Richard Baum, Managing Partner of Consumer Growth Partners

Richard Baum

Fundology: Hi, we’re here with Richard Baum. He’s the managing partner with Consumer Growth Partners. Richard, if you can please briefly introduce your company and what you focus on?

Richard:  My company is Consumer Growth Partners, which you mentioned. We are an independent sponsor. We focus exclusively on investing in retail companies and in branded consumer products companies.

Fundology:  I’d like to talk about the recently closed transaction today. If you could give us a brief overview of the deal you’ve worked on.

Richard:   Sure.  So we recently closed the transaction of a consumer products company. The company was about 10 years old, and it was founded by father and son. The transaction was for the son to be able to buyout his father, who was the majority owner of the company. The way we got involved is through a partner in a large fund where this company had been a relatively small piece of their portfolio. The fund was winding down and the partner, who had the relationship, wanted to be able to help the son put together a transaction which he could buyout his father.

The problem was that the funded partner really didn’t have an independent access to capital. Having existed in the fund for a number of years, he would simply, under normal circumstances, call up his chief financial officer and have him call the limited partners to send their checks. This is a much smaller deal than that. He really didn’t have access to, or knowledge of a lot of the types of investors and the size of investors that would be appropriate for this transaction.

So we were introduced to him through a mutual investment banker firm. Has a firm who could help him with his transaction. We met, we discussed the company. The company generally met our investment criteria, so we liked that. Together with him, we then went and visited the company, met the management, liked what we saw, kicked the tires. Explained to them how we would approach the transaction in terms of process that we would run, and who are some of the types of investors that we would approach.

The private equity partner, if you will, wanted to see what would be the arrangement if we were to partner together. We’re pretty collaborative and it wasn’t a deal that we found. We worked out with him that we would split everything 50/50, right down the middle. So closing fee, annual advisory fee, and then the back-end promote. Consumer Growth Partners, we get 50%, and he would get 50%, which frankly was more than I think he was expecting as to give up. We said, “You’re going to have to work for your 50%.”

From start to finish, the transaction took us about 6 months, which was really pretty good. Particularly because it was a complex transaction including the buyout of his fund. We still have his minority interest. It required a creative financial solution, so that the son could wind up … Son who had no money, except what he was rolling over into the transaction, still wanted to wind up in the control position. We were able to structure a deal in which that happened.

Our new partner, if you will, is now … He’s the board member. We do not have a board chief we have what’s called the observation ranks. We head every single board meeting. It was great working with him. We helped him out of a pretty serious situation that he was hoping to get resolved. The bottom line is that the company is very happy because that transaction happened. The son is running the business, doing a great job. Our partner obviously got his deal done, got paid.

We got another portfolio company that we’re really excited about. We actually, we have told our former private equity funding guy that if he finds another deal, we would love to partner with him.

Fundology:  That’s great. You talked about the complexity of this transaction. What was the most challenging aspect for you?

Richard:  The most challenging aspect was the fact that we were presented with the situation where the son only had a certain amount of capital that he was rolling over, and that was going to become the equity of the company. For him to be able to retain control, we needed to bring less than what he was rolling over. For example, if he was rolling $4 million, we couldn’t bring any more than $4 million of equity, because he wouldn’t control the company.

But the amount of money that we’re going to bring on the equity side would not have been enough to buyout his father. We needed to add some debt to the business in order to get it to the required amount, and so we ended up bringing as our investors to SBICs, which is small business investment companies, which is part of a government program that are able to do accommodation of equity and debt in every transaction.

So we didn’t have to go out and get a separate funding source. We were able to do the whole thing with 2 SBICs who put in the total amount. It was about 25% equity, and 75% debt. A fairly complex situation for which we found a simple and elegant solution.

Fundology:  That’s wonderful. And now, Richard, I have one last question for you. Are there any lessons learned from this transaction?

Richard:  There are plenty of lessons learned. One is you got to think you have to be … As an independent sponsor, you have to really be open to being very collaborative. If deals come to you not in the normal course of events or things that fit your profile, you should think about reasons how to get them done, not reasons not how to get them done. One of the other important lessons that we learned is that we have to be really patient with these complicated deals, because there’s a lot of parties involved.

In this case we had the son who had his own agenda. We had the father who had his agenda. We had the minority partner who was the fund, who had their agenda. We had to figure out a solution that really worked for everybody. It took a lot of negotiating back and forth. It took a lot of patience. In our world, we like to say, “If a deal doesn’t die 3 times, it’s not a good deal.” We went through this near-death experience more than once in this transaction. There’s different parties who weren’t quite getting what they wanted. They want to walk away from the deal. We can, if we’re always having to make sure that we get people back to the table and eventually get it over to finish line.

Fundology:   Great. Richard, thank you so much for taking the time to sit down and talk with us today.

Richard:  You’re welcome. Thank you.

Christopher Roden With C3 Capital

Christopher Roden

Fundology:  Hi, we’re here today speaking with Christopher Roden. He is the managing director of C3 Capital. Chris, if you could talk to us please about a recent transaction you’ve closed.

Chris: Sure, we covered some of it yesterday. It’s a really unique company in Grand Junction, Colorado that operates a global business. It’s called Reynolds Polymer Technology. They are the world-wide leader in the design, construction, and manufacture of acrylic sheet. And let me tell you what that means a little bit so you know a little bit what that is.

Fundology:  Sure.

Chris: It is made from monomer and polymer and the design and engineering of making thickness out of, basically, acrylic and plastic. The company started about 32 years ago in New Port Beach making windows for submarines for the U.S. Navy. They now expanded the business. Of the 1,682 aquariums on the globe, they’ve built 1,500 of them. They’ve built every Apple store you’ve ever been in. They have a lot of defense uses for their product, a lot of commercial uses. If you’ve ever been on a Disney ship, have been in the slides or the tubes, that’s their product as well.

Fundology:  Wow.

Chris: Global business, they have a manufacturing and distribution facility in Thailand as well, started by a wonderful entrepreneur named Roger Reynolds. And we worked with him to acquire a controlling interest in the company last year.

Fundology:  Great. And how is this deal sourced?

