EdgePoint Announces USA M&A Atlas Awards
May 4, 2022
(Cleveland, OH) – EdgePoint Capital Advisors, a leading national independent M&A Advisory firm, is pleased to announce that it has been recognized at the 4th Annual USA M&A Atlas Awards celebration, May 2, 2022. EdgePoint was honored to accept two awards for transactions in the Industrials sector.
- Manufacturing Deal of the Year for the acquisition of Precision Fluorocarbon, Inc., a Tomball, Texas based manufacturer of mission-critical PTFE components, by Altamira Material Solutions, a portfolio company of Edgewater Capital Partners.
- Private Equity Deal of the Year for the acquisition of Cable Manufacturing & Assembly, a Bolivar, Ohio manufacturer of mechanical cables, controls, and actuation assemblies by Torque Capital Group.
Precision Fluorocarbon, Inc. (PFI) – EdgePoint served as the exclusive financial advisor to PFI. Matt Keefe, Managing Director, EdgePoint’s Industrials Group, said, “We were pleased to work with both the Frank family and Edgewater to facilitate the transaction that provided the family with liquidity, provided Altamira with a terrific add-on and provided the employees at PFI opportunities to grow with a larger platform.”
Cable Manufacturing & Assembly (CMA) – EdgePoint served as the exclusive financial advisor to Cable Manufacturing & Assembly. Tom Zucker, President, EdgePoint said, “We are pleased to recognize our client’s successful transition from a family-owned business to a high growth motion control platform. Their multiyear transition planning and strategy led by Dan Pappano and Bob Clegg yielded tremendous financial results and a framework for their employee’s growth.”
About Global M&A Network
The host of the M&A Atlas Awards is a diverse media company and exclusive publisher of the popular “Top Dealmakers” lists. The USA M&A Atlas awards are prestigious awards singularly honoring best value-creating deals, outstanding firms, illustrious dealmakers and legendary leaders from middle-market corporate, investor and deal communities from coast to coast.
About EdgePoint
EdgePoint, a leading national investment banking firm, is focused on providing middle market businesses with merger and acquisition advisory services. For more information, please visit www.edgepoint.com.
When to Inform Children of the Sale
By John Herubin, Managing Director
Our firm is in its third decade of guiding primarily entrepreneur-run and family businesses through a sale process. Our roster of closed deals would indicate we’ve successfully identified the best buyers at meaningful values for our clients. We’re especially proud of our achievements when looking at the unique market cycles we navigated to achieve these results.
What our record doesn’t reflect is the variety of the behind-the-scenes drama we’ve encountered involving the communication from an owner to their children (or other relatives) who are also involved in the business. Negotiating with a buyer can generate a myriad of feelings with the owner seller. Those feelings are often magnified when combined with disclosing a potential sale to children involved in the business. This can be especially emotional when it’s the first time they are becoming aware of the owner’s intent. The disclosure can generate anxiety and uncertainty surrounding their future role in the business and get tangled with non-business personal emotions that accompany an intertwined business and family relationship (i.e. making decisions as an owner are not always aligned with making decisions as a parent or relative).
Although we are not trained psychologists, our goal in these situations is to ensure that everyone involved enjoys future Thanksgiving dinners and family events together post-sale.
That experience has shown us that a successful process oftentimes relies on the preparation, timing, and communication of the desire for a sale from the owner to his/her children.
A couple stories will illustrate this principle:
Scenario One:
- We represented a father who was a very involved CEO of a successful distribution business. His son was a salesman and not quite ready to ascend the management role of his dad. Our client who was in his late 60’s and was contemplating retirement, received several unsolicited offers to sell the company at values that were intriguing. His son did not have the financial wherewithal to purchase the company and his dad knew he was not experienced enough to run the entire company. We encouraged the owner to disclose his desires and plans to sell to his son. The buyer was inclined to keep the son employed as a successful salesman, but not as the CEO. Our client was petrified of the reaction his son would experience upon learning this news. To avoid this perceived conflict, our client waited until the last possible second before disclosing to his son that he was selling.
Much to our client’s great surprise, the son (as well as his non-employee sister) were thrilled that their dad was going to realize the fruits of his nearly 40 years of hard work and sweat equity and spend more time with his wife (the fact that they were each going to receive sizeable portions of the sales proceeds as a gift didn’t hurt either). A significant amount of distress on top of the normal deal anxiety could have been avoided had the owner decided to communicate more openly with his children earlier in the process.
- Lesson learned – the fear of a child’s reaction is often far worse than the reality when open, honest, and heartfelt communication is exercised prior to a sale.
