In the Deal Makers Series, we interview leaders, experts, and innovators in the Merger & Acquisition and the Private Equity space about how they get successful deals done. The series highlights perspectives of investors, corporate development executives, and buy and sell-side advisors working across industries and geographies.

For the fourth installment, we interviewed Curt Cyliax, Managing Director at Strategic Exit Advisors in Pennsylvania, an Investment Bank for entrepreneurs helping owners achieve their Ultimate Exit.

What is your current role, and can you tell us a little about how you got there?

I am a Managing Director of a niche investment bank located outside of Philadelphia. We got into the business by bringing several solo practitioners together 15 years ago. After that, we all wanted to move upstream and work with bigger companies—so we did—and over the years, we have grown. We work for entrepreneurial owners who want to exit, and typically have a unique characteristic about their business or themselves that they want to preserve, and we help them achieve that. From a size standpoint, we work with companies (revenue-wise) from about $5 – $50 million, which is an enterprise value of about $10 to more than $50 million. I have spent 20 years in the industry and ten years doing this on my own, and just love making deals and helping people achieve what they want to achieve. We also tie in the emotional piece because when you sell a business, it is a draining process, and can also be an emotional one. This is evident especially when dealing with an owner/founder who starts a business and gets it to a successful level, or a later generation owner of a family business who must wait until the family member who owned it previously leaves this Earth before they can sell. So, when a child or management team doesn’t want it, and they want to sell it in a third market, that is where we come in.

When working with a typical client, what are the primary services you provide for them?

Our services consist of leveraging our experiences to help sell clients understand:

• What the value of their business is, and
• That the culture and people—the most critical assets—are taken care of.

We provide examples from situations where we have accomplished these goals. We are not dealing with a market segment where two companies are merging, and they are getting rid of many people due to duplication. We are typically dealing with a company that is an add-on to an existing company or platform, where a financial or strategic buyer puts more money into a business—regarding people, resources, and so on. We educate sellers on valuation, what a buyer looks like, and how a buyer will treat operations.

What makes for a successful acquisition?

The most successful acquisitions involve vetting what is important to the owner and conveying that to the prospective buyer group. Our process makes it more apparent which buyers will meet many or all the owner’s needs. For example, there are many fragmented industries around the world, and the typical financial buyer comes in and buys one of our companies as an add-on, holds it for three to five years, and flips it after that. For our business owners, that’s not an attractive buyer; they are concerned about what happens with their employees three to five years down the road. By understanding what our clients need and holding their hand through the process, dealing with the emotional issues that must be addressed throughout, and trying to tackle them upfront as quickly as you can, it isn’t a “say it once, and everyone understands it,” approach. We try to find business buyers who have a more permanent type of equity, where they will take a company that we sell, and their goal is to keep it—maybe not forever, but to not flip it in three to five years and instead want to keep it and help it grow.

How do you assess culture and people fit between a buyer and seller?

We emphasize what is important to the owner, but don’t lead with that. Our approach allows the prospective buyer and seller the chance to get to know each other on a short call before they start doing a deep dive into the business. Now, in the world of Zoom, you can read facial expressions, reactions, and some body language, which helps with vetting from the get-go. The buyer’s intent comes out very quickly in the conversation—this is the foundation we set for both sides to understand “what is this company really,” and, “what are the buyer and seller about?”

We insert the human. Before they get the entire book, they get a piece or a summary of it, and then they get to talk to the owner. Then—in real-time—the buyer must sell themselves, and the seller communicates precisely what they want, and the buyer can go, “this sounds good.” They have the option to listen to each other’s needs and intentions. It sets the tone for discussion just as much as the culture and the people. When employees work for someone for 40 years, they are like family—the people component is a big piece of these relatively smaller businesses—and even a $20M – 40M business.

What are common lessons and themes you have seen in deals that didn’t work out as planned?

Normally, we try to vet our prospects well before they turn into our clients, but we occasionally miss the mark. We see something attractive in a business, and we do our research and sometimes find out it’s not what we thought. The common reason companies do not transact many times is that they are too small to do so. Often, in certain situations, we have owners talk to psychologists before they move forward, so we get their familial tension out of the way. But sometimes when we get into it, the business isn’t as valuable as we thought—this is our mistake. Another possibility is the owners don’t decide as a unit, or an unexpected event, like COVID, happens.

For example, last year, we worked on two transactions at the same time; one was a business selling directly to consumers over the internet, and it hiccupped for about four weeks. The company made cuts, and within eight weeks, there was a turnaround, so those people came back, and then they were looking for more people. In this scenario, the culprit was resistance due to an unforeseen event—we were in the management (final) stages, so we took a break, and when we picked it back up, it was back on the beat. We worked with another company that was into internal communications for pharmaceutical companies—which was a luxury, nice-to-have thing before the pandemic. When the pandemic hit, the need for this technology instead became a must-have, causing them to become so busy that both the seller and prospective buyers needed to be put on hold. We picked them back up in the last quarter, and the buyer’s interests and price had grown exponentially.

Do you see scenarios where deals are anticipated to be good before close, but afterwards turn out otherwise down the line?

