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Christie McFall | Upcoming Trends In M&A Post-Pandemic
POSTED 6.30.20 M&A Masters Podcast

On this week’s episode of M&A Masters, we speak with Christie McFall, Business Development Director of Great Range Capital. Based in Mission Woods, Kansas, Great Range Capital brings a unique combination of institutional-grade experience and Midwestern values to middle market and lower-middle market firms in the Heartland.

“Our whole goal is to take a successful business that has a strong management team that is looking for some sort of succession plan, if it’s taking equity out of the business and slowing down, or just growing that business to the next level because they can’t. That’s one of the things that I find appealing from these businesses in the Midwest is you get to find somebody who’s talented, took an idea, and grew a successful company. But when they can say, I just don’t know how to get to the next level, and I need some help, those are the types of relationships we’re looking for,” says Christie.

We chat more about Christie’s career and Great Range Capital, as well as:

  • Helping already successful businesses in the lower-middle market grow to the next level
  • Rep and warranty insurance
  • Upcoming trends in M&A
  • The importance of acknowledging the emotional aspect of selling a business
  • And more

Listen now…

Mentioned in this episode:

Transcript

Patrick Stroth: Hello there. I’m Patrick Stroth. Welcome to M&A Masters where I speak with the leading experts in mergers and acquisitions. And we’re all about one thing here, that’s a clean exit for owners, founders and their investors. Today I’m joined by Christine McFall, Business Development Director of Great Range Capital. Based in Mission Woods, Kansas, Great Range Capital brings a unique combination of institutional-grade experience and Midwestern values to middle market and lower-middle market firms in the heartland. Christie, thanks for joining me. Welcome to the program.

Christie McFall: Hi, thanks for having me. I’m excited to be here.

Patrick: Well, before we get into Great Range Capital which we’ll short to GRC, why don’t you tell us about you? What got you to this point in your career?

How Christie Got to This Point in Her Career

Christie: Yeah, so I’ve always done business development and marketing. And prior to the firm, I was at a company called UBM. It’s based out of London. You won’t find that name anymore because over the last three years it was bought and sold three times. I think it went from UBM to Informa to a company called NJH Associates. My role was when I was hired was to grow the company through M&A.

And I was able to do that. I bought a couple of data firms and a few media companies to round out my portfolio. But in the process, they were buying and selling my group at the same time. So although I learned a lot and enjoyed the process, I wanted to stop being on the receiving end of the acquisition and be on the buying side. I really enjoy the process and I enjoy, you know, meeting new people.

And that’s one of the biggest benefits of the role that I have is getting out into the marketplace and meeting business owners and influencers and deal brokers. And I like that a lot. I don’t necessarily love the integration part of being bought and sold, where you’re trying to figure out a new process, procedure, email capabilities, integrating your finances into a new business. So more of the operation side. I like being on the business development side.

Patrick: Lots of ironing out the wrinkles. GRC has a real pride where they’re strong in the heartland in the region. Briefly, though, for you personally, are you originally from the Kansas area?

Christie: I’m originally from Iowa, Des Moines, Iowa.

Patrick: Okay. As a Californian would say, same thing. But

Christie:  Yeah. Close enough.

Patrick: So your travels have brought you around now. Now you’re here in Kansas. So tell us about Great Range Capital.

What is Great Range Capital All About?

Christie: We’ve been around for 10 years. It was founded by two gentlemen, Ryan Sprott and Paul Maxwell. They grew up in Kansas. They went to KU. They’re brothers in long so they’ve known each other since they were teenagers. And after they graduated, they both went to the east coast to learn the business inside and out.

Worked for major firms, you know, did the billion-dollar deals. But along the way, they always knew in the back of their mind that they wanted to come back to the Midwest and felt strongly that the Midwest was underserved from a private equity standpoint as well. Yeah, a lot of people fly in, but not a lot of people actually live and work right here with the companies that are based here.

Patrick: Huge competitive advantage.

Christie: Very much so. And it’s really where we win. So our thesis is similar to others. We’re looking at lower-middle market companies, three to $15 million in EBITDA. Manufacturing is our sweet spot, but we’ll look at pretty much any company that doesn’t play an oil and gas or has some cyclicality to it. But the difference is we can sit down at a table and have that connection and that chemistry that a lot of folks who fly in for the day cannot have. We are, we drive there. You know, we only really look at businesses in the Midwest.