Chris: You know it’s an interesting story, rather unique. And at C3 Capital, we’ve done 60 investments these past 12 years, always working closely with entrepreneurs. Every now and then we work with the independent sponsoring community. In this case in Scottsdale, there’s a company called Cactus Capital that basically, after a speaking engagement, they asked me if I had a minute. I said, “Sure.” And they said, “We have this interesting deal in Colorado we can’t get anybody to look at.” And I said, “I’ll take a look.” And it’s a complex investment to look at given some of the accounting used. It’s a percentage of the completion accounting, its project work, and it’s a global business with assets outside of the United States, which precludes a lot of people from wanting to take the time to look at it. Our experience both in the U.S. and abroad, and our experience over the years led us to dig in a little bit. As a matter of fact I met with the-. The deal was brought to me on Tuesday and Roger Reynolds was leaving for Thailand on Thursday so I flew up there on Wednesday.

Fundology:  Wow.

Chris: Able to meet him and it’s really a company that shows very well. And when you see it you understand it. To look at it on a piece of paper, just discuss the financial engineering, you’re not going to get the full picture. And like I said, when you’re us and you’re out there meeting with the entrepreneurs, getting a little touch-feel of the product, and what the customers are like, it starts to come together for you.

Fundology:  And can you talk to us about other parties involved in this transaction and what their roles were.

Chris: Dan Mahoney, they brought in from Cactus Capital as independent sponsors, brought the deal to us, helped significantly with the due diligence process. And, as I said, not you’re run of the mill type company to quickly understand. You have to roll up your sleeves a little bit. And we did and we had an experienced due diligence team in Kansas City. And more importantly a very well qualified management team on the ground in Grand Junction. They understood what they wanted to do. They were very helpful and very eager for the transaction, because it’s a growth business. And really that’s what we do at C3. We invest in growth businesses. And it was just a good team. It was a very good experience and we moved through the process very quickly.

Fundology:  Great. What would you say was the most challenging aspect?

Chris: It does have a far operation. So, while we at C3 can understand that and deal with it a lot of the typical financing sources, i.e. banks in the country would just as soon not do that. And when you add a certain percentage of assets or income or coming from an overseas operation, basically they tend to discount that a little bit. And that’s a little unfair, at least in my opinion.

Fundology: Sure.

Chris: That made it a little complex. And also, the percentage of completion accounting that is used in the business as in any project finance type of operation requires a little work and a little bit more understanding. And it creates a longer work and capital cycle, which you have to get your mind around. And lucky for us my colleagues at C3, we had the experience to do that. So interesting parts of that deal would lead to the understanding of those aspects. And of course the Thailand operation as well. I would say they were the most challenging parts.

Fundology: And can you talk to us about the differences between the Thailand operation and, maybe, a company operating in the United States?

Chris:  Sure. It’s interesting, because it’s an evolutionary process. I think that when most investors or buyers in the United States look at Asian operations, they think of producing commodity product, i.e. very little value add, low cost labor, widget making, so to speak. It’s true, the bulk of the engineering and design expertise at a company like Reynolds is in Grand Junction. And it is true that the Thai operation was started as basically a production of what we call commodity acrylic sheet. But also at the same time the world gets a little smaller in that there is a knowledge transfer going on. Asia is a very large market for the company. As I said, it is a global business. And I think when you look where population growth is and where the future sale of the product is going to be, it’s probably not going to be so much in the U.S. I mean you’ll always have good business here, but it’s going to be in Asia, to a certain extent South America, Eastern Europe. So I think you can’t look at it as having one aspect of production here and one there. It kind of grows into one.

Fundology:  Interesting.

Chris: So to speak, so there has been knowledge and expertise over to the Thai operation. Which I think creates a stronger company, and with greater enterprise value added to it.

Fundology: Definitely. That’s a very interesting insight, Chris.

Chris:  Thanks, no worries.

Fundology:  Thank you. Well, I appreciate you sitting down and talking with us today.

Chris:  My pleasure, thanks for having me. I’m happy to be here.

Drew Adams with StoneCreek Capital

Drew Adams, StoneCreek Capital

Fundology:  Drew, if you could please give us a brief overview of you and your  firm.

Adams:  StoneCreek Capital is a private equity firm that’s been around since the early ‘90’s. There’s two partners, myself and Bruce Lipian. We’ve been working together for a little over 20 years now. We’re focused on the lower-end of the middle market, typically companies with 2 million EBITDA and above, up to 15 to 20 million EBITDA range. We’re industry agnostic.

We will look at a variety of industries as long as long as we feel it’s one that is, ultimately, a capital-leveragable industry, so high tech or something that might reinvent itself with regularity, probably, wouldn’t have an interest in real estate or gas, that sort of thing. Otherwise we’re very much open to companies in the lower end of the middle market, pretty much anywhere in the U.S, but being based in Southern California, we prefer the West Coast if we could.

Fundology:  I want to talk to you today about a recent deal that you   sponsored. Can you give us a brief overview?

Adams:  We just closed a transaction in the middle of last year. It was a very interesting company for us. It was located on the West Coast, up in the Pacific Northwest and the right size from and EBITDA standpoint. It had a very solvent, impressive management team that we wanted to back. One of our core focuses is always backing a management team.

The vast majority of times, that is an existing team, but there are transactions we’ve worked on where we’ve actually had to build a team for whatever reason, maybe it was an owner who was retiring or a business unit span out and you had to create a team. Here, we found an in-place management team that is one of the best we’ve had an opportunity to work with many years. We’re quite excited to be able to pursue that deal.

Fundology:  What makes a strong management team for you and your firm?

Adams:  In this situation, it was several fold. This is a company that had been through some change, historically. It had originally started off as an entrepreneurial business. The entrepreneur had backed away from the company about the time that they hired the gentleman that is currently the President and CEO of the business.

He’s just done wonderful things with it. We were able to truly see his imprint. His track record was very, very evident in the cultural change in the business, the operational improvements, the quality of the team that he hired and helped to assemble, the customer strength and the customer relationships.

Unlike a lot of entrepreneurial companies, he also is working with a very high quality CFO which is something that is very unusual in our lower-end of the middle market to have somebody who truly does fit that role. More often than not, that’s the first position we have to go look to fill because that person might be really more of a senior accountant level or a controller versus CFO. We just had a great team. They had a really proven, very impressive track record.

Fundology:  Can you talk to us about the structure of the deal?

Adams:  Yeah. The transaction was structured. This is a deal that where we able to go out and find three parties to come in and work with us where they provided all of the junior capital that was required for the transaction. That did, really, several things. The first thing it did is it put the capital structure at, from a practical standpoint, a very low risk perspective because if all the junior capital, the sub debt and the equity is coming from one group of investors, then even though that structure does have a fair amount of debt in it, if there is a blip or an issue, some sort of cycle, a customer loss, anything like that, the party who owns the equity won’t move against themselves as right.

