Buy-Side Advisory

Image

Even with some softening in the capital markets and ongoing challenges of inflation, talent shortages, and supply issues, the current landscape continues to be a highly competitive market for acquirers to find, connect and purchase businesses.   Here are 10 best practices to increase the likelihood of success if you are attempting to build and execute a proprietary acquisition process

Stop searching for Goldilocks. The perfect company does not exist, so stop looking for it.  Buyers spend much time early in their search, looking for the ideal company.  All companies are a combination of interrelated attributes.  Each attribute should be ranked using repeatable and objective metrics.  For example, a simple “high to low” ranking concerning risk, fit with the company, upside opportunity, and overall adherence to acquisition criteria can be highly beneficial.   You rarely find an issue-free company; if you wait for one to come along, you may never acquire one. 

Don’t take on this effort alone.  Be honest about how much time you can dedicate, your level of deal experience, your knowledge of the marketplace, and the quality of your network.  Having a well-rounded team involved brings different perspectives and insights. The right team increases bandwidth to connect with targets and gather and review information while reducing the probability of missed information or deal bias.  

Marketplace relationships are great, but they do not guarantee a pipeline of deals. Your existing relationships can be a double edge sword.  Target companies may have a preconceived view of you, your team, your company, or your brand.  This bias may be due to an ill-fated interaction in the past, and as a result, you may never get a chance to talk to the target. Additionally, some targets may be unwilling to engage because they view you as a competitor.  Or there may be a concern that you are trying to gather market intel.  While having companies and people in your CRM is helpful, it will never replace continuously finding creative ways to connect with targets that fit your strategy. 

Be prepared to share.  Buyers often think Sellers are ready and willing to quickly share their company’s financial information, analysis, and secret sauce.  The reality is that most are not.  An effective way to get a Seller to open up is by sharing with them first.  Be ready to tell your story.  How did you get into the business?  Why do customers and employees choose you versus someone else?  What are your biggest challenges or concerns?  Sharing key high-level financial metrics: topline revenue, revenue mix, and growth is a sign that you are entering into this conversation as equals.  Remember that there are many Buyers out there.  What makes you unique?  Keep it succinct but make it personal.  You want to earn the Seller’s trust.  In the end, trust drives open dialogue about more sensitive information, which you will need to advance the conversation to valuation and structure. 

Be flexible; the journey is not linear.  The M&A journey is a rollercoaster of high activity and slow periods where you may go days, even weeks, without an actionable next step or exciting opportunity.  It is critical to remain positive, prescriptive, and patient.  Creating an unnecessary sense of urgency with a proprietary Seller is counterproductive. Very few Sellers dedicate time and resources to a sale effort, at least initially.  Sellers naturally keep discussions close to their chest to reduce the likelihood of employees discovering their plans. A Seller’s timeline is often misaligned with yours, but that does not mean they are not working towards the same goal.   During the pursuit of acquisitions, remember that statistically, it’s not a matter of “if” an owner will sell; it’s a matter of “when.”  Patience and persistence are critical.

Be transparent in how you approach valuing the business.  When you have gathered enough intel and information to have views on valuation and structure, share that with the Seller.  Transparency allows for open and objective dialogue about the risks and opportunities of the business. Through discussions and review of additional supporting materials, you will feel comfortable placing the right weight on a particular finding and how it impacts the structure or valuation.  Transparency increases the likelihood of agreeing on a mutually beneficial way to get a deal done, whether now or down the road. 

Motivations are only sometimes obvious.  While it can save time to jump to “what is it going to take to get the deal done,” it’s generally not wise to do so until you are ready.  This approach on the first phone call or face-to-face meeting can be off-putting to the target.  It may create a confrontational tone if it does not push the target away.  The motivations and emotions of the Seller are what drive the discussions.  These elements take time to reveal themselves.  Uncovering them requires attentive listening to the answers given in response to your questions.  Allow for the discussion and the relationship to evolve naturally. 

Reserve judgment of a Seller that lacks financial expertise.  You will encounter attractive businesses with wildly successful owners that cannot articulate their profitability, need to learn or understand GAAP (generally accepted accounting principles), and are materially off on the size and scale of the business.  You should be prepared to roll up your sleeves to understand how a target makes money.  It is common for owners of middle-market companies to operate based on cash in the bank and the size of their tax liability.  Their financial acumen and the quality of their financials will present themselves early in the relationship.  Encourage them to involve their accountant or someone else with a more robust handle on the numbers as early as possible. 

