[EP 032] Kerry Boulton on Management Buyouts and Having an Exit Plan

We talk to Kerry Boulton, the CEO and Founder of The Exit Strategy Group. We drill into the elements that Kerry has learned in her career both buying and selling businesses and now advising business owners in preparing for their exit plan.

Hi, it’s Joanna Oakey here and welcome back to The Deal Room Podcast, brought to you by our commercial legal practice Aspect Legal.

Today we have with us on the show Kerry Boulton, the CEO and Founder of The Exit Strategy Group and NEXUS Business Coaching.

Kerry purchased Freight Management International, which is a division of Mayne Nickless in 1987, as a management buyout. She then successfully sold the business nine years later after a multimillion dollar turnaround.

In this episode, we talk to Kerry about her background and how it relates to her position as an exit strategist. We also drill into the elements that she has learned along the way, through the various parts of her career both buying and selling businesses and now advising business owners in preparing for their exit strategy.

So don’t go anywhere! Here we go!

What is an exit strategist?

Joanna: Hi Kerry, thank you so much for joining us today. I thought maybe we could start off today with you giving our listeners just a little bit of a rundown of what an exit strategist is.

I think for many people there’s confusion in their minds about what an exit strategist for business sales and acquisitions is in comparison to a broker or indeed to business coaches as well.

Kerry: Sure. Thanks very much Joanna.

An exit strategist really is a person who helps facilitate with a business owner and all the team of people that might be around him to help them develop a plan that’s going to be able to give them a simple strategy to build a business that’s transferable.

It has really strong human and structural, customer and social capital so that the future of the individual and the family and the business is addressed through exit planning and creating value today. An exit strategist is the person who facilitates all of that.

It’s a great role acting with everyone else’s interests at heart and not being in competition with them but actually working together with them so that you get a really closely knit team that’s all going in the same direction.

Buying her first business through a management buyout

Joanna: I guess it will be interesting for us to understand how your background works and how you ended up in the role that you have now advising as an exit strategist.

Kerry: Sure thing. I’ll nip straight to the 1980s when I had the opportunity as a 30 year old at the time where I became the first female general manager of a division of Mayne Nickless which is, was or still is today a publicly listed company. But it has changed its name. It is now called Mayne Pharma.

The business that I was looking after was called Freight Management International. Back in 1987, Mayne Nickless decided to sell that business.

It was quite normal (or not, I suppose normal is one expression). But it was not uncommon for there to be leveraged buyouts or management buy outs, that was the name that was given to those opportunities. So I put up my hand and said yes I was interested to buy the business.

They did decide at the time that they wanted to sell it off to an international group. So I just kept doing what I was doing and looking after the business.

Sort of a year later they came back and said well we can’t sell it. Are you still interested? So I said yes I am and I should have said “Oh, but the price has changed” but I didn’t.

I behaved as most people with an exciting opportunity would behave and that is to get really excited about it and move forward and just everything was status quo.

Meanwhile, the business was just sort of marking time so to speak. I was actually able to go to a very dear friend and mentor and just put the opportunity to him and he said “Kerry, you write the business plan. If you can convince me, I’ll help you put the money together.”

We needed a million dollars at the time and my husband and I had exactly zero. So being young professionals if you like and I suppose the other complication to mention which perhaps some of our female listeners might appreciate was that I happened to be seven months pregnant at the time.

Joanna: Wow. What timing! Goodness gracious.

Kerry: Yes, I know. With our first child. Anyway, as they say you don’t know what you don’t know. So onward we went.

Learning to write a business exit plan

Kerry: Anyway, I really had no idea how to write that particular plan to go and get investors because when you’ve come through a corporate environment those are not the plans that you write.

As luck would have it, a book was advertised that I was able to send off for and it came out of M.I.T. Massachusetts Institute of Technology and it was a book called “How To Write Plans That Win Dollars.”

Now that book arrived a couple of weeks later because those were the days when you cut the coupon out and you sent it off overseas and you waited for it to come.

I read the book from cover to cover in about 24 hours. I actually sat down and wrote the plan by the book which was amazing and the rest as they say is history. I think the thing that really struck me the most now on reflection is that I learned about having to have an exit strategy from that book back then.

It wasn’t devoted to having an exit strategy. It was actually saying well if you’re going to get investors, you’ve got to actually have an exit plan. You’ve got to have an exit strategy. So what are you going to do with the business?