So typically, the seven states that touch Kansas. And then we’ll go outside those seven states, but they have to be in the Midwest for the portfolio company. Add-on opportunities we may look outside of that geography, but really tightly looking at the Midwest. We drive there, we’re there in a day, we didn’t fly in our private jets. We are raising our families here. We understand the emotional decision that this is for an owner rather than just a financial.

Listen, if it’s just a financial decision, meaning I want the highest multiple for my business, we’re probably not the partner. If you are looking, we want owner-operated businesses that are healthy and strong. Those folks usually stay involved at least for a time period and roll some equity in alongside of us to help grow the business. And we understand that that business is important to them. Their families usually work there. Lots of the people in the town or there. It’s a very big employer usually, so we are comfortable having conversations about how to maintain that business.

We aren’t coming in to put in 10 new executives, sweep out the management team and start anew. That isn’t, our, we aren’t operators. We don’t want to run the business. We want them to run their business. We might bring in somebody who can grow it from a strategic level, either a CFO or CEO, some board members, but we don’t want to run the business. We want them to do what they do best. So it’s a chemistry conversation and it takes years, a long time to earn the people’s trust. But that’s our differentiator, which really are, we understand where they’re coming from. We can speak their language.

Patrick: You guys have a commitment to the lower-middle market, middle market as a market segment, okay? Is that a choice? Or are you restricted just because that’s all that’s there in the Midwest?

Christie: Yeah, absolute choice. There are so many businesses, valuable businesses here in the Midwest, we choose to focus on the lower-middle market, middle market range. for a few reasons. Obviously, you know, we like to say that we can drive to your business within a day. We don’t fly in from the east coast.

We’re here in addition to Ryan and Paul being from KU, everyone else in the firm is from Kansas except for me, so they really went out on a limb hiring an Iowa girl. But we all are from here. We grew up here. We’ve all spent time either in Chicago, Milwaukee, Minnesota or Minneapolis, sorry. And East Coast, I was in LA myself. And we’ve all come back here to raise our families and focus on the businesses. So when we sit across the table from a business owner, you know, when we talk about shared values, we can say that honestly and mean it.

We’re a firm based in the Midwest, we drove to visit you today. You are listening to and talking to folks that understand the value of your business. We understand the value of the employment here to the town, to the folks that work here. And we understand that this is mostly an emotional decision and not just a financial decision. And we find that that sets us apart. You know, the businesses that we target are, you know, within three to $15 million of EBITA range. We believe, you know, most of these folks are owner-operators that want to stay involved or help the business grow in some way.

Maybe they just want to slow down and let somebody else come in and help them continue to grow that business. But it’s an emotional decision. And we focus on that size and that type of owner-operated business where we can sit down and have those relationship-driven conversations. That’s where we win and that size seems to be the most effective. We’re also wanting to be a majority owner first in on capital raise and so that seems to be the size where that’s really a typical arrangement.

Patrick: You said a couple of things that stood out to me. And it’s the power of having focus in a particular market and enjoying that market that you’re in. One of them was that personal aspect that you’re, you’ve got boots on the ground and it supports the philosophy that I share is that mergers and acquisitions are not the combination of Company A buying and Company B, it is one group of people choosing to work and combine forces with another group of people. And when you put those together in an ideal situation, the intent is that the whole is greater than the sum of its parts.

And so if people get together, cultures mix, interests mixing and align, it all works. And that’s usually the remedy for success. And so there are others out there, and I’m sure you’ve come across this where there are other competitors that are probably offering a lot more money than what you’d be offering but you just don’t have the fitness. One thing that’s just critical and you can’t overlook. I think the other thing is essential is that the lower-middle market is a lot bigger than people think it is.

And the crying shame out there and the reason why we wanted to talk to you today and introduce GRC out there was that the lower-middle market is large, but it’s really underserved. And I mean underserved in a big way because if you don’t have in house core dev or you haven’t gone through a lot of transactions and you’re a founder, you don’t know where to turn. And by default, they’re going to pick the brand names, large institutions and go in that direction to seek help. And, you know, they’re going to find out that they’re going to be overlooked because of their size.

