In M&A, buying is the easy part. It’s transitioning after the acquisition that’ll test your perseverance. Founders of CLM Equity Partners, Matthew Locci and Scott Maze, tell the story of how they put everything on the line. They talk about how important it is to give your full support to the people who wants to move forward in life, and touch on how critical it is to have the proper motivation, whether you’re a seller or a buyer. Matthew and Scott also emphasize how crucial it is to work with a team where there’s trust and how these people should be treated.

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CLM Equity: Transitioning With Ease After An Acquisition

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CLM Equity was formed by two roommates and friends with the express purpose of acquiring a business. After more than a decade in Corporate America and surviving the Great Recession of 2008, Matt Locci and Scott Maze set their sights on owning their own business, building value for themselves and controlling their own destiny. Scott had spent more than twelve years in the aerospace industry and early in his career was in a rotational program that allowed him to touch various aspects of the manufacturing process, ultimately running an aftermarket business development effort. Matt, on the other hand, spent most of his career in finance and accounting. He had the opportunity to work in multiple industries, but found that he enjoyed his time when he worked in finance for a manufacturing-focused ERP provider. It was no surprise with their complementary skillsets that Scott and Matt launched a business search focused on manufacturing. I’m grateful that our firm got to represent them in their acquisition of Zircon Precision Products and aerospace and commercial components manufacturers. Matt and Scott, thank you for being here and I’m excited to have you share your journey with the M&A Unplugged community.

We’re happy to be here, Domenic. Thank you for having us.

When did you get the transaction done?

It happened on April 22nd of 2019.

How did the training, transition and integration go for the two of you?

It has been seamless and easy-going. The former owner, Bruce and his wife, Terry, are phenomenal people and have been a great partner in transitioning from their ownership to our ownership. We focus on keeping as much as we could the same for our 21 employees. I’ve worked hard to make sure that it was seamless for them as it could be and worked with Terry and Bruce to understand their roles, how they fit into the business and what they did from a day-to-day standpoint. We’re continuing to do that. The ease of working with Terry and Bruce has made it a seamless process as we step up the efforts to put our focus and our spin on what we want to do with Zircon.

The previous owner has stayed on helping you with the business and plans to do so for some period of time. Were there any surprises or anything that caught you off-guard as you took over the reins of the day-to-day operation?

When starting a business, you have to prepare yourself because once you make the leap, that’s it. Click To Tweet

Not necessarily any big surprises. We worked hard upfront to make sure we had a good understanding of what they did and who their customers were. Fortunately, with my experience in the industry, we’ve worked with some of the same names and some of the same people that I’ve worked within the past that came across our desk. That’s been interesting and exciting to see. It’s a big bus, a small world in the aerospace world. I’ve run into several past colleagues through this journey so far. Matt, do you have any major surprises or a-ha moments as we got started?

From finance, accounting, and HR standpoint, I haven’t come across any surprises. One of the biggest benefits throughout this whole process is we tried to keep it as seamless as possible for the employees. For example, their benefits all stayed the same. We grandfathered in their seniority so their vacation stayed the same and everything. Through our due diligence and preparation for the transaction, we limited the potential surprises.

I talked to our community all the time about how important it is to embrace the employees, make sure that they know that they’re wanted, their input is valued and that you don’t make any disruptive changes. I’m glad to hear that integration has gone well for you so far because that’s such an important first step. Let’s go back to the beginning. Let’s learn a little bit about the two of you. You first met after college and you were roommates. Talk a little bit about that and then talk about when you first both decided that owning a business together and becoming partners might make sense.

I had moved to Connecticut about a year prior to Matt and was working on this rotational program with the company that I was with. I had been there for a little while and came across a situation where I’m looking for someone to fill a spot in a roommate situation. I came across Matt as he was moving to the area and transitioning into personal finance.

I had relocated to Connecticut for work. I was living in my best friend’s parents’ basement for a while until I could find a place to live, which I then came across Scott. We started living together and then we had on and off talked about the possibility of one day saying, “Wouldn’t it be great if we took control and put our talents to use for ourselves?” It died down a little bit after a while and then probably a few years ago, it picked back up. I pushed Scott and said, “If we’re going to do this, now is a better time than ever.” We started to put things into place personally and professionally to get ready for this. It was developed over a decade until we pulled the trigger.

