Aug. 27, 2020

Ep 12: A Strategic View on M&A - Part 1

Ep 12: A Strategic View on M&A - Part 1

"The pessimist complains about the wind; the optimist expects it to change; the realist adjusts the sails." This quote from William Arthur Ward captures the spirit of our conversation with Chris Helmrath, Founder and Managing Director of SC&H Capital. On the first of this two part episode, we talk with Chris about the importance of having a clear strategy for any M&A transaction and finding opportunity in any environment, bringing his infectious optimism and encouragement to middle market business leaders charting their path forward.

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{"version":"1.0.0","segments":[{"speaker":"Stephanie Chambliss Gaffin ","startTime":0.0,"body":"William Arthur Ward said, \"The pessimist complains about the wind. The optimist expects it to change, but the realist adjust the sails.\" On today's episode, we're joined by Chris Helmrath, Founder and Managing Partner of SC\u0026H Capital, who is a realist with a strong optimist bent, to talk about finding the opportunities in any environment, even 2020. \n\nWelcome to Right in the Middle Market, a podcast about pragmatic perspectives on running, growing and selling your business. We talk about the challenges, decisions, and most importantly, the actions business owners can take to create long term value in their companies. \n\nWelcome to Right in the Middle Market, a podcast about running, growing and selling your middle market business. In the last couple of episodes, we've really been talking about this theme of reemergence. Of retooling as businesses that we work with, that we talk to, that they are figuring out how do we emerge from this unprecedented dislocation that we've seen in the first half of 2020. There's a great quote from John Maxwell, \"Change is inevitable. Growth is optional.\" And today, what we want to focus on is that second piece, yeah, we all got dealt change, and it wasn't necessarily the change that we wanted. But how do we start to focus on the growth when sometimes that might be hard to do. I can think of no better guest to join us for this conversation then Chris Helmrath, the Founder and Managing Director of SC\u0026H Capital. Now, I'll let you hear from Chris here in just a second. But if I were to let him do his own introduction, he would be far too modest. So let me just tell you a little bit about Chris. Chris has over 30 years of investment banking experience and during that time, his transactional and advisory service engagements have reached over $8 billion in aggregate. He's worked across multiple industries including healthcare, federal government, information technology, the list goes on. In addition to the work that he does in investment banking, Chris has served as a strategy professor in not one but two different Graduate Schools of Business, the Loyola University Salinger School of Business and the Johns Hopkins University, Carey Business School. And at Johns Hopkins, he also served as the director of the MBA Capstone program for over 10 years. Chris joined SC\u0026H in 2005. And really is the one who has built SC\u0026H Capital, the investment banking and advisory practice of SC\u0026H. But he would be the first one to jump in and tell me that he did not do it alone. And he always speaks incredibly highly of the team that he has built that practice with. And it's a real testament to the kind of leader that Chris is. Now, in addition to all of this, the other thing I have to tell you about Chris is that he has a particular penchant for keeping life interesting. Well for keeping life interesting in all kinds of different ways. But one particular way is through his socks. So Chris, welcome to the program. And the first thing I want to ask you, I want to know what kind of socks are you wearing today?\n"},{"speaker":"Chris Helmrath ","startTime":193.0,"body":"Thanks for having me, Stephanie and Mark. Beautifully in the summer, I have no socks on. So that's the way to be in the summer. So, no socks.\n"},{"speaker":"Stephanie Chambliss Gaffin ","startTime":206.0,"body":"No socks, no socks, is that in honor of going barefoot and just enjoying the summer?\n"},{"speaker":"Chris Helmrath ","startTime":215.0,"body":"No, that actually goes probably all the way back to high school when I used to do that and would receive all kinds of issues with that to the point that I would even wear in college a suit where I had to not wear socks or shoes. So it's just it's the way it is. There's no reason why it is, you got to rebel a little bit every so often.\n"},{"speaker":"Stephanie Chambliss Gaffin ","startTime":235.0,"body":"Right. So Chris to kick us off, you had been working In the middle market, doing strategy as a deal professional, through your career, you have seen a ton of changes. Some of them are gradual, some of them are abrupt as I think we could call what we've seen this year. What would you say? What are you seeing in terms of what hasn't changed? Let's take a different tack. What has stayed the same?