AM&AA Winter Conference 2016 Value Growth Session: Value Growth Services in the Real World

We are the, the final panel focused on value growth for this conference, and our goal for today's panel is to really crystallize some of the themes, reinforce some of the information that's been said, and we're gonna do that through actual case studies. On our panel today, we've got 3 experts in value growth. One is a business owner that began his journey in 2010, still on that journey, and he's got some really great insights of some of the challenges, the successes, the way it's reinvigorated his business and refocused it. And we've got two experts that have many years of value growth experience with numerous clients in numerous industries, and, and again, a lot of best practices that they'll be sharing and insights as well. So what I wanted to do first—

yeah, there we go—

is let them introduce themselves briefly, and then we'll start with Phil, as far as case study goes. So Sean, would you briefly—

Hello everyone, Sean Hutchinson. I'm the CEO of Strategic Value Advisors. We advise middle market companies, privately held, a lot of cases closely held family-owned businesses on value and growth. I've been doing this for a long time after I led the world's largest real estate advisory firm for a while, which was called Integra Realty Resources. I went into M&A, and I realized after working in that space for a while that— which I still do— that we were getting in too late to make a difference, really. And so we backed the model up several years, and we started looking at, okay, how can we actually not just bring these companies to market, but without any assumptions going in about whether the owner is going to exit necessarily, transition, how can we build economic value in these companies and then create options for the owner, one of which might be to transition, but there could be other economic benefits both along the way and on the back end. So we just changed our philosophy, and that's what we do today.

Excellent. Phil?

Hello. My name is Phil Holman, and I'm the owner of Four Star Connections in Hudson, Mass. We're a 29-year-old contract manufacturing company. And in 2010, we had what I'd call the worst year of our existence. We had a $10 million sales plan and we broke even. And we all looked around the room and said, now what are we going to do? And it was a quit or commit experience. We had to either decide to go forward or we had to, you know, throw in the chips. So we started looking around and we decided that we didn't really know enough about what's going on in the market. Very, very internally focused company. And so we started talking to a lot of people, and over a period of a couple years, we came across some people that could help us with our vision of the future. And we, we're here today, I'm here today to talk about the experience of hiring some consultants to help us with our business plan. I have a few slides that I'll share with you that show you that we have some huge challenges ahead of us, but we have a lot more confidence now knowing that we're getting good advice, where the planets are aligned for us to be successful. It's not going to be an easy path, but we feel very comfortable that we're on the right path. I turn the big 6-0 this year, so I'm looking at potentially a 6-year exit strategy. We're hoping that we're going to be on goal in 3 to 4 years and then take another couple of years to complete the deal. So I'm here to share my experiences using— I've used MassMEP, I've used VOP, so I can tell you that, you know, what the experience has been like and, you know, what it brought to our culture.

Thank you. Jeff?

Hi everybody, I'm Jeff Brandlin. I'm a CPA by background. I started my career as an auditor. I started the current practice I'm working on in 1980, and we do workouts and restructurings, front-end due diligence, forensics, and litigation. We work for capital sources and their counsel, so anybody from a senior lender all the way down to a private equity group. We are involved with litigation, expert witness litigation, and it is a consultative accounting practice. Excuse me. So I am glad to be here, and if I can help, I am happy to do so.

Excellent. So Phil, take us back to 2010 again. We will start with you.