Scenario Two:
- We were hired to represent an owner desiring a sale of his specialty manufacturing company so he could retire. He has four sons with two actively involved in the business (one in sales and the other in operations). Based on our early discussions with the owner and his attorney, we were assured that the two active sons were not interested in ascending to ownership and continued management of the company post-sale. The owner didn’t believe it was necessary to speak with his sons or inform them of his desires. His belief was that the proceeds were needed by all four of his sons and he would find a way to share his largess with them post-sale.
We proceeded with a sale process that resulted in an attractive offer to purchase the business. As diligence progressed and closing was in sight, the owner finally felt comfortable enough to tell them a sale was imminent. The owner (and his attorney) were both floored to learn that the active sons were indeed anticipating ultimately owning and operating the company together. Their cooperation with the buyer would be important moving forward. Equally surprising, the two inactive sons were in full support of their brothers’ desires and encouraged their father to hold off on the sale (which he did) to further explore a succession plan that would facilitate the active brothers’ goals.
- Lesson learned – Strongly encourage an owner to have an honest and candid conversation with children involved in their business prior to embarking on a sale process. This early dialogue will help ensure that the owner does not spend an inordinate amount of time and money on a sale process, and helps direct them towards a desired transition outcome.
Numerous variables can impact how an owner approaches this conversation. These include the active children’s age, years involved in the business, importance of their role in the company, strength of the personal relationship between the owner and his children, level of open and honest communication that occurs surrounding ownership succession.
These conversations with children (regardless of their age) are difficult and emotional. They can be complicated by input from spouses, siblings, and non-business active family members, and exacerbated by non-business family or generational dynamics.
A skilled investment banker helps identify and prepares to address these conversations early in the process to avoid post-transaction family conflict and ensure the owner can stay focused on completing the inherently emotional sale process with the buyer. We’ve also learned that sometimes the family dynamics are too complicated to be resolved exclusively with the involvement of an investment banker. There are a number of trained coaches and counselors that focus exclusively on resolving family business conflicts in advance of a transaction occurring. They can skillfully facilitate a dialogue to improve communication and avoid conflicts that can subsequently derail a successful closing.
It’s incredibly rewarding for us to assist a business owner realize the fruits of their (and possibly prior generations) labor through a sale and maintain harmony with children that are also involved in the business. Honest communication and preparation are the best strategies to avoid unnecessary family conflict when a sale ultimately occurs.
There’s plenty of things to disagree about over Thanksgiving dinner these days, and our goal is to make sure the sale of a business is not one of them. Please pass the stuffing!
© Copyrighted by John Herubin, Managing Director, EdgePoint Capital, merger & acquisition advisors. John can be reached at 216-342-5865 or at jherubin@edgepoint.com.
Getting Ahead of Recent Change
By Russ Warren, Managing Director
Change has been around for a long time – the ancient Greek philosopher Heraclitus is credited with first observing “change is the only constant in life.” Some years positive changes outweigh negative ones, but in 2022, a middle market business owner must seemingly cope with a powerful array of negative changes in order to remain successful. Unlike some well-capitalized publicly-traded companies, middle market businesses don’t always possess the organizational or financial wherewithal to prevent margin erosion from negative changes.
Several examples of negative change that we have consistently heard especially since the Covid pandemic began include the following:
- Rising material, labor and transportation costs (general inflation)
- Supply chain disruptions
- Labor shortages
Let’s discuss two important questions business owners find themselves asking in order to navigate some of these negative changes:
- Have I used all the tools available to address issues caused by recent change?
- What can I do to improve my company’s ability to ‘see around corners’ and spot inflection points earlier than others to prepare for what’s coming and preserve/increase profitability?
Strategies to Address Today’s Negative Change
Several of the negative changes above are often initiated by market dynamics outside of the control of the middle market business owner. That doesn’t mean there are not some practical internal actions and tools an owner can use to combat the impact of these changes on profitability.
Rising Material, Labor and Transportation Costs (Cost of Goods Sold Inflation)
Years ago, I worked with a client that created a position – VP of Manufacturing Methods – whose sole responsibility was to take out the cost of inflation (an agreed percentage) in their major products each year without jeopardizing quality. This activity included changes in design, tearing down competitors’ products and surveying customers to learn how they actually used the company’s products. The result was improved competitiveness and the ability to 1) hold prices and gain market share or 2) raise prices when others did and reflect the increase in their bottom line. The key – understanding your Cost of Goods Sold structure and working towards a reduction where possible without sacrificing quality.
Admittedly this action initially results in an increase of labor costs to hire this person but the goal may also be accomplished by identifying a consultant to assist in the process. Asking other professionals or trusted advisors for process consultant recommendations can help improve the business under current conditions and position the company to combat future changes. Consultants also exist to assist with assessing and improving the individual components of a company’s Cost of Goods Sold (Labor, Materials, Inventory, Other Expenses).
