Matt Hlavin always has his eyes open for deals that could help Thogus broaden its reach, but he takes a patient approach with his growth strategy. It takes discipline to walk away from a deal that doesn’t feel right, a critical attribute of a successful dealmakers.
“If you don’t have the right team that has the experience, you could actually sink your own company if you make bad deals,” says Hlavin, CEO at Thogus, a national provider of plastic injection molding services.
“You want to have an inner circle that’s really close, and very open, candid and honest with you,” Hlavin says. “But you also want to continue to expand your professional network. That never stops.”
In this week’s Dealmakers Live, Hlavin talks about the drive he had to become more entrepreneurial and factors that have kept him from being more active on the deal scene. What follows is a transcript of the above video, edited for readability.
Build a foundation
So for me, looking at dealmaking — being in the position of owning Thogus and I started several other companies — we grew really quickly when I took over Thogus. In 2008, we were flat through the recession. Then from 2009 to 2013, we grew 400 percent. So I was all eyes on the business. I was not an entrepreneur. I didn’t feel I was because I was given the opportunity being a family member to take over the company. So I always wanted to show that I could do it on my own. So I decided to start several other companies.
When I really looked at the dealmaking side of things, one was to make sure I had the right team in place, the right foundation in place for our company. I’ve seen just through my experience reading a lot of articles, whether it’s in Smart Business, Forbes or Crain’s, how deals fall apart. If you don’t have the right team that has the experience, you could actually sink your own company if you make bad deals.
Wait for the right deal
We started looking at making acquisitions or not making acquisitions. What led us to the decision was one, when you make a deal, you have to have people that have that type of experience and we didn’t. In fact, I actually have looked at making acquisitions over the past seven years. Two things really happened that I found interesting. One, we’re a smaller company and I wanted to do this with our own financing rather than going to market to try to find debt outside of traditional bank financing. So that was one obstacle.
The other was the deals I was looking for, whether it was toolmakers or businesses that would either bolt on or enhance our injection molding business, was the owners of the companies. Several of them were distressed. I was in due diligence with them, but what I found was their perception of the value of the business was much higher than what the business was really worth. So in those cases, there were seven deals we looked at, and we ended up passing on them. Financially it just didn’t make sense.
What I learned after the fact also was on the personnel side. It’s not just buy a company. It’s how do you fold it into your existing business. That was the approach we were taking, buying a company that had capabilities that we didn’t have or a market in customers we didn’t have to bring in. We just found we were too far apart on those deals. Several of the companies were insolvent, but they thought they were worth $10 million or more. But essentially it was only the value of the assets.
When you have a seller on that side that can’t get off that number, you just have to walk from those types of deals. But as I mentioned earlier, if you don’t have the right people in place, and I learned this after the fact, the deal can fall apart and crumble the company because you have personnel within your business who have never done it. If you have a bunch of people doing it for the first time, you don’t know what you’re walking into. I got lucky, honestly, that I didn’t make those deals because I think it could have had a negative impact that we could still be feeling right now even in a good economy because we would have made a bad deal.
A competitive environment
There are a lot of business deals being made. We see it every day in the paper, companies being sold. The challenge we have seen and others have seen, especially in the smaller sector, is the multiples are so high. As a private business trying to buy another company, I’m not just competing with what the seller thinks it’s worth. I’m also competing with what private equity is willing to pay for deals. Those multiples are at an all-time high. You’re seeing multiples for traditional business that don’t add an overwhelming amount of uniqueness and value to the market. But you’re seeing deals at 7.5 to as much as 10.5 times EBITDA, which is a really high number. If you’re funding it with your own personal capital or traditional bank financing, it’s very difficult to leverage that and be able to make it a win. That’s what we have found to be our biggest challenge right now.
Pay it forward
In dealmaking, whether it’s working with a customer or supplier or looking to acquire a company, it’s really about, as a business owner and even as an individual, you’re defined by the people you surround yourself with. You want to have an inner circle that’s really close, and very open, candid and honest with you. But you also want to continue to expand your professional network. That never stops. It’s so critical whether you’re in a startup company or you’re working for a company that’s already existing that wants to scale. I really push this with our team, my senior management team. Getting involved in networking. Going to as many networking events as possible. You have to manage it, because there are so many of them out there, as to which ones make sense. But sometimes you take a flyer and go to one that you may not think makes sense. And that’s where the best opportunity happens. You meet that person or that right opportunity. That’s what business is and that’s what life is. It’s building that network that you feel is important and valuable to you, and also giving back to it. You always have to pay it forward as well.