So basically we had We started in 1987, and we had— we started out as a very high-volume cable assembly shop. We had 130 employees, and we did, you know, significant high-volume cabling. In 2000, with the dot-com explosion, all of our work went to China, and we ended up having to— in one day, we call it Black Friday, we laid off 65 people in one day. And we became a new shop doing high mix, low volume, prototyping, et cetera, et cetera. We ran that out from 2000. We had our best year in 2010, but after— no, yeah, no, we had our best year in 2010, but after that, there was no meat left on the bones. All of our work was still being pulled away. We had a lot of people stealing our customers, and we became essentially a commodity. So in— if you look at this financial data up here, in 2010, we got to— well, 2010 was actually the bottom year. It was— we peaked in 2006. We basically got down to just about 20% gross margin. We had a 1% profit, which was really financial sleight of hand. It was really zero. And we had to show something for the bank. And we basically brought on some consultants in 2012, 2013. We have some significant improvement, as you can see from the 2014. But you can see that if we want to sell the business, we feel that we have to have our trigger is the $20 million at 12% EBITDA. And to get from where we are in 2014 to get to that number is going to be a significant challenge. But again, we have to— we have the right people behind us to do that. One of the byproducts of the consultancy that we did with the VOP is that we realized that we had to rebrand our company. We didn't know that going in. We didn't expect that to be the outcome, but we were absolutely confident that it's the right thing to do. So we're selling ourselves now as a solution provider who can go in and get early engagement with the customers, do a lot of— get multiple relationships at senior management level with the customers, understand their products, and help them launch new products or cut costs on existing products. And that's the value that we bring. By doing that, making that transition, We get better quality opportunities at higher margin. We're only at 26 or 27% gross margin, but we've won work that we've gotten into the 30s and 40s, and our goal is to have a 35% gross margin at $20 million. We feel like with the ability to do the intimate relationship with our customers and bringing the value that we're going to be able to drive that. So it's kind of a little bit of a dual responsibility on my part. Since I'm not going to make the transition, I'm going to transition out of the business, I have to have a senior management team that can run the company and is deemed competent to run the company by a potential buyer. So I'm not saying I'm the only person that's qualified in the company now, but there is a lot of things that I do that I need to get off my plate and get into, you know, the hands of our senior management team. So my first priority is to build the senior management team. We have to differentiate ourselves so that we can drive up our margin. One of the things that we've done in the past is as we grew, we've grown our overhead in direct proportion, so we'd have more sales but no increased profit. So we have to be able to build a sales plan that will give us a higher gross margin without an increased operating expense so that we can put more money at the bottom line. And then the final thing is we have to be selective with our customers because the customer base is what we're going to be selling. We're hoping to be acquired strategically. That's where the best multiple is. And we're hoping that we can do that by offering a very balanced customer base We sell to high-tech medical electronics companies. We have 20% military. We're on like the Boeing 787 program. We're on the F-35 program. So if we can keep bringing those plums, those sought-after high-tech companies and build our client base around that, we're going to be more attractive in an acquisition.

Real quick before you go on. This is a, you know, having a few things on the slide is how long did it take to boil it down to get to those 4 things to really focus in on? And if you want to briefly touch on not maybe one specific one, but the process and how long some of those things took to get to that point, some of the challenges you had.

Well, so when we first brought in the consultants for VOP, we, of course, that's a process of analyzing your company and looking for doing a gap assessment and then building a matrix for you to close the gaps. And the first thing is that we didn't have a written business plan. We had a 1-year plan, but we didn't have a multi-year plan. So the first thing that we had to do was to close that gap. We had to write a multi-year plan, and it was in that planning that we realized that we didn't have anything that we could sell that wasn't a commodity. So we had to figure out how could we capitalize on our strength. It turns out in that analysis, that process, what we determined is that the new product introduction and product development was a real strong core competency, highly recognized by our customers, and we were giving that away so that we had a chance to bid on the commodity business. It seems crazy, but that was our plan because it was the bait. And we said, well, what if we charge more for that? So we First thing we did is we doubled our sell rate for that, and then nobody blinked. And then we doubled it again, and nobody blinked. And it was— we realized that we were giving away the business that made the most margin to get an opportunity to bid on the commodity business. So it took a while to figure that out, and that's why we decided that we had to rebrand.

Thank you. So this talks a little bit more about some of the consultants.

Yeah, so the other thing maybe that I regret is that in the first 15 to 20 years, we didn't have a lot of consultants. We basically thought we could solve every problem internally, and we were a very internally focused company. But now we have the opposite opinion. There isn't a problem out there that we have to solve as a company that hasn't already been solved. And it's a matter of finding the person that knows the answer to the question and can walk us through the process. So we have consultancies in every area of our company. Our IT department is done through consultancy. We have, you know, the VOP, which is an ongoing consultancy. And we basically, every time we come up with a requirement where we identify a deficiency, we bring in a consultant. So for example, when we completed the VOP process and we had the bottle of champagne to celebrate our written plan, the reality is there was a lot of requirement to do project management to address all of the issues that we found, the deficiencies, and we realized that our management team didn't really have a core competency in doing project management. So we brought in a project management consultant that walked us through. We locked ourselves in an office for a whole week and we learned how to do project management and we became really good at it. Some of us had the skills already, we just didn't know we had them, and other people learned from that. So that was another thing. So what we realize now is that we don't have to have paid 40-hour positions for every area of expertise in our company, that we can go out and find that consultant and do a pay-as-you-go, and ultimately with less cost to the company. So one of the other tricks to selling a company is that you gotta have some leadership changes, you've gotta have good strategies, etc. So one of the things that we decided right away is to form a board of advisors, and I've picked 4 categories that I consider to be very important for me for developing growth and value in the company. So I have a strong financial executive on my board. I have an inbound marketing person that's new to the board. I have a person that is a mergers and acquisitions person that is teaching us what are the things that are going to bring value to a potential acquirer. And then I finally have the an industry expert in supply chain because we're, you know, being a contract manufacturer, we're selling to high-tech OEMs, and this guy runs a very substantial high-tech OEM company, the supply chain. And he's what's— he's telling us what is attractive, what makes a company— what's the compelling story to his company, for example, on what we need to do and what we need to offer to be attractive. And by putting all those people on my advisory board, I've got the best combination that I need to look out at the future and know where I have to position myself when it's time. Excellent.