This can be a very safe structure, in that sense. Plus, the groups that we found, the three of them had had a prior working relationship on other transactions. Working together, they had much deeper collective pockets so that we can pursue add-on acquisitions which is definitely part of the core strategy of this investment is to find some additional companies to put together that are really good operational strategic fits.

It’s nice to have a group that, even on the surface, somebody had talked to us along the way and said, “Gee, you guys is that going to be kind of like herding cats?” The reality is that it’s not. These fit with this group of investors, they work very well together, all very smart people, highly responsive, very supportive of StoneCreek’s effort to work closely and collaboratively with the management team to create that.

Fundology:  Are there any interesting takeaways or lessons learned from this deal?

Adams:  I think, probably, from our perspective as an independent equity sponsor which, if we hadn’t described that before, is a private equity firm that doesn’t manage an existing fund, so we don’t have a group of limited partners that have a blind pool that we invest in, so every transaction that we find, we go out and find the right party and partner for it. For us, this was, I guess, a reinforcement of the benefits of working with this type of investor which falls into the category of an SBIC investor.

They have tremendous flexibility in the type of capital they can put to work because it’s both mezzanine debt as well as equity. It’s just a very, collaborative, support group. That’s really our takeaway is that the SBIC’s of the world, especially for the smaller sub-ten million EBITDA companies, are probably some of the best groups to work with if you’re going to be a sponsor.

 

Tom Goldblatt, Ravinia Capital Advises Staffing Company Exit

Tom Goldblatt

Fundology: Please give us a brief overview of the client and how you sourced this deal.

Goldblatt: I would be glad to.  It was probably the — I probably worked on over 100 deals and I have to say, this was the most interesting, difficult, challenging and fun I’ve ever had.  So it was really a challenge, and I enjoy talking about it.  What happened with the transaction that you’re referring to was a — it’s an industrial staffing company called Employment Plus.  It was based out of Bloomington, Indiana.  This is a company — they provide staffing, laborers for companies like Honda or Wabash or other big companies, and it’s a growing market.

More and more companies are going to use staffing to basically have them handle things like when to comp, or handle healthcare benefits and other reasons.  It’s a good industry.

This company that we were working with had basically started as a family business, a family owner.  Through their formula — which is a good formula — they think a little bit more about placing the right employees at the right place.  They have grown rapidly.  They’ve grown actually too rapidly, and so there are a lot of lessons to be learned there but they didn’t ever — they were always behind in the capital so they never had the capital to actually grow.  You need to get the capital first to grow.  They did that for one, and then also, they grew so fast from a $25,000,000 company to a $350,000,000.  They didn’t have the proper management either, so they just went from being sole proprietor run, with hands-on everything to a much larger company, but the problem was that the accounting people were not up to snuff and made several errors.  Now these errors resulted in a situation where this company — its line of credit had grown from 10 million to 30 million, and they had missed some payroll taxes which ended up — they owed the government a significant amount of money.

As you probably know, that’s one of the worst things that you can be in, is where you owe payroll taxes because payroll taxes are considered to be the government’s money and when you miss paying them, they consider it a theft, so you actually can go to jail for that type of thing.  The other thing is, as I mentioned, we deal with a lot of special situations.  It creates a real murky situation.  What happens in a bankruptcy?  It’s unclear sometimes, depending on the state, whether the bank actually would have full priority on everything or whether the states would get priority.  Basically, it’s kind of a murky situation.  When we became involved in this, and it’s kind of an interesting story — as an aside, I do a lot of networking.  I think it’s no secret. It goes to the old — I like to say the slogan, it’s not what you know.  It’s who you know.  It took a law degree and a CPA and MBA and stuff, but the way I got this transaction was a bankruptcy lawyer that’s a friend of mine, one morning three years ago, a couple months ahead of St. Patrick’s Day, he said, “I’m getting a group together, and usually, we dress up in the same thing, and we go around on St. Patrick’s Day in Chicago.  I’m going to have other clients and referral sources like bankers.  Are you interested in going?”  I’m like, “That seems different.”  It also was in my neighborhood.  I live in Lincoln Park.

He ordered six gecko costumes basically, green geckos and I went out that morning.  The funny part is that my kids are like, “Where are you going?”  I’m like, “I’m going to work.”  It’s 10 a.m.  I went out to the Lincoln Park bars as a gecko, and the thing I really learned about that is that it’s a lot of fun to be dressed as a gecko.  Everybody wants to take their picture with you, like I said, so I had good time.  One of the benefits of this is — telling this a little longer because it just shows how random networking is, but one of the other geckos was a guy that’s now a good friend, Jason Lavoie who is at Wells Fargo.  He happens to be in charge of all their factories in the whole Midwest.  At that time he just seemed like a nice guy.

We got together later, and probably about a year later — I remember I was at a Cubs game, and I got a call from Jason saying that he really likes the staffing company, and they want to make a loan, but they need an additional mezzanine loan on it.  And so that’s something we do, is help companies find financing.  We help them figure out what to do in difficult situations so Eric Welchko and I — we work together, we started working on the company and started meeting the people at the company, and we started trying to see if we could basically find them some mezzanine money.

Well, it turns out actually that we’re starting to work on the company, and we’re seeing it’s going to be very difficult to get the mezzanine finance because they have the back-tax problem, coming off losses, there’s just not a lot of assets there.  Well, we’re trying to figure it out, and we know about different mezzanine lenders.  Well then all of a sudden we get a disengagement letter from the company.  We’re like, “What’s going on here?”  We call up the company and they said, “Well, we’ve had this other guy come in and he says that he can get us an asset-based loan.”  We were like, “Well, we can get asset-based loans, but you’re not going to get an asset-based loan.”

And they said, “Well they said we’re going to have it, and we can have it by August.”  I said, “Look, I’ll tell you right now, you’re not going to have a — You guys just lost two months because we’re having trouble getting a mezzanine loan, but here is how it’s going play out and by August, it won’t happen.”  The thing is, is that we stuck with it and we continued to give them good advice and so we kept driving down to Bloomington, Indiana.  We became friendly with the owner of the company and the CFO at the time.

