Rock LaManna09.06.19
In the last issue, we covered the types of buying entities that acquire businesses in our industry. One type of buyer is the family-owned business that builds its empire through calculated acquisitions.
A family-owned business should not be confused with “family offices,” which are private advisory firms that cater to affluent investors.
This month, we’re talking confidentially to a career “Operations Man,” whose job it is to identify targets for a family-owned company.
Q: What is it like being an operations man?
A: I work for a family-owned company that expands its generational wealth and geographical influence by acquiring businesses and making them more profitable. My primary job is to oversee operations for the entire group, but I am also tasked to find companies to buy and build.
Q: When you and I first talked, your job sounded like a spy novel.
A: Was that when I was telling you how I meet with “The Insider” and evaluated “The Target”? It’s not as exciting as a spy novel.
Q: Tell me what it takes to find the right companies?
A: Our company is on the modest end of the spectrum of family-owned buyers. We are lean and frugal. Our goal is to buy high-quality, privately-owned companies with room to grow. A candidate like that is attractive to a variety of buyers, so we try to get in the door ahead of the pack. We want to have a serious conversation with the owner before they talk to other people. Other people being other buyers and investors, of course, but also their banker or accountant, even their spouses and kids. Anyone with an interest in getting the highest possible price, regardless of the outcome.
Tactically, we want to talk with the candidate first to tell our story. If our goals are aligned, we need to agree on a realistic price range, which starts the process.
Q: Price range, not price?
A: We conduct an exploratory process before we get specific about what the offer would look like. Everything is understandable and transparent. We don’t make promises we have no intention of keeping.
Q: It sounds like you call all the shots then?
A: We have specific acquisition criteria. These include location, size of company, market, sales per employee, payroll as a percentage of gross revenue, and total receivables compared to average monthly volume. Other ratios are also involved.
Q: Equipment?
A: We expect the equipment to be in good condition so we can optimize it. We have a full-time press mechanic with a machine shop. We have a full-time IT department that handles computer integration and manages the network.
Q: Real estate?
A: Whether the seller owns or leases the building, we’d prefer to buy it. Real estate is part of our strategy to build equity, predict costs, and potentially gain a tax benefit. Plus, we need to be able to modify the building. We might need to reinforce the floor or relocate the electrical drops. And we have to install wiring for our communication network.
Q: How fast does that have to happen?
A: If the building’s not ready for a high-speed network, it has to happen right away.
Q: Other synergies?
A: We are looking for a candidate whose operation will benefit from – and who can afford to share in – the cost of centralized management. This includes health insurance, our central accounting and HR departments, IT, legal, underwriting. I look at the list every month.
Other advantages of a larger organization like ours include memberships in buying cooperatives, discounts on phone and shipping, vehicle purchases through our fleet manager... For their local services, like waste hauling and disposal, building maintenance, and service contracts, we can help them negotiate better rates. Even bank fees.
Q: How do you do that?
A: Experience.
Q: Why would a seller consider you over another buyer?
A: Experience. But seriously, sellers choose us if they want their vision carried on. We want them to be proud of their decision.
Q: Let’s talk more about identifying candidates.
A: We are always looking at expanding into new cities, so we typically are not a competitor of the candidates. They can be confident we won’t go after their local customers if either of us should opt out of the process.
Q: But you both sign paperwork to that effect, right?
A: Of course, but sellers can be too trusting. They will open the hen house to foxes. We are not foxes preying on their territory, let me make that clear.
Q: And back to finding candidates?
A: Often an insider contacts us. That person may feel that the situation the owner is considering is not ideal–meaning not ideal for the insider. Let’s say the insider is a key vendor who hopes to keep the account. Or maybe it’s the daughter or son of the owner. They might prefer a buyer who will not cut them out of the future of the company.
Q: Wouldn’t a family member have a better chance staying on with a financial buyer? Someone who needs their expertise?
A: For production and sales roles, sure. For management roles, private equity buyers often sweep in with their own people. These types of buyers often underestimate what the second generation contributes to the culture of an organization, so the children of the founder would be understandably concerned.
Q: So, the insider comes to you and says the owner is thinking about selling or needs to sell for financial or business reasons? And they think you’re the best option?
A: We’re the best option if a seller wants the new owner to stay in town and keep the employees. When 20 to 50 people lose their jobs, that’s a huge hit to the local economy. That’s not our model.
