Mergers & Acquisitions-A Human Interest Story

It was the summer of 1992, and I had my first job with a construction company. My specialty was fences, but a handshake deal had me happily clocking 12-hour days at $5 an hour under the table, and I did whatever needed to be done around the work site to remain gainfully employed. We are constructing houses, my mentor and employer would always say, but building relationships. Remember, this is a people business. Throughout my 30-year tenure as an entrepreneur and a mergers and acquisitions professional, I have lived and preached the principal that all business is people business. Entrepreneurship is fundamentally a human endeavor, where doubt, courage, failure, triumph, fear and confidence coexist in seemingly unthinkable ways. And behind businesses, industries, contracts, financial documents, and performance metrics are people. People engaged in relationships to build something of lasting value that will transcend them as individuals, make the world a better place, and leave a legacy. And then there are stories. The cornerstones and the very language of legacies. They are what endures and lives on after a business is sold, becoming the starter, and kindling for the next generation of owners to build on. Mergers and acquisitions industry has a dry reputation as a transactional kingdom ruled by contracts and currency, and I couldn’t disagree more. Business is personal. In a busy year of transactions punctuated by trial, adversity, and uncertainty, it’s the narrative and the stories that dazzled.

The Little Engine That Could

In September, I transitioned a locally owned and family operated HVAC and mechanical business in a retirement sale.  This privately held company demonstrated tremendous resilience and growth while facing the same industry headwinds as its multiple, much larger competitors. In the face of supply chain issues, labor market challenges and increased cost of materials, the family-owned enterprise doubled down on core values. Strong employee retention policies and commitment to best practices allowed the business to continue providing the core clientele with a quality customer experience. The business enjoyed strong buyer interest with multiple offers received and went from listing to funding in less than 60 days. At a celebratory lunch to mark the successful closing of the transaction, the owner and I enjoyed a wide-ranging conversation.  The retirement chapter included time with the grandkids, hunting, and Kraken games. With options on table, what deeper, intrinsic motivations ultimately caused the scales to tip in favor of one potential successor over another? The answer, as you can imagine, went beyond the purchaser’s ability to merely deliver the appropriate funds to closing. The core values of the business are inevitably an extension of the deep personal beliefs and convictions of the founding members. This owner felt strongly about providing a valuable service at a fair price, standing behind one’s work and treating people with respect and integrity. He identified the same set of ethical values in the buyer and exited with piece of mind. My client also spoke with conviction about the importance of skilled tradesmanship and value of manual labor and viewed the success of his business as a testament to these principles. Another common thread between the founder and the successor was that both individuals chose to forgo higher education in favor of mastering a trade and building a successful business from the ground up. As a result, the sale and transition of ownership of this business was contextualized by legacy building and a succession of core values.

If the Shoe Fits…

Black Friday or Cyber Monday?  To click or drive, that is the question, or is it?  Although the online shopping experience is widely portrayed as a predator threatening the extinction of traditional retail, the two are not mutually exclusive. They are categorically different, each with a unique value proposition to the consumer, and we need both. But by ignoring their strengths and playing the competition’s game, the brick-and-mortar storefronts are the ones in the hotseat. The virtual marketplace is open 24/7 and has transactional convenience and free shipping cornered. These are wonderful attributes that should be left to the experts that invented and perfected them.  An independent retailer of footwear and outdoor apparel I represented this year adjusted the contest parameters by highlighting the elements and advantages unique to in-person shopping. The results were mindboggling!  In 2020 when everything from a cup of coffee to exercise equipment was delivered and COVID restrictions peaked, this family-owned retailer had a record year and became the highest selling single point distributor of footwear and sports apparel in the Pacific Northwest. An even stronger 2021 followed. The team focused on service and the complete customer experience in granular detail, starting with greeting every guest at the door. The courteous and attentive staff provided a level of knowledge far superior to what customers could glean from endless online product reviews. Active engagement with the customer base led to a better understanding of their needs, optimized inventory management practices and a more custom-tailored product mix. The company enjoyed a tremendous level of repeat business. The customers who experienced this genuine and authentic brand of service did not stop shopping online, but they did walk out of the store feeling like they rediscovered something very rare and valuable, something different.  Ownership also viewed their employees as family, the brand ambassadors of the company hand delivering the value promise of service and quality to customers one interaction at a time. In response to increasing business volume, ownership prioritized the well-being of the staff by reducing hours of operation and implementing an additional weekly day of company-wide rest. The business was known as a great place to work. In a virtuous cycle, enthusiastic employees who loved coming to work sold more product to happy customers who appreciated and enjoyed the knowledge, professionalism and positive attitude of the staff. “Busy days are great, but they take it out of us. We need time to recharge to be at our best, and our customers support us.” my client told me of the new policy. Support they did, and the business continued to grow. Casting aside the conventional performance metrics, the business remained successful operating within its own system of coordinates. The guiding principles delivering such phenomenal entrepreneurial results were an extension ownership’s familial core values. The decision to sell was intentional, and part of a larger plan. As a result of the controlled approach, the family’s exit out of the business was just as organic and successful as their tenure at the helm. The business appealed to a wide buyer demographic, generated strong interest with multiple offers and sold quickly. The chapter was closed, but the story continues. The family is taking some much-deserved downtime to recharge, while the next venture, or adventure awaits.

