Rytec’s Don Grasso: Vertical Man
An investment banker turned CEO shares his strategy on buying and building a mid-size company.
May 27 2013 by Jennifer Pellet
Today, about 50 percent of total sales come from markets the company entered after Grasso purchased it—and new avenues continue to emerge. “After [Hurricane] Sandy, we’ve seen heightened awareness about high-velocity doors in the hurricane zone corridor,” he says. “If you’ve ever seen a Miami-Dade County approved door, it’s really ugly. I’m thinking there’s a market for a sleeker version.”
“A lot of our success has been about looking at how to redefine our products,” sums up Grasso, who offers these learnings from his experience buying and building a company.
Don’t Compromise on Your Criteria
Grasso’s wish list for a target company was formidable—“all the elements of the kind of company I liked to take public,” as he puts it. In Rytec he found a fast-growing company with a dominant position in a sector where the underlying market was also growing and had high gross margins, strong engineering and strong customer support. “It had all the key elements and they looked sustainable, because there were barriers to entry in the form of proprietary products,” he says.
Do Your Homework
The due diligence process should be far more comprehensive than vetting financials. Grasso hired a patent lawyer to make sure the company’s considerable patent portfolio was everything it appeared to be. Reassured that the company’s designs would enable it to maintain both its competitive edge and margins, he was confident enough to proceed. “Everyone is trying to design around what we’re doing; and in so doing, they are creating more complex designs that are more expensive or more costly to maintain,” he says. “In short, we have a better mousetrap.”
Expect Transition Trouble
In general, entrepreneurs sell a business because they aren’t willing or able to take it to the next level. Buyers, therefore, have to be willing to make that necessary investment and shepherd the company through the necessary changes. “It’s a question of growth and scalability,” says Grasso. “As a company gets larger, the little warts that were quirky but manageable become big issues, so you need to work hard to get a solid management team and more regimented processes in place.”
An IPO Is Not Necessarily the Way to Go
“I will never go public,” pledges Grasso. (This may be a good time to mention that he’s no relation to Richard Grasso, the former CEO of the NYSE.) “In fact, in my former profession, I used to try to talk companies out of it. Being a public company means a relentless focus on quarterly earnings, communicating with investors and coping with regulatory compliance issues. You have to ask yourself, ‘Is that really how I want to run my business and spend my time?’”