ICYMI: HR Considerations for M&A

Couldn’t attend our Exit Planning Institute Chapter meeting this month? No problem! We’ve got you covered. Check out our recap below: 

Getting the deal done is one thing, but the hard work truly begins when you are tasked with integrating two companies. It’s no surprise that people issues are at the heart of the matter especially in today’s knowledge economy.  

Here’s the TL/DR: solving the “people issues” separated success from failure in M&A; culture is tough to put your finger on but hugely important to get right; “authenticity and transparency” were the most uttered words; and companies win the integration fight based on the success of front line managers.  

This major challenge typically raises many questions that we dove deep into answering at this month’s meeting: 

  • What is the best way to communicate to employees of the acquired company?  
  • How do you integrate two cultures? 
  • How do you avoid a rush to the door?  

What Is Culture? 

Our moderator, Matt Whitakerstarted off the meeting with this simple question to our panelists: What is culture? 

Bob Sprague of Yes& answered that “Culture closely aligns with the values of the organization; it exists whether you like it or not. Staying true to company values will keep employees around. Culture trumps strategy every time.”  

Culture doesn’t necessarily have to be defined or written. Every company has a culture, whether it is recognized or not. “Culture keeps everyone future focused” said Katy Herr of Audacia Strategies. “Assess culture by understanding the internal communications. Why are people choosing to be in your organization? What is your why?”  

If employees can better understand the “why” for your organization and the communication is there with front-line managers, they’re less likely to make a rush for the door because they will feel part of the organization’s culture and future.  

Jim Camic of SOC Telemed has first-hand experience with this within his organization. “We have doctors who work remotely, if they don’t feel connected to the culture, they’re going to leave. Culture is the glue that really holds everything together.”  

In a founder culture, if an owner is really loved and the company is acquired with new leadership, you have to learn to embrace the loved leader. Mark Stevenson of Smart HR advised, “Let the employees know you value their culture. Potentially alter your culture to accommodate for the other culture, embrace the legacy and the positive things.”

Owners tend to feel a sense of personal responsibility for their company and staff. What’s more – they’re unreasonably terrified of telling their staff about any M&A transactions occurring. Our panel made this very clear, it’s imperative to communicate what is happening in your company. Maintaining transparency is critical.  

Pre-Closing Themes 

While confidentiality is important during a transaction, getting ahead of confidentiality is imperative once breached. Even when there are aspects of confidentiality involved, the implementation of a well thought out communications plan for front line managers regarding a recent transaction can be the difference between smooth sailing and an uphill battle when it comes to integrating both cultures.  

This is because even when a company is looking to keep a deal on the down low, people are always going to talk, and rumors will start. You want to get ahead of this by ensuring employees are understanding the company’s vision and purpose. This will not only make employees feel like they’re being taken care of, but it will result in employees remaining increasingly engaged. 

Post-Closing Themes 

After a transaction, the communication with employees should be a high touch process. Over communicating is better than none at all. Arming front-line managers with the ability to minimize the gap of questions about what is going to happen with the company’s future is where true success lies. In order to do this, you need to ensure to have a communication plan in place and understand how your front-line managers will organize post-closing.  

What Did We Learn? 

The major considerations for HR and M&A come down to this simple conclusion: A successful company culture cannot exist without trust and authenticity. If you have the ability, being as transparent as possible with your employees will help them better understand what is going on within the company and will make them feel like they are truly valued.  

Join Us Next Time! 

Thank you to all our sponsors, Bank of America Private Bank, Shulman Rogers, M&T Bank and our amazing speakers for making this event such a success. 

Get in the know! We hold our EPI Chapter Meetings every month in the DC region where we talk all things exit planning, valuation and M&A. If you’re interested in attending our future events, please visit our event site. 

ICYMI: Pre-Sale Financial Planning for Entrepreneurs

Great event to kick off our 2020 event series – thanks so much to our speakers Uday Shah and Chris Tate from The Private Bank at Bank of America. The focus of their talk was on key financial planning techniques specifically for entrepreneurs. Here are some takeaways:  

Take-Away 1: Valuation, Valuation, Valuation.   

