Client Background
In late 2019, the owners of an analytical instruments company approached Beacon Hill Equity Group to explore growth planning and a possible exit from their business. The husband-and-wife duo was heavily involved in running the company, with the husband acting as President/CEO and the wife as Vice President/Business Operations. The owners had acquired the company in 2011 and had seen steady year-to-year growth in revenue. During their tenure, they had also acquired a small, complementary analytical instruments manufacturer, and divested an arm of the business that serviced other manufacturers’ instruments. By the start of our engagement, the business had two main revenue streams: manufacturing laboratory instruments and performing analytical services to the pharmaceutical R&D industry. Of those income streams, 70% of the company’s total income came from the sale of instruments. The company employed approximately 50 people across two locations, one in the US and one in international.
Client Issues
After meeting with the owners and conducting several conversations about their business, it was clear there were multiple facets of the Company that required attention. A major issue was how involved both owners were in day-to-day operations. One of the owners’ primary goals was to make the business less dependent on them and gain more free time. The owners’ mindsets were also entrenched in the growth of their business, which made it difficult for them to negotiate how to make their business run without them. They knew there was a need for a strong ‘general manager’ to provide daily leadership, but executing was a challenge. They also recognized a gap in the sales department, but the interest level in addressing this was very low. Finally, external obstacles such as Covid had hindered the growth of the company and there was an urgency to retain the same growth that they had obtained in previous years.
Planning Solutions/ Outcomes
Beacon Hill Equity Group worked with the owner to craft an exit plan by following our proprietary six-step process. After conducting an initial review of the owners’ financial and mental readiness using the Business Exit Readiness Index (BERI) survey, it was clear the owner was defined as a “stay and grow” owner. The owners had low mental and financial readiness for an exit. Beacon Hill also used the Owner Dependence Index (ODI) to help further analyze the owner’s involvement in the company. The overall score of the ODI defined the company as moderately independent of the owners. These clients also completed the IEPA’s Growth Planning Index (GPI), which categorized the owners as growth-focused and recommended that they act on an exit after a growth period.
To make the company more independent of the business owners and to drive future growth, the Company opted to hire a new general manager to take over some business operations. The candidate was someone who the client knew from a previous position, and was known to have strong operational capabilities. This occurred in April 2020; however, the hire was not successful (no doubt complicated by acute challenges with Covid), and the GM departed a few months later.
Despite the failed G.M., the growth work that the owners and Beacon Hill engaged in increased valuation by an estimated 50% by the end of 2020. With the massive increase in valuation, the owners began to think about a possible exit via private equity group recapitalization. With the help of a private equity group, the owners would be able to retain active roles in the company and have more freedom to lead a life away from the company, while the private equity group simultaneously brought in resources that could help the Company reach its potential.
Execution/ Transaction details
With the owners being open to a Private Equity Group recapitalization (PEG), Beacon Hill switched gears from growth planning to exit planning. It was a difficult decision, but once the decision was made, the process moved forward smoothly. With that impetus, Beacon Hill prepared a confidential information memorandum that presented an in-depth analysis of the company for potential buyers. In January of 2021, Beacon Hill took the deal to market and received overwhelming interest. Seventeen different offers, all cash, were received.
Outcome
In March 2021 a bidder was selected that exceeded the owners’ expectations of value and featured an all-cash sale that included owner roll-over equity. To fund the recapitalization, the majority was cash, with some senior bank debt and a smaller amount of owner equity rollover.
Due to the client’s robust growth opportunities the market was willing to pay a premium and move quickly. The deal was closed in May 2021 and left the owners with a substantial stake in the company, a growth partner, and a path to newfound free time.
That story continues to unfold as the new investors leverage their Rolodexes, bringing in a CEO with deep industry experience, an accomplished CFO, and a commitment to double the sales force and develop the current team across organizational roles. Acquisitions are being contemplated, and with the expected growth, the owners can hope to receive as much on their “second bite” when the private equity group eventually exits as they received in this transaction. Training of the successor for the VP Business Operations tasks is nearly complete and should be final by the end of the year, freeing up the owners to focus on building their new home in New Hampshire. The exit planning process helped the owners enter confidently into a transaction that created opportunities for the Company while achieving a high level of liquidity.