Dr Drivin ving g ow ownership nership and nd gr growth owth to to a su successf cessful ul ex exit it February 9, 2017 Bob Swelgin Founder, Swelgin Consulting Group LLC Partner, InVista Associates Former President Smart Electronics & Lark Engineering
Why hy tr try y th the e en entr trepreneurial epreneurial route? oute? Person onal al Histor ory • Started acquisition of small companies in 1988 as part of Texas Instruments • As VP and Country President of Tyco, responsibility for numerous acquisitions and integration on global level. a. Ex: Patriot in Asia, built business from scratch • As COO of Panasonic, opened facilities in China and Texas. Had to integrate quickly, as well as cut costs. • As CEO of American Racing, led two bolt-on transactions. • Failed in founding of Avrio Technology. a. Too slow to change culture to drive “ownership.” b. Allowed too much to remain as is while all expedited change
Dec Deciding ding facto tors rs for or me • Kids through gh schoo ool and finally off my payroll oll a. Time to use personal lessons learned and restructure my go-forward career • Very underst stan andin ding g and suppo portive ive wife. • No love of big compa pany ny bureaucracy acy • Invest st my own money and time • Knowledge edge of the Privat ate e Equity world. d. • Built relation ionsh ship ip with founde ders s of Smart Electroni onics cs & Lark Enginee eerin ing • Underst stan andin ding g what not to do in i integrati ating ng businesses sses by p painfu ful l lessons. sons.
What did the company look like?
Ste tep p #1. #1.. . Mo Model del de deve velopment lopment For you : Understand the markets and areas of expertise. Narrow versus wide industry interest. For busin ines ess s sellers lers: Articulate exactly the opportunity to those you look to acquire.. What is in it for them? For Invest stors ors and Bankers: s: Clearly lay out the growth of the model, industry, customers leading to an exit scenario. 100 Day plan! For Team m members ers : Must recruit and excite a quality management team. Ready on day one! Model l outli line e for me: Target • A & D- Small business consolidation ( <$5M EBITDA) • RF- Subsystem engineering and manufacturing • Focus on C4 ISR programs • Low cost manufacturing in North America Why? • It is a fun industry technically. Best part of my career. • Plenty of small companies ripe for consolidation. • A & D industry needs cost reductions and creativity/affordability. • Asia is getting expensive for manufacturing. Mexico will be affordable solution. • Engineering costs at customers is too high.. Speed is a rare commodity in A&D.
Ap Appr proach/Plan oach/Plan • Lots s of prep work. a. Researched technologies and markets b. Ensured strategy supported customer level objectives and filling the gaps c. Pulled together and advisory council. • Recruit uited equity ty and debt to make acquis uisit itions. ions. a. tough to find interest in A&D and smaller companies.. Pitched to over 50 groups. • Keep on top of market- EW, ISR a. Follow customer strategies to differentiate the new company. Be ready to answer tough questions., • Found companies to acquire… Built relationships with founders of Smart Electronics & Lark Enginee eerin ing a. Bought in non-competitive arrangement -No investment bankers involved
To Toughest ughest st step: ep: Execution Execution • Hit the groun und runnin ing a. Integrate quickly b. Acquire quickly c. Engage the workforce d. Create confidence and ownership in full team • Execut cutio ion- 100 day plan with focus us on cust stomer omers s and employee oyees a . All hands meeting to explain “go forward” plan b . Restructure compensation to focus on “pay for performance” to create ownership c. Create more entrepreneurs within the company d. Common marketing approach
Get et all ll on on same me pa page ge • Engage e custome tomers s into o workforce force- Create te custome tomer ownership ership • Explain n custome tomer value ue to all employee oyees- They are not “bad guys” • Show w continu inual l improv ovem emen ent t in all areas • Develop lop and sell l value ue contrib tribut ution ion differen erent t than peer group up a. Internal and External
Secure Technology Team total Value Sensor Wire bonding/Chip-on- products Board Class 10k clean room Full RF and Digital box build Inc. Cables and Harnesses Your Cost and Technology Value Leader Secure Proprietary/Competition 9 Sensitive
