Sean Mooney, Author at BluWave

An Interview with Great Range Capital’s Ryan Sprott

September 15, 2021 Sean Mooney

Ryan Sprott and Paul Maxwell aren’t your typical brothers-in-law. Instead of solely cavorting during family vacations, holiday meals, and the occasional couples trips, they went all in and founded a company together. After working in New York’s private equity industry for nearly two decades, the two entrepreneurs moved their families back to Kansas City to launch Great Range Capital in 2010. Their mission: to serve the neglected but vital demographic of Heartland family- and founder-owned companies. In 2011, they signed their first deal.

“We have a unique combination of institutional-grade experience and Midwest values—basics we learned from our parents, teachers, and coaches,” says Sprott. “We see our investments as long-term partnerships with people who share these values, are community-oriented, and whose businesses are integral job-creators in the cities and regions where they operate.”

In other words, Great Range Capital is fueling the classic American Dream writ large. I sat down with Sprott to get his take on the Midwestern difference, the challenges of due diligence, and what excites him most about investing in oft-overlooked Heartland companies.

Sean Mooney: What is your investment thesis and main area of focus in terms of investment types?

Ryan Sprott: We are mainly focused on buying family companies, typically 3M to 15M in EBITDA, that have never been through an acquisition. We usually look for companies and sellers that value intangibles like a deep desire to embrace culture or family legacy, do right by the small town, and maintain the loyal customer base. In other words, Great Range can bring institutional PE and operating experience, but we’re always looking at the people behind the companies—the ones who make those companies exceptional—not just the market opportunity.

In terms of investment types, we cast a wide net. But due to our geographic location, we are well-positioned to pursue deals in manufacturing, transportation, business and industrial services, food and beverage, and essential consumer goods.

SM: What is the most challenging aspect of the due diligence process when vetting a potential purchase?

RS: Validating the people is always the hardest part because it’s difficult to really understand someone’s motivation, capabilities, and modus operandi through limited interaction or merely through references. It’s often hard to know if someone has high integrity until you really get to know them and spend significant time with them and their teams. And there are certainly challenges to predicting if or how someone will change once they have money in their pocket. Gratefully, for the deals we do in the lower to middle market, we have more time to get to know the founders prior to investing.

Additionally, because we aren’t looking at deals where a wealth of industry analyses exist, understanding the market dynamics, opportunities, and threats, poses another challenge. This is when we call BluWave. You help us find experts who can do a deep dive and develop a plan to execute afterward. Whenever we hit a roadblock and can’t figure out a solution, BluWave is often our first line of defense—not only for diligence, but also for IT, implementation plans, finding great industry executives, and connecting with specific industry resources.

SM: Is there one overriding success story (in terms of one of your investments) since the inception of Great Range Capital? If so, what did that look like?

RS: True to our Midwest focus, our biggest “win” to date is the aptly named HeartLand, a commercial landscaping company that did its first acquisition in Kansas City. Like most of our success stories, having great people is the key. HeartLand continues to be led by great executives who are passionate about the industry, have a vision for the business, and are committed to doing things the right way.

Through the course of our ownership, we did a total of nine acquisitions and partnered with outstanding leaders who were laser-focused on culture and exemplary customer service. We invested heavily in business development early on. This led to high organic growth and enabled HeartLand to create tremendous value very quickly. People are central to the success of any services-based business, so in prioritizing that aspect and building on HeartLand’s solid reputation, the returns were outsized.

SM: What are some of the key characteristics of Midwest companies versus other parts of the country?

RS: While the business models themselves don’t vary from the coasts, per se, the core characteristics of the businesses can be different. Broadly speaking, the Midwest values of loyalty, transparency, and hard work ring true. There isn’t a lot of “fluff.” Company owners have a tendency to focus intensely on their people—both internally (employees) and externally (customers). We notice that most of these founders are looking to find the win-win, rather than win-lose. They want their families and communities to benefit from their success. A majority of the time the companies we invest in are integral job creators in their cities and towns, so it feels more like a “rising tide lifts all ships” scenario than “winner takes all.”

SM: You’ve said that private equity is a core part of fueling the American entrepreneurial dream. What do you mean by that?

RS: Many of GRC’s portfolio companies were bootstrapped through sheer grit and their knowledge of a very specific industry, product, or service. Sometimes as companies get larger they stop taking the risks that fueled their growth, their leaders get consumed by the relentless daily demands of running a company, or they get comfortable with the income being “good enough.” But when private equity investors come into the picture and provide capital and strategic support, the leaders can once again focus on taking risks and innovating—partly due to the liquidity provided to the owners who may have had most of their wealth tied up in the business. As a PE fund, we’re investing in new territories, new people, and new channels. All of these investments ideally lead to higher growth, more jobs, and more equity for everyone.

SM: In your opinion, what makes a great leader?

RS: I’m a big fan of leadership by example—treating people fairly, communicating openly, and being willing to do the hard work and roll up your sleeves. That’s probably table stakes for a high-growth company. But someone who can set a clear vision for where a company should go and then execute on it while getting everyone to buy in—that’s the sign of an excellent leader.

SM: Ok, I have one last, very important question: Is the BBQ in Kansas City really that good?

RS: Transparently, loyally, and no BS (because that’s how we do things around here) … YES. It really is!

REDIRECTED Why third party expertise is vital for merger integrations

August 23, 2021 Sean Mooney

At a time when private equity (PE) deals are soaring, merger integration (MI) has become a top priority for PE funds and their portfolio companies. Considering the huge number of moving parts in any merger, acquisition, or add-on transformation process, it’s vital for funds to make the experience as streamlined and comprehensive as possible. Increasingly, PE funds are looking to third parties with specialized expertise to help them execute mergers in a way that will realize their investment thesis, keep employees happy, and ultimately lead to more successful outcomes and accelerated growth.

