes through a lot of discussion.”
Determining if the target is the right fit relies heavily on the shared vision of what’s to be done with the business.
“There's the people aspect of it — do they understand the business,” he says. “And sometimes when a financial buyer comes in they're not as clued in about the operation. And then there's strategic people that come in and they're very tuned in. So, just understanding who that buyer is really drives the conversation on where we're going to go next, how we're going to set this thing up. And there's a lot of conversations that happen way outside the LOI — happens in the hallway, it happens at the management presentation, happens at dinner, there's phone calls and zoom calls. There's a lot to it to get across the finish line. The hit rate is a coin flip. But you got to be ready for both sides of that, depending on what happens.”
Putting together a cohesive team before going to market is an ongoing process, and it's often not done at the time of the deal.
“You're building the team all the time and trying to put the right people in the right places, working on the right things in the right order,: Matkin says. “That's what you do every day. That's an ongoing process that should be evaluated all the time.”
People in private equity are savvy. When buying a business, they're looking at the team to determine if they can take it to next level.
“The private equity guy didn't buy it so we can keep it at $30 million,” Matkin says. “We're moving it to another level. Can you move it to the next level? And that's really the question that they're trying to answer.”
If they don't see it at the time of the deal, then they'll likely move forward but have a game plan in place over the next couple of years to build the team out. For the business leader staying with the acquired company, it’s important to have a shared vision with the new buyer on how to build it out and what resources are needed.
“It's about trying to put the right people in the right places,” he says. “That discussion is happening all the time. It cannot wait till the time of the deal.”
Something Matkin has learned through experience is it’s important to have a plan B ready.
“It's a very small group of people that know in the company,” he says. “You also are preparing them along the way that this could not happen. So, it's not as much of a surprise to everybody in the organization, it’s just a surprise maybe to the few that know. And then making sure that they understand that even along the way, if we don't end up in a sale, we still have Plan B, and this is what we're gonna do.”
In a process, things can fall apart, and often, like during the Great Recession, not because of anything done by the parties involved. That’s when business leaders quickly need to reset the strategy and retrench the business.
Among the best value drivers for a business is its track record and trajectory.
“And if you've got that, that's a heck of a place to start,” Matkin says. “And that's going to be a value driver every time. The management team in that discussion with potential buyers, they're going to want to see what you're willing to do, what you're not willing to do — the trajectory that you put in the track record you put on the board.”
Another driver of business value is what's in the pipeline and illustrating that what’s in that pipeline is going to continue.
“So, you got to be able to talk quickly, sincerely and intelligently about your pipeline,” he says. “It's like, what's behind this? How much further is this going to go? What kind of momentum do you guys really have here? And of course, depending on who the buyer is, that can change. It is more about the management team. If it's a financial buyer, they're going to want to know everything about the management team. If it's a strategic buyer, you're likely to be synergized out, potentially — not always, but more likely — and you got to be ready for that discussion.”