Leaders from Town of Genesee-based Generac shared insights on how the company has handled its many mergers and acquisition deals at BizTimes Media’s annual M&A Forum on Tuesday. More than 300 people attended the event.
Lisa Brown, vice president of corporate development at Generac and the company’s deputy general counsel of commercial transactions, Kyle Flanagan, participated in a keynote conversation at the event. Brown has been with the company for 22 years and has overseen the company’s roughly 30 acquisitions, deals ranging from $10 million to $700 million.
During Brown’s time with Generac, the company has experienced significant growth expanding from a company with about $200 million in annual revenue to more than $4 billion today. Acquisitions tied to Generac’s strategic direction have played a role in achieving that growth.
“(The businesses within Generac) are determining what they need and where they need to go, and we’re helping them get there by bringing forward opportunities from a pipeline perspective,” Brown said.
The process for Generac begins in one of three ways: a company familiar with Generac pitches itself as a potential acquiree, a bank pitches a company as a seller, or a company sends in a spontaneous inbound request to be acquired. Each poses its own pros and cons, such as competition and tight timelines in a bank-led acquisition, but only one in roughly 100 make it to the letter of intent stage, Brown said.
In the process of an acquisition, Generac first helps the interested company determine its value and further decides what the company would be worth to Generac from a synergy perspective, Brown said. After its valuation, Generac leads the acquisition process starting with a letter of intent, moving through due diligence and closing once all processes are complete.
If a company receives a non-binding letter of intent from Generac, which includes general principles and terms of the deal, both parties will engage in due diligence. From there, the company will determine whether it needs external finance, tax or legal assistance, especially if the deal is outside of the country. Generac then sends out a 500-line-item diligence list for the company to fill out and hashes out all the fine details before a potential closure agreement.
Through the process, Brown and other members of the corporate development team rely heavily on legal counsel for consultation on the acquisition.
“Legal’s role is twofold,” Flanagan said. “One, we act as a diligence partner supporting the transaction after we close with our integration activities. Two, we support Lisa from a corporate development perspective. We help execute the transaction, the letter of intent and the transaction documents as well.”
Among the 30 deals made by Generac, Brown said although they are all like children and possess different value for different reasons, her favorite was the $700 million acquisition of ecobee in 2021. Ecobee is a Canada-based home automation company manufacturing smart thermostats, light switches, cameras, occupancy sensors and more. A large deal that was complicated by the COVID pandemic along with the familiarity of the company among Generac’s customers made ecobee’s acquisition one of Brown’s and Flanagan’s favorites.
The best thing to do as a seller is “put your buyer hat on and prepare,” Brown said. “Get all of your information together and understand it all and so you’ll be able to speak to it.”
Combatting ‘Deal Fatigue’
Additionally, keying in more people in the selling company can decrease the risk of deal fatigue.
“Deal fatigue is very real, and it will increase significantly and be more of a problem the smaller the selling side of the transaction is,” Flanagan said.
Not only can the M&A process be long and tedious, but the seller’s business may not be running the way it normally would when it is engaged in a potential acquisition. It is important to understand the “delicate balance” between running a business and preparing it for a sale, Brown said.
“Selling the business is a full-time job,” she added. “Don’t think you can do it with a spare hour in the day.”
Panel discussion on M&A best practices
After the keynote, panelists from a variety of industries discussed personal experience with M&A deals including the options for a transition in ownership, the mission as a buyer, the stigma around private equity companies, and of course, “deal fatigue.”
Here are some key takeaways from the panel discussion, which was moderated by Ann Hanna, managing director and founder of Milwaukee-based investment bank Taureau Group.
Closing in on retirement, Jerry Voors, former president and owner of Elkhorn-based sewing table manufacturer Arrow Sewing, knew it was time to begin negotiating his departure from the business. Voors explored several options including a transition to an ESOP, passing on the business to a family member, or selling to the management team before deciding it was best to sell to a private equity firm out of St. Louis. Now two months retired, Voors advised sellers, “Don’t sweat it. You’re a seller, you’ve been in business your entire life, you’ve dealt with crisis after crisis after crisis. Selling your business is the exact same thing, just a little bit compressed. Enjoy the ride. It’s going to work out.”
Terry Smith, co-founder and partner of Texas-based private equity firm Willis & Smith Capital, advised both buying and selling companies that “Credibility is everything.”
“What you may not realize as a seller is that we’ve done business with people (at this event), and not only as a buyer,” Smith said. “We then flip hats when we get to a point that we’re ready to sell a portfolio company and it’s the exact same group who’s going to help us do that so there’s no secrets.”
Further, Smith said there are several misconceptions about private equity firms surrounding the idea that a buying company will come in and “fire all the employees.” In reality, the private equity company is not managing the business. Private equity companies can provide employees more opportunities whereas a strategic buyer may have redundancies in those employees while looking to integrate a business, he said.
Kip Ritchie, chief executive officer of Potawatomi Ventures, the economic development arm of the tribe, told event attendees that the company’s mission, vision and values surround the utilization of the company’s tribal advantage and expansion of its professional portfolio through the inclusion of younger tribal members.
“We really think about those things when we approach a transaction, so we’re going to make sure that there’s alignment around that (within the company),” Ritchie said.
Deal fatigue poses a threat to all parties involved in an acquisition, said Reinhart Boerner Van Deuren corporate law practice shareholder Blake Knickelbein.
Knickelbein advises sellers to think through these questions: Where do you want to go? What alternative is best for you? What are your goals? What’s important to you?
“Once we’re in that transaction and you’re getting beaten up and the deal safety has kicked in, stick with us,” he said. “Again, deal fatigue is real, and there will come times during any transaction where you feel like, ‘Is this worth it?’”
Through investing with the right advisors, however, sellers can push through with the help of legal counsel and hopefully, get to the closing, Knickelbein said.
