Follow the Leaders
Six months ago we could not have imagined the changes we are all facing now. If you own a small or mid-sized business in Virginia, VA Council of CEOs (VACEOs) is here for you.
Listen in as Scot McRoberts, Executive Director, Virginia Council of CEOs, talks about a no-cost peer roundtable membership offer that expires on September 30, 2020.
Says McRoberts, “Don’t face this challenging time alone. Join VA Council of CEOs. You have nothing to lose and so much to gain.
We’re a network of CEOs and other expert who come together to help one another. And membership for you is free right now. I encourage you to join us.
As a member of our community, you’ll have access to the Emerge Stronger Conference by Pat Lencioni and his team. He’s involved a number of other CEOs in that content that I think you’ll find really valuable. And you’ll have access to replays of other presentations we’ve held. The topics range from underlying legal risks that you’re dealing with, to managing your own mental health, to effectively selling online.
But most importantly, you’ll be given access to a network of peers in a virtual, confidential, roundtable setting. Peers who are ready to share information
and knowledge with you that can help you succeed.
Apply today. I want you to experience a peer roundtable as soon as possible.
Let’s move forward together.”
This no-risk, no-cost offer is extended to those CEO’s who would benefit most
from the Council’s programming and community. More specifically, those who manage a business in Richmond or Charlottesville Virginia with more than $1 million in revenue and employ five or more full-time equivalent employees (FTEs).
As a Community Roundtable Member you will have access to:
Don’t delay, you’ve got nothing to lose. This offer expires September 30, 2020. Apply online for VA Council of CEOs membership.
Related post: Hear from Members (video testimonials)
All business owners will eventually exit their business, and I believe it is important for leaders to prepare well to exit well.
There are a number of tactics that owners can implement that will help them prepare well for an exit and achieve a sale-ready posture. The beauty of adopting a sale-ready approach is that it has two powerful benefits. First, it will make the eventual exit of your business easier, faster, and more lucrative, whenever and however that exit event may come. Business owners in a sale-ready position have invested the time in laying the groundwork that will enable a thoughtful, smooth transition into a sale or other capital-raising process. It will also enable you to respond quickly if you unexpectedly receive an attractive unsolicited offer from a potential buyer.
Second, the process of preparing your business for sale will make your business better, today. Business owners with a sale-ready mind-set think more strategically, have better insights into their companies, and make better decisions on where to take their business next. They, therefore, create a two-fold benefit: when the time comes to exit, they have a more valuable business and are better prepared to exit.
“M&A professionals often talk about two types of buyers: strategic and financial, yet there are subcategories of each that are meaningful to understand as you think about what the ideal buyer for your business might look like.” – Jonathan Brabrand
A critically important component of sale-readiness is for business owners to fully understand the various options available to them, both in terms of buyer categories and specific companies within each. Depending on the seller’s desired outcome, their options may include domestic and international strategic (corporate) buyers, private equity and other types of financial buyers, or both. It also may include groups that will take a minority stake in your business, in addition to those groups who look to acquire controlling majority positions in companies.
It is only with a full understanding of the available options that sellers can make informed decisions about which buyers to contact in the first place, and ultimately, with which buyer they choose to transact. Otherwise, they risk looking back on the sale of their business with regret at stones left unturned.
Sometimes my clients equate exiting their business with “selling out” to their primary competitor, and in most situations, this is not a pleasant thought. This aversion to turning their enterprise over to a despised competitor, including the feelings of the disloyalty to employees it would create, leads many business owners to turn their back on the whole M&A process. If you have certain competitors or other companies that you would never want to acquire your business, no worries—you don’t have to include them in the process at all.
The truth of the matter is different; there are many types of buyers from which to choose, each with its own unique characteristics. Let’s take a quick look at the primary buyer classifications to get a better sense of who they are and what they have to offer.
M&A professionals often talk about two types of buyers: strategic and financial, yet there are subcategories of each that are meaningful to understand as you think about what the ideal buyer for your business might look like.
Corporate acquirers, whether they operate in competitive or complementary lines of business, are termed strategic buyers, because their acquisitions are focused on targets that provide a strategic fit with their overall growth strategy. Strategic buyers always have a “Make versus Buy” decision. Would it be quicker and/or more cost-effective to acquire a given business or to invest in creating the same capabilities from scratch in-house?
Strategic buyers can offer many attractive advantages to a seller. Chief among them is the ability for the selling owner to retire from the business after a short transition period, typically three to six months. In addition, for business owners that desire a full exit through a sale of 100 percent of their ownership, strategic buyers are likely the best alternative.
The benefits to your business of selling to a strategic buyer can also be attractive. Access to the buyer’s larger base of customers, more robust sales team, broader distribution capabilities, or a better sourcing network can all have a significant positive impact on your business’s future. The primary downsides to strategic buyers are the potential loss of the business’s independent identity and the possibility of cost-cutting, such as elimination of back-office functions that can be handled by the buyer’s current staff.