We told them what to expect.  We became an advisor in telling them how to go.  What happened is, the company was thinking that it could get itself out of trouble, and then it ended up that we were there and we’re talking about things that could happen and they said, “No big deal.  We got a forbearance agreement from the bank.”  “Whoa.  Hold on here.  This is big news.”  What we did then is started to advise them to come up with a strategy.  Basically.  I said, “Look, you don’t have to basically accept what the bank says.  They have lender liability.  You have your own thing so let us keep advising.  Let us help you with the bank.“  If we can finance it we can, but in the meantime we’ll be going ahead with the process.  That’s what we do.  We were looking for the best possible solution in the thing.  What we saw in this situation was a company, although it had just very poor books and records, and it had actually lost money and owed a lot of money.  What we saw is that there really here is something very valuable.  There’s really a good company underneath.  That’s why it grew so fast.  So we felt that if we could basically have the time, that the best way out for everybody — because there was no good way out for the bank, for the owner, for the taxing authorities, is to let us have time to basically come in and bring in outside people, and this is where we brought in the Grant Thornton people to help, and redo the books and records so that it’s basically — they were doing, for instance, their accrual accounting almost like on a cash basis.  So there’d be wild swings. The books and records — they weren’t accruing.  I could go on and on, but let’s just say we thought that we can basically solve.  We can add credibility to that, and we could basically work on the turnaround plan in the meantime.  The company had already begun that with the help of the bank, as well.  So they were raising pricing, and the good thing is they weren’t losing customers because they were underpricing to begin with.  They devalued just how valuable that their service was.

We basically said, “Give us time to show this.”  And we started to project what the run rate and what the earnings would be once the turnaround is complete and once we’ve rid the company — and we saw this is a pretty big number.  Although they had lost money, we can show this is making a pretty good amount, and we feel pretty confident that’s what’s going to happen.  In fact, it’s going to be even better for somebody that comes in and acquires them because they can basically just take their great way of going to business and they can merge together the overhead.  The accounting problems won’t be a problem for the future people because they — and we brought in temporary people to work — running the accounting department during the meantime as well.  So we felt that there’s something here.

Now everybody was saying, “Tom, you’re putting lipstick on a pig.”  I took great offense to that.  ”No, what we’re doing here is we’re wiping away mud from a beautiful swan.”  And that’s really what we were doing.  We basically then went through — our strategy was — getting back to what I was talking to earlier, I knew from being on the private equity side just how vulnerable this company would be because at any time any of these authorities could basically put a lien on the company.  It was like Russian roulette.  You’re done, because we’re talking about a staffing company, here.  There’s no machinery or anything.  If customers get the word out, and believe me, it’s a very competitive industry.  They’ll use what they can against you.  They’ll say, “This company is going to fail.” Customers could leave in a day.

It was very vulnerable.  We had to work really as hard and fast — and also an interesting thing is, when you’re dealing with a very large amount of money on a deal, people’s morals go out the window.  They feel justified doing anything.  So you really had to be tough and protect your turf because people were looking to try to get the bank to do a bankruptcy and try to put it through a process and say to the banker, “Look, we’ll give you all the future loans.”  One thing that we got very lucky with is that the bank, First Capital, Jay Atkins, the banker at First Growth, he ended up to be an extremely upright guy that recognized and bought into our idea of the process and invested in the process.

If we would have had a less strong-willed banker, or we would have had one with less, let’s just say less morals and honesty, there was many times that people would have basically — the banker could have basically taken the company, and to the detriment of everybody else. Maybe it would’ve been good for him, but it wouldn’t have gone through. The same thing with the owner of the company. We were lucky that that person was very admirable because many buyers would just try to bypass me and go to the buyer, the seller, I mean, and try to get him to go through a process.  It would be somewhat illegal, so it’s a good thing, and important I fully understood all the bankruptcy laws and all the different alternatives.

Because what they were trying to do is say, “Look, you’re never going to get out of this mess. So declare bankruptcy. We’ll basically pay you on the backside. We’ll give you a $2 million salary and we’ll pay you on the goodwill.” That would be a fraudulent conveyance or preferential preference, so that wouldn’t work. But I had to fend them off and we had to spend time. We really had to be tough about it because it was a very vulnerable situation.

As far as the collaboration, we brought in Grant Thornton to help. Like I said, they did a wonderful job. I’ve worked also with a lot of their competitors, whether it’s McGladrey, BDO, Deloitte. I can say the same thing about them. The people in that industry are very strong, and you’d be making a mistake these days, even in a healthy deal because of what I was talking about before.  I couldn’t do a deal now without sell-side diligence because you’re just going to end up misrepresenting your client. You’re either going to have a lower price or a broken deal.

So we collaborated with them, and what we did basically then is, the strategy was, is we basically wanted to present the company at its best, and we wanted to basically explain all the problems. We wanted to be very open about them all, and we wanted to have a quick closing as much as possible. We also wanted to try to run it as an auction, which is very unusual. The auction — it’s common in Europe. It’s common with distressed homes. In fact, it’s required by law, if you go through a bankruptcy, you need to run an auction because they need to be able to show that they got the highest and best price for the creditors. There’s a reason. The auction works. It’s done in real estate, but because of custom, it’s very unusual and buyers hate it because they don’t want to have the idea of having to compete.

What we wanted to do, though, we used the auction, not so much that we really wanted to actually have a physical auction, but by maintaining the leverage of never letting a buyer get the exclusive. So they always knew there was competition. It allowed us to drive up the price. It allowed us to keep the company from ever being so vulnerable that somebody could have a lot more time. We ended up doing that.

We did a lot of things to maintain control and keep — one of the things that we did, for instance, and this is another collaboration, is, when I was buying companies with Monomoy Capital Partners and Winston Partners, all the time we’d have these deal calls. After you sign the NDA and you have a call with management. It’s almost always an hour call. You basically get the CFO and sometimes the management. Usually the investment banker’s on it.  You have these calls and you ask them a lot of questions. You go through the hour, and usually it starts about ten minutes late because people take a long time getting on the conference call.

On almost every one of those calls I realized, first of all, it was really wearing on the management and it was really weird. Then I’d call up the guys at the PE firm, “Well, what do you think?” And they’d be like, “No. Not for us.” And you’d think, why did we waste an hour? Also because we had so many different difficult parts and stuff with this deal, that one of the things we did is said, instead of just letting everybody go willy-nilly and not present it first, and we want to present the best case, we eliminated those type of calls, and we had a live webcast instead. And we had basically 55 buyers sign in.

What we did is, we didn’t take any chances. We scripted it. We practiced it many times. We had mock questions, and the thing is, on this webcast, the buyers couldn’t see who else was on there, but they basically could hear us live. I think also because it was novel we got a lot more interest, but it allowed us to present it in the best possible way. We had all the best players. We had all the bankers there. We had the Grant Thornton people. We had the consultants. We had them really express and show it with graphs and everything. So that was one of the things that we did to maintain the control. There’s some things I did that I can’t disclose to insure I keep those tricks for the next couple deals.

