When you build a strong relationship with the private equity firm that owns a stake in your business, you give your growth strategy a better chance to succeed, says John Ensign, president and chief legal officer at MRI Software. The key is developing close ties with individuals at the PE firm who believe in what you’re trying to achieve.
“Who are the one or two individuals at that firm who are truly going to be the champion of your business?” Ensign says. “When I hear about companies where the fit isn’t there, it generally comes down to those individual relationships more than the fit between the company and the firm.”
MRI is owned by two PE firms: TA Associates and GI Partners. MRI has made nine acquisitions since September 2017 — its latest involving IPM Software — and continues to scan the globe for new opportunities.
In this week’s Dealmakers Live, Ensign talks about his acquisition strategy and the importance of making in-person visits to potential acquisition targets. We also learn how the discovery of 10,000 rats gave Ensign a new perspective on the importance of due diligence. What follows is a transcript of the above video, edited for readability.
Have a shared strategic vision
When I think of it, I think where things have been good is when there is a shared strategic vision. I think that’s broader than just the internal operating executive team. It also ties to how you interact with your board. We’re very lucky, we have two private equity sponsors currently invested in the company. And we spend a significant amount of time investing time in building out that shared strategic vision. So where are we actually trying to go and what are the pieces we need to get there?
I’ve definitely been part of companies or seen companies whose path was a little bit more random. They were very opportunistic. Something down the street is for sale. It’s an acquisition. Let’s grab it. That can obviously lead to a lot of challenges. When I look at why we’ve been successful, especially at MRI, we’ve had really good results from the acquisitions that we’ve made. I really do believe that comes back to that shared strategic vision.
Finding the right PE firm
I think the key when evaluating private equity, if someone is looking to sell their business and that’s the exit plan, is it’s really finding that match. The match, the personality and the culture match is critical. Really having an understanding of where you want to take the business. The other thing I tell people a lot when I get asked this question is it’s not really the reputation of the firm. That’s important, having a firm and understanding the firm is important. But who is the sponsor?
Who are the one or two individuals at that firm who are truly going to be the champion of your business? Who are the ones who are going to sit on your board? What’s the fit with them? We’ve been blessed with having the right people at the right time for MRI. But when I hear about companies where the fit isn’t there, it generally comes down to those individual relationships more than the fit between the company and the firm. That’s probably the biggest factor.
In-person visits are crucial
I think it’s critical that during an acquisition process that you meet face to face with the owners of the business prior to a purchase. Certainly with where technology has gone, video-conferencing and the basics like email, you can do a lot at a distance, especially with international transactions. There is a huge convenience factor. But every single transaction we’ve done, we’ve ensured we did a management meeting where we brought some of our people and some of their managers together and really sat down and instead of going through a diligence list, really talked about the business.
How do they run it? How do they view it philosophically? Why have they made the decisions they have made? I think that’s been critical in us getting a deeper understanding of the business. Often when you’re buying companies, they don’t necessarily want to traipse you through their office. Obviously their employees may not know or it may make employees nervous. But seeing their office, walking through, even if it’s after hours, getting an understanding of what is their culture like? How do people work? How is it set up? How do they think about their approach to the market? I think those are critical items.
An unexpected twist
The minutiae can always surprise you. A great story — well, not a great story. A story that certainly sticks with me and certainly changed how I thought about due diligence as we think about acquisitions. We bought a company a couple years back and we visited their offices. It was not a great office building. It was a C class building, but it was nice enough. It was professional. About a week or two into ownership, we start getting calls from the employees there because they have a rat infestation. That was new to us. We had never thought to say, ‘Hey, do you have rats in your building?’ That was not something we had investigated before.
So of course we call exterminators. I think the quote from the exterminator was, ‘Well, that’s not good,’ when he looked up in the ceiling, which is not what you want to hear from your exterminator. And sure enough, the building was infested with about 10,000 rats. So there, we had to pivot a little bit. The best laid plans of integration were kind of thrown out. Within 24 hours, everybody was working out of their home and two months later, we had moved the entire office and gotten them into an actual Class A space to kind of change that outcome for them.
It was interesting. It's one of those integrations where, I tell that story and people laugh. It comes off as a disaster. But it’s interesting. It’s probably one of those integrations where we and the employees of the company we bought probably had more of that shared vision than anything else I had ever seen. Now, it had nothing to do with running the business, mind you. It had to do with just getting away from rats. But it actually worked out really well in the end and they have been a great addition to MRI. But it’s fascinating how those little things can change how you perceive the business.
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