MAU 25 | Wenesco Succession Plan

 

In owning a business, you need to have a succession plan in place in order to prevent future stress on you and your family. This is especially important if there are plans to possibly sell the business later on. In this episode, Wendi Ewalt and Leslie Chanel share the fate of Wenesco, Inc. upon the death of former President Brian Lowenthal. Wenesco is a designer and manufacturer of soldering equipment for the electronics manufacturing sector. Wendi and Chanel share what Wenesco was like when it was being built and what happened to it when there was no succession plan in place. “Life is unpredictable,” as the saying goes. It’s always better to have plans in place well in advance for the protection and success of the legacy the business will leave behind.

Listen to the podcast here:

The Story Of Wenesco, Inc. And The Importance Of Having A Succession Plan With Wendi Ewalt And Leslie Chanel

This episode is sponsored by Shambliss Security. They are a provider of cybersecurity solutions focused on the middle market. They combine human intelligence with technology to secure your investments. Shambliss Security works with private equity firms, venture capital organizations and family offices to identify the technologies and services needed to defend, fortify and secure their acquisitions cybersecurity posture. Partnering with Shambliss Security enables organizations to close pathways of attack, remediate vulnerabilities and reduce risks while meeting compliance requirements. I’ve gotten to know Craig Sherwood at Shambliss and some of the cyber M&A work they have done and I’m impressed. I want to thank them for sponsoring and hope you enjoy this episode.

In 1962, Brian Lowenthal, on the heels of losing his job and buying a new home, decided to start a company, Wenesco, from scratch. Wenesco is a designer and manufacturer of soldering equipment for the electronics manufacturing sector. To say that Brian was a risk-taker and true entrepreneur is an understatement. For the next 54 years, Brian would lead this business, building it to a worldwide brand. He faced a fair number of challenges along the way, but always maintained a successful business and a generous spirit. By all accounts, Brian was an incredibly organized man, paying attention to countless details, a fact that will bewilder you when you hear the story of what happened to his business after his death in 2016.

Brian was diagnosed with throat cancer in 2011 which left him many years to put his affairs in order, and he did when it came to all matters related to his personal life. When it came to succession for his business, this was a wholly different story. I am pleased to have Brian’s daughters, Wendi Ewalt and Leslie Chenelle with me to discuss Wenesco and the events leading up to them selling the business after their father’s passing. This is somewhat of a cautionary tale for anyone reading, but the silver lining is the business is moving forward and his legacy continues. Wendi and Leslie, thank you for joining me.

You’re welcome.

Thank you for having us.

Leslie and Wendi, let’s go back to the beginning. What do you remember about your dad starting this business and building this business? You remember your dad taking the risk early on to do this. Bring me through what you remember, the early parts of your dad building this business up to what it became.

I remember going in when I was in high school to start stuffing envelopes to advertise the company and getting things sold. My mom and dad were there and they were instructing us to write. In those days, it was all papers, getting 12 or 15 pieces of paper stuffed inside of the envelope to be shipped off to potential customers. I remember that clearly.

Leslie, you didn’t work in the business. You have some memories of your dad and the business and growing up with your dad being a business owner.

I never worked in the business. I worked as an independent contractor where he would say to me, “Leslie, go ahead and see if you can find some companies that would want to sell wax melters.” I’d be like, “What do I do?” He goes, “Google.” I said, “Okay, dad.” I googled and I tried to find different companies that made wax melters, which would be people who had candles or maybe people who did eye waxing for customers. I would contact them all with this email that he created for that. I would be able to get a commission every time I sold or had a company that would buy a wax melter. That was my part-time job for a few years and it was fun.

Both of you didn’t have a lot of involvement in the business over the years. When your dad found out the news that he had cancer, Leslie, you had moved away from the area. Wendi, you were brought back into the business at that point in time not knowing a lot and you were asked to help with the office management. Can you describe what that was like coming back into the business and what transpired from that point?

I developed a career in recruiting. I was doing recruiting for temporary services. When my dad got sick, he requested that I join him to run the business in case something happens. My duties were varied. We moved from one location to another and I helped with that. I was doing a lot of compliance work that fell by the wayside. Working with the sales department, working with the shipping department, working with even some little bit of operations and putting my hand in everything thinking that in the future I was going to be a little bit more prepared if something happened to my dad.

Your dad passed away in 2016. Both of you are faced with this business. Over the few years since your dad learned that he had cancer, you hadn’t put together a succession plan. Can you talk a little bit about what that was like? Did you have a feeling your dad should be doing this? What conversations were you having with him about potentially doing a succession plan and having things in place and in order? Both of you described to me that he did a fabulous job on the personal side of his life putting all the pieces together so that was all taken care of.

