17^th December 2024

By Tom Zucker, President

As we enter the front door of a prestigious manufacturing company, the owner brims with pride for their 75-year-old business. The lobby is adorned with awards and plaques recognizing their market leading position. As we gather around the conference room table, the CEO meticulously articulates their ownership history, assets accumulated, past successful acquisitions, and boasts of their favorable cash and debt positions.  For the next hour, we receive an informative and impressive history lesson.

The third-generation owner pauses for a moment. We politely ask the question, tell us about the future growth opportunities? After a brief response, he quickly reverts to explaining more about how they acquired their talent and various facilities. He never seems to understand the importance of the question about the future.

This is just one example of many conversations we have encountered over the years, where the owner fails to recognize that “buyers buy the future”. The ability to create a compelling bridge from a storied past to an exciting future is critical to a successful M&A outcome. History and past successes are very important and impressive foundations for growth but without the compelling story of the future the picture is incomplete.

The next several meetings with the company’s leadership team were much different than our first encounter. The owner shared more about their growth plans and unique opportunities to seize new clients and expand into new exciting markets. We explained the importance of sharing their growth opportunities if they had access to unlimited capital and the risk of failure was removed. At that point, the corporate development leader took over the meeting with excitement. The following was just a few examples of the impressive opportunities that emerged:

• They had completed three past acquisitions on the east coast, but they have had substantive dialogs with other midwestern and southern competitors/ targets where the markets are rapidly expanding
• They have developed and secured intellectual property that will reshape their industry but need more capital to properly introduce it to the market
• They have the opportunity to acquire assets and key talent from a competitor that has recently filed for bankruptcy protection which will enable us to secure two long-term sales prospects
• They had engaged a pricing consultant, and they were implementing strategic price increases. Additionally, they uncovered several customers that were unprofitable.

You could feel the excitement building in the room. However, the owner sat in amazement as if this was the first time he had heard about these impressive opportunities. His view of the company was expanding.

The next meeting with the owner was designed to explore their manufacturing operations. The Chief Operating Officer led the tour of their facilities. As we toured the plants, the owner shook hands cheerfully with long time employees. The culture of the business was clearly evident at every stop along the way. During the walking conversations, the manufacturing leaders shared a few latent opportunities:

• Their material purchasing department was recently approached to consider a direct to mill relationship which had the potential to reduce material costs significantly
• The lead engineer had developed a new process at one of their process lines that would shorten their product development time and reduce labor costs. The COO was optimistic that this advancement could be implemented throughout the other plants thus providing an efficiency multiplier
• The plant managers and supporting operations team were unified and shared a consistent language around production.

The discovery meetings were enlightening to our team as well as the owner. Our diligence and conversations painted a different picture of the 75-year-old business. The prior success of the business was being overshadowed by a newly uncovered exciting future.

As we shared the revised forecasts incorporating the future synergies, and prepared the memorandum highlighting the future opportunities, the owner was ecstatic and astounded. During the final meeting prior to launching the sale, the owner expressed his approval and excitement about the future opportunities of his business. As we ended the call, the owner playfully reminded me that “Buyers Buy the Future.”