Entrepreneurial Dominion

  Tony Vincent

From Beginning to End

To entrepreneurs accustomed to building businesses, selling one presents special challenges. Alpha Omega Capital Partners manages the process for them from start to finish.

Ron Horn could see the writing on the wall. He had built his company, Performance Group Inc., into a $4.7 million-a-year enterprise by deploying Geographic Information Systems to help U.S. Army bases map and manage their utilities and environmental programs. The Fredericksburg company was solidly profitable, had a strong technical team and didn’t spend a dime on marketing – he picked up business through word of mouth that led to sole-source contracts.

But last year it was obvious that the market was changing. GIS technology was going mainstream; competition was heating up. The Department of Defense was bundling its GIS needs into larger contracts, forcing Performance Group to bid for business from the big government contracting companies. Horn, 58, knew it was time to sell. “Our technology was at its prime. There was a market for the company.”

Horn had loads of experience developing a business, but he had none in selling one. So he engaged Alpha Omega Capital Partners, a Richmond investment banking firm that specializes in selling privately held businesses in the $1 million to $50 million range. Horn was gratified by the result. Not only did he get what he considered a fair price, he is confident the buyer will take good care of his employees – a prime consideration in the transaction. “We had about 40 people,” he says. “I wanted someone who would take care of the folks.”

Many small business owners find themselves in situations similar to Horn’s. They’ve built their business from the ground up and, for one reason or another, they’ve concluded it’s time to sell. But they don’t have a clear exit strategy, they don’t know how much their business is worth, and they don’t know how to go about selling it.

Alpha Omega has staked out a position in the Mid-Atlantic marketplace as a company that helps with all those things. Its four partners – Anthony M. Vincent, George W. Sydnor, Robert H. Mitchell and Robert P. Louthan – collectively have decades of experience in small business operations and finance. They have sold or recapitalized dozens of companies across a wide range of industries.

There’s a lot of up-front work before Alpha Omega puts a company on the market, explains Vincent, the senior managing partner. The first order of business is to clarify the owner’s goals and define an appropriate exit strategy. There are numerous options, from arranging a management buyout to creating an Employee Stock Ownership Plan, from selling to a third party to finding a well positioned licensed broker-dealer to take the company public. Each has pros and cons.

The next step is to analyze the business and provide valuation of the enterprise. One thing the client can count on, says Vincent, is a candid analysis. Alpha Omega doesn’t provide feel-good valuations that encourage the client to put the business up for sale only to get blind-sided by low bids. “The hard reality,” he adds, “is that many companies aren’t ready to sell. They need to clean up their act before they go to market.”

Hiring Alpha Omega to conduct a business valuation is a little like engaging a management consulting firm. The client gets a lot more from the exercise than a spreadsheet analysis in a snappy, bound report – he gets valuable business advice. Alpha Omega digs into the company’s books and operations, analyzing the company’s growth prospects and looking for ways to improve performance.

“The devil is in the details,” Vincent says. Every buyer is looking for hidden problems, any justification for lowering the price. Everyone is best served if those issues are surfaced early in the process. Has a company properly allocated its costs to Cost of Goods, Fixed Costs and other costs? Has it kept up with tax payments? Has the owner been pocketing the tax savings from depreciation or reinvesting it in the company?

Alpha Omega asks the questions that any diligent buyer will ask: Does the company have management depth, or is it overly dependent upon the owner? Does the company have a diverse customer base, or is it dependent upon the continued loyalty of one or two large customers? Is the company developing new products and services? Says Vincent: “You can’t hide years of neglect with lipstick and a new dress.”

“We are not going to lead people just to sign someone up,” adds Rob Mitchell. “We’re interested in developing a relationship of trust.” If the client can improve the marketability of the company by making some operational changes, Alpha Omega prefers to wait – even if it means the client doesn’t come back for a year or two.

The next step of the sales process is to identify potential buyers, contact the likely prospects and create an auction environment of competitive bidders. “We always approach what we call the three primary categories of buyers,” says Vincent: strategic buyers, private equity groups, and high-net worth individuals. "When you find good strategic buyers – companies willing to pay top dollar to add a complementary business line – that’s when hard work pays off.”

Anyone can put ads on the Internet. Anyone can blast out a descriptive offering memorandum. The key is having the contacts, experience, and the technology and databases to identify strategic buyers and other buyers willing to pay top dollar. “It’s not something you learn in business school,” says Vincent. “We don’t have a bunch of young new graduates doing all the research. We do a lot of the research ourselves and we contact the buyers. Having bought and sold many companies, we know how to find the buyers and we know how to sell a company. After years of experience in the business world, you develop an instinct.”

Hands-on experience running businesses is Alpha Omega’s key differentiator.

Vincent worked as a process engineer and senior executive for more than 30 years in the printing, metal working, filtration, plastics and fiber-processing industries, at one point presiding over a major division of a public company.

“I can walk into anybody’s business,” he says, “particularly if it has anything to do with manufacturing, and tell you if it’s an efficient operation. It becomes second nature.” Another thing he looks for is whether a company has gotten complacent or not. “You’ve always got to be reinventing yourself. We ask the client, ‘Where have you been going with the company?’”

George Sydnor worked for The McGraw Group, an industrial distribution company with sales exceeding $65 million, growing the firm organically and through M&A activities.

Rob Mitchell and Bob Louthan used to be in venture capital and actually partnered on several investments. They later formed Stony Point Capital Partners with the plan of starting another venture fund, but then merged with Vincent and Sydnor earlier this year. “The two of us have invested in about 50 companies,” Mitchell says. “We’ve served on their boards of directors, given them capital to finance their growth, and we helped them succeed.” That background has given them keen insight into the special challenges of small businesses, and enabled them to build a large network of investors, venture firms, attorneys, accountants, lenders, and private equity groups who can help them assist or sell companies.

It was a winning combination, as far as Ron Horn is concerned. Alpha Omega’s efforts generated a host of inquiries, screening out the least appropriate ones. Horn then met with the most likely prospects. After narrowing the field further, Alpha Omega entered into negotiations on Horn’s behalf. Because Horn was likely to stay on with Performance Group after the acquisition, he didn’t want to handle the give-and-take himself. “One of the nice things about having Tony there,” he says, “is that I didn’t have to start working for a company with whom I’d built up negatives. Tony was the negotiator and he took care of my best interest. I got to start with a clean sheet and a positive environment.”

The deal closed June 25. Essex Corporation, a publicly traded government contractor based in Maryland, was the buyer. Horn is satisfied. Essex, a technology company, brings to bear resources that will help Performance Group grow, and it agreed to conditions that would provide “a comfortable future” for its employees. As for himself, he says, “I was well taken care of.”

-- November 17, 2004

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