Greg Hrinya, Editor03.03.21
L&NW recently sat down with Jack Farris in order to better explore the journey of the business owner looking to sell his or her company. Farris has been the founder, owner and partner of three companies with successful private equity/investor exits, including a second-generation family business.
Farris also boasts 25 years of M&A work on the sell side, which spans multiple vertical markets – with the last five focused on the label and packaging space. He has a passion for business and first-hand knowledge of the business owner journey, from inception and growth to transition. When not spending time with his wife, children, and grandchildren, Farris is training for his 21st year of competitive triathlon competitions.
For those interested in learning more about the sell side of business, feel free to contact Jack at 817-312-7908 or via email. Let's get to the interview:
From an M&A point of view, how would you characterize the state of the label and packaging market?
Jack: 2021 could be the very best year for any label and packaging owner who wants to monetize his or her legacy through an exit transaction. From an owner/seller perspective, most have seen a nice surge or consistency within their business throughout the pandemic. In addition, most business owners have been inundated with inbound acquisition inquiries, which, although overwhelming, have at least provided the seller with a reason to look into what a transaction might look like.
Private equity funds, private investors and family offices are flush with undeployed cash and realize the resilience of the packaging industry as being recession-resistant, sticky, consistent, high barrier to entry, and now pandemic-resistant. We have record low interest rates, inflation, and taxes, all showcasing PE as a highly valued asset class by investors. With capital gains and corporate taxes destined to increase after 2021, a sale this year could maximize the net revenues to the seller.
Many established strategic platforms, whose acquisition activity has been fruitful over the last 5-7 years, are now considering selling those holdings to new, larger funds. New funds are creating the next wave of packaging platforms for their own 5-7 year holding. As always, consolidation within a highly fragmented industry will ultimately spur new startups and business owners whose initial non-competes have expired.
How would you describe the process of selling – and deciding to sell – your company?
Jack: The process of selling a business begins with the decision by the business owner that this is something that they want to seriously investigate. In the packaging industry today, most owners are receiving calls and emails from potential buyers each and every week, so finding a potential buyer is not a problem. Knowing whose sales pitch is accurate and credible can be another story as they all "want" your business, offer to pay top dollar/multiples, and are experts in this space. Knowing what your business is worth requires that you either engage with multiple suitors on your own or engage an M&A professional with expertise in the packaging industry. With so many transactions being done within the packaging industry today, you can achieve a valuation range without paying anyone an upfront fee. Know what you are worth!
The selling process will be emotional, but it does follow a logical process. Be sure that you have both accounting and legal professionals, who represent you, to assist you on this journey and ultimately engage with their peers on the buyer side. Begin any interaction with mutually signed NDA’s to establish the sanctity of the information you will be sharing.
Just like selling a house, you want it clean, organized, and an offering whose positive differentiators are highlighted in your marketing campaign. Having your company’s history, capabilities and financials organized into a comprehensive CIM (Confidential Information Memorandum) should provide suitors with an accurate and consistent view of your business. Detailed financials and tax records should be put into a secure data room to share as needed. Have an organized flow to your engagements from NDA, initial summary overview, scheduled introductory meet/greet call, CIM and data access, valuation discussions, onsite visits, short listing, and LOI (letter of intent).
From inception to completed transaction, I would allocate 5-6 months for the process. There are always exceptions, but a well-organized offering launch, with a date-driven process – and buyers and sellers aligned to a mutually beneficial transaction – will complete this in a predictable and timely manner.
What are some of the challenges business owners must face when making that decision?
Jack: Some items you need to think through when selling your business are if you want to exit 100% from the company or perhaps you just want to take chips off the table in a hot market but retain some ownership and continue to drive strategy for the next few years. How much money are willing to roll as invested equity? What is the track record of the buyer when it comes to multiplying rolled equity? Large, successful, private equity groups will have references and data to show the impact of rolled equity as an investment in the transaction. In many instances, the “second bite” of the apple from the future/secondary exit, can be as great as your initial transaction.
