By the end of 2008, Tom Sanderson had grown weary from his board
meetings — or lack thereof — at Transplace.
The third-party logistics company had gone from four on-site board meetings a year to two onsite and two via phone. But in reality, it had evolved to a point where there was only one board member he could get to regularly attend the two on-site meetings, so everything was really just done over the phone.
“That’s not a good situation as a CEO to have a board that isn’t really engaged in giving you advice and challenging your assumptions and helping you think through the best way to grow the business,” says Sanderson, president and CEO.
To make matters worse, the board consisted of members of the ownership group, which was four different companies, each of whom competed against each other but also competed against Transplace, to an extent.
“That wasn’t a terribly healthy situation,” he says. “Those companies did not have a good, long-term, strategic interest in our business and weren’t engaged in our business, and the board wasn’t engaged in our business.”
This was made clear by the topics of the phone conversations.
“We didn’t really focus on the issues that were of importance to the business in terms of how to grow it and expand it,” Sanderson says. “It was more just sharing of information than trying to solve problems and make improvements.”
So at the end of 2008, he had had enough and decided that something had to give if Transplace was going to be able to grow and improve.
“We really needed to have a change in ownership of the company, and we needed to get a board of directors who would be far more engaged in our business and be able to challenge and help the executive team grow the business.”
Find the right buyer
Initially, Sanderson approached the companies that owned Transplace to see if they would even be willing to sell, and they had a consensus: If the price was adequate, they’d be willing to sell.
With that as the main criteria, he had a lot of leeway, and while the recession was in full swing in early 2009 and he recognized it may not be easy, he also thought it could present a good opportunity.
“Sometimes when you get into a challenging situation like that, it can really create the best opportunity to get a good deal done, because everyone is not out chasing around all kinds of deals,” he says. “They can focus on the ones that really make sense.”
He looked across the industry, and while some companies were interested in absorbing Transplace into their organization, Sanderson wanted the company to have the opportunity to grow independently.
He also wanted a company that would be a good cultural match.
“Make sure there’s a good cultural fit between the two companies, because if you’re not in sync with your financial partners, it’s not going to be a very good experience for anybody,” he says.
Additionally, he needed to make sure that the buyer was the appropriate size for Transplace.
“It’s very important to have a good size match between your company and the company that’s buying,” Sanderson says. … “If you’re a real small company, you don’t want a huge financial backer because you just won’t be relevant, and on the other hand, if you’re bigger, you don’t want someone who’s too small because they won’t have the capital or expertise to help you grow your business.”
In the spring of 2009, a colleague he had known for more than 20 years called him up and said he’d like for him to meet some guys at CI Capital Partners out of New York City simply because he thought that they would be good people for Sanderson to know. The colleague wasn’t even aware that Sanderson was trying to sell the company.
Sanderson hadn’t had impressive experiences with VC firms. He was used to getting squeezed in for meetings the next time he was in town, and even had one meeting where the guy put his feet up on the conference table, leaned back, snapped his finger and said, “OK, let’s go, let’s hear the pitch.”
Despite that, he called CI Capital, and something impressed him in the first conversation: One principal said he wanted to come to Dallas and get to know his business and team.
That principal visited Dallas in May for an initial meeting, and Sanderson was clear about his expectations for how they would work together and for what he wanted in board members.
The meeting went well, and shortly thereafter, CI Capital came back to Dallas, this time with more people, and Transplace also brought more of its top people to these meetings. They also took time to have dinner together and socialize.
“It’s important to have a little time to socialize outside of just the meetings,” Sanderson says. “[Before] our board meetings, we have dinner because it gives you a chance outside the business environment to get to know people and see what they’re like. Those things are important in due diligence — you can tell a lot about a person about how they treat the waiter.”
Another good sign was when CI Capital’s leadership offered up the names, office numbers and cell phone numbers of other CEOs in its portfolio and told Sanderson to call them. He took them up on that offer and asked what they were like as partners, when things went wrong, when things were good, how board meetings went and about their true personalities.
“That is very important to have good reference checks,” Sanderson says.
By July, he knew that CI Capital was the company for Transplace: It had the resources to grow the business and its executives wanted to be involved after the deal.
Move forward together
Once Sanderson and CI Capital decided to move forward, Sanderson then faced the challenge of getting all four ownership groups to actually sell.
“That was a tremendous challenge because they had multiple law firms involved along with the companies themselves and their interests weren’t all exactly the same, so it was a huge challenge,” he says.
In fact, some were far more interested in selling than others. The variety of motives and people he was dealing with got frustrating at times.
“You just have to persevere and just keep a level head and keep working the deal and not let it get emotional when problems come up,” he says.
It’s important to understand what their problems are.
“Make sure you’ve asked a lot of questions,” Sanderson says. “Don’t jump in with the answer until you’ve made sure you understood the issue. Know what you can be flexible on and what you can’t be flexible on.”
If you see areas that are really important to one party but not to another, those are typically the areas you can have that flexibility in. It’s being prepared to give a little bit to get a little bit. But you also have to know when to say no.
“You have to be prepared to walk away,” he says. “There were a couple of points where we said, ‘We can’t go on like this,’ and that has a way of getting people back to the table, as well.”
As he moved closer to closing, he continued watching CI Capital to make sure the decision he made was the right one.
“You also have to be alert, observe, listen and watch as you’re going through that due diligence process,” he says.
The challenges you face leading up the final paperwork can reveal a lot and either give you the go-ahead or give you a reason to hold off.