Q: And the confession part of what you do?
A: I think the part that caught your attention was how we evaluate our candidates… our targets. You thought that would be useful to your readers. When I have a promising lead, I jump in the car. I want to do my research and start a conversation before other buyers start throwing around unrealistic numbers and distracting everyone. That’s their ploy, not ours.
So, I like driving, not flying. A 10-hour drive is easy. And I like having my car with me. I have outfits for every option. I can be the VP of operations, with a suit and tie. I can be the friendly “operations guy” with a more casual look. I have to set the right tone if I take the owners out for dinner or meet their families.
I also prefer to drive because I keep paperwork with me. We present only the documents we need at the moment and no more. You can’t overwhelm people. You have to control the story and handle the emotional element. If the candidate or family members are getting emotional, I want to give them space. They need time to absorb everything and decompress. Having my car with me is helpful so I can give them a break.
Q: Okay, so you have your car and a lead. What do you do?
A: If everything checks out online with the candidate, the first part of my trip is an intelligence gathering mission. I park near their building and get a feel for things, which might make it sound like a spy novel. I look at the vehicles parked in the lot and how the building is set up. It’s a general impression. I do that first, because if that part doesn’t check out, we don’t pursue a meeting with the owner.
Q: Then what happens?
A: Then I take the temperature of the town and what it’s like to do business there. When I say “town,” we prospect in large towns and small cities. In my early days, there was no internet, so I’d read the local paper and visit the Chamber of Commerce.
I always drive around the neighborhoods, drive past the hospital. I check out the infrastructure. We need to know where the city invests and how they support their big employers. These days I check public records and other websites, but you can’t beat a drive around town.
Q: If all things look good, then do you say, “Hey, someone in your company told us…”?
A: We are very discreet about our insiders, but ultimately, we don’t want to keep secrets from our candidates. Our insiders may not want to be visible in the beginning. Maybe they don’t have status in the business, or they are worried they’ll be viewed as disloyal. We have a lot of heart-to-heart conversations with insiders. We encourage them to be candid with the owner about why we are inquiring.
Being part of a family business ourselves, we know it can be a delicate process. Speaking of insiders, back in the day I had a “Please no smoking” sign in my car. Insiders would pace around, smoke and want to sit in my car to talk. I had all my clothes in there, and I really did not want people smoking inside my car.
Q: Once you have a prime target, then what?
A: I present my findings to our Board. If they like what they see, we schedule a formal walkthrough. I attend the walkthroughs, too.
Candidates are relieved to see my smiling face. I try to be reassuring. Our team knows it’s stressful, having somebody judging you. We don’t want candidates or their family members getting defensive or upset. That really sets us back. I always throw in a few positive facts to show I’m rooting for them. If we’re doing a formal walkthrough, I am legitimately excited, and I can already envision how I’d like to improve their operation. It’s hard not to get personally involved, even if you are an old pro.
Q: Who else goes on these walkthroughs?
A: In the old days, the best combination was our president, our CFO and myself. Just the three of us. Our former president was very impressive and a little intimidating. He’d ask about square footage, their leases, what they paid for this and that, and do the math in his head. It made sellers confident they were dealing with a smart business person.
He liked to stop in the accounting office to do a “casual” review of the current billing, bank statement, cash flow and receivables. Right there on the spot. He wanted to look at the raw numbers before they were prettied up for us. At some point the candidate has to trust us and let us see the truth of the business.
Q: What if you find something bad in the due diligence process?
A: It’s not necessarily the end of the road. That’s another reason a company like ours can have an advantage. Our team is incredibly creative and experienced at solving problems. We have a strong network of individuals and bankers who believe in us.
Q: Once the candidate agrees to move ahead, is your part done?
A: I’m vital to every phase. Our president and vice president handle the negotiations. I deal with the plant and the sales side, but it’s everything really. We have employment laws and an entire internal process we need to follow. We want everything to go smoothly with our new employees. We want them to tell their friends and family how organized the transition was.
Q: You cover a lot of areas then?
A: I know what it takes to get a location operating profitably. Generally not layoffs, though. A retained employee is a benefit to us. If we are going to build that company and make our name in the town, we need everyone on board.
Q: Is that realistic?