Are you willing to carry a seller note to help a buyer with financing the business? Are you receptive to having a portion of your proceeds in the form of an upside earnout? Oftentimes, if there is a perception that the business has not performed consistently in the past, experienced single-year large revenue increases/decreases, yet the seller is confident in the larger upward trend continuing, an earnout based upon achieving certain goals is put in place. These earnouts can allow you to meet, or exceed, their payout value. But if not met, they result in a lower pay out to the seller.
Do you have your books in order? Have you seen what a financial and legal due diligence list looks like and the items that will be requested? Is this information readily available from you, your controller, CPA, or lawyer?
Based on your experience, how would you counsel sellers for approaching life after the sale?
Jack: For most owners, they have spent their entire careers building their business, creating teams of employees who have become friends and whose families are part of the owner’s own extended family that may, or may not, be active in the business. Working on the business has become a way of life, where it could be all they have known for decades or an entire career. Separation anxiety, fear of being irrelevant, fear of not knowing what to do with yourself, and analysis paralysis are just a few of the emotions that any seller will go through during a transaction decision and journey.
Know why you are selling. Is it to monetize your life’s work? Ensure that your legacy lives on for decades beyond you? Estate planning? Spend more time traveling with family, or on hobbies? Health reasons? If the why is big enough, you’ll get through the transaction just fine as long as you focus on the why. If you have selected a buyer whose vision, culture, and track record align with your expectations, then the transaction is the means to your why and next chapter in your life.
I tell all of my clients that along the way, I will be their friend, mentor, counselor, therapist and priest. Many nights and weekends have been spent speaking with clients that continue to worry about if/then scenarios around customers, employees, money, or life after the transition. Include your family, lawyer, broker, CPA, and friends in your journey as there will be times that you might lose clarity and focus where your circle of trust will keep you aligned.
What positives can you highlight from this arduous process?
Jack: There are so many positives that normally come out of a successful business transition. I do want to stress that mindset is so important in your outcome and you should truly feel that you are transitioning the business for continued success versus this being a divorce.
There is normally great excitement once you see that big wire transfer hit your bank account, a celebratory dinner, an extended vacation with the family. I have clients that have sent pictures of the home, boat, car, or vacation that they always wanted but never did realize until the sale of their business. A couple of clients told me that they had their best health checkups in years as a result of removing business stress from their lives. Something as simple as getting your evenings or weekends to spend with the family for the first time in decades now becomes commonplace.
Farris also boasts 25 years of M&A work on the sell side, which spans multiple vertical markets – with the last five focused on the label and packaging space. He has a passion for business and first-hand knowledge of the business owner journey, from inception and growth to transition. When not spending time with his wife, children, and grandchildren, Farris is training for his 21st year of competitive triathlon competitions.
For those interested in learning more about the sell side of business, feel free to contact Jack at 817-312-7908 or via email. Let's get to the interview:
From an M&A point of view, how would you characterize the state of the label and packaging market?
Jack: 2021 could be the very best year for any label and packaging owner who wants to monetize his or her legacy through an exit transaction. From an owner/seller perspective, most have seen a nice surge or consistency within their business throughout the pandemic. In addition, most business owners have been inundated with inbound acquisition inquiries, which, although overwhelming, have at least provided the seller with a reason to look into what a transaction might look like.
Private equity funds, private investors and family offices are flush with undeployed cash and realize the resilience of the packaging industry as being recession-resistant, sticky, consistent, high barrier to entry, and now pandemic-resistant. We have record low interest rates, inflation, and taxes, all showcasing PE as a highly valued asset class by investors. With capital gains and corporate taxes destined to increase after 2021, a sale this year could maximize the net revenues to the seller.
Many established strategic platforms, whose acquisition activity has been fruitful over the last 5-7 years, are now considering selling those holdings to new, larger funds. New funds are creating the next wave of packaging platforms for their own 5-7 year holding. As always, consolidation within a highly fragmented industry will ultimately spur new startups and business owners whose initial non-competes have expired.
How would you describe the process of selling – and deciding to sell – your company?
Jack: The process of selling a business begins with the decision by the business owner that this is something that they want to seriously investigate. In the packaging industry today, most owners are receiving calls and emails from potential buyers each and every week, so finding a potential buyer is not a problem. Knowing whose sales pitch is accurate and credible can be another story as they all "want" your business, offer to pay top dollar/multiples, and are experts in this space. Knowing what your business is worth requires that you either engage with multiple suitors on your own or engage an M&A professional with expertise in the packaging industry. With so many transactions being done within the packaging industry today, you can achieve a valuation range without paying anyone an upfront fee. Know what you are worth!
