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Acquiring
Knowledge, Acquiring Companies
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Teaching
Acquiring Knowledge, Acquiring Companies
"Entrepreneurship through Acquisition" — Management 811 — guides students through the tricky world of buying firms.
Everybody likes to use what they learned in school to impress a new boss. But seldom does that knowledge yield the kind of immediate dividends that Skip Maner's did. In his case the knowledge came straight from "Entrepreneurship through Acquisition" — MGMT 811.
After graduating from Wharton in 1995 with an MBA, Maner joined Safeguard Scientifics, a venture capital firm, in Wayne, Pa. One of the companies in Safeguard's portfolio was iSky.com (then known as Sky Alland), which ran call centers for companies that sold high-end goods such as personal watercraft (commonly known as Jet Skis). It specialized in handling outbound calls.
Shortly after being hired by Safeguard, Maner became a member of iSky's board. There, he learned that the company was eager to expand by scooping up smaller call-center companies.
Now managing partner at Inverness Capital Partners in Wayne, Maner knew an ideal candidate — a little firm in Wisconsin, that was in exactly the same business. The two complemented each other perfectly, as the Wisconsin company specialized in handling inbound calls.
Maner honed his matchmaking skills taking "Entrepreneurship through Acquisition" at Wharton. As part of the class, he had to identify a potential acquisition candidate, persuade its owners to give him access to its financial records and then do an analysis and valuation as if he were actually going to buy it.
"It was a very relevant class because I was really looking for a company to buy and own," Maner says. "It was either that or go into venture capital, which I ended up doing."
Maner had owned two
companies before coming to Wharton and continued to run them while
in school. Nonetheless,
he found that the class, taught
by instructor
Robert
Chalfin, deepened his understanding of the process of acquiring businesses. "Bob
is really focused on tactical skills — how you go out and do a deal.
And he has a lot of real-world experience in working with small companies."
Maner's assessment echoes the kinds of things you hear about the
class when you talk with former students. They say the course is practical.
It's
focused on the realities of the market. And Chalfin, a Wharton alum
himself, makes students apply what they've learned at Wharton to
the tough tasks of identifying and evaluating acquisition candidates.
One of the key points Chalfin tries to impart in the class is "what makes closely held businesses so challenging to analyze," he says. "The information isn't filed with the SEC and is not generally available to the public. A company may not have audited financial statements. It may not have comprehensive internal controls. Students have to use common sense as well as what they've learned in school."
For Mitch Fenimore, a 2000 Wharton MBA, the class was something of a revelation. It put him on the path to trying to buy his own company.
"I'd always thought the only way to self employment was doing startup. And that's not what I consider my strength. But taking the class made me realize I could be an entrepreneur without the risk of starting a business or the time delay. It showed me that there was an alternate path."
Fenimore lives in Strasburg, Pa., where his wife practices medicine. He's looking to purchase a manufacturer with revenue of $1 million to $5 million, perhaps a cabinet maker. As he searches, he finds himself applying lessons from "Entrepreneurship through Acquisition."
"Bob spent a lot of time talking through the best ways to go about finding a business — networking, talking to as many people as possible, getting in touch with local business groups. I've been at this for a month and a half, and I'm talking to accountants, lawyers, investment bankers, business brokers and small-business owners."
Justin Berman hasn't yet had the chance to test Chalfin's lessons in the market; as a second-year MBA candidate, he doesn't graduate until May. But he, too, found the class valuable for its nuts-and-bolts approach.
He and several classmates analyzed a rock-climbing and mountaineering-guide company in Columbia, Md., outside of Baltimore. Called Earth Treks Climbing Centers, it runs two climbing gyms, sells gear, guides trips and makes handholds for artificial climbing walls. Its founder and president, Chris Warner, is a veteran Mt. Everest guide and has conducted leadership seminars for Wharton.
Berman and his fellow team members met Warner at one of his gyms, discussed the business and left with copies of the business plan and financial reports. They then got to work, doing a valuation, an analysis of the company's strengths and weaknesses and the competitive forces that buffet it.
Throughout the process, Chalfin served as much as a mentor as a teacher, Berman says. "Bob guided us if we had questions. If somebody was having trouble getting a company to give its financials, he'd tell them how to get them. He's an unbelievable negotiator."
When Berman's team finished its analysis, the members gave a copy of their report, including the valuation, to Warner. He says he found it even more useful than he imagined he would.
"When you own a small business, you value it the same way you'd value a Corvette that you work on in your garage every weekend. It might be worth $2,000 but you've put $100,000 of sweat equity in it, and think it's worth that. It was really eye-opening to see what they thought it was worth."
Nearly as eye-opening as are Chalfin and the class, "Entrepreneurship through Acquisition" for his students.
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Wharton Entrepreneurial Programs: Programs and Courses