At the time when I bought the business, we had 87 staff in five locations around Australia and 120 international agents. So it wasn’t a tiny little business. It had quite a few challenges not the least of which of course was giving birth to my daughter the day I had signed the contract so that just added a new dimension.

But I do have to say that Mayne Nickless – they were great. They were terrific. Very helpful in the whole process. It actually went really smoothly with the changeover.

I decided that what we wanted to do was build a business, create it, making it attractive to an international group and sell it somewhere between the five and the 10 year mark. In today’s sort of exposure that we have to shows like Shark Tank you’ll notice time and again that question comes up. Well, what’s your exit plan? How am I going to get my money up? So that’s the way you have to look at it.

If you interpret that to yourself as a business owner, you are the biggest investor in your own business. So how are you going to get your money out. I think that’s something that a lot of people just haven’t considered.

When I reflect, the business plan – the beginning and the end – actually worked out exactly as I planned. Everything else of course in the middle was up and down as it always is. You’re riding a rollercoaster as you know in any business at all. Lots of individual stories that we don’t have time for now. But they really created some fantastic opportunities and challenges.

Transitioning from employee to business owner

Joanna: You’re in a very unique situation. At the age of 30, holding a management role employed by an organisation now with the opportunity to purchase the business that you’re employed by.

I’m really interested how did that process go between being an employee to now owning the company? Was that a difficult transition for you and for your staff members?

Kerry: I don’t know where this came from in my own psyche. Other than my uncle had started a business when he was 21 and he was an electrical contractor and consultant and I used to work in his business as the receptionist when I was 14 years old. I think I got an exposure then to actually having your own business and well and truly over the years.

But going from being in the corporate big brother environment to being able to be much more agile and being able to really be creative and move quickly I think was a breath of fresh air for everybody in the business.

Just back in those days it was well Joanna you probably don’t remember but maybe some of our listeners will that 1987 October, Black Friday on the stock market.

And we had things that if I’m running a workshop or doing a talk I mention these things to people because things that you don’t necessarily plan for happen. My Victorian State manager was very tragically killed in a car accident that was within three months of having taken over the business. I had five offices around Australia so each one was autonomous.

Things that you don't necessarily plan for happen. - Kerry Boulton #TheDealRoomPodcast Share on X

Then towards the end of the late 80s the economy was rocking. It was fantastic and we were doing extremely well. Then we had the recession we had to have and on and on it goes.

Being in a private business, it gave us the real opportunity be a lot more flexible and a lot more responsive. That particular business, which was an international freight forwarding meant that we were an indicator industry. If anything was going to happen, we knew about it six months ahead of everybody else because of the effect that it had on importing and exporting.

We learnt to be very sensitive to those changes. If anything, one of the best things I would say coming from that corporate environment was that we had a lot of really good disciplines in place which we kept and maintained in terms of daily reporting.

We were big business. We were turning over close on 50 million by the time I sold it so we had to have huge controls in place for cash flow. A lot of that was money that we had to pay out as well.

If you have to pay a quarter of a million dollars in in customs duty for a client and they don’t pay you when they’re meant to, they hold you over for two or three days or something like that, then you could find yourself in a fairly distressed position maybe. So you had to have really good controls from a financial perspective, all your KPIs, systems and processes.    

One of the things that we did go through was to do TQM total quality management. We were one of the forerunners in the service industry so we got our TQM accreditation and then later we did the ISO 9002 certification which was really easy because we’d already done all the work beforehand.

Those things stood us in really good stead. We had all our processes and systems documented. I also have to remind everyone this was pre computers on everybody’s desks and pre Excel spreadsheets.

Joanna: It’s hard to remember a time, isn’t it?

Kerry: Absolutely, it is. I mean these are the days of overhead projectors and that sort of thing that you are printing I forget I can’t even remember what they were called now. Those clear sheets that you used to print when you’re doing talks and things like that.    

All of this was sort of very manual process back then. But I think those are the things that really stand you in good stead in today’s world that you can do so much more easily and so much more readily with all the fabulous tools that we have.

Joanna: The systems and the processes and the quality controls.

Kerry: Correct. All of those things.

So to answer your question coming out of a corporate environment into a private business environment was really exciting and scary all at the same time. But it really gave us an opportunity to keep the good stuff and throw out the burdens if you like from being a corporate reporting situation. It gave us the real opportunity to be able to make a mark for ourselves in that business.

