Major consolidation hasn’t changed the fact that much of the housewares industry is still owned and managed by entrepreneurs.
Many of these small- to mid-market businesses— and even some larger companies— probably spend most of their time thinking about how to add value for their customers. Deal-making experts at a recent housewares conference agreed these companies could be better off spending a little more time thinking about adding value for their shareholders.
Housewares veteran and current Chef’n Executive Chairman Linda Graebner moderated the panel discussion provocatively entitled “Everyone Should Sell Their Business At Least Once” at the recent CHESS (Chief Housewares Executive Super Session) near Chicago.
Featuring representatives from commercial banking, private equity, M&A consulting and legal, the panel explored why successful entrepreneurs build their businesses with an eye toward eventually selling them, even if they have no immediate plans to cash out and exit.
Keith Jaffee, a veteran housewares operator and principal of O2 Cool, set the tone for the panel by declaring, “Even if you never sell the business, you have to put the disciplines in place as if you would.”
Among those often-neglected disciplines, he said, are the installation of a board of directors/advisors (including company outsiders) and frequent independent audits— both of which keep management more accountable on a quarterly basis.
The panel also advised entrepreneurs how to build the value of their businesses. While cash flow (EBITDA) continues as a focal point in setting the purchase price for a business, Scot Swenberg, managing director of private equity firm CID Capital, said paying down debt is a key contributor to a company’s long-term market valuation. Strong management teams also can help lift the value and attractiveness of low-growth/low-margin businesses.
“It’s important for a banker or advisor to understand what you are trying to accomplish in a deal,” Swenberg said. “Use a broader criteria than valuation or deal structure.”
Mark Dufilho, a director with M&A advisor Houlihan Lokey, said most prospective buyers come to the table with a sharp view on what they perceive is the long-term value of a business. Many sellers, on the other hand, start with a purchase price in their minds.
“Don’t lead with price; lead with the value of the business, the story behind the business,” Dufilho said. “Let the market dictate price. You might be leaving money on the table, or you might be driving potential buyers away.”
Keith Berk, an M&A attorney and managing partner with Horwood Marcus & Berk Chartered, warned of being unprepared to sell a business. “If you haven’t done due diligence on your company before the buyer has done it, the business will be exposed,” he said. “If you try to hide the warts, they will come out in the due diligence process.”
“You need to run the business like you are going to sell it,” Berk asserted, echoing the common refrain of the discussion.
The conclusion: If you are succeeding at building your company’s long-term value for its shareholders, you’re probably succeeding at adding value for your customers.