Wolverine Worldwide Former Executive Vice President Jim Zwiers says he runs his business units as if he were preparing the company for sale. He told attendees at the 2024 Detroit Smart Business Dealmakers Conference that he does that as a way of thinking about the company in terms of why he owns it.
"Why do I hold this?" Zwiers says. "And if I didn't hold it, when would I make a decision not to? So, it's almost like going through a process to prepare a confidential information memorandum every year on your business, at least in a thumbnail scale. Two big benefits to that. One is to remember why you're the best owner or the best holder of that business. Secondly, potentially to use your own playbook — if it's so easy to grow, why don't I do it myself? But then third, being ready. When you get that call, when something changes in your family situation, your business situation, and you want to consider a sale, you're just more ready."
Zwiers uses a Quality of Earnings on the sell side in part to be ready. But the other two reasons are maybe more unexpected.
"One is I think it can really help shape your story," he says. "If you're on the sell side, you got a number of things. The first one always is a story. And the second one is the data to back it up. And what we found is going through the QofE process and the early prep process, it's going to make your story better and sustainable."
Another advantage of a QofE he says is it gives the seller a yardstick.
"As your buyers show up, you've got to yardstick," he says. "Are they into your assumptions? Are they not? You're super clear on what your assumptions are in your valuation. They can challenge those rather than fielding 39 different versions of, 'Here's how we view business. Here's what we think.' You're putting them all against the yardstick to see where they're buying your story and they'll pay for it, and where they won't."
In the market now there are more carve out deals happening, in part because the number of clean businesses to buy fully is a little tougher. From a seller side, there's more analysis in the marketplace of sellers getting valued for the things they do best. And there's an enhanced view of people looking at things they're not best at, or they're not the best owner of, and making a move to sell that off and buy into something they are best at. That, he says, is emphasizing the "why" for many people.
"Why do I own this?," Zwiers says. "What's my value prop to owning this? Can I do the CIM that I just kind of fake wrote? Am I confident I can do that CIM? Or should I be finding a better buyer for this that can actually do that CIM so I can go optimize someplace else? So, I think it's a pretty big trend. I think we're going to see more and more of it."
He says one nuance between a standalone versus carve out is that the buyer universe makes a massive difference and can potentially de-risk some of that. He says looking at the buyer universe, strategics that can incorporate the carve out and make it part of their new entity is dramatically different than coming out of a bigger portfolio company. Also, when thinking about a carve out versus buying the entire business, he says there are some businesses where there are concerns about the whole group. That, again, puts more emphasis on why a buyer would do a deal.
"If we take an entire standalone, the motivation around the sale becomes key — Why are we going to be doing the sale?"
