Insights from an Engineering Expert: Preparing for an Exit

In this episode, we explore the key differences between two main deal structures in business transactions: asset purchases and stock purchases. Learn how each structure can impact the sale price, liabilities, and tax consequences, as well as how the buyer's goals, financing options, and industry specifics play into the decision. Understanding these details is crucial for both buyers and sellers to create a deal structure that aligns with their priorities and maximizes the value of the transaction.

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TRANSCRIPT:

Welcome to Integrated Insights with ICCG. For more than 30 years, our team has

partnered with small business owners to prepare for and navigate the business

transaction process. Pull up a chair as we share stories and insights from our

experience on all sides of the M &A table. Welcome back, everyone. My name is

Michael Hefner. I am a team member at ICCG and your host for today's episode. I'm

joined by one of our co -founders of ICCG, Grant McQuilken. Hey, Grant. Hey,

for today's podcast, we have a special guest. Craig Janssen has decades of experience

and has overseen projects worth over $10 billion designing spaces and implementing

cutting edge technology for high attendance venues. Until a few years ago,

Craig, his wife Angie, and their partner Vance, had built a firm called Adibri,

an acoustics and technology engineering firm with projects all over the world. With

the help of ICCG, Craig sold Adibri to Salis O 'Brien, one of their largest and

most respected engineering firms in the world. Craig and Grant have been friends for

several years. Thanks for joining us, Craig. Great. Thrilled to be here. Well, to

get started, Craig, could you just tell us a little bit for business owners in

different industries who might be listening? What was a Debris and how did you kind

of build it? We were and still are a professional services group that does

engineering. The specialty of the Debris was really in three buckets, doing sound,

lighting, video, design systems, design acoustics,

and theater consulting. Theater consulting is designing the slope in the seating

sidelines and stages and so forth on venues where performances occur.

We started GUSH in '91, and just over many years built this business up.

It's a high specialty engineering practice. And so it's one of the there's not many

people that do what we do in the country, a couple hundred. And so we've got to

build it over a 30 year period. So, and when you guys first started talking,

Grant and Craig, you first started talking about the potential of an exit and what

that could look like. What were the types of things that you had to do in order

to prepare over those couple of years? - Well, you know, you learned best via

experience and we were fortunate enough to have several companies approach us about

acquisition. And, you know, I look back with a little bit of mild embarrassment the

first time because I didn't fully understand that no one cared about our pretty

pictures. What they cared about is the spreadsheets that showed our performance and

specifically EBITDA. they want to know what a backlog was and things of that nature.

And it took me a little while to get around that. You know, you spend a lot of

time building a business and you're such in a marketing mode. And all of a sudden

someone's saying, that's not important to us, give me the numbers. And so I think

that was very valuable and Grant was very gentle in leading me into that

realization. And we had the advantage, again, of several suitors coming at us over a

period of time. And so we were able to learn at each step. Each step of those was

a really valuable learning experience, and it wasn't, of course, until I think it

was the sixth time we were approached fairly seriously that we did a deal.

Some of those suitors, Craig, if I remember, I mean, some of them were very

prestigious and some of them were pretty, I mean, they came at you pretty hard.

How did you guys stay focused on building your company?

I mean, I remember there, you know, a lot of those discussions were somewhat in

depth because culture was important. We'll get to that in a later one,

but I think just how did you stay focused or did you struggle with that?

Or what was the way that you dealt with that? - Well,

a couple of things. One, I'd say it gave us energy and it gave me extra energy.

Two, in other words, for a given resource, I was able to expand it just through

the excitement and the energy of exploring this and understanding it. And secondly,

we we honed in to it being me who was going to be doing most of the heavy

lifting. Angie got pulled in to the financial side, but in terms of all the early

conversations, understanding culture max, how we might fit flying somewhere to meet

with people that was all me, and we kept it out from from others so that Angie

Angie and Vance could stay attuned to the daily needs of the business, as well as

others in the company.

- Yeah, wouldn't you, this is, you know, I remember you're bringing back some

memories. I remember you, obviously Angie's your wife and she was also the,

like the CFO of the company, right? Doing all the accounting and all that kind of

thing. And, you know, We have a lot of clients who don't have that close of a

relationship with their CFO or their accountant.

