During the 2024 BizTimes M&A Forum, held Tuesday at the Brookfield Conference Center, business leaders spanning several different industries shared their best practices for buying or selling a company in today’s climate of economic uncertainty.
The event was kicked off with a keynote conversation with Sharad Chadha, CEO of Glendale-based Sprecher Brewing Co.
Chadha led a group of investors to acquire Sprecher back in 2020. He had known Sprecher Brewing founder Randy Sprecher for several years at that point. During a social gathering in early 2019, the two had discussed Randy’s hopes to soon retire. Even though Chadha had never run his own business, he couldn’t help but get excited by the possibility of leading Sprecher.
“I said, ‘Hey Randy. If I put this deal together, will you sell it to me?’ This was Saturday and I had had a bunch of drinks,” said Chadha. “He called me back on Sunday and said, ‘Let me show you the brewery.’”
A contact at Commerce State Bank helped provide Chadha with the debt needed to get the deal done while he focused on raising equity. He also needed to track down all of the company’s stockholders to get them to sell their shares, which proved to be a more arduous process than expected. One woman in Cedarburg, whose late husband invested in Sprecher more than 30 years ago, could only be reached via physical mail.
“We couldn’t even email her,” said Chadha. “We’d have to send a letter and she would mail it back.”
The acquisition of Sprecher officially closed in January of 2020. Since then, the company has acquired seven beverage labels, most recently buying the L.A.-based energy drink brand Juvee, and a Germantown-based packaging manufacturer called Excent.
It’s fair for some people to question why Sprecher needs to break out into all these subset beverage categories, Chadha said.
“Some people might say we are spread too thin, and that’s a fair critique,” he said. “As consumers’ tastes become more discerning, why should the Cokes and The Pepsis out there have all these brands (but we can’t)?”
He argued that large companies like Coca-Cola have so many beverage brands under their umbrella, consumers might not even know the lemonade or energy drink they’re enjoying is owned by one of them.
In completing so many acquisitions, Chadha has made a list of best practices. Paramount to getting a deal over the finish line is having a strong team around you made up of finance, legal and M&A professionals. It can be difficult to decipher a seller’s motive, so Chadha recommends you focus more on the data available to you.
“Try to see the numbers. Do your due diligence,” he said. “Try to visit the location if you can and see the customer list. If they’re not letting their employees talk to you, that’s a red flag. If they’re not giving you customer or other access, watch out for that.”
Panel discussion
Chadha’s keynote conversation was followed by a panel consisting of industry experts. Speakers included Dan Erschen, founder of Waukesha-based Wisconsin Metal Parts; Jacob Erschen, president of Waukesha-based Lean Manufacturing Products; David Wage, former owner and CEO of Two Rivers-based Formrite Companies Inc.; Blake Knickelbein, a shareholder in Milwaukee-based law firm Reinhart Boerner Van Deuren’s Corporate Law Practice; and Paul Stewart, co-founder of Milwaukee-based private equity firm PS Capital Partners.
Here are key takeaways from the discussion, which was moderated by Ann Hanna, managing director and founder of Milwaukee-based investment bank Taureau Group.
Figure out your ‘why’
For Dan Erschen, it became apparent it was time to sell his business after he began struggling with his health. As someone living with multiple sclerosis, the day-to-day operations of running a manufacturing business became particularly taxing. He knew it was time to pass Wisconsin Metal Parts on to the next iteration of leadership.
“If you’re going to do something responsible for your people, you need to put the business in good hands going forward,” he said. “That was really my big driver.”
Assemble the right team
Like Chadha, Wage emphasized the importance of having the right team around you to get a deal done. He sold the Formrite family of companies to Kronenwetter-based G3 Industries in June 2023.
“The word that keeps coming up here is team,” said Wage. “That means having the right accounting firm, the right law firm and the right M&A firm working as a team because you don’t do this every day. You do this once or twice or three times in life and having a good team that you know is protecting your best interests every day.”
Figure out your company’s ability to scale
The private equity model of business ownership hasn’t changed much over the years. These firms buy, build and sell a company over the course of several years. There are several qualities a private equity firm will always look at when examining a business, said Stewart. This might include a look at a company’s leadership team and customer base and examining what growth opportunities a business has.
“(Private equity firms) need to be able to scale a business during the building phase,” said Stewart. “If you think about that, that’s going to put an enormous amount of pressure on the company, in our mind, to be able to scale up.”
Get your house in order
Once you’ve engaged with a potential buyer, that buyer will immediately begin looking into all parts of your business, said Knickelbein. This includes supplier and customer contracts, employment agreements, financial records and more.
“Start looking at your own records because nobody knows your business better than you do,” he said.
Throughout this process you’ll be able to focus on areas of the business that might not be as strong as they could be before a buyer zeroes in on them. For example, if your business has a long-term supplier that’s been critical to the company and that supplier has historically done work through “handshake deals,” it might be worth examining entering a long-term contract with that supplier. That way, a potential buyer can also have reassurance in that relationship.
Start early
Before selling Lean Manufacturing Products to Fort Wayne, Indiana-based Solv Metals earlier this year, Jacob Erschen said he had already spent months preparing himself for a potential sale to boost his confidence in the business.
“During the process, you feel like it kind of gets whittled down to numbers and you forget what the business actually is, what you’ve built, what you’ve poured your heart into,” he said. “By giving yourself an early start, you’re basically saying that if it doesn’t happen, that’s okay.”
Jacob and his father, Dan Erschen, came together several times to consider the sale of their respective businesses. Each time, their due diligence left them confident that their companies would be even better prepared in a year or two for acquisition.
The full program is available on-demand here: https://biztimes.com/annual-events/ma-forum/
