CEOs are the central aspect of an investor-backed platform company, an approach that HBM Holdings Co. uses to build value in companies through acquisitions.
In this arrangement, CEOs of platform companies are much more than just operators. They’re involved in deal origination to identify potential targets they would want to see as bolt-ons. HBM handles the initial outreach to those targets; when there’s mutual interest, it brings the platform CEO into the discussion early on in the process.
For business owners considering working with a private equity firm to accelerate growth, there should be an understanding about what’s expected of the CEO once an investment is made.
“We consider the CEO part of that leadership team and actually put great weight on that person,” says Andrew Fulford, vice president of corporate development at HBM. “The CEO is critical to our decision-making on whether or not to move forward on a deal.
“Their technical and industry-specific credibility and credentials helps the bolt on to feel like this is a serious conversation that we're having,” Fulford says, “not just an interested investor.”
Smart Business Dealmakers talked with Fulford about HBM’s expectations for operators and their role in dealmaking.
Depending on the CEO’s bandwidth, they are usually heavily involved in acquisitions, more so on the financial and sales side of things because their industry experience gives them a better understanding of contracts, customers and markets. On the finance side, HBM will lean on its platform CEOs to understand the intricacies of the potential bolt-on business.
HBM likes to talk with its platform CEOs about potential acquisitions on a monthly basis along with operating reviews. Then, in most cases, they set the pace together.
“A lot of it has to do with capacity,” Fulford says “Are they ready to take on an additional business? But they don't have the onus to go and source because that's not our expectation. They are to identify just in their industries what types of businesses would be compliments to them and if they have representative names they can just point to and say, ‘Yes, something like that would be great.’”
The timing is largely dependent on whether the platform CEO has the ability to take on an integration. And if not, HBM will try to delay.
“But in a lot of cases these things are, due to the size of what we're looking at, a lot of them can be auction deals and that takes the timing out of it — we're not in the driver's seat in those cases.”
Fulford says when HBM considers a bolt-on, it has to be something that the CEO wants to take on, instead of force feeding it to the CEO.
“It's much more how does it fit in their strategy and then we go get it, as opposed to the other way around.”
There are circumstances where the CEO may need some encouragement, but that’s not typically the case because there’s an expectation of growth shared by the two partners.
“The way we organize and the way we incentivize, that leader wants to grow and has expectations that they're going to do so inorganically, so their minds are around, how do I add these pieces? They don't just wait for us to bring them for them.”