Thank you. Next up, Jeff, we've got a case study that you'd like to kick off.

Yeah, thanks. So this is a case study on a restructuring that we got involved with in 2008, beginning about the time of the Great Recession, and it's still going on today. While it talks about bankruptcies and restructurings and all the rest of it, the critical things are the concepts, the initiatives that we brought to the company that helped them kind of get back on their feet. So we began in 2008, and Since 2008, we've been involved with a number of financial restructurings related to their bank loans. They had about 15 different lenders, each with their own discrete collateral. It was heavy equipment used in the construction business. They went through the filing of a Chapter 11. During the bankruptcy, they wrote off over $100 million of debt, the bank's debt. They forced out the founding and majority shareholders. They reassigned ownership of the company to the lenders. They reconstituted a board coming up with 5 independent directors and 2 members of the management team, the CFO and the CEO. This company was the largest concrete pumping company in the country. They operated over 850 pieces of concrete pumping gear. They had 13 different branch locations, basically the western United States, the southwestern States and then the South. At the beginning of the Great Recession, the revenues and EBITDA dropped by 66% and 84%, respectively, so a precipitous drop. They were trying to service over $200 million of debt with about $10 million of EBITDA. So that'll give you some background on the company and give you a perspective on what was happening when we came in and what we what we did and how we did it. The first thing we did is we initiated a cash basis methodology of reporting, and those of you that have been in the restructuring bankruptcy business are familiar with the concept of 13-week cash flows. In the 13-week cash flows, basically what you're doing is focusing on cash because that's the lifeblood of the business, and during the first few years over the objective Over the objections of management, we instituted this methodology and we converted, measured, and monitored all the cash, the company from the cash perspective. We never ran out of cash. We knew every week how we did last week. We knew that week what we were going to do for the next 13 weeks. Everything was, you know, looked at from a cash basis. It looked as if If it looked like we were going to run low or run out of cash, we would modify what our operation approach would be, how we timed our payments on our payables, how we paid the bank, how we paid our interest, all the rest of that stuff. We knew what we could pay. We knew when we could pay it. We could share this projection with our lenders. We could share it with our vendors. We could share it with our stakeholders. And basically run any kind of sensitivity analysis having to do with what we could do with and without cash. The management of the company strongly opposed this initiative when we first introduced it in 2008. After they understood the utility of this reporting system, they not only continued it through the bankruptcy, but then after we exited bankruptcy in October of 2011, they continued to report report on a 13-week basis up until we sold the company in August of 2014. So it became a very utilitarian document and technique that the company used to monitor and manage the business. Probably the next most important change that we made when we exited the bankruptcy was we focused on the branch operations. Now, this business was operated by 13 independent branches. Each of those branch locations had a branch manager. Each of those branch managers was responsible for pricing and selling their own services. So at that point in time, it was basically each branch manager had his own voodoo approach to how do we price a particular project and how do we sell it to the customer. What we did is we got them to focus on their fixed and variable costs. Once they knew what their variable costs were, we knew what the variable margins could be. We set basic minimum standards, minimum thresholds that the company could use to price their services to their customers and hopefully drive variable margins to cover the fixed cost of the branch and cover the fixed the fixed costs of the corporate overhead. Smaller jobs, you know, those are typically more competitive. You have more people in the marketplace bidding them, so it was even more important on smaller jobs. But on the larger jobs, which contributed more towards the branch's fixed costs and corporate overhead, we had the advantage because we were the largest, we had the most up-to-date, we had the most sophisticated equipment in the market, and generally the deepest roots within each one of those 13 branch locations. In each of the 13 markets, we demonstrated that we could do larger jobs more efficiently and cost-effectively than anybody else. Eventually, we became the pricing leader of the branch— of every one of those branch locations. So all of our competitors were basically taking our lead on how to price it. Job. The third most significant change that we made in the operations was to establish a minimum acceptable utilization rate for each piece of equipment. We told management that they needed to hit at least 80% utilization for each piece of equipment, and to the extent that they weren't able to demonstrate that, then that piece of equipment became available for either being shifted to another branch location where maybe they had more activity, or to liquidate that and provide working capital for the company. Lastly, we established a bonus compensation plan that helped management focus on all these initiatives. The bonus plan was computed based on increments of EBITDA and return on net assets above a certain base. Simple but effective. EBITDA was chosen because EBITDA is is probably the key metric in measuring value of the company. We knew we were going to sell eventually. We represented the bank group who became the ultimate shareholders of this company. And we knew the more EBITDA we had, the higher value we were going to get. EBITDA, each dollar of EBITDA translated into $6.10 of sales value. Return on net assets seemed appropriate because whenever you're working with a Highly concentrated, capital-intensive business buyers have a tendency to discount or reduce the multiples that they're willing to pay for that particular business because of the CapEx requirements. So we, we set in place the return on net assets measurement in order to help us focus on returns for cash flow for the investors to service debt or anything else. We then weighted those two components of the incentive plan between EBITDA and RONA and assigned 70% of that compensation plan to the EBITDA return and 30% to RONA. The compensation committee of the board of directors instituted and managed that particular that particular plan. So at the end of the day, 3 or 4 simple concepts, 3 or 4 basic concepts, and concepts that aren't necessarily focused on workout and restructuring. What happened? Most of the improvements, most of those concepts were implemented in the last 2 years between 2012 and 2014. 2 years before the company was sold and a year and a half before it came up— before we started marketing it. In the end, the banks sold the business and were able to get back all of the money that was still on the balance sheet of the company, recoup the $100 million that was written off during the bankruptcy, and get themselves a $20 million dividend on top of it. Overall, the transaction has been represented to be the most successful recovery in the history of Wells Fargo Bank. Bank. So 4 simple initiatives can achieve quite a bit.