Fundology: That’s a great example of using technology to speed along the deal process.

Goldblatt: Yep. We ended up, and it’s interesting — selling a company is a lot like dating, at least for me. I shouldn’t say that. I’ve been married a long time. What I remember — but let me say that what I mean by that is that when you show — when a potential buyer thinks you have another buyer, they’re real interested and they’re real nice and they really — they’re giving you more little things towards the deal. As soon as they think you really need them, they’re going the other way, things that you thought they agreed to. So you really have to maintain this balance of showing a certain amount of disinterest and that there’s always somebody else because as soon as any type of buyer thinks that they basically have the leverage, then you’re going to start to lose on all the points. The only way you’re going to win something is to be able to talk about leaving the room, which takes a lot of guts.

Fundology: That’s very interesting.

Goldblatt: In the end with this deal, we ended up being able to run a quick process. The beginning part took a long time because we wanted everything right by the time we went to market. We had a lot of detractors. We had some people saying we’d be lucky to get 20 million, 30 million. It’s interesting, we always had faith that we were going to be successful. Never doubted for a minute. Until the last week really, because if you don’t have faith in what you’re going to do and basically that’s the only way you could see. So if somebody said, “No, this isn’t going to work.” You’re kind of like, “What? How could that be? Of course it’s going to work.”

We basically were able to run the process and ended up selling the company for around 80 million, plus potentially 20 million more in earn out. The bank got paid off entirely. They ended up getting a nice fee. The tax authorities all were paid off and jobs were preserved. The owner now has — all his obligations are paid. He’s going to make a lot of money. He’s working for this much bigger company. It all worked out, so we’re feeling pretty good.

Fundology: Are there any interesting take-aways or lessons learned from this deal?

Goldblatt: There’s quite a few lessons learned and take-aways.  I was saying about maintaining leverage — I think there’s having vision that you know what it’s going to be. It’s having patience. If you have the right solution, basically try to find — let other solutions happen and try to help in any best way you can. The best solution is going to win out. Also, as far as networking goes, be yourself, have fun, be friendly, be looking out for others, and good things will come around to you. I think the basic lesson though, is just believe in what you’re doing, believe in yourself. Don’t let people talk and just drive to what you can do and amaze yourself at what you can achieve.

 

The CEO’s 100 days under New Ownership by John Bova

The CEO’s 100 days under New Ownership by John Bova

CEO should stand for Chief Communicator who needs to be the Example Setter and Organizing Leader

The first 100 days of new ownership presents the same challenges to leadership whether a CEO entered the role via promotion or a new one brought in to take over day one. There is a need to serve multiple stakeholders simultaneously. It also more acute if the new ownership is a financial owner like Private Equity. For them delivering results early will set a tone where the CEO may get more leadership latitude and less oversight with resources made more available for strategic initiatives (for a bolt on acquisition or two). Hitting the ground running comes from planning stage which is an outgrowth of the investment thesis, diligence and strategic planning process. Hopefully the CEO played a role.

The CEO as Chief Growth Officer requires talent around the CEO with C Suite involvement and buy in as they all rise and fall with driving the growth in the market place. A well placed experienced sales and marketing leader along with a chief marketing officer who is tasked with strategy and corporate development functions is a strong and necessary combination that makes this transition for the CEO much easier. This screening and role defining also should come out of the diligence phase. Losing 30 days evaluating and promoting talent is a luxury few have.

The most valuable early victories are around performance and that is best illustrated in gaining new orders from existing customers and being visible with the sales and marketing team to close new business. Wisely using executive commitment in the field does demonstrate a “roll up sleeves” and “in the trenches” attitude. Early work with sales and marketing to define and understand current sales pipeline and the market dynamics that impact recent and future results are needed as parts of the company’s strategic play book. Ultimately the CEO will build a book with the C-Suite which will outline how the growth will occur and what resources will be needed.

It is also the best time in those 100 days to evaluate the customer-facing talent, review the won and lost opportunities and the customers of the last twelve months. CEOs need to early on to take a realistic look at growth possibilities with the current domestic and international go to market and channel models. Sales talent and go to market can be transformed fairly quickly once the strategy has been thought through with the overall play book in mind. Playing the role of Chief Communicator who is engaged in the revenue development of the company provides buy in and alignment. Many times lower middle market companies are revenue driven companies that under private equity begin a process of sales procedures and brand strategy development. If the CEO comes from this silo it helps. However non sales and marketing CEOs would be well served to put time in here. All CEOs sell in some way.

Additionally an example is being set for all leadership to understand how and why the company serves its customers and consequently how the revenue is created. Once that is part of the DNA, the whole company becomes more customer centric which is an element of long term growth and brand building. Product and Service Pipeline involvement is crucial as this frames the future sources and methods for how revenue will be created in the firm. The CEO needs to strike a balance as per how engaged he or she can be. However absence from the process, lack of interest in the discussions and little contribution of ideas will raise flags among the key rank and file management especially. Dollars introduced into middle market private equity firms via debt is carefully scrutinized. The investment in the end was based upon understood leverage levels consistent with debt coverage capabilities.

Careful use of working capital and other financial resources need leadership to balance the internal requirements of future growth resourcing with PE requirements of long term return. This is where CEO wears the communicator and organizer hat. The CEOs lead will be watched by both sets of stakeholders, up and down and internal and external. The 100 day plan is executed and communicated on day 1 but putting the parts in place starts as soon as change of ownership and diligence begins with new owners. The presence of a pre-deal play book to begin from saves time and will be a welcome surprise for the PE investor and something that gives the CEO some more breathing room and time. The CEO in waiting really needs to be part of the transition in ownership. Dropping someone in rather than giving the person the benefit of planning and a transition would prove a lost opportunity.

Keeping the growth and EBITDA drivers upper most in CEO messaging with common sense approaches will balance all the stake holders:

• Over communicate to the C Levels and everyone else internal and external. It is especially important for the internal teams and leadership. The role must be shared and that approach helps delegate the efforts around getting the message out.
• Keep an eye on the top line and keep growing it.
• Key talent and customer retention efforts need to be thought through.
• Having the depth of a well-planned strategic effort into a play book for PE and having consistent message delivered per its role in growth planning is vital.