\n"},{"speaker":"Chris Helmrath ","startTime":260.0,"body":"Well, what has definitely stayed the same from an advisor standpoint, is the need to really understand the person that you're dealing with and what it is that they're trying to achieve. And what I think so often times people miss is that the objectives of a middle market business owner may appear to be maximize return, but if the business has your last name on it, it was started by your grandparents, you employ other family members, it is so much more of an entangled issue of personalities, emotions, that it's so far beyond the financial aspects that if you don't really dig in and understand the objective of whatever it is that individual you're dealing with is trying to accomplish, or those around them that will have a say, you can't be successful unless you're lucky. And so I would say that has been the key that I have seen throughout my career and even more so today, is that we need to understand that. \n"},{"speaker":"Stephanie Chambliss Gaffin ","startTime":331.0,"body":"And I don't know about you, Chris, but it seems to me that a lot of times what somebody might tell me, when they first tell me what their objectives are, and what I learned as I get to know them are not always the same thing. Do you find that too?\n"},{"speaker":"Chris Helmrath ","startTime":343.0,"body":"Absolutely and in my big joke with everybody is more psychologist or psychiatrist that I am business. And I've never had that class but it's the reading of an eye when you're in the middle of a room. It's watching body language. It's hearing the same thing over and over again and realizing there's something more than they're letting on. And it's the ability to dig in the desire to dig to make sure that you get it right, is what achieves success or the ability not to be successful because you say I can't be in the long run.\n"},{"speaker":"Mark Gaffin ","startTime":382.0,"body":"I think that's right. I think we talked about optionality a lot and developing optionality for our clients. I think, at some level, sometimes they don't even know what the options are out there. And I think it's common upon us as consultants, advisors, even as deal professionals to help articulate the pros and cons of options that they have looked at, and even some of those ones they haven't even considered yet.\n"},{"speaker":"Chris Helmrath ","startTime":404.0,"body":"Exactly. I think what's even worse is they read something or they hear something. I was at a cocktail party, of course, you haven't been lately, but it used to be I was at a cocktail party, and I heard this, somebody did this. Where in reality, it's not truthful. But it builds on their perception of reality. And so therefore, assuming that reality is known, is a bad assumption, and making sure that you've said it a solid baseline is critical to being able to work with any client.\n"},{"speaker":"Mark Gaffin ","startTime":439.0,"body":"Oh, absolutely. And I've read a lot of the stuff that you've written over the pandemic, and I applaud you for actually taking the time, to put an article out in April, and in May, and then June and July, just, \"This is my snapshot of where things are now in this really dynamic environment.\" We've talked about some of the things that have not changed, they're going to be consistent, but they're kind of bedrock to doing deals to running, growing and selling your company in the middle market. But you talked about a couple things from your perspective, and you've seen this a long time. What are some of the things that people should actually be on lookout as maybe see changes whether that's gradual or long term, but that are really going to be changes?\n"},{"speaker":"Chris Helmrath ","startTime":481.0,"body":"I think the biggest change has been in the psychographics of the employee, and how the labor force views themself relative to where they work, what they do and how they do it. So if you are in a services based business, as we've all come to see, the interaction we're having is via a computer screen. You can live in Anchorage, Alaska, and be working for a company in Munich, Germany. It doesn't matter any longer. And I think many of the employers are starting to see that as well. But the employee is definitely seeing that. And that person is saying, I want to be where I'm most comfortable. I want to be in an environment that makes me happy. And it's that psychographic of that employee that you really need to understand because it has been so enlightened by this immediate change. It didn't happen gradually, it wasn't through technology, it was immediate. And that immediacy sprung to light, this blossoming concept of I can live anywhere. Now the employer is going to fight that. But at some point, there's going to be a balance and you need to be prepared for it.\n"},{"speaker":"Stephanie Chambliss Gaffin ","startTime":561.0,"body":"So Chris, my counter to that, is if I play devil's advocate, it also seems like there are an awful lot of people that are hungry for the interaction, right? I think we're all realizing how much of the social interaction that we got from our day to day work lives and also just the way that we communicate across our teams. How much of that had to do with the fact that we were physically in the same place? And so I think on one hand, there is this absolute freeing and disaggregating of geography and workplace. On the other hand, I wonder if there's going to be a bit of a backlash. What do you think?\n"},{"speaker":"Chris Helmrath ","startTime":598.0,"body":"There very well could be, and if we're going to be watching how training is done and how culture is maintained, but does that mean that as the employer you need to come up with something new? Or is that going to be that the employee has to rescind their feeling and go back to what you want? I don't know where it's all gonna fall out. But as we continue to see this go longer and longer than anybody ever expected. I'll bet more on the side of the employee than on the employer right now.