Well Capitalized

What Is Life Like Under Private Equity Ownership?

February 13, 2020 Chris
Well Capitalized
What Is Life Like Under Private Equity Ownership?
Show Notes Transcript

How does life at a family business change after being acquired by a private equity firm? We were recently joined by Marc Calcaterra, CEO of Torsion Group Corp, a manufacturer and distributor of garage door parts and accessories. In this interview, Marc discusses his discuss his experience working with a private equity partner since being acquired in 2016. Among other things, Mark covers:

  • What caused Torsion Group Corp to seek a transaction
  • Why the company chose private equity over other deal options
  • Fears associated with partnering with private equity
  • Benefits and challenges of working with private equity partner
  • Reporting requirements under private equity ownership
  • Decision to retain equity in the business 
  • Advice for owners looking to sell their businesses
  • Biggest difference between being family owned and private equity owned

hello and welcome to well-capitalized where we provide private equity education and business owners share their unique and candid experiences after exiting their business I'm your host Bobby Kingsbury managing director at MCM Capital today we have mark Calcutta CEO of torsion Group Corp mark thanks for joining me today I appreciate you being here thanks Bobby thanks for having me no problem first and foremost I would have appreciated if you could provide a little bit of your background and what your company what tgc does well I'm obviously the CEO of torsion Group and torsion group Corp is a manufacturer and distributor of garage door parts under the torsion group umbrella we have two brands we have action Industries which is the aftermarket Channel business we have about 4,000 customers selling primarily to dealers to online stores and to companies like Home Depot big big-box outlets we also sell to the OEM channel and that's through our brand called torsion source we're really a value-added solution based company that provides different types of weather seals in different applications for that for that channel as well so three years ago torsion group core did not exist and there wasn't just Action industries and torsion source it did not can you tell the viewers or you know take us back in time and explain what the businesses were and what prompted a potential transaction yeah prior to forming torsion group we were four separate businesses and within those businesses there was different ownership in each of the businesses it was pretty complicated and each of the shareholders had different ideas on what should happen and the objectives and really from a day-to-day perspective I was the only one that was involved so really with a combination of that and it really started impacting the day to day business we really needed to to come to a point where we liquidated everybody and and found a best way to solve that for everybody so did you consider that you and the other shareholders consider other exit options or was private equity really the only route to go and then ultimately why did you choose private equity yeah we did look at whether it was bank financing whether it was share held certain shareholders buying out other shareholders it really wasn't an option and and really the the situation was difficult and we needed a trusted third party and that's really how we got to private equity was finding somebody that could put a true valuation on the business and it was fair for everybody so now it's two and a half years in okay look looking back you know was it the right choice for you in the shareholders and other folks involved I think it was definitely the right choice not that it wasn't a difficult one but it really made everybody whole it really protected the business like I said there was a lot of distractions and a lot of things going on it really was the the only option at that time to make it work and and there was a lot that went into it you know as in looking back I think having more time to to really evaluate the businesses and understand what the Iveta was and going through that would have been a better probably approach but ultimately I think it was fair we did bring in some outside help that that worked us through the situation and I think it was a good result for everybody now being under private equity ownership you know prior to MCM getting involved you had autonomy to do whatever you want and it's not like we hit you with a with a ruler but what has been or what was I guess prior to the acquisition what was your biggest fear or concern I think it was really from a reporting standpoint and really a structure so how was that going to work how much information did the private equity company want you know in full transparency what what what were the right things to communicate there was a lot that went into that and I mean I think also how much involvement the private equity company was to have you know from from a business that was privately held and in a shift in focus it was just trying to really understand that and now two and a half years in post acquisition what has been the experience thus far you know the did we alleviate your fears or concerns it can work I think you know right from the first town hall meeting we had I remember when you participated in that and we were all there and one of the things you said was what's going to be different about the business and it was really nothing and two and a half years later there really hasn't been any change in the day-to-day and I think all the employees see that and it's really business as usual but I mean obviously we're getting a lot of support from a board perspective and a high level but from a day-to-day nothing has really changed yeah so I appreciate that you know our first rule of thumb generally is is do no harm we really want to focus on maintaining culture you know really understanding what we just acquired and the groups of people that we that we partnered with some figures say now you don't have to say that right this is oh this is a candid interview I want on this right so now going in did are your challenges or fears and concerns different two and a half years in then what they were maybe prior to the yeah I think after the acquisition it was really expectation and and weigh it in really it was just I was really the only one involved and really controlling all the the business decisions and you know we talked about a lot in due diligence and and talking about the business all the opportunity so so when you get on on the opposite side of the transaction it's really how do you realize that and what are the expectations from a growth and a bit of perspective and how do we work through that and it was just me it was a little overwhelming you know can we add people to to work through that and help grow the business so I mean those were you know those were some of the challenge is that I was working through after the transaction and you know we talk obviously on a weekly basis just casual conversations and there's been several times where I've I've asked you you know what what's really changed what's been the most dramatic change for you after the acquisition and I I would say it was really I didn't have other business type people to talk to so whether it's the board whether it's our conversations having having another sounding board where I can run run high-level stuff off of as far as whether it's strategy or or finance or whatever it is and obviously we've added an executive team but having that additional support was was much