In the M&A deal ecosystem different types of buyers have different motivations. Family offices are known to have a long time horizon and offer flexibility during acquisition. Alex Panosian is a co-founder of CW Growth Partners, a family office focused on acquiring and growing small businesses in the Midwest. Laurie Barkman and Alex discuss his family business legacy, core values, and how that shaped their investment strategy.
Listen in to learn more about:
- Growing your business value through your people, culture and systems
- Key considerations from a buyer’s perspective during an acquisition
- To leave or not to leave? Finding the balance between staying on and exiting following a transition
- The flexibility family offices offer compared to private equity buyers
Connect with Alex Panosian:
CW Growth Partners website: https://www.cwgrowthpartners.com/
Alex Panosian: alex@cwgrowthpartners.com
Connect with Host, Laurie Barkman:
https://www.linkedin.com/in/lauriebarkman/
Transcript:
Intro:
In the M&A deal ecosystem there are different types of buyers with different motivations. Family Offices are known to have a longer time horizon, in contrast to private equity firms for example. There are 3000 Family Offices in the US managing $1 trillion in assets. CW Growth Partners is a newly launched family investment office focused on acquiring, leading, and growing small Midwestern businesses. I really enjoyed my conversation with Managing Partner Alex Panosian because we talked about his family business legacy, core values, and how that shaped their investment strategy. For anyone considering launching a Family Investment Office one day, or selling your business to one, this will be a great episode for you. Thanks for tuning in!
Laurie Barkman:
Alex, welcome to Succession Stories. This is a first for us on the show, talking to a startup family office. That’s so interesting because it’s an option for successful entrepreneurs. If they go through an exit, they go through a transition, they have some choices to make, about how they want to live, what they want to do next; do they want to start another business? Your father, whom we’ll talk about in a moment, made the choice with you to start this firm, and I really look forward to learning about you and your experience with your firm, and CW Growth Partners, so welcome.
Alex Panosian:
Thanks, Laurie. It’s great to be here today.
Laurie Barkman:
Why don’t we start with you? Tell me about your background.
Alex Panosian:
Sure, absolutely. For me, my background is I’m an army veteran. I grew up in Milwaukee, ended up marrying my high school sweetheart, her name is Erin, she’s from Milwaukee as well, and then I went on to West Point. I did my undergrad at West Point and then spent five years in the Army and we, my wife and I, were living over in Germany at the time and I did a deployment to Afghanistan and really enjoyed being in the army, enjoyed working with soldiers and the meaning that that you got from that every day. But ultimately after the time in Afghanistan, my wife looked at me and she’s like, “Let’s get back to the Midwest and start a family,” and so that was the first big transition point for us. We moved back to stateside for a little bit, spent a little bit of time in Oklahoma as I transitioned out of the army, and then we moved up to Chicago, so to nearby Milwaukee and I went to business school at Booth and also had my first son around that time, my first child, my son Theodore.
Then following that, I went to a consulting firm called McKinsey and I worked at McKinsey for for three years had my my daughter Amelia while I was there so I have two children so the ‘start a family’ plan has worked out really well for us and then within the past six months here and I think this is probably what we’ll talk about the most today is I did another pivot but not so much as a pivot as coming back to what was always the original plan and left my job at McKinsey to work with my dad full time. He and I are acquiring, looking to acquire small businesses and grow the existing businesses that he already has.
Laurie Barkman:
Thanks for sharing your background and sincerely, thank you for your service to our country. Your transition personally is part of the story and I appreciate you sharing that. Let’s talk about the firm CW Growth Partners. Can you share the story behind that?
Alex Panosian:
Yeah, absolutely. I’ll start back with my father because I think you know especially for the audience today there’s a lot of, I’m sure, entrepreneurs that will be listening to this so probably his story will resonate most with them. This is about 30 years now, he was working in big technology sales and decided, “Hey, I want to go on another path,” and it was just really important for him to do his own thing and so, on the side while he was working at his day job, started looking for companies to buy and ended up identifying and buying a self-storage facility and this was 30 years ago and self-storage facilities are really popular and all over the place now but they weren’t back then. We always joke, “Who would have guessed self-storage facilities would have been better for our family than technology?”