Let’s take a break

Let’s take a short break. When we come back, Kerry explains the difference between an exit strategy versus that of an exit plan – and why it’s not enough to simply have a strategy. We also drill into some significant statistics around the massive number of businesses that are retiring in the next few years. And finally, we close this episode by leaving you with some tips on how to properly plan your exit.

And that’s next, I’m Joanna Oakey and you are listening to the Deal Room Podcast, brought to you by our commercial legal practice Aspect Legal.

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Welcome Back

Welcome back! Earlier, we opened this episode by getting to know Kerry. We discussed the nature of the work that she does as an exit strategist and we also talked about her experience in transitioning from being a general manager to becoming the new owner of the business through a management buyout.

Let’s pick up our conversation with Kerry, and explore the difference between an exit strategy versus that of an exit plan.

Exit strategy versus exit plan

Joanna: You talked about having the exit strategy or the exit concept at least somewhat organized before you started as part of your pitch to your investors.

Do you feel that having that clarity about what the exit looks like helped in driving the day to day of the business? How do you feel it impacted the day to day the business?

Kerry: We were always going to sell the business. So we always had the end game in mind.

Not that we actually advertised that to everyone. We didn’t and we certainly didn’t advertise it to the staff. It was a confidential aspiration and plan as far as the business was concerned. That just meant that we were always focused on making sure that we created value and improved the value of the business because that was our ultimate aim.    

Joanna: In your book and we may as well take the opportunity to mention that you have two great books here that our listeners can potentially get copies of if they’re interested. The Uncensored Truth About Exit Strategies and Million Dollar Payday. Where can our listeners get copies of those if they’re interested in hearing more from you Kerry?

Kerry: Yes sure. They’re both available from my website so you can just go to the exit strategy group dot com dot au and you’ll find a tab at the top that says books.

Both books are complementary. There’s just the postage and handling for the million dollar pay day book. But if I send them out together obviously they’ll just come together and it is $9.95 – just postage and handling. No charge for the books themselves.

Joanna: Great. And in that Uncensored Truth About Exit Strategies book, one of the comments that you make in that book is that during these first acquisition and sale that you’re talking about you realise that having an exit strategy wasn’t enough and that instead you needed an exit plan.

I thought that element was really interesting. I thought perhaps maybe it’d be great if you could run us through what you mean by that. What is the difference?

Kerry: For me the difference was yes the strategy was that we wanted to sell the business and we had some timing around that. However our plan and for me it didn’t really ring true to me until after because there’s more to exit than simply the business.

There's more to exit than simply the business. - Kerry Boulton #TheDealRoomPodcast Share on X

What I said is just some description that I gave earlier about exit planning combining both the plan and the concept and the effort and the process to build a business that is completely transferable through those other areas of capital that people don’t really often think about meaning the human side, obviously the money side but from your client perspective and also from the social perspective. Because it’s not only and it’s not only the business but it’s your family and everyone else that’s actually affected.

I found myself after having sold the business that I hadn’t even thought about what I was going to do. Everything was just yeah, this is the transaction and we’re focused on that.

I’d certainly given thought to my staff because one of my absolute non-negotiables was that everyone had a job but me. I was quite happy to move on. I did stay on for two years after the initial deal was done. But then after two years I got fired.

Which I think was hilarious. But I honestly thought I wasn’t probably only going to stay in for another six months personally anyway now that I look back at it.

But I hadn’t actually thought about what was I going to do after I’d left the business anyway and I found myself at home sort of first week thinking oh right now what am I going to do.

I had two young children at that point and I thought well it’s best not in my makeup to stay at home and look after the children. I was twiddling my thumbs and thinking what am I going to do. I hadn’t really given any thought to it. That’s what a plan does. It actually address those issues well beyond simply the business and looking at what else is going to be affected.

Joanna: I must say it’s very interesting hearing you talk about your own experiences there. In my experience, the majority of business owners really don’t completely understand what a life looks like without this business that they have been so attached to their self identity as well for all of these years.

It can be that this dawning comes after the point of sale was as it did for you. For me I’ve also noticed quite a few times that sellers of businesses come to this realisation once they have an offer that they’ve committed to or that they’re about to commit to. Sometimes that’s when this emotion comes up about what will my life look like when I don’t have this business anymore.

Ask yourself, what will my life look like when I don't have this business anymore? - Joanna Oakey #TheDealRoomPodcast Share on X

I think it’s a really good point that you make about understanding having a plan around the whole element including what you’re going to be doing afterwards in order that you are emotionally ready for what can sometimes be difficult process going through the the negotiation process that is inevitably involved when you are selling that business.