Strategic buyers can be further categorized by the location of their corporate headquarters. International strategic buyers often operate their US divisions independently with a hands-off approach, particularly if they don’t already have substantial operating businesses in the US. Domestic strategic buyers, on the other hand, are more likely to have higher levels of integration with their acquisition targets, yielding more efficient operations and cost savings that drive higher earnings to the bottom line.
Financial buyers are professional investors that acquire private companies with the goal of improving them before selling them several years later to realize a return on their investment. Hundreds of financial buyers are looking for small to medium-sized private businesses to acquire in the US, generally falling into one of three categories:
Private equity groups are by far the largest cadre of financial buyers, both in terms of quantity and purchasing power. According to PitchBook, 563 new middle-market PE funds (funds of less than a billion dollars) were raised in the 2016–2018 timeframe, representing an aggregate of $148 billion of capital to invest in private companies.
The private equity model is simple and straightforward. A PE firm (the general partner, or GP) raises a pool of capital from investors (limited partners, or LPs) to then make equity investments in private companies. Private equity LPs often comprise insurance companies, pension funds, and college endowments that allocate a portion of their capital to private equity and other alternative investments, which offer higher returns with higher levels of risk.
Once a private equity fund raises the targeted amount of capital, the fund is closed to new LPs and the clock begins. PE funds typically have to invest all the committed capital in acquired businesses, called portfolio companies, within the first three to five years and then exit all the investments and fully return the capital to their investors within ten years. GPs earn an annual management fee, often 2 percent, of the total fund amount and then take a meaningful portion, often 20 percent, of the gains the fund generates. To increase the potential return on invested capital, PE firms will acquire businesses using a combination of their fund’s capital and bank debt that will be repaid by the portfolio company over time.
Because PE firms are professional investors and not business operators, they will control the Board of Directors, but rely completely on the existing management teams to run their portfolio companies. As a result, PE firms will motivate their management teams to increase the value of the business through options and the ability to own a minority portion of equity. The quality of management and their desire to remain in leadership positions are so important to most PE firms that they will not pursue acquisitions where management is not strong or wants to retire post-closing.
Fundless Sponsors are groups that pursue the same investment strategy as PE firms, but have not raised a fund of committed capital. Instead, they maintain a network of potential backers and raise the capital needed to make an acquisition on a deal-by-deal basis. For this reason, fundless sponsors are viewed as having more risk of a deal falling apart before closing than PE firms that control a fund of committed capital. That said, I have worked with a number of very successful fundless sponsors who were great partners to their portfolio companies.
Family offices make investments in private businesses like a private equity group, but their capital comes from one or more high-net-worth individuals or families. As such, they are considered more patient capital since they don’t have time pressure to sell their investments and return capital to LPs. In fact, many family offices take a long-term approach to their portfolio companies or may even plan to hold their businesses indefinitely. Family offices also typically use less bank debt in their acquisitions, which many business owners find more comforting.
Once a private equity firm has made an investment in a stand-alone business, or platform company, they often seek to grow that platform by making smaller, add-on acquisitions. This PE-backed platform company thus becomes a hybrid category of buyer, blending the characteristics of both a strategic and financial buyer. It is common for platform companies to be particularly aggressive in pursuing add-on acquisitions in the first twelve to twenty-four months of PE ownership, when sufficient time exists to reap the rewards of the add-on growth strategy before the PE firm needs to sell the overall platform.
When you have a full understanding of the range of strategic and financial buyers that exist and what each can bring to the table in a potential transaction, you can make the best choice of partner for you and your business. For some sellers, a strategic buyer offers the ideal option for a successful exit. For others with a longer-term horizon and appetite to continue leading their company forward, private equity is the perfect partner.
Jonathan Brabrand is a Managing Director at Transact Capital Partners, a boutique M&A advisory firm and long-time corporate sponsor and supporter of the Virginia Council of CEOs.
Editor’s Note: This article was adopted from Jonathan Brabrand’s new book, The $100 Million Exit: Your Roadmap to the Ultimate Payday. If you would like to connect with Jonathan, you can reach him via email at email@example.com or connect with him on LinkedIn.
We all have questions about COVID and how to keep ourselves, our family, and our colleagues healthy and safe. Today, we find that we are providing custom advice on everything from testing and temperature checks, to what to do if you spike a fever in the middle of the night, to what are the most important things personally right now to be as healthy as possible. We’ve even gone on virtual tours of offices, providing feedback on how to improve the safety of the environment.
It’s a new frontier for healthcare providers, no doubt!
Are you in search some reliable, up-to-date medical information about the COVID-19 virus? Each week, Dr. Steven Bishop, Director of Wellness at PartnerMD, provides a COVID-19 update on Facebook Live, explaining in easy-to-understand terms the latest information related to the virus.