different than than in the past where it was just kind of running all around and trying to grow the business and do the right things in other conversations that that I've had in this video series you know especially with mark and Harry you know from from MCM we've kind of talked about the reporting aspect of it you know most business owners entrepreneurs well one really don't have to to answer to somebody else generally they are the the top level of the organization but then also we're asking for some reports you know monthly reporting quarterly reporting explain to the business owners you know really we'll what that has entailed and has it is it more have you felt it to be more homework or do you think it's been potentially beneficial I think it's been beneficial I mean one so so just as far as reporting goes we provide a monthly financial statement with a write-up just a summary of what happened in the month and then from a quarterly perspective we have a quarterly board meeting what I would say is upfront in really getting a cadence and developing I caught more of like a lesson plan once we had a template put together it really streamlined it and it's it's it's not really difficult at all and to me in working in the business all the time it really allowed me to step back and work on the business and think about it strategically what we wanted to Kate and talk to at a board level or individually you know when we talk weekly so it was it really it once you figure it all out it's it's not that much work and it really helps helps you think about the business after the the transaction I know we we sat down and discussed you know you put the other plan you know one three five ten years out and we talked about resources that you would need to really achieve that plan and in the first year and a half the amount of work that you and your team have put in has been Herculean and Todd talked about the benefits of having a partner who's with you that you can be a sounding board that helped aid you in you know really developing those resources yeah I mean I think that was a real critical part of once we created an expectation and what we wanted to do with the business and how to grow it spending a lot of time talking about what positions we needed whether that was and you know we were using a public accountant so getting a financial person was critical from a supply chain standpoint we had a really high-powered operations guy restructuring that talking about those type of business needs it really was beneficial to go through that because I mean like I said before it was really okay we have all this good stuff to work on how are we going to achieve that how are we going to execute that and it's really about execution and and I really appreciated from a from a board perspective and just working with you and talking through that with you on putting that together it was very helpful I think one of the biggest votes of confidence that a private equity firm can receive for their investment in in a business is the business owner wanting to reinvest and retain an equity piece in the business it it certainly gives us confidence and something that we want to see why why did you want to retain an equity stake in the business moving forward well from my perspective I believed in the business I believed in all the businesses so moving forward if you're not going to invest in yourself in the business what would you invest in so but you no longer have control though so how you know but I mean so I'm going to be partnered with with new business people I wanted to have skin in the game to be aligned with with them and and achieve that prosperity at the next level so I mean it was really it was really that combination is belief in myself belief in all the things that I communicated in the upside in the business so I felt passionate about that and I it wasn't even a question I really wanted to have a stake in the in the business moving forward you had other options you considered other options you ultimately chose private equity and now Monday morning quarterbacking what would you say the advantages and disadvantages are of partnering with a private equity firm as opposed to just being a privately held business the advantages are definitely from a resource and capital standpoint I mean and really the board influence just having a sounding board I mean and really having you know from a quarterly standpoint and not just a quarterly standpoint if there's any issue or high-level issue being able to run it by the board or or you individually and to get that feedback versus just making you know one of the concerns was is not I think one of the strengths we had was our ability to make decisions and make him quickly versus having a bunch of red tape and a it and you know he have a 10 approval process and you know that was one of the fears coming in but but honestly from a board and and I think we think about it more and think about it strategically but there's never been a time where it impacted us from a decision standpoint that didn't allow us to win a piece of work or make an investment in a piece of equipment to make us more efficient so I mean I think ultimately it was really you know that support strategic support and really the the infusion of capital to really go out and do the things we need to do if you could provide advice to a business owner who's thinking about exiting their business considering exit options this probably being likely the only time that they'll ever do in their career what advice would you give to them be committed to the process and understand what you're really looking to achieve from it and for I would say understand your business understand the financials understand Avada which is something that a lot of private business owners probably don't even think about I mean they're worried about growing the top-line not that you don't want to make profit but how do you maximize that how do you structure your business it's just it how do you make your business better so when you really go to that point of selling you're getting the maximum value for that and I would say you know for us we did reach out from a legal perspective and a financial talk to people that have been through the process before I mean I think it's super important to to be able to talk to people to understand that understand where the market is understand what valuation means understand what multiples mean I mean a lot of people don't don't understand that and then the better you can arm yourself and and and really believe in that and understand how it works the better off it'll be what would be the the major difference between being private equity owned and being a family-owned business I'm sure there's some things that are certainly different today than it was two and a half years ago yeah I mean I think there's a lot more structure and accountability in being private equity owned then you know and there's we've had we've made a lot of changes in our organization based on that because there's certain people that can can survive in a privately held business but when it becomes about meeting sales any bit of targets it weeds out the poor performers I mean in it and the business demands it because I'm held accountable to it all the managers are held accountable to it right down to the to the employee so I mean it's really beyond all that infrastructure change that we've done we've we've changed the workforce or how quite a bit as well mark thank you very much for your time today thanks for joining us man and looking forward to another four or five years of happiness absolutely is great you