The selling process will be emotional, but it does follow a logical process. Be sure that you have both accounting and legal professionals, who represent you, to assist you on this journey and ultimately engage with their peers on the buyer side. Begin any interaction with mutually signed NDA’s to establish the sanctity of the information you will be sharing.
Just like selling a house, you want it clean, organized, and an offering whose positive differentiators are highlighted in your marketing campaign. Having your company’s history, capabilities and financials organized into a comprehensive CIM (Confidential Information Memorandum) should provide suitors with an accurate and consistent view of your business. Detailed financials and tax records should be put into a secure data room to share as needed. Have an organized flow to your engagements from NDA, initial summary overview, scheduled introductory meet/greet call, CIM and data access, valuation discussions, onsite visits, short listing, and LOI (letter of intent).
From inception to completed transaction, I would allocate 5-6 months for the process. There are always exceptions, but a well-organized offering launch, with a date-driven process – and buyers and sellers aligned to a mutually beneficial transaction – will complete this in a predictable and timely manner.
What are some of the challenges business owners must face when making that decision?
Jack: Some items you need to think through when selling your business are if you want to exit 100% from the company or perhaps you just want to take chips off the table in a hot market but retain some ownership and continue to drive strategy for the next few years. How much money are willing to roll as invested equity? What is the track record of the buyer when it comes to multiplying rolled equity? Large, successful, private equity groups will have references and data to show the impact of rolled equity as an investment in the transaction. In many instances, the “second bite” of the apple from the future/secondary exit, can be as great as your initial transaction.
Are you willing to carry a seller note to help a buyer with financing the business? Are you receptive to having a portion of your proceeds in the form of an upside earnout? Oftentimes, if there is a perception that the business has not performed consistently in the past, experienced single-year large revenue increases/decreases, yet the seller is confident in the larger upward trend continuing, an earnout based upon achieving certain goals is put in place. These earnouts can allow you to meet, or exceed, their payout value. But if not met, they result in a lower pay out to the seller.
Do you have your books in order? Have you seen what a financial and legal due diligence list looks like and the items that will be requested? Is this information readily available from you, your controller, CPA, or lawyer?
Based on your experience, how would you counsel sellers for approaching life after the sale?
Jack: For most owners, they have spent their entire careers building their business, creating teams of employees who have become friends and whose families are part of the owner’s own extended family that may, or may not, be active in the business. Working on the business has become a way of life, where it could be all they have known for decades or an entire career. Separation anxiety, fear of being irrelevant, fear of not knowing what to do with yourself, and analysis paralysis are just a few of the emotions that any seller will go through during a transaction decision and journey.
Know why you are selling. Is it to monetize your life’s work? Ensure that your legacy lives on for decades beyond you? Estate planning? Spend more time traveling with family, or on hobbies? Health reasons? If the why is big enough, you’ll get through the transaction just fine as long as you focus on the why. If you have selected a buyer whose vision, culture, and track record align with your expectations, then the transaction is the means to your why and next chapter in your life.
I tell all of my clients that along the way, I will be their friend, mentor, counselor, therapist and priest. Many nights and weekends have been spent speaking with clients that continue to worry about if/then scenarios around customers, employees, money, or life after the transition. Include your family, lawyer, broker, CPA, and friends in your journey as there will be times that you might lose clarity and focus where your circle of trust will keep you aligned.
What positives can you highlight from this arduous process?
Jack: There are so many positives that normally come out of a successful business transition. I do want to stress that mindset is so important in your outcome and you should truly feel that you are transitioning the business for continued success versus this being a divorce.
There is normally great excitement once you see that big wire transfer hit your bank account, a celebratory dinner, an extended vacation with the family. I have clients that have sent pictures of the home, boat, car, or vacation that they always wanted but never did realize until the sale of their business. A couple of clients told me that they had their best health checkups in years as a result of removing business stress from their lives. Something as simple as getting your evenings or weekends to spend with the family for the first time in decades now becomes commonplace.