For example, on July 22 Dr. Bishop:
Listen in on that video session here:
Dr. Bishop regularly advises clients and their leadership teams on COVID and how to maximize their resilience against the virus – both as a company and as an individual when it comes to your personal health. He’ll be giving a virtual presentation to the VACEOs community on August 6 at 2:00 PM. Don’t miss this opportunity to ask him direct questions. Here’s a link to register. (VACEOs Members and Sponsors only.)
ABOUT THE AUTHOR
Janet Kiss is a Membership and Corporate Sales Associate at PartnerMD and is available for one-on-one and/or roundtable conversations for VA Council of CEO Members.
This event is for VA Council of CEOs Members and Sponsors only.
The business environment is roiling; stress is at an all-time high; and yet some leaders seem to swim those troubled waters with equanimity and ease.
After 35 plus years as a leader and senior executive in the healthcare, fitness, and wellness industries, I have learned one indisputable truth: one size does not fit all when it comes to a healthy lifestyle and self-care.
What works for one person may not work for another.
This is not another exercise more and eat less lecture.
It is a simple set of lifestyle options for leaders that can enhance the quality of your life, your leadership, and positively impact those around you.
I will take you through a series of unique learnings from my personal journey through the wellness and healthcare community and groundbreaking research that has definitively illustrated simple ways to incorporate taking better care of yourself into your daily routine, without adding a bunch of things onto your daily To-Do List.
In turn, the simple changes you incorporate into your self-care will positively influence those people you care about within your family and community.
If you’ve ever struggled to maintain an exercise program or incorporate the latest diet into your life, this is the session for you. No rigorous exercise routines, unrealistic diets, or magic pills. Just simple ways to transition your lifestyle from struggle, frustration, and guilt to seamless integration into your every day.”
Speaker, Author, Coach
About Grant Ian Gamble
Grant is a business growth consultant, author and keynote speaker. He works in a broad array of industries helping companies build teams, navigate change and drive growth. Learn more.
“Grant’s towering strength is his ability to walk the line between providing top-notch executive leadership, and rolling up his sleeves and working very hands on with frontline employees. Grant can lead top-down from the C-suite with his intellect, or from the ground up with his work ethic and teamwork. Grant is a natural leader.” – Tom Perrin, PhD CEO & Executive Coach, Perrin & Associates.
There were seven of us, owners and CEOs of small businesses, opening up about our uncertainty. None of us had ever led through such a charged and chaotic time.
We met, via Zoom of course, to discuss “Leadership, Values, and Racial Justice”. It was June 16, just eighteen days after the death of George Floyd while in police custody sparked protests and riots in every major U.S. city. Most of us were in Richmond, Virginia where rioters had vandalized and looted stores downtown and protesters soon focused on the city’s prominent Confederate monuments with graffiti, marches and voices.
These seven leaders shared a common sense of uncertainty, but also a sense opportunity. What followed was an open, confidential discussion. It was powerful in that the CEOs in the “room” were determined to step up as leaders and embrace the future.
I cannot share the private conversation we had, but I can share a few things we learned from one another that could be helpful to other leaders.
It has always been a fact that corporations served their shareholders first. Last summer Business Roundtable issued a seismic statement on “The Purpose of a Corporation”. These 181 CEOs of America’s largest companies set new expectations for our economy – that we take into account all stakeholders in running our businesses. This didn’t happen in a vacuum, but reflects broader trends in society.
One of the CEOs in our discussion said that the current racial justice conversation is one of the most important things for a CEO to be thinking about right now. For a CEO battling a pandemic ravaged economy to say this now is remarkable and supports the previous point.
The CEOs in this group agreed that silence is not an option. Your employees, customers and suppliers will wonder. Many CEOs have published statements. These have been criticized by some as meaningless without accompanying action. Large corporations can announce multi-million-dollar funds to support diversity and racial justice initiatives. What can a small business do? Some represented in this group are contributing services to social justice organizations. Others are creating forums for dialogue among their customers and suppliers.
Several of these leaders said that it is critical to open the door for conversations. One CEO said that he had younger employees coming into work who may have been at protests the night before. They will bring those emotional currents to the office. There may be others who are not supportive of the protests. Creating a safe place for dialogue and connecting these events to the work you do is important.
Some of these entrepreneurs shared their desire to have workforces that are more diverse, that look more like the communities around them. They also shared how difficult it was to recruit for diversity. One small business owner responded with the powerful point that this is exactly what the current movement is about. The systems and beliefs that shape our current workforce recruitment will have to change to support diversity recruiting.
Finally, these CEOs agreed that the most important leadership trait to put to use at this time is empathy. Like today’s society, our workforces may be divided and stirred up. The difficult task for us is to listen with care and to seek productive opportunities for all of our people to thrive amidst the unrest and uncertainty of the times.
This is what we do at Virginia Council of CEOs — we connect CEOs for learning and growth. Peer roundtables are a powerful tool for meaningful conversations that can give us context, experience and comfort in facing the unknown.
These seven CEOs left that day with more confidence to face the challenge of leading in these turbulent times.
VA Council of CEOs