According to PwC, the first five months of 2021 saw PE deal volume increase by almost 22 percent. This influx is being driven by concerns over impending tax changes, low interest rates, and record levels of dry powder: more than $150 billion in the United States alone. To capitalize on this unprecedented market, PE funds have to be capable of moving beyond the 1 + 1 = 2 mindset when it comes to mergers – they need the resources that will enable them to make mergers worth more than the sum of their parts. This is where third-party merger integration experts come in.

Create a dedicated team responsible for merger integration

One of the biggest obstacles companies face in the merger integration process is the lack of communication and organization that can result when there aren’t clearly defined positions and policies undergirding that process. This is why the establishment of a dedicated integration team can make mergers far smoother and more productive by centralizing responsibilities, providing expert guidance, and freeing up time to focus on daily activities.

According to a 2021 survey by Bain & Company, finding teams with the “right depth and breadth of experience” is the top integration challenge companies cite. Practically all the other challenges are directly related to getting people aligned around the same processes and goals: coordinating with business units, delegating authority within and between teams, bringing partners together, structuring teams properly, and developing a coherent and consistent merger mandate. When companies deploy dedicated third-party merger integration teams, they’re in a much stronger position to address these challenges.

What the pre-merger phase should look like

Although mergers can help companies create value very quickly, they can actually have net negative effects – from clashes between newly integrated teams to a lack of alignment on core objectives. To minimize these risks companies should use expert third-party resources to ensure that they’re accounting for potential misalignments and identifying areas where they can build on shared strengths with their partners in the premerger phase.

For example, companies should conduct a synergy assessment (a review process that often takes several weeks) as early as possible. According to PwC, 70 percent of companies have synergy plans in place at deal signing, but these plans should be developed and integrated early to be effective – the companies that involve MI teams early in the deal process are 40 percent more likely to see favorable outcomes. Companies also have to conduct due diligence to identify potential problems before they arise – as a Deloitte report explains: “Premerger due diligence will ferret out things that are measurable, with an emphasis on financial data.” Finally, it’s crucial to focus on planning during the post-signing and pre-closing period, which will set teams up for success moving into the post-merger period.

Guiding companies through the post-merger phase

The first few months after a merger are critical to the development of a healthy and productive relationship between new partners. This is where third-party resources can really demonstrate their value – they have the necessary expertise to make the essential elements of the transition flow smoothly. These experts often have experience with the merger integration process that business leaders lack, which gives them a unique perspective on cultural issues that can arise, the importance of clearly assigning post-merger roles, and the ability to identify the most essential goals and track progress toward them.

Third-party resources don’t just offer specialized merger integration expertise – they can also give senior company leaders the time and space to focus on the more strategic elements of the merger while knowing that they have experts monitoring the tactical elements of the combination and keeping all parties on track. These are all reasons why companies should consider working with third parties throughout the MI process – they can make the process more efficient, anticipate problems and address them when they arise, and increase overall performance and growth.

We have a deep bench of PE-grade, pre-vetted merger integration resources in our network. Allow us to connect you with the provider best-fit for you based on industry, budget, and more. Contact us here and we will be happy to help.

A letter from the CEO on being named the 127th fastest-growing private company according to Inc.

August 17, 2021 Sean Mooney

I am extremely proud to share BluWave has been recognized as the 127^th fastest-growing private company in the 2021 Inc. 5000 list. This achievement reflects extremely hard work by our talented and innovative team, a strong sense of pride being in service to others, and the amazing partnerships we’ve earned with hundreds of the world’s best business builders in the private equity industry.

During my nearly 20 years in private equity, my earliest business goal was to reach a partner position at a top private equity fund and do what I could to help other businesses build, grow, and realize their full potential. Eventually, I reached my goal. While I found profound satisfaction working with amazing companies and some of the most capable and good people I could ever hope to meet, almost incredulously, there was still something missing.

When I was a kid, I always dreamed of starting a company that made a difference. After a lifetime of late-night thinking, I finally came up with an idea that solved my problem while in PE. This idea became BluWave. In 2016, my family and I realized that BluWave could make a difference and we decided to do the seemingly unfathomable… and utterly terrifying. We decided to spin out of the job I had pursued most of my professional career—to start a company. We then immediately started bringing in extremely capable team members who could help turn an idea into a reality. In the wind tunnel of life, this decision feels like yesterday. I’m very proud to acknowledge that we’ve reached a hallmark that I could hardly imagine a few years ago: becoming one of the top 150 fastest-growing companies in the United States.

Since we started BluWave five years ago, it’s been one of the most rewarding experiences of my life. I’ve experienced the highest highs and the lowest lows, often multiple times in the same day. I’ve also learned a profound amount that I wish I knew before spinning out of private equity. One of the most important things I’ve learned is the fundamental value and gift of gratitude.

As we reach this hallmark recognition, I’d like to thank the amazing BluWave team that relentlessly serves others in support of their success. I’d like to thank the exceptional service providers who have created so much value for the businesses we serve. And last, but certainly not least, I’d like to thank every one of our clients for instilling the trust in us to help make the world a smaller place and bring great together with great during critical times of need.

On behalf of the BluWave team, thank you so very much. We look forward to doing everything we can to support all our stakeholders to win and succeed more and more in the days and years ahead.

Onward,

Sean

An Interview with Trivest Managing Partner Troy Templeton

August 11, 2021 Sean Mooney

At first glance, Troy Templeton is a stereotypical private equity managing partner demonized by the click-bait driven media machine and industry detractors as “people in charge of thrashing companies only to fill Steven Schwarzman’s pockets.” Is part of his role at Trivest to make money? Of course, because that is the role of any business. But when I spoke to Troy—who joined the “oldest private equity firm in the Southeastern United States” in 1989—he told quite a different story than the general public is used to seeing in the headlines.