\n"},{"speaker":"Mark Gaffin ","startTime":629.0,"body":"Yeah, I go back to kind of how I learned this is way too long ago, I won't date myself. But you know, starting out in commercial banking as an analyst, you carry the bags, you took the notes and you sat on the side of the room, right? You didn't even sit at the table yet. You earned your spot literally, at the table. You still took notes, but you watched, you learn so much, by watching those deal professionals do the deals, and then you kind of moved into that into the role where you're asking a question, you're engaging a client. So for investment banking analyst that may have graduated in May of last year that is trying to onboard now, how do they do that, Chris?\n"},{"speaker":"Chris Helmrath ","startTime":671.0,"body":"I would just encourage them to get on the screen, interact with the people that are more senior than they are, ask questions and seek to understand. I think it's the aspect of academic curiosity for so many, is lost. But it's those people that have that curiosity that will constantly seek, that they better can understand to apply whatever it is they're doing, is going to be critical. Those of us as leaders need to be mindful to reach down and say, \"What can I be doing for you today? How can we be interacting today?\" Even if it's, \"Let's go meet for a cup of coffee- six feet apart.\" Finding those ways to make that happen, will be critical to success.\n"},{"speaker":"Mark Gaffin ","startTime":716.0,"body":"I think that's terrific advice. One of the other areas you talked about, and I use agile a lot, and I think, you know, it came from software, but it can be applied to many areas. One of them you talked about was agile manufacturing. I think you talked a little bit about supply chain. I think that's real reasonable. And then the other one, I don't want to be part two of this question, but your thought about the PPE Gold Rush, I think I don't know if we've gotten 50 or 100 phone calls on this area, but we kind of took your comment to heart, but what do you think about supply chain, reshoring, manufacturing, those kinds of things?\n"},{"speaker":"Chris Helmrath ","startTime":755.0,"body":"I truly believe that we had gotten to a point of low cost in our seeking of manufacturing of anything, whether it was technology, whether it was a hard good and we sought to find those areas where the labor would be cheapest, the quality would be satisfactory. And that all worked. And while law when immediacy of supply chain interception occurred, and things stopped, and we have to stop and think other than war time, we've never really seen that. But we really have. Because if we go back not that many years ago, when we had longshoreman strikes, and the ships weren't allowed to get into port, there were so many things sitting on vessels in the water that couldn't get into the economy. But everybody saw that there was a short term solution. That isn't the case now. And so what I've seen and talk to so many about, whether it's investors or owners, is what is it that I can do, and what is it that I have done, but where should I go in the future? That's my concept of agile. It doesn't mean that my machines twist and turn and can reform. But if I can cut wood in one way, why can't I cut it in another? If I produced a table before? What if I produced a partition? And it's understanding where those changes are in the market, where the holes became, and how we go further. If we looked at ventilators, for that moment in time, General Motors kicked in and said, \"Okay, we're gonna have to produce ventilators very much like the last time we had to do this in World War II, where we took large factories, and started producing things that we had never produced before for the wartime effort.\" Well, today, because so many things have been produced offshore, we've had to look at what was most critical and those things that we saw to the second part of your question, were healthcare related items. But it's really even deeper than that, because we have to start to realize component parts to technology. Component parts to anything that we develop, if they're produced offshore, and we need to replace that, and we don't find an effective way to replace them onshore, while this disassociation of supply chain exists, we're in trouble. And if we go back, not that many years ago, there were some very interesting cyber security studies that were shown that the major power grid and power systems and those generators, if they were shut down by a third party hacker, and were able to turn on themselves and explode and there are YouTube videos of that, nobody realized, but all of those generators were produced offshore. How many of those are produced here today? We've known about that for how long? And it's those kinds of things. That's where we saw in the PPE. We saw immediacy that most of the things that we produced were produced in the region of China. But there are medications that are produced that for the low cost of medications in India and in other places of the world. And so it's how do we bring all that back? And how do we find a way to do that, is the opportunity, I believe that exists in the middle market. If somebody is truly agile, looks at what it is that they can do, and applies it to what people need.\n"},{"speaker":"Stephanie Chambliss Gaffin ","startTime":999.0,"body":"So Chris, I want to pick up on that point, right after a word from our sponsor.