Andy Harris - Serial CEO & Global M&A Leader

Welcome to another CEO Wisdom podcast. We have Andy Harris with us today. He's a serial CEO, global M&A leaders connecting sellers and strategic buyers for extraordinary exits. His company is STS Capital Partners. He's the president of North American strategies there. He's been previously CEO at a whole bunch of companies, which I have here: Vantage Specialty Chemicals, Acela. Performance Materials, Sergius Performance Products. So Andy, welcome to the pod. Tell us a bit more about yourself and what you're up to.

It's great to be here. Um, thank you for having me. Um, well, a little bit of background about me. Uh, I work with a firm right now, STS Capital Partners, and we help entrepreneurial, family-held, privately held businesses achieve an extraordinary exit. And we define an extraordinary exit as getting maximum valuation, really getting a strategic buyer to pay what it's— what the combined business is worth to them versus just a typical financial market multiple, and also get the required or preferred outcomes that the seller wants. So they've got personal outcomes they'd like to achieve. And of course they want to get paid, um, maximum price for it and have a great home, a great fit, uh, for their business with the new buyer.

There you go. Your background's interesting, right? Like, you started out as an engineer and then after that went into sales and marketing. Tell, tell us a bit more about that pivot.

Yes, um, so I'm a degreed chemical engineer. I went to work with Exxon at the time. Uh, they were the Fortune number 1 in the world. And that was the holy grail as a chemical engineer to go to work, kind of like being an engineer today and going to work for Amazon or Anthropic or someone like that. It was a very different time, but it was the largest oil company and largest business in the world. Went to work for them and thought that an engineering career with them was gonna be it. I very quickly learned that I preferred to not be on the technical, on the inside technical side of the organization. Just felt like more sales was a better fit for me. And I got recruited away from Exxon by a couple businesses that were actually calling on me. And so I went into specialty sales, specialty chemical sales, selling to all different kinds of industries and using my technical expertise and my application expertise to help customers solve solve problems. And I really, really enjoyed that. I was able to use my technical skills, but then also get more into what I think is really solution and problem solving with customers.

And which one was your favorite CEO or your first CEO position, should I ask? Sergius, was that the first one?

Yes, Sergius was the first. And I was very fortunate after a, after a career of going through technical sales and marketing and kind of climbing up ladders on a few different firms and and ultimately landing as a VP of sales and marketing on a couple different occasions. I always wanted to be president of a company, and I met through a network someone that really believed in me and thought I'd make a great CEO for a company that they had invested in. It was backed by private equity. They needed a CEO, but also with some strong commercial sales and They wanted a CEO who had a strong sales, marketing, commercial background as well. And it fits. So I went to work for Surgis Performance Products and led that business for 5 years as we did an international buy and build roll-up.

Interesting. And what's particular with chemical, with the chemical industry as a CEO? You need to put safety first, R&D first, right? Like what's the day-to-day as a chemical company CEO?

Well, obviously safety is number one. Our employees are most important to us and you got to make sure they're safe and they treat what they're doing safe on a daily basis in the manufacturing environment. But what we did, we were very specialized and I went through 3 of these different businesses that were backed by 3 different private equity firms. But we had specialty chemicals that worked in our customers' processes To help them do what they did even better and more cost-effectively, and maybe even some cases safer as well. So it was truly using our application expertise, solving customers' problems and helping their processes run better, run safer, run cleaner, be more efficient, use less energy, a lot of different applications, but, but we were using chemicals to then help other, other people's businesses. And in some cases, they were chemicals that went into applications, personal care, food and beverage, water treatment, oil and gas, a wide variety of industries that, that we serve across the 3 businesses that I led.

And what was your first experience with private equity, like dealing with private equity and also as a CEO being uh, in the mindset of acquiring other companies and just like growing through share acquisitions and integrations?