From his “Just Say No” philosophy to Trivest’s proven “Path to 3x” methodology, Troy considers his main job as the firm’s leader to be “acting as a steward of any business we put its dollars into”; thus, preserving the positive aspects of the culture and providing incentives for founders to take their business to the next level instead of cashing out to fulfill their childhood dream of racing cars (which some inevitably do). With all the disruption happening around us, it’s nice to hear about those who value hard work, job creation, and stability over the long-term—while prioritizing high-growth and money-making. Perhaps this is the headline we should all strive to attain, despite the naysayers’ seeming grasp on the narrative.

Sean Mooney: I’ve heard you say “we run a business not a deal shop.” What do you mean by that?

Troy Templeton: From the beginning of Trivest (1981) the investment philosophy was always about finding good deals and working with companies to make them more valuable. At first, this meant doing a couple of deals a year. But over time, the realization was that we needed to build a scalable business model for PE, otherwise we would just be a deal shop. In order to consider ourselves a business, we worked on the three main components of an investment (deal sourcing, deal execution, and value creation), and put process, data, and strategy around each one of them to make it scalable.

SM: Any chance you will open the kimono on how this works, even on a high level?

TT: Well, for starters, in terms of deal sourcing: we used to source about 300 deals per year, which translates to roughly 25 a month. In June 2021 alone, we sourced 418 deals; and we will likely end up sourcing around 4,000 deals this year. That’s over 10x in deal sourcing compared to what it was with the old model. We’ve done that by investing heavily in this area, and almost 20% of our firm is comprised of business development professionals. We are not reliant on a single source of deals; instead, we source from multiple channels and have a strategy for finding opportunities in each of those channels. We no longer have to wait for good deals to find us because we are proactively going out with a dedicated team and finding them.

With regard to deal execution, it really comes down to differentiating in a crowded market. In other words: how can we convince an owner to choose us based on things other than price? Our model eliminates pain points for the seller with our “Just Say No” philosophy. This pertains to saying “no” to things like requiring them to reinvest proceeds, aggressive capital structures, requiring heavy debt burdens, escrow requirements, and indemnification or working capital adjustments. We want the seller to see us as stewards of their life achievement. We want to be fair and transparent where both parties feel good afterward.

Lastly, it’s about value creation. This is what PE is all about. In public markets just 4% of public companies triple their value over a five-year period; but 75% of Trivest companies triple their value over five years. This value creation process is called the “Path to 3x.” Every company has six areas of focus: category of one (differentiate), management, measure what matters, organic growth strategy, acquisition strategy, benchmarks to measure against greatest companies. If we can work with a company to align and execute on these areas, that is where the real value is created, and ultimately money is made.

SM: If you’re a founder-owned business considering private equity as a path for expansion and growth, what are the most important questions to ask potential PE investors?

TT: The first question is “will I have to reinvest?” Not all founders will want to do this, but they never ask the question upfront. We had a very successful investment (it was a 10x deal) where three of the key players wanted to reinvest nothing. They wanted a 90-day “out” plan so they could go race cars. Most PE funds wouldn’t invest in this situation, because for the most part, they want founders to reinvest.

The second question is “will I receive 100% of the purchase price at closing?” This question is important from a deal perspective. The devil is in the details, and some term sheets will require all these costs (escrows, working capital adjustments, seller note, earn-out, etc.) that will lower the purchase price significantly. Owners should understand what they will get at close.

I also think owners have a responsibility to ensure their company has a proper chance to succeed, and it shouldn’t be just about the seller maximizing value. An owner should be asking themselves whether the company will be better off five years from now if we do this deal. So, this translates to the third question: “how much debt is going to be on my business moving forward?” Businesses fluctuate, and if an appropriate capital structure is not in place for the company to help it weather whatever storms occur over the next several years, then both the buyer and seller lose. To avoid this, Trivest has a policy of only using senior debt and no more than 3x of operating cash flow.

SM: Have any investments you’ve made outperformed your expectations? How and why?

TT: We purchased a small plumbing business in Kentucky about four years ago and used the “Path to 3x” to build it up significantly through roughly 15 add-ons. During the pandemic, the business started thriving. With each add-on, the founders remained in place after they sold. We minted over 20 people becoming millionaires: this was a life-changing event for most of them. Additionally, 100 employees were shareholders—since we believe strongly in bringing as many employees into the equity of the business as possible. It was such an amazing thing to witness and play a role in, as this isn’t something you normally see in a privately held business.

SM: In terms of “Topgrading”—a term that simply means ensuring the right people are in place—how do expert, third-party resources play into that?

TT: The key to Topgrading isn’t just about the CEO and C-level. It’s also about the next two layers below the C-suite. This is where you can make a dramatic difference, but unfortunately, far too many companies don’t focus on it. I think this is why Trivest has been growing so quickly, because we’ve used this concept in our own company, and it works! Our business development team is filled with great people who “own” their function, and as a result we’ve been able to build a culture of success around it. For any organization, this is an important part of overall company health. While leadership has to come from the top, if you don’t empower other levels of the organization to thrive, then you essentially build a layer of dependency into the process. When that happens, it becomes nearly impossible to scale.

SM: Add-on acquisitions are a core part of the Trivest playbook. In your opinion, what are a few elements that ensure a smooth transition and integration process?

TT: We’ve done about 75 in the past couple of years. Truthfully, some worked and some didn’t—but that’s all part of the risk portion of being an investor. Here’s what we’ve learned:

First up, there has to be a business fit. A lot of people will buy companies when there isn’t a reason for the companies to be together. It’s just about size and irrelevant to the core business; you see this a lot with tech companies. In addition to business fit, there also has to be a cultural fit.

Second, communication must be prioritized in order for the integration to work. You have to be transparent, otherwise, people will think the worst about what’s going to happen (read: they think they are going to get fired). This uncertainty leads to poor performance, and ultimately, people leaving whether this was part of the plan or not.

Third, and likely most importantly: you need a “butt on the line.” Someone has to be responsible for the transition, and you need a dedicated resource to be held accountable for any missed opportunities or failures (and successes too).

SM: If private equity didn’t exist, what would the economy look like?

