The Private Equity for Families Blog

A Thanksgiving Reflection on the Wonder of Family Business

Two weeks ago we announced an acquisition of a family business that specializes in handling hazardous waste streams for industrial customers. This is a difficult technical business where there is absolute legal liability for improper disposal of a waste stream once you have accepted it.  In order to protect itself, the environmental services firm must have a high functioning industrial laboratory that can sample and verify all the waste streams it accepts. For example, a 55 gallon drum of soapy water might actually be 54 gallons of soapy water and 1 gallon of lead based paint. The rules for disposing the lead based paint are quite different than the soapy water. When the generator of the waste passes off the 55 gallon drum, the services business accepts complete responsibility (even if the generator has misrepresented the contents) for what is in that drum. A mistake in identifying the contents could lead to heavy fines, permit revocations and, ultimately, a business failure.

In conducting due diligence on the business we just bought we were highly impressed by the sophistication of the family that is now our partner in the next phase of “professionalizing” the business. This next phase of “professionalizing” has nothing to do with the operations. They are already highly professional. The family has highly advanced environmental databases that document each step in the receipt, testing, repurposing and disposal of hazardous waste streams. You can track the work flow of that 55 gallon drum from the minute it is accepted on the generator’s loading dock to the minute it is accepted by a landfill or an incinerator. We heard from customers who have highly demanding environmental, safety and health departments that they trust our family partners to handle and dispose of all their waste in an appropriate manner. They also trust our partners to be a thought leader on how to reduce costs and still beef up compliance. A small family business serves giants in industry and is also considered an environmental peer!

Holidays Are Happy Times

Like many family businesses, Thanksgiving and Christmas are happy times because the family has learned how to work together. In this case three brothers who are separated by almost 15 years play complementary roles. The oldest brother is the boss. He ultimately makes the big strategic and financial decisions. He interacts with all the employees and watches the finances. He enjoys passing out bonus checks at the end of the year. The middle brother runs the field service operation. We observed that he was more comfortable in the seat of a backhoe than sitting in a conference room answering our due diligence questions. He had a total customer service mentality, but he had also learned over the years how to protect the company from generators who wanted emergency response but had no money to pay for clean-up. He had also learned that responding to RFPs really was a quick way to lose a lot of money if you had not had a chance to investigate the project and if you had not utilized your network to find out what really was in the basement of the power plant you were going to service. In his “free time” he usually volunteers for important community causes. The third brother is highly deferential to both his older brothers but he is an awesome salesman when he gets his moment alone. He also has a total customer service mentality and his customers know he is always working on ways to improve their own remediation efforts. He is proud of his family name and heritage.

The family does not stop with the founding generation. The oldest brother has two sons in the business and the middle brother has his step-son handling day to day operations for the field service unit. This next generation is capable, energetic, enthusiastic and ready to take over.

The Real Risk Is the Professionals

Professionalizing the business means keeping the family harmony and preserving the tranquility of Thanksgiving and Christmas while allowing the next generation to succeed the founders in an environment where business will be run by metrics. This will mean introducing a chief financial officer as a resource to both generations—by all accounts a tough hire for this family culture that never needed an accountant because they always had “money in the bank.”

The real risk in this partnership between the private equity sponsors (us) and the family is really the new owners. If you put me in the backhoe absolutely nothing good will happen.

As we all prepare for Thanksgiving and needed reflection on all our gifts, the private equity world should be extremely thankful for the miracle of family business. At the beginning it is usually a family that sets a business foundation on which our industry can attempt to build and improve. My thanksgiving prayer is that we approach our “professionalizing” with a small helping (stuffing) of awe and respect and an even larger helping (turkey and gravy) of humility.

Your insights are welcome

Periodically we will circulate this blog to a target market that includes successful families, wealth advisors and middle market business owners.

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Rob McCreary

Rob McCreary has more than 40 years of transactional experience as an attorney, investment banker and private equity fund manager, and has spent his career in building entrepreneurial organizations with successful track records Founder and chairman of CapitalWorks, he is responsible for developing and maintaining senior relationships with investors and portfolio governance.

This blog represents the views of Rob McCreary and do not reflect those of CapitalWorks or its employees. This blog is not intended as investment advice. Any discussion of a specific security is for illustrative purposes only and should not be relied upon as indicative of such security’s current or future value. Readers should consult with their own financial advisors before making an investment decision.

Private Equity for Families Blog | CapitalWorks Private Equity Cleveland Ohio

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