When dealing with the sale of a family business, Pine Street Capital Partners Managing Partner Timothy Welles says one point of emphasis in their diligence is making sure that the family is honest about what they want out of the sale.
“And some of that is you have people that want to continue with the business, you have people that want to exit,” Welles said at last year’s Philadelphia Smart Business Dealmakers Conference. “We've had a number of situations where people said they wanted to essentially wind up their careers, and then they change their minds once you’re in the transaction. And in some cases, they're just not really honest about what it is they're looking to do themselves.”
As a planning matter, he says investors are making management and go-forward decisions based on what they're hearing from the family. So it’s important, he says, to spend enough time with them to really understand what it is they're trying to do because these are not just value decisions, they're personal decisions about what they’re doing with their life.
Welles’ posture is as part of the control group that's acquiring the business, but only a part. They’re typically investing both debt and equity into the transaction. When they’re involved, there could be a letter of intent to acquire the business or a proposal on the table. His activity is focused on shaping and tracking the diligence, getting comfortable with the overall transaction, and then providing at least part of the funding. His team will often be on the board or in some cases act as a board observer, but in either capacity will be active post acquisition in a pretty meaningful way.
Among the issues that have led him to walk away as he’s dug into a business is that when there are multiple family members involved, there can be difficult conversations about relative talent and relative value to the business.
“Within the family, you can watch the family dynamic,” he says. “You can see some things where there's a lack of certainty.”
Fundamentally, he says they’re looking to invest in successful businesses and looking at a variety of ways to grow value. Often that means follow-on acquisitions, professionalizing pieces of the management team, developing the finance function, and ensuring everyone — family or otherwise — is in the right seat and wants to stay.
“Probably the most rewarding thing in all that context is really seeing a situation where there's real clarity on the effort and the go-forward plan, and you see people really get enthused or re-enthused about really driving the business forward,” he says.
He says often these are middle-market businesses in which everybody's been doing what they've been doing for a long time. So bringing in an investor is not just a change from an ownership standpoint, but a reinvigoration of what it took to actually get the business from where it started to where it is.
“That's a huge accomplishment to get it there,” Welles says. “But then how do we get to the next level and the next level after that? And that's a really rewarding part of the of the process and the job.”
