Case Studies

Package and Manage Sale of Entrepreneur-Led Business to an ESOP

Industry: Experiential Education & Travel
Function: Executive and Finance
Location: HQ Domestic, Operations Global

The founder-entrepreneur was a researcher-author who had built a multi-million dollar experiential education and travel business steadily over a period of three decades. He was sixty years old and evaluating options for the continuity of the business as he stepped aside, eventually "retiring" to a reduced role in the business while accessing the value of the business he'd built through a sale. The business had seen customer and revenue numbers mushroom successfully over the last few years.

Among the issues we evaluated and addressed were:

1. The impact of the owner's presence and involvement upon company sales and market presence.
2. The ability to keep key staff (both customer-facing and administrative) who had been trained and developed internally, possessing decades of accumulated experience.

As is the case for many small to mid-sized private businesses, the founder's continued involvement post-sale was critical to maintaining the value of the brand and the enterprise business value. In addition, the founder had been the primary developer of intellectual property (IP); the business needed to maintain its exclusive rights to this IP and access new IP during a planned and phased succession period.

In order for the deal to work, the company needed to buy out/ roll up a long-time business partner and related support business to create a whole company from the loose collection of separately owned small businesses and independent contractors. Each part was needed for this business to function as a unified enterprise-and to capture maximum economic value.

To support this work, we:

• Created a composite business pro-forma and forecast to explain in financial terms the consolidated business as a whole enterprise - for owner/ entrepreneur, valuation firm, and other key stakeholders.
• Evaluated the valuation and the applicability and benefits of an Employee Stock Ownership Plan- Trust (ESOP) sale; and
• Worked with the owner to optimize the valuation of the business and provide proper financial back-up.
• Screened, interviewed, hired and managed the various professionals to execute both the ESOP sale and the pre-ESOP buy-outs and consolidations on behalf of the owner.

 The ESOP was successfully executed, with all issues addressed. This transaction succeeded despite the credit and market meltdowns of 2008 and recession of 2008-10. As a result of this project, the owner was able to convert remuneration expected to be received as personal income into long-term capital gains for significant tax savings.

The ESOP structure allowed three key issues to be addressed:

1. The founder was able to sell 100% of the business, while remaining for an extended transition in a role he had chosen and designed in advance.
2. By selling to the employees, the founder was able to lock-in key people essential for the ongoing success of the business, rewarding those choosing to stay long-term and contribute to business success.
3. The tax-benefitted ownership status created by the ESOP allowed a significant portion of the purchase loan repayment to be made from funds that would have previously been paid by the business as tax on earnings.

Based on this work, the owner realized significant financial benefits, maintained a large degree of post-sale control-influence, created a more viable business going forward, and implemented a stable structure for business succession and continuity.

Deliver Value In Engineered Systems Through Process Improvement

Industry: Agriculture - Dairy Equipment
Function: Finance, IT, Business Development
Location: Global

Our client (a $1.5 billion portfolio company owned by a European PE firm) designed, sold, and installed sophisticated, customized agricultural systems globally. The process of design selection, delivery, onsite installation, and startup would often be the first experience a customer would have with the company. A positive experience would lead to higher wallet share capture with increasing margins in the aftermarket sale of parts, service and consumables. Conversely a negative experience would often lead to only minimal purchases (i.e. sole sourced items) and alternate vendor selections for service and material for the installation lifecycle that averaged upwards of ten years. The primary metric was the On-Time, In-Full Delivery (OTIF) of capital sales for projects. Our client was experiencing an unprecedented level of backlog and missed deliveries due to both internal and external factors primarily:

• The implementation of a new ERP system,
• A new organizational design splitting the order fulfillment process into two different legal entities,
• A new management team at a key supplier, and
• Record capital sales in 2008 as a result of high milk prices.

These factors created a degradation of capital order delivery to an estimated OTIF rate of less than 20% for the first nine months of 2008.

An MMG associate joined in the last quarter of 2008 through the end of 2009 to lead the day-to-day capital goods order management and delivery process--and to improve delivery performance and operational effectiveness, reduce inventory levels, and improve customer service. Our guy led a cross functional Project Sales team to establish processes, roles and responsibilities, documentation, and metrics for managing project orders. In addition, the team sought to improve communications between the supply chain, the sales team and independent distributors, and key suppliers. Finally, significant coordination and management was required to ensure that consistency and commonality was achieved in the North America and the European designs.