It's, it's a really great question. So I had 3 different, um, private equity experiences, 3 different firms. Um, a lot of them had some similar commonalities and a little bit of differences between the two, or between them. But, um, when you, when, when you're the CEO of a business that's backed by private equity. And I would be a hired gun CEO. So I would be hired in the platform to then go out and build that platform organically as well as inorganically through acquisitions. So across the 3 different businesses that I led that were backed by private equity, I did over 20 acquisitions around the world. The businesses I led ranged from $120 million in revenue up to $1.2 billion. But doing those 20 acquisitions, and it was for 3 different firms, really taught me a lot. And, you know, I learned a lot, our teams learned a lot, the importance of culture, the importance of doing integrations right. So you've got this business, you've invested in it, you don't want to break it, you don't want to screw it up, and then you're going to add to it by bringing other businesses in. And you don't wanna break them or break the whole thing as you try to put 'em together. So the importance of doing really effective integrations, how important culture was, and then identifying what are the big value drivers that we can, we'll work on over a period of years so that when we sell the business, it'll be worth more than when we bought it. And that's basically the name of the game in private equity. Buy a business for a good value, improve it, add to it, and then ultimately sell it at a higher value. So that's what I got really, really good at doing. And now in my new role at STS, which it's not new, I've been here 6 years, but helping business owners, we dig in, help them, we understand their business, learn their business, and then identify what are the value drivers that will help that business when they exit, when they sell, be worth more? And how is a strategic buyer going to view their business? How's it gonna be viewed from the lens of a strategic buyer? And a strategic buyer is one where taking our client's business and combining it with another business, the 2 businesses aren't just bigger, But they actually transform each other and there's strategic value creation that occurs. There's synergies that occur. And those, the most valuable ones usually are when it's a growth synergy, sometimes leveraging technology, one versus the one with the other, access to markets, to channels. Your business may have customers that another business would love to have and desperately have, and vice versa. When you share your channels or your customers, an extra value is created. So the 2 businesses combined very quickly can be worth so much more than they would have been otherwise on their own.

And if you look at your first acquisition, right, like, were you pretty nervous about it? What kind of mistakes did you do on that first one that looking back with time, you would be like, oh, I would have done this Yeah, actually, the first acquisition that I did, really, it ended up working out very well.

It was very strategic for us. And we bought a business that had a location in the US and a location in Europe. And we bought it in 2008, going into the Great Recession. And we thought, you know, And it was a business that was very sensitive to that. So immediately, I think our sales dropped 60% over the next 2 years. But we had a strategy about how we were going to approach this business in the rest of the world. We actually did some work in China that we then were able to leverage and build some strengths in China. And then when the world recovered and we recovered on the back end of the Great Recession, we took off and we had actually built the business to really take advantage of that when things recovered. And within a matter of a couple years, we were up well over where we were than where we were when we went into it, and we were much more profitable. And so we used that opportunity, the Great Recession, to actually improve the business and be better and stronger for when the recovery did occur.

Did you do acquisitions during COVID and did you see like similar weird effects on your new acquisitions?

Yeah, so, um, going into COVID, I had joined my role with STS, so I was now helping others acquire businesses and leading their, their sales. So, uh, during COVID a lot of things fell off. There actually were businesses that did sell and transact in the middle market I'm aware of several that the buyer and seller never even met. It was basically done via Zoom meetings, but it was because the businesses were so— there was such a strategic link between the two of them. And in many cases, this was cases where the businesses were doing well. There were a lot of businesses that did well through COVID, especially businesses that were, you know, were mission critical and were not allowed to shut down. And as long as they had their supply chain or their inputs in place and they could keep that well managed, they built volume and built profitability and did really well through COVID. But that was the one side of it. There was a lot of other businesses. We had a live events business that we were working with. They were a trade show management company. Their sales went to zero. There was no live event anywhere. So they had to ride that out for about a year and a half. But then when— and once again, they did similar to what we had done in one of the businesses that I ran earlier I mentioned. They took the opportunity to say, this isn't a matter when it's going to recover. We know it's going to recover. So let's build the business now. so that we're ready to take off. And what they did uniquely was they didn't lay any of their employees off. They took their PPP loans and used those to maintain their employees. But they also brought in an outside investor that gave them— they gave up some equity in the company, not a lot, but enough to invest in the company knowing that the floodgates, or believing the floodgates were going to open and live events were going to come back, and they needed to serve the live events, manage the trade shows, and they needed to have their people ready to go when that happened. And so they took that decision, and they were the only one amongst their competitors who did that. And as soon as live events started again, they grew 40% in the first year Versus where they were before COVID because they were the only one able to, um, to serve, serve the customers and serve live events. And their competitors had let their employees go and weren't able to, to recover and pivot back as quickly.

And when you, for example, acquire a business, get acquired, um, what lens do you view ROI? Is it like 5-year type of lens? Can it be quicker? Like, how do you go with that?