\n\nRight in the Middle Market is brought to you by The Gaffin Group, a full service business consulting firm. The Gaffin Group works closely with middle market companies tackling the big challenges of today's environment and capturing the value enhancing growth opportunities if tomorrow,. Too often dogma, platitudes or wishlists get confused with strategy, then it's no small wonder that execution can be muddled. The Gaffin Group principles work closely with company boards, executives, and their teams to seek pragmatic, tangible results. They provide comprehensive advisory services across strategic, financial, operational and merger and acquisition capabilities, all framed by the fundamental belief that real strategy drives real results. The Gaffin Group is focused on delivering robust practical insights and fact based pragmatic solutions. Their services are designed to support their clients profitable growth and sustainable long term value creation. Go to to learn more about how The Gaffin Group can help you and your company. \n\nWelcome back. We are here with Chris Helmrath of SC\u0026H Capital. And Chris I love what you were just talking about in bringing together that view of what really has been the disruption. What is how is that driving innovation? I want to actually now bring that to what are you seeing in the deal environment? How is that flavoring what you're hearing from investors, and how they're starting to think about deals that they can do, that they can't do, what are you hearing?\n"},{"speaker":"Chris Helmrath ","startTime":1102.0,"body":"Well, I want to define investor for a second, because I think they're those people that can look at a financial statement, say this is what you did yesterday, and say, therefore, this is what I will do with it tomorrow because you did it yesterday. I'll just replicate it, but maybe do it a little better than you are. When I see are the real investors are the ones that are seeing the hiccups across the markets, whether it be supply chain, consumer demand, how things are being acquired, and see the opportunity to make something new. And then it's around, what are the resources I need to put together to make that a reality? And they're seeking to find those opportunities where somebody today may be a manufacturer of furniture, but tomorrow could be immediately used for something completely different; screen, shields, whatever it might be. And all of a sudden, if you component piece that together, you've created something truly new and different. And those are the kinds of investors I see that are looking for launching pads, and that are truly opportunistic, because the value in that business is not just in what did you sell yesterday, but it's what are the competencies of the business in your ability to do what tomorrow, that if I bring that to the table with your competency, we're stronger and better in the future than we were yesterday. And I'm seeing more of that every day that we're on the phone with whether it be private equity or strategic investors.\n"},{"speaker":"Stephanie Chambliss Gaffin ","startTime":1204.0,"body":"Well, I think it gets to that concept of resilience, right? It gets to that concept. And this is one of the things that I love about the middle market, is that you have companies that are able to be agile, they're able to, I know we're using that word a lot, but that they're able to start to see how can we put things together? And I think, as I look back across the last couple of months, that yes, there was a period where it was immediately go into how do we protect how do we, you know, we don't know where this is going. And now it feels like yes, there's still a ton of uncertainty. But we've learned a lot about the disease. We've learned a lot about how the economy is responding, how governments are responding, and now it's like you just start to give a few guidelines and now people are starting to say, okay, where can I create opportunity out of this?\n"},{"speaker":"Chris Helmrath ","startTime":1252.0,"body":"That is correct. Which which is fun. So if we go back to the very beginning, hand sanitizer was on everybody's plate. But if you were to go into any large retail operation, Home Depot, Walmart, etc. There's hand sanitizer everywhere. Now manufacturer by names that I saw yesterday that used to be shampoo manufacturers now manufacturing hand sanitizer, or even better names that you've never heard of. And it really does hit home, when you realize that over 50% of the protein manufactured here in the United States was foreign owned, at the moment of COVID hitting. When we saw how it affected the workforce, and so many of those protein processing facilities, we could have been in a major issue of food shortage, had the institutional food preparation companies not kicked in and said I have no way to go in that direction. I now need to go retail. Whether that's through a branded product or an unbranded product, but immediacy of change. That kind of agility allowed people to still have chicken and beef, and hotdogs to be able to buy for their kids. Where if we had allowed just the what we had before to be all that we had going forward, we would have been in trouble.\n"},{"speaker":"Stephanie Chambliss Gaffin ","startTime":1341.0,"body":"So I want to push on that point a little bit, because and Mark and I actually just on an episode last week, we're talking about exactly this concept of it can be easy to look and say, Oh my gosh, absolutely everything in the world has changed, our strategy is out the window. When in reality, if you can take that clear head and parse apart, yes, some things have changed, but probably not everything. And if you can start to actually identify what has changed and what hasn't changed. So let me ask you a specific question on that. So in this wonderful resilience, innovation that's happening in the middle market, what role do investors play in that? \n"},{"speaker":"Chris Helmrath ","startTime":1381.0,"body":"I think they can be the ones that can create a thesis. Because if they create the thesis and they come to the party and say you can be part of this thesis, and you can make a difference because remember, what am I buying? I can be buying cash flow, I can be buying competency, I can buy market, I can buy customers, and it's really looking at what that investor is actually buying and asking that target to provide as part of their thesis. And then it's the seller or the owner saying do I want to be part of that thesis?