What has been your preparation to pull things together personally and professionally? What steps did you take?

Personally, it was getting our house in order and making sure that we had the necessary capital raised and how we were going to do this both having families. It was getting everything into the right position professionally where we knew at some point, we were going to be leaving our jobs. We had to prepare with the timing of that and make sure that we were okay with that for a certain amount of time because once you make the leap, that’s it. Scott, how about you?

It was definitely a challenge and we’ve focused on it for quite a while and put our heads together about what we would like to look for in a business. Fortunately, Matt and I both know several people who have owned small businesses, whether it’s in manufacturing, finance or distribution. We tapped into all those resources and we said, “Can we take you out to dinner? Can we talk to you? This is what we’re looking to do. What are your thoughts and your recommendations? We see what you guys have done with your small businesses or medium-sized businesses. We want to get some information from everybody, get some direction and tap into that.” Those people around us that have done it. We did a lot of that. We met with four different people across four different industries.

 

Were there some key takeaways that you got from those meetings? Were there 1 or 2 things that you pulled away and said, “These were great pieces of information. We’ve got to make sure that we do this?”

Yes. The biggest one was stick with what you know, which was the aerospace industry. I felt comfortable operating in that space, knowing the players, knowing how to deal with these large corporations and the government from my previous work experience. That was the biggest one and then try to position yourself to be structured the right way to be most advantageous for what we’re trying to accomplish.

What do you mean by structured the right way?

It’s how we set up the business and also working with people that can help you. There’s no reason for us to go at it alone. There are lots of resources out there to help with this type of thing like Sun Acquisitions. That guidance was important to us and worth the value to make sure this went right because our livelihoods depend on it.

Were your families onboard? Were they nervous? How did your families take this?

My wife thought that we were crazy. I remember the night that I told her that we’re going to move forward and we’re going to do and pursue it. After she got over the bit of surprise and everything, it turned into excitement more than anything. There’s always some nervousness sprinkled in there, but my wife was supportive and my family as well. When I spoke with my siblings, my parents and relatives, they were all supportive, which made it a lot easier to stay focused and keep reaching for your goals and your dreams. That was my experience.

I agree with that, too. My wife would always say, “Why don’t you do something for yourself and for us?” She was supportive of that idea of being far away and the travel. Moving possibly was a little more unsettling, but it’s definitely something that we worked through and talked through. The great thing is even with my boss and people that I used to work with, everyone was like, “That is great. That is awesome. Good for you. We’re happy for you.” Everyone is excited to see, “You’re going to make it go on your own and see how it works out.” It’s the confidence from the people around us. No one was like, “Why would you ever do that?” Support was around us from all aspects.

It’s great to know that you guys had the support. It’s important when you’re going out to contemplate an acquisition and you’ve got the support either from your families or if you’re running a business, from your management team. It’s critical. Do you remember the date on the calendar when you both said, “We’re forming the entity and here we go, full steam ahead?”

There’s no reason for you to do things alone. There are a lot of resources out there. Click To Tweet

I have a calendar and I’ve circled a couple of dates. The first was when we met, January 27, 2018. That was when we’re like, “This was the first meeting. We’re going to make this happen. Let’s start putting things in place.”

You decided you’re going to go. You picked your name and you were ready to go. What were your first couple of steps out of the box?

Our first couple of steps was each night, we would get on the computer and we would talk to each other. Probably from January 2018 up until we made the purchase of the business, we were speaking with each other every night about everything that we could and keep brainstorming. The first two steps are we just looked at each other on the computer and we said, “We’re going to do this. Now, what do we do?” We essentially had built up all of this effort to do it and now we have to figure out how to do this. Our first few steps were going out there on the internet first looking at businesses that are for sale that we could find and start to look at how they were being presented. We focused our initial search on what we know and that was aerospace manufacturing. We started to do some research on some businesses together, we started talking about it and looking at the numbers. We quickly realized how big of a task it was going to become within probably the first couple of weeks.

