Ted Lentz got into the family business, the food ingredient distributor Lentz Milling, via a leveraged buyout from his father and uncle in 2005. After acquiring the generations-old company, Lentz made another purchase — a book on how to sell a business.
“I went into this, although it was a family-owned business, not with necessarily a romantic notion that I was going to perpetuate this thing on for the next 30 or 40 years and that my four kids would carry it on for another 30 or 40 years after that,” Lentz said. “I viewed it as an investment, and ultimately probably one that I would exit.”
At the ASPIRE Dealmakers Conference earlier this year in Philadelphia, Lentz, now CFO and Chief Analytics Officer at JM Swank, shared the meticulous strategy he concocted to set the business up for a transaction.
Lentz worked closely with his board of advisers, which included the former managing partner of RKL, and a local entrepreneur who had built and grown a very successful business, then sold it to an international conglomerate.
He made a key addition to his advisory team, someone who had strong connections to the industry. It was an investment banker — a former owner-operator who ran a business like Lentz’s and sold to a private equity firm, which in turn sold it to a large strategic in the industry. This person, then, was one of the key executives in the strategic for a number of years and was very well entrenched in that industry. Adding this person to the team immediately improved the visibility of the company in the industry, something Lentz was hoping for since a strategic was the ideal target.
In addition to his board of advisers, Lentz assembled a legal deal team and accounting representation. This formed the core group that advised him on running the business, growing it through mergers and acquisition opportunities and finding the right sale opportunity.
He also invested in quality executive talent.
“More talent than, frankly, a business my size probably needed,” Lentz said, “but I knew that was going to be important for me one day to be able to exit the business.”
A quality executive team freed Lentz from being the person on whom company operations were dependent, and giving him the luxury, when the right deal came his way, of deciding what level of involvement he wanted. He then aligned the incentives of the executive team with his goals.
“If I wanted to exit and, hopefully, have a nice liquidity event, I wanted it to be good for them, as well,” he said. “Oftentimes owner-entrepreneurs don't think about that, which then creates a lot of emotional stress for them at the time of sale — good for them and their family, maybe not so good for the executives and key managers. I wanted to make sure it was going to be good for everybody.”
Growth and exploration
While Lentz and his team worked to maximize the company’s value via acquisition opportunities, they also explored the buyer universe. He started to take meetings with those who inquired about buying his business, which helped him begin to understand the private equity world — what they look for in companies, what they value, what they consider positive and negative attributes. He also met with any strategic buyer who expressed an interest to understand what they were trying to accomplish in the marketplace.
By 2015, he started proactively approaching some family office and private equity outfits to understand, from a valuation standpoint, how they might value the company, the kind of deal structure they might consider, and whether that was an outcome that would be attractive to him.
The personal plan
As Lentz gathered information to better position his company for its eventual sale, he was also working with a wealth manager to do scenario and financial planning, looking to determine what the event could look like on an tax basis. He was running Monte Carlo simulations to take a best guess at what the 50-year valuation and wealth creation would look like if he held the business vs. sold it outright to a strategic, vs. recapped it with a private equity firm, to see which felt right for his family and him.
He also did estate planning. He formed a family trust — a grantor trust. He gave up a percentage of the ownership to his children through that trust, taking advantage of a valuation discount several years in advance of actually doing a transaction. Lentz also acquired the real estate from his father and uncle, and restructured that in a way that created an irrevocable trust for his children that was in their names at a discounted valuation.
“I didn't want to get into a sale process down the road and now suddenly have to bring my uncle in as the building owner, and now have to figure out a lease arrangement with a prospective buyer,” Lentz said. “I wanted as much control over the process when the time came, and I wanted to clean up as many loose ends as I possibly could.”
Keeping up performances
While the planning was ongoing, Lentz still had to ensure his business was performing well and growing.
“It was not a straight line during that period. We had a period where we declined in earnings,” he said. “We got blindsided by some things that, frankly, I didn't see coming. So we had to dig ourselves out of that hole and put ourselves back on a trajectory where we could show positive year-over-year growth because no buyer wants to catch a falling knife. You might think that you have a good business and that, yeah, it has some issues and, yeah, growth hasn't been that great, but the buyer surely has some really good ideas about how they're going to turn that around. The reality is no, they don't want that. They want a healthy foundation to build from when they're acquiring your company, so sell it when you're doing well, not when you start to turn the other way and start doubting whether you want to own it. At that point, it's probably too late.”
So when the right opportunity came knocking in March 2018, Lentz knew what he wanted.
“We were ready to go,” he said. “The team was in place, and we were we were able to execute very seamlessly with (California-based private equity firm) Platinum Equity.”
Lentz Milling is now a division of JM Swank, a food ingredient distributor carved out from ConAgra Foods. Lentz is the CFO and chief analytics officer for the consolidated JM Swank, Lentz Milling and Armour Specialty Marketing companies, owned by Platinum.
Looking back between the years 2012 and 2018, Lentz said all the things he did to prepare to sell, and exit, his business ultimately paid off.
“These were the building blocks, from a planning and execution standpoint, that prepared me and put me in a really good position when the right transaction opportunity came knocking on the door.”