About the Author

John A. Bova is a Director at MTN Capital Partners, a NYC based lower middle market private equity firm focused on investing in healthy companies with a preferred EBITDA of $5-15MM. John’s operational background in managing lower middle market niche industrial product manufacturers focuses him on B2B platforms and add-ons. Follow him on twitter @JohnABova

Jerry Mills, CEO of B2B Exit and B2B CFO, Author of The Exit Strategy Handbook

Jerry Mills

Jerry Mills founded B2B CFO, the nation’s largest CFO firm, in 1987 and is considered a pioneer in the CFO Services industry. Mills was recently named an AM&AA Thought Leader of the Year finalist for his book, The Exit Strategy Handbook. Jerry also founded B2B Exit, providing exit tools and talent to assist in exiting your business.

Fundology: Jerry, can you please give us a brief introduction, and tell us what drew you to the space.
Mills: Yes, well first let me tell you just briefly about myself. I started my career with Arthur Andersen. I was a manager. I saw this void in the space, and I just started this business in 1987, and we now have professionals in my company in 45 states around the country. So here we are.

Fundology: You’re an expert on business exiting. What is the most important thing that a business owner should do to successfully exit the company?
Mills: Well my experience in over a quarter of a century is that most business owners don’t understand that it’s harder to sell a business than it is to build it. They’re really good at building, and they haven’t had the experience of selling it. And when they decide to sell it, they typically don’t know the right price, and they don’t know the process. So what we try to do is teach them the process because if they take their eyes off of running the company, typically sales, and also the value of the company, whatever the value is, goes down. And so what we find is they’re just really good at building businesses, they don’t know how to sell it properly. And that’s what we help with.

Fundology: When you’re advising a company that is planning an exit, do you do all of the work yourself? Do you bring a team in to work with you?
Mills: No, we don’t do the work ourselves. We advise the business owner against that. That’s one of the hallmarks of The Exit Strategy Handbook, and also the software that we’ve written for this process. We felt that the business owner needs a team. The business owner needs to be in charge, and that’s why with our software they can look at the process every day if they want to, to see where it is. But we want a team. We call it the success team. We want typically an M&A firm or investment banker. We want an attorney that the owner trusts. We want tax CPA’s so they can calculate the after-tax money. We want certified valuation appraisals and so forth. Usually we recommend there’s about eight to ten people on that team that work in congruence with the business owner in helping support them. We believe in the team concept because there’s so many good professionals, and they need to use their skill set to help further the goals of the business owner.

Fundology: And how do you select those team members?
Mills: Well, business owners are interesting. They typically have some people that they already know, maybe an attorney, maybe a CPA for the taxes or audit, and so they have relationships, and typically they like keeping those relationships. But if they don’t have other relationships; for example, an M&A firm, an investment banker, or if they need some other advisers — we’ve been doing this for a long time, and we just have those relationships. We typically — when we introduce a professional to the business owner, we ask them to interview two or three different people because the personality has to fit as well as the skill set. They have to get along, and not only with the business owner, but with the team. So we will make recommendations, and then hopefully, by going through that process, we can build a cohesive team. And simultaneously, we can let the business owner keep doing what he or she is doing, get out of the process, and just go build the value of the company.

Fundology: Can you tell us about a unique situation that you’ve worked on, advising a company?
Mills: Well, there have been so many. We had one in our firm recently where we were going through this process. It was a female-owned business, very successful. And she was married, and she passed away suddenly. And so her husband then was given the role to step in her shoes to go through this exit strategy process. And he fortunately, we think, inherited the values his wife had. She didn’t take the top bid. She went with a lower bid because the lower bid had the values of taking care of her employees. And so you never know when you’re working in a situation. What we want to do is work together with our professionals and the team to carry out the goals and missions of the business owners. So that’s a unique situation, but overall, it may not be that unique.

Andrew Greenberg – CEO of GF Data Resources

Andrew Greenberg

Fundology: Please give us a brief overview of you and your company.

Greenberg: Sure, I’d be happy to do that.  GF Data collects valuation, volume, leverage, and legal term information on deals done by private equity groups on transactions they complete in the 10 to 250 million dollar value range.  Our data contributors get access to our information at no charge, and we then have a group of paid subscribers.  That includes M&A firms, valuators, lenders, law firms, corporate development groups and others.

Fundology: Is there an industry focus?

Greenberg: There really isn’t.  Most of our data is concentrated in four industry groups, manufacturing, business services, health care services, and distribution.  So we tend to get information from key funds that are active in one or all of those industry areas.  And then our customers tend to be investment bankers or other financial professionals working with clients in those fields.

Fundology: How are your clients using this data?

Greenberg: I think our greatest contribution has been introducing a sense of reality to the valuation of lower middle market companies.  When we first started the business, our average multiples were in the range of 6 to 6 1/2 times EBITDA.  And people said, “Well, that can’t be right.”  Because the scuttlebutt in the industry was always ahead of that.  Well, we now have 200 data contributors.  A thousand financial professionals use our product.  We have over 1,600 deals in our database, so the volume of information is kind of incontrovertible.  I think what our data shows is that the market for the valuation of lower middle market companies tends to be fairly disciplined, not the prices advanced by investment bankers, not the prices of the letter of intent stage, not the price that gets talked about in industry circles, but the price at which the deal gets done tends to be pretty disciplined.  You know, 6 to 6 1/2 times is a good average in the 10 to 50 million dollar value range.  And the fact is, it takes a fairly strong and special business to command a valuation of 7 times or more.

Fundology: Can you give us a use case or an example of how a company has used your data reports to add value to a transaction?

Greenberg: Well, as I said, we have a thousand professionals who use our data.  My partner, Graeme Frazier, and I are both deal professionals in our day-lives aside from running GF Data.  And I can tell you that at my firm, Fairmount Partners, we use the information all the time, typically at the pitch stage.  If we’re going to be in a business competitive situation, it’s invaluable to have the GF data reports and a centrical database which enables us to drill in and get valuations, cost in particular industry areas.

How we use that data is always a tactical question.  If a customer of ours knows that they’re going to be talking about valuation in a competitive setting, they might not want to be the ones saying, “Look, your business is valued at 5 to 6 times,” if less informed competitors are going to be coming in with loftier forecasts.  But you might as well have the right information and then be able to use your tactical judgment of how you use it.

Fundology: Can you give us just a brief overview of what you see as your vision for GF Data Resources?

Greenberg: Well, I think we’ll continue to do what we do, which is provide a practitioner’s view of the best available information that can be collected for financial professionals and buyers of businesses.  The big picture vision for GF Data has to do with looking at it in another way.  Our business also can be seen as an online based utility for hard to reach financial professionals geared to provide information in a secure environment, and then others go to collect that information.  We think that that gives us the ability to continue to develop applications that take advantage of our practitioner’s view of the world, and the trust that we think our system has built up over the past seven years.