They’re going to be underserved. They’re going to probably have somebody who’s condescending to them. And the large institutions, while they’re very large, they don’t have the bandwidth to handle the solutions or deliver an alternative to a smaller client. And so the lower-middle market company ends up getting some prepackaged solution. And so they’re not only overlooked and underserved, they exit poorer, I’ll put it politely, not as rich as they would otherwise if they partnered with a firm like GRC. So give us an example just of one of your deals where you guys added value, where that connection worked.

Grand Range Capital Offers Honesty and a Personal Connection

Christie: I mean, it’s hard to pick just one. I’ll highlight two. I, you know, all six of our portfolio companies are based in the Midwest. They were all owner-operated and relationship-driven deals. In Mountain Valley, Spring Water-based and Hot Springs Arkansas was owned by the JB Hunt family. All were relationship-driven.

Met with them still to this day we, you know, we own, we just sold that company I guess a year and a half ago. still connected to that group, still send them opportunities when we see, you know, add ons for them that might look good. Fair Bank Equipment in Wichita, Kansas is owned by the Rei family. Cody Wright is the President and CEO. He’s been with that business for 20 years plus. He’s the grandson of the founder. And I think he eats Thanksgiving dinner with our two founders as well.

I mean, these have become family members of ours talking about what we’re looking for from an owner-operator relationship. You know, it takes a few courses, you know, a few of these folks are looking to slow down. Well, they say they’re looking to slow down, they really do. They say they’d like to retire or slow down over the next three years. And the fact is, once we get in there, and the business starts to grow, half the time, they’re reinvigorated in the business and spend more time.

So apologies to their families who they told that they were finally going to go to that lake house or that beach house in Florida and slow down because that’s rarely the case. Usually, it invigorates them to get back in the game and somehow find the energy to keep going, which is impressive. And that’s the case with most of our businesses. What they’re really looking to do is maybe take that second bite at the apple, and that’s really what we offer, you know, from our perspective. I think you’ve mentioned exiting poorer than when you started or not as rich as when you, as you’d hoped you’d be.

Our whole goal is to take a successful business that has a great strong management team that is looking for some sort of succession plan, if it’s taking equity out of the business now, slowing down, like I mentioned, or just growing that business to the next level, because they can’t. You know, they’re very honest about that. And that’s one of the things that I find appealing from these businesses in the Midwest is you get, you find somebody who’s certainly talented, took an idea and grew a successful company.

When they can say, I just don’t know how to get to the next level and I need some help, those are the types of relationships we’re looking for. And that’s really, when we can bring some value, and aside from just the capital, we can bring in a next-level CEO or CFO or strategy person that can grow that business. And then three, four years, five down the line when we sell that business, again, which we have, Mountain Valley, Springwater and Heartland Landscaping we sold again and those owners get another, you know, bite of that apple.

They get another opportunity to financially benefit from the growth of their company. And that’s truly what it’s all about. We are not, you know, we’re not flying in for the day. We are here. We live here, we drove to visit you, we want to see you successful, we want to see your business grow. We all benefit from that. And it seems to be a win-win all the way around. We are connected to these folks. We deeply understand their business.

And I would say that over the last, you know, six weeks as we have turned inward as a community and as a business, we have focused solely on keeping that business healthy and the employees that are healthy and how to see everyone through this time. I’m not on the, you know, quote-unquote investment team side. I’m on the business development side. So while they have really turned inward to focus on those companies, I have strengthened my relationships, looking to network and grow our deal flow. And people are hungry for interaction and talking. So it’s been an interesting time on both sides of the coin there.

Patrick: With the number of deals that are going on with you, I’m curious as to what experience you guys have had with a product called rep and warranty insurance and whether or not that’s impacted you as it has. For those of you who don’t know, rep and warranty is an insurance policy that ensures the seller’s representation.

So in the event the seller reps are inaccurate or breached, despite the due diligence of the buyer, and the buyer suffers financially rather than the buyer pulling funds from an escrow or trying to carve back money from the seller, instead they have an insurance policy that will pay the buyer their loss. Buyer gets certainty of collection, seller gets A, no escrow or very tiny escrow, and they get a clean exit from the deal. And so I’m just, it’s been a very exciting growing product throughout M&A, largely on the mega-deals. I’m just curious what experience you’ve had.