Laurie Barkman:
He placed a bet on that.
Alex Panosian:
Yes, for sure. It’s been great for our family and so found one, realized this is a really phenomenal business model in the sense of low churn, low operational complexity, really good recurring revenue and so once he realized, my mom was working at that one while he kept the day job and said, “We’re gonna go for this,” and so he left his job, developed out another, bought another property developed it out and then bought a few more subsequent subsequent properties. That’s what our family business is and I grew up working there and I think it was one of the coolest things as a kid, doing all the little dirty jobs; hanging fence line and sweeping units and pulling wires through the ground.
I remember all that and I’d do that with my dad and then we’d go back to the office. I always thought, “This is the coolest thing.” You got a job where you really get a lot of value from working with your hands and seeing things get accomplished but then he also had the intellectual aspect of thinking about it; the counting in the book side and in putting that all together and so we’re extremely close. I think the plan was always for us to come back and work together at some point but for me, it was really important to stand on my own two feet first and so that’s what led me to the army and the path that I just talked about a little bit before.
Then, within the past year and a half, we started to talk about it a lot more like, “Hey, okay, you’ve done these things.” For me, it was like, he’s getting closer to retirement age, let’s figure out what the next stage of the journey looks like for both of us and so we decided to come together, formed Charles William Growth Partners or CW Growth Partners, and to go from there. I’ll talk, I’m sure we’ll talk a little bit more about what our mission is and what we do but that’s how we got here.
Laurie Barkman:
Thanks for going through that. I think we’ll just ask the question now because people are hearing Charles William; so if you’re third generation, your dad is second, are Charles and William G1, then?
Alex Panosian:
Yes, that’s right. They’re my two grandfathers and for us, legacy matters. It’s extremely important for us, and that’s really, I think when we talk about who your heroes are. For me, that’s who it was; my two grandfathers and they were extremely influential on my dad’s life as well. My dad’s dad was named Charles, and he was a lawyer, he had his own law firm, and was a small town judge, and just an incredible man, as far as from an integrity standpoint, when we think about like, honor; honor really means something to him, and really made sure that everyone in the family is held to a very high standard as far as their ethics and where your word is your bond, sort of generation. That’s one legacy that we want to live up to.
Then the other legacy is my mom’s dad, whose name is William, and he was an Army veteran as well, and just a guy who could get things done, back in the days of incredible gumption – I think is the word – where he had no formal training or education and ended up developing multimillion dollar real estate. Even later in his life, ended up owning a couple of small properties, but just for what he was able to accomplish as an entrepreneur is something that we think is, our kind of core values are; do the right thing, and then be bold, and that comes from those two.
Laurie Barkman:
That’s great. A lot of people, I ask them, I say, “Is there an entrepreneurial gene in your family?” We would say, “Probably, yes.”
Alex Panosian:
For sure.
Laurie Barkman:
That’s awesome, and I like how you shared your core values, too. I think that’s really important because you’re a new firm, this is a new startup firm. Let’s talk about that as a choice, to create a family office. We don’t have to go into all the detail here but essentially your father had some sort of wealth creation transaction. Did he sell his portfolio of companies or does he still own them?
Alex Panosian:
We decided to maintain ownership of the current portfolio. That’s part of our model; a permanent hold type philosophy, and, really believe in the power of compounding over time, but it has gotten to a point where we’ve been able to build up a little bit of cash reserves and have a lot of equity in the businesses, so that gives us the opportunity to go out and be acquisitive, and then try to grow.