TT: This may seem hyperbolic, but (especially after 2020) it would be in shambles. Private equity is a key component of liquidity, and a key buyer in every major, essential industry. If PE didn’t exist, founder and/or family-owned businesses could only sell to strategics or a management team. You’d have more public companies, which on average perform poorly compared to PE-backed companies—as I noted earlier. The focus may largely be on cost savings and making money, and wouldn’t necessarily account for people or culture. In short: there would be fewer options for selling, with worse outcomes for the companies post the sale.

Also, to wit, you never hear about the other side of the PE-equation: what these companies we invest in do for their families, communities, and partners. Most founders who realize their life’s goal by selling their business don’t immediately go out and buy a yacht and a new mansion, rather—they typically invest in other companies, provide security for their families and become much more philanthropic. Yes, sometimes they pursue their hobbies like racing cars…but that’s generally the exception and a small part of their overall net worth.

Without private equity, there would be no vehicle for most investors, large and small, to participate in the most vibrant and growing part of our economy—lower and middle-market companies. PE is an important growth engine of the economy, and the economy wouldn’t be nearly as robust.

SM: What is one thing you wish everyone understood about private equity?

TT: I wish everyone would think of us like the Meghan Trainor song “It’s all about that bass”—except for us it’s: “It’s all about that growth.” If we are growing, then our companies are going to do well. From the frontline workers to the founder to the investor, it’s a win-win. Money is simply a byproduct of being a good steward and helping a company grow. [drops the mic]

Using Lean Six Sigma to optimize teams

July 29, 2021 Sean Mooney

In a recent article for CEOWorld Magazine, BluWave founder and CEO Sean Mooney shared how his love for the beautiful, streamlined, and seemingly perfect Ferrari sports cars that constantly improved with each model led to his love for the concept of Lean Six Sigma. He saw a similar sense of beauty in the ideas of perfecting form, reducing variability, eliminating waste, and continuously seeking improvement.

While the concept was first embraced by the manufacturing industry, it is becoming increasingly popular across all sectors and industries, even in how business leaders think about their people.

You can read the full article and Sean’s thoughts on how Lean Six Sigma is all about people here. And if you need help connecting to the fractional and interim resources you need when you need them in order to apply Lean Six Sigma in your business, you can contact us here.

REDIRECTED Merger Integration Elements of Success

July 21, 2021 Sean Mooney

Every year, the private equity industry focuses a tremendous amount of energy on add-ons as a core expansion strategy to build bigger, better, and more valuable companies. We saw a particularly strong amount of activity last year during the pandemic as competing businesses saw more value being more together than apart. This trend has continued into 2021, and as such we’ve seen an uptick in requests for specialized groups and individuals with deep experience in merger integration.

According to our Intelligent Network merger integration experts- who have focused their careers on making merger integrations go well the first time- there are several key elements that allow merger integrations to flourish. If you’re considering an acquisition or add-on as part of your long-term plan, keep these elements in mind before you pull the trigger.

ELEMENT #1 – Keep an open mind

Keeping an open mind during the initial integration process helps eliminate bias and allows the process to move more quickly, while also avoiding employee and customer attrition. You’re acquiring the target for a reason. You’ll no doubt find a wealth of perspectives in your target that will make the combination better for all.

ELEMENT #2 – Know the investment thesis

If you have a clear understanding of the investment thesis and how the integration fits into the broader picture then it will be much easier to develop a roadmap and, as Stephen Covey aptly asserts: “begin with the end in mind.”

ELEMENT #3 – Understand who has the best system in place

By clearly defining a business capabilities chart upfront, then doing an assessment of which organizations have the best capabilities in place, everyone benefits. Remind yourself that for 1 + 1 to be greater than 2, you need to seamlessly integrate the best of both.

ELEMENT #4 – Prioritize agility and flexibility

As Mike Tyson famously once said, “everyone has a plan until they get punched in the mouth.” Once you get started, you’ll learn new information and will need to adapt your plan. If you can set the expectation that agility and flexibility are key components of an integration, this gives people permission to let go of pre-conceptions, embrace change quickly, and smoothly transition to the best version of the “new normal” with speed and excellence.

ELEMENT #5 – Beware of overloading IT

During a typical integration period, the IT department tends to absorb a very heavy load of the “asks”—because of technology’s integral role in the process. Make sure there is a system in place that enables communication between integration leadership and IT to avoid the mistake of overloading them.

ELEMENT #6 – Communicate clearly, early, and often to employees

One of the biggest mistakes made is that acquirors try to let things settle for a while before they begin integration activities. During any major shift of change, people are often fearful of what this means for their personal and professional futures. By offering insight into what is happening immediately after you close your transaction and sharing what will happen, even if it’s not what they want to hear, employees can embrace an integration with less trepidation. Be sure to promptly follow your communications with aligned actions.

ELEMENT #7 – Lead by example

This should probably be #1 (and likely goes without saying), but leadership is ultimately responsible for the success or failure of an integration. Acquisitions have a unique ability to either make or break a company. If you’re in a leadership role, don’t pass off important steps of the process to lower-level managers, particularly with more nuanced or difficult changes. Lead by example and show that you have bought into the task at hand by holding others and yourself accountable for the outcomes. Make acquisition integration part of your leadership meetings and make sure the buck stops with a key leader in your organization who can catalyze buy-in and action.

Check out the case studies on how we’ve helped clients connect with the merger integration experts that are right for them here and here. And as always, if you have an immediate need we can assist with, contact us and one of our team members will be with you immediately.

Common Mistakes to Avoid When Preparing A Company for Sale

July 17, 2021 Sean Mooney

After a nearly 20-year career in private equity, I’ve learned to appreciate that it takes just as much work to effectively sell a company as it does to excellently buy a company. It’s also easy to slip up or not pay enough attention to vital steps that could profoundly change the final price upon sale.

Sellers make a number of common mistakes during sale processes, including a lack of advance preparation, not knowing key questions about themselves, and not appropriately resourcing the business to concurrently run operations and support a sale process. Each of these mistakes causes sellers to lose credibility and slow down their process, which, in turn, increases real and perceived risk, and inevitably kills value.

