E140: Building a Diverse and Resilient Holding Company: Lessons from Chenmark Holdings

 How2Exit's Interview W/ Trish Higgins - Watch Here

Here is what my team and I learned from this interview: (These are notes from team members, writers, sometimes AI, and even listeners who submitted what i learned loosely edited and shared here) - If it seems a bit unrefined, you're reading our notes, so. yeah. -Ron

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About The Guest(s): Trish Higgins is a partner at Chinmark Holdings, a family-run business that specializes in acquiring and managing small to medium-sized businesses. With a background in finance, Trish and her team have successfully acquired and grown multiple companies across various industries.

Summary: Trish Higgins, partner at Chinmark Holdings, shares her journey in the world of mergers and acquisitions (M&A) and holding companies. She discusses the importance of building a diverse portfolio of businesses with steady cash flows to provide long-term stability and resilience. Trish emphasizes the challenges of finding the right operators for acquired businesses, highlighting the need for values alignment, trust, and analytical capabilities. She also delves into the psychology of emotional sellers and the importance of approaching negotiations with empathy and understanding. Additionally, Trish emphasizes the significance of creating a positive company culture and the role of talent pipelines and training programs in ensuring a smooth transition and cultivating potential leaders for acquired businesses.

Key Takeaways:

• Building a diverse portfolio of businesses with steady cash flows can provide long-term stability and resilience.
• Finding the right operators for acquired businesses requires time, patience, and a focus on shared values and analytical capabilities.
• Emotional sellers may have difficulty letting go of their businesses, so it's important to approach negotiations with empathy and understanding.
• Having a talent pipeline and training program can help ensure a smooth transition and provide a pool of potential leaders for acquired businesses.

Quotes:

• "The more uncorrelated the cash flows of your portfolio, the more durable and valuable it becomes." - Trish Higgins
• "When hiring operators, values alignment and trust are key, followed by analytical capabilities." - Trish Higgins
• "Understanding the psychology of sellers and being patient can lead to better outcomes in deal negotiations." - Trish Higgins

The Article:

How to Build a Successful Holding Company: Lessons from Chenmark Holdings

In today's rapidly changing business landscape, many entrepreneurs and business owners are looking for new ways to grow and expand their companies. One strategy that has gained popularity in recent years is the creation of a holding company. A holding company is a type of business structure that allows for the ownership and control of multiple subsidiary companies. This structure offers several advantages, including increased diversification, improved financial management, and enhanced growth opportunities.

In this article, we will explore the world of holding companies and delve into the insights and experiences of Trish Higgins, a partner at Chenmark Holdings. Chenmark Holdings is a family-run business that specializes in acquiring and managing small to medium-sized businesses. Trish will share her journey in the mergers and acquisitions (M&A) space, discuss the importance of finding the right people to run acquired businesses, and provide valuable lessons learned from her experience.

The Journey to Chenmark Holdings

Trish Higgins and her partners started Chenmark Holdings in 2015 with a vision to buy and manage multiple small businesses. Coming from backgrounds in finance, they were drawn to the idea of acquiring established businesses with steady cash flows. They wanted to build a portfolio of enduring businesses that could generate consistent returns over the long term.

Their journey began with extensive research and learning about the process of buying a business. They spent their weekends and evenings exploring websites like BizBuySell and immersing themselves in the world of small business M&A. As they delved deeper into the process, their interest grew, and they realized that this was the path they wanted to pursue.

In 2015, they made their first acquisition, despite having no prior experience in M&A. They learned by doing and faced the challenges of managing a company and leading a team for the first time. Over the years, they refined their approach and developed a unique strategy for building a successful holding company.

The Evolution of Chenmark Holdings

When Chenmark Holdings started, they operated as a single-entity LLC. However, as they acquired more businesses, they realized the need for a more flexible and efficient structure. They converted to a C Corp and established a holding company that owned multiple subsidiary LLCs. This structure allowed them to freely move cash flows between the companies and facilitated future acquisitions.

"While the core of their strategy remained the same - using the cash flows from one business to acquire another - the technical structure and implementation evolved over time," Trish explains.

The Importance of Finding the Right People

One of the key challenges in building a successful holding company is finding the right people to run the acquired businesses. Trish emphasizes the importance of aligning values and building trust with potential operators. They look for individuals who share their long-term vision and are committed to the enduring success of the businesses they acquire.

"Anything we could do, anybody else can," Trish states. "We can't buy businesses unless we have good people to run them."

However, finding the right operators is not always easy. Trish acknowledges that they have made mistakes in the past by rushing to fill leadership roles without thoroughly evaluating candidates. They have learned the importance of taking the time to get to know potential operators and assess their values and analytical capabilities.

To address this challenge, Chenmark Holdings established a leadership development program. This program allows individuals to gain experience and work alongside the Chenmark team before taking on full leadership roles. It provides a pipeline of potential CEOs who are already familiar with the company's values and operations.

Lessons Learned in Talent Acquisition

Trish shares some valuable lessons learned in talent acquisition. She emphasizes the need to give oneself time to evaluate potential operators and ensure alignment with the company's values. Rushing to fill leadership roles can lead to compromises and poor fits, which can ultimately harm the business.

She also highlights the importance of understanding the emotional component of deals. Small business owners often have strong emotional ties to their businesses, and the process of selling can be challenging for them. It is crucial to be patient and empathetic, recognizing that emotions can influence decision-making and behavior.

Trish advises against taking things personally and instead focusing on the long-term goals of the business. By maintaining open lines of communication and addressing concerns, it is possible to navigate through the emotional volatility of the deal process.

The Implications and Potential Impact

The lessons learned from Chenmark Holdings' journey have significant implications for entrepreneurs and business owners considering the creation of a holding company. By prioritizing values alignment and taking the time to evaluate potential operators, it is possible to build a strong and cohesive team.

The establishment of a leadership development program can provide a pipeline of talent and ensure a smooth transition of leadership within the acquired businesses. This approach allows for the retention of institutional knowledge and fosters a culture of growth and development.

Furthermore, understanding the emotional component of deals and managing expectations can lead to more successful transactions. By recognizing the challenges and uncertainties that sellers may face, it is possible to navigate through difficult situations and maintain positive relationships.

Conclusion and Future Outlook

In conclusion, building a successful holding company requires careful consideration of the people and processes involved. Chenmark Holdings' journey provides valuable insights into the importance of finding the right operators, managing the emotional aspects of deals, and investing in talent development.

As Chenmark Holdings continues to grow and acquire businesses, their focus remains on long-term success and the enduring value of their portfolio. By staying true to their values and maintaining strong relationships with operators, they are well-positioned for future growth and expansion.

The lessons learned from their experiences can serve as a guide for entrepreneurs and business owners looking to build their own successful holding companies. By prioritizing values alignment, investing in talent development, and navigating the emotional complexities of deals, it is possible to create a thriving and resilient business portfolio.

As Trish Higgins says, "We can't buy businesses unless we have good people to run them." So, if you're interested in selling your business or becoming part of Chenmark Holdings' leadership development program, reach out to them. Together, we can build successful holding companies and create lasting value in the business world.

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