I remember getting together, we met and we said, “What does a good acquisition look like? What are the things, characteristics or traits, location, and that stuff that’s important to us?” We wrote all that down, we started documenting what we thought it would be and then working with others around us and talked to people. Once we had that fine-tuned, we started reaching out and said, “Let’s look for some for special services to help us guide and navigate the waters through this process.”

You came up with your criteria and you agreed on, “These are the parameters.” It might be the size of business and geography. You were focused on aerospace, so you came up with your criteria. It sounds like you went out and looked at some businesses on your own and got the feel of what was out there in the market. What made you decide, “We probably should hire somebody to help us do this transaction rather than do it ourselves?”

A simple answer to that is this was our first transaction. We thought to ourselves in doing our research and getting into this arena that we were about to enter that we did not feel comfortable going it alone. We quickly realized as we were doing research that there are many aspects and we found out down the road that there were many more that we didn’t even think about once we got into it. My main focus was it was our first transaction and we didn’t want to mess it up.

It could be a big mistake if you don’t do it the right way. What were your criteria?

We wanted to stick either in the precision machining or assembly fabrication services segment in aerospace. We targeted seventeen states all over the country based on aerospace presence in those states, the states that are advantageous to do business in those types of things and states that are geographically favorable to us personally. We targeted those seventeen states and we had revenue range that we thought we could attain based on our upfront capital that we had available and what we thought would be a good fit for us. From there, we went through that process and started working with Sun. We’ve talked to about a dozen different companies on the phone and narrowed that down to 4, 5 or 6 that we thought, “These might work.” We went to visit different locations. Once we made that visit to Zircon, we’re like, “This one is a good fit. Let’s see if we can figure out how to make this one work.”

 

Scott, you offered a great piece of advice to people in the M&A podcast community. When you’re out there looking for a business to acquire, it doesn’t matter if it’s your 1st or 10th one, you want to make sure that you’re looking at a good cross-section of businesses within an industry sector or geography. It’s important to get a feel for what’s out there, how are businesses operating and what value ranges there might be. It will give you great comfort when you do pull the trigger on a deal that you want to do that you just haven’t looked at one deal and close the door on it unless you know narrowly what business you want. It’s smart to go out and meet with a number of different potential businesses to acquire.

Quite frankly, if you’re out in the marketplace as a buyer, it gives you a bit of leverage. If you’re working with one target that’s not near enough leverage when you’re working with six, you’ve got your choice of businesses potentially. Matt and Scott, you find Zircon and you start to realize, “This is maybe the business.” Bring us through the process. What transpired from there? For the M&A Unplugged community, talk about the things that maybe you had anticipated. Also, the things that you didn’t anticipate that as you went through the process and you’re like, “I had no idea that it was going to happen,” and how you overcame those.

Once we did the site visit, it’s like, “This one looks good in how we want to progress.” The whole entire process was new to us, but once it gets going and once the ball is rolling, if you have a motivated seller and buyers like we were, things can happen relatively quickly. We visited from November 16th to the 17th time frame and we closed the deal on April 22nd. There were definitely some speed bumps in the road. One thing that ended up happening that we didn’t realize was going to be a problem at first was that the building was not owned by the owner of the business. His mother-in-law owned the building. It threw a little different dynamic into it, and not that it was hard to work through, but it’s something that we weren’t expecting to have to deal with. It worked out well. It added a few more sleepless nights to the process.

One of the important things is not going to it alone. We’ve engaged Sun and worked with Larry and Joe. When the speed bumps occur, this is where I thought us, not going it alone. Experience created the value to keep the ball rolling and to smooth out the bumps because it’s got touched on. We had a little issue with the real estate, but there were also many things that came up that maybe I and Scott freaked out about initially, but then after some conversation, everything calmed down. It kept the ball rolling because one thing we definitely learned through the process was to be flexible. The buyer and the seller are not going to get everything they asked for, but if they’re both motivated, you can find common ground. Having somebody with us to help us and keep that ball rolling helped. As it got towards the end of the transaction process, we started to feel some fatigue and we wanted it to happen already. We thought that having some other people in our corner that could push the ball down the road helped.

