“What I Wish I Knew Before Selling My Business”

Entrepreneur Chad Elms spent most of his childhood in Stephenville, Texas, the self-proclaimed Cowboy Capital of the World, “making things and trying to sell them for money.”

He came from a family of cowboys and business owners — his grandparents started a western wear store in the 1950s that his parents later took over. Chad got his start in business fashioning braided key chains and leather decorations for cowboy boots festooned with beads and conchos and silver — “things you’d never see anywhere but the country.”

But when he grew up, he decided to go into physical therapy, in part to keep his cowboy relatives healthy, he jokes. Still, “that entrepreneurial spirit was always there.”

When Chad was first entering the world of PT, he watched as one of his mentors started his own company. “I didn’t know until then that you could have a service-oriented business and be self-employed. I thought that was so cool. He had a number of outpatient clinics, and was able to make his own decisions and guide the company as he felt best.”

As he entered PT school, “I always had starting my own company in my mind as a goal.”

Considering Capital

Fast forward a few years, and Chad and his business partner at the time had founded Momentum Physical Therapy & Sports Rehab in a suburb outside San Antonio, Texas. Despite “not knowing anything about running a business,” they bootstrapped their way to impressive growth, taking out small lines of credit at local banks and paying them back as quickly as possible. They opened another location, then another. After the third, they started financing their growth through cash flow. Before Chad knew it, he had been running the business for a dozen years and Momentum had expanded to 10 locations in the San Antonio area.

The team started thinking about raising capital to grow more quickly. “We were exploring all the different options on the table — traditional lenders, banks, PE groups, VCs, and we weren’t finding the right fit. At the point, the idea of being purchased wasn’t on the table.” Still, people were reaching out to them, especially as they began to be recognized nationally for their success — Momentum was on the Inc. 5000 list of America’s fastest growing companies two out of three years in a row.

“We kept pushing people off, saying that we weren’t interested,” says Chad. He started using Axial with the intent to find a private equity group, but instead got in touch with a strategic acquirer that had expertise and knowledge in their field, Houston-based U.S. Physical Therapy Inc. “They could provide more robust systems, and help us grow the right way. We decided that maybe it did make sense to shift gears a bit and bring on a strategic partner to help achieve our vision.”

Eventually, U.S. Physical Therapy Inc. bought 60% of Momentum for $7.2 million.

Lessons Learned

Chad acknowledges that letting go of control of the company he had worked so hard to build wasn’t easy, and says he learned a few hard lessons along the way. Here’s the advice he has for fellow CEOs considering M&A.

1. Make sure you’re emotionally ready for a change.

“When you’ve worked 12 or 13 years to build something, it’s scary to think about selling a majority share,” says Chad. “The number one piece of advice we got from mentors and people who had done it before was to make sure you’re mentally and emotionally ready for things to change, because they will change. Your role won’t be the same.”

Says Chad, before the sale, “I had a lot of involvement with our executive team, providing leadership and strategic planning, but I was also the guy that handled all the financial planning and budgeting and spreadsheets — I was basically the comptroller. That was a huge thing to give up when we were acquired — a lot of the detail stuff I was doing got rolled up under the corporate umbrella, and that was a big change.”

2. You have to have a team.

“Neither my business partner nor I had any idea how detail-oriented the process would be, how many documents we would have to compile,” says Chad. “It was very, very labor intensive.”

He says that one of the most important pieces of advice their advisor gave was to build a deal team. “You’ve got to have people on your team helping you compile this info — you can’t do it alone. You can’t take the eye off the ball of running your business this long to get things done or operations will really start to trail off.”

It’s crucial “to either have a team in place that can continue to drive the operations and growth of the business while you focus and pour yourself into all that preparation and time that goes into getting a merger done, or have a team that’s dedicated to the M&A process, so that you’re not draining from existing resources.”

Chad tells the story of a friend who was looking to sell a tech company without a deal team in place. “When he first started the conversation about M&A and potential sale, the value that they were talking about was really high — a nice value. He spent the next 12 months getting the deal to the point where they were ready to sign.

“But then the acquiring company came back to him and said, ‘We can’t pay what we first talking about because the performance of your business has gone down.’ The value had taken a nosedive because the owner was investing all his time into the transaction.”

“The value had taken a nosedive because the owner was investing all his time into the transaction.”

3. Don’t overlook culture.

“One of the things that made me want to go into business for myself in the first place was to build a culture where we were more like family, a close-knit community that delivered unparalleled care,” says Chad.

Working with an advisor helped him understand how important a cultural fit was when searching for a partner, as did watching others go through mergers. “I think we made the right decision, but I’ve seen others that have sold their companies and stayed on as an employee afterwards — they ended up having to make an ugly exit from this company that they had built and grown.”

4. Don’t underestimate the complexity of integration.

Integration can be the most difficult part of an inherently challenging process. “Knowing we were like-minded with our new partners, and sharing such similarities of culture and vision and all those things,” Chad says, may have led him to assume the transition from two companies to one would be an easy one. “It has been really good for the most part, but we did underestimate the number of changes. Even though it was mostly for the better, it’s still a change.” In particular, Chad regrets the uncertainty the changes caused for his staff.

“What I would have done differently is to communicate more with our partner. There were some things in the fog of the changeover that fell through the cracks. We thought they were taking care of it, they thought we were taking care of it.” A detailed calendar of dates and timelines and responsibilities would have allayed some of those concerns and made the transition more seamless for both sides.

5. Find an advisor you trust.

“I honestly can’t say enough about how helpful our broker was throughout the process,” says Chad. “I can’t imagine trying to go through the process on our own.”

Before engaging Martin Healthcare Advisors through Axial, he had already received a few offers for the business. “We really thought, ‘We’ve got this wrapped up, we don’t need to bring anyone in at this point.’ We thought we were standing at the 95-yard line with 5 yards to go.” After bringing in an advisor, though, “it became apparent that we were standing at the 5-yard line with 95 to go. They helped us to see that this would be a marathon, not a sprint.”

Chad says the offers the company received before engaging Martin Healthcare “were half of what we received after we brought them in.”

The offers the company received before engaging an advisor “were half of what we received after we brought them in.”

In addition to helping maximize their valuation, Chad says that Martin Healthcare’s “knowledge and experience in negotiating multitudes of previous M&A deals gave us insight on some of the other intangibles we needed to negotiate. Everyone thinks about the initial buy-out price, but not a lot of people put much thought into details like employment contracts, your specific role after the merger, earn-outs, etc. Having a trusted advisor was invaluable for us in knowing what things we should be paying attention to, as well as what things were usual and customary to ask for throughout the negotiations.”

Martin Healthcare was also crucial when it came to preparing marketing materials and preparing for meetings with potential buyers. They “coached us on the right questions we should be asking, in order to ensure we were ultimately picking in the right partner.”

Chad says his biggest piece of advice to “make sure that you’re working with a broker that represents your best interests. Bigger companies are in the mode of doing mergers and acquisitions all the time — they’re good at it. No matter how ethical they are, they’re going to work out the deal in a way that keeps their company’s best interests top of mind. You need somebody fighting for yours too.”