Subscribe: Apple Podcasts · Spotify · YouTube · Amazon Music · iHeartRadio · Pandora · RSS
Episode Summary
You hit a ceiling. You can see the next move (buy the competitor, expand into the adjacent market) but you can’t take on more personal risk. Your kids aren’t 40 yet. Selling outright to the Walmart of your industry means closing the plant and watching your community absorb the hit. Nobody at the country club explained the middle path. I sat down with Mike O’Neal at Stone Arch Capital because when we shared a panel a few months back, he walked through the math of the second bite of the apple cleaner than anyone I’ve heard. We got into the partnership model where you sell 60%, roll 40%, take $21M off the table today, and stay in the chair to direct the next chapter. The three levers that actually grow equity value (grow EBITDA, grow the multiple, pay down debt). Why personal guarantees on the debt keep owners from doing this themselves. And the real example with Wendy’s fire hydrant business: $25M valuation today, $32M total over five years, fingerprints still on who runs it next.
Watch on YouTube
## Top 10 Takeaways- Private equity values your business on risk-adjusted cash flow, not on what a strategic buyer’s model would produce.
- Companies between $4M and $15M of EBITDA generally trade between six and nine times. Risk pushes you up or down.
- The second bite of the apple is the equity you roll, and it can be bigger than the first check.
- Three levers grow equity value: grow EBITDA, grow the multiple, pay down debt. That’s it.
- Removing customer concentration and adding management depth grows the multiple before you grow a single dollar of EBITDA.
- The expectations conversation belongs at the front of the deal, not after the wire. Disappointment lives in that gap.
- You stop personally guaranteeing the debt the day you take on a private equity partner.
- Selling outright to a strategic buyer might mean closing your plant. Partnering can keep the legacy intact.
- Your management team can roll into a unit appreciation plan and build real wealth alongside you.
- Get your m&a attorney, your CPA, and your wealth manager in the same room before you take the first meeting.
Sound Bites
“Follow the money and find the motivation.” (@00:06:05) — Ryan Tansom
“At the heart of disappointment lies expectations.” (@00:17:08) — Mike O’Neal
“We don’t believe that we have all the best ideas.” (@00:23:32) — Mike O’Neal
“You can grow the company, you can grow the multiple, and you can pay down debt. That’s it. Those are the three things you can do.” (@00:33:08) — Mike O’Neal
“All in, Wendy takes home $32 million over five years and her fingerprints are all over who’s the next CEO, where’s the direction of the company, all those things.” (@00:37:38) — Mike O’Neal
About This Episode
Mike O’Neal is a Managing Director at Stone Arch Capital, a Midwestern values-based private equity firm that partners with family business owners and entrepreneurs from Ohio to Colorado to Missouri. He started his career as an investment banker at Goldsmith Agio Helms (now Lazard Middle Market), earned his MBA at Cornell, and grew up around a family business of his own (his grandparents ran a chain of shoe stores called Orange Shoes that celebrated 100 years in 2002). Stone Arch typically makes 51% to 80% investments alongside management teams, preserving legacy and culture while building the company to the next level. In this conversation Mike walks through the actual math of a private equity partnership, including how the second bite of the apple works.
Resources Mentioned
- Stone Arch Capital — Mike’s firm. — stonearchcapital.com
- Mike O’Neal on LinkedIn — Michael O’Neal, Minneapolis, MN
- Lazard Middle Market (formerly Goldsmith Agio Helms) — Where Mike started his career as a sell-side investment banker
- Email — monoal@stonearchcapital.com
Connections
Phase + Module:
- Module 1 — Ownership Goals — The decision about what you actually want from a transaction has to be set before you pick a buyer
- Module 2 — Expand Knowledge — Understanding the private equity buyer model before sitting across the table
Milestones:
- Milestone 6 — Transaction Value — Where the deal structure and the second bite actually live
- Milestone 3 — Net Worth & Valuation Targets — What the deal needs to produce to clear your post-close life
- Milestone 7 — Value Growth Plan — The five-year plan PE underwrites and the three levers that drive it
Concepts referenced:
- The Multiple & WACC — Six to nine times EBITDA, and what risk factors move it up or down
- The Four Value Levers — Mike names three of them (grow earnings, grow the multiple, pay down debt)
- Normalized EBITDA — The cash basis the multiple gets applied to
- Value Gap — The space between today’s value and what the second bite produces
- Independence by Design™ — The decision framework underneath the choice between strategic sale, PE partnership, and status quo