To help get better outcomes, here are the three most common mistakes we see made when selling your business and how to fix them:

Lack of Preparation

As a private equity investor, we made it our business to optimize the sale process. We would talk virtually every month about the right time to sell various businesses. When we finally decided it was the right time to sell, we, of course, wanted to be in the market within six weeks of our decision. Even with professional sellers of businesses like PE investors, this decision is often followed by all sorts of scrambling by investors, portfolio company teams, investment bankers, lawyers, and related support professionals to get ready for sale. For family-held or entrepreneurially-held businesses with fewer resources and less experience selling companies, this process is multiple times more chaotic.

Don’t try to squeeze months of work into six weeks: preparing for sale should start well in advance of the sale process. Taking some time in advance will enable you to run an aggressive process while also effectively running your business at the same time.

We recently held a management forum for a top private equity find and their managers, during which we discussed best practices for planning for sale. The key takeaway was preparing for sale should start years in advance, ideally the day the first wire from investors clears, so you can hit the market at any moment when the time is right.

Not knowing yourself before you’re asked

Time and time again on the buyside, I’ve asked fundamental questions that should have been known by the sellers, but weren’t. When we asked these questions, the process had to slow down as their team hustled to find the answers. These slow-downs give everyone in the process time to rethink assumptions and value.

Make sure you know the following key items before you start an M&A process because you’ll most likely be asked these right at the time you can least afford to pause your process:

The size and growth rate of your direct markets
Your company’s market share in their addressable markets and how it compares to competitors
Volume, revenue, and profitability by customer and product over a trailing 3-year period

Once you know these elements, incorporate them into a detailed financial model that projects your performance over the next five years (make sure you also have monthly projections for the next two years). If you do this, you’ll build credibility with buyers and disarm much of the skepticism that naturally occurs during sales processes.

Also, try your best to predict what buyers will be asking during the sale process. Have open conversations with your investors, executives, and investment bankers to understand your strengths and weaknesses. Save yourself from having to scramble to produce appropriate reports and information in the heat of the sale process. Having a general idea of what buyers are looking for and preemptively having answers to those questions, disseminating the information to those who need to know, and confirming overall readiness will ensure that buyers feel confident and comfortable when meeting with you and your team.

Truly best-in-class companies bring in third parties to pre-opine on the state and opportunities of the business. Spend a little money on pre-due diligence, including sell-side quality of earnings reports, tax diligence, market studies, and IT. The cost is minor as it compares the value of the company, and these third-party stamps of approval from credible advisors will give your buyers confidence that the company is what it is and not see (or go looking for) ghosts during the sprint to the finish line.

Under-Resourcing with Interim Staff

The single biggest mistake I saw time and again during my private equity career was understaffing the sale process. It’s nearly impossible to both aggressively run a sale process and proactively run your company.

Most sellers’ intuition is to put the bulk of the workload on their investment bankers’ shoulders. Your investment bankers can help, but you are not paying them to be your accountants, lawyers, market strategists, and data entry specialists. You hire top investment bankers to intimately know the buyers, appropriately frame the opportunity, and manage a process to optimize valuations. Don’t distract them by getting them bogged down in the weeds. Let them focus on the job you hired them for and they’ll deliver outstanding results.

Every business undergoing a sale process should bring in some level of interim staff (ranging from interim controllers to interim CFOs) to either help with the production of analyses and data requests or help manage day-to-day operations. This is a relatively small expense compared to the sums that will be gained by running a fast and credible process. If you don’t resource appropriately, something usually has to give: either your sale process, your operating results, or both.

We work daily to help top private equity firms, and their portfolio companies and proactively-managed independent companies more effectively assess opportunities and build value. It’s hard to know who is good: we make it our business to be the expert of experts.

Find out how we can help you during due diligence, value creation, or the sale process!

How We Did It: Head of Sales needed to drive value at a recently acquired portco

June 23, 2021 Sean Mooney

A private equity firm principal and portfolio company CEO came to us with a need for a Head of Sales for their healthcare logistics company. Since the acquisition, the portfolio company had been growing rapidly, and they needed to make key hires across multiple functions. Moving quickly, we worked to thoroughly understand the client’s specific needs. We introduced them to two sales recruiting firms that specialized in senior go-to-market roles in the healthcare space. After a thorough vetting process, the CEO made a decision and hired one of the candidates presented. To date, the partnership is a success and going smoothly.

Do you have a similar need in the interim exec area or any other unique need we can help with? Contact us here and we will be happy to help.

For the full story click here.

An Interview with Riveter Capital Founder Colleen Gurda

June 15, 2021 Sean Mooney

Anyone who has spent a significant amount of time in the private equity industry understands how difficult it is to “disrupt” the space. This has less to do with a lack of desire and more to do with the heaviness of the lift: being an innovator or a market leader is not for the faint of heart. But as we are discovering, after a year that rocked the globe and upended many aspects of our lives, now is the time to make strides and truly challenge the status quo.

For Colleen Gurda and her partner Sarah Abdel-Razek, they embraced the economic contraction and shifting tides of 2020 by founding New York-based fund, Riveter Capital. Passionate about supporting women and minority-owned or –led businesses in the lower middle market, they built their thesis around this underserved demographic and are on the hunt for quality founder- and family-owned businesses to partner with.

Case in point: When I hopped on a call to discuss everything from entrepreneurship to diversity to fractional talent, Colleen opened with: “It’s a little hectic today, we have three LOIs going out, so I’ll talk fast.” Her enthusiasm and passion are clear, and I have no doubt you’ll find her take on the future of PE to be filled with hope, realistic insights, and food for thought.

Sean Mooney: What was the genesis of Riveter?

Colleen Gurda: Having spent the majority of my career in a male-dominated industry, I knew the specific challenges many women in positions similar to mine faced—as well as the opportunities to do things differently. I’d been thinking about how I could combine my passion for women in business with my skillset, so when the pandemic hit and all these businesses owned by women and minorities were being disproportionately affected, I knew it was time to make the jump.

