As a growth investor, Thompson Street Capital Partners looks for particular attributes in a business as it makes investment decisions: high margins, scalability, and investment in customer acquisition and retention to create long-term growth.
The private equity firm — which invests in founder-led, middle-market businesses — has acquired more than 100 companies and has managed more than $2.6 billion in equity since being founded in 2000. Which is to say Managing Director Jack Senneff has seen a lot of deals — including some he walked away from.
Senneff’s deal experience has given him unique insight into companies’ ability to prepare themselves for a transaction. Some of that experience might be intuitive — though not always deployed — while others seem just the opposite.
For instance, he says a common missed opportunity is not being fully aware of the potential transaction opportunities available to a business owner.
“The options are not purely selling to a larger competitor or selling 100 percent of their stake to a private equity firm,” Senneff says.
Common advice offered to business owners setting up for a transaction is to get everything in order ahead of the diligence period — the more prepared the business is with the information to answer every potential question, the better. Senneff, however, working primarily with founder-led businesses, says that’s not as important as some would make it sound.
“We don't necessarily expect that a business will be completely, fully prepared for a for a transaction,” he says.
Smart Business Dealmakers spoke with Senneff to get his perspective on deal readiness — what owners should do, and not worry so much about doing — ahead of a potential transaction.
What mistakes do companies tend to make when it comes to preparing for a transaction and how does this affect the deal process?
To me, a common mistake or missed opportunity is just not being fully aware or fully exploring all of the potential exit opportunities or transaction opportunities. The options are not purely selling to a larger competitor or selling 100 percent of their stake to a private equity firm. There are so many different flavors, so many opportunities that are out there and different types of investors and investors with different skill sets, different focus areas, different hold periods.
There's a lot to contemplate. I think it's a real missed opportunity to not fully explore all of those options because different ones could help companies achieve very different sets of goals, so it makes sense to go through and really explore to the fullest extent possible all of those potential opportunities.
What transaction opportunities should businesses consider?
It depends on what they would like to achieve via a transaction. If the goal is to really step on the accelerator with a partner, bring in new resources — both financial and operational support — that's a very different set of goals. That's the type of situation we seek to step into versus someone who says, ‘Man, I would like to just have a full exit, completely retired, be 100 percent out and no longer be involved in a business.’ That's not a typical scenario for us. But there are other options that would afford somebody with those type of opportunities.
It depends very much on what one is attempting to achieve or what one would like to achieve through a transaction. That's step one: Why are we even thinking about a potential transaction? What are we trying to achieve here? And then going through and thinking about what those different options might be to help achieve those goals.
How important is transaction preparedness when you evaluate a company?
We're looking for businesses with strong systems, with great management teams. But at the same time, the vast majority of the companies we invest in are still family or founder-owned and there's probably some areas where we can be supportive and help continue to build out and invest in more systems and perhaps augment teams and so on.
We don't necessarily expect that a business will be completely, fully prepared for a for a transaction. We often work with third parties, with advisers to help companies through a transaction — we've done a lot of it as well. We're accustomed to assisting businesses with all the important aspects of a transaction.
So it doesn't really give us pause. It's kind of where we play, the segment of the market where we play, and it's an area where we think we can help a lot post-transaction as well as for the next round because, ultimately, we’ll sell our position and it's important for us to make sure we’re ready for that.