Peter Worrell – Managing Director of Bigelow LLC

Peter Worrell

Fundology: Can you please give us some background on you and your firm?

Worrell: The firm was founded in the 1930’s by Nathaniel Bigelow.  We’re an M&A firm with a specialty in entrepreneur, older managers, exclusively.  So we work only with people who have their own capital at risk.  We’re what we call sell-side only, M&A firm.  So we don’t do anything else, no raising capital, and no real work on the buy-side.  And we work agnostically as to industry, and we work all over the country.

Fundology: I want to talk a little bit about your book.  You say that selling one’s enterprise is a creative art form.  Can you touch on that?

Worrell: Sure, well these are people, as we just mentioned, who have their capital at risk in an entity that they might have founded, or it might be a family entity that their family’s owned for a long time.  Or it could be an entity that they own with some institutional investors.  But in any one of those three cases, it’s something that usually their personal identity, their sense of self worth, is all tied up in this entity, along with their financial outcome.  And so, we think of it, Paola, in a way of speaking about it, as what we’re trying to do is help them to acquire the next majority owner for their business.  An owner that will sustain the business beyond their personal ownership of it so far.

Fundology: What can a business owner do to leave a positive legacy after an exit?

Worrell: Business owners frequently have a great, positive impact on all the stakeholders around them.  Perhaps more than they even frequently know.  Many times they have hired many of the people in their management team and in the firm.  Many times those people have spouses and families and talk about business together a lot.  Those people provide, hopefully, a great work ethic and a great outcome for the families who work with them.  But also, if I name to you a couple of names of families, let me ask you to guess what these names represent.  If I said to you, Gates, Buffett, Rockefeller, Lilly, Hewlett, Packard, Johnson.  What would you guess those names are?

Fundology: Technology or innovation.

Worrell: Great entrepreneurs, right?

Fundology: Sure.

Worrell: And of course they are.  But they’re also among the ten largest charitable foundations in the world.  So you see, those entrepreneur owner/managers created organizations, yes.  And they created great enterprise value, yes.  But to the largest extent that enterprise value went to fund the not-for-profit social sector in North America.  That’s what I mean by a great outcome.

Fundology: I also want to talk about a recent transaction that you’ve worked on. Can you please briefly tell us about an interesting transaction?

Worrell: Sure.  One of the transactions recently was a company in the industrial filtration business.  This is a company that makes water filtration for industrial processes, really large filtration equipment.  So it’s as large as this room.  And the company was started 30 years ago by an Englishman who worked in a number of process industries, and realized, wow, a lot of these industries have a constraint of either not being able to get enough water or they’re concerned about releasing dirty water back into the environment.  So he designed, with his team, a way to have industrial water filtration, both the equipment and also the filtration.  We were able to structure a negotiation that allowed him to choose from the best handful of strategic acquirers in the world, and the best handful of prime-equity investors in the world.  He ultimately decided to choose a private-equity investor, a firm from Los Angeles, who had great interest in the industrial filtration area.  In fact, had an operating partner who really was familiar with that area.  That transaction closed about six months ago, and I just spoke to my friend, Barry, who’s delighted with the outcome and couldn’t be happier about the future of the business.

Fundology: And can you tell us about some of the parties that were involved in this transaction, and how you were able to work together?

Worrell: Yeah, there were a lot of them.  We were initially referred to the business by its commercial banker.  The commercial banker had been the commercial banker for the company for a really long time.  I think it was one of those situations where the banker’s having a beer with the owner one night, and the owner said, “Boy, I don’t know what I’m going to do about this business.  Someday, I’d really like to think about who’s going to be the next owner.”  In addition, he had another concern, which is, he has a 32-year-old learning-disabled son, who he wants to provide for for the rest of his life.  In the back of his mind he was thinking, “Wow, I’d really better get some chips off the table someday.”

We were able to help him find an M&A attorney, who is from a world-class firm.  This one happens to be on the east coast, and we were able to help him work with also an accounting and tax advisor, and ultimately a wealth advisor, to help he and his wife and their son, develop some estate planning devices that allowed them to put the enterprise value to great use.

Fundology: And how do you choose the team that you work with?

Worrell: That’s a great question.  We used to — back in the bad old days, be very cautious, be very careful about clients because, of course, all of our clients already have a lawyer.  They already have an accountant.  They have these advisors, but it’s not typical that these advisors are expert in these large M&A transactions.  So we have, over the years, become more bold to say to our prospective clients before we get engaged, “Hey, let’s talk about the team.  Let’s talk about the team that’s going to surround you as the entrepreneur, owner/manager in the middle.”  And let’s talk about, for example, do we need to have a great entity deal tax person?  We had one in this case.  She was a person who was a partner in a national firm, who was able to clarify so many things so quickly for us.  It was just of great value.

Or let’s think about who your wealth advisor is.  An armament of some things that can be done in advance of the transaction to help you along the way.  So we are now quite forward about making sure that our clients have thought about these advisors in advance.

Fundology: What was the most challenging aspect of this transaction?

Worrell: It fell apart.  On the Sunday after Thanksgiving, I got a call from the CEO of the strategic investor that we had originally picked.  They said, “Pete, I’m awfully sorry to give you this phone call, but we’re not going to make our quarterly profits.  And you probably know, it’s my first year as CEO.  And the reason we’re not going to make our profit number is because of an acquisition we made last year.  And I know we’re supposed to do this transaction, and I’m so sorry, but there’s no way I’m going to bet my career on telling our board that I’m going to go forward with this transaction, when I really need to get my act together and clean up this old one. “  So our team swung into action on that Sunday afternoon.  We had a firm-wide meeting at Bigelow, and we asked ourselves, what are we going to do?  How are we going to go back to the market and think about who can step into the shoes of this investor?

The most challenging thing was to really pull that back together very quickly when we were only two weeks away from closing.  And to be able to do a transaction, that I think if you asked the owner, he’d tell you, he’s as happy with, and some ways more happy than probably he was with the first one.

Fundology: How did you source that private investor?

Worrell: This was a private-equity firm in Los Angeles, that I mentioned.  And we had had a number of dialogues with them over the years about what specifically vertical industries they were interested in, and one of them was filtration.  I have a partner who lives in Seattle.  His firm’s in Los Angeles.  And he said, “You know, I remember that Rich told me that he was always interested in industrial filtration.  I’m just going to pick up the phone and call him.”  Because this is such an unusual situation where Humpty Dumpty fell off the wall and went into a 1,000 pieces.  And what we were basically saying was, if you would like to step into the shoes of the investor who fell off the wall, the deal is almost all negotiated.  So really, if you’re willing to step into the shoes, we can do this very quickly and with very little competition for you, which we were able to do.

