Leveraging Private Equity Partnerships Successfully

Have you dreamed of becoming a business owner, yet don’t know where to start?
Collaborating with a private equity firm may be a unique way to help you realize that
dream so long as you find the right partner.

No matter what their industry, many senior managers have not had the opportunity to
create significant personal wealth because they are locked into a salary-plus-bonus
structure, often with no equity. These managers can do fine financially, but make (much
to their own frustration) far less than the value they are consistently creating in the
business they are running.

With more than 25 years working in the specialty chemical industry, I was one of those
executives, and here is my story of how — with the help of a private equity firm — I
realized my dreams and became the CEO and owner of my own company, and what
others can learn from my experience on how to best partner with private equity.

Throughout my career, I have spent extensive time working at both large, blue chip
specialty chemical companies, as well as smaller, more niche firms. One of my biggest
successes was as President of Dixie Chemicals. Dixie was a family-owned business,
and I did not have a stake in the company. As the key executive leading Dixie, I grew
the business significantly and helped the family sell the business for a huge valuation. It
was a big win for the family, but a very modest one for me. After the sale was complete,
I received a small transaction bonus, and stayed on to assist with the transition to the
new buyer.

After leaving Dixie shortly after the transition was complete, my goal was to become a
business owner in my next position, although I was not clear as to where to start? I
had a few leads, but I knew that I would need a partner to help in due diligence and
provide the necessary capital markets expertise to acquire a company. After pursuing a
few deals on my own unsuccessfully, I eventually connected with Post Capital Partners,
a New York-based private equity firm focused on the lower middle market. What
attracted me the most was the firm’s unique investment strategy centered on partnering
with executives like me to find businesses to invest in. They call it, Executive-First
investing.

“As I look ahead, I think there will be more opportunities for executives to work with
private equity firms.”

Post Capital worked with me to refine my investment thesis, not just to focus on
specialty chemicals in general but on the water treatment niche, a slice of the specialty
chemicals market that I knew well and that had many potential targets. We launched a
formal acquisition search that included the firm’s internal marketing efforts (which was
substantial), my industry contacts and the services of a buy-side investment bank.
During our yearlong search, we ultimately looked at more than 50 companies, submitted
five bids, and signed two letters of intent before closing on BHS Marketing (now BHS
Specialty Chemicals).

I invested alongside Post Capital to acquire BHS and together we structured a
compensation package that would provide me with significantly more ownership of the
business based on performance targets. After the close, I became the CEO of BHS and
led its transition from a commodity chemical distributor to a specialty chemical
manufacturer and technical service provider focused on water treatment and food safety
markets. As part of that process, Post Capital financed three add-on acquisitions and
the expansion of two new manufacturing facilities.

While I had Post Capital’s support and presence on the BHS board, day-to-day management was my responsibility, and I was fortunate to have the support of an excellent management team, including BHS’ co-founders. And in 2017, almost seven years to the day from the closing date, BHS was sold to DuBois Chemicals, generating a great return for all the shareholders in BHS.

So what can executives look for in a private equity partnership? Here is what I suggest:

• Find a private equity firm that will help you build a pipeline of targets and not rely
  solely on you to find a potential acquisition. Beware of the firm that simply tells
  you to “go find a deal and maybe we’ll do it”.
• Understand the private equity firm’s capital structure – is it a committed fund?
  How much capital or “dry powder” do they have to invest in a platform and future
  add-ons? One of the main benefits of working with a private equity firm is the
  credibility it projects to potential sellers but that only works if they have capital!
• Remember that this is a partnership. You are bringing many skills to the table
  that a private equity firm wants and needs – industry insight, operational
  expertise and credibility and they are bringing capital, financing and transaction
  know-how to the table. Together this combination is extremely powerful.
• Know who you are working with. Working with a private equity firm owner is like
  being in a marriage so the chemistry and cultural fit matters just as much as the
  dollars. Ask for references and speak with other executives and business
  owners that they have worked with.

As I look ahead, I think there will be more opportunities for executives to work with
private equity firms. The M&A market remains extremely competitive and operational
expertise and insight from industry executives will go a long way to driving value post-
deal. Good luck!