As a result, the OTIF percentage on a monthly basis improved to over 90% on a consistent basis by the beginning of 2010.

As part of the project, we also designed and led a ‘voice of the customer' survey creating a discussion and scoring template, conducting customer/ distributor interviews, analyzing data, and reporting results and actionable recommendations to the senior management committee. This allowed the MMG team to identify and address the systemic root causes of the On Time, In Full delivery failures.

Finally, the effort also included the re-implementation of the risk management system for capital good sales (suspended during the ERP installation). We introduced a customer sign-off process that validated the training, documentation delivery, and system performance--creating a written record to reference against potential, future claims, and providing critical "post-sales" expectation-setting and support.

Drive Business Growth: Private Local Service Business

Industry:  Automotive Service
Function:  Business Development
Location:  Domestic

The owner of an independent retail automotive-service business had growth aspirations - and needed help to think through how best to achieve them for his business.  We joined him to:

• clarify/ set the core value proposition,
• differentiate his business and offerings from the major chain-store competitor just up the street,
• identify the key customers needed to grow (based on data/ analytical assessment),
  
• target and message to those key customers, and
• refine the business plan, including the expansion plan to double the size of the facilities.

This work led to a structured approach for engaging customers, clear sales and marketing campaigns, and consistent messages that clearly differentiated this business from local competitors. Following through on execution, this business has seen new customer contacts almost triple in number within the last 12 months - and is on track to achieve 60-70% revenue growth this fiscal year. based on successful execution of the plan.

Strategic Plan: Deliver Vision, Reduce Debt, Improve Finances

Industry: Hospitality (Accommodations & Food Services)
Function: Executive
Location: Domestic

The client had built a boutique high-end hospitality business which included a top Zagat-rated restaurant, unique luxury lodging and a complete destination wedding business.  A private school on a large adjacent property closed and the property including a unique but dilapidated country manor house and gymnasium- class room building was to be put on the market.

The entrepreneurial owner both saw opportunity in the unique country manor house and  the potential risk associated with the development of this adjacent property which might be contrary to his property's ambience. To mitigate this risk, he opportunistically and defensively purchased the adjacent property and began to develop it, but was struggling with the debt load.

The acquisition and renovation of the country manor added considerable guest room capacity - as well as substantial debt. Both the regional tourist season and the wedding business combined to accentuate seasonal cyclicality which capped the business' peak profitability and depressed the off-season cash flow.

Working with the owner and general manager, we explored the owner's vision and risk profile to guide market research and alternative solutions. MMG's business growth management consulting supported extensive market research into new services and amenities that would complement the existing business and its clientele, utilize newly created excess housing capacity and ameliorate the cyclicality of the current business model.  Finally, we developed a range of scenarios, at different risk and debt levels, including general business plans and full pro formas.

The down stream implications of the work included:

• Refinancing debt and adding a full service spa as destination amenity
• Creating new products & services, including counter cyclical spa-based packages
• Identifying spa services and pricing profile
• Targeting incremental sales of services for traditional guests, non-guest visitors to the area and local resident population
• Selling the restaurant and non-strategic portion of housing to a strategic partner

Based on this work, the owner created a more profitable business venture and increased asset value - while restructuring debt to levels more in line with the business' cash generation capabilities.

Implement Strategy; Align Executive Team; Coach for Results

Industry:  Medical Software
Function:  Executive
Location:  Domestic

A venture-backed medical software company has grown over several years, reaching several hundred employees, tens of thousands of "users", and dozens of customers. The first-time CEO inherited a senior team - and with them needed to articulate a compelling vision and strategy for the organization, board and other key stakeholders - as well as implement to achieve needed growth results.

The company is a "market leader" in its (relatively new) space - with substantial market opportunity. The pace of change is high due to shifting government-industry dynamics, and competition in the space is intensifying. The organization is experiencing deterioration in execution capability, distractions and lack of focus, and increasing urgency as the issues reach employees and customers.

Working with the senior team and individual leaders, we're working to create multiples of increase in the realizable value of the enterprise as a strategic acquisition in the next few years by clarifying strategy, building leadership and organizational capabilities, addressing current execution issues and fixing long-term issues related to new-product development and market penetration.

The likely implications of the work will include:

• Clear and compelling strategies - translated into effective operating plans
• Effective personal and group abilities to make difficult trade-off decisions regarding what will and won't be done
• Changes in executive behavior and in culture
• Dramatic improvements in senior team capabilities
• Improved execution and business results
• Successful value realization