Ma Marketing rketing Str trategy ategy • “Stick to the Knitting”! a. Focus on aerospace and defense- small high end specialty industry b. A & D area = EW & ISR • Exploit oit the custom omer ers s we know a. Sell top to bottom (Me to President & V.P) b. Sell bottom to top (Program manager & reps to buyer & engineer) c. Get foot in door at one division and expand presence • Make it difficu cult lt for custome omers s to say no a. Build team to show well b. Invest a little in visual aids and cosmetics c. Show “organization” and follow through
Marketing Strategy (Cont’d) • Starts s at Home a. Professional in all we do b. Dress in office- No t-shirts or dirty jeans c. Care for customer during visits. Let them know we love them -Visitor parking clearly marked -Upscale the lobby d. High quality proposals supporting competitive pricing - ”Borrow” shamelessly from customer best practices • Increase ased d value propo position sition a. Never a “one trick pony” b. High Value solution provider
Energizing nergizing th the e Pe Peop ople le • Involv lvem ement ent and personal al impro rovem ement ent a. Education - State offers free basic classes (ie: English, math, Spanish, Vietnamese) • Commissi ission pool l organi ganized zed a. Percent of each dollar billed goes to pool. Distribution based on >92% revenue attainment (to budget) b. Anyone with customer contact partakes quarterly c. Salaries adjusted -Sales team = 50% of commission pool -Program managers = 20% of commission pool -Management share goes to group contributing most to prior successful quarter (ie: mfg, QA, purchasing)
Energizing the People (Cont’d) • Monthly “rewards” luncheons a. Every month the team hits target- Free lunch for entire company b. Quarterly awards to “Recognized contributors” c. “Suggestions” implemented are rewarded d. Every employee gets 90 day review to be sure objective is clear and what is rewarded -Not length of service
Education ducation and nd Ta Tactics ctics • Explan anat ation ion to all of their contrib ibution ion to success ess • Openness ess is expected cted- opin inion ion sought ht a. All executives expected to MBWA • Change e is encourag aged ed a. Physical plant adjustments (Paint, walls, chairs, tables, carpet)- Something visible every 4-6 weeks b. New logos, websites, signage
Education and Tactics (Cont’d) • Simple le Things ngs; ; Added as rewar ard for r succe cess of busines iness a. New refrigerator b. More microwaves c. Better coffee d. Personalized shirts and smocks (Craigslist and Ebay are great sources) • Explain ain requirements uirements to employe loyees. es. Off ffer er to pay for r workers rkers personal nal improv rovem ement ent sessions: a. Program management b. Microsoft office c. English d. Public speaking (Employee needs to invest their personal time for this to work)
Education and Tactics (Cont’d) • Openness ess with h customer omer a. Knowledge in what we build b. Accept customers suggestions and offerings (Seek opinions) c. Customers may not be right but they are never wrong • Video o screens s mounted ed through ghou out factor ory for improve oved d communic ication ion a. Quality summary b. Production requirements c. Progress to target d. Newsletter e. Customer product news f. Customer visits g. WIP status- updating every 5 minutes
Res esults ults • Compa pany ny grew >25% in y year one, same e year two. a. EBITDA about 2.5X b. Primarily expanding same customers. Engaging customers from top and bottom. c. Employees pushed expansion of technology from customer input. • Turnover er almost ost non- existent. nt. Happy and contribu butin ing g workfor orce ce • Absentee eeism ism rare • Workforce and customers see benefit of “Team” approach • Employ loyees ees engage e with custom omer er and feel part of success ess (and failure) e) • Customers respond very positively and “perceive” a stronger organization
Results (Cont’d) • We get unsolicite licited d calls s from employ loyees ees at competi petitor ors s looking g for jobs • Costs s stay low a. We are a low cost producer in California! • Margin ins s = 3x of industry peer group- Stron ong g focus s on cost drivers • Selective ve techn hnology ology advan ances s continu nue e to differen entiate ate a. Develop roadmap- execute- tell customers b. Listen to customers go where they take you.
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