Excellent. Sean, let's get you involved here. You've been waiting patiently.

I want to just lead with a little story about a client we're working with right now. It's an interesting situation because second-generation owners, they were insiders who bought the company. They bought it in 2006. Like many people, based on very rosy projections for growth. It's a mechanical electrical contractor. They were $152 million company in 2006. When they bought it, they paid $47 million for it— $15 million in equity, $20 million in debt, and whatever the balance was in seller financing— on pretty good terms. And then over the next 2 years, they lost $82 million in revenue, went from $152 to $70. Now at that point, a hard decision had to be made, as you can imagine. They were probably all candidates for really serious stress-related illnesses, but they had to make a decision about whether to continue this company. And they decided to stay with it. Right now they've clawed their way back slowly but surely. They'll probably be $115 million this year, I would say. But there are some problems that have emerged along the way. So they were strictly mechanical and electrical contracting in 2006, and they stayed that way for a while. I'm gonna show you, we're gonna do the FeedStar thing in just a minute to illustrate this. So they diversified because they had to. So they had the commercial, industrial, residential, M&E, which I don't know if you know, but mechanical and electrical contracting are rare to be in the same firm. It's usually two different firms. So that's an interesting thing that they were able to achieve, and they did it well. But then they decided that they had to diversify because there were some commodity, commodification going on in that particular space, and really their productivity wasn't very good. So they went into HVAC, and then they went into telecommunications, and then they went into renewable energy, and they ended up really with 8 operating divisions and 5 different businesses all under the same roof. Well, you can imagine in that particular time they sort of lost their value proposition. They kind of lost the focus on the company. Part of it was just survival. I mean, you have to have a lot of respect for the fact that they were able to build this company back up. But then when you get it kind of going again, what happens? You just don't know what's actually creating economic value, right? So we always talk to our clients about the fact that your business is really a collection of different economic activities. Like, I'll ask a very simple question when we start working with them. You— let's imagine that you do 20 things, whatever those might be. It could be operating divisions, or it could be discrete product or service lines. Do you know which ones are adding economic value, and do you know which ones aren't? I can almost bet that there are 5 out of the 20 that are adding economic value and 15 are not, but nobody knows which is which, right? This is a dangerous situation. So we have to kind of pull that apart. Now throw the feed-starve up. So this is something— have you guys ever heard of a feed-starve analysis? Is that something familiar to you? Okay, Curtis knows. That's because he has a PhD and he's the smartest guy in the room. So feed-starve is, is an amazing way to explain to an owner and the management team to get them to see several different things going on in their business at the same time. So you got return on equity up the left, you got capital invested right down on the bottom. Let's say that the total amount of capital used is at 100% is $1 million. Let's just imagine that's the case. What's that dotted line up there? Anybody know? Curtis? It's the return on equity. It's the return on capital that the owner represents. Now, if you ask them what their return on capital expectation is for any given investment, what is the answer? It's usually, I don't have any idea.