Women represent so many small businesses, but they don’t have access to capital. My partner and I saw a huge market gap in the PE world for these types of businesses in the $1M to $5M EBITDA range. We essentially close the “access to capital” gap, while realizing good returns for our investors.

SM: How did you overcome any “fears” about stepping out on your own and becoming an entrepreneur?

CG: I’ve always had an entrepreneurial itch but wanted to make sure I had the experience and credentials to be successful. After 15 years of investment banking and investing experience, I finally felt like I had the necessary tools to go out on my own. Having a partner in crime (Sarah) was also really important—both of us had the same vision yet complementary skillsets and the mutual support made the decision much easier.

Beyond that, during my years at other investment firms, I saw my peers moving upmarket only. So, I knew, from a competitive perspective, there was a chance to do smaller deals but have an outsized impact. The path to revenue growth was wide open and not oversaturated; this gave Sarah and me the confidence to test the thesis without the cost of having to outpace a lot of competition.

SM: You invest in minority-owned/managed businesses, but can you talk a bit more about your criteria for choosing companies in which to invest?

CG: Our core focus is women– and minority-owned and/or managed businesses. Right now, we are focused on companies with $10M+ revenue with $1M to $5M EBITDA in the areas of business services, manufacturing, consumer/retail, and healthcare services—although that will likely expand in the future. We are mostly interested in buyouts, founder ownership transitions, recapitalizations, growth and acquisitions, and rollup strategies. Beyond the leadership criteria, we look for fairly standard industry things like proven business models in stable industries, a strong value proposition, high free cash flow, and an identifiable value creation plan.

SM: Any examples of how a company you’ve been involved with saw positive economic impact by leaning into the idea of building a diverse workforce?

CG: We were recently involved with a waste management company specializing in waste collection, processing, and recycling. The organization had very little diversity on the teams, particularly in leadership positions, and no formal HR strategy. Our investment thesis was to formalize all policies and procedures, then top grade the management team. After implementing our suggested changes, the company attracted a more diverse workforce, which in turn embraced the ‘professionalization’ of the company. This included the way the company related to and communicated with its diverse customer base. As a result, the company improved its margins, increased customer retention, and was better positioned to win larger contracts from commercial customers.

SM: For middle market companies, why is access to fractional executives or specialized groups important?

CG: What we often see in the lower middle market are resource-constrained companies that can’t afford to build out a full team, or simply don’t have the bandwidth to manage growing their teams formally. At these companies, the CEO is also the COO and CFO, and probably more. Having access to episodic, expert teams and people is imperative for their growth.

Companies, like BluWave for example, allow us to bridge the skill gap until our portfolio companies are ready to hire full-time executives.

SM: What is one goal you have for 2021?

CG: As a fund, our goal is to prove the Riveter thesis, given there aren’t many (if any) firms out there doing what we are doing. We want to prove that there are really high-quality women– and minority-owned or –led businesses worth investing in, and that good returns are possible by looking at these largely underrepresented groups. While we do enjoy the fact that there isn’t much competition yet, I hope we inspire other investors to start thinking outside the box.

Top 8 Best Practices for Preparing for a Value Maximizing Sale

June 11, 2021 Sean Mooney

In today’s competitive markets, private equity companies and their partners are being forced to pay record-high prices for investments in companies. To generate attractive returns, the private equity companies and their managers must create substantial value after closing. One effective way to create value is by running a highly prepared, efficient, and focused sales process. Here are eight best practices for preparing a company for a value-maximizing sale:

Run fast
Time is the enemy of any business sale process. It gives interested buyers the opportunity to overthink diligence items, get bogged down in excessive analysis, and find reasons why they shouldn’t pay the most full and fair market price.

It also extends the opportunities for customers, suppliers, and competitors to discover that your company is in a sales process, which can lead to myriad distractions and unforeseen consequences. From the day your investment banker sends out teasers and a confidentiality agreement, your goal should be to sprint to the finish line.

Perform diligence on yourself
One of the biggest things that can bog down a sales process is when interested parties discover aspects of the business that are different than those represented in offering materials. Not only does this slow the process down, but it also gives counterparties the opportunity to re-negotiate price and terms, often late in the process when the seller’s relative power in the process can diminish.

To avoid this, it is well worth the time and money to do diligence on yourself. Hiring quality of earnings advisors, tax advisors, and even market sizing, competitive landscaping, and IT consultants to do pre-diligence will give you much more confidence going into a process that you won’t encounter a surprise that could impact time and value. Additionally, many of these pre-diligence service providers will enable you to share their findings with interested parties, which will ultimately help you run an even faster and more certain process.

Be prepared to answer key questions
Almost all interested buyers will want to know (i) revenue and gross profit by customer and product over time, and (ii) detailed statistics regarding the size of your addressable market and your related market share. It will be to your benefit to stay prepared with these detailed answers before you start a business sale process.

If you’re not prepared, it is likely that buyers will insist that you take the time to prepare such detailed analyses. Taking the time to do them in the middle of a process is often very distracting, stresses internal resources, and slows down processes at the exact time you don’t want to be slowing down.

Organize your files
Interested buyers are not going to part with substantial sums of money to buy your business without doing comprehensive due diligence. This includes very detailed reviews of nearly every financial report and contract that is relevant to your ownership period (and likely even beyond your ownership period). Take the time in advance to organize all your contracts and financial report and summarize the key terms of all meaningful contracts. Your sponsors, investment bankers, and attorneys will give you guidance on where to focus your attention.

Hire high-quality investment bankers
Investment bankers are experts at maximizing value in the marketplace. The best investment bankers not only know how to pitch an indicative valuation and run a broad process, but also have pre-established relationships with the relevant buyers for companies like yours and an understanding of how your company could or should fit into the strategies of the most likely buyers. Hiring the right investment bankers almost always pays for itself.

