To business owners, their company is much more than a job – it is typically the center of their life. It is no surprise, then, that the decision to pursue a sale or merger can be one of the most important financial and personal decisions an owner ever makes. While the journey to a sale or merger may seem similar at a high level – from preparing for the landmark event to undergoing the rigorous process to deciding one’s next steps after the transaction – the path from pre- to post-transaction is full of different twists and turns for every owner.
We recently sat down with three companies to discuss the lead-up to the eventual sale or merger of their business, their experiences during the process and the lessons they learned. Following are the stories of Michael Kassan of MediaLink, Don and Steve Follett of Follett Corp. and Tressa Gardner of DeGarA.
In 2003, Michael Kassan founded MediaLink. What started as a venture combining his entertainment, marketing, advertising and media backgrounds grew to a leading global strategic advisory and business development firm for media, marketing and technology companies. In February 2017, Kassan sold MediaLink to Ascential, a business-to-business media and events company. He spoke with us in New York about his nontraditional approach to building MediaLink, how he planned for the future and managed the business during the sale and his focus post-transaction.
Brown Brothers Harriman: Tell us about your background and creating MediaLink.
Michael Kassan: I started my career as a tax lawyer in the entertainment industry. After that, I ran a home video company and then a media agency, both of which were acquired while I was there.
In 2000, I left the media agency. I had a covenant not to compete with our holding company, so I could not practice my trade in advertising and media. In an effort to maintain relevance to my children, I surrounded myself with people who understood the digital revolution. The unintended benefit was that I gained a deeper understanding of the evolving, disruptive intersection of marketing, media, advertising, entertainment and technology. At that intersection, I could combine my experience in the entertainment business and the marketing, advertising and media business. It gave me a unique perspective, and that drove the start of MediaLink.
Opportunities began emerging as people called and asked for advice and help. I started building a team to help fill the gaps and deliver the results of the work I was receiving. We grew and expanded from there.
BBH: How did you build and structure the business?
MK: I never wrote a business plan. In fact, many years ago, I heard that people felt there was no structure, even though we were still small. This was by design. I was unsure if I wanted the responsibility of building a company for the long term and was not prepared to structure MediaLink into a real business.
Several months later, I had a change of heart. I suddenly realized, “This is a business. There’s an opportunity to make something the marketplace needs. I’m going to build it.”
BBH: You just sold MediaLink. Did you think early on about preparing the business for a sale?
MK: I did not initially think this was going to become a sellable company – I was very central to the business, and I did not know it was possible to scale an individual. I found out it was by surrounding yourself with people who are smarter than you and who have experience in areas you do, so you can help, and areas you don’t, so they fill the gaps.
I believe you should never be for sale, but I do think at an appropriate time you should sell. I started considering the possibility of a transaction as we began to scale, increase our marketplace penetration, take on different projects and become more institutional. As opportunities emerged, I realized one could make sense, but I wanted to reach a certain size and scale first.
BBH: How did you meet your buyer? Were you brought together by an advisor?
MK: Our parent company owns the Cannes Lions, an annual advertising festival we participate in, and I was introduced to its CEO while there. We met, but there was no conversation about a transaction.
Several weeks later, an investment banking contact called to say he found a buyer for MediaLink – it was the company of the man I had just met. I had the best kind of advisor: one who did not take an incoming idea, but who actually suggested something that was ultimately successful.
BBH: You are remaining MediaLink’s CEO and chairman. Was that a requirement in the transaction?
MK: I enjoy what I do, so I’m not ready to retire. In the context of our transaction, I think it was clear that I was central to continuing the company’s success. I signed a four-year contract, so I will be around for that long at a minimum. Over this period, I am singularly focused on two things. The first is performing at the level at which we have been growing. There is an earn-out from the transaction, so I am focused on delivering on that. The second is maintaining MediaLink’s legacy. That matters to me in that when I eventually depart, the company continues to exist and thrive with new management and ownership.
BBH: Did you have a succession plan prior to the transaction?
MK: I was in the mode of keeping my head down and building a business. I looked at succession as something that would take care of itself if the need arose.
During early conversations, our acquirer was worried about what would occur if something happened to me. This became a central theme as we entered the transaction, and the move toward succession planning and the design we ultimately implemented was driven by those discussions. In my opinion, it was the single biggest part of the acquirer’s diligence.