Yeah, I think most buyers, buyers that are financial buyers or private equity, uh, their horizons are usually 3 to 5 years. Um, they can go as long as 10, um, depending on their fund, but the way to get their returns, um, and typically a, a turn, an IRR, they want to be able to get, you know, mid-20s, 25% or higher IRR over their hold period. Um, so Within, within 3 to 5 years is typically how they do that. And you, you have to, you know, essentially double the company over that period of time to make the kind of returns that they want to achieve, or double the profitability.

Um, your ICP nowadays, is it like older folks that want to exit their business? Uh, what's the profile of the ideal person that wants to sell?

Well, yeah, I don't know that there's an ideal profile, but the majority of people, there are a lot of people today that are in their 60s and 70s and they love their business, they love their employees, but they're also at a stage of life where they're like, man, I've been working hard for the last 30 or 40 years. I'm now in kind of my golden years of life. And I want to enjoy them. So I either want to bring a new partner on with the business that I can sell it and take some chips off the table. I'd still love to be involved, be an advisor, be on the board. Or maybe I want to outright— I want to just fully exit. But in both cases, usually the sellers are looking for a really good home for the business because they care so much for their employees. They care for their customers, want to make sure their customers are well taken care of. And if anything, they want to put the business into better hand— into really good hands, maybe even better than theirs, that it can, it can grow and scale faster than it would have without them. So, uh, I think, you know, most sellers are looking for that. Some are looking to outright exit, and some are looking to have a partner brought on where they can still stay involved.

Do you work mostly with buyer side nowadays though? Is that like most of Your prospects?

No, we're, we're 100% sell side. So we are going to work with, um, a privately held entrepreneur who is thinking about an exit within the next 1 to 3 to 5 years. Um, we will help them, we'll analyze their business, do an evaluation of the business, give them a good idea what if we went to market now, what they think they could achieve, or if they wait a couple years and do this, this, and this, they'll create that much more value. So we will consult with them upfront early to let them know what to expect in the process and then how to create the most, most value in a sale process and then, and then realize that value for them.

Um, how do you get these clients through your pipeline? Like, what is it mostly inbound? Is it at STS level? How do you Make sure pipeline is full.

We have, um, we have relationships with, uh, other firms out there, many different coaching firms. So, uh, a coaching firm has many clients that they're coaching for various reasons, and then at some point in time that client may say, hey, I'm ready to, I'm ready to sell, or I want to sell. I've been hiring you as a coach to help me sell, get ready to sell, and I'm ready to go. So we are, we have partnerships with coaching firms that will refer their clients to us. We also are involved with organizations like YPO where we— it's just a good network to be in. We'll do speaking engagements, thought leadership engagements, and then from time to time, fellow YPOers will reach out to you to say, hey, I'm thinking about selling my business, can you help me? Um, we, uh, we don't solicit. Um, that's one of the big rules in YPO— you don't solicit one another. So we're not soliciting, but we do sponsor some events, and sometimes through those sponsorships, uh, then we'll get, we'll get a referral.

Got it. And how are you different than other business brokers? For example, I would clearly hire you if it's a chemical company because you've done it so many times, but you have like one specific field of expertise?

Uh, we're, we're an industry agnostic firm, and what What we're a specialist in is helping find strategic buyers internationally around the world for our clients' businesses. And we're industry agnostic in doing that. We do have industry specialists. We've got a network of experts that we can bring in if we need expertise in a particular space. But what we're specialized on in is selling to strategics, identifying the buyers around the world who will view a business strategically and then pay strategic value. And that strategic value could be 30%, 50%, 100%, 200% more than a typical market multiple. So let's say in some industry that it's 8 to 10 times EBITDA, but if you really looked at that business combined with a great strategic, it's worth twice that because of what could be. So that's getting— that's strategic value versus just a financial market multiple. So we're really good at doing that. That's what we're a specialist in. And we've got a unique process that gets that no matter what the industry. We really get great results. And it's great for the buyer and the seller because these strategic combinations occur. And it's not simply just a a financial acquisition for a, for a flip down the road.

And if— do you feel like with the silver tsunami meets like AI revolution, there's like huge opportunities in acquiring some companies, just infusing AI systems into them, and almost overnight, like give it a couple of quarters, increase the business's revenue by 15%?

