M&A Cowboys and Tasty Doughnuts

We have all attended industry events that failed to live up to the hype of the title. I was appropriately skeptical this past Wednesday as I drove over to the Tysons Corner, VA office of law firm Patton Boggs for an executive breakfast event titled “Lessons of the Legends: the Art Before the Deal.”

Wow…was I pleasantly surprised. The panel featured two prominent executives:

Ken Bartee, ManTech MBI
http://www.linkedin.com/pub/0/5/845

Sterling Phillips, Pequot Ventures
http://www.pequotventures.com/team.php?ID=50&catid=18


Both Sterling and Ken steered their respective companies – McDonald Bradley and Analex Corporation -- through impressive growth strategies, combining organic sales growth with targeted acquisitions to enter new markets. The end result for each company: an eventual acquisition at a valuation that provided a stunning return for investors.

John Hagan of BB&T Capital Markets/Windsor Group served as the panel moderator. He is one of the region’s top investment bankers, and his firm is considered the premier provider of M&A advisory and transaction services to government contractors.

Here are a few highlights from the discussion:

-At McDonald Bradley, a targeted M&A program was put in place to help the company more quickly enter new markets. Ken joined when sales were about $3M a year. Five acquisitions later McDonald Bradley’s revenue exceeded $55M with about 50 percent coming from acquired companies.

-From a seller’s perspective, Ken acknowledged the auction process employed by investment bankers is a hassle. Yet, it typically leads to a higher price and gives the seller multiple options to consider.

-Ken also explained that buying a company of less than $10M in revenue is most challenging transaction to pull off. “There is more emotion from the seller around the valuation of the company and they are often inexperienced in the process,” he said.

-Perhaps Ken’s best advice for a company positioning itself for sale is to follow industry standards when it comes to operations, governance and staff compensation. “The more a company looks different…, the less the buyer will understand you.”

-Sterling Phillips’ situation at Analex was quite different, however he also believes in the auction process as a seller. Analex was publicly traded and Sterling explained that as a CEO and director his number one priority was to optimize shareholder value.

-An auction also provides a level of legal protection from shareholders who might question the value of a transaction. Sterling explained that any major corporate or financial initiative required good advisors, as well as a well-documented process. “In a public company, if you try to be a cowboy, you end up as a defendant,” he said.

-Here’s another great quote from Sterling about how his job as a partner in a private equity firm is a lot easier than the requirements of a CEO, “In the boardroom, the doughnuts taste a lot better when you’re not the CEO.”