A: The numbers have to show we can cover payroll for existing employees for three years, and that is reflected in our offer to the seller. We will balance teams and retrain people, especially managers, but we try to keep everyone employed. If a position goes away because it duplicates one we already have in the company, we try to find another place for the employee where we have vacancies or where we are growing.
Q: People will move to a city 10 hours away?
A: They will. We encourage managers to work at different properties as they move up in their career. When employees move around, it keeps the company blood pumping.
Q: Let’s go back to the offer. I’m putting myself in the shoes of someone reading this and saying, “I don’t want to discount my company or guarantee payroll for three years just because these people seem like good blokes.”
A: That’s why we evaluate many companies. We look for candidates who want to help us be successful. It’s a vision of the future where their company can still be important and their people are happy and secure.
Q: Since you’ve talked to a lot of owners over the years, what are some tips for sellers?
A: Here’s my number one tip: Ask yourself, do these people know what they’re doing?
Q: What would show that a buyer knows what they’re doing?
A: Do they have the cash and relationships to complete the purchase? Do they have a track record of making smart decisions? Do they have the right experience? Do they have a long-term plan? Find out what it’s like to work in the buyer’s company. We want candidates to visit us while the presses are running. We are hard workers, and our press plants are clean and organized. You can’t fake that.
Anyone selling a business should go behind the scenes and see for themselves. Get face to face with the top people in the buying organization ASAP. Not just the agent or the person making the first overtures, but the money people and decision makers. Look them in the eyes and see if you can trust them.
Q: What are your last words of advice?
A: Candidates get fixated on price. They think their valuation is the ultimate badge of success. A valuation is a rough guideline. And we want to help you make an informed decision. Our goal is to be an important employer in your town, for generations to come. Did you know we have employees who started their careers with us and now their grandchildren work for us? I believe in what I sell and what we do.
For 35 years, Rock LaManna has helped label and graphics company owners make better decisions. If you are ready to sell your business or improve your bottom line, integrity matters! For more information, email Rock@RockLaManna.com.
A family-owned business should not be confused with “family offices,” which are private advisory firms that cater to affluent investors.
This month, we’re talking confidentially to a career “Operations Man,” whose job it is to identify targets for a family-owned company.
Q: What is it like being an operations man?
A: I work for a family-owned company that expands its generational wealth and geographical influence by acquiring businesses and making them more profitable. My primary job is to oversee operations for the entire group, but I am also tasked to find companies to buy and build.
Q: When you and I first talked, your job sounded like a spy novel.
A: Was that when I was telling you how I meet with “The Insider” and evaluated “The Target”? It’s not as exciting as a spy novel.
Q: Tell me what it takes to find the right companies?
A: Our company is on the modest end of the spectrum of family-owned buyers. We are lean and frugal. Our goal is to buy high-quality, privately-owned companies with room to grow. A candidate like that is attractive to a variety of buyers, so we try to get in the door ahead of the pack. We want to have a serious conversation with the owner before they talk to other people. Other people being other buyers and investors, of course, but also their banker or accountant, even their spouses and kids. Anyone with an interest in getting the highest possible price, regardless of the outcome.
Tactically, we want to talk with the candidate first to tell our story. If our goals are aligned, we need to agree on a realistic price range, which starts the process.
Q: Price range, not price?
A: We conduct an exploratory process before we get specific about what the offer would look like. Everything is understandable and transparent. We don’t make promises we have no intention of keeping.
Q: It sounds like you call all the shots then?
A: We have specific acquisition criteria. These include location, size of company, market, sales per employee, payroll as a percentage of gross revenue, and total receivables compared to average monthly volume. Other ratios are also involved.
Q: Equipment?
A: We expect the equipment to be in good condition so we can optimize it. We have a full-time press mechanic with a machine shop. We have a full-time IT department that handles computer integration and manages the network.
Q: Real estate?
A: Whether the seller owns or leases the building, we’d prefer to buy it. Real estate is part of our strategy to build equity, predict costs, and potentially gain a tax benefit. Plus, we need to be able to modify the building. We might need to reinforce the floor or relocate the electrical drops. And we have to install wiring for our communication network.
Q: How fast does that have to happen?
A: If the building’s not ready for a high-speed network, it has to happen right away.
Q: Other synergies?