Laurie Barkman:
Okay, gotcha. Let me switch gears a little bit. Let’s start to talk about the firm and how you look at deals and what’s important to you. What I see is that in this deal ecosystem, there’s different types of buyers, and different buyers have different motivations. There are strategic buyers, there’s financial buyers, and there are related buyers, and a family office typically is known to have a longer investment horizon when committing to this illiquid asset class like a privately held company, which is a different profile from other private equity market participants. PE funds are known to have more of a foreseeable exit time horizon, call it five to seven years, and they’ve set that foreseeable exit timeline early on, and it’s known to all parties that that’s the plan, whereas, and this is the question for you as much as us discussing it, is that different in a family office? Will family offices target companies for a longer time horizon, because they are looking for this promise to generate value over a mid to long term without a preset expiration date? How do you look at that?
Alex Panosian:
Yeah, absolutely. I think that’s right. One thing I would say is, certainly every family office is different. If you talk to 30 men, the joke goes, if you talk to 30 different family offices, you’ll probably get 30 different answers, in a way. But I think one thing that really separates family offices from the other private equity groups or some of the other types of buyers is they don’t always have investors. They may bring other folks in on a deal but generally, they don’t have investors that they’re going to be beholden to, because they’re using their own capital and so that gives them the opportunity to be really flexible on things like time horizons, things on trend transitions, on structure, and it can really tailor it to what the business owner wants. I think we’ll talk about this a little bit later, maybe what we look for and how the conversations go.
But obviously, the most important question that we’re going to ask is, “What are your goals?” to a business owner, so we can understand, and then we can start to talk about that. I think where we’re a really good fit is another family-owned business, that for whatever reason, maybe doesn’t have the next generation lined up, or, but almost almost in a sense recognizes the value of something like that where they really are going to care about the legacy, they really care about their employees, they really care about their customers, and they want to make sure that all of those different stakeholders are treated in the right way.
Why we’re a good fit there is because we don’t have to sell it in three to five years and frankly, we don’t want to. My dad has never sold a business but has bought four, and we still hope to own those for the next 30 and beyond years. That influences the type of business that we’re going to target, of course, but that’s how structurally, I think, we’re a little bit different than some of the other buyers out there.
Laurie Barkman:
What do you look for in an acquisition?
Alex Panosian:
For us, we have a geographic filter so we look predominantly in the Midwest. I’m in Chicago, my dad’s in Milwaukee, so we look pretty heavily in those markets. Then size wise, we look at the smaller end of what you can label as the lower middle market so around $2 million in bottom line, and then we’re going to look for stability through a transition, and then growth potential thereafter. For stability through a transition, we’re really going to look for quality of revenues, so whether there’ll be some aspect of recurring revenues, or contracted revenues, or very high percentage of repeat business, that’s really important for us, because it’s going to give us the confidence that we can carry that revenue through. I think one of the challenges, certainly, for a lot of business owners to think about is, a lot of businesses in this size are really reliant on the owners. Well, that’s natural, and that’s great for while you’re running the business, but it becomes really hard to sell the business in that case. That’s something that we really dive into. Then the other thing that we’re going to look a lot about, it’s just situation and why it makes sense for us and not even for us but for the seller to work with us versus going through a private equity group.
One of the things that we do basically in one of our big value adds is boosting up the management team, and that doesn’t mean investing cash flows in an additional management team members and that doesn’t mean we have to, if there’s a CEO or a general manager in place, that we have to replace them or that would be in the plan, but certainly, I think, we view one of our big value adds is a lot of peers of mine, where I have called them young-ish, but pretty talented people that are very hungry, and desire to work in a small business and help them grow and so that is hereby my military peers, my business school peers or some of my consulting relationships, we can bring them in and help them grow these companies going forward.
Laurie Barkman:
The operator side.
Alex Panosian:
Exactly.
Laurie Barkman:
Let me just prove a couple things on that. It was really interesting to hear about this because ultimately, if a seller wants to maximize their opportunity, or they want to really understand which value drivers are important to which buyers, that’s something that I advocate for in terms of the process that I use, and we are essentially providing some of that insight right now. You’re giving a great example, by sharing what some of your deal criteria are; the size, the geography, the stability through the transition. So on that, do you look for an owner to stay on for a certain period of time, and how long?