\n"},{"speaker":"Mark Gaffin ","startTime":1415.0,"body":"Yeah, and I was going to say, I see that even on the on the buy side right? We work with firms to try and always open their aperture to what can you be doing, what skills do you really have that are beyond the current primary markets you're in, what are those secondary adjacent markets that you might be applicable, and actually competitive in, and I think that in, if you will, normal times, you get people that, \"But this is the way we've done it, I want to be incremental.\" And then you do have someone that comes along with, you know what if you took this and did this, and this, that's a whole new area, and you would have a competitive advantage in that new area. So this feels like it can be an accelerant than even on a company to- and I know you put this in one of your articles about M\u0026A- you should think about this as a time to potentially buy capabilities or geographies or customer lists.\n"},{"speaker":"Chris Helmrath ","startTime":1467.0,"body":"Yeah, because unfortunately, there really is two schools of thought, there are those people that are leaning into this environment and seeing it as opportunity. But there are many who are now scared of this and are retreating. And it's in that change that those people who are opportunistic, if they can find that business that is scared, but they can articulate how they can see the future, that opportunity of bringing something together could be very opportunistic for the buyer, and ultimately build something that they may have taken years to try to build it for bill to novo, instead of acquiring it, and bring it to bear. But I don't want to lose sight of the fact that if you don't know your customer, and you don't know how your customer interacts with their consumer, I think that's where we're gonna miss the huge opportunity of that shift, no different than I talked about how employees are looking at what they do. It's understanding that, and the loyalty of that customer to stay with somebody, even through a new product intervention, or a service line extension, could be dramatic, and it's that person's ability to manage that which will be critical.\n"},{"speaker":"Stephanie Chambliss Gaffin ","startTime":1549.0,"body":"And if I think about going back to what we were talking about earlier with geography, and you know, you talked about being at a cocktail party, right? We used to in a prior life and 2019 and before, we actually were out physically interacting with people, and it seems much easier, right? Just in our daily course, we'd all established patterns of being able to get out and meet people and have some of that cross fertilization. And that's where some of those great kinds of ideas and unexpected connections would come from. It seems to me now that we have to be so much more intentional about actively seeking out conversations beyond our typical bubble. Otherwise, it becomes so easy to hunker down, and that fear that you talked about, and then we miss that opportunity to start to be creative and think about what is a new possibility?\n"},{"speaker":"Chris Helmrath ","startTime":1600.0,"body":"Right. So if I go back to the very first question that you asked me, Stephanie would be the advice I would give any business owner that will be listening today. Do you understand your clients objectives? And have you taken the time to pick up the telephone and ask them what are you doing? Where are you struggling? Where is there a miss? And it's really funny given that you're sitting in Chicago. But if we remember back there was a great commercial that was done for United Airlines probably over 20 years ago where the gentleman that owned the manufacturing facility had everybody in a big boardroom. And he said, we just got fired by our best client. And he handed out airline tickets to everybody and said, \"We've got to get out to see all our customers.\" And they said, Where are you going? He said, to reconnect with an old friend. And it's exactly what this is. We need to find those ways to connect with our customers, understand our prospects, ask those questions, we will learn more about the ability to offer something we may not have offered before. It could be in how its packaged, how it's delivered, how its interpreted. But that's where I think the real opportunity is for the investor community, because if they bring that level of acumen, where there wasn't one before, the value add is tremendous.\n"},{"speaker":"Stephanie Chambliss Gaffin ","startTime":1690.0,"body":"Chris, I love that point. And I think that's a good place to stop for today. We will be back with part two of this conversation with Chris Helmrath of SC\u0026H Capital. And in the meantime, I'm Stephanie Chambliss Gaffin, and you've been listening to Right in the Middle Market, a podcast about running, growing and selling your middle market business. We'd love to hear your comments about today's episode or questions you might have for us or for Chris, and ideas for topics you'd most like to hear in the future. Send me a message on LinkedIn or drop me a line at and don't forget to subscribe to make sure you don't miss any more pragmatic tips. Until next time, be well and be courageous.\n\n"}]}