Building value

Twenty years ago, after stints in Chicago and California, Tom Fochtman settled in Denver. He pooled $60,000 with his partner, Jesus “Chuy” Medrano, and founded CoCal Landscapes. The company would grow to, at its height, $33 million in revenue and employ 560.

Fochtman sold his 50 percent stake in CoCal late last year and then formed Ceibass Venture Partners, an M&A consulting group that aims at helping landscapers figure out their exit strategies and ultimately sell their companies – not always an easy task when dealing with independent owners and family-owned firms.

“Getting the owner and his family through the process, getting everybody focused, going the right direction for th same common good,” Fochtman says. “That’s where the effort lies.”

Lawn & Landscape caught up with Fochtman to discuss his new venture, private equity markets and what Ceibass means.

What made you decide to leave CoCal?
It was a variety of things. I think the core driver was boredom, to be honest with you. I’d been a contractor my whole life, whether at ValleyCrest or at my own company. That partnership had run its course. I couldn’t get the company where I wanted it to go. I either needed to own it on my own or exit. I wanted to do something different, get myself fired up and recharged again. I love the industry, but I’d been there and done that in contracting.

I don’t consider myself old, but I can’t get out of the fact that I’m kind of middle aged. When you start looking ahead at how many years you have left, that was kind of a factor. It was a part of me, but the thought of being a landscape contractor my whole life didn’t appeal to me.

Why go into the M&A world?
I wanted to provide a different value and service that generally speaking does not exist in our industry. There are plenty of business brokers around, but not many firms focused on really helping owners with their exit. For three years, I’d been thinking there’s a need for someone to help small businesses with their exit strategies. We did two acquisitions when I was with ValleyCrest and two with CoCal. None of those four sellers had a strategy. They just wanted to sell their companies.

In March, Fochtman won a lifetime achievement award from the Associated Landscape Contractors of Colorado.

It took 16 months to get the CoCal transaction consummated. That was too long for an internal transaction. I just know without any doubt that there is a tremendous need for somebody to assist owners with how they’re going to exit. It’s a complicated process. The negotiation is the easy part if you follow a well thought out exit strategy; if you follow a plan. Helping the owner focus on the future and what it’s going to be like to not be the leader of a company can be a sobering conversation – to explain the reality of what it’s going to be like not having your name associated with that business that has been your heart and soul. When I talk to people, it’s 1 in 20 that has a solid, well thought out plan to exit.

So what will you be doing in your new role?
Getting contractors truly ready, and doing it in such a fashion that we’re going to enhance the value of their company. You only get one shot at selling and you can’t screw it up. We work at helping streamline all areas of the business, all with the goal of simplifying the business, and having them company positioned properly both internally and externally.

A big part is identifying your sweet spot of the industry, which doesn’t have to be landscape maintenance. If you own your design/build market, if you’re well-managed and profitable, there are buyers of those businesses. There are buyers for lawn care application companies. The tough one is being a commercial installer. There are not ready buyers of commercial landscape installation companies today.

What did you learn about the process having done it yourself very recently?
Going through that process confirmed in my mind how difficult the traditional capital markets are. Obtaining money, getting loan commitments to do the buyout was very challenging. We worked with Wells Fargo, one of the better lenders, and it was really, really difficult and we had to do things in the company to make the company more profitable.

We paid ourselves less. If somebody came in to buy us, they wouldn’t pay two managers as much as they paid us. Our wives had company cars. We were offer-staffed and reluctant to say goodbye to some of our folks. And over time, as in many companies, a fair amount of people had become over compensated.

I learned how to look at our assets differently. We had depreciated much of our equipment off our books, but it had value. I was not really plugged into that. It was a bit out of sight and out of mind. If we had gone and liquidated that equipment, there was a lot more value there than was on our books.

What don’t business owners know about the selling process that they should?
They’re mostly focused on the day-to-day and working in their business not on their business. They’re assuming that somebody’s going to approach them, that the phone’s going to ring. They’re uncomfortable calling the acquisitions person at the strategic buyers and they’re scared to death of private equity because they don’t understand it.

They might assume that a Brickman, a ValleyCrest, a Yellowstone might be a potential buyer. They might think a competitor would buy them to get rid of them. My experience has been, and not just in our industry, that most small to mid-size business owners do not have a good concept around how they are going to exit one day.

Tell me more about the private equity side of the equation.
Private equity operates a couple different ways. It’s usually an equity event of some sort, and the seller of the business is going to be able to take money out of the company. They might do an outright purchase but frequently they need your management expertise and want you to stay on.

There are more private equity firms invested in our industry than most folks realize and there are about to be more. There’s certainly somewhere in the neighborhood of 20 equity firms invested today, and there could easily be 40-50 invesing in the green industry in the near future.

They’re looking for good companies they can grow, recapitalize and sell again to make a profit. There’s this whole mystique that goes back to people watching “Wall Street.” This thought that private equity firms want to buy your company, strip out assets and move on is a comical myth. People are scared to death, they don’t understand how they work.

How does a landscaper make his company attractive to a private investor like that?
I would clean my company up and get rid of some of the obvious stuff. If I’m paying myself $300,000 a year, and somebody might pay a manager with bonus $150,000, I’m dropping my salary to $150,000. If I own my own building and I’m charging myself rent, I’m going to normalize that down to what it should be.

Every owner has “sacred cows” – people they don’t want to deal with, the guy making $100,000 that doesn’t need to be there. But it’s going to happen, because the new group is going to deal with it. I’m going to make some of those moves now, so the buyer doesn’t have to lower my price.

I’m going to make the most important task in my world to renew my contracts. I’m going to get some increases, even if it’s just one percent. Say I’ve been lazy on shopping my insurance because I like my broker.

You’ve got this fat in your company. You’re going to produce more bottom line, make more money and be more attractive when you go to market.

I have to ask, where’d the name Ceibass come from?
It came from a group of about 40 guys that I do adventure stuff with, recreational outdoor stuff – hunting, fishing, skiing. That name came at a ski event in Jackson Hole 20 years ago. It was a late night, and there was some alcohol involved. That’s my nickname with that crew, and of those 40 guys, I’m certain that 20 of them don’t know my name is Tom Fochtman.

The author is editor and associate publisher of Lawn & Landscape. Email him at cbowen@gie.net.

Coming Soon!
Tom Fochtman has been a long-time member of Lawn & Landscape’s Market Insight Council, and will remain a valued adviser to the magazine. Starting later this year, he will also be contributing to the publication, offering his perspective on the industry as well as advice to owners on how to best develop their businesses. Look for his first installment in an upcoming issue.