Hire high-quality attorneys
Just like investment bankers, hiring the right attorney can add significant value to your sale process. It is more than likely that your buyer will have a highly capable attorney that solely focuses on mergers and acquisitions transactions.

You should also have a highly capable attorney who can adeptly negotiate prevailing market terms and efficiently and effectively protect your interests from liabilities that survive after the initial closing. A good attorney should also know what’s important and not try to win every point in your favor. An M&A transaction involves a lot of give and take. The best attorneys know that intelligent compromise is needed to close a deal.

Polish your presentation
Interested buyers aren’t just buying a company; they are buying the management team. It is imperative to have strong contributions from each of the key members of the management team. Presenting canned PowerPoint presentations, however, is not necessarily the day job of your functional area leaders. Practice, practice, and more practice is critical.

Private equity sponsors and investment bankers also serve as great sounding boards and fountains of feedback and advice as they participate in these types of meetings on a regular basis. There are also professional management meeting presentation advisors that can add tremendous value by giving arms-length feedback and advice free of natural bias that occurs with your existing relationships. We know some really good, PE-tested presentation coaches if you need this type of resource.

Staff up
Preparing for and managing a business sale process is an unbelievable amount of work. Your company is not staffed to manage this level of surge demand. Most of the workload typically falls on the finance staff. Hiring interim staffing to support this surge demand is tremendously valuable in terms of making sure that information requests are met in a timely manner and your company continues to run as well as possible during a trying time.

Moreover, the costs of these interim support personnel are relatively minor as it relates to the total transaction value and can typically be allocated as transaction-related add-backs and closing expenses. BluWave has this world mapped and can quickly pair you with the right group or person to support your finance staff during this critical time.

After working feverishly for years on building and growing your company, the sale process is your final opportunity to monetize the full value of your company for the benefit of you, your team, and your investors. Take every opportunity to prepare in advance, bring in strong advisors and business support resources, and run a fast, competitive sales process so you can optimize the outcome of a rarely-occurring cornerstone event.

Private Equity Interview with TCV General Partner Susan Clark

May 26, 2021 Sean Mooney

Susan Clark is an insightful force who spent nearly a decade in Dell operations prior to getting bit with the private equity bug. While watching Silver Lake Partners lead the privatization of Dell, a publicly-traded, end-to-end technology solutions company, Clark recalls: “After observing the transformation process, I basically decided I wanted to be on the other side of the table. I was good at fixing things, making operational decisions to increase efficiency, and I knew I could take my expertise and apply it to many companies beyond Dell.” So, that is exactly what she did.

Her first move was to Vista Equity Partners, where she held both VP of Operations and Chief of Staff roles, focusing on operational excellence and driving value creation across the portfolio. Now, as General Partner of Portfolio Operations at TCV, she has developed an operations strategy and model that helps fuel sustainable growth across the portfolio.

From her residence in New York City—where she is coaching a newly acquired company’s exec team through their first 100 days—we spoke about PE’s current state of affairs and why she is so enthusiastic about the future. During the interview, we covered everything from “sustainable growth” to what “operational excellence really means”, and why interim executives and experts are “necessary for the ebbs and flows of company growth.”

Sean Mooney: At TCV, you developed a portfolio operations strategy and model. What went into that formula?

Susan Clark: We are a growth-focused fund that focuses on technology businesses. The model I developed is specifically rooted in figuring out what will fuel sustainable growth over the long term. My team and I get involved in diligence to scope out operational opportunities, then do an assessment to determine the biggest needle movers. This can be anything from an updated go-to-market strategy, implementing a customer success organization, and/or looking at the discipline around their product roadmap. Ultimately our goal is to develop an achievable strategy that will quickly drive value while also building a strong foundation for future growth.

SM: In roughly 35 words, what is your definition of “operational excellence?”

SC: From prospect to product to a new market—you are confident it is the right thing to go after. In other words, when you throw the dart, you know you’re landing on the right board.

SM: In your opinion, what are a few of the greatest challenges portfolio companies face?

SC: After having worked with so many different companies and leadership teams, it typically comes down to feeling confident about taking calculated risks. This is where portfolio operations within a Private Equity firm can be helpful. We have the operational experience to help alleviate concerns about entering a new market, expanding a sales team, or going after an M&A target. In a sense, we offer a boost of confidence and support them while they start making investments in people, products, and processes that drive growth.

SM: I’ve heard you mention a “partner approach” to investing in companies. What does that look like?

SC: I’ll start with what a non-partner approach looks like, for sake of context. Ultimately, this is when an investor comes in and takes the stance that they know the business and customers better than the company owners. Then, they begin executing a plan, blindly and with little attention to nuances or details about legacy people, products, or processes.

Alternatively, with a partner approach, an investor believes that the current company leaders should run the business. While they (current leaders) may not have the best strategy in place for growth, they still understand the ins and outs of the business. In essence, at TCV, we bring the coaching, but the actual execution lands on the executive team. If the executive team—or one or two leaders within it—prove they don’t have the right skills to execute on the plan, or they aren’t coachable, then and only then will we move to find a more suitable candidate. This approach is somewhat a part of the evolution of the Private Equity industry over the last decade.

SM: Why is access to third-party, expert resources invaluable to Private Equity funds and their portfolio companies?

SC: As you know, because this is BluWave’s area of expertise, the needs of portfolio companies ebb and flow as far as demand. Private Equity firms don’t want to staff up internally, because of the episodic nature of these needs. We use best-in-class, vetted resources—search firms, Salesforce implementation experts, interim executives, advisors, and more—to fill these gaps and save time, money, and effort in the long run.

SM: What surprises you (and what would surprise others) about private equity?

SC: Private Equity has this “big bad wolf” aura: we break down the door, come in to tear apart companies, then cut costs in unsustainable ways. In my experience, we instead want companies to grow and flourish. Fundamentally, we want to facilitate getting them to where we believe they can be. The media and Private Equity detractors do a wonderful job of perpetuating this negative narrative, but I think things are shifting in positive ways, particularly with the post-Covid growth happening across PE-backed industries and sectors.