In that regard, you had a couple of things come up. I remember that you didn’t want to own real estate, but you realized that the owner wasn’t going to sell this business without the real estate, so that became an important component. You had to pivot there and thankfully, the two of you ultimately wanted to do that. If I remember correctly, you also wound up with a situation where the owner of the business had changed their accounting methodology at the last minute, which changed the financial picture. It was only on paper, but it threw the banks into a tizzy and the deal into a spiral there for a little bit until we could figure it out.

It was wild. It included the seller going directly to local IRS offices. It involved a lot of extra paperwork. One of the things that we never thought about when we initially started, this was the timing. Of course, there’s no time like the present, but having the time where we were going through the transaction be over the holidays. Changing over the years presented a challenge because then all of a sudden, the bank wanted the financials for 2018, for example. We couldn’t get them to the bank for a while. There was maybe a 3 or 4-week period where we were at a standstill because all of us couldn’t move forward, which was a little scary.

What you experienced is what almost every buyer and seller experienced. There aren’t any clean deals. Every deal has got twists and turns and what matters is that you have advisors that can help guide you through that process. If you’ve been through it before, you know what to anticipate and expect and it doesn’t throw you for a loop. Talk a bit about the financing. You had your own capital to invest in this, but you also used an SBA loan to pull us off. What was your experience with that process in securing an SBA facility?

Other than it was a stack of paper that was probably two-feet thick, it was smooth. The bank has all these requirements from the business and the financials, putting them together and having a conversation. Going back with the financing, us purchasing the real estate helped us when we did the math because first, it’s stretched out the term of our loan, which was ultimately great for us. The net outlay was the same than we would have had purchased the business and paid rent to an owning entity at fair market value. It worked out well. The bank was flexible at some points that I thought they weren’t going to be flexible and they were tight in other areas.

Work with people who are knowledgeable in different areas. Click To Tweet

We made sure to get them everything as soon as possible to keep it rolling. We were also able to secure a credit line, which we deemed to be important at the time. They’re operating capital so they were able to secure that as well for us. All in all, it was great. We worked with a financing broker who went out and shopped the deal to a few lenders to find us the best one for our situation. It ended up working well. We had that mindset of not going in alone and working with people who are knowledgeable in these areas that we need assistance in.

You hit on another key element here. It’s important to shop your deal to multiple banks because maybe one bank you go to one day is willing to do a deal in favorable terms. You can go to the same bank a week later and maybe something has changed internally. It’s important when you’re looking to finance a transaction that you get the perspective from a couple of different banks to realize, “What is the best overall package out there when you’re looking to do a deal?” How is the business doing? What are your plans for it? Talk a little bit about what the business does specifically.

We’re a precision aerospace machine shop. We produce parts for big names in the aerospace industry that supply companies like Boeing, Airbus, Lockheed, and so on and so forth. We have a plethora of milling-turning centers where we do a lot of multi-access machining for primarily aluminum parts, housings, covers, and small component parts for larger assemblies. We do a little bit of a sub-assembly in house and we’ve got a team of about 21 people. The shop is about 13,000 square feet. There’s a great team that’s been built there at Zircon and we are happy to work with them. Our plan is we’ve been 5S-ing a lot, which is an aerospace or a Lean term. We’re cleaning up a lot of old stuff, so to speak and trying to say, “What do we have to work with here? We’ve got some machines that we’re looking to sell to create some floor space so that we can reinvest in the business and grow.”

