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Dr Drivin ving g ow

• wnership

nership and nd gr growth

• wth to

to a su successf cessful ul ex exit it

February 9, 2017 Bob Swelgin Founder, Swelgin Consulting Group LLC Partner, InVista Associates Former President Smart Electronics & Lark Engineering

Why hy tr try y th the e en entr trepreneurial epreneurial route?

• ute?

Person

• nal

al Histor

• ry
• Started acquisition of small companies in 1988 as part of Texas Instruments
• As VP and Country President of Tyco, responsibility for numerous acquisitions and

integration on global level.

• a. Ex: Patriot in Asia, built business from scratch
• As COO of Panasonic, opened facilities in China and Texas. Had to integrate quickly, as

well as cut costs.

• As CEO of American Racing, led two bolt-on transactions.
• Failed in founding of Avrio Technology.
• a. Too slow to change culture to drive “ownership.”
• b. Allowed too much to remain as is while all expedited change

Dec Deciding ding facto tors rs for

• r me
• Kids through

gh schoo

• ol and finally off my payroll
• ll
• a. Time to use personal lessons learned and restructure my go-forward career
• Very underst

stan andin ding g and suppo portive ive wife.

• No love of big compa

pany ny bureaucracy acy

• Invest

st my own money and time

• Knowledge

edge of the Privat ate e Equity world. d.

• Built relation

ionsh ship ip with founde ders s of Smart Electroni

• nics

cs & Lark Enginee eerin ing

• Underst

stan andin ding g what not to do in i integrati ating ng businesses sses by p painfu ful l lessons. sons.

What did the company look like?

Ste tep p #1. #1.. . Mo Model del de deve velopment lopment

For you: Understand the markets and areas of expertise. Narrow versus wide industry interest. For busin ines ess s sellers lers: Articulate exactly the opportunity to those you look to acquire.. What is in it for them? For Invest stors

• rs and Bankers:

s: Clearly lay out the growth of the model, industry, customers leading to an exit scenario. 100 Day plan! For Team m members ers: Must recruit and excite a quality management team. Ready on day one! Model l outli line e for me: Target

• A & D- Small business consolidation ( <$5M EBITDA)
• RF- Subsystem engineering and manufacturing
• Focus on C4 ISR programs
• Low cost manufacturing in North America

Why?

• It is a fun industry technically. Best part of my career.
• Plenty of small companies ripe for consolidation.
• A & D industry needs cost reductions and creativity/affordability.
• Asia is getting expensive for manufacturing. Mexico will be affordable solution.
• Engineering costs at customers is too high.. Speed is a rare commodity in A&D.

Ap Appr proach/Plan

• ach/Plan
• Lots

s of prep work.

• a. Researched technologies and markets
• b. Ensured strategy supported customer level objectives and filling the gaps
• c. Pulled together and advisory council.
• Recruit

uited equity ty and debt to make acquis uisit itions. ions.

• a. tough to find interest in A&D and smaller companies.. Pitched to over 50 groups.
• Keep on top of market- EW, ISR
• a. Follow customer strategies to differentiate the new company. Be ready to answer

tough questions.,

• Found companies to acquire… Built relationships with founders of Smart Electronics & Lark

Enginee eerin ing

• a. Bought in non-competitive arrangement
• No investment bankers involved

To Toughest ughest st step: ep: Execution Execution

• Hit the groun

und runnin ing

• a. Integrate quickly
• b. Acquire quickly
• c. Engage the workforce
• d. Create confidence and ownership in full team
• Execut

cutio ion- 100 day plan with focus us on cust stomer

• mers

s and employee

• yees
• a. All hands meeting to explain “go forward” plan
• b. Restructure compensation to focus on “pay for performance” to create ownership
• c. Create more entrepreneurs within the company
• d. Common marketing approach

Get et all ll on

• n same

me pa page ge

• Engage

e custome tomers s into

• workforce

force- Create te custome tomer ownership ership

• Explain

n custome tomer value ue to all employee

• yees- They are not “bad guys”
• Show

w continu inual l improv

• vem

emen ent t in all areas

• Develop

lop and sell l value ue contrib tribut ution ion differen erent t than peer group up

• a. Internal and External

Secure Technology Team total Value

Secure Proprietary/Competition Sensitive

9

Wire bonding/Chip-on- Board Class 10k clean room Full RF and Digital box build Inc. Cables and Harnesses Sensor products

Your Cost and Technology Value Leader

Ma Marketing rketing Str trategy ategy

• “Stick to the Knitting”!
• a. Focus on aerospace and defense- small high end specialty industry
• b. A & D area = EW & ISR
• Exploit
• it the custom
• mer

ers s we know

• a. Sell top to bottom (Me to President & V.P)
• b. Sell bottom to top (Program manager & reps to buyer & engineer)
• c. Get foot in door at one division and expand presence
• Make it difficu

cult lt for custome

• mers

s to say no

• a. Build team to show well
• b. Invest a little in visual aids and cosmetics
• c. Show “organization” and follow through

