It was around 1995 when it became clear to Tom Bonney how powerful technology was, how it was starting to upend back office functions. So he and a couple partners started Polaris Consulting & Information Technologies.
He had the notion that he’d eventually exit the technology services company, but he didn’t build into its structure the means to do it. He more or less started it based on interest and opportunity.
“By like 1998 to 1999 the internet craze had really caught fire and we were part of that,” Bonney recalls. “Some of my friends and competitors had sold and we just started to say, ‘Hey look. Let's get it done.’”
He sold Polaris through his network of local service providers — the buyer came through a connection to his tax accountant — in about nine months.
Bonney immediately formed CMF Associates and grew from an idea to more than $19 million in sales before selling it to CBIZ Inc., where he is now a senior managing director.
But this time, he used the experience from Polaris to inform every step of the process. Here’s what he learned, and how it shaped his approach to selling a second business.
Shortly after you sold Polaris, you founded CMF Associates. How did your experience with Polaris shape your approach to CMF?
I was much more deliberate about the market opportunity I was going to go after. I was much more deliberate about creating something that was more sustainable with an exit in mind. I was more patient with regards to my expectations and what I was going to do year over year. I had a five-year plan almost from day one at CMF and I certainly didn't have that at Polaris.
How did having an exit in mind inform how the company was funded or structured?
We didn't have any outside funding. We bootstrapped this thing. With the exit in mind, I wanted to preserve equity value. So the only folks that had equity were my other partners. When we sold the business I had four total partners. Having the exit in mind put a lot of focus on the capital structure, and who got to be a shareholder.
In terms of how the exit informed the capital structure, I looked for more of a recurring revenue business model. That told me to work with the private equity funds directly, knowing that they would have multiple transactions and multiple opportunities within their portfolio for us to do work on a regular basis.
How did the sale of CMF to CBIZ in 2017 come about?
The thinking before hiring the [investment] banker was that the market for services is going to go through some form of consolidation. We believed at the time, and I continue to believe, that in professional services tied to mergers and acquisitions and accounting and finance work, that bigger is going to be better, and my partners and I wanted to be one of the eating as opposed to the eaten.
How did looking for a partnership change your approach to the sale?
It wasn't all about the purchase price. It was as much about my partners and I having a leadership role in helping someone to either create or expand what they had in advisory services.
What did the search process look like?
We hired the investment banker that had their focus entirely on helping sellers find buyers in the software and services area. They had a curated phone book of potential buyers already and they did the outreach. We sent information memorandums that led to meetings. That led to a shortlist. That led to a deal.
What did you want to hear in those meetings from the potential suitors?
A couple things: What their vision was and a why they were interested in us. And then I wanted to hear about their culture. We’re a people business and if you have cultures that are too far apart, it's just not going to work.
What was the value of bringing in an outside advisor to the deal?
The involvement Equiteq was huge. First, my partners and I were running a business that was growing 20 percent a year annually for the prior five years. So we tried to do some things on our own and we just were unable to do it between the hours of 6 p.m. and 9 p.m. They just brought focus and professionalism to the process of selling. Secondly, they brought a really strong network. And then thirdly, at points along the way, they provided some excellent deal-point mediation and negotiation strategies that helped us get it done.
How did you pick them?
We ran a process to select them. What I like about them was they were an investment bank focused in this space, but also they put a lot of thought leadership out and did strategic consulting our space as well. So they weren’t just transaction people. They had a strategic component to their DNA along with the transaction component.
How would you compare the process of selling the first business to that of the second business?
I was more in control of the process because by this point I had been through a lot of transactions with my clients, too, so I knew exactly what to expect. Being acquired by a public company had more due diligence, so the diligence was still intense, but I just didn't let it bother me. I just went through it and got through it. Having done the first one, it really prepared me for the second one in a major way. Also, emotionally, I mean, they don't talk about the emotional impact, particularly on a founder, of selling their business. Emotionally, I was more prepared this time around. And I was more mature. I was 35 when I sold the first one and I was 52 when I sold the second. I just was at a different point in life, too.
What advice would you offer about the sales process and setting up a company with an exit in mind?
Define the goal — financially, emotionally. And also, what do you want to do after the transaction? Do you want to work at the company? Do you want to work and build something? Do you want to work for a couple of years and go off into the sunset? Do you want to just be done? But it starts with having a really clear goal.
And then just get your head about yourself. If this is it and it's going to happen, treat it as another business process. You built the sales process for your company. You built a delivery process for your company. You have to build the sales process that your company is going to go through, so get your head about what you're embarking on.
And you got to get the right professionals around the table. I had a superb corporate attorney that did M&A and had a superb investment banking group. Selling a business is a team sport. It's not a single-person sport. It's a team sport and you got to have the right folks around the table to get through the complexities in the issues.