Our acquirer was also concerned about how employees would be incented to stay. I was not giving away equity, so the idea of succession planning – of a structural reorganization and creating profit and loss responsibility among senior management – was a big part of the transition, from having everything focused around me to sharing the wealth with employees.
BBH: Did you conduct your own diligence on the acquirer?
MK: My diligence on the company was similar to its diligence on MediaLink: Who are you? What is it like to be part of this company? How do you let the independent operating units operate? We looked at the other divisions to see how they work and if we were comfortable in that environment. I wanted to make sure we could continue to run our business within the context of a larger organization.
BBH: Talk about managing the business during the sale.
MK: The team did not suffer any diminution or loss of business during the transaction period, but there was also a lot of focus on the diligence and deal requirements. We have seen a renewed energy post-close because that distraction is gone.
BBH: You mentioned earlier that as part of the transaction, there is an earn-out. Tell us about that.
MK: The earn-out is an incentive to keep everybody focused on continuing to build a profitable business. While structuring the earn-out, I was insistent on creating alignment. When you have an earn-out, you tend to focus on short-term thinking so you can hit numbers. However, the guardrail for me in terms of creating alignment is what I said relative to legacy: I genuinely care about MediaLink’s legacy, so while I want to make decisions that will maximize the earn-out, I also am making long-term decisions that will help MediaLink succeed beyond my involvement.
BBH: What is the relationship with your parent company like now?
MK: We are operating independently; however, the partnership opportunities across divisions are strong, and we are seeing them manifest in pragmatic ways. We have weekly cross-division updates, which helps me identify opportunities. We also have an employee who focuses on synergy opportunities within the overall company. It is the best of both worlds.
BBH: What advice would you give to somebody who is selling a business?
MK: I have three criteria that I want in people and transactions. The first is integrity. The second is intellect. The third is “fun on a bus” – it is important to know what it is like to be in the trenches with somebody. In terms of our acquirer, I like the integrity and intellect, and they seem to be fun on a bus.
At just 25 years old, Don Follett inherited an ice storage bin company from his father and made the risky decision to take over the young business. Four decades later, Steve Follett took the reins as president and CEO of Follett Corp. Under the combined efforts of both father and son, the company expanded from a New York ice bin distributor to a global designer and manufacturer of ice machines, beverage dispensers and freezers for the food service and healthcare industries. In May 2016, Follett was acquired by The Middleby Corp., a food service equipment manufacturer. We spoke with Don and Steve Follett at the company’s Easton, Pennsylvania, office about preparing for the sale over the long term, deciding to sell and transitioning a family business.
Brown Brothers Harriman: Tell us about your backgrounds and how you came to work at Follett.
Don Follett: My father started a business selling ice storage bins in 1948. Several years later, he bought out his business partner, and Follett Corp. was born. When I was 25 years old, my dad passed away suddenly. I was working in sales engineering and originally intended to close the business; however, when I arrived home, I decided to take it over. The business was just starting and had no money, but we had customers. Over the next several years, I brought in two partners, and we expanded into manufacturing additional ice products.
I inherited the company from my father, but I did not want to pressure my family to work here – nor did I want them to count on it for a career. However, Steve asked for a shot around the time when one of my partners decided to leave the company. His experience aligned well with the role, so we brought him on.
Steve Follett: I received my undergraduate degree in engineering and then worked for an HVAC manufacturing company. After two years, I got my MBA and subsequently joined IBM for several years.
As my dad mentioned, I joined Follett to take the place of one of his partners who was leaving. I initially focused on manufacturing, development and financial planning and over time expanded into sales and marketing, which was a good way to learn the business. When my dad retired in 1994, I became CEO.
BBH: Don, did you design a succession plan before you retired?
DF: I was never interested in a sale during my time. I tried to nurture a few presidents to succeed me, but none worked out. Once Steve joined, there was no question that he was going to take over the company – as long as he wanted to. I also felt strongly that I had to be financially independent from the company upon retirement, so I planned accordingly. I wanted to ensure my future was separate from the business so that Steve could have control as CEO.
BBH: You recently sold Follett. Talk about your decision to sell.
SF: We had been struggling to come up with a succession plan, and this was the best decision for the company.
After several years of strong growth, we were at a tradeshow in 2015, and a large company in our industry asked whether we would be interested in selling. I had always turned down those inquiries; however, I knew the company and liked the idea, so I said we would think about it. Over the next few months, several other companies approached us. We narrowed the list and proposed the idea to our board of directors, and they were supportive. The process moved forward from there.