Marketing Strategy (Cont’d)

• Starts

s at Home

• a. Professional in all we do
• b. Dress in office- No t-shirts or dirty jeans
• c. Care for customer during visits. Let them know we love

them

• Visitor parking clearly marked
• Upscale the lobby
• d. High quality proposals supporting competitive pricing
• ”Borrow” shamelessly from customer best practices
• Increase

ased d value propo position sition

• a. Never a “one trick pony”
• b. High Value solution provider

Energizing nergizing th the e Pe Peop

• ple

le

• Involv

lvem ement ent and personal al impro rovem ement ent

• a. Education
• State offers free basic classes (ie: English, math, Spanish, Vietnamese)
• Commissi

ission pool l organi ganized zed

• a. Percent of each dollar billed goes to pool. Distribution based on >92%

revenue attainment (to budget)

• b. Anyone with customer contact partakes quarterly
• c. Salaries adjusted
• Sales team = 50% of commission pool
• Program managers = 20% of commission pool
• Management share goes to group contributing most to prior successful quarter

(ie: mfg, QA, purchasing)

Energizing the People (Cont’d)

• Monthly “rewards” luncheons
• a. Every month the team hits target- Free lunch for entire company
• b. Quarterly awards to “Recognized contributors”
• c. “Suggestions” implemented are rewarded
• d. Every employee gets 90 day review to be sure objective is clear

and what is rewarded

• Not length of service

Education ducation and nd Ta Tactics ctics

• Explan

anat ation ion to all of their contrib ibution ion to success ess

• Openness

ess is expected cted- opin inion ion sought ht

• a. All executives expected to MBWA
• Change

e is encourag aged ed

• a. Physical plant adjustments (Paint, walls, chairs, tables, carpet)- Something visible

every 4-6 weeks

• b. New logos, websites, signage

Education and Tactics (Cont’d)

• Simple

le Things ngs; ; Added as rewar ard for r succe cess of busines iness

• a. New refrigerator
• b. More microwaves
• c. Better coffee
• d. Personalized shirts and smocks

(Craigslist and Ebay are great sources)

• Explain

ain requirements uirements to employe loyees.

• es. Off

ffer er to pay for r workers rkers personal nal improv rovem ement ent sessions:

• a. Program management
• b. Microsoft office
• c. English
• d. Public speaking

(Employee needs to invest their personal time for this to work)

Education and Tactics (Cont’d)

• Openness

ess with h customer

• mer
• a. Knowledge in what we build
• b. Accept customers suggestions and offerings (Seek opinions)
• c. Customers may not be right but they are never wrong
• Video
• screens

s mounted ed through ghou

• ut factor
• ry for improve
• ved

d communic ication ion

• a. Quality summary
• b. Production requirements
• c. Progress to target
• d. Newsletter
• e. Customer product news
• f. Customer visits
• g. WIP status- updating every 5 minutes

Res esults ults

• Compa

pany ny grew >25% in y year one, same e year two.

• a. EBITDA about 2.5X
• b. Primarily expanding same customers. Engaging customers from top and bottom.
• c. Employees pushed expansion of technology from customer input.
• Turnover

er almost

• st non- existent.
• nt. Happy and contribu

butin ing g workfor

• rce

ce

• Absentee

eeism ism rare

• Workforce and customers see benefit of “Team” approach
• Employ

loyees ees engage e with custom

• mer

er and feel part of success ess (and failure) e)

• Customers respond very positively and “perceive” a stronger organization

Results (Cont’d)

• We get unsolicite

licited d calls s from employ loyees ees at competi petitor

• rs

s looking g for jobs

• Costs

s stay low

• a. We are a low cost producer in California!
• Margin

ins s = 3x of industry peer group- Stron

• ng

g focus s on cost drivers

• Selective

ve techn hnology

• logy advan

ances s continu nue e to differen entiate ate

• a. Develop roadmap- execute- tell customers
• b. Listen to customers go where they take you.

Read eady y for

• r Sale?

le?

• Keep customer
• mers

s happy py.. No surprises ses during process ess

• Hit revenue numbers

s (tough gh in d dynamic ic A&D world) d)

• Do not excite work force with the unknown result.
• Run the business

ss while e answer erin ing g way too many question ions

• Keep up the energy.. Selling

ing is a ti tiring process! ess!!

• BEST MEASUR

SUREM EMEN ENT OF S SUCCESS ESS.. SOLD AT O OVER 11X EBITDA WITHIN IN 3 YE YEARS OF BUSINESS ESS CONSOLIDA LIDATION IONS/IN S/INTEGR EGRAT ATION ION IN A COMPET ETITIV ITIVE E BIDDI DING G PROCESS ESS..