Kerry: True. Absolutely true. My husband and I when we’re talking to other people from time to time I joke about it and I say Well look I married you for better or worse but not for lunch.

So here we are 36 years down the track and we’re still together. I think that that deserves at least a little tick. But I do think that that’s the difference and that’s what’s really important is actually to think about what it is that you’re going to do next.

You can only do so much. I think you need to decompress. Big tick to that. You really do. I find most people have been working maybe 60, 80 hours a week but maybe they’re not actually working. They’re just filling their time. Therefore you’ve got to think about what it is that you are going to do to fill your time after you’ve left your business and how that’s going to affect your family or anyone else that you’re constantly interacting with in your life. It’s about creating purpose for the life after business as well.

It's about creating purpose for the life after business as well. - Kerry Boulton #TheDealRoomPodcast Share on X

Expect a flood of businesses to retire

Joanna: Here we’ve particularly focused on one of the many issues for businesses who are looking to sell what is it that they’re going to do after a sale but indeed maybe the bigger issue might also be, will they be able to find a buyer?

Because your book site I think some fabulous statistics from PWC for example that during the next 10 years, the report was in 2014, so we’re actually four years into that decade now. More 1.4 million owners employing 7.9 million people are expected to retire.

If we think Australia has a population of around about 24 million, that’s a large proportion of the workforce that’s exposed to transitioning businesses and owners that are transitioning themselves. I just found that number massive and obviously that means we are expecting a flood. Is that what you take out of that sort of statistic?

Kerry: I certainly do. That’s exactly what’s going to happen.

That’s the baby boomer generation that we’re talking about here. The first baby boomers turned 65 in 2011. The peak is going to be 2028. So if you look at it that way, that’s when the peak will be and there’ll be something like (I got these statistics from the US from the ABS) about 8000 people a week will be turning 65 in 2028.

Now the business owner element is about 60 percent of private businesses in Australia are owned by baby boomers. That’s what that PWC stat relates to. So the median age I think (I had it in my book) I think it’s now 55. The median age of business owners is now 55.

There’s still a little way to go. Who’s going to buy the business? It’s not going to be any Gen Y’s I can tell you that now. But it could be millennials if we start to think about where the opportunities are.

So this is a double edged sword. It’s for business owners who want to sell the businesses and it’s for anyone else who wants to perhaps buy a business or grow their business through acquisition which is really why it’s important to focus on value that you’re creating in the business. What sort of value can you bring to the table? And that also can lead into the type of exit that you might be able to make happen for yourself.

How to properly plan your exit

Joanna: I just wonder with those statistics whether one of the elements for the future business sale environment is that businesses, if they’re appealing to a different market to those that are running the same businesses at the moment potentially they might have to look at ways that they can innovate so that there are alternatives to a different market than they are.

Kerry: Absolutely right. Which is why it’s really important to have somebody like me if you like come in and say well let’s do a little value assessment on your business. How do you rank on some key value drivers? As opposed to coming in and doing a really deep dive financial assessment, even though that’s going to be required in the future. It’s important.

But let’s have a look at the other more intangible areas that are involved and where the value is being created in that because that can give you some really good ways of thinking about who might be interested in your business.

Joanna: I think in this dovetails well into my last question which is what should business owners be doing in order to properly plan their exit. What are the key things they should be thinking about now?

Obviously as we’ve discussed there could be a flood in the future, so it’s about getting themselves ready in advance and perhaps being ready to hit the market before the flood ideally. I think that would probably be a good idea.

Kerry: Absolutely right. Yeah absolutely right.

Interestingly, from the personal research that has come as a result of people who have actually ordered the especially the uncensored truth about exit strategies because in the process I ask some questions and the research has shown that the biggest hurdle that people face is that they have absolutely no idea what their business is worth. So that’s the biggest one. Then they don’t know what they’re going to do afterwards.

But let’s go back. So the things that I would expect people to do now would be to get a ballpark valuation assessment . Get some idea of what the business could be worth today. A lot of people will have absolutely inflated ideas of what that might be.

If anybody wants to get an informal assessment, you can do that through my website as well actually. If you go to the exit strategy group dot com dot au. There’s a little logo up on the top lefthand side which is a value builder. You can go in there, do a very short questionnaire and that’ll throw up a benchmark assessment of value based on businesses in your same industry which comes from a database of about 30,000 North America, UK, New Zealand, Australia and South Africa. So that would be worth doing. So get at least a valuation assessment.