Obviously, it was a huge advantage that she was in the know right away and could

give you the information to do that. It would have been really difficult if you had

to not include her and kind of sheepishly get the information from her, right? She

played a huge part in that, wouldn't you say? - Oh, absolutely. I mean, and you're

completely right because I was able to very quickly get numbers the way I needed

them without any explanation. So every time I got a contact or a call,

what was happening in our industry is that large engineering groups were building

their practice with specialty teams of which our particular discipline was one of

those around the country. And so I knew this stuff was coming. I had the advantage

of friends of mine who've been acquired and have gone through the exercise and we

all talk together. And so this was a conversation we had internally every time the

call came. This is the mix, I would do a summary of all of the salient points,

give it to Angie and Vance, and say, "Do we go to the next step?" And in every

case, we did. Well, actually, not in every case. We had a couple of weeks going,

"We don't want to burn energy on this." My broad approach to it was to

have conversations because I knew I learned every time What would help me hone down

as to what was important to us and what wasn't and Each conversation went down the

path you get to this kind of check mark and you go. Yep That's not going to be

for us and and that built our knowledge base. I love that posture of learning I

mean you've always been that way You know take advantage of all those conversations

instead of treating it as an axle You know treat it as a learning opportunity, I

think that was a great posture. In addition to that learning that you were doing

kind of naturally, were there any specific criteria you were looking for when trying

to find a suitor? I think that comes to why did we want to sell and then what we

were going to and so maybe it's worth me unpacking that just a little bit.

People sell because they're looking to recoup the info.

professional services. But that got much more tricky when the evaluations,

which in the early days were book or maybe EBITDA, you know, 2x EBITDA, zoomed up

much higher. And so, you know, the thing we were navigating is how do we achieve

that without killing the company if we try to sell it to internal staff?

Because ultimately the only way they can do this is to either take out a loan,

which the EBITDA multiples are too high for them to be able to afford that or be

willing to, or two, for them to buy it over a period of years,

where ultimately you're really giving away the profits, you're paying yourself of the

profits over a X number of years, which is a pretty risky enterprise because I've

spoken to quite a few people have gone that path. And it was tricky for many

reasons. And so for us, we wanted to be able to make the move in such a way that

we could recoup our investment. And the staff who'd been with us,

our average tenure, was about 15 years. These were people that we knew their first

child, and in some in some cases now they're grandchildren. And the idea of not

providing a strong path for them for it and just exiting the stage left with all

the money was just, you know, antithetical to anything we believed in.

So that kind of comes around to, you know, how do you choose a partner and how do

you know that's right? Well, for me, there were several layers. One is, are they

gonna pay reasonably, I mean, market, but that wasn't my number one priority. Number

two is, does it make sense? So if we were to come into a company, does one and

one equal three, or is it one and a half because we're gonna go in and they're

gonna gut our company, just grab the resume, or is it gonna multiply?

And so really evaluated that. And then thirdly, I wasn't ready to retire.

And so I wanted an opportunity. And you know, one thing I've spoken to several

people are considering this. I said, when you interview, interview as if you're

getting a job. Because if you're not feeling like you're comfortable with the buyers,

you're not going to sell it to anyone else. Now I have friends who were literally

out the next day. The money came in and they But that wasn't that wasn't what we

wanted to do. That's so insightful. I love that posture of of you're interviewing

food basically You're gonna end up having to sell for that brand and so you're

interviewing the job You're interviewing that brand to see if they're worth it,

right? So great. I mean that was the you know, we had long relationships with with

clients across the country and to some extent around the world. And I needed well

to sell to them why we had done this in a way that was good for us and was good

for them.

And I suppose some people can sell things they don't believe in, but I'm not one

of them. And it's much easier to sell something you believe in. - So I remember

there were some, and maybe these conversations were, you know,

personal, but I think you're willing to sort of walk through it. You were building

your firm over the years, and in order to see what the limits of your leadership

capability, I mean, you're a great leader of people.

I've got you on camera saying that now. - Yeah, well, I'll sell you the clip.

