Troy had owned Dane Manufacturing, a metal fabrication and stamping company based in Dane, WI, since 2001. He had just brought Mike on board as COO, and they were sitting down for their first of many weekly off-site meetings when they hatched the plan. “Mike said to me, ‘Well, what do you want to do here Troy?’ and I said, ‘Mike, let’s 3X this thing in the next three years,’” says Troy.
They knew this was a bold goal; that’s why they were attracted to it. Troy called it not just a BHAG (Big Hairy Audacious Goal) but a “F-BHAG” (use your imagination).
The pair knew that they’d need both organic and inorganic growth to achieve their goal. By 2016, Mike and Troy had doubled down on sourcing acquisitions, and in March 2017, Mike came across as a deal on Axial that seemed immediately promising, and which had the potential to help them reach their goal. The company was Dantherm Cooling, a supplier of energy-efficient climate control solutions.
“My first email to Troy with the one-pager was: ‘This looks very interesting. It also looks like it could be a bit distracting.’ That would turn out to be prophetic,” laughs Mike.
Prophetic — and an understatement. The 15+ month deal process threw curveball after curveball at Mike and Troy: a failed bid, a bankrupt parent company, a long-time bank backing out at the eleventh hour, and more.
The 15+ month deal process threw curveball after curveball at Mike and Troy.
So how did they pull it off? In this three-part deep-dive, we cover:
- The history of Dane Manufacturing (and why Troy’s mom is really the hero of this story)
- How Mike and Troy got tight around their acquisition criteria
- What to do when a bank says no
- The travails of negotiating with a Danish bankruptcy trustee
- How Troy and Mike used Axial to come in under the wire
In 1996, Troy had started an engineering services company. By 2001, he’d managed to grow it to 5 employees and just under half a million dollars. But he was growing frustrated with their business model. “Selling time by the hour is an OK model if you’re a lawyer and getting $200 an hour. But if you’re an engineer and you’re getting $75 an hour, it’s a hard way to make a living.”
He became aware of Dane, at the time an 85-year-old company with a team of 10. “It had been a husband-and-wife operation, but the husband had passed away and the wife was left to run it,” says Troy. “I was the 15th person to call on her in seven years to buy the business. She held on to make sure she could get the best price and the best person to make sure the company carried on.”
For Troy, buying Dane was an exciting opportunity to scale and transition from an services model. But two weeks before closing, his investor backed out. “My mom stepped up as the hero,” says Troy. “She went out and remortgaged her house and gave me almost all of her life savings.”
The deal closed on November 20, 2001. “It was right after 9/11,” says Troy. “I watched George W. Bush stand in that pile of rubble in Manhattan and say, ‘The terrorists don’t know who we are now, but they will hear from us soon,’ and I told my little crew of 12 people at Dane the same thing. ‘The world doesn’t know who we are now, but they will hear from us soon.’ My vision was to put the company on the map as a premier metal manufacturing company.”
With his mom’s money on the line, Troy dug deep to bring his vision to life. “I just went out there and started shaking things up,” he says. I scratched together every nickel I could get to buy our first new machine. My goal was just to grow.”
“I scratched every nickel I could get to buy our first new machine.”
At the time, Dane made primarily small stamped parts and old-fashioned sheet metal ductwork parts, primarily for the housing industry. “The items we made you would see during the construction of a house, and afterwards you wouldn’t see them,” says Troy. “We had levels of industry and customer concentration that were really scary. We needed to diversify and grow or we were going to get wiped out in the next housing construction downturn.”
Grow they did. Under Troy’s leadership, Dane went from $1 million in 2001 to $12.5 million in 2015. It wasn’t a straight line. “We grew from a little over $1 million up to $6.5 million, then the Great Recession came and after that we grew back up to $10 million. But we had a hard time breaking $10 million. Finally we broke the barrier there, and got to $12.5 million,” says Troy. The company’s success was recognized: Dane made the Inc. 5000 list in 2007, 2008, 2009, and 2013.
During that time, Dane’s customer base evolved as well. The company went from making “hidden parts” to producing recognizable parts that have key applications in a wide range of consumer products: architectural metal for elevator cabs, joint plates and corner guards for airports, handrails for hotels and conventional centers, job boxes for construction sites, and more.