A: We are looking for a candidate whose operation will benefit from – and who can afford to share in – the cost of centralized management. This includes health insurance, our central accounting and HR departments, IT, legal, underwriting. I look at the list every month.
Other advantages of a larger organization like ours include memberships in buying cooperatives, discounts on phone and shipping, vehicle purchases through our fleet manager... For their local services, like waste hauling and disposal, building maintenance, and service contracts, we can help them negotiate better rates. Even bank fees.
Q: How do you do that?
A: Experience.
Q: Why would a seller consider you over another buyer?
A: Experience. But seriously, sellers choose us if they want their vision carried on. We want them to be proud of their decision.
Q: Let’s talk more about identifying candidates.
A: We are always looking at expanding into new cities, so we typically are not a competitor of the candidates. They can be confident we won’t go after their local customers if either of us should opt out of the process.
Q: But you both sign paperwork to that effect, right?
A: Of course, but sellers can be too trusting. They will open the hen house to foxes. We are not foxes preying on their territory, let me make that clear.
Q: And back to finding candidates?
A: Often an insider contacts us. That person may feel that the situation the owner is considering is not ideal–meaning not ideal for the insider. Let’s say the insider is a key vendor who hopes to keep the account. Or maybe it’s the daughter or son of the owner. They might prefer a buyer who will not cut them out of the future of the company.
Q: Wouldn’t a family member have a better chance staying on with a financial buyer? Someone who needs their expertise?
A: For production and sales roles, sure. For management roles, private equity buyers often sweep in with their own people. These types of buyers often underestimate what the second generation contributes to the culture of an organization, so the children of the founder would be understandably concerned.
Q: So, the insider comes to you and says the owner is thinking about selling or needs to sell for financial or business reasons? And they think you’re the best option?
A: We’re the best option if a seller wants the new owner to stay in town and keep the employees. When 20 to 50 people lose their jobs, that’s a huge hit to the local economy. That’s not our model.
Q: And the confession part of what you do?
A: I think the part that caught your attention was how we evaluate our candidates… our targets. You thought that would be useful to your readers. When I have a promising lead, I jump in the car. I want to do my research and start a conversation before other buyers start throwing around unrealistic numbers and distracting everyone. That’s their ploy, not ours.
So, I like driving, not flying. A 10-hour drive is easy. And I like having my car with me. I have outfits for every option. I can be the VP of operations, with a suit and tie. I can be the friendly “operations guy” with a more casual look. I have to set the right tone if I take the owners out for dinner or meet their families.
I also prefer to drive because I keep paperwork with me. We present only the documents we need at the moment and no more. You can’t overwhelm people. You have to control the story and handle the emotional element. If the candidate or family members are getting emotional, I want to give them space. They need time to absorb everything and decompress. Having my car with me is helpful so I can give them a break.
Q: Okay, so you have your car and a lead. What do you do?
A: If everything checks out online with the candidate, the first part of my trip is an intelligence gathering mission. I park near their building and get a feel for things, which might make it sound like a spy novel. I look at the vehicles parked in the lot and how the building is set up. It’s a general impression. I do that first, because if that part doesn’t check out, we don’t pursue a meeting with the owner.
Q: Then what happens?
A: Then I take the temperature of the town and what it’s like to do business there. When I say “town,” we prospect in large towns and small cities. In my early days, there was no internet, so I’d read the local paper and visit the Chamber of Commerce.
I always drive around the neighborhoods, drive past the hospital. I check out the infrastructure. We need to know where the city invests and how they support their big employers. These days I check public records and other websites, but you can’t beat a drive around town.
Q: If all things look good, then do you say, “Hey, someone in your company told us…”?
A: We are very discreet about our insiders, but ultimately, we don’t want to keep secrets from our candidates. Our insiders may not want to be visible in the beginning. Maybe they don’t have status in the business, or they are worried they’ll be viewed as disloyal. We have a lot of heart-to-heart conversations with insiders. We encourage them to be candid with the owner about why we are inquiring.
Being part of a family business ourselves, we know it can be a delicate process. Speaking of insiders, back in the day I had a “Please no smoking” sign in my car. Insiders would pace around, smoke and want to sit in my car to talk. I had all my clothes in there, and I really did not want people smoking inside my car.
Q: Once you have a prime target, then what?