Hospitality

Danny Meyer, the legendary restauranteur and founder of Shake Shack and Union Square Café once defined hospitality as doing onto others as you believe they would want done onto them. The Golden Rule about golden rules is they are best left unaltered, but this modification deserves to be adopted, because it so accurately summarizes the foundational ethos of an industry at a crossroads. The mission of our generational family restaurants, cozy neighborhood cafes, hidden inns, quirky bed & breakfasts, favorite gameday hangouts, hole in the wall legends, and fine purveyors of weeknight happy hour expertise is to preserve the joy and comfort we seek when away from home. Anchored by a sense of a shared experience and belonging, hospitality, or the age-old gathering place philosophy, has rested for centuries on the pillars of community, tradition, familiar faces, unmistakable voices, hugs, handshakes, tears, laughter, memories, and stories. This wonderful feeling of warmth and welcome we call hospitality can only truly be experienced through direct human contact. The pandemic has shaken these staples to the core causing unprecedented hardship and uncertainty for hospitality business owners. Unfortunately, many businesses were lost. Others weathered, adjusted, grew stronger, discovered capabilities they never knew they had, and incorporated the hard-won lessons of the health crisis to forge a new, ever more resilient, and successful identity. The pandemic also exposed many of the industry’s pre-existing conditions and long-standing, systemic issues forcing the business community to adapt and innovate. As we evolve to a new, and perhaps better, hybrid business model of hospitality, it is my sincere hope that convenience leaning tendencies introduced and accelerated by the pandemic do not replace or diminish in-person gatherings. The post pandemic paradigm must embrace the idea that hospitality is not merely an industry or a sector of economy. It’s a foundational element of our society. Its survival is a shared interest and a common goal requiring the support and collaboration of the business community, the public, and the legislative sector.  I believe that a discussion on fairly allocating the cost of convenience is urgent. While credit card companies and third-party delivery platforms are providing a valuable service, they’re fees are paid almost entirely by the businesses. For the consumer, palm of your hand ordering is a matter of downloading an app, and paying with a credit card is a great way to accumulate airline miles. For the businesses, fulfilling these orders often means parting with already thin margins and working for free. I fully support restaurants that shift the burden of convenience in the form of delivery charges and credit card fees back to the customer. On the legislative side, public safety will remain a priority. Newly enacted laws must be rooted in science and provide clear, actionable guidance and measurable progress metrics based on reliable, real-time data. Despite the turbulence and uncertainty, the M&A activity in the hospitality sector has been incredibly robust. I have facilitated numerous successful transitions of ownership in a variety of concepts from fast casual restaurants to full-service dining establishments with multiple new projects on my desk preparing to enter the marketplace including multi-location chain of quick service restaurants and opportunities in the alcohol manufacturing space. The entrepreneurial spirit continues to shine! I’m incredibly proud of the business owners who have stood strong at the helm through the storm and the next generation of operators confidently leading the charge onward .

I would like to wish everyone a happy, prosperous new year! If you are business owner wishing to discuss your exit strategy options and receive and overview of representation services, please feel free to reach out to me at [email protected].