BBH: How did you prepare for the sale?
SF: It was a long-term process. We continually invested in what would move the company forward. Whenever we talked about whether it was the right time to sell, we said, “Let’s stay focused and grow the business – that’s going to create the value.”
BBH: What was your thought process in terms of evaluating potential acquirers?
SF: I wanted the highest probability that our acquirer would allow us to run relatively autonomously and create our own future. We did not specifically discuss retention during negotiations, but the companies that made the final round also expressed a desire to retain me, our leadership team and our employees.
BBH: How did you juggle managing the business during the transaction?
SF: The only people who were heavily involved in the transaction were me, our CFO, the leadership team and a few others, so we were able to avoid distracting the employees. Our sales team continued to sell, and our operations continued to run smoothly.
Managing the company while overseeing the transaction was a lot of work, and the process took longer than expected. However, there was an endpoint, so we kept moving toward that.
BBH: How did you handle communication around the transaction – both to the family and employees?
SF: We did not have the conflict that many family businesses have when selling. The support from my dad and siblings was incredible – they were fully behind me. I spoke with them regularly during the process, so they received ongoing updates.
DF: Before the transaction closed, we had a family meeting where Steve made a presentation about the sale and what it meant for family members. They were very supportive; no one had a negative reaction.
SF: In terms of employees, I held small group meetings all day when the sale was announced and discussed its reasons and impact. A week afterward, I attended an industry conference and continued these conversations with our sales managers and acquirer. When I returned, I held follow-up meetings and reiterated to everyone that our buyer was very excited and that this was going to help us create an enduring future.
BBH: You have successfully transitioned your family business over time. Do you have any advice for other families who are going to go through this?
DF: One simple piece of advice is that our strong family relationships were built long before this. We have a lot of trust across generations.
SF: It is also important to create a philosophy that family members are not entitled to a job at the company. Having to explore other options helped me tremendously. When I joined, I did not know the business, but I had credibility because I had several years of outside experience.
DF: There was a time when my other son was debating joining the company. He had a great education and experience, but they did not align with what Follett does. I told him not to confuse his career with his investments – they are different. You have an investment in the company through a trust. Your career is something you want to do because you love it. All of our children had great educations and successful careers, so they had their own worlds to be proud of. Nobody felt they needed or deserved this.
BBH: What advice would you give other owners who are preparing for or going through a transaction?
SF: My biggest piece of advice is to hire the right advisors – it is incredibly important.
Our investment bankers were supportive and phenomenal to work with. They go through the process for a living, so they knew all of the details around the terms and conditions. Our law firm was also outstanding – not only from the technical side, but also the emotional side. The team lead said I could call him at any time – even in the middle of the night – if I was worried about something. You also do not want to get out-lawyered in these situations, so choose a good fir
In 2002, Tressa Gardner, D.O., founded DeGarA, an emergency medicine group that provides services to emergency departments. Under Gardner’s leadership over the past 15 years, the company has expanded to serve 10 hospitals across Michigan. In October 2016, DeGarA merged with American Physician Partners, an emergency medicine and hospital management company. Gardner spoke with us at the company’s Waterford, Michigan, headquarters about the challenges faced while building and financing the company, the steps to take in identifying partners and priorities and the supportive relationship she has with her new partner.
Brown Brothers Harriman: Tell us about your personal and professional background.
Tressa Gardner: I went to college and medical school here in Michigan. In 2002, after five years of practicing medicine, I formed DeGarA with a partner. He found an emergency room that needed doctors, and we put together a team and staffed it. From there, we expanded throughout the state. We now staff 10 hospital emergency rooms.
BBH: Talk about the early days at DeGarA. What were some of the key learning moments?
TG: I did not have a business background, and there were many challenges along the way. In 2003, my business partner passed away; we had no key man insurance and no plan for how a partner exit would happen. He and I had 50-50 ownership, so I had to handle transitioning his share to his family. I also learned a lot about managing a large group of physicians alone after that.
We were financed primarily through banks, so I had to learn how to raise capital. Our biggest growth occurred in 2009 – the worst economic time to ask to borrow money. I presented my revenue and expense reports, which were not very sophisticated, to every bank and eventually found one that believed in us.
BBH: How did you approach building your physician teams?
