A key focus when transacting in the middle market businesses is talent retention. In some cases, James Samuelsen, Principal at Bluejay Capital told attendees at last year’s Denver Smart Business Dealmakers Conference, that’s not just about holding on to managers.
“The teams that are in place are so absolutely critical to success in the future and who's staying who was departing,” Samuelsen says, “and either mitigating the risk for those who are departing and the kinds of relationships that they are taking with them, or incentivizing those who are staying and creating economic structures that they can be incredibly excited about next phases of growth.”
He says in deals that involve transportation and logistics companies, the drivers deliver the earning streams and so are incredibly critical to post-transaction. Because turnover is high in these industries — sometimes as high as 100 percent — he says they always create retention bonuses and retention structures for employees and previous owners to stick around because they’re such a critical piece of the earnings.
“I think everybody is familiar with rollover or seller notes and with various economic structures similar to that,” he says. “But tying something directly to a driver of business is what we found to help them be successful.”
When it comes to the technology side of an acquisition, he says the level of data that's available in the business is critical to properly analyzing what exactly is happening. He says the financial results are the scoreboard, but understanding the KPIs that sit underneath the financial results are what helps to analyze exactly how they got those points.
“In our world, transportation management systems rule the day,” he says. “It's the data we always ask for immediately. It's not always shared, but it does show origin, destination, all the various data points that allow you to analyze where those results are coming from and what's driving the business.”
Seller preparation can be difficult, and going through a process can be draining in part because of how much data buyers request. So, he suggests that sellers get that out of the way upfront as much as they can, as it will give them a better sense of what is coming and likely take the initial wave of requests out of the way. And by hiring someone to represent them, or bringing on someone with experience from the outside, can help sellers better prepare for those questions and get the required data together before the requests begin.
To build culture when adding more companies can be a challenge. And the people side of it can be difficult. He says as they’re looking at acquisitions to their platforms, they spend a lot of time trying to get inside the mind of management, asking questions to better understand how their thought process works.
“How do they make critical decisions in their business?” Samuelsen says. “And is that similar or different to the culture that we're trying to create, that we’re trying to emulate, that we're trying to build upon, or what we'd like to enforce business, because that culture initially checked the boxes that that's something that we can build upon. And so, ensuring that they think similarly when they're part of the new organization hopefully will reduce situations where when a big decision comes up, you can't create alignment, you can't find common ground, because it's not at all what they would have done when they own their business. So, we're trying to reduce those challenges.”