“He Needed a Mike”
Dane was doing well. But by 2015, Troy was overwhelmed. Too much of the decision-making depended on him, and he knew he needed help to get the company above $12 million. He reached out to Mike Lisle, a finance executive and old friend of his who had been working as a controller in a janitorial company, and asked him to join as COO.
When Troy proposed the 3x goal, Mike was more than game. He’d come to Dane from a company that had suffered a tough decline after several successful years. “We’d lost two key customers and morale was low. You wear a lot of that on your sleeve when you’re the financial guy, and while we all shared the responsibility, this was a situation where I knew that one of the other key leaders had really dropped the ball,” he says.
Troy and Mike put their target at somewhere north of $30 million. At the time, Dane was bringing in $11.2 million in sales. Soon after setting the goal, they sold off a non-core division of the business to a small PE firm, lowering annual sales to around $10 million.
As the CEO and president of the company, Troy had an obvious incentive to hit the mark. But Mike made it personal too. He vowed to get Dane to a $30 million company before his previous company got back to $30 million. “It sounds so stupid and petty, but it fit with where Dane needed to be. Troy had done a lot of work to get the company to $12 million, and he was hitting a plateau. He knew he couldn’t do it himself anymore. He needed another Troy type, another full company leader. He needed a Mike. Sure, the goal was a little audacious, but it was something we could comprehend and attack.”
“All my friends were like, ‘Bullshit, you’ll never make it. That’s crazy.'”
Troy didn’t keep their goal quiet. He knew that he needed to light a fire under the team if they were going to succeed. When he told fellow CEOs at the executive coaching organization Vistage about Dane’s gamble, they scoffed. “All my friends were like, ‘Bullshit, you’ll never make it. That’s crazy.’ But I said, ‘Nope, we’re going to make it and we’re going to get our fifth Inc. 5000 award. We’re going to join the ranks of Amazon, Google, Microsoft, Apple.’ And my friends were like, ‘Yeah yeah yeah. You know you’re just a metal manufacturer, right Troy?’”
“A Small Acquisition Is Just as Much Work as a Big One”
By 2016, it was clear that Dane would need some serious inorganic growth to reach their goal. “Dane had done a few smaller acquisitions, but we knew we had to look bigger,” says Troy.
The team became aware of Axial around the same time. “I’ve never been a fan of the way business brokers and intermediaries go to market with companies. It’s never been efficient. I told Mike, ‘Look, we have to accelerate our acquisition strategy because I’m not finding things the way that I used to. I think a lot of these intermediaries just died, or retired, or went to sleep because I can’t find anything. They’re not here.’ But lucky for us, we found Axial.”
Troy and Mike decided to join Axial in August 2016. “Yes, it cost a bit of money. But we could see right away that the people on Axial were there to do deals. They were there to make connections and talk seriously. We had seen too many brokers and accountants and lawyers go hot and cold and not know who they were representing that well. It made it challenging to get anything done. But on Axial we found good write-ups and reliable information. The folks representing companies on Axial were, in general, extremely knowledgeable about the companies that they had shared. As a result, we could make a really quick ‘let’s pursue’ or ‘let’s decline’ decision.”
Troy and Mike began working with their Axial account manager, Levi Cohen, during their weekly check-in meetings. “As Levi always says, the work in the acquisition is just as hard if it’s a $10 million acquisition or a $1 million acquisition. So, we decided to raise our sights a bit together,” says Mike.
“We painted a picture of what a successful acquisition would look like and then evaluated every opportunity through that lens.”
Troy and Mike outlined exactly what types of acquisitions they were — and weren’t — looking for. “We painted a really tight target around what we wanted. If a deal didn’t hit our criteria, it didn’t matter how good it sounded or familiar it was. We painted a picture of what a successful acquisition would look like and then evaluated every opportunity through that lens.” They were looking for a proprietary product business, which would allow them to control their destiny a bit more by selling directly to the customer. The product itself had to depend on quality sheet metal. Dane didn’t have an extensive marketing team in-house, so they wanted an existing brand. They also wanted to something that was relatively predictable — “not susceptible to wild swings in the economy,” says Mike.
They found a few promising deals, but nothing that panned out. Then, in March 2017, Mike came across the Dantherm Cooling deal. Dantherm was a division of Dantherm A/S, a publicly traded Danish company originally formed in Spartanburg, SC in 1998. The company provided climate control and air handling solutions to North, Central, and Latin American telecom, industrial, and oil & gas markets and was looking to add new products.
