In closing the deal, sometimes it's better to be lucky

SEARCHFUNDER INTERVIEW OF MIKE ROBERTSON

We talked with Mike Robertson whose AltaLink Capital recently purchased Efficient Forms. We previously covered his search process IN PART I . In this part, we chat with Mike about closing the deal.

PART II: CLOSING THE DEAL

Tell us about the deal closing process?

Desire for liquidity for the owners of Efficient Forms was driven by creditor agents. When they founded the business in 2004, they had raised money from friends and family (e.g., their father-in-law, their neighbor, etc). The average age of these passive shareholders was 75 to 85 years old. They had been part of the business as shareholders for 13 years. They were able to realize the value of their early investment and spend that money in retirement, including on their grand kids. We had other shareholders to consider as well. A very large portion rested with the founders who were current operators. The operators of the business, Dave Kenney, Todd Fenske, Hans Eckelman, Steve Heller, and Bob Haimes had the desire to grow the company to something larger and sustainable. Our prospect of being able to infuse professional ownership while being able to take the business to the next level was really attractive to these owner-operators. It wasn’t the typical search fund story of 30 years of ownership of a founder looking to retire and the searcher coming in as CEO as the founder transitions out of the business. In that regard, it felt a little more like a private equity deal than a search fund deal.

As I look back on the process, the adage “Sometimes it’s better to be lucky than good” applies.

Following the cold call, Dave Kenney engaged with us after going to our website. He noticed that I was raised in a working-class background. My parents came from ship builders and potato farmers, while his dad was a roofer. We came from a similar genesis.

Secondly, he happened to have plans to be in Provo Utah just three days later because his son, who is in junior high school, was competing in a regional gymnastics tournament. Dave already had his plane ticket and said, “I’m going to be in Utah anyway. Let’s get together.” We had dinner after the tournament and it went extremely well. My wife likes to joke that we had a bromance. We discovered we had similar points of view. I happen to have a lot of touch points that were relevant to his business, such as Infinisource (which I knew from prior experience and is one of Efficient Forms’ biggest customers) and ProService Hawaii (which is search fund operated and recently became an Efficient Forms’ customer).

These were little touch points we could not have screened for. Those circumstances played no small part in the company actually engaging with us. It was getting them to think, “Maybe this is whom our buyers should be?” We totally hit it off and started a great relationship.

Did the owner operators remain on-board?

The passive shareholders gained full liquidity at the transaction. They have transitioned out of ownership of the current company. The original founder-operators, Dave, Bob, Todd, Steve, and Hans are important to the deal. They are now major shareholders in the cap table. They have the same roles as pre-transaction, except Dave who is now the President with my addition as CEO. We do not have an off-boarding plan for them. They have equity in the business to enjoy some of that upside.

Our hope is that the amount of money that they get on our exit in 7 to 10 years may be greater than the value of the chips they took off the table during this recent liquidity event.

Were the search fund investors on-board with the original founder-owners staying on?

Our investors were completely aligned. It would have been a huge risk if the Head of Development, for example, was going to be leaving.