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/