• Partner Buyout Case Studies

Insception Lifebank

The Investment Partnership:

The original Succession Fund investment upon acquisition of Insception

Nov. 2010 – $4M

Succession Fund add on investment in support of Lifebank merger:

Sept. 2012 – $1.5M
The Situation:

In January 2009, an experienced life sciences venture capital industry executive became CEO of Insception. Over the years, he had worked with many emerging companies in the healthcare field in an executive or board capacity. He was hired as the primary shareholder to upgrade the management team, develop the business plan and explore alternatives to sell or recapitalize the business.

Based on his assessment of the growth prospects, including acquisition possibilities to consolidate the fragmented market, he put forward, instead, a plan to lead a buyout of the business and find a financial partner to complete a transaction that would include the incumbent management team.

That’s where The Succession Fund came in. There was a willing seller, a negotiated price and a team aligned with us as managers and co-investors. That led to a new partnership with a revitalized management team. The operators developed a 100-day and first-year strategic plan to begin to implement a focused and disciplined growth strategy with an improved digital marketing component.

The Inflection Point:

In September 2012, Insception acquired Lifebank, which led two of Canada’s largest and most active umbilical cord banks to combine resources and create a national presence that had scale, a professional team, and the ability to leverage their marketing, storage and laboratory services. The organization achieved synergies through a detailed merger integration process led by management and The Succession Fund.

Key Takeaways:
  • This was a non-capital intensive business that had an experienced operating team with fully aligned interests and a strategic growth plan poised to capitalize on market opportunities.
  • A committed seller with an agreed upon asking price allowed negotiations to proceed quickly.
  • Any merger integration plan has to be very detailed to cover every operating aspect of the business combination, unexpected delays, less than optimal cost savings and risk assessment.
  • Digital marketing plans have to be developed and executed decisively to stay ahead of the competition and must integrate seamlessly as part of an overall CRM and social media strategy.
  • The selling process was carefully managed with an international focus to optimize value on exit.

Celtrade Canada

The Investment Partnership:

The original Succession Fund investment upon acquisition of Insception

July 2009 – $3.2MM

Follow on investment to provide liquidity to the founder

March 2014 – $1MM

During the Succession Fund’s involvement revenues increased by a factor of 3X

The Situation:

Celtrade was built by the founder from start-up to an established Canadian developer and manufacturer of premium private label sauces, dressings, and condiments. In 2008 the shareholders hired a M&A firm to sell 100% of the company. The sale process moved along slowly but then got bogged down during the 2009 financial crisis. The business could not be sold as initially interested parties faded away. It became a “failed auction” providing an opportunity for The Succession Fund to step in. By July 2009, the selling shareholders were willing to put forward a price to sell their shares.

A transaction was structured that led to a new partnership with the founder, who preferred to stay and build the business. The Succession Fund along with the founder developed a strategic plan to pursue new business development opportunities, accelerate growth, build the team and invest in the business.

The Inflection Point:

Initially, as part of the 100-day plan, we added industry expert directors that could assist management by building on the product quality, innovation, and customer relationship strengths of the business. Introducing measurable KPI’s was one aspect of that. Ensuring adequate working capital was in place to pursue customer diversification and operational stability was another way we laid the foundation for sustainable growth. This led to a focus on prioritizing the “franchise value” of the Celtrade brand.

Subsequently, we worked with the founder to identify and recruit a new senior management team that implemented an aggressive growth strategy. This achieved meaningful U.S. market penetration by exploiting the industry trend of growing premium store brand products and capitalized on Celtrade’s core strengths of quality and innovation. The Succession Fund and the Board supported management’s capital expenditure plans to improve production efficiencies which increased capacity and margins.

Key Takeaways:
  • For an effective strategy, ensure a complete understanding of historical strengths and market differentiators. That way management and the Board can choose where to compete, who core customers should be and how to differentiate competitively.
  • Ensure that strategic plans are regularly updated, are actionable and reflect the changing competitive landscape.
  • Frequently monitor and measure production efficiencies and metrics.
  • Recruit and empower a professional management team to ensure a focus on profitable growth and increasing cash flow generation. This positions the business to maximize shareholder value and ultimately provides realistic exit prospects for the shareholders.
  • Conduct a broad selling process to generate significant buyer interest to optimize en bloc value.

“The Ex-Files”; Lessons Learned from Failed Partnerships

The Situation:

The Shotgun Fund and The Succession Fund invest in small and medium-sized owner-managed businesses. We start by stepping into the shoes of departing partners, shareholders, or other stakeholders and form a new partnership with the founder. We have been the leading investment firm in Canada solving shareholder disputes for over 20 years. As Canada’s subject matter experts in this area, we are introduced regularly to the investment opportunities we seek. And yet we still made judgement mistakes!

Whether arriving as a Shotgun or a Succession situation, all potential new investment opportunities have at least one thing in common. You guessed it, a founder that is a human being! That means that differences of opinion can arise regarding strategy, team building and ultimate goals. Establishing strategic plans and priorities, and having frequent discussions and regular meetings, only gets you so far if your “Ex” really doesn’t want a new partner.

We are forming a new business partnership coming in as a replacement shareholder. The focus on planning and teamwork can get displaced by differences of opinion on key business drivers. That leads to challenging personal relationships with business partners and the Board. The founder is seeking financing to find their way out of a challenging predicament. However, that doesn’t necessarily mean they are seeking a new partner – which is what we are, Period. And that’s where we have gotten into some trouble on occasion, by prematurely expecting that as a new investor solving a shareholder issue, we would also develop an effective new partnership with the owner-operator.

Lessons Learned:

Aligned partners can achieve what Shareholder Agreements cannot. Legal documents set out in detail all terms and conditions that will govern business partnerships and shareholder interactions going forward. But they can’t create constructive personal relationships and shared priorities, only aligned partners can.

People change; sometimes it is frustratingly disguised until later. Therefore, talk often about strategy, meet regularly, constantly reinforce that effective partnerships require listening, empathy and shared objectives. The absence of this type of communication can provide early insights into weak partnerships. Tackle management issues head on, as what doesn’t feel right, won’t be right.

Hard work isn’t enough; strategic planning and team building drive results, and everyone has to be on board with that focus.

Signing our Alignment Agreement is mandatory. This will significantly mitigate partnership risks and keep the emphasis on achieving our objective of building great businesses that will materially increase in value.

When a partner becomes an “Ex”, they often end up as the buyer of the business. We consider that a failed investment as maximum value was not achieved for all shareholders. Our goal is to build companies that can be sold one day for an en bloc value. Therefore, a focus on developing strategic plans and priorities, and building a team, are the key components of our Alignment Agreement.

Ready to talk?

If you want a proven partner to help you build and sell your business, we want to hear from you!

Find us at

150 King Street West, Suite 200, Toronto, Ontario, M5H 1J9

Contact us today at

416-367-3617

reid@argosypartners.com or
klar@argosypartners.com

Ready to talk?

If you want a proven partner to help you build and sell your business, we want to hear from you!

Find us at

150 King Street West, Suite 200, Toronto, Ontario, M5H 1J9

Contact us today at

416-367-3617

reid@argosypartners.com or
klar@argosypartners.com

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