A: I present my findings to our Board. If they like what they see, we schedule a formal walkthrough. I attend the walkthroughs, too.
Candidates are relieved to see my smiling face. I try to be reassuring. Our team knows it’s stressful, having somebody judging you. We don’t want candidates or their family members getting defensive or upset. That really sets us back. I always throw in a few positive facts to show I’m rooting for them. If we’re doing a formal walkthrough, I am legitimately excited, and I can already envision how I’d like to improve their operation. It’s hard not to get personally involved, even if you are an old pro.
Q: Who else goes on these walkthroughs?
A: In the old days, the best combination was our president, our CFO and myself. Just the three of us. Our former president was very impressive and a little intimidating. He’d ask about square footage, their leases, what they paid for this and that, and do the math in his head. It made sellers confident they were dealing with a smart business person.
He liked to stop in the accounting office to do a “casual” review of the current billing, bank statement, cash flow and receivables. Right there on the spot. He wanted to look at the raw numbers before they were prettied up for us. At some point the candidate has to trust us and let us see the truth of the business.
Q: What if you find something bad in the due diligence process?
A: It’s not necessarily the end of the road. That’s another reason a company like ours can have an advantage. Our team is incredibly creative and experienced at solving problems. We have a strong network of individuals and bankers who believe in us.
Q: Once the candidate agrees to move ahead, is your part done?
A: I’m vital to every phase. Our president and vice president handle the negotiations. I deal with the plant and the sales side, but it’s everything really. We have employment laws and an entire internal process we need to follow. We want everything to go smoothly with our new employees. We want them to tell their friends and family how organized the transition was.
Q: You cover a lot of areas then?
A: I know what it takes to get a location operating profitably. Generally not layoffs, though. A retained employee is a benefit to us. If we are going to build that company and make our name in the town, we need everyone on board.
Q: Is that realistic?
A: The numbers have to show we can cover payroll for existing employees for three years, and that is reflected in our offer to the seller. We will balance teams and retrain people, especially managers, but we try to keep everyone employed. If a position goes away because it duplicates one we already have in the company, we try to find another place for the employee where we have vacancies or where we are growing.
Q: People will move to a city 10 hours away?
A: They will. We encourage managers to work at different properties as they move up in their career. When employees move around, it keeps the company blood pumping.
Q: Let’s go back to the offer. I’m putting myself in the shoes of someone reading this and saying, “I don’t want to discount my company or guarantee payroll for three years just because these people seem like good blokes.”
A: That’s why we evaluate many companies. We look for candidates who want to help us be successful. It’s a vision of the future where their company can still be important and their people are happy and secure.
Q: Since you’ve talked to a lot of owners over the years, what are some tips for sellers?
A: Here’s my number one tip: Ask yourself, do these people know what they’re doing?
Q: What would show that a buyer knows what they’re doing?
A: Do they have the cash and relationships to complete the purchase? Do they have a track record of making smart decisions? Do they have the right experience? Do they have a long-term plan? Find out what it’s like to work in the buyer’s company. We want candidates to visit us while the presses are running. We are hard workers, and our press plants are clean and organized. You can’t fake that.
Anyone selling a business should go behind the scenes and see for themselves. Get face to face with the top people in the buying organization ASAP. Not just the agent or the person making the first overtures, but the money people and decision makers. Look them in the eyes and see if you can trust them.
Q: What are your last words of advice?
A: Candidates get fixated on price. They think their valuation is the ultimate badge of success. A valuation is a rough guideline. And we want to help you make an informed decision. Our goal is to be an important employer in your town, for generations to come. Did you know we have employees who started their careers with us and now their grandchildren work for us? I believe in what I sell and what we do.
- Do not overhire. A company that is bloated with people is like someone who overeats. Things don’t move efficiently.
- Plan ahead, and have a budget for paying expected and approved overtime. Every company has peaks and valleys of work, most of which can be anticipated.
- Build a system for turning out consistently excellent work, using as many people as you need and no more.
- Use the real-time capabilities of your computerized job tracking system to deploy cross trained employees when the need arises.
- Tell employees how important they are. Observe them in action so you can give a genuine compliment, not a generic
For 35 years, Rock LaManna has helped label and graphics company owners make better decisions. If you are ready to sell your business or improve your bottom line, integrity matters! For more information, email Rock@RockLaManna.com.