Right?

So I'm saying, okay, let's imagine that we're going to invest in something new. You're going to put $1 million into it. What do you expect to get back? I'll say, oh, I want to double my money, right? I want whatever. What's missing from that question? What's missing from that response? Time. Exactly. And they don't talk about that. I'll say, well, in what period of time? And they'll say, well, 5 years. Okay, you want to double your money in 5 years. Is that a business that'll actually do that? Can you build it that way? Here we go. So now they've got an idea that return on equity is not just absolute number, it's actually a time-based calculation. So now we've set a threshold for the first time, and now we're going to go in and do the analysis. Well, what do you think each one of these columns is, right? Those are the discrete economic activities. Let's imagine in the case of the company that I was just talking about, we have 5. We're gonna, we're gonna say we're 5 businesses and we're gonna start calculating. Well, number 1— we've got 8 up here— number 1 is good, right? We like the tall scale. Skinny ones because they don't require as much capital and they meet the threshold and exceed it, right? It's pretty simple. And then over on the right, number 8, the little short fat guy, that's bad, right? And anything that's below that gap, we have some choices to make. What's the choice? Feed it or starve it. If you're going to feed it over there on the right, you got to have a plan for bringing it up and exceeding the threshold and you got to have it up there pretty quickly, otherwise you're losing ground on the time piece. Right? Or you're gonna get rid of it, redirect capital into the poor performing stuff, and shred the rest. Now, I'll bet at least half the time, what do you think number 8 is over there on the right? I know it's middle of the afternoon.

The owner's favorite business.