When I thought about the business and when my dad would pass away, I thought that everything would run like it usually did. I had no idea that there were so many things that were left unmanaged. In fact, the day that he passed away and Keith was asking about Wenesco, the first thought that came to my mind was, “It’s running fine. Why would anything be any different?” I figured, “Everything’s running fine. Business is successful.” That’s how I thought but it was a little bit different.

I was on the other end of it. I was asking him weekly because he was not looking good and he was not coming into work as much. I was asking him all the time, “Dad, we need a plan here.” Not even thinking that he might pass away, but he wasn’t in as much. He wasn’t at the office as much. Although he was participating heavily at home and I kept saying, “We need a plan,” he’s like, “I know.” He never came up with one and we never sat down and talked about it. He was trying to avoid it or not wanting to realize that he might not be able to participate as much.

That’s such a key element to all of this because it doesn’t make any sense. Your dad went to great detail to make sure that his personal affairs were in order but yet he wouldn’t do it for the business. Do you suspect why that might be the case? Leslie, do you have a thought on that?

My thought was that he didn’t want to share and he didn’t want to lose that ownership. It was the only thing I feel that he felt he had some control over. That’s how I envisioned it. I don’t think that he was like, “When I’m dead. I’m dead.” He would say that every once in a while. I think he thought, “Why should I worry about it? I’m gone. Who cares?” He didn’t think about what was to come. This is what I think he thought he was like, “I’ll be dead and I don’t care.”

MAU 25 | Wenesco Succession Plan

Wenesco Succession Plan: When somebody wants to go and buy a business and they see that you don’t have any financials that make sense, why would they want to buy?

 

Folks in the M&A Unplugged community, if you’re in a family business or if you have a spouse or significant other or a family member that’s in a family business and there’s no next generation that’s going to come in and take over the business, it’s important to have a succession plan. Not only when you know there’s maybe an imminent date on the calendar when that’s going to have to be implemented. Life happens and things happen unexpectedly.

There should always be a succession plan in case something was to happen to the person that’s running the business day in and day out. We’re going to learn from Leslie and Wendi what transpired over the ensuing years to them selling the business. Wendi, you were in the business day in and day out. What was it like after that moment realizing that there was no plan in place? You hadn’t run the business. Your dad had always made all the key decisions. What happened at that point in time in the business?

It morphed into something else. I was a little daunted and a little bit overwhelmed but I felt like, “I can get ahold of this until we sell.” When he died, we had a meeting with Keith, our attorney, and he suggested we sell. At first, I was resistant and Leslie was like, “Maybe we should.” They moved me to the other side saying, “I can’t do this. Let’s get this sold.” It took some time to sell. I was overwhelmed and thank God that I had people behind me that knew what they were doing. My operations manager and my sales managers, they knew what they were doing. That helped me along with the processes until we sold.

Leslie, was there something you wanted to add there?

Before we went and met with Keith, we went to Wenesco and we told them that everything was going to remain the same. Nobody is going to lose their jobs. Everything was going to be fine. We’re not going to change anything. We thought that that’s what we should do. This was before we even met with Keith. When we met with Keith, we were talking about Wenesco. The first thing Wendi said was, “We can’t change anything.” The more I thought about it, the more Joanne, our step-mom and my dad’s wife, thought about it. We thought about it and we said, “Wendi, is this something that you want to do for the rest of your life? Is this what you want?”

After she thought about it for a while, at that point, that’s when she decided that, “You’re right. Let’s put it up for sale.” That’s when it started. We understood the process. Keith explained the process that we need to get a company to put a value on it. We hired some positions and said, “Where’s our value?” That’s where it started. As far as the running of the company, that’s the thing. I wanted to preface it with that.

You got value on the business and understood what the marketplace was like. You had great advice from a tremendous law firm and an attorney who had been your dad’s attorney for a long time.

He’s our cousin.

It was in the family and he was concerned on a personal level to make sure that both of you and the business was taken care of. We’re going to fast forward to the end because it’s important maybe to start there and then work our way back a little bit. You did find a buyer for the business. The business was sold and it’s in good hands. The business is carrying on and your dad’s legacy will hopefully carry on for many years. It wasn’t an easy journey. There were lots of starts and stops along the way and issues that came up along the way, including some challenges with the business starting to decrease in value due to some operational issues, some sales issues, things related to that.

