Building a Bench for Deal Success

It could be the setup for a joke about M&A: An investment banker, an accountant, an attorney and a wealth manager walk into a bar—but instead of entering a drinking establishment, the four convene onstage to discuss putting together an all-star deal team.

That was the format of the Building a Winning Transaction Team panel at ACG Chicago’s 24th annual Midwest Capital Connection on Oct. 26, which explored the roles of each member of the deal team, how to identify the right person for the job and when to hire them. Tom Turmell, senior director of executive education at the Kellogg School of Management and managing director at private investment firm TMT Capital Partners, moderated.

When considering a sale, consulting with a wealth manager who specializes in helping business owners navigate transactions should be a top priority, said panelist Germaine Harris, director at BMO Private Wealth. That conversation should happen as early as possible and at least a tax year before the sale. Depending on the size of the business, having that discussion multiple years ahead of a sale is even better, Harris added. A wealth advisor will speak with a seller about their lifestyle and goals to ensure the sale provides the necessary financial outcome and that any excess money generated is planned for appropriately.

Finding an attorney should also be top of mind for a prospective seller, but not just any lawyer will do. Peter Spier, business law partner at Quarles & Brady, emphasized the importance of an attorney with transaction experience and many M&A deals under their belt. “If you need brain surgery, would you go and have your primary care physician, who you’ve gone to for 20 years, do the brain surgery?” he asked.

Spier agreed that business owners should seek out a wealth manager as the first member of their team, and he also recommended hiring an M&A attorney as early as possible. Realistically, that should happen at least six months before the company goes to market, Spier said.

An accountant is another must-have member of the transaction team and a role where M&A experience matters. Erick Guttierez, senior director of transaction advisory services at Armanino, noted that buy-side advisors will be scrutinizing the business, and sellers need to be prepared with accurate information to make informed decisions about the transaction. “Sellers need to be advised by external professionals just to make sure they’re protecting their own interests,” he said. Guttierez recommended that a seller enlist an accountant early in the process, and certainly before signing a letter of intent with a buyer.

I’d be happy to have companies call me a year or two before they [go to market], because I want to start prepping them on the process and what they should be thinking about

John Ebe

FORVIS Capital Advisors

John Ebe, director at FORVIS Capital Advisors, noted that a business owner should hire their investment banker around the same time as their lawyer in most instances. As with the other roles, earlier is better. “I’d be happy to have companies call me a year or two before they [go to market], because I want to start prepping them on the process and what they should be thinking about,” said Ebe, although he noted that timeline isn’t typical.

The investment banker helps craft a narrative for the company that’s backed by data to communicate what makes the business special to a potential buyer. “Private equity guys, corporate buyers—they’re always looking for a reason not to do the deal,” Ebe said. “My job is to tell them why they should do the deal.”

Another role of the deal team is to set expectations with the seller about the time commitment that a transaction requires, and the scope and purpose of due diligence. Even in cases where the truth is ugly, it’s a mistake to try to cover up something negative related to the business. “The buyer’s due diligence is going to be extensive,” Spier said. “Don’t try to bury it; they will find it.”

Related content: Rethinking the Investment Banker’s Role in a 2023 M&A Market

Ebe agreed, emphasizing the importance of honesty during the diligence period, which typically takes about 90 days. “Once they find one thing they feel you maybe misled them on or lied about, they’re going to question everything going forward. Everything,” he said. “You don’t get a second chance to make a foolish mistake.”

Selling a Slice

Selling a business doesn’t have to be an all-or-nothing decision. Some buyers are willing to take a smaller stake in the company and work with the existing management team to grow the pie for everyone.

During the conference’s final panel, Non-Control Private Equity as a Value Driver and Potential Exit Prep Tool, representatives from PE firm Trivest Partners, along with two businesses it partnered with on non-control deals, spoke about their experience with this structure. Emily Wildes, managing director and co-head of healthcare for Lincoln International, moderated.

Most entrepreneurs view the choice to sell their company as a binary one: You sell or you don’t. But Trivest offers another option through its non-control strategy, said Jamie Elias, a managing partner at Trivest, who noted that his firm approaches building value the same in a non-control transaction as in a control deal. He likened selling a minority stake to eating an hors d’oeuvre before an entrée. “You can order an appetizer at a restaurant and sell us 20%, 30%, 40%, and then let’s grow the business together just like our control funds do, doing add-on acquisitions, professionalizing the management team, etc.,” Elias said. That work increases the value of the business, which in turn makes the “main course”—the eventual sale—more rewarding for everyone involved.

When John Paolella first met Trivest in 2017, he expected he’d want to stop working in three to five years. But he wasn’t quite ready to step away from Jon-Don, the company he co-founded in 1978 that supplies specialty contractors and in-house service providers with restoration and janitorial products and equipment.

The best candidates for a non-control investment tend to be businesses like Jon-Don with leaders who aren’t ready to step away but who need help to grow their company further, said Arturas Rainys, a principal with Trivest focused on the firm’s non-control vehicle, the Trivest Growth Investment Fund.

Jon-Don had been growing for 40 years at double-digit growth rates, without any M&A. Not yet ready to retire, Paolella was intrigued by Trivest’s proposition, and Jon-Don ultimately sold a minority stake to Trivest in 2017.

Related content: Why Non-Control Investing Is Gaining Ground

Trivest helped bring in a future CEO for the company and provided support for any issues that Jon-Don raised, Paolella recalled: “I felt like we had an all-star team right from the get-go.” He and Elias credit the partnership with helping Jon-Don command a higher price when it eventually sold to Incline Equity Partners in a deal announced in January 2021. “In the case of John’s business, the valuation and the purchase price went up five-fold in a little over three years,” Elias said.

Matt Rohs, the former CEO of ScanSTAT Technologies, recounted a similar experience working with Trivest. The private equity firm purchased a non-control stake in the healthcare information management service provider in 2019. ScanSTAT’s founder had been advised that it was a good time to sell, but he was unsettled about fully letting go, recalled Rohs. The non-control partnership with Trivest gave the founder a “second bite at the apple.”

During Trivest’s investment, the company completed six add-on acquisitions before merging with Verisma earlier this year, where Rohs now serves as chief of staff. “Trivest just brought an element of energy to an otherwise very talented management team that got us to do much bigger and broader things than we probably would have done on our own,” said Rohs.

Katie Maloney is ACG’s content director.

Middle Market Growth is produced by the Association for Corporate Growth. To learn more about the organization and how to become a member, visit www.acg.org.