When it was decided it was time to sell Vaddio, a company Tom Mingo, now a founding partner at ArchStar Capital co-founded, it was a unique opportunity. One of his two partners wanted to leave the business. They couldn't decide what his valuation was going to be, so they hired an investment banker to get a valuation of the business from an outsider's neutral view. Ultimately, they decided they didn’t want to pay that third for the partner to leave, so they hired the investment banker to start teaching them to go through a process.
“And one of the most valuable things they taught us right away, or really coached us into, was share the responsibility and a little bit of what's going on with that senior management team right below us as owners because it can be an enduring task to sell these companies and do all the due diligence and have all the reports and all that,” Mingo said at the St. Louis Smart Business Dealmakers Conference. “As owners, we tell the story and we're the passionate founders that are really giving the hype story to who might ultimately buy it next. But it takes a team of people you trust and are probably going to have some small financial benefit to this ultimate exit as well, because you need that help. So, that's the OPs person, the CFO/controller type person, that's probably the VP of sales — people that can help tell the story and show what a strong organization it is that would ultimately be getting sold to that next buyer.”
When they finally decided it was time to sell, he says they learned how different their days would be as they went to market and through a process.
“Our investment banker did a great job, they went out and solicited our book, and got it all going,” he says. “And all of a sudden they came back to us, they're like, ‘You got 40 IOIs.’ And I'm like, ‘What's an IOI?’”
After conferring with the banker, they learned they only need to talk with about eight to 10 of them and were coached on the interview process — that as sellers, they’d be interviewing buyers, but the buyers also were interviewing them and learning about their company.
“You're going to be the consummate salesman and show all your passion in the company and what's so great about it, and why they should buy your company,” he says. “But ultimately think about it as business owners.”
Mingo had a lot to learn about the terminology and the impact each could have on the deal. For instance, he says he knew what the company’s EBITDA was, but didn’t understand equity roll, or even who works for who once the deal is made.
“What I figured out is both sides are interviewing each other because you are getting into a new marriage for the next six to seven to 10 years — however long that's going to be — and you need to find that good partnership and someone that you can trust, and they believe in your vision, and you believe in their capacity to help you achieve that vision as partners going forward,” he says.
Ultimately, Thompson Street Capital Partners bought them, and he says he’s grateful to have found the best fit. Many of the other firms wanted to take control and exclude the partners in the path forward, but that’s not what Mingo and his partner wanted.
“Finding that cultural fit for us being Midwestern folks, finding a Midwestern buyer, worked out great for us,” Mingo says. “But it also was very crucial and critical to us as a team to find a partnership that, in the end, dollars are dollars, and that's great and we all are in the capital markets to try and earn it and do it. But, you know, God forbid you have a little fun and enjoy what you do for all that time as well. And that was very important to us.”
For those considering a sale, he says have a trusted team to help weigh the options. Some owners are very passionate about their business and are on a path to continued growth. But there can be risk for owners who are comfortable with what they’re earning or have most of their net worth tied up in that business. Others want or need some help to get to that next level, or want to take some chips off the table, so bringing in an investor makes sense, especially if they’re looking for another bite at the apple.
“These are the kinds of things you want to think about as an owner about finding a partner,” he says. “There's multiple ways to do it. And I would think about the culture and the partnership and where you see yourself. Are you looking for a partner that's going to allow you to walk away right away because you truly want to retire tomorrow? Or do you still see some passion in the business for yourself? Is it still fun for you to go to work every day and you could see doing something for the next five to seven years with a new partner and go for it? Those would be the two things I would ultimately contemplate as an owner.”
