Indianapolis — Direct and honest communication between buyer and seller will help drive successful acquisitions. That's according to Morris Rowlett, chairman of Quantum Plastics LLC, a firm that's made nine acquisitions over the last three years in the automotive and white goods markets.
"Tell them your vision," Rowlett said. "I don't think we were the highest bidder on any of the transactions we've done, but we've been able to satisfy the needs of the seller."
Rowlett was on a panel discussing acquisitions from the buyers perspective at the Manufacturers Association for Plastics Processors annual Benchmarking and Best Practices Conference in Indianapolis Oct. 10-12.
Also on the panel were Jim Berklas, vice president of Westfall Technik Inc., and Steve Lunder, president of Granite State Plastics Inc. The session was moderated by Jonathan Soucy of MBS Advisors, a firm that helps in transactions.
Berklas said Westfall Technik has made eight acquisitions in the last 12 months and plans to climb that total to 15 by the end of this year. He said it targets recession-resistant markets, namely food and beverage packaging and the medical market.
"One of the biggest challenges we have is that it takes three to four months to get a deal done. If the [sales] numbers slip between the time we cut a deal and by the time we get to closing, it gets a lot harder to do," Berklas said. "So get the resources together to continue to run your business effectively."
He said one of the toughest tasks in buying a company is dealing with how much risk the seller is in if things turn out to be unlike they were represented during the deal.
"Like, what if the roof is leaking two days after closing? What is the limits on their exposure?" Berklas said. "[Seller risk] is a surprisingly difficult thing to negotiate."
He said it often forms employment agreements with owners to stay on and help through a transition or even stay on long term.
Lunder said that's exactly what's happened at Granite State Plastics. After the company bought WK Hillquist, the owner of that company agreed to stay on and they've had a really good partnership, he said.
"It's all about the two parties having an understanding of the motivations of each other. If they match up, that's great," Lunder said.
Rowlett said it has had an owner who wanted out of the business, but after getting to know Quantum and understanding its vision, the owner decided to stay on.
"Some people don't talk to the owner until they are really close to getting a deal done. You really need to understand their needs up front and figure out are you aligned. It doesn't do you any good to hire someone that's going to undermine your corporate vision. You have a vision, you know where you're going, and they have to support that because you now own their assets and their people now work for you," Rowlett said.
It can be tricky buying smaller companies though because the owner might have built the strong relationship with the company's customers, and you don't want to do anything that could jeopardize that, he said.
Sellers, Lunder said, often need to manage expectations when they go to sell. When looking at a selling price, it's important to remember the company isn't worth what you need; it's worth what it's worth, he said.
Berklas agreed.
"I would encourage any seller to give serious thought to what you want to achieve in the transaction. If you're looking to get the highest value for your business, run an auction," he said.
But if you want a partner, then hire an adviser so you can find the right buyer.
Berklas said something Westfall learned along the way is it doesn't want to own real estate.
"We've done two transactions with lease backs and those add complexity to the deal," he said. "We sell the building at closing to an investor and then we lease the facility for 20 years or so and the whole company guarantees the lease. That confirms to the family of the business that is selling to us that we're in it for the long haul. We just don't want to own real estate."
Rowlett said the biggest thing an owner can do to prepare to sell his or her company is to get the company's balance sheet in order.
"If you are commingling your personal finances through your business, you need to get that out of there. Get a very trusted adviser to help you go through your balance sheet," he said. "The thing that's most important to me is, anyone can buy machines and equipment, but it takes people to run it. And everyone has their own unique story. The management presentation is important. You need to be able to tell your story."