I don’t recommend that you have to spend thousands of dollars getting a formal valuation at this stage. That’s over the top.

But then secondly when you get that sort of information, then just think about what else might there be in the business that could be perhaps restructured. How transferable is it now?

If the business is really reliant on you and or perhaps a key employee or if you really have exposure to very high exposure to one or two major customers or one or two major suppliers, what can we do to mitigate that?

It’s about taking risk out for the next step for someone else who might come along. So there’s a couple of things that you could do just right now from the get go and start putting those sort of planning around mitigating risk and really understanding how valuable the business might be today compared to what you think you need.

It's about taking risk out for the next step for someone else who might come along. - Kerry Boulton #TheDealRoomPodcast Share on X

Well that’s another area. Have you ever thought about how much money you need for the future? If you’re currently paying yourself a nice salary and you’ve got profits coming from the business you may have already made some other investments that generated some passive income for you. But how are you going to replace it?

What’s your enough is enough number? You need to work that out as well. So there’s a few key points and places to start.

What’s your enough is enough number? - Kerry Boulton #TheDealRoomPodcast Share on X

Joanna: Great. Okay. Well look. Thank you so much for coming along today, Kerry. I think you’ve shared some really interesting information and it’s great. Also I think to talk about the background that has given you the insight that you’re now talking to business owners because of course you know it’s one thing to be able to talk about each of these areas. It’s another thing to be talking from the perspective of having actually done it yourself and stood in the shoes. And indeed you know you didn’t leave that business and then give up business owning entirely. I understand you you’ve moved on to own and operate many other businesses after that initial business is that right.

Kerry: Absolutely yes. I started doing business coaching actually when I went I didn’t know what I was going to do after I had finished in the freight business and I took myself off to university and did a masters degree in entrepreneurship and innovation as well and with my husband. We have had a real estate agency as well which we sold in 2007 and yes I’ve look I’ve done a whole range of other things as well.

Joanna: Great. All right.

Quick recap

Joanna: Just recapping some of the areas that you’ve talked about today. I think first and foremost you talked about the benefit of thinking about the exit right at the beginning, right at the time when you bought it you were forced to think about the exit and that helped drive the way you built and worked with the business until the point that you met your vision of exiting.

Secondly I think the statistics that we talked about today are really powerful. We hear these statistics a lot in the media but I think the relevant element of that is what does that mean for us.

Many of our listeners are businesses who may be building themselves for exit and it will be relevant for them to understand that they might be part of a very large pool of businesses that are selling in the future.

For our accountants who are listening, you’ve heard this before. But maybe today’s the point where you say okay maybe out of this we can take some real action items in which we can assist our clients get themselves ready for this change that will happen into the future as the baby boomers who are owning the bulk of our small businesses are starting to divest themselves of these businesses.

And then our tips for businesses out there to get a ballpark value of your business and Kerry pointed to some free tools that she has on her website at the Exit Strategy Group that can help you get a ballpark value and to think also about how it is that you can make the business more transferable and to understand how much you need for the future in order to work backwards and work out the value that you need to be achieving for your business and then how are you going to ensure that you can pull this value out of the business when it comes to that point of sale.

Thank you so much for coming on board Kerry. Hopefully we can have you back very soon again to tease through some of these issues and in further detail.

Kerry: My pleasure indeed. Thank you very much for having me Joanna.

Let’s wrap it up!

If you would like more information about this topic, head over to our website at thedealroompodcast.com where you will be able to download a transcript of this podcast episode, if you want to read it in more detail.

On our show notes, you will see a link to Kerry’s website at theexitstrategygroup.com.au if you want to get in touch with her directly. You will also find details of how to contact our lawyers at Aspect Legal if you, or your clients, would like to discuss any legal aspects of sales or acquisitions.

We have a number of great services that help businesses both prepare for a sale or acquisition – to help them prepare in advance, and to get transaction ready. We also have a range of services to help guide businesses through the sale and acquisitions process.

We work with clients both big and small, and have different types of services depending on size and complexity – so don’t hesitate to book an appointment if you want to find out how we might be able to assist. And finally, if you enjoyed what you heard today, please pop over to iTunes and leave us a review.

Thanks again for listening in. This has been Joanna Oakey and The Deal Room Podcast, brought to you by our commercial legal practice Aspect Legal. See you next time!