Yeah, well, there, there absolutely is. That could be a really great way to drive value. And there are businesses that are being acquired. The acquirer is really good at AI, or maybe they have the technology, they already have a platform. And when they add the business they just bought to it, they can immediately transform the way the business is conducted and pick up efficiencies. So yes, there is a lot of that occurring. It's also occurring for a lot of businesses that want to exit, and now they're implementing AI to do what they do and be that much more efficient and that much more fast and have that much more information and that much more capable. And then they can be that much more valuable Uh, to a buyer because they've already been there and done it and they've already implemented it. And a lot of that is happening as well.

You've worked with private equity for a couple of decades now. How has the industry evolved, and have you thought of being on the investor side rather than the CEO-for-hire side?

Yeah, well, um, when I was a hired gun CEO, I was also an investor. Many times you would co-invest, so I am in the investment side as well. But I think that private equity has evolved in— there's so many more systems and tools and capabilities they have to help them better run and manage the portfolio companies they acquire. There's also a lot more competition. There are so many more private equity firms out there today than there was a decade ago or so. And so it's become very, very— it's become very competitive. And I think it's harder for private equity firms to make the returns today that they were able to make maybe a decade ago, just because there's so much competition for the businesses. And I think they're paying higher prices for them. And then that's harder to— to get the returns that they're looking for. So they've got to really make sure as a private equity financial buyer that you know what you do, you get specialized in it, know the space really, really well, and make sure you're getting good quality companies. I think it's become— it's more difficult to be a private equity buyer today than it was a decade or 2 ago.

Right, um, for sure. And as a CEO that would be placed like in a new role by private equity, do you have like veto possibilities? Like, no, I don't want to do this one, this one's a fit, uh, would you do it again? You know, like what's the next steps? What's the next chapter for you?

Yeah, well, I loved being a hired gun CEO, um, but I, you know, I stopped doing that 6 years ago and now I help You know, a handful of privately held business owners sell their businesses every year. That's what STS does. So it's in a way, that's kind of like giving back. It's everything I learned and all the wisdom I had as a prior hired gun CEO, I can now share with my clients to help them make sure they don't leave any dollars on the table and they get maximum valuation. for their business. So, you know, that's what I'm doing now. That's what I love to do.

Yeah, and you can coach them on hiring the right CEO as well. And if that CEO should lead or should the other go if there's a merger of some kind. But yeah, it's pretty addictive, right? Like to be a CEO of a company and just like be dropped and change pretty much everything and improve the metrics. Don't you have that desire still to like be in the action as per se?

Oh, I loved that. And in working with the team, we had, you know, our executive teams, we had a great alignment from day one. When you're working with private equity to build a company over 3 to 5 years and then sell it, you're looking at value creation and you've co-invested in it and you also have a share of that. So it really drives alignment. I love that and loved doing it. You know, the role of a CEO on a day-to-day basis, though, is you have no idea what's going to come up every day. There's always something new, good and bad. And in the roles I was doing, because a lot of our growth was also so acquisitive, not only was I traveling to be with customers or to go to all our various sites around the world and to be with employees and to be with suppliers, But also a significant amount of travel was meeting with companies that we wanted to acquire. And then when you're doing the acquisition, it's a tremendous amount of work and a lot of travel as well. So I don't miss that amount of travel. I think one year I flew 400,000 miles in one year, which was crazy. But, and then some of the day-to-day employee issues mainly. And, you know, there's some, there's some just stuff that involves employees that you're just thinking, really, why do we have to manage this, right? But you do. And I think that day to day, those types of issues I don't miss. The goal of building and growing a company, creating value, and then the difference you're making for our employees on a day-to-day basis because we got great culture. And then in turn, the difference we make for our customers. You know, I miss that. That's a great feeling to have. And in a way, still have that today with the clients we serve. It's the feeling of helping a family or an entrepreneur or a privately held business owner think their business is worth X and, you know, people have been telling them it's worth X. And then when we take them to market and run a sale process for them, they get 1.3X or 1.5X. That's really, really exciting. And that's what gets me going in addition to helping them achieve, you know, a major milestone in life. Maybe the most important milestone in their life is to sell the business that they've Worked hard for 30 or 40 years.

Yeah. Yeah, hands down. Thanks for being on, Andy. Where can people find out more about you?

Yeah, you can reach me on LinkedIn. Andy Harris on LinkedIn. I'm with STS Capital. And I think that'd be the best way.