One thing that we want to focus and do when we first got there was for the first six months, we don’t want to do anything to upset the apple-cart. We’re like, “Let’s maintain the status quo. Let’s keep doing what you’ve been doing,” not go in there and try to make too many changes upfront to understand and say, “Here’s where our strengths are. Here’s where our weaknesses are. Here’s what we have in the way of opportunities.” Two weeks into it, our largest customer says, “We want you to come to our site and we want to talk about a big project that we’re working on.” Here we go to our largest customer and we’re sitting in a room with six of our competitors and they say, “We’ve got all this work that we want to change from sand castings or different castings into hog-outs where you take a solid piece of material and machine it to the desired state of that casting.” It’s a great opportunity to grow, but it’s like, “This is not what we had in mind for how we wanted things to go.” You can’t say no to that. We went through a big effort to quote a large package and we’re waiting to hear back about that. That work requires capital investment almost immediately, so that’s going to be a challenge. We’re already talking to people that can help us with that. It’s crazy.

It’s great to hear that you’ve got such significant opportunities right out of the box, so I wish you guys the best of luck there. That’s awesome.

We’re focusing on strategic growth. We don’t want to overwhelm our shop by any means. Growth is definitely on the to-do-list, so we’ve got to make sure we do it the right way though.

I love for you to both maybe share with the M&A Unplugged community. If there are 1 or 2 things that you would offer up to other people who are out there contemplating on acquiring a business, what are the 1 or 2 big takeaways that you would offer to them?

Mine will probably be short and sweet but pointed. Be flexible, thorough and be motivated.

 

It’s having the right team of people around you just like our shop has a great team that works well together. Our team during this process was brokers, attorneys and accountants, the whole nine yards of people that we trusted that had a great track record. That made the process as seamless as it could be. We are fortunate that the previous owners are wonderful people and you find that all over the place. They want nothing but our success and want nothing to do but to help us achieve that success because it’s their legacy, too. The company is more than 60 years old and it’s been family-owned up until now. It’s been a great process and a great transition working with the previous owners and understanding their experience and the history of it all. The history of it is important also.

Scott and Matt, I’m happy for you that you found the right opportunity for both of you and that things are going well. Integration’s gone well and I appreciate you both being guests on the show.

Thank you for having us. We’re happy to be here.

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M&A Unplugged community, let me recap a few things that Scott and Matt brought up that are key takeaways. One, they talked about the fact that they kept things seamless when it came to the employees. I believe employees are the most valuable asset of your company. Treat them well and treat them with care. Scott and Matt did that in and it will make for a smooth transition. It laid the groundwork for them to do tremendous things going forward. Stick with what you know. On multiple levels, that’s important. One, when you know something, it’s easy to slot into a business when you acquire it. In addition to that, when you go for a bank loan, banks want to know that you have a transferable experience for that opportunity.

It’s important on many levels to be sticking with what you know in your core competencies. When you’re out there searching for a business, vet multiple opportunities. Don’t get enamored with one and go down the path. Do your homework, visit a bunch of different companies and get comfortable. When you see the right one, you’ll know it because you would have had a lot of things to compare it to. Scott and Matt also talked about the importance of having a motivated buyer and a motivated seller. It’s critical to ultimately getting a deal done because 100% of deals are going to have issues, but when you have a motivated buyer and a motivated seller, you can get through those issues. People will be creative and you’ll figure it out. Having experienced advisors wrapped around you, M&A attorneys, M&A accountants, a good M&A broker and all who can advise you every step of the way, because they hopefully have seen hundreds of deals and there’s nothing that they’ll see will be new to them.

The last couple of things is when it comes time to go source a loan and work with multiple banks. You want to make sure that you’re sourcing the right bank loan and that you’ve got a good partner in a bank as well. Scott and Matt talked about deal fatigue. We see a lot. Deals will stretch out, especially at the end. Things will start to come up and you’ll see that even little things will stretch out and you’ll get tired. You need to stick through that, break through the wall, be patient, but keep moving the ball forward. I want to thank Scott and Matt for being our guest. They shared many key takeaways with us. If you would like to learn more about the process of acquiring or selling a business, please visit our website at SunAcquisitions.com or feel free to reach out to me at [email protected]. I look forward to being with you again on the next episode of the M&A Unplugged podcast and until then, please remember that scaling, acquiring or selling a business takes time, preparation and proper knowledge.

Important Links:

• Benjamin, Gussin & Associates
• CLM Equity
• Zircon Precision Products
• SunAcquisitions.com
• [email protected]

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