Alex Panosian:
Yeah, it’s a great question. Generally, we’re going to hope that the owner stays on through the transition, and that can mean different things in many different scenarios, and a lot of it is going to be dependent on how active the owner is in the business today and we’ve looked at everything across the spectrum. We’ve talked to companies where the owner is not involved at all anymore, and he’s hired a general manager, and at that point, it’s clearly not as important but then we’ve looked at other businesses, where the owner is the only person in the entire company that talks to customers, and so they have every customer relationship. I’d say, first of all, it’s really hard to buy a business like that because it’s very difficult to separate the owner from the business, but in a scenario like that, we’re gonna want to want a longer transition, maybe 12, even 24 months and in some situations like that, we’re going to want to make sure that we’re aligned from both the future strategy that that we want to take, and then also that everyone’s incentivized if they’re going to help help hand off those lessons that they’d benefit from a little bit of the upside, because the other thing that we found that’s maybe a little bit different than some other buyers is, as well is we certainly come in with ideas, but at the same time, we recognize that we’re really appreciative of long-term expertise in an industry, and so we’d be a little bit silly if we didn’t try to grab all the great ideas the current ownership has. We find we have a lot of conversations where the owner’s like, “If I just had three young, hungry, men or women to help me go after these things, I would do this, this, this and this, but I’m just just tired, and I want to retire.” Let’s grab those ideas, and we can help you implement those types of things.
Laurie Barkman:
Yeah, and that’s certainly with the client work that I do, whether it’s on the value building, exit planning side, or whether it’s on the transactional side, there are eight core drivers. It always boils down to these eight, and you’ve hit on pretty much all of them. The two that I want to just double back on, one of them, we call the Rainmaker dilemma, which is, that owner is the Rainmaker which leads to them having wonderful relationships, but of course leads to less value and less transferability.
There’s an episode that our listeners may want to check out, which is my conversation with Amy Franko, and we talked about the Rainmaker dilemma and what can a company do to solve that? How do you get out of it, which is really about creating a sales and marketing process that is not reliant on you personally as the owner so I just wanted to put that out there for the audience if they want to learn a little bit more about how to self identify in that situation and you called out a few things for that Alex, which is really helpful, and then where do we go from there? How do we solve that problem?
The other thing that you talked about is the stability and the team and process. How important are those aspects? Call it the structural capital, the infrastructure side of the business. Are you looking to bring in these former McKinsey-ites and these operators and they’re going to put in processes that CW Growth Partners is gonna say, “Use our processes.” Are you looking just organically at what they do today, or do we want to take what they’re doing today and just build from there?
Alex Panosian:
I think first, when we think about business, for us there’s two really important aspects. One is the people that are involved, and then the second is the system, so you hit on both of them. I’ll speak about the systems first, but I don’t want to gloss over that as we think about it, the people and the culture are extraordinarily important, and we want to make sure that we’re a good fit for the culture that’s in place, and then that the people are a good fit for how just how we think about business, first of all. From a systems perspective, I think we want to come in and maybe grow on the systems that are already there. Because one of the reasons that we’re excited about buying mature companies versus going a startup route or whatever it may be is because of the systems, and so we’re certainly going to look for there to be systems in place in that it’s not just a number of different things.
On the system side, we want to build on what’s already there and that’s going to be a key part of our diligence process, that understanding that it’s really things that are there and not just the “hero work” that’s going on by a few individuals, because that also presents a lot of risks for us if the owner is doing that hero work, or a couple employees are doing all that hero work, and if they were to leave post transition, so systems are going to be really important for us.
Laurie Barkman:
That makes a lot of sense. One of the other criteria I was curious about is industry. Are you looking at certain industries?