Oh, you got it. It's the thing they started with. It's the legacy, the piece of— it's the emotion, right? You've done an amazing thing by rethinking your whole business, right, and sort of accepting that we couldn't be what we were in the beginning. After 29 years, right, 25 years when you started this, all of a sudden all this kind of stuff. Most owners just won't let go of number 8, and what is it doing? It's destroying the economic financial value of the firm. If we can tease those things out, right, now we got a shot. But what did we just do with that? I mean, I can tell you this wakes the owner up in a hurry. They understand not just how to make a profit, but shareholder value, economic value. And they understand they have to set a dotted line somewhere along the way. They understand now some things hit it and exceed it, and some things don't. And if you're getting into a conversation with a bank or private equity group, another form of investor, and you can take this kind of thing in and say, this is, this is the history, this is what we've done, you got a leg up on value because now you've positioned effectively to actually have a meaningful conversation with the outside world. Now, two other things. One, so back up one. I'm just going to give you a couple of thoughts here on tools you could walk out with. One of the things that we miss all the time, I think, is the value of employee engagement. Curtis knows this. Yeah, I'm getting applause. All right. That's all I'm going to get, I have a feeling. So thank you. Appreciate that. So we talk about the culture of value creation, right? This is not just a set of initiatives that kind of add up to something. This is about driving a culture down into the organization as deep as you can possibly go. And how do you do that? Well, the first thing you have to do is get people to start thinking and acting like owners. Not just the owners, not just the management team, everybody in the organization has to think and act like an owner. And to do that, you gotta eradicate entitlement thinking. You guys know what I mean by entitlement thinking? The company owes me something. If I come to work, I take my paycheck, I go home, who cares, right? But if you get them involved in that, and I just put up there a book called Danger in the Comfort Zone. If you haven't read it, it's a great book, Judith Bardwick, brilliant. This idea that entitlement is related to this comfort zone. So how can we kind of shock the company out of the comfort zone, that whole culture, because that's what's going to have to happen if you're going to create value. Then this idea that value and growth don't come unless every employee in the company has a certain amount of competency and literacy about what's going on. Can't just be at the management team owner level. Everybody has to understand financial, strategic, and operational things, right? If they don't understand what a balance sheet is or an income statement or what drives all these kinds of things, cash flows and how those things fit together, I don't know if you can— if you really have a basis for a sophisticated conversation. And then the idea that KPIs and dashboarding, forecasting, everybody likes those terms, but if they if the employees haven't taken an active role in building those things and use them every day, then it just looks like a top-down initiative, which never seems to produce the results you want. Then you got to have some incentives, right? What are they going to get if they participate in this? That's a reasonable question. It's a legitimate question. So, just wanted to highlight employee engagement. We miss it a lot. We don't talk about it enough. And then I want to tell you, two slides forward, There you go. So planning. 99% of the businesses that we work— I mean, the first question on the VOP, right? Do you have a comprehensive written business plan? Right? And the answer is no. Every time. No, no, no. That's okay. But planning often happens in an echo chamber. The echo chamber is management and owners, right? We get together in the boardroom, we go on a retreat, we talk about planning, we come up with a plan, we convince ourselves it's is the right plan, and all this stuff kind of bounces back and forth in the hall of mirrors, and we don't really relate it to the outside world. So we struggled with this for years because we had clients that were planning, they were coming up with a good plan, and it wasn't working. It wasn't being implemented. We talk about accountability, right? Just wasn't happening. So we thought, how can we make it real? And one night I was watching television— I do watch television, I admit it— and I saw Shark Tank. You guys are familiar with Shark Tank, right? I thought, this has great energy. There's an interaction here between investors and the entrepreneurs. The entrepreneurs, even if they don't win, are excited by the opportunity to pitch. And then what we realized is you got to be able to pitch your plan. You got to actually think of this as a persuasive argument. You've got to learn how to do that. And across the board, no one really had that competency. So we started bringing in folks to do Shark Tanks. Every single one of our clients, within the first 3 months of the engagement, has to pitch a private equity person, an M&A advisor, and bankers. And they have to convince them, it's a mock exercise, but they have to convince them that what they're gonna do in the future actually has merit on the business issues and merit on the shareholder equity side, right? This is a wholly different approach, man. And we also set some dates. So we like velocity in this. So we'll say, 60 days, guys, go to work. We'll be here for you, but 60 days. Sharks come to town, we're sitting down with them. And man, you've never seen people work so hard and be so motivated because when there's somebody coming that expects to be part of a, you know, something positive, they've got to work hard to get it there. Now they get great, great feedback from this. I mean, it's instant. We sit down with the Sharks afterwards, we debrief, we give We get together with them the next day, we debrief further. There's kind of an art and science to this. Of all the things that we do, this is probably the most effective, honestly. And it happens early in the process, so that energy then carries over. One of our clients said, he was the CEO of a company, he said he was, he actually, he lives in a city with really bad traffic, and he said he practiced the pitch in the rearview mirror as he was sitting in traffic the month before it was going to happen. He had it down, right? He really took it seriously. It was a great experience. So there's some tools. It's really helped this company, right, that I was talking about. But one of the things that we had to do is really consider in the future, are we really going to be 5 businesses? Are we going to shut some of this down? And would we increase the productivity significantly by doing that? It's a $110 million company with 750 employees. You do the math, right? Productivity, whatever that is, $150,000 employee, right? On the revenue side, I've got another client. It's not, it's not enough. I've got another client in California, same business, not electrical, only mechanical, 180 employees, $65 million. Now we're talking. So how do I get the $150,000 client to $400,000 like the other client and get them there in a relatively quick period of time? Well, employee engagement is a big part of that. And getting focused on feed and starve. Get them using their capital in the right way. I'll stop.

That was excellent. Well, we're getting back on schedule. Are there questions currently out there in the room that— for any of these panelists?

Yes.

Yeah, have you— that's a really great question. Have you ever heard of ownership thinking? Is that a— there are lots of them out there that you could use. Yeah, EOS. Yeah, yeah. So EOS, EOS I think is a really good program at the strategic level for upper management and owners. I think it really works best, but it doesn't have, in my opinion, it doesn't have a deep employee engagement feature to it. Now, EOS and ownership thinking combine really well. They make a nice sandwich, and if you're in a manufacturing environment where you can put EOS, ownership thinking, and lean manufacturing together in the same package, it's, it's a blowout. It really works well. So each of these programs kind of have different features, and I don't think any one of them necessarily stands on its own. Right? Yeah, you're welcome.

Anyone else? OK, then I will—

I'll kind of ask—

start back over. And Jeff, I don't know if there's anything going back. I know you mentioned 4 points. Is there anything now that you've heard Shawn and Phil talk that jogs memories of other things or maybe another case study or something else that you'd like to leave this group with?

