Well Capitalized: Recent Episodes
MCM Capital Partners
Selling a company is something most business owners will only encounter once in their lifetime. Over the years, we've met with thousands of business owners and noticed that the same questions and concerns come up repeatedly. To that end, we've launched our Well Capitalized Interview Series to help demystify the process of selling one's business. We interview private equity investors, business owners who have partnered with private equity groups, and professionals well-versed in legal, tax, accounting, environmental and other aspects of business transactions.
What really changes at a company after being acquired by an outside investor? The answer largely depends on the acquirer. We interviewed Matt O'Donnell, founder of North Shore Commercial Door, on his experience selling his business to private equity backed strategic Torsion Group Corp. Matt discusses the timing of the transaction, some of the emotions he dealt with throughout the negotiation process, trying to juggle running the business while negotiating the sale, and gives some advice for business owners contemplating a similar transaction.
1:50 - What made it the right time for Matt to sell his business?
3:15 - What to look for in a strategic partner
4:15 - Transitioning into his new role with Torsion Group Corp
7:08 - What emotions did he deal with throughout the negotiation process?
12:35 - His goals for the company and how partnering with a PE backed strategic will help serve those goals moving forward
15:40 - His experience running the day-to-day operations of the company while being immersed in the M&A transaction process
16:34 - Advice for business owners contemplating an exit and things he wish he'd known more about prior to entering into the negotiation process
For further discussion on the M&A process, please visit
https://www.mcmcapital.com/private-equity-resource-guide-and-information/
What are the most important terms in negotiating the sale of a business? We sat down again with deal attorney Brent Pietrafese of Calfee, Halter & Griswold for a deep dive into legal due diligence. Among other things, we discuss:
- Protections business owners retaining minority stake in the new business should focus on during negotiations
- Most heavily negotiated terms in M&A transactions
- Key terms for entrepreneurs when negotiating a post-transaction employment agreement
- Non-compete clauses in acquisition documents and employment agreements
- Advice for business owners who may be negotiating the sale of their company in the near future
We interviewed Brent Pietrafese, M&A attorney from Calfee, Halter & Griswold LLP for an overview of M&A due diligence and what business owners should expect from this part of the transaction process.
- What legal specialty groups are involved in due diligence?
- What type of information is requested from a buyside legal team during due diligence?
- What if a business owner doesn't know the answer to a legal M&A due diligence question?
- Why is it important for a business owner to hire an attorney who's experienced in the M&A transaction process?
- How long does legal due diligence take and who from the company needs to be involved in the process?
- The importance of hiring a team of professional advisers outside of the organization to help with the sales process and due diligence
- Best practices for business owners preparing for a legal due diligence process and most common issues that arise during due diligence
- What are the most common factors that hold up a transaction during due diligence?
- Advice for business owners entering an M&A transaction beyond preparation and organization of documents
We interviewed Kelly Lamirand, Senior Vice President at KeyBank to discuss what business owners should expect from Senior Lender M&A due diligence. Among other things, Kelly discusses:
- What information do senior lenders require when performing bank due diligence in an M&A transaction?
- Why do banks conduct due diligence?
- Common lending terms including revolver availability, cashflow recapture, and airball
- Discussion of the "5 C's of Credit," Character, Capacity, Condition, Collateral, Capital
- What debt levels are senior lenders comfortable with from a total debt perspective and a senior debt perspective?
- What factors into the interest rate senior lenders charge? Does a bank's relationship with the private equity firm factor into pricing?
- What are debt covenants and what purpose do they serve?
- How do banks view growth capital expenditures vs. maintenance capital expenditures?
Financial and tax due diligence are a few of the many moving parts involved with selling a business. Most of the time, sellers provide buyers with plenty of financial data long before due diligence even begins. All the additional requests for information can seem repetitive, but financial and tax diligence is critical for both sides of a deal. We were joined by Justin Thomas, Partner in Charge of Transaction Services at Cohen & Company, to the financial and tax due diligence process and the purpose it serves for buyers and sellers of businesses. Among other topics, Justin covers:
- What information is requested during due diligence?
- What if a seller doesn't have the answers to financial due diligence requests?
- How long does financial M&A diligence take?
- What is a quality of earnings?
- How much does a sell side quality of earnings cost?
- What tax issues could delay a closing?
I hope you find the interview useful and informative. If you have any follow up questions, or have a topic idea for a future podcast, please reach out to Chris Hren at chris@mcmcapital.com
What is working capital and why is it so heavily negotiated in M&A transactions? Justin Thomas from Cohen & Company joined us for a deep dive into working capital to discuss how it is calculated and how it impacts the sale of businesses.
1:03 - Working capital definition
2:57 - How does working capital affect purchase price?
6:12 - How does the market most commonly calculate working capital requirements?
7:40 - Is working capital affected by a business's seasonality?
9:19 - Example working capital calculation illustrating when it would positively or negatively impact purchase price
12:23 - What is a working capital collar?
13:46 - What items are most commonly miscategorized as working capital?
15:18 - What is the goal of a working capital adjustment?
17:18 - What is the most common reason for working capital adjustments?
18:56 - How is deferred revenue viewed from a working capital perspective?
We recently sat down with Harry Shimp, Senior Operating Partner at MCM Capital, to discuss his role at the firm and its portfolio companies and thought you might find it interesting. Among other things, Harry covers:
- Types of issues a CEO of a portfolio company should discuss with a senior operating partner
- Setting the communication and reporting cadence between the portfolio company and senior operating partner
- What management teams should expect from weekly calls with a senior operating partner
- Characteristics that make a potential portfolio company attractive to a senior operating partner
- Maintaining a company's culture after a private equity acquisition
- Advice for business owners considering selling to a private equity firm
How does life at a family business change after being acquired by a private equity firm? We were recently joined by Marc Calcaterra, CEO of Torsion Group Corp, a manufacturer and distributor of garage door parts and accessories. In this interview, Marc discusses his discuss his experience working with a private equity partner since being acquired in 2016. Among other things, Mark covers:
- What caused Torsion Group Corp to seek a transaction
- Why the company chose private equity over other deal options
- Fears associated with partnering with private equity
- Benefits and challenges of working with private equity partner
- Reporting requirements under private equity ownership
- Decision to retain equity in the business
- Advice for owners looking to sell their businesses
- Biggest difference between being family owned and private equity owned
We recently sat down with Mark Mansour, Founder and Senior Managing Partner at MCM Capital Partners, in an effort to shed some light on the fundamentals of private equity. In this interview, Mark discusses, among other things:
- Options for business owners seeking liquidity or an exit strategy and the advantages and disadvantages of each
- An overview of the private equity business model
- How private equity firms analyze a company's value and which characteristics play the largest role in the assessment
- What a business owner should look for in a private equity partner
- Typical reporting requirements to private equity partners for management teams
- Advice for business owners contemplating an exit
We sat down with Mike Tiner, COO of Andover Corporation, to discuss his recent experience in the private equity acquisition process. Just four months removed from Andover's sale, Mike covers the following topics, among others, from management's perspective:
- Whether to sell to management, a strategic, or a private equity firm
- What Andover was looking for in a partner
- What to expect from due diligence
- Communication with employees during the sale process
- Preserving company culture post-acquisition
- Advice for owners considering a private equity exit strategy