In a strategic acquisition, Carestream Health Chairman, President and CEO David Westgate says if you're buying a family-owned company or an entrepreneurial-led company, there's a 90 percent chance that acquiring it with the intent to maintain its leadership is not going to work out.

"You're going to have to be prepared day one to switch out the leadership of it and to make sure that you have the N minus 2s, or the folks that are really running the day-to-day, to understand that you're going to keep that core competency in the business and drive it forward," he says.

During the Milwaukee Smart Business Dealmakers Conference panel on how to know what you're buying, moderated by N2 Advantage Law Managing Director and CEO Timothy Nettesheim, Westgate noted it's highly unlikely that people in a family-owned or an entrepreneurial- led company can make the transition from being an owner to an employee.

"It just doesn't work," he says. "And there may be the rare occasion, one out of ten, that it might. I haven't found that, but I think that's the dynamic that you just have to deal with. People will tell you, I can do it, I can do it. They can't. And I don't blame them. So, we don't count on that."

Moving on from current leadership is a transition, he says. It can be offset with premiums, but always requires being very forthright and honest with people, letting them know keeping existing leadership in those situations doesn't work — for either party.

"If you're having fun every day you go to work and all of a sudden I have to answer to somebody, I have to say, 'Mother may I? Do I have to ask permission to spend a million bucks? Yeah, you do.' It's better to be up front with the folks and say, we want you to be happy, we're going to give you a premium for the business and for your time and it's a six to 12-month transition."

Madison Dearborn Partners Vice President Michael Nettesheim says private equity has a different take on dealing with existing management teams.

"We are not operators," he says. "We don't bring operating teams or operating partners to our transactions. What that functionally means when we're looking for a platform, it needs to be a business with underlying economics that are good and durable. So, for sure a great product or service, to some extent. But we're, on top of that, targeting really high-quality teams, teams that we feel that we can back in partnership with them to grow the business, usually backing their vision for growth and providing incremental capital to achieve that."

Executive Search Partners President Nick Curran says it's in lower- to middle-market companies designatged for a platform investment that talent matters the most.

"Because you're learning about the industry, you're learning about the organization," he says. "And if you don't have a first-rate people as part of that team, that makes it all the more challenging."

He says if you have B-level talent and a great product, you're going to struggle because you're still learning along with that team. If you have A talent and a B product, you can elevate that product because you have A-level talent. However, if you're looking at a bolt-on acquisition, you can afford to have some gaps, and then take their product and mold it into your A-level platform company.

It's a cruel reality of telling the entrepreneur that they will no longer be part of their baby. Often, he says, it's a lower middle-market strategy to buy a company and not change a thing, and just tie in the acquiring company's executive leadership team to the earn out. And in that timeframe, do at some point some sort of a transition.

Oftentimes, however, what's being bought is an organization with a culture that's tied to a boss that has never had to be accountable to anyone above them. That person enters a situation, post-acquisition, where growth expectations are different.

"When you have the acquisition and a team, usually an entrepreneur grows the business to a size that fits their comfort zone and their capability," he says. "Now, private equity comes in, buys the company and says, not only do you have a new boss, but the expectations that we're going to put on you is to grow the business because we're now in debt. So we need to make up for it and by the way, you have five years to execute this even though it took you 25 years to get the $20 million."