We do stay in touch more with the sellers as we are on the sell-side. We get the seller’s perception of what is really happening. We find out from them regularly how it’s going, about once a year or so. We see growth potential for these companies—you won’t replace the owner as there is minimal upward mobility. It’s a win/win when we talk to the owners. These owners tend to stay in touch with their people to ensure they are being taken care of. Another point of interest for them is that they want us to make sure the business they developed is successful for the new owner. They want to see them happy and making money, but also for the company to grow—they often maintain the original name under new owners. There is no need to fix it if it isn’t broken.

When looking at the due diligence phase, what are the most important pieces of data or activities that you perform?

I wouldn’t say that data is the most important—but, I will say the process is an emotional rollercoaster, it’s going to be a ride—keep your eye on the end target. From basic factual information, what’s most important—and we stress this from the beginning—is that you are honest. This is the most important thing about due diligence; being honest from the get-go. Credibility matters hugely in these smaller businesses.

Honesty is number one. If you have a “what,” get it out there initially, because a prospective buyer will read this as, “is that is a ‘what’ I can deal with?” For us, due diligence starts on day one. If there is any bad to tell, tell it now so that it doesn’t become an “aha” moment later. Establishing trust, keeping it, and staying honest are the most important pillars of due diligence. The numbers aren’t more important than the processes, people, or vendor-customer relationships. They are all equally important. I will say being honest and having a vision for growth are two key features that must be tackled at the start.

Have you ever seen leadership and culture considerations drag down a deal? What did that look like?

Yes, I have. I will say that leadership is more often the culprit. One of the things we like to do is visit the company. If they tell us one thing, and then when we visit the culture is not as stated, that’s something we back away from. From a leadership standpoint, we have seen leaders that don’t really lead by example and are destructive. We have run into problems where these destructive leaders are also the owners. They are more negative than positive—they’ve grown a nice business but are not enthusiastic about it. Owners must be enthused about their business for prospective buyers to follow suit. We’ve had situations that once you get into it, the owners aren’t as enthusiastic, or their enthusiasm doesn’t come across; you can coach them, but if they don’t listen, you can’t make them listen. This has been our biggest hurdle with leadership.

Shifting to the subject of keeping a company’s original name, banner, and brand post-acquisition—how often is this the case? If otherwise, how does this impact integration?

I think that is the bulk of our work. But I will say that for 95% of opportunities we work on, everything is left alone—the buyers want to learn about the company first and then tweak it later down the road. Thinking back, we’ve only had one case that was an exception in the past; a publicly held company bought and renamed a group of brands before replacing their leadership in a short period.

Do you work with your sell-side clients to define and talk about their culture, so that it’s presented in a way the buyer understands?

In many of our cases, the sellers explain their culture to us because they genuinely believe in it. For them, it is more than a mission statement; it’s an active task they work on throughout the year. They explain it to us, and we take copious notes to facilitate us explaining it to prospective buyers. We try to articulate as best as we can, but the owners can do it better than us.

When they tell it, and we witness it, this is very apparent. We let the owners expand on their “how,” “why,” and “what.” We focus on the highlights—such as incentives and rewards—and then the owner talks about how and why they do it, and what it means to people. When an owner explains it, they explain it from a better vantage point, in part due to their knowledge of their people and their importance. We try to stay out of the detailed explanations, as the owners are the experts in what they do. We are just experts in the process of how to do it.

As you look forward to the next few years and the current evolution in your field, what excites you?

What excites me is getting to continue doing what we do. We can’t control the world—with so many things going on, there are so many things we can’t control. All we can control is focusing on what we do well and making owners happy beyond their wildest dreams. That’s just fun.

The other aspect we use to differentiate ourselves is that we have this “pay it forward” initiative, where with every engagement fee we charge from a successful sale, we take this fee and donate it to charity. For our philanthropic clients, it makes us happy that we can make their sales dreams come true and donate $30,000 – $40,000 to the charity of their choice.

What haven’t we talked about that you think is important for a deal to be successful?

There must be an emphasis—especially for the lower and middle market—on the emotional process an owner goes through when selling their business as we court them. We haven’t yet figured it out entirely, but we have tools and resources to help our business owners get through it. When an owner has been dedicated to a business for 30 to 40 years, and suddenly, they are out of a job and feel a lack of relevance—that emotional process is one we continue to learn about. In our world, money is important, but understanding the emotions an owner goes through as they make decisions, journey through the process, and ultimately turn over the keys to their business can be a real roller coaster. Having these feelings as an add-on when doing due diligence can become a consuming process. We try to hold our owners’ hands a little more through that because we know it is a ride, while keeping the endgame in mind. We must do a lot of listening as the emotional process is a very real thing.

If you weren’t doing this, what would you be doing?

Something easy. I am an accountant by trade; I got into it, loved it, and outgrew it. Now—with what I’m currently doing—it hasn’t been easy, but still a fun ride. •

We’re so grateful to Curt for sharing his expertise and insights on M&A. Check back here for more future installments of the Deal Makers Series.

Learn more about Leadership & Culture Due Diligence »

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