Alex Panosian:
We look at a variety of industries. I think we look at business services, so B2B businesses, and then we’re also going to look at niche manufacturing businesses as well and then finally, we do look at more self-storage facilities. I think one of the things for us is, we are generalist, though, and so we can look at a variety of things and it’s really more about the situation and then the characteristics of the business. Do they have what we would consider a high quality revenue? How are their margins today? Do they have strong margins relative to their industry standards? Is there some sort of growth potential there? I don’t want to gloss over that. We put that name in our firm’s title for a reason.
All the work that I did at McKinsey was always on the topic of growth and that’s maybe something that also is going to make us different than some of the other buyers and especially maybe a strategic. Strategics oftentimes are maybe going to be able to pay the top dollar, but the reason that they’re able to pay the top dollar is because they’re going to be able to capture “synergies”. Well, what does that mean? Well, they’re maybe going to be able to get rid of headcount and they’re going to be able to fire some employees, just to put it bluntly, because they already have those functions in their existing companies. For us, I don’t want to do that work. I didn’t want to do that work in my last last job for a reason. We don’t find it very interesting or desirable. We’re always kind of “people people”. That’s what comes from my background in the army. We want to think about growth and going after targets.
Laurie Barkman:
Do you think about it in the sense of having a platform investment and then doing smaller tuck-ins? Or do you see all your deals potentially being — and I know you’re a startup and your deal flow is where you are right now, and you’re going to be doing some deals over the next year or so, looking forward, I know my question is looking forward, but in that sense, how do you think about it? Is it tuck-ins as a strategy with a platform or just separate, non-related?
Alex Panosian:
We look at both situations. One of the industries we’ve been looking at quite a bit and having a lot of conversations with owners is the IT industry. There are some pockets within IT that are growing really fast, so they’re in organic growth, and let’s capture the market growth, and maybe you can grab a little bit of market share, because it’s a fragmented industry and we’re going to try to build out some of our service offerings and really be customer focused and we think that’s going to allow us to grab some market share, and we’re going to grow that way.
Then we also look at other situations where the owner has said, I had a conversation earlier this week where he said, “Listen, this is a great platform, I know five other owners that are willing to sell, they want to retire too, they’re willing to sell me their book of business, we could grow that way and then we’re going to integrate everything together so I need help on the capital side, and I need help on the sweat equity side, I need a lot of work to integrate those things, and I’m 60 plus years old, and I don’t want to do that. If I had a couple of young, hungry guys, we could go wrap this up.” So we look at both scenarios.
Laurie Barkman:
Back to the beginning, you are part of a startup family office, if there’s someone listening that is contemplating a transaction and contemplating what they want to do next, and they are thinking about starting one, what would be three things that you would say are critical for them to consider in launching a family office?
Alex Panosian:
First thing, without a doubt is, you’ve got to have alignment in the family. I have a sister, she’s not involved in this. She’s a very smart woman, has a great professional job. She works in medical devices and so she has a voice but she’s not involved on a day to day basis and we had a sit down conversation with all of us and it was a few hours with my dad, my mom, my wife, my sister, deciding, “Is this the direction we all really want to go and what does that look like? How does it make sense for us?” Because we always say, one of the things that’s incredibly important is we still want to get along at Thanksgiving. That’s like the number one thing that you don’t want to screw up and I think in order to make sure you never reach that point, you just have to be really intentional with the communications and sometimes cover things that can be a little bit awkward. How do people get paid? Where do the profits go? All of those things. That’s really important to cover up front.
Then maybe the second thing I’ll say is, if that’s the higher level direction, and do we want to do this? Are these the roles people are going to play? Are you going to have it be in our case, where I’m coming in as the next generation and playing that role? Or are you going to hire someone outside? What does that look like? What could that look like? Do you want to team up with other family offices? There’s a few different networks out there. There’s a few different firms that bundle multiple family offices together. That’s maybe the second and then the third is, what direction do you want to go? How do you want to leverage the expertise of all parties involved? What I mean by that is we talked to some family offices that focus a lot on public equities in the stock market, some that focus a lot on the industry that they’re coming from, and then others like us that are trying to grow and diversify, but also stay close enough to what you’re doing. We’re growing, maybe in diversifying from an industry perspective, but really, we’re comfortable with, in my case, small unit leadership, leading teams of 10 to 15 people, or in my dad’s case, running a small business and what that looks like.