Well, I think— I think some of the things I pointed out sort of are pieces of what each of these guys have talked about. And, you know, it's very encouraging, I think, when you think about how simple some of these things can be. You put them together in a complete program like Shawn described, and, you know, you could shift, you know, the whole direction of the company. You know, I often say in workouts and restructurings, the hardest thing to overcome is denial. And unfortunately, in a lot of these cases, you have to get to the point where you're, you know, you're circling the drain or, you know, you feel the water's up to here and there's a lot of moisture going in your nose before you make a change. But it sounds like, you know, Phil and Sean have got situations where they haven't had to get to that point. And made that shift.

In some cases, bankruptcy is the ultimate. I mean, it's, you know, it's sometimes easier to make some of those tough decisions because you don't have another choice.

Yeah.

How about Phil? Is there anything else that kind of came to mind as you were hearing Sean or maybe another story?

Well, so one of the things that we're dealing with, and it's a tough part of the senior management decision process, is that in a startup environment, I have employees that have been with me for the full 29 years, some of them 25, 26, 27 years. And when you're starting out with a small group of people, you know, in that case it was 10 or 20 employees, people's ability to do alternative work makes them more valuable, so what we call a generalist. But as you become a bigger entity, it becomes much more defined as to what the roles that the management team will play. And so what we have is we have some very, very loyal, hardworking employees in management positions, not always senior but middle at least, that don't have the skill set that we require to grow the company. And so we have to work with them to, you know, our first commitment to them is to help them grow as individuals through training, et cetera. We've had a couple decisions that we've made recently where we took a senior manager aside and said, you're prohibiting the growth of the company. We need to find another spot for you where you can have value, but we're going to bring in somebody that's going to be above you, and it's the right decision, so how can we make it work? So we've had to make some very difficult decisions in those areas, and if we don't do that, then all we're doing is denying our future. And what we do to help one person's job hurts everybody else in the company. So we have that as an ongoing challenge to get to the 20 million. We still have a couple other people that we have to address.

Excellent.

And I was thinking maybe for Shawn and maybe Jeff, if you want to chime in too, you know, Shawn, when you walked through the feed-starve analysis as kind of one of your first benchmarks that you're bringing, really trying to feel out the owner in some ways and understand where he's coming from and where your challenges may be. Do you have any advice as far as when to kind of walk away and say, you know, you're not going to be a good client of mine?

We've never had a bad client. That's a really good question. That's interesting. So we do a lot of intake on our clients because, you know, we're a growing firm. We want to be careful, first of all, about whether we're taking a client where we think we can make a real difference. And, you know, there's qualitative and quantitative things about that, but we do try to choose clients, if you will, that fit the profile that we've learned over time is probably the most likely to succeed. Some of that has to do with the owner's perspective, their willingness to really get fully behind the program like you have, right? I mean, you know, you probably eased into it a little bit, but you're 150% at this at this point, and you're making hard decisions, right? I mean, you've got clarity, and that helps with leadership. So if you have someone who's willing to do that, that's great. If you— they have to have a decent management team in place. I mean, if they've never really had a management team in one form or another, haven't even tried, then they're not going to get this done. You can't— I don't believe that you can hire a management team into a company and then expect them to immediately start on these initiatives. There's too much going on there. You will have to replace management as you go, most likely, or add to it. Where would we pull the ripcord, right? That's the question we're talking about. I think it comes out in the discovery phase, quite frankly. So we use the value opportunity profile as our— as a central piece of our discovery, and we also use calculations of business value to create sort of a sidebar valuation, if you will. And we use BVX for that. And those two things give us a lot of sort of internal insight into the company, as well as kind of a due diligence level. I view the VOP as kind of reverse due diligence in a way, and preparing a company, looking at it through the eyes of a buyer. If the company can if the management and the owner can't engage fully, honestly, right, and be candid with themselves during that process, I think we would have to stop. And we're observing, right, the value of that is not just the deliverables that come out of it, the insights that you get, whatever that deliverable might be, it's the process that the management team and the owners go through, and in many cases for the first time they're actually sitting down together and talking about this stuff. Stuff, right? And all of a sudden the light bulbs are going on, and then you get to this critical point where the owner will say one of two things, right? They'll say, or maybe some version in between, that's a lot of work, I don't think the time is right for us. And I can check the box on them, we're done. That company probably is just going to head down over a period of time, it's going to be death by a thousand cuts one way or another. The CEO or the management team that really bites into it and says, fantastic, what's next? What's next? What are we gonna do? They shift right into action mode, implementation mode, and then we have some prep to do before we go there, but that's the client that's gonna make it. And we can guide that client through even the choppiest water, right? No matter where it occurs along the way, there are lots of options if they're willing to engage. And if they're willing to share that message throughout the organization, you've got a winner. No question. So you can find out— we do the VOP probably 60 days. Within 60 days, we'll know whether that's going anywhere. Then you're out. Off-ramp them. Really? Excellent. I'm sure I would have stayed with you.

