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Corporate Carve-Outs Can Result in a Win-Win for All Parties

In March 2011, Takis Makridis (President & CEO of Equity Methods, an international leader in equity compensation compliance solutions) set big goals for his company. But America was still recovering from the Great Recession, and as a subsidiary of a public banking giant (Bank of America Merrill Lynch, or “BAML”), Equity Methods was in a tricky spot. The prospect of accelerated growth required the addition of new employees, new services, and capital, but the bank’s strategic priorities were with its core businesses, not a niche human capital and accounting consultancy.

Sound familiar? It can be frustrating to report to a larger parent company that can’t always provide enough support to you in growing your business. You and your team have worked extremely hard, and you have great aspirations for your company – but, your business might be considered non-core, effectively installing a ceiling. And assuming you’ve been successfully running your business, you’re also probably creating significant equity value for your parent company.

Let’s go back to what happened with Equity Methods. Equity Methods was founded in 1998 and had accumulated over 500 clients by 2011, including more than 20% of the Fortune 100 and 1000. In 2006, Equity Methods was acquired by BAML’s wealth management division. As BAML climbed out of the recession, their attention was primarily focused on core wealth management, and Equity Methods began to feel the effects of being a small division of a larger enterprise with other strategic priorities. Over the course of 2011-2012, Montage Partners met and formed a strong relationship with Takis and four other members of the management team. Rather than being integrated into another large financial services firm, management’s preference was to acquire their division, which they believed had significant growth potential as an independent business. In April 2012, Montage Partners backed Equity Methods’ management team to carve-out the division into an autonomous company.

The process of transitioning out from under a corporate parent is not without its hurdles. In Equity Methods’ case, management had to navigate the disentanglement from BAML’s shared back-office services, IT platform, and customers. If you’ve ever implemented a new IT ecosystem, you know the challenges that can arise. Managing shared customer relationships was a delicate process, and one that demanded significant attention given its importance to both BAML and Equity Methods. In some ways, a re-creation of Equity Methods was required, and quickly. But this was a matter of course, and was an exciting prospect for those involved who believed the firm’s best years were yet to come.

Within six months of closing the acquisition, Equity Methods had rolled out a new IT infrastructure to support its business as a standalone entity. Additional employees were hired to support new clients and healthy growth. Montage Partners worked with management to design new incentive and human capital processes to foster deeper engagement across a broader team. Equity Methods also moved into a larger facility, which had been selected before the acquisition’s close.

Since the carve-out from BAML, Equity Methods has flourished. The company has more than doubled revenue and EBITDA, and the size of the team has more than tripled. Equity Methods has expanded to a new facility that is twice the size of its original location. And now, for the third year in a row, Equity Methods has been ranked one of the top five small companies to work for by Arizona’s most prestigious workplace award program. Equally exciting, for five years in a row, Equity Methods has been the top-rated firm in its industry by Group Five, the only independent surveyor in the stock plan space. The divestiture was also a win for BAML, who was able to successfully streamline part of their business, while maintaining solid relationships with the customer base they shared with Equity Methods.

If you lead a division of a larger parent company and your growth is constrained by its ownership structure, explore your alternatives. Where corporate parents may not have the time, attention, or desire to invest in your business, we will. Without the distraction of a larger business to oversee, private equity partners can have the focus and aligned incentives to support you in growing your company. And at last, you will finally have the ability to grow the company that you’ve worked so hard to build but could only dream of taking to the next level.


 

About Montage Partners

Founded in 2004 and located in Scottsdale, Arizona, Montage Partners is a private equity firm that invests in established companies in the western U.S. with EBITDA between $1 million and $5 million. Above all other investment criteria, Montage Partners invests in exceptional people. Montage Partners provides liquidity to those who have spent years of their life building great companies, Montage Partners protects those companies through a transition of ownership and Montage Partners supports the next generation of a company’s leadership in executing on growth initiatives. For more information, please visit www.montagepartners.com.