As the process unfolds, a Seller’s “number” may change.  Be prepared that the first honest feedback from the Seller comes when you tender your first offer – even if many of the terms have been discussed and verbally acknowledged.  Sharing the offer in writing formalizes and often recalibrates the process. This may be the first-time outside advisors (CPAs, Attorneys, Wealth Management Professionals, Intermediaries, Investment Bankers, or spouses) get involved.  These advisors often do not know you or your intentions and are unaware of the inherent or perceived risks and concerns discussed with the owner as you’ve developed your valuation and deal structure.  Many buyers gloss over those topics when sharing their advisors’ indication of interest (IOI) or letter of intent (LOI).   So, be ready to explain and defend your position objectively.  Also, be prepared for the resulting response or counteroffer to be significantly different from the discussions leading up to that point.  Listen to what the Seller says.  Know your walk-away number; if reached, do just that, and you will find another opportunity. 

Remember, buying a company is a marathon, not a sprint.  Accepting this will allow opportunities to develop and evolve at a natural pace. Treat everyone with respect, be open and honest in your feedback, and never forget it is not a matter of “if” an owner will sell; it is simply a matter of “when.”  

Image

CLIENT:

Direct Connect Logistix (“DCL” or the “Company”) is a leading, non-asset based, multi-modal, third-party logistics company providing transportation solutions for customers of all sizes. Since its founding in 2009, DCL has developed expertise in the temperature-controlled, time and condition critical truckload segment serving the food, grocery, beverage, and related industries. 

DCL’s unique HUSTLE culture has fueled its growth by defining how the company serves its customers, carriers, investors, employees, and the community at large by providing high performance logistics management solutions that enable sustainable, responsive, and efficient customer supply chains. For more information, please visit: www.dclogistix.com.

SITUATION:                                                                                                

DCL’s management team established a growth strategy focused on the acquisition of complimentary partners who provide talent and expertise in specialty markets.  DCL is focused on four core criteria to evaluate acquisition opportunities: (a) service capabilities which overlap DCL’s core operations; (b) skills or technologies that provide capability outside of DCL’s internal skillset; (c) exploit industry specific scalability; and (d) attract growth-oriented business owners that are seeking to partner with a larger organization.     

ENGAGEMENT:

G2 Capital Advisors, LLC (“G2”) was engaged by DCL as the exclusive buy-side advisor to identify, source and engage with targets that provide transportation and logistics services supporting food, beverage, and grocery market sectors and fit with the Company’s asset light acquisition profile.     

OUTCOME

The transaction was successfully executed on February 17, 2022, through an acquisition of Performance Logistics (“PL”) by DCL.  The combination of Performance Logistics’ refrigerated and frozen food transportation services and large customers in the Mountain West strengthens DCL’s capabilities, customer base and geographic reach.

“G2 identified and sourced a target that was not only a perfect fit but also met all four of DCL’s acquisition criteria.  G2 formed a unique relationship with the target’s ownership, who, at the time of initial engagement, were not seeking a transaction. Through the establishment of genuine trust and deep credibility, the target moved forward with discussions.  “We couldn’t be happier to partner with Performance Logistics. We believe that both companies will benefit as we continue to execute our strategic growth plan. ,” said Richard Piontek, CEO of DCL.

“Performance Logistics fits perfectly into DCL’s unique HUSTLE culture which made the business combination a logical fit.  Given PL’s location in the Mountain West region and deep expertise in refrigerated and frozen food capabilities, the groups will be able to attract talent in a dynamic, growing city and generate a transformative growth curve”, said Christopher Casteleyn, G2’s Managing Director for Transportation & Logistics. “Our team thoroughly enjoyed working with both groups and we look forward to observing the success of what we feel will be a highly accretive acquisition.”   

About G2 Capital Advisors

G2 Capital Advisors provides M&A, capital markets and restructuring advisory services to the middle market. We offer integrated, multi-product and sector-focused services by pairing highly experienced C-level executives with specialist investment bankers. We aspire to be the trusted advisor of choice to our clients including corporations and institutional investors.

CONTACTS ON THIS DEAL:

Chris Casteleyn: Managing Director, T&L: T: 415.531.3138 E: [email protected]

Andrew Keleher: Director, T: 860.748.6480 E: [email protected]

Matt Ball: Sr. Associate: T: 978.914.4421 E: [email protected]

Noah Johnson: Sr. Analyst: T: 717.598.8558 E: [email protected]

Image

CLIENT

ZRG Partners, LLC. (“ZRG” or the “Company”) is a leading global executive search and human capital management firm. It provides a range of executive search, consulting & advisory, and interim solutions across the Industrials, Life Sciences, Consumer, Financial Services, Sports, and Technology industries, among others.

