Rachid Sefrioui: Making Turnarounds Work !

Turning around a business is not for the faint of the heart. It takes guts and rapid decision making. Of course it is always easy when all is turned around and stabilized to "second-guess" every past decision, but the main thing is that 7 out 10 decisions were good at the time they were taken. 

"I thank you all for having a strike today"

The everyday work and drama of restructuring a business, whether it is as a result of a merger, a rollup, an integration or simply to rescue a business, can be pretty amazing, in good and bad.

You do find yourself frequently communicating to various stakeholders trying to inspire them to take action in the right direction. Erik actually spent the time to catalog the best phrases that came out from his gut. Funny as hell!

In my recent 18-company rollup across multiple cultures, I uttered many of these phrases, probably a few that would be censored, as sometimes certain cultures only react, instead of "act".

At what pace do you restructure a business?

It's been my experience that restructuring a business is more of an art form rather than a science. In rolling up 18 IT companies, I realized that I was not following my investors pace. Instead I was focusing on the underlying businesses.

Does that affect the business? sure it does. does it impact your management decisions, absolutely.

So why pace yourself to your investors timing? Because they are the source of capital, and they don't care what's inside the blackbox, they only care about capital gains and returns. And they are right.

Frequently CEOs in a roll-up become wrapped up in putting together the right organization, the perfect business unit, the optimal technology partnerships. This is fine, but it does not fill your investors objectives.

So focus on your investors and board timing. They call the shots because they control the cash.

Smooth handover in Private Equity rollups is the name of the Game

When doing a rollup, it is often said that capital efficiency should come from financial engineering. So when Rachid Sefrioui started his 18 company rollup in IT Services and Offshoring, the name of the game was half-cash, half-earnout.

The notion of an earnout is when you give the seller the other half of his price when the operating and financial goals are met in the subsequent 3 years. Of course what comes with that is that the seller has to stay in operations to achieve those objectives and get the rest of his payment.

And that is where problems arise...

Indeed as a new acquirer you want to take over customer relationships, employee relationships and supplier/partner relationships. But the seller who is still running the company does not want to let go. Understandably. He feels the buyer has not paid up yet. But more realistically because he wants to keep those relationships as exclusive to him as possible so that when the buyer finishes paying, the seller can walk away with "his" customer relationships, "his" trusted employees, and "his" suppliers/partners.

This happens everytime because of the emotional structure of founders. They fundamentally believe that "The company is me".

Having lived through this scenario many times over, it becomes an art to smoothly accomplish the handover of these business-critical relationships to new managers the acquirer puts in place. If the handover is not smooth, or rather becomes a wrigling of those relationships, now winner comes out. The company ecosystem becomes polluted with hear-say, relationships are asked to choose "them vs. me", and eventually clans build up inside the company. This environment immediately affect company performance, and may take another 3 years to rebuild after a brutal separation with the founder and his cronies is consummated.

Smooth handover over time is the name of the game in rollups. Be patient. Take a few punches. Stomach a few bad apples. But in the end, it will make the acquisition price worth it, inside the initial 3 years of the earnout.