TG: I learned what to look for over time. Initially, we often recruited from within, so we already knew hires’ capabilities. More importantly, they knew our culture and objectives. Our attitude was always “patients first.” ER patients want speed and convenience, and they want nice doctors along the way. We have implemented that at our sites.
As we grew and started recruiting outside, we had to work harder to instill our culture. We also realized that to have a patient-first culture, we needed to take care of the people who take care of the patients. If the providers are happy, it is much easier to take care of patients the way we strive to.
BBH: You recently went through a merger. Tell us how that came about.
TG: As we grew, we started feeling pressure that we were not big enough. We needed to add employees and expand service lines as well as acquire more capital to remain competitive. I was stretched overseeing all of the business operations while working clinically, recruiting and building a business.
I started investigating both a possible investment and complete takeover. I knew that I wanted a transaction that allowed us to maintain our culture while providing financial and back-office support that complemented what we had built. I continued conducting business as usual and felt that if something worked out, that would be great.
I learned about the company we merged with after its vice president of business development cold-called me. The company was young and growing quickly, and it had the financial capabilities and infrastructure that I needed. In addition, we could be its Michigan representative. What sealed the deal was meeting the company’s team. Its CEO has a strong track record, and – more importantly – is ethical. The team is very much like ours: family oriented, friendly and driven. From the start I saw this as a great fit and the best of both worlds.
It took me about two years to go through the process of researching different partners to finalizing the merger.
BBH: What steps did you take prior to the merger that helped you through the process?
TG: When I started exploring opportunities, I hired an advisor that helped with several tasks that were important to revenue cycle management. I had limited back-office support, and they organized all of the data and information we had, which was immensely helpful.
Our advisor also helped me determine a more precise value of our company; I knew our revenues and profits and had a sense for valuation, but I had not gone through a rigorous process.
BBH: What did you prioritize while structuring the deal?
TG: Control was a big concern for me. I did not just want to be given a handbook from a company that did not take time to understand our organization and that told us how we were going to practice medicine. I wanted to ensure that I was still going to be making the important decisions, and I found a partner that does not want to take that away. This is a supportive situation where the company wants us to do what we have been doing successfully and provides us the tools and infrastructure to do it.
We all have bosses in the end; if we continued growing the way we were, I was going to have to give up some control. I found the right mix.
BBH: During the merger, you were also managing the business and practicing medicine. How did you juggle everything?
TG: The support from my team was invaluable. When I would request something, they would get it for me with no questions asked; that helped take away some of the pressures of what I had to do. I refrained from sharing information because I did not want to cause unnecessary concern among the employees before a final decision was made.
After I identified the right partner, I met with the members of our leadership team individually to discuss the reasons behind the merger and the process so far. The best thing about it was that my team trusted me.
BBH: Talk about your business and the relationship with your partner following the merger.
TG: We tried to make it as smooth of a transition as possible, and I think if you surveyed our employees – the doctors, office staff and leadership team – they would say that they do not see much of a difference.
The merger brought in more defined processes for us both in terms of finances and structure, which is one of the biggest things I love about working with our partner. We were outsourcing almost everything, from legal to HR. Our partner knows that what we need is back-office support, so it is focused on improving our revenue cycle, streamlining processes and providing the resources to keep strengthening our business.
As a leader, I can focus on what I love now, which is physician and contract development, industry networking and making sure we are still doing what we said we would do on day one. I am not sitting around worrying about making payroll.
BBH: What advice would you give to somebody going through a merger?
TG: Listen to your management team and make sure they are all on board with the decision. If your leadership team is not behind you, it will not work.
I would always have an advisor. One of the biggest benefits of that is that if there is a disagreement, it is not you arguing with your new partner. It is your new partner arguing with the advisor, so there are no ill feelings. An advisor also provides insight. Owners are personally tied to the company – they put everything into the organization, so when someone is picking on something, they can get defensive. Advisors help mitigate that personal aspect.
There is no one path to transferring business ownership. For some owners, the plan for a transaction may be in the works for years. For others, it may happen once an irresistible opportunity presents itself. We hope these owners’ stories of shared experiences and lessons learned while selling or merging a business provide you with guidance should you choose to embark on such an event.
Interviews conducted by Jake Turner, and articles written by Kaitlin Barbour.
Nothing contained herein constitutes investment, legal, tax or other advice. Brown Brothers Harriman (BBH) was not involved in any capacity regarding the sale, merger or acquisition for any of the referenced entities.
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