Fundology: Are there any interesting take-aways or any lessons learned from this deal?

Worrell: Yeah, I think there’s a couple.  I think probably one of the things we didn’t do as well as we could have was, we didn’t prep our client’s management team as well as we could have, and how challenging it’s going to be to explain the business to a private-equity investor, totally skillful, qualified, experienced private-equity investor, who wasn’t from the industry.  So we probably could have done a better job on that, and we’ll do a better job on that in the future.

I think the other thing was probably that this client made a decision that he wanted to find a new majority owner pretty quickly.  And as you may know, in our practice we frequently have months or years in advance of a transaction where we are working with our owner/manager clients to kind of help them build value along the way.  That’s the other thing we should have done here because there’s a few things, not just window dressing, a few substantial things we could have done that probably would have made the business evaluate better.

Fundology: What do you think those things were?

Worrell: Oh, I think they had to do with, for example, when you look at the business — if you look at the business with me, you would agree that they were thin in their marketing channels and their sales management.  And the reason is because the owner/manager was so powerful in selling.  He knew the technology.  He knew the customers so well.  But when he made a decision to transition out, that was quite obviously going to be a hole.  And it’s a hole that the private-equity firm can and will fill.  But it could have been a hole that he could have filled in advance, and probably could have realized additional enterprise value for that.

Alternative Investments Conference

Alternative Investments Conference

March 21, 2014

New York City, NY

The annual SEO Alternative Investments Conference promotes diversity by providing a day of educational panels and networking, increasing access and career development for more than 300 professionals from backgrounds traditionally underrepresented in the alternatives sector. The Conference features the insights of prominent leaders from private equity, hedge funds, real estate, limited partners, fund of funds, emerging managers, and career placement firms, while fostering valuable exposure and interaction for participants. Panel discussions and networking activities with sector leaders, limited partners and fund managers are also offered.

Joe Donlan – President of ConnectedHealth

Joe Donlan 0 ConnectedHealth

ConnectedHealth provides the leading benefits shopping platform that offers consumers an integrated marketplace for health and financial protection. They offer decision-making tools, such as a recommendation engine, to help make health plan choices easier. Joe Donlan is the President of ConnectedHealth. Prior to ConnectedHealth, Joe was a co-founder of Subimo, a recognized market leader in consumer-driven health care.

Fundology: Please tell us about Connected Health.
Donlan: Myself and a colleague, John Fiacco, started the business a few years ago. We’re a Chicago-based company. We have offices here in Lincoln Park/Bucktown area with several employees scattered throughout the country. Our focus is to become the premier consumer marketing organization that allows businesses to grow their business while ensuring that their employees are healthy and financially secure. What’s happened over the last 15 years or so is that health care costs have been going through the roof. That’s had a negative impact, of course, on businesses’ bottom lines.

As we all know, in order for a business to be competitive, they need to offer a compelling benefits package to acquire and retain key talent. We also know that when employees do have the appropriate insurance coverages, they tend to be healthier. They tend to be more productive in the workplace. Our opportunity and really our ability to solve for this is in the centered around creating a consumer-focused e-commerce benefits platform. We’ve developed a product which we call a Smart Choices Marketplace.

The Marketplace accomplishes two main things. First, it allows employers to have more predictability in their healthcare costs. We leverage an approach called defined contribution. Really what that means is employers will allocate a certain amount of money that employees can use to apply or purchase health insurance and other related benefits. The other part of that is that employees no longer want to settle for a one-size-fits-all approach. Offering one or two benefit options really is a thing of the past.

What we’ve done is amass the Marketplace so that employees have multiple benefit options whether it’s medical plans, dental plans, vision, you name it, we provide the marketplace, the employer provides the dollars, we make it easy for them to shop and buy those products. We deploy the Smart Choices Marketplace either directly to employers or through trusted advisors or third parties such as payroll companies, health plans or consultants.

Fundology: Is there a focus on the size of companies that would be using the platform?
Donlan: That’s a good question. Not necessarily. The platform can accommodate benefit strategies for all size customers. We have organizations that have 100,000 part-time employees, as an example, that’s using and leveraging our platform to help those employees get coverage. We have some employers that have under 25 employees. It really runs the gamut in terms of how and the value that the product can be provided to an employer.

Fundology: Have you seen any challenges building out a marketplace model?
Donlan: Certainly. I think what’s happened over the last 12-13 years, everything takes a really long time in healthcare to play out. Myself and my colleagues had started another business back in 2000 where we were offering consumer decisions support tools to individuals. We talked a lot about consumerism and health and wealth but the reality of it was the market wasn’t necessarily ready. We’re seeing a very big shift from the wholesale marketplace to a retail marketplace.

What that’s allowed for is more willingness from the different carriers to think a bit differently about their distribution strategies. Connected Health provides a very compelling distribution strategy for these organizations that want to make sure they’re offering products where people want to buy.

Fundology: Can you tell us how you you’re working with the recent changes in healthcare laws?
Donlan: We never predicated the business on health reform. We kind of started it when health reform was percolating. What we did was predicated our business on the fact that employers are still being challenged with healthcare costs. They need to offer compelling benefits packages to get the right people to make sure the business is successful but what’s happened with health reform has helped accelerate our business.

The notion of private exchanges or private marketplaces has really accelerated as an alternative or viable option to the public-run exchanges, because in our mind we think that the employer still is an important and critical gateway to offer benefit coverages for a whole host of reasons. When an employer has the ability to control that approach and process, there’s a lot of value that they can get out of it in terms of the packages that the employees can get benefit from.

Fundology: Tell us what your plans are for Connected Health in the future.
Donlan: We’re very bullish, certainly, on the market. There’s a lot of studies and data that are coming out as of late about how private exchanges really are the next wave in transformation in healthcare and in benefits. We feel as an organization that, based on our knowledge of how consumers make decisions, and this is difficult because we’re talking about instead of one benefit option, someone might have 10 different benefit options. It’s really important for us to leverage our experience and understanding how consumers make decisions, how to put it in a framework so that it makes it easy for them.

We spent a lot of time developing out the recommendation engine that will provide personalized benefit results for an individual. Today we’re providing those personalized benefit options for somebody but we’ll continue to listen to our customers, understanding what they’re looking for. We’ll expand upon that to start rounding out this full concept around health and financial security portfolio.