FY20 is the year of valuation for entrepreneurs if you are anywhere near approaching a potentially taxable estate (more on that below).  A qualified, third party business valuation is required to establish value for most financial planning and estate planning techniques. Taking it a step further, a quality valuation creates a road map for the entrepreneur. Uday made the analogy that “If you want to go to the mall, you can’t get there if you don’t know your starting point.” For an entrepreneur who will eventually exit their company, meeting financial goals in year X means you need to understand your starting point with a legit valuation now.

Take-Away 2: Changes in Estate Tax Exemptions and Impact on Planning Vehicles 

The current Estate Tax Exemption for 2020 is $11.58M and double that for a married couple (this means that a married couple can transfer over $23M in assets to heirs without paying any estate tax). That’s a pretty big number- there aren’t a ton of estates that are subject to estate tax at that threshold. But a couple of issues are likely to make this a high water mark. First, the current exemptions sunset in 2025 and return back to $5M – putting a huge swath of estates back in play for massive taxes. Second, there isn’t a lot of political support for what is seen as a “tax on rich people.” A change in administration makes this a really easy target for repeal back to much, much lower levels.

Why does all of this matter? By going through an estate planning and asset gifting / transfer process now, you will have moved assets out of your estate before any changes. Once out of the estate and in a trust vehicle those assets are no longer subject to an estate tax- even if / when the exemption returns to much lower levels. Another big consideration: effective planning means moving assets out of the estate when they have a low value. If you run a business that is growing you want to move that asset sooner rather than later. The portion now in a trust will continue to appreciate in value, but that value appreciation is no longer subject to estate tax.

Two keys to getting this done: start soon, start with a valuation. As we saw in 2012 there was a huge “gold rush” for valuation and estate planning professionals. Getting the valuation done establishes the baseline value, and getting the ball rolling with estate / financial pros assures you aren’t scrambling at year end trying to find support.

Take-Away 3: Get Granular on Post-Exit Cash Flow Needs 

Modeling your cash flow needs is critical to understanding what post-exit life (and retirement life) looks like. Think about the variables that go into a retirement financial model: You need to know:

  • What’s my current net worth (post- liquidity event usually)? 
  • How long will I likely live (meaning how many years does this asset base need to support my spending) 
  • What are the likely returns from that portfolio?
  • And perhaps most critically… how much will I spend?

In a nutshell this model above underpins most financial planning exercises. Working with your financial planner on cash flow needs (and being honest with yourself) is critical to planning for a retirement. For entrepreneurs, their operating company has often afforded them strong cash flows and an enviable lifestyle. When exiting ownership it’s critical to understand whether sales proceeds will support lifestyle requirements afterwards. 

Take-Away 4: Planning to Die Penniless 

One audience member (confession – it was me) asked: “Most estate planning revolves about minimizing taxes after I die. What about people who don’t care about after they die… but want to enjoy every penny until they day the die?” I asked this question only partly in jest- but turns out I’m not alone. Uday and Chris both commented that clients frequently want to maximize their spend while alive but for whatever reason may not have any interest in passing assets or wealth along to heirs.

Both espoused a similar playbook: consider “charitable intent.” At some point if you have accumulated enough wealth it becomes hard to spend it all- to spend big chunks you wind up purchasing assets that appreciate in value. Uday and Chris mentioned that a common theme is that such clients often find the most joy and personal satisfaction by turning their eye towards charitable endeavors that they find fulfilling. With many tools available (private foundations, Donor Advised Funds (“DAF’s”), and others) there are many vehicles to pursue these types of pursuits on a tax efficient basis.   

Note: we’ll be hosting an event later in the year on Charitable Intent and going deep on some of these concepts.   

Wrapping Up 

Both Uday and Chris where pretty consistent in talking points: financial and estate planning works better when you start earlier. An early start preserves flexibility and options (which often translates to certainty and tax efficiencies….). In a year where there is significant uncertainty about the economy, the political climate, and the tax climate, now is the time to start the blocking and tackling on this stuff if you have not already.

Aligning Shareholder Intent: Buy-sell, Managing Partners, and Adding Value

A group of operating shareholders can add strength and bench depth to a company.

However, we’ve also seen the horror stories that stem from shareholders that have different ideas on the direction of the company, growth, or their own roles and workload within a company.