SITUATION

In 2018 following ZRG’s financial partnership with RFE Investment Partners (“RFE”) the organization grew exponentially through increased senior-level hiring efforts. To build on this momentum, in late 2019 ZRG identified an avenue to further diversify and grow its services portfolio of human capital consulting. Through a targeted M&A effort centered around enhancing capabilities, ZRG sought to further differentiate its offering in the marketplace by providing additional consulting solutions for their clients.

ENGAGEMENT

G2 Capital Advisors, LLC (“G2”) served as the exclusive buy-side advisor to ZRG leading a strategic M&A effort focused on identifying and engaging with potential acquisition candidates in the human capital consulting market. ZRG and RFE partnered with G2 to leverage the firms’ deep-rooted expertise across the Technology & Business Services practice, with a heavy focus on services-oriented businesses including specialty consulting and executive search.

OUTCOME

G2’s mandate with ZRG led to the acquisition of Brimstone Consulting Group, LLC. (“Brimstone”), a leading management consultancy offering solutions across leadership development; diversity, equity, and inclusion; post-merger integration; and more. Headquartered in Camden, Maine, Brimstone serves a range of medium sized to Fortune-500 businesses across the globe. Together, ZRG and Brimstone will leverage an extensive network of Human Capital search professionals, interim financial professionals, and business consultants to better serve its client base.

“The complementary nature of our businesses made Brimstone an obvious partner for ZRG, as we continue to expand our portfolio of talent advisory solutions,” says Larry Hartmann, CEO of ZRG. “Further ensuring a new CEO is successful with the proven process of Brimstone will create a new paradigm for CEO transitions. We are pleased that we can now address two critical areas of leadership to align success for our clients with both strategy work and culture work. We believe when a company aligns strategy and culture with the right talent, amazing success can be achieved, and our offerings now address these three core areas.” 

Andrew Keleher, Vice President at G2 Capital Advisors, commented “The team at G2 has deep roots in the human capital management segment of the market. Supporting one of the world’s fastest-growing executive search/talent recruitment firms on their growth strategy has been a real pleasure these past few years and we look forward to continuing our work together. The recent acquisition of Brimstone Consulting further enhances ZRG’s offering by adding senior level talent that manages a disciplined approach to supporting leaders through business transformation. We are thrilled for both organizations and look forward to seeing their success together in the coming years!”.

About ZRG Partners

Over the past four years, ZRG has been the leader in top line growth and increasing market share through its talented workforce and its investments in industry leading innovations and talent acquisition tools supporting its clients in making better informed and timely talent decisions. The proprietary collaborative Zi platform with its integrated Z Score, Compensation Tools, Interview Insights, and Culture Fit Score have accelerated the hiring process in excess of thirty percent with better decision making. Since 1999, ZRG’s data-driven approach to executive and professional search has been changing the way its clients think about acquiring top talent. For over 20 years, clients have trusted ZRG to recruit top talent around the world. Today, ZRG is recognized as the fastest-growing global search firm and provides a full suite of retained executive management and customized talent solutions through its locations in North America, South America, Europe, the Middle East, and Asia.

About Brimstone Consulting Group, LLC.

Brimstone Consulting is a global leader in business consulting. Brimstone works side by side with their clients, moving from strategy to execution and uncovering the pivot points for true business growth and transformation. Brimstone’s straightforward methodology simultaneously aligns the organization and develops leaders while accelerating growth, performance, and profitability. Brimestone’s core work is focused on business acceleration; change enablement; culture change; executive coaching; leadership development; leadership team alignment; organizational alignment; diversity, equity, and inclusion; and post-merger execution. Brimstone Consulting Group is based out of Camden, ME.

About RFE Investment Partners 

RFE Investment Partners is a private equity firm focused on making control investments in established small market companies located in the United States. RFE is a long-standing New Canaan, Connecticut-based firm founded in 1980 with over 40 years of experience investing in the lower middle market. RFE’s investment strategy is to transform its portfolio companies from the lower end of the market to fully professionalized and market leading middle market companies. RFE is currently investing out of Fund IX. For more information, visit www.rfeip.com.

About G2 Capital Advisors

G2 Capital Advisors provides M&A, capital markets and restructuring advisory services to the middle market. We offer integrated, multi-product and sector-focused services by pairing highly experienced C-level executives with specialist investment bankers. We aspire to be the trusted advisor of choice to our clients including corporations and institutional investors.

CONTACTS ON THIS DEAL:

Matt Konkle, President, T: 857.310.5554 E: [email protected]

Kerri Ford, Managing Director, Head of Technology & Business Services, T: 917.515.7585 E: [email protected]

Andrew Keleher, Vice President, T: 860.748.6480 E: [email protected]

Ben Stevenson, Associate: T: 412.680.9100 E: [email protected]

Aaron Levy, Senior Analyst: T: 857.250.2767 E: [email protected]