Laurie Barkman:
I might add one more, because I think to your credit and even sharing with the audience, how we met was your outreach to me as an intermediary. You found me because of Stony Hill Advisors, and you were doing outreach to mid-market M&A firms and I think that’s why we clicked and why I thought your story was so interesting, and why invited you to the show. As you mentioned, to have these resources, I think you were talking about internal resources, I think you probably might add to the list these external [resources]; it might be your law firm that has M&A experience. It might be your accounting firm that has M&A experience, deal experience. Likewise, you might find that building that network with either the bankers, people who are going to help with lending if needed, or folks like myself, intermediaries who have connectivity into and relationships with business owners so that we can ultimately find the right match and try to find the right fit, as you were talking about earlier.
Alex Panosian:
Absolutely. I think there’s that great proverb, if you want to go fast, go alone, if you want to go far go together and so who are going to be those people that are on your team and help you especially when you’re early in the process? The number one thing on our mind at least is deal flow and how many situations can we see, so that we can make sure that we’re finding the best business for us, and the best outcome for the sellers as well, because we want to make sure everyone is aligned around whatever winning means for them, because it’s a better outcome.
I think the other thing and we touched on this a few times about family offices versus these others, this is my family. My grandfathers who were two of the most important people in my life, their name is on our company for a reason and so that is very much not that we’re always not going to be upstanding people all the time, but 100% for this and so we want to be doing this for 30, 40 plus years and so all the situations we’re going to look at, we want to make sure everyone is treated really right, because reputation really matters. That’s what we’re looking for from an outcome perspective. Sorry, to digress for a second there, but it also reminds me of intermediaries and the different people that you work with, extraordinarily important for that deal flow, and it probably comes from my background and professional services as I can really appreciate how much value that intermediaries bring.
Laurie Barkman:
Me too, and I definitely have a collaborative approach, so I think that’s, again, why we clicked. You shared a favorite quote there and I appreciate that quote. I love asking people if they have their favorite quotes because it does sometimes encapsulate the conversation and other times they’re really just trying to light on you. Do you have any others you want to share?
Alex Panosian:
Yeah, I’ve got two that immediately come to mind. One is — my kids’ names actually, maybe I’ll cheat. One, two, three. My kids’ names are Theodore, named after Theodore Roosevelt, my daughter’s name is Amelia Earhart. I love Theodore Roosevelt, the “man in the arena” is just an incredible quote. I won’t read it now, the whole thing is about a paragraph long but if you’re not familiar with it, go Google it. It’s incredibly inspiring. It’s just about getting in the arena, and you’re not going to be perfect but be a man or a person of action. Amelia Earhart I love from her, “If you want to do something do it.” Very similar theme and then my personal favorite, it was my high school yearbook quote and it was on a little placard in my office, the word Forward. It’s the Wisconsin State motto which is “Forward.” Don’t rest on your laurels and what you’ve done in the past, keep moving forward.
Laurie Barkman:
You’re very action-oriented so that does not shock me at all and I love the tie with your kids’ names and those quotes, that was really sweet. Last but not least, if people want to connect with you Alex, what’s the best way to do that?
Alex Panosian:
Great. We’ve got a website, it’s cwgrowthpartners.com. You can read a little bit more about us, you can contact us through that or my direct email is alex@cwgrowthpartners.com. Always happy to have a conversation if you’re an intermediary, or if you’re an owner or thinking about what a transition could be. Always just happy to provide our perspective.
Laurie Barkman:
Awesome. Thank you so much for being on Succession Stories today.
Alex Panosian:
Thanks for having us, Laurie.
