Briefings

Posted on 
17th August 2021
|

Where next for your business? Advice for business owners considering a sale

By 
Acacia Group

This is the first in a series of conversations that aim to shed light on the role that purpose-driven investment can play in building businesses. They are aimed primarily at business owners who are considering their options for how they can enable their companies to reach their full potential.

Acacia Group Partner Tim Matthews spoke recently to Chuck Faughnan. Chuck was the CEO of Bridges Consulting, which was acquired back in January 2021 by Applied Insight, an Acacia company providing cloud-centric technologies and services to US federal clients. What follows, in Chuck’s words, are some of the practical and strategic considerations he went through in considering where next for his business.

The Bridges backstory

Bridges is a federal contractor to the intelligence community providing high tech services in network security, cross-domain solutions and data analytics. The company was founded by my father in 2000. I joined him in 2004 and together we built it to the company it is today.

By the time we decided to sell, we were at the center of the cybersecurity market in the intelligence community. Our experience in network engineering, coupled with big data analytics and cloud application development, enabled us to really help the government to build an active cyber platform that was at the center of securing several IT components. That positioned us for a pipeline of over a billion dollars that was really too big for our company to pursue alone.

We’d had a successful run as a small business and we were working on a strategy to compete in a full and open market against the big guys, the household names. We had a really good roadmap to get from small to full and open procurements and our business even moved itself to four or five full and open procurements. The challenge was that we were positioned for more prime opportunities than we were really credible at pursuing, given our size.

Buy or sell to grow?

We knew we needed to either buy or join a larger organization. We spent part of 2019 and 2020 looking at financing sources and at several companies to buy and spoke to several private equity firms to understand what was available to us. Several potential investors also approached us about acquisition at around the same time. We eventually decided to run a process to have the market establish our value. We used a good banker who was instrumental in helping us do that.

We had already worked with Applied Insight in pursuit of three opportunities and got to know some of the people. We saw alignment in the way we solved problems for our customers, shared a similar culture and had complementary capabilities. This alignment really resonated with us. So, we decided that Applied Insight would be a great home for our people and started a conversation with them and with Acacia. It quickly made total sense to us all.

Advice for business owners

Build a positive culture to add value to your business

We deliver high tech services but at our core, we are a people business. Our values in action are what creates the culture that binds people and customers to the business. That's how people experience the company and what attracts customers and high performers to it. And when you have a good culture based on solid values, people stay engaged and build the trust that forms the foundation of a high-performance organization.

Get yourself mentally ready

When you build a business, you're very close to it. But you have to think differently about it when you start to look at it from a market perspective. It is an entity of its own and it needs to grow. You've got to be OK with starting to go down that road. It's like seeing your kid go off to college - you have to let them go. So, spend time on yourself and get your head in the right place through that sale process.

Be organised

The level of detailed scrutiny that comes from going through diligence can be really challenging. We’d always focused on doing the right thing and I thought we had great documentation. Just remember that the buyer will want to know everything about your business down to the finest detail, and that can be uncomfortable. You’ve got to prepare for that, get your ducks in a row and find a good adviser who can help you understand what the market is looking for from a value perspective.

You’re in control

When the diligence process starts, you’ve got a lot flying at you. You have to take a step back and understand that in any business there are some blemishes and that diligence will uncover them. You also have to understand when to say ‘enough's enough’ and move past an item. You're in control of the process - the process shouldn’t control you.

Never forget those who got you there

I was looking for a good home that would create more opportunities for my employees than had I stayed independent. We made sure every employee was financially rewarded and clearly understood why we were becoming part of Applied Insight. As a result, after six months in our new home, we've kept attrition to a very low level.

Think about life after the sale

This is a rare once or twice in a lifetime event for most people, so plan for yourself and your family. Tax and estate planning in the year of the transaction is OK, but if you can do some of that stuff two or three years ahead of time, it can have a significant impact.

I put a lot of time and sweat equity into building this company. So, it’s time for me to take a break from business and spend a little more time with my immediate family. Who knows what I'll do in a few years, but I know that people have sacrificed to support me while building this business, so it's my turn to support them.

Advice for investors: build the relationship

As investors, you go through this a thousand more times than most business owners and we can save a lot of time and energy talking through issues. Lawyers have to be involved, but never be afraid to reach out to the seller. Once or twice in our process, I felt that I let an issue go on a little bit too long. Then someone that I happened to know on the Acacia Group side picked up the phone because he sensed something was wrong. That conversation solved the problem and cemented our relationship.

Finally, if you could do it all over again, Chuck?….

You know, I would have taken probably a thousand fewer missteps because of what I know today. And maybe I would have thought about buying Applied Insight instead!


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