"If you're looking to sell, have a plan, but realize it won't go according to the plan, but have one anyway."
That comment from serial entrepreneur Jim Freeman, who recently exited a business he created and grew, kicked off a panel discussion on Tuesday morning, "From the Trenches: Three Successful Exits." Moderated by Bob Forbes, president and founder of Denver-based Forbes Mergers & Acquisitions, it consisted of three men who recently participated in the M&A process. Each shared his thoughts on everything from how the deals were structured, to tax implications, to incentivizing employees in order to ensure top valuation.
Freeman, who's been involved in the sale or purchase of over 40 companies, currently holds the position of chief strategy officer of High Touch Technologies. He said he was "determined early on to start a business with my own money." Raising capital from outside investors is one thing, but he started from scratch, then grew and ran the business for 10 years, before he got bored and decided to assemble a team to help him exit.
"If you have one buyer and one seller, you won't get what you want," he said. "We had about a hundred inquiries when we went to market. It's easy to get distracted by the acquisition process, but you still have to step on the gas, steer the business and continue to operate. We also realized people would get scared and jump ship, which would cause the value to plummet, so we wrote into the deal that the buyers would retain certain employees (at management's discretion)."
Enrique Krajmalnik also started his business, Illumen, from scratch in his basement with his father and brother. Illumen was an early telecommunications service provider in the VPN and managed service provider space. He sold it in the fourth quarter of 2012.
"We experienced hyper growth in the first few years," he said. "We thought it would never end, but it did. We then decided to go with more of a recurring revenue model. We institutionalized and systematized a lot of our processes, which built value."
Lon Sears, the third panelist, worked in health care upon graduating from college, but soon realized he didn't want to stay in Big Pharma. He entered the entrepreneurial program at the University of Denver and used his master's thesis to start his own health care company with his wife in 1993.
"I was focused on running, building and growing a business," Sears said. "I was never focused on selling. You imagine that someone will just walk in one day with a big check and you'll ride off into the sunset. We know that doesn't happen. I was approached by a major player in the space about five years ago. I quickly realized I had no negotiating power. So we declined and I focused tremendously on top-line growth initially, and then bottom-line growth." The No. 1 thing he learned was to properly incentivize key employees. He had five direct reports that he tied into the business plan that would benefit financially at the outcome of the deal. In this way, he said, they all had the same goals, values and direction.
Forbes asked Krajmalnik about the dynamics of involving family members in the deal.
"It definitely made it more difficult, which was complicated by the fact that I moved to Texas during the process," Krajmalnik replied. "My general manager got nervous. He was the one person outside of my family who knew what was going on. Despite my repeated assurances that he would be okay post-merger, he left."
He had to then call the buyer and tell him his "right-hand man" was gone, but was surprised by the buyer's response.
"He said that as long as he had me for six months, it would be okay," Krajmalnik related. "He felt that the business was so process-oriented that it could basically run itself. He didn't want me for day-to-day expertise; he wanted me to teach him about the business over all."