Anything to add to that, Jeff, or just for the people out there? Anything to add to that from the—

Well, in our particular case, we had two watershed events. One was early on when we first when I first came up with this 13-week cash flow concept, management wouldn't buy into it. I was originally engaged by Wells Fargo and the company, both, and I was supposed to be acting as a consultant to both. When the company refused to do the 13-week cash flow, I told the bank they need their own advisor. It's not for me to try and, you know, split the baby here. And then later on, just before we filed Chapter 11, We made an offer to the company, to the founders of the company. We said, you can have 60% of the business, we will give you 2 seats of the 5 seats on the board, we'll release your personal guarantees, we'll release our debt from— we'll reduce our debt from $230 million down to $100 million, and but we want you to hire a CRO because their consultant was not a CRO. So they countered with, we wanted 70% of the company who owned 3 of the 5 seats, will take the release of the personal guarantees. We're not going to hire a CRO. And we said, if you don't hire a CRO, we're not going to fund on the revolver. They didn't hire a CRO. We stopped funding on the revolver. 2 days later, they filed. And probably 5 weeks and $5 million of legal fees, they finally hired a CRO. So—

The most expensive hire they've ever made right there. Yep.

Real quick, any other questions in the audience? You know, Ken, I don't know if you want to come up and do a quick summary of all the 5 sessions. I don't want to put you on the spot, but just kind of— you've worked real hard to pull this all together, and I think all the panels have been fantastic. And if there's anything you kind of want to summarize in some way, I'll give it to you if you'd like.

I wasn't planning to do this, but first of all, thank you all for joining these sessions. Brian's right, a lot of work went into putting these sessions together by a sizable committee that we have that's been really dedicated and has been working virtually since the last summer conference on putting these sessions together. So thanks to the whole committee.

Committee.

And what we're trying to do with these sessions, and they'll continue hopefully in future conferences, is to help the AM&A to broaden its membership base, to make everybody existing transaction-focused members more successful, and to bring in other professionals who can also benefit by the networking in the association. And ultimately to bring efficiency, more efficiency to the lower middle market M&A industry where there's such a huge transaction failure rate. And if we can increase the success rate by even a few percentage points, it can have a huge impact on the transaction advisors, on the growth advisors, on the capital providers, and on the business owners. So it's truly a win for everybody. If we fail to do these kinds of things, then despite the rather robustness of the last couple of years in the M&A industry, that's been a cycle, and cycles go up and down. And we need to do more of this kind of work and create these kinds of relationships, I think, to continue to improve the lower-middle-market M&A networking and the success success rates. So I think a couple of the takeaways from these 5 sessions are that, first of all, the idea of working with companies in the 1 to 5 year timeframe before a company goes to market is really not only critical, but it works. It's realistic. It's not rocket science, but it does take collaboration. It does take transaction advisors to recognize the opportunity, recognize that instead of turning companies away from the marketplace when they're not market ready, there's a place they can turn them. They can turn them inwards to their value growth colleagues who can then work with those companies. It's going to take a lot of communication. It's going to take a lot of training. It's going to take a lot of networking. It's going to take some systems and processes a platform. The AM&AA is trying to create this hub organization that will serve as sort of the platform for all of the relative consultants to come together and understand each other's strengths and specialties and so forth so that we can all benefit. So it's going to take a lot of work. It's going to take probably several years to really get it truly up and running and affected. But as somebody told me a long time ago, anything that's worth creating is worth really working hard for. So if anybody is interested in not only benefiting by this kind of a process but participating in the creation of this ecosystem that we've heard about over the last couple days and participating in the creation of this sort of this hub organization. Please track down anybody from the AMNAA, ask me, ask any of the panelists that you've seen over the last couple days how you can get involved. We need a lot more people to get involved to make this all happen. So with that, I'll just say thank you very much for attending these sessions, and I hope you found them a little thought-provoking and affected.

But as somebody told me a long time ago, anything that's worth creating is worth really working hard for. So if anybody is interested in not only benefiting by this kind of a process, but participating in the creation of this ecosystem that we've heard about over the last couple days and participating in the creation of this sort of,