For example, with all the challenges he faced with the multiple owners, CI Capital was a great source of help and support instead of taking an attitude of indifference or passivity.
“Some things in the due diligence are going to be smooth, and you’ll hit a few bumps in the road, and the way that private equity company works with you to overcome those obstacles says a lot for how they’re going to work with you about the speed bumps you’re going to hit in the ordinary course of business,” Sanderson says.
As they approached the closing, he also made it clear to CI Capital that any of their people who would serve on the board had to be available for day-long, in-person meetings and be willing to invest their own personal money into Transplace — not just the firm’s — because he felt they’d be more interested if their own money was on the line.
“Making sure that those expectations are known upfront is very important,” he says.
Around Christmas, the deal closed, and Transplace got to unwrap a huge gift of new ownership heading into 2010.
Create a strong board
With new ownership firmly in place, a new board was also being created.
“A strong board is tremendously important,” he says. “You can’t underestimate that. Some CEOs like to get a board that’s sort of their cronies that will rubber stamp what they want to do and is sort of a yes-man, yes-woman type of approach, and pat them on the back and congratulate them for doing a good job.
“It’s far more helpful to have a board that you can bounce ideas off of and will challenge your thinking about things. You don’t want a board that thinks they know your business better than you know it as CEO. They can’t know your business as well as you do as CEO — you don’t want them to tell you how to run your company, but you do want them to challenge the way you’re thinking about your business and get you to think creatively and question the way you’re doing things.”
In addition to Sanderson, three of CI Capital’s people were going to serve on the board — including its president, which was a huge vote of confidence.
They then asked Sanderson who else he would recommend to be on the board. He made two recommendations to them, and they interviewed them.
“I wanted people who really understood our industry so that their advice would be relevant but also that had a little bit different experience than I had so they would bring a different perspective to the business than I bring,” he says.
One was a former president of one of Transplace’s major competitors. He had been in the business for 35 years and had experience with logistics technology, third-party logistics and the trucking industry, so Sanderson liked the amount of industry knowledge he could bring to the table.
The second was a former colleague of Sanderson’s when he had worked at a consulting company. This person had been a very senior executive there, so he was very strong on planning and corporate governance and could bring a lot to the table as well.
In addition to the experience you want to bring on, look at the time people have to give, as well.
“It’s probably a good idea to find somebody who’s not acting as CEO or CFO for another company, because people who are running companies, there’s not much time left in the day,” Sanderson says.
The benefit of these two particular board choices was that they were what he likes to call semi-retired.
“If they were running their own companies today, they couldn’t spend as much time on our business as they do,” he says. “I call it semi-retired — not someone who’s retired who’s looking for a chance to shoot the breeze and have a nice lunch or dinner but someone who is semi-retired who does not have the day-to-day challenge of leading a business but is still actively engaged in business enterprises is, to me, ideal.”
On top of that, Sanderson wanted opinionated people who could speak up and also had good experience and data to back it all up with.
“You want a healthy dialogue and debate about the things that are important to the business, so no wallflowers,” he says.
After the interviews, CI Capital accepted both of Sanderson’s board recommendations, and today, he couldn’t be happier with the dynamics of the group.
They have quarterly meetings and every board member is there in person every time, and they get together for dinner the night before to have a chance to enjoy each other’s company and socialize. The meeting discussion has also changed. Instead of simply looking at quarterly results, they dive into those numbers and really pause and ask why and what they can do about it if anything has dipped.
For example, they had one customer they weren’t sure would stay in business, so it caused a long discussion about Transplace’s credit policy, which led to a change to eliminate risk to the company. In the end, the customer was OK, but now Transplace is better poised should that situation arise again in the future.
One or two times a year, they also have separate strategy meetings to focus on a particular topic that’s of interest to the board, such as HR strategy and looking at employee turnover and how to develop future leaders.
Sanderson believes he now has the right ownership and board to grow the $900 million company to the next level of success.
“Now our board meetings have just changed tremendously,” he says.
“There’s pretty healthy discussion.”
How to reach: Transplace, (866) 413-9266 or www.transplace.com
Tom Sanderson, President and CEO, Transplace
As a child, what did you want to be when you grew up?
I wanted to be a baseball player. I loved baseball. I grew up as a Cubs fan — I was born in Illinois — but after 1969, they folded against the Mets, and in ’71 we moved to Boston, and I’ve been a Red Sox fan since 1971.
What was your first job ever as a child?
I had a number of jobs as a child but probably the first one I ever got paid for was working for my grandfather. He baled hay and straw in Illinois. He would let me work on his baler crew stacking hay bales. I was also a paperboy and sold greeting cards. It was Christmas cards or whatever, and you had a catalog and you would go door to door. I think I was in seventh grade maybe.
What did you learn from those experiences that still apply?
I think it’s important to know that when you’re out there working, nobody owes you a paycheck. You have to do a good job, and if you do a good job, it’s going to come with financial reward, but you have to earn it. If you’re selling greeting cards, if you didn’t get the order, it’s like today, there’s no salary — it’s all commission.
What’s the best advice you’ve ever received?
I think it’s more of a role model. My dad worked at IBM and Digital Equipment Corp., and I was always struck by the fact that the people who worked for him really trusted him — he had a lot of integrity. I think that message as a leader and a manager was you’ve got to earn the respect of the people who work for you. Treat them fairly, have high expectations of them, and I think I do too of the people that work for me. Have that integrity, earn the respect of the people that work for you. It was unspoken advice but something he showed by example.