Wendi, that was hard on you personally because you were here living it every day and trying to hold it together while you’re trying to sell the business. Leslie was doing her best to help from afar. Maybe both of you can talk about your personal journey. What did that look like from the day that you walked in and said, “We’re going to sell this,” to the day that you did sell it? There were a lot of challenges along the way. Maybe you could talk about some of those challenges.

Leslie, please chime in because there are things that I don’t remember. I ended up getting sick because of the stress and everything like that but that’s beside the point. When dad died, everybody at the office thought, “We’re losing our jobs.” Some people started looking for other jobs and other opportunities which caused, especially my sales department, some absences which did not help with the growth of the business. We also had our controller being resistant to any change and making sure that the records were straight. That was a challenge with some of the buyers as well.

Our financials were messed up because of this old antiquated system that we were using that our controller was resistant to change. Although we did try to make some changes near the end and some of the people were right on board and some of the people were resistant to that which caused more trouble. We had a couple of buyers that went through some of the processes to get it sold. However, they were put off by the numbers being a little bit skewed because of this old system.

What I’d like to say is that when we put it on the market, we had a lot of interests. There were maybe five different businesses that put in their letter of intent. We’re selling the business. We got all excited. You have to go through this process called due diligence. I remember there was this list of things that had to be done and they were sent to Wendi. She was looking at this list like, “I have no idea what this says. I don’t know what this means. What is all this stuff?” We thought, “If it’s financial, then the person who does all of our books would know what to do with it.” He did and he didn’t. He did some and he didn’t. We also had some help from Joe who also led Wendi on the right path because this is what you have to find. We also had to hire an accounting firm to help us decipher what some of the information were.

Mostly because our inventory was messed up.

We were working with an assistant that was DOS-based.

Take the people in business that are there to support you and embrace them. Use them and ask a lot of questions. Click To Tweet

There were little ways to retrieve that information.

Nobody could figure it out. When somebody wants to go and buy a business and they see that you don’t have any financials that makes sense, why would they want to buy? That’s what we were facing with each and every time. We decided, “Let’s change our system and we’ll go towards something that’s windows related. Something that’s a little bit more in the 21st century.”

That did not happen until a year before we sold it. This was two years in that we made that decision

Our controller didn’t even want to explore the possibility of learning this. He was fighting us.

Every step of the way.

Wendi, when you were imploring your dad along the way to put a plan in place, did you sense even then that some of these things were going to be issues? Were these even surprises to you as you got into the sales process?

I had a feeling because the DOS-based system was going to be a trouble spot. Even though I knew it, it was complicated getting around all the information that was in there to get to what you needed. There were many steps to take. Nothing was simple. I had an inkling in the back of my mind that if we needed to extract information, it was going to be difficult.

The good news here was that the business fundamentally was a great business. There’s a real need for what the company is doing worldwide. The challenge was that your dad had much of the information in his head that it wasn’t operating properly without him. Deciphering the financials and getting through the inventory were all significant challenges. You started to see buyers disappearing. They were excited at first and then disappearing as they got into the deal. Good, reliable financial reports could not be produced. Issues with inventory were popping up and irregularities that caused buyers to get nervous.

Folks in the M&A Unplugged community, we always talk about the importance of having good financials and good information. It is important to give buyers the comfort when you can produce information and have it tie out. The comfort level and the trust level go way up and the likelihood of getting the transaction done in a timely manner goes way up. These were a few of the challenges that you were faced with. You found yourself in a situation where you had to rebuild systems and invest money that you were not going to get back because you’re essentially doing it for the next owner. It’s something you had to do in order to get people to get comfortable buying the business.

That’s exactly what happened. We ended up spending a lot of money to be able to extract some of that information with the old system and converting over to the new system. That was only some of the information. Some of the information still had to be extracted from the old system. Dealing with that and then trying to sell the business and then also the grief of our father passing away was tough.

You’re mourning the passing of your dad, the patriarch of the family, in the midst of having to deal with all of this. There’s no wonder that you were under much stress.

Leslie was a huge help because she did everything she could to help ease my stress and I appreciated that too, even though she lived far away.

Was the process harder? It sounds like it was. Was it harder than you’d ever imagined it was going to be?

Yes.

The process of selling it?

MAU 25 | Wenesco Succession Plan

Wenesco Succession Plan: Get the processes in writing as much as you can so at least you have a guideline to follow.

 

Yes.

The only fault of Wenesco’s no fault of anybody else that was involved. Everybody else, our attorneys and Sun Acquisitions and the accounting firm that we hired, was supportive and sympathetic of our plight. It was hard for us.