Christie: Yeah, absolutely. I had a chance to talk to Ryan and Paul about this as well. And we’ve used it on our last two sales. We feel strongly that it’s great product. The cost is much more reasonable than it has been, you know, 10, maybe 15 years ago. So we expect to use it much more going forward. And we think the usage in general across private equity and M&A is going to just continue to increase. So we’re excited about it. It’s a really good product. Cost-effective and makes a whole lot of sense for us.

Patrick:  Now, as we record this, we’re getting near the end, hopefully, the beginning of the phase of the reopening of America from COVID-19. Could you give us your best guess as to, or what trends do you see either globally, in the US or with GRC for M&A in the next six months to fall?

The New Norms of COVID-19

Christie: Sure. So I think there’s a couple of things. I think the biggest impact I see on it is truly on deal terms, specifically due diligence issues and the time it’s going to take to get a deal done. And what’s, and by no means were these deals ever quick. They take quite a few years, you know, weeks months. But I think that’s going to continue to take quite a bit of time as new modeling has to be done and things that we’ve never considered in the past are taken into consideration.

So that’s going to have an impact. I think that the way these transactions are developed and negotiated are going to change. This is a business where getting everybody in the room literally has been a big part of the process. And I’ve spoken about it today. The relationship-driven aspect of our business is sitting across the table from somebody and making a connection.

So that’s, we’re gonna have to do that different. That looks different. It’s technology, it’s how you and I are, are talking today. You know, the Zoom, the WebEx, the virtual meetings that, you know, not shaking hands when we can meet in person. There’s just going to be some changes that people will have to embrace. And so that looks different. From a Great Range perspective, we have a very focused investment thesis that we have followed for 10 years.

You know, we don’t forget our roots. We don’t forget that thesis, even if something looks really great but it happens to be based in California, it’s just not a part of our investment approach. So we’ve been lucky in deal flow and continuing to see nice deals. We have based all of our time in networking and relationship-driven, not only from a deal perspective on with the owners, but also with influencers and brokers. So we’re still seeing those opportunities because we’re honest and straightforward and we’ll tell you right away, this is for us, this isn’t for us. We won’t beat around the bush.

So we’ve been lucky to see deal flow continue. You know, and I think that’s because we have a tightly held thesis. You know, we’re only in those seven states. We only invest in the Midwest. We’re only looking at companies that are healthy, owner-operated. The size three to 15 million in EBITA. You know, those things are pretty tight and we’ve held true to that. So we continue to see some deals. So for us, it’s been okay. You know, we’re continuing to look at a few businesses we had under LOI prior to going into COVID-19.

And we hope to continue with those businesses and close those deals, you know, within the next 90 days. So, I think It depends. I think there’s some larger private equity groups, global groups, where deal flow has come to a halt. People have backed out of some deals that were, you know, newsworthy if you will. But we’re chugging right along in the Midwest and we hope to continue knew to deploy capital. There is money to invest, and we have it and we would like to continue to see those good deals.

Patrick:  I think that discipline, plan your work, work your plan has served you guys well. And so you’re not immune from the environment out here but you’re definitely protected against that. That would make you just a strong, vigorous, active and a solid partner for owners and founders out there.

Christie: Absolutely. You know, we didn’t invest in distressed businesses before and that isn’t where we’re headed now. The industries we like to look at are, you know, manufacturing and distribution and business services and healthcare services. Those have been impacted certainly, but hopefully, will you know, rebound and stay strong, typically usually do. So that sets us up for a nice, hopefully, a nice future.

Patrick: Well, I don’t think there’s gonna be any shrinking in manufacturing in terms of new ventures. And if there’s any place for manufacturers, it can be in the middle of the country, just cost-wise. You know, so I think that bodes very, very well. Christie, how can our listeners find you?

Christie: Well, they can reach me a number of ways. So they could go to our website, which is greatrangecapital.com or they can email me at christie.mcfall@greatrangecapital.com. And my name is spelled CHRISTIE.mcfall MC F as in Frank, ALL, @greatrangecapital.com. Or the easiest way is probably my cell phone, which I don’t mind giving out. I’m in new business so I expect phone calls and I answer them even if I don’t know where the number’s coming from, strange. 913-952-3037

Patrick: So if you can’t find Christie, that is your fault. Christie, thanks very much. I recommend everybody take a look at Great Range Capital. And thank you again.

Christie: Thank you