Chain of Thought

Turnaround or Exit? Crucial Decision for Material Handling Execs

Ever since the economy had its coronary a couple years ago, one line of business has gotten particularly healthy: Turnaround Specialists. These are consultants called in to unclog the arteries of failing companies. This has become such a big business there's even an association associated with them: The Turnaround Management Association.

Business owners are seeking these professionals out to find ways to salvage their companies. That might involve leaning out the organization—meaning staff cuts. That's why labor tends to look at turnaround specialists with fear, as “grim reapers,” looking to cut as many heads as possible while still keeping the business alive.

Sometimes a turnaround isn't the answer—particularly in the material handling and logistics world. An exit is what's needed. But that's not a grim reaper's job. It calls for more of a match maker. John Sidell matches that job description. Many of you may recognize Sidell's name. He was founder and principal at ESYNC | Transystems—now TranSystems—a material handling systems consulting firm that has some expertise dealing with clients facing fear of the unknown. As such he got to know many of the players in the material handling world—their strengths and weaknesses.

A few years ago he made his own exit from that business and tried retirement. But with the growing demand for business turnaround specialists, Sidell saw promise in becoming a specialized specialist and started New Course, LLC. He sees the material handling industry as one filled with ripe pickings for private equity firms. And he says now is the time for them to do their harvesting (notice I didn't say reaping).

“Long term, depending on what happens in November 2012, there could be some delay in the convergence between material handling and technology,” he told me. “Right now capital gains are still at 15%. Part of our counsel to business owners with a $20 million business, if there's an opportunity for us to help them find an exit strategy in the next 12 months, then depending on the structure of the deal they can take advantage of a known low capital gains arrangement. But if they wait, depending on what happens in November, the capital gains tax can go from 15% to 30% and suddenly it just cost them a bunch of money. So for the right people that can be good motivation to sell their business.”

Sidell's goal long term is to build out a database of the 1000 CEOs/business owners of the companies that are worth up to $100 million on the vendor side in material handling. He wants to be their voice, explaining to potential buyers “here's what I'm doing and how,” and then help private equity firms find what they're looking for. If they're interested in a $25 million company that understand integration and software development, he wants to have a list ready to hand them.

“We can introduce them to the leadership of those firms,” Sidell says. “I've built up a network over 20 plus years, and now I want to leverage the hard work we've done and help business owners who are looking to exit get teamed up with entities that are looking to make an investment in this space.”

Sidell sees material handling as an underserved market when it comes to arranging business turnarounds. Actually, it seems like he's more in the business of transitions. Those looking to exit are hoping to make it to the other side with enough money to find a more promising onramp. Whether it leads them to retirement or to another enterprise will depend on infrastructure health—theirs and this country's. Both will be high on the agenda of whoever voters choose next November.

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