Do you remember how many potential buyers we had?

It was five.

Our recollection is that you had a lot of potential buyers.

Five did due diligence.

Five legitimate offers, but you had many more who expressed interest.

The buyer before the final buyer was the last straw in my mind. His offer was, I don’t remember the exact numbers. I don’t think that matters, but it was a small amount down and then in two years he’s going to pay the rest of it. We were desperate. We’re thinking to ourselves, “We need to take this offer.” I was thinking about it, “The guy is going to give us the rest of the money for the business in two years and if he doesn’t, what do we have to stand on?”

I said to Wendy and Joanne, “Forget it. We are not accepting this offer. We’re going to run this business ourselves.” That was the day before he says, “I have another buyer for you.” That guy fell to the wayside. I don’t know what he was doing but he wasn’t a serious buyer even though he put us through this whole process. I was ready to say, “We’ll make it work. We’ll figure out a way to run this business.” That’s where I was. At that point, we felt we were giving it away.

Thankfully, another buyer showed up and you were able to then go ahead and complete that transaction. You’ve been gracious coming on and talking about what wasn’t a good experience for both of you in so many ways. What advice would you offer to other children of parents who own businesses or spouses whose significant other owns a business who hasn’t put a succession plan in place? What would you offer up to people?

I would say first and foremost, get the processes in writing as much as you can so at least you have something to follow. At least you have a guideline to follow. I wish that I had that. I wish I had this written down so I can take the steps to make sure that the business can at least move forward until we made a decision on what to do.

Another thing would be to take the people that are there to support you and embrace them and use them and ask a lot of questions. That was helpful to us. It felt like a family after a while between some of the positions and the attorneys. You didn’t feel you were alone in it. You had questions and no questions were stupid questions. When you don’t know what you’re doing in your head, you’re like, “This is a stupid question.” Most people would know this and you’re thinking of yourself, “I don’t know the answer to this question so I’m going to ask.” It feels like you don’t know what you’re talking about

Nobody made us feel inadequate or anything like that.

You need support. That’s one thing you need, whether it’s from your outside team or your family team. Support is to ask questions and to ask for help. That would be good advice.

You were thrust into a difficult situation. It’s hard enough for people to sell a business who have run it their whole lives, let alone you being thrown into the mix here on the heels of your dad passing away and then having to go through what is a tedious, long, detailed process. Our hats are off to the two of you for going through that process and withstanding the test. That was definitely a challenge. I wish it could have been different. You being on this show is going to help hopefully a lot of people think about having a succession plan well in advance. Thankfully, your dad’s legacy is living on here and carrying on and the business is moving forward and hopefully thriving.

The one thing you need, whether it's from your outside team or your family team, is support. Click To Tweet

Thankfully, yes. Some of our employees got to keep their jobs too because it was moved locally. I am happy about that. That was a huge concern of mine. I got close to them and I didn’t want them to lose their jobs. It was important that most of them got to keep them too.

It becomes a family. Wendi and Leslie, thank you so much for being on the show. I appreciate you coming on and sharing this information with everybody.

Thank you.

Thank you for having us.

For the M&A Unplugged community, let me recap a few things that Wendi and Leslie brought up that are important to keep in mind. One is, it’s critical to have a succession plan and to build that early on with your advisors because life will happen, things will happen, and you want to know that the business, your employees, your clients, your family is going to be taken care of. It will help avoid many things including the stress that your family can be under. It’s bad enough that they’ve lost a loved one but the stress of having to run and operate that business and maybe sell it can be an awful lot for people.

Two other critical things are having an operations manual in place. Wendi talked about if she had had something that she could refer to that was a roadmap for how to run the business, it could have been such a big help and made such a big difference. I often tell our clients it increases and enhances the value of a business. Having the right set of advisors, you want to have the right group of people behind you that you trust and rely on. I want to thank Wendi and Leslie again for being here. I look forward to seeing you in the next episode of the show. Until then, please remember that scaling, acquiring or selling a business takes time, preparation and the proper knowledge.

Important Links:

About Wenesco, Inc.

MAU 25 | Wenesco Succession PlanFounded in 1962, Wenesco is now in its sixth decade of designing and manufacturing soldering equipment for electronics manufacturing.

In the 70s, Wenesco emerged as a major supplier of manufacturing equipment for auto-electric rebuilders.

In the 90s, we added melters for wax, soft metals and industrial compounds. Our industrial hot plates, first, developed in 1998, are now sold across the world to a wide variety of manufacturers, mining companies, and universities.