Small Business Private Equity
By: Paul Wormley
My partners and I think and act like owners because we are owners. As a group, the three of us are the second largest investor in our investment funds. Our significant personal commitments make a big difference to owners that are considering selling their small business and to the managers of companies owned by Hadley Capital.
Small company owners are often concerned that a buyer, particularly a private equity buyer, is going to wreck their company. Since my partners and I put up significant personal money to buy a company, we aren’t going to take crazy risks after we buy a company. In fact, our motto is ‘first, do no harm.’
Back in 2005/2006 we spent more than a year working with Mark and Gayle Reed, the owners of SGA. The Reeds were very concerned that the buyer of SGA recognize and appreciate the substantial contributions of SGA’s employees as well as the legacy created by the owners and their team over the last twenty years. My partners and I were able to address these concerns by pointing to our successful track record of working with small companies, our ‘first, do no harm’ approach, and our significant personal commitments involved in acquiring SGA.
The managers of our companies also take comfort from the fact that my partners and I eat our own cooking. Like most owners we don’t spend frivolously, we don’t fly first class or stay in fancy hotels. But we do take a long-term view when evaluating critical business decisions.
PSI, our packaging business in Phoenix, was faced with a decision to acquire a new piece of (expensive) foam production equipment. After evaluating the economics of the machine – including projected utilization rates, improved efficiencies, labor savings, etc. – we (management and Hadley Capital) were disappointed that the pay back was longer than initially hoped. However, purchasing the machine was clearly in the best interest of the company (and our customers) over the long-term. PSI is now the only company west of the Mississippi with the capabilities provided by this new production equipment.
My partners and I think and act like owners because we are owners. Many private equity buyers claim that they are long-term investors who think and act like owners but very few back it up with significant financial commitments. In fact, most private equity principals (the guys and gals making the investment decisions) have far less ‘skin in the game’. But I’ll save this topic for another post on another day.