Supply Chain Disruptions
Supply chain disruptions are outside the control of most owners yet has affected almost every business in some capacity. Not many middle market businesses saw the plethora of international situations coming together in different parts of the world that precipitated the disruptions, but that doesn’t mean there are not strategies to combat the negative impact on profitability.
Pricing is an obvious way to regain margin, but it requires “pricing power” – that is, customers must continue to buy at the new higher price. If specifically, a manufacturing company has all the parts/components/materials available to continue producing, they are in a wonderful position to exert pricing power over customers that are willing to pay more for a “must have” product that is unavailable elsewhere in the market. Unfortunately, not all businesses have the inventory or components necessary to fulfill orders especially in the manufacturing sector. Many businesses we have spoken with recently that have access to cash/financing, but limited access to inventory, have pivoted to creatively identify domestic-based sources and purchased inventory in larger quantities to ride out the current supply chain disruption. This is not always easy to do but worth the effort to fulfill customer demand and maintain cash-flow and profitability. These additional costs can also be a pass-thru to customers that need the businesses products. When domestic sources are unavailable, the savvy owner might consider relying on or establishing longer-term relationships with domestic suppliers to make strategic purchases and ensure consistent supply channels.
Other revenue enhancers to mitigate supply chain impacts include adding complimentary services or products (such as assemblies, maintenance services, and parts sales) and exploring alternative sales channels, including enhanced online presence to create more value for the customer.
Labor Shortages
Without doubt the single most challenging change we hear from middle market business owners is the dearth of willing and qualified employees of every skill level. This generally cuts across all business sectors. Businesses see opportunities to grow by adding additional shifts or personnel but are unable to find employees in the current market. This trend started before the pandemic and has been exacerbated by it. The thought of McDonald’s having to pay a $1,000 bonus to entice lower-skilled workers to even fill out an application to work there, or companies paying attendance bonuses for employees who regularly show up for work, would have been unimaginable even a generation ago, but here we are.
The root causes of this change are a myriad of changing demographics, work ethic, social change, and globalization among others. The solutions are beyond discussing in this article but suffice to say that an intact and stable workforce for any middle market business is a precious commodity to nurture and maintain. Identifying, acknowledging, and rewarding those key employees that are critical to the business is crucial to maintain a stable and dedicated workforce. Rewarding those same “happy” employees to recruit and recommend others of similar mindset is another way to find additional qualified people.
Improving A Company’s Ability to ‘See Around Corners’
Given the multitude of day-to-day tasks that a middle market business owner must address, it’s no surprise that lifting their head up to see changes on the horizon is difficult. Nonetheless, opening our minds to possible futures can be helpful in making better decisions, says Rita McGrath, Professor at Columbia Business School, and author of the 2019 book, Seeing Around Corners. She adds, discovery-driven planning helps discover the future while containing risk. Or, as Yogi Berra famously said, “You can observe a lot just by watching.”
The book Seeing Around Corners discusses methodologies a company can use to identify and act strategically on an inflection point. With today’s pace of change, finding a way to integrate getting ahead of change into a company’s planning process is worth the investment of the owner’s attention.
Megatrends
No one knows what the future holds, but it pays to consider recognized megatrends and how they are likely to affect your business in the future. While there is no official list, Project Management Institute, a large U. S. non-profit, lists these six for 2022:
- Digital Disruption – data breaches, privacy concerns, effort to keep up, shaping AI ‘ethics’
- Climate Concerns – pressure on greenhouse gas emitters: electricity (32%), transportation (17%) manufacturing (13%), agriculture (12%) and process industries (6%)
- Demographic Shifts – talent gap, retirement age changes, ‘great resignation,’ work-life balance
- Economic Shifts – pandemic/political-induced rebuilding of U. S. supply chains
- Labor Shortages – replacing talent, retaining corporate memory; motivating young workers
- Civil, Civic, Equality Movements – untapped talents of women, minorities; fair compensation
Identifying Business Inflection Points and Change Early
What will innovation and society bring us next? Life-altering change, as challenge and/or opportunity, arrives in the form of inflection points. Some are unforeseen and as the recent past has taught us many of them can be disruptive to your business. Keeping one eye on the ground and one on the horizon is not easy for a middle market business owner but unfortunately necessary to remain viable in our ever-changing world. A business owner will do themselves well to realize that this awareness of change and the existence of resources to guide them through the maelstrom. The David Bowie song “Changes” has never rung more true than today. Good luck!
© Copyright EdgePoint 2022. Russ Warren, Managing Director, EdgePoint can be reached at 216-342-5859 or at rwarren@edgepoint.com
