Chicago Booth Magazine
Three alumni working in mergers and acquisitions recount how they navigated a joint-venture partnership in a new market, founded a client-centric M&A boutique, and helped a large firm divest for future success.
Dwight McCardwell, ’00, Vice President of Finance at the Kellogg Company, Battle Creek, Michigan
Dwight McCardwell, ‘00
The Challenge: Food producer Kellogg wanted to enter the Chinese market, but failed its initial attempts to do so organically or through acquisition. It decided to pursue a joint-venture partner to lower its market-entry risk since Kellogg could leverage the partner’s local expertise and scale the business, saving time and expense. Joint-venture partners also share the required investment to achieve success. While a joint venture might reduce the possible absolute upside of entering a new market, the probability-weighted return is usually higher than with a go-it-alone strategy. Yet finding a solid partner is difficult. Kellogg worked with Dwight McCardwell in 2012 to find the right match.
The complementary capabilities of each created the right conditions for the two companies to partner.
The Strategy: Kellogg looked to one of its suppliers, which had the necessary scale and Chinese market knowledge but lacked the category and brand-building expertise that Kellogg could provide. “The complementary capabilities of each and a shared desire to grow in China created the right conditions for the two companies to partner,” McCardwell said. Although the two parties had similar visions for the joint venture, negotiating and establishing the final agreement took several steps, necessitating both soft skills and tactical work. Patience and discussion of sensitive issues for both parties was critical. The two companies agreed to continual sponsorship from the top of each organization from beginning to end. Both parties reviewed the other partner’s strengths and weaknesses and leveraged the strongest attributes of each. They seeded the new organization with talent from both organizations and blended corporate and local resources and relationships. The parties also agreed to focus on the “spirit” of the agreement versus specific legal terms, McCardwell said. The negotiations took roughly two years.
The Takeaway: Successful joint ventures have many important attributes. Two key factors include leveraging both sides’ strengths in complementary ways and getting strong buy-in from the organizations’ leaders to maintain momentum and break barriers through the negotiation process.
Mary Josephs, ’89, Founder and CEO of Verit Advisors, Chicago
Mary Josephs, ‘89
The Challenge: Years before Mary Josephs founded Verit Advisors, she was working in middle-market investment banking, employee stock ownership plans (ESOPs). And often, she saw financial experts tell the owners of privately held businesses how to handle their transitions rather than listening to business owners’ needs. In 2005, she started envisioning a firm where bankers would explain to business owners the pros and cons of sale alternatives, not dictate transactions. She was hesitant to make the leap, as she felt she needed to know more about other aspects of launching a business.creating
I purposely populated Verit with respected professionals who have diverse backgrounds.
The Strategy: Josephs retired in 2009, after her employer was bought out by a larger bank, and used the next year drawing up business plans. She initially thought that, given her background in ESOPs and finance, she would need a male partner to be taken seriously as an M&A investment banker. After two attempts to launch the firm with other individuals, “I finally realized what was wrong was my hypothesis,” Josephs said, and she decided to launch on her own. She raised money from family, friends, and longtime business associates. Instead of starting with a male partner, she created a leadership team that included fellow Booth alumni: the late Brooks Myhran, ’87, who brought M&A leadership and experience; John Solimine, ’04, who had a debt capital markets background; and Robert Ruszkowski, ’08, who had expertise in mergers and acquisitions. “I purposely populated Verit with respected professionals who have diverse backgrounds, which enables us to be impartial and accurate when we are listening to business owners,” she said. After closing its first deal in 2009, Verit Advisors officially launched in June 2010.
The Takeaway: No one can know everything about all aspects of a business. Instead, surround yourself with a network of associates whom you can consult in order to get clients the answers they need.
Christopher Myers, ’12, Senior Manager, M&A Transaction Advisory Services at EY, Chicago
Christopher Myers, ‘12
The Challenge: How does a company that has always acquired businesses learn to sell units that it deems are no longer core to its future success? A large technology firm had a robust balance sheet, but its stock market valuation was stagnant because Wall Street thought the firm was not efficiently allocating its capital toward growing markets. The company’s corporate development group hired an EY team, which included Myers, to see how the firm could reinvigorate its capital allocation.
It isn’t just about bringing a good answer; it’s about having strong relationships.
The Strategy: The firm had already acquired well over 100 companies prior to hiring Myers and the EY team in 2014, but it had never looked at its various business units as a portfolio of businesses. While the firm has always successfully and rapidly integrated businesses into its corporate ecosystem, it needed advice on how to sell. Since the company was in a solid financial position, it had time to consider several options for gaining the experience required to sell businesses as a means to reinvigorate its growth. By working with the client, the combined team recommended selling a smaller unit first so the company could gain a firsthand understanding of how to properly divest—involving everything from separating production lines to smoothly transitioning human resources. The first sale wrapped up in late 2015, and as a postmortem, Myers and the EY team created a “lessons learned” playbook and a work plan for the company to execute future divestitures. Although it’s too soon to tell if the firm’s early steps will capture Wall Street’s attention, Myers said this initial experience helped the company build confidence to do more sales. The firm is now in the process of selling off additional units, one of which is four times the size of the first unit that sold in 2015, and has invited the EY team back to support this next round of sales.
The Takeaway: Building strong relationships with clients can lead to long-term business outcomes for both parties. “Consulting is a people business,” Myers said. “It isn’t just about bringing a good answer; it’s about having strong relationships and the ability to influence people to follow the advice that you bring to them.
—By Debbie Carlson