Troy and Mike sat down to review the deal. “Every Thursday we would review deals against our criteria. We said, ‘Pursue it,’ to the Dantherm deal pretty quickly. It hit all our criteria.” There was an opportunity for Dane to manufacture much of the metal that Dantherm was currently buying, and Dane saw a lot of potential to capitalize on their market position and the fact that Dantherm was already a global company.
When Troy and Mike connected with Dantherm’s M&A advisor, there were already multiple suitors. But Dane made their interest known and moved quickly. “Within ten days, we were in Chicago to do our first in-person vetting with the president of the company,” says Mike. “We saw all kinds of potential.”
It quickly became clear that the deal wouldn’t be a simple one. “Dantherm had had a banner year in 2016, but when we first saw the company in April of 2017 they were already well beneath that banner year — but there wasn’t a great sense of why,” says Mike. They also learned that earlier in 2016, the company had almost been acquired by a company that looked a lot like Dane, but the buyer had walked away.
Those details raised a bit of doubt, so Troy and Mike quickly flew to South Carolina to visit the company’s headquarters. “We saw immediately that the culture was similar to Dane’s. We knew we had not just a good product fit but a good cultural fit.” On the Friday before Memorial Day, they issued an LOI. “We were on a high — it was the last day before a long weekend, and we’d found something that hit all our boxes to help achieve this huge goal.”
By the following Tuesday, Troy and Mike’s hopes had been dashed. Another group had made a higher offer, and now that company was in a 90-day exclusivity period with Dantherm.
Still, Mike didn’t lose hope. He had a feeling Dane might get another shot at the business. He knew that the company that outbid them had never visited Dantherm. “I’m no valuation expert, but I had a hard time believing the buyer was going to close at that price, because Dantherm’s foundation was a little weak. I just had a gut feeling the exclusivity period would expire.”
Mike may have been confident, but Troy was getting nervous. Three years was coming up soon, and they would need a Hail Mary to make good on their 3x goal.
Three years was coming up, and Dane would need a Hail Mary to make good on their 3X goal.
Rather than fixating on a potential failure, Troy channeled his energy into sales. Dane landed a $5 million contract and then a $2 million contract. “That gave us the runway for Dane in 2018 to be $20 million. And if we could close Dantherm then we’d be there. We’d get to ring the bell at 3X,” says Troy.
The only thing to do was wait until the end of summer, when the other suitor would either close the deal with Dantherm — or their exclusivity period would run out.
“The Days of 20 Suitors Are Over”
Right before Labor Day, Troy and Mike got word from Dantherm. The other buyer had backed out.
Mike and Troy jumped at the second chance — but were also shrewd enough to know that the balance of power had shifted in their favor.
At this point, not only had Dantherm been through two failed closes, but Troy and Mike had also learned that Dantherm’s parent company in Denmark was bankrupt. Dantherm was now being managed by a Danish bankruptcy trustee. “They weren’t paying very close attention to the business nor were they investing in growth. They were just focused on getting a buyer. We knew that our leverage was growing. The time for 20 suitors was six months ago,” says Mike.
Dane was able to negotiate a lengthy exclusivity period — one of the rewards of staying in the game — and Mike, Troy, and Dane’s finance team set out to secure financing.
“Nope, Not Us”
2017 had been a great year for Dane and 2018 was poised to be even better. In November, they signed their largest contract ever for a three-year deal. Even without the Dantherm acquisition, Dane was poised to grow 50-60 percent year over year. But Dane’s long-time bank took one look at the Dantherm deal and said they weren’t interested.
“It was genuinely shocking,” Mike says. The bank had previously helped the company simplify their financial structure and prepare for growth, including redeeming Troy’s mother’s preferred stock, streamlining real estate structure and loans, and converting from a subchapter C to a subchapter S organization. “They knew we were doing all these things to do a deal, to do multiple deals,” says Mike. “However, not only was Dantherm not repeating its 2016 performance, but they were really nosediving. The bank looked at the Dantherm financials and was worried about its impact on Dane. And they said, ‘Nope, not us.’”
Though Dane had a huge contract spinning up in 2018, “the bank was only interested in the historical angle,” says Mike. The sheet metal business is inherently capital-intensive. “Each of our machine tools is north of a million dollars. And you have to have a lot of them to be running the volume we are. So, it’s a very high fixed-cost business,” says Mike. “Our bank had concerns about Dantherm’s cash flow and how much of Dane’s cash we would have to bring into the company.”
