Jon W. Park began his career at Ernst & Young and quickly established himself as a leader who knows how to get things done. As a CPA and accounting adviser at the firm, he helped complete more than 20 acquisitions and sales and issued more than $1 billion in public market debt.
“It was always an exciting process watching it happen, a process of reinvention and high stakes,” Park says. “There were rich learning experiences as I networked with some very talented advisers, lawyers, bankers and accountants. As a CPA, you’re charging by the hour and trying to justify your time and create value and this is one of the highest value opportunities there is. You can feel the result at the end of the process.”
He very much enjoyed the work and learned lessons that still serve him well today. And yet, something was missing.
“I craved to be involved in operating a business and working on live deals rather than being an adviser,” Park says.
After working as a CFO at two banks in the Akron-Canton region that have since been bought, Park was approached by Westfield Insurance about starting a bank. The Gramm-Leach-Bliley Act, also known as the Financial Services Modernization Act of 1999, enabled insurance companies and banks to have common ownership and Westfield wanted to take advantage of this new opportunity to serve the community.
Park was up to the challenge and Westfield Bank opened its doors in 2000. He has built the bank to more than $1.4 billion in assets in 2017 and has played a key role in helping Northeast Ohio businesses execute their own unique growth strategies. As chairman and CEO, he has led the acquisition of three companies, sold two others and financed hundreds of acquisitions for his customers.
In this Master Dealmakers feature, we spoke with Park about how to build an effective M&A strategy and common pain points that arise when looking to make a deal.
Find your strength
Dealmaking requires a wide variety of skills, like using lots of different muscles. Closing a transaction feels like a long, strenuous climb to the top of a mountain. It’s an amazing, rewarding feeling when you finally reach the top, knowing you achieved the goal you set out to do. It engages your adrenaline, but you need balance. While almost all deals either hit speed bumps, succeed or fail because of human emotions, some people are better at navigating those than others. Some of the trickiest situations I’ve been in, you’re using your emotional intelligence to try to keep moving forward.
It’s not always what’s for sale that is most attractive or the one that is going to be most successful. Lots of times you have to hunt for a deal and network yourself. You want to be aware of what’s out there that is notfor sale. Those might be of the most interest to you.
Looking for leads and having conversations with prospects is typically the most effective way to get a successful acquisition. It takes years of conversation. You’ve got to have a sense for the investments worth making and those that are not going to help grow your business. If you’re just going to break even, you shouldn’t be doing it.
You need to understand the scalability of your growth and its fixed and variable cost components. Everybody would like to project a straight line of revenue that consistently goes up. But that rarely happens in business. It’s always better to be proactive and be in a position to make informed decisions based on more thoughtful consideration of all the pertinent details.
To prioritize your growth opportunities, sit down with your management team and prioritize which opportunities are the most attractive. If you have 10 different ways to grow your business, discuss what makes each opportunity attractive and place them in order from most appealing to least appealing. Appealing growth opportunities offer profitability, scalability of resources and don’t have concentration risks. Focus on three or fewer growth opportunities at a time to boost your odds of success. When you try to do too many things at once, it spreads your team thin and results in suboptimal implementation.
You need unbiased experts who can review your strategy and subsequently offer constructive feedback. They can also suggest alternative options that are worth your time to consider and can instill discipline into these practices to hold you accountable.
Stay out of trouble
Many business owners who want or need to exit their business haven’t constructed a formal plan. It’s daunting, so they delay. Sometimes, something catastrophic can happen and the people left behind at the business have to pick up the pieces as best as they can. Take the time to create a formal plan.
If you rely on one segment or a few customers for most of your revenue, and these customers experience a downturn, it could deliver a big hit to your profitability. Take steps to diversify your customer base as much as you can to avoid this situation and ensure stable growth.
Is the risk worth taking? Risk assessment comes down to your ability to solve for the number of years to recover your cash investment, also known as the earn-back period. The cash investment represents cumulative cash spent less incremental new revenue generated for an expansion opportunity prior to the break-even point. The earn-back period refers to the amount of time after reaching break even to recoup the upfront cash investment.
Aim for an earn-back period of four years or less. If you’re adding a new product, hiring a new sales team, or expand geographically, you want to know how long it will take to get a return on that investment. If it takes longer than four years, the risk is higher and the return may not achieve targets. Stress testing can be a useful tool to assessing the worthiness of a risk and addressing the volatility of expense.
The Last Word
Banks want to know if the business has a perpetuation plan in place or at least an insurance policy that can assist in funding the financial obligations that might arise from an event. Banks offer entrepreneurs ideas for structuring the potential timing of their exit and the associated debt facilities that may be required to pass ownership internally. There are many right answers to solving the exit dilemma. The bank’s role is to match solutions within the context of the legacy the entrepreneur wants to leave. A good relationship with a banker offers business owners a connection to someone who understands their business, the financing options available and the market. They can ultimately serve as a guide not only when times are good, but also through challenging times.
How to reach: Westfield Bank, www.westfield-bank.com