SM: Most would think your role is very cut and dry. But this isn’t always true. What are some of the soft skills required to do your job well?

SC: Simply put, change induces anxiety, whether it’s good or bad change—and this requires special attention to quelling fear and stabilizing emotions. As such, a large part of my job is coaching, and it squarely sits in the bucket of “valuing people.” Additionally, a key aspect of my role is rallying a company around a revamped mission or growth vector. I need to influence them toward the vision and get buy-in. I also have to ensure the CEO, executive team, and employees feel supported. This requires awareness, communication, and transparency. Presenting a spreadsheet filled with sales targets is one thing, listening to them voice fears about any aspect of executing a plan is quite another. I have to be able to do both.

SM: Finding the right talent is key and many companies can’t find talent fast enough. Would you rather step in as a CEO or spearhead HR.

SC: Hands down, CEO. HR is probably the hardest job on the planet, especially right now with so many changes and complexities in the current business environment. My hat goes off to them, but I’ll take the “chief job” any day of the week.

The views and opinions expressed are those of the author and do not necessarily reflect those of TCMI, Inc. or its affiliates (“TCV”). TCV has not verified the accuracy of any statements by the author and disclaims any responsibility therefor. This blog post is not an offer to sell or the solicitation of an offer to purchase an interest in any private fund managed or sponsored by TCV or any of the securities of any company discussed. The TCV portfolio companies identified above are not necessarily representative of all TCV investments, and no assumption should be made that the investments identified were or will be profitable. For a complete list of TCV investments, please visit www.tcv.com/all-companies/. For additional important disclaimers regarding this interview and blog post, please see “Informational Purposes Only” in the Terms of Use for TCV’s website, available at http://www.tcv.com/terms-of-use/.

Why Companies Should Consult A Private Equity Coach

May 25, 2021 Sean Mooney

Even the most talented athletes never reach their full potential without great coaches. Beyond the ability to see elements of their players’ game that need to be improved or reinforced, effective coaches can motivate players by setting goals, holding them accountable, and providing the right resources for growth and development. While players are responsible for their performance on the court or field, coaches can help them play better than they ever thought possible.

As the CEO of a platform that helps connect private equity (PE) firms with third-party resources, I’ve observed that this isn’t unlike the relationship between these two entities. Just as coaches provide plays, strategies, and training, PE firms give companies the tools they need to improve their products and services, ensure their operations are as efficient as possible, and increase their productivity. To take full advantage of the coaching PE firms can provide, companies have to know who they are and where to find them as well as how to build healthy relationships with them.

What PE Firms Can Bring To The Table

Companies often misconstrue the role of private equity firms. Instead of viewing them as partners, they often regard them more narrowly as sources of capital. It’s long past time to abandon the reductionistic perception of relationships between PE firms and their portfolio companies as strictly transactional. This view maintains that PE firms pump cash into companies, cut costs wherever they can and sell those companies as quickly as possible. Beyond the fact that the median holding period in 2019 for PE firms was 4.5 years, PE firms report that they’re more interested in building strong companies than trying to make overnight profits.

Most PE professionals have worked with hundreds, if not thousands, of companies and have previously been through many of the trials that companies are otherwise experiencing for the first time. Their experiences help them advise which strategies are most likely to be successful and which resources can be used to execute plans most effectively.

Like coaches, PE funds conduct rigorous assessments of companies’ performance on fundamental metrics (such as market share, customer churn, top-line growth, customer concentration, and profit margins), provide objective appraisals of what’s working and what isn’t, and allow access to the right resources necessary to drive accelerated improvements.

The Process Of Choosing Your Private Equity Coach

The global economy is becoming more dynamic, skills-based, and competitive every day. A recent World Economic Forum report explains that the rapid pace of technological change is leading to major shifts in the types of workers companies employ, while a significant majority of the companies say they’re needing and investing in specialized expertise.

PE firms aren’t just a source of financial support; they also offer just-in-time access to the specialized expertise that companies need to navigate the evolving global economy, especially at a time when we’re recovering from the most significant downturn in years.

In order to get the right fit when it comes to choosing a PE fund partner, you need to do some work. Look for one that is aligned with your industry, the size of your company, and your culture. You should probe the firm on its ability to add value beyond just cutting the check. The best PE funds will have countless examples of how they helped others in similar situations.

If you’d like to take the traditional route to find the right firm, start with your own network. Talk to your acquaintances who have experience working with PE funds and ask for referrals. Next, you could seek out trusted investment bankers who regularly connect business owners with best-in-class PE fund investors in your end market. Lastly, keep in mind that there are networking tools like Axial that can make the process of connecting with PE investors easier. (Full disclosure: My company offers networking solutions for different applications in due diligence and value creation.) Deloitte reports that talent networks now account for billions of dollars in economic activity and hundreds of millions of hires around the world.

Making The Most Of The Relationship

While a private equity coach can have a huge impact, players ultimately have to take full responsibility. The same applies to companies that work with PE funds or advisors of any kind. They should be willing to confront problems honestly, put their coaches’ advice into practice, address failures and celebrate successes. It’s essential to establish norms of transparency and accountability early on in these relationships, and this begins with the alignment of goals and how to achieve them.

For example, what are your definitions of success? Companies and their PE coaches should ask this question right at the outset and arrive at an answer that makes sense to everyone. After deciding what success looks like, it’s crucial to determine which metrics will measure performance. With the scorecard in place, the next step is identifying the resources and capabilities companies need to achieve their goals.

At every stage of this process, open communication and collaboration are key. Both coaches and players need to feel comfortable asking tough questions and openly sharing their thoughts. When a company and its Private Equity coach listens, holds each other accountable and moves forward with a foundation of trust, shared goals, and collaboration, only then can they discover that they’re capable of far more than they imagined.

This article originally appeared on Forbes.com.