I think, you know, I think you're one of the thoughts was, hey,

you know, if I want to scale real quick, I'm gonna have to get a lot of capital,

invest a lot of capital in this thing, or I can be a part of an organization,

take some chips off the table, and be a part of an organization that's also going

to enable me to test my ability in a much larger context,

right? Do you care to share any of that sort of process? Probably two pods on

that. The first one is that the industry that we play in, we were starting to

compete against multinational firms. And that became a very difficult thing, not just

because of their money, but because of their reach. And so we were finding that

there were really great design projects happening around the world that by the time

they were public, these multinational engineering practices already had the gig,

and they've got the tentacles. And it was clear to me that we were not going to

be able to get there from where we were. It just wasn't going to happen. The

second thing I'd say is that At a certain point in your company growth, you go

into a little bit more protective mode of the finances because when we're doing this

when I was in my 30s, I go, "Yeah, let's take the risk. Let's go. I mean, what's

the downside?" But all of a sudden, you've got 30 years into this thing and you're

going, "Well, I'm not going to put a mortgage in the house so we can expand." At

least, you certainly don't want to do that. And for me, I very much did not want

to have the company limited by my lack of comfort by putting it all on the table

in a risk. Then, you know, the next thing would be the interest that I had in

what it took to be part of a multinational firm that would allow us to grow much,

much faster. And I will say what was fascinating to me is that our first year of

being part of Salos, O 'Brien, was by far our most profitable year for ever.

And I found myself being more entrepreneurial when we were under the ownership of

someone else because I was playing with house money.

And all of a sudden, I was willing to push further, and so growth is much faster.

And to Grant's point, I was very interested, at the end of the day, do I have

what it takes? I think Jerry's still out, but,

you know, so we're running in a much bigger group with a much higher degree of

sophistication operationally, financially, from a strategic planning point of view,

from a staffing management point of view. And I hadn't worked in a big company for

many, many years, I mean decades. Well, Grant mentioned culture earlier, and you just

talked about the transition into larger in a lot of different ways. Did you have

any concerns as the culture that you built, those people were transitioning into that

larger corporate environment? you know, and I think culture is sometimes a word used

to also mean values, but I actually separate the two. So I was looking for common

values. I wasn't looking for common culture.

And, you know, the values of the bedrock that you stand on, and if the values are

violated, then, you know, you're in trouble. So I found that fairly easy to by

Darren Anderson, who's the CEO of Sellers O 'Brien, is really an extraordinary gifted

leader. And his value, his value strength is very strong. Now,

culture tends to be more situational in my experience. So for example, we had

several offices, locations, and it's different everywhere. Culture meaning,

you know, what's your culture of dress, your culture of your dynamic within the

group or as a management friend of mine calls it said cultures what happens when

the leadership aren't there And I really like that But and that means that it's

different according to the to the different people so we have a value of Humility

and you hope that the culture plays out for that. We have a value in honesty and

the culture better play that out. So things like that. So I wasn't concerned about

our culture shifting. In fact, immediately after doing the deal and being public to

everyone in our team, I said, you need to understand, we didn't do this to be the

same. We did this to grow. And with growth comes change. And that change is not

always good. But in most cases, we change for the better. And so let's go after

that price. So when you're dealing with your employees,

obviously it was great to watch you in person,

you know, talk to employees and walk them through that process. Obviously there's a

good portion of employees, particularly I would Imagine engineers, kind of like

accountants, they're change of verse.

Do you remember the sort of the main ways that you try to mitigate that?

- Well, the first and foremost is selecting the right partner to be acquired by.

And one of the things Darren set the table for and still does, I mean, Seller

Brian is north of 40 different companies at this point. And part of what he said

is we leave you to be the same. Now, of course, I told the team, we're not gonna

be the same. But I think I have friends again who were acquired and pulled into

much bigger groups. In the next day, the business card changed, the position several

people got laid off within two months. I knew that wasn't going to happen, and I

knew that not just because Darren told me, but because we interviewed several of the

companies that had come before us. And so I was able to go in with a much higher

degree of confidence to say to our team, your job is safe, your opportunities are

expanded, and this is going to be a good ride, come ride with me. It wasn't a

hard sell, but I could certainly see some settings where settings where EBITDA

multiple might have been higher, but I wouldn't have been able to say that. - Well,

hey, that's all the time that we have for today. On a future episode, we will hear

from Craig about the acquisition itself, including his past acquisition experience. For

make sure to see our show notes for more on Craig. Craig Grant, thanks for joining

me today. - Thank you. - Good to be here. - Absolute pleasure.

- And that wraps up another episode of Integrated Insights with ICCG. Be sure to

subscribe and stay tuned for more stories from our team. We love hearing from our

listeners. If you have any questions or topics you'd like us to cover, please send

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There's always a seat at our table.