Q&A with K. Perry Campbell

What size of businesses do you typically represent?
We represent companies with annual revenues from as low as $2 million to as high as $100 million. Most of our clients are in the revenue range of $5 million to $50 million.

Does your firm have an industry focus or are you more generalists?
We are more generalists, handling a wide variety of manufacturing, distribution and service businesses. We certainly do have industry expertise, and I would say that manufacturing is at the top of our list. Our principal deal-makers had senior management and ownership roles in other industries before joining ACT, so they bring that experience and empathy for the business owner with them. I’ve personally dealt with high tech manufacturing serving the semiconductor industry, wood products manufacturing, floral product manufacturers, software companies, computer programming and system design companies, waste management companies, retail companies, construction companies, engineering and environmental companies, product testing companies, aggregate mining companies, analytical chemistry laboratories, construction management companies, and scientific equipment manufacturers. Our primary focus is on quality companies that have good management, such that the companies we represent would be suitable acquisitions for either strategic or financial buyers.

What geographic region does your firm cover?
With respect to sellers, we are most concentrated in the Pacific Northwest states – Oregon and Washington, although we’ve represented clients in Alaska, Idaho, California, Colorado, and Tennessee, and we occasionally represent clients in other states. Our buy-side clients are located throughout the country.

What are the components to your compensation for your service?
It depends on the service we’re providing. For typical seller representation and most buyer representation, the great majority of our compensation comes in the form of our success fees that we collect when a deal closes. We sometimes provide consulting services (I call this “brains by the hour”) but as deal-makers we much prefer deal-oriented success fees.

How many M&A professionals are there at your firm?
We presently have 9 deal-makers, plus research analysts and support staff.

Describe the main service that your firm provides.
Our firm provides merger & acquisition intermediary services to middle market sellers. These can be owners seeking to sell the entire company or owners seeking other types of transactions, such as financing for management buy-outs, management buy-ins, growth capital transactions, and family re-capitalizations to provide for inter-generational transfer and funding founders’ retirements. We also provide buy-side services to business buyers, principally private equity groups, Small Business Investment Companies, family offices, and industry buyers.

What other services are provided by firm?
We offer Business Valuation Consulting, Business Value Improvement Consulting, Third Party Appraisals, Exit Planning Consultation, and Buy-Side Advisory.

What have you found to be the single largest factor in getting the highest price and terms for your client?
For our sellers: Running a competitive, yet confidential marketing process that aggressively seeks multiple buyer prospects from around the world is a proven way to get the best deal for our clients. Conversely, we get the best deals for our buyer clients by getting them into proprietary deals where there is no competition. It’s a simple concept that competition drives prices higher, and lack of competition keeps prices low, yet many owners are content to sell their company to a single buyer and they never know how much money they left on the table.

What is a common misconception that you find among your clients?
Our clients recognize that there is value in the service we provide, and therefore they retain us. However, almost without exception they fail to appreciate just how detailed and intricate the process of selling a company can be. Looking back on a done deal from the vantage point of the closing dinner, we commonly hear, “I had no idea…” At that point the owners truly understand and appreciate that we brought knowledge, skills and experience to the table that they had no idea would be needed, and that we also protected their interests in ways they could not have imagined nor done themselves. Yet we often talk to owners who are “talking with another firm” about a sale, and the owners think they can handle everything themselves without professional assistance in what may be one of the most important transactions of their lives. That’s like doing your own brain surgery…not something we recommend.

Describe a transaction that really highlights your firm’s skills (or the benefits of using your services).
The owners of a company I represented had previously negotiated a do-it-yourself deal to sell the company to one of its major suppliers. As closing day approached the owners recognized that they were philosophically incompatible with the buyer so they broke off discussions and retained me to help them. After analyzing the company, preparing a detailed Confidential Business Review, and marketing the company worldwide I was able to bring them a wide selection of buyers with some offers more than twice as high as they had previously negotiated on their own. The confidential, competitive process worked and after interviewing the top buyer candidates they selected one that offered 72% more than their supplier had been willing to pay.

Discuss a difficult-to-close transaction and what made it difficult.
There are always things that come up. In one case my client elected to threaten to sue a critical supplier during due diligence. Not being interested in investing in a lawsuit, the buyer walked away quickly. In that case it was necessary to settle the contentious situation with the supplier, and then re-market the company. As it turned out, the number 3 buyer from the initial competitive process, revised its proposal to become number 1, then closed the deal shortly thereafter.

Describe a tense moment at the closing table.
By the time we get to the closing table, most of the tension has usually been eliminated. Still things can go awry. That’s when it’s important to have good lawyers who can draft document changes on the fly. Little things might happen, like the bank failing to follow wire transfer instructions…I’ve seen it happen. Everyone needs to have a good attitude, and a sense of humor. After all, if something goes wrong we can always have a nice dinner and come back the next day, fix it and get the closing done correctly. To some extent the days of the face-to-face meeting over the closing table have gone away, and many deals are closed without the principals even being in the same city. Yet many of our clients enjoy the ceremony of the closing table, signing all the documents, and turning over the keys to the buyer.

Have you ever saved a client of yours from a fraudulent buyer?
Yes. I’ve actually done that for business owners who weren’t yet my clients. They decided to retain me later. Good choice, I thought!

What can a client do to maximize their company’s valuation or enhance the business sales experience?
There are many things clients can do to maximize value, and they should start working on these things years in advance of a contemplated sale or re-capitalization. We talk about the “value drivers” of a business. Of course increasing sales is high on the list, but increasing free cash flow (Earnings Before Interest, Taxes, Depreciation and Amortization less Routine Capital Expenditures) is more important. I tell owners that we only have 2 things on the table in our business…risk and money. When the risk pile gets higher, the money pile gets lower, and when the risk pile gets lower, the money pile gets higher. So think about things that will lower the risk for a buyer of your business. Develop and improve your management team. Groom your replacement. Broaden your customer base so that no one customer accounts for more than 10 percent of your revenue. Have your financial statements reviewed or audited (not just compiled) by an outside accounting firm. Eliminate “discretionary spending”, i.e., the practice of booking personal expenses as if they were necessary business expenses. Don’t manage your business to minimize taxes, manage it to maximize profits. Those are just a few of the business value drivers an owner can work on. For a more comprehensive list, I invite owners to contact me and ask for a free copy of my book “The Business Owner’s Guide to Successful Business Exits”. To answer the second part of your question, on enhancing the business sales experience…clients should retain our firm to help them get full value for their business.

What should a business owner do if they are potentially interested in using the services of your firm?
Business owners can call me toll free at 800-240-4609 for a free, confidential consultation about their personal situation. They can also e-mail me at pcampbell@actconsultants.com. Owners who aren’t going to sell for a few years, but simply want to keep track of what’s going on in the marketplace for privately held companies, and what kind of buyer searches are active each month, can contact me for a free subscription to my monthly Private Company Market Report, and Private Company Buyer Search reports. As a bonus they’ll receive an electronic copy of the quarterly report, The Privately Held Company that provides insight into transaction issues for middle market companies.