Join us October 16th for our panel discussion on all the factors one must consider in order to successfully align shareholder intent. This is going to be a great one!

Learning Objectives:

  • The Buy-Sell Agreement as the cornerstone for successful partnerships
  • How aligning the goals, desires, and beliefs of shareholders can supercharge company performance
  • How a team can actually add value to the enterprise
When and Where:
  • October 16th, 2019 @ Northern Virginia Chamber of Commerce, 7900 Westpark Drive #A550, Tysons, VA 22102
  • 0730-0800 Networking
  • 0800-0900 Presentation

ICYMI: Using Reps and Warranty Insurance to Close the Deal

In case you missed our Exit Planning Institute Chapter meeting this month we’re dropping this recap below.  Great meeting with a ton of valuable content for both those in the “deal world” as well as those considering acquiring / divesting. 

This month we focused on reps & warranties insurance (also referred to as “transactional risk insurance”) and what role it plays in M&A deals. The goal for this meeting was to ensure that our attendees left feeling as though they could speak knowledgeably about the product by answering these three questions: Read more

Fall EPI DC Event Schedule Announced

Another season, another EPI event series!  We’ll be talking about the ins-and-outs of Succession Planning, the Exit Planning Process, and also hosting another “Cashed Out Owner” panel.  Plus a Happy Hour!


September 13th Happy Hour

September 19th  – “Cashed Out Owners: The Good, the Bad, the Lessons Learned”  Cancelled – Venue not available

October 17th – The Ins-and-Outs of Succession Planning

November 28th – Family Governance

December 19th – The Exit Planning Process

We’d Love to Hear from You: Call for Presentations (EPI DC)

Are you interested in participating in a future panel?  Have an idea that you’d like to see included?  We’d love you’re input!  To be considered as a presenter / panelist next year, please submit a proposal with the following:

Submission Deadline: August 31, 2018

Proposal Guidelines

  • Include a synopsis of the proposed event. This should be a one paragraph-ish blurb detailing what the session is about.
  • Prepare 3-6 learning objectives
  • Briefly discuss why you believe the topic is timely and relevant to our discussions
  • Panelist suggestions (if not by name, then ideal background)
  • * If you have a similar presentation available please feel free to share
  • Submit proposals to dan at goquantive dot com <– We all hate spam… :) 

Ground Rules

  • All content should be related to “ownership transitions.”  Topics of interest include:
    • Preparing for an exit
    • Managing growth / creating an inflection point
    • Navigating next-generation transitions
    • Matters related to an entrepreneur’s estate
    • Etc
  • All sessions are panel discussions – we do not do “single person presenter” events

Selection Criteria

  • Relevance to the EPI Chapter mission / purpose
  • Interdisciplinary or multi-disciplinary application to Exit Planning / Ownership Transitions
  • Potential to attract a varied audience and stimulate collaborative discussions
  • Timeliness of the topic
  • Practical application of information to be presented
  • Practical and clearly defined Learning Objectives

Our Mutual Commitment

  • Once selected, we commit to ample prep time (typically 2 conference calls in the month prior to event)
  • After presentation date is determined, parties “hard commit” to the date and will not request changes
  • Each presenter will be asked to prepare a slide deck for distribution to audience (* new for 4Q18)
  • Presenters are asked to help market their event to their network.  One of the best things about our sessions has been the ability to attract new, high quality attendees.  We leverage our speakers, in part, to expand our mutual network of colleagues
  • Presentations are an opportunity to showcase subject matter expertise, but our sessions are not “sales opportunities”

Chapter Mission

The mission of the EPI Capital Region Chapter is to create a forum where a community of professional advisors can collaborate to address unique needs of the local community; develop educational programs for professional advisors to build awareness and better prepare an owner for the successful exit of their business; develop, encourage and foster the adoption of best practices for the exit planning profession and related professionals; and promote the common business interests of those business advisors engaged assisting entrepreneurs through ownership transitions.

EPI Event Recap – On Being Ready to Acquire

Great event this morning!  Much thanks to our moderator Aaron Ghais and panelists Mike Molino, Chris Carpenito, and Ralph Pope this morning.  Loved hearing your insights and war stories as experienced acquirers.

Recapping some of the high points discussed: Read more