Their hesitation didn’t erode Mike’s confidence in the deal. “It just depended on your perspective. I’ve spent 15 years in the financial side of organizations. I’m used to saying ‘No’ to deals and being risk-averse. But in this case, I was appalled that the bank couldn’t see our vision, the track record we had. It just didn’t add up to say no to this deal.”
“I was appalled that the bank couldn’t see our vision.”
Mike emphasizes that he didn’t make the decision to keep going lightly. “Troy and his wife Michelle are godparents to my daughter. I’m the trustee of his estate. The last thing I’m going to do as a financial manager to my friend is to put his family and livelihood in a high-risk place.”
The Fight for Financing
Troy and Mike set out to find a new bank. They secured some SBA financing, but needed more. “It was more challenging to find the right deal financing than it had been the right target. When it came to deal sourcing, things were a more binary — it had to meet our criteria. But with financing, we had a lot more people saying, ‘Well, we could…’ We did our elevator pitch ad nauseum,” says Mike.
Given Dantherm’s current state, it quickly became clear that asset-based lenders would be the best fit for the deal. “In May 2018, on one of our famous Thursday afternoon meetings, we pulled up Axial, ran a search, and found Crestmark Bank,” says Troy. Crestmark was an asset-based lender with a strong presence in Chicago, just a few hours away from Dane’s headquarters.
Mike had also met Scott Frederick, a vice president from Concord, previously at Axial’s Concord event in Chicago, but at time Dane was still planning on using their existing bank for the Dantherm deal. Now, though, they reached out to Scott immediately.
The next day, Friday, Scott drove to Dane’s headquarters and met with Mike and Troy for six hours. “It was nine hours in the car from Chicago. But I cancelled everything for the next day and drove there because I sensed Troy and Mike needed help and I knew that time was not on anyone’s side in this acquisition. In the current lending environment, time kills deals. I came away from the meeting thoroughly impressed with their vision for the company,” says Scott.
“In the current lending environment, time kills deals.”
Within two weeks, Dane had closed with Crestmark. “It was lightning speed for a $3 million line of credit facility,” says Troy.
“At the end of the day you had a motivated team in Dane Manufacturing and a motivated bank in Crestmark, and Axial brought us together,” says Scott.
Meanwhile, in Denmark
The financing wasn’t the only thing tying up the deal. Because Dantherm was being managed by its bankruptcy trustee in Denmark, Dane kept hitting walls when it came to deal terms. “We couldn’t hold money in escrow or do an earnout, or do an asset purchase. He wasn’t a manager staying on or an owner with skin in the game. He needed a clean, quick deal that we could take to his creditors. He couldn’t give us the typical reps and warranties that you would normally get if your seller was going to be out for good. Whether that was Danish law or posturing, I still don’t know — but he said he couldn’t go there,” says Mike.
As the process stretched on, Mike and Troy worried more and more about keeping the trustee on board. “He was worried about our financing. So, we knew we had to keep him engaged. We proactively shared our financial prospect pipeline on a weekly call. I don’t know that many sellers would get that level of engagement with the buyer, but we offered it because we didn’t want to lose the company.” Given Dane’s growth and its capital-intensive business model, “we knew that we couldn’t write the biggest check,” says Mike. “We didn’t want someone else with our same vision but without our capital tie-ups to come in and offer more.”
The team at Dantherm had been through a rollercoaster of failed deals over the past few years. “One transaction after another had fallen through for us,” says Rick Schmidt, current chief technology officer at Dantherm (and at the time the company’s chief operating officer). “It was hard to keep employees motivated. If an employee left it was hard to find a replacement employee. You’re trying to keep your customer base happy and do all the things you should be doing from a business standpoint to grow and improve, but you have this big distraction looming over your head.”
Mike and Troy were concerned with keeping the Dantherm employees invested in the business. “We knew the longer the deal took, the more depleted and less engaged the team would be,” says Mike. “We bought a lot of potential; we didn’t buy financial performance. We really needed their people to stick with us, so we made visits on site and also invited members of their team to our headquarters in Wisconsin. We really tried hard to get them excited for what was ahead.”
Rick picked up on the cultural similarities between Dane and Dantherm during the deal process. “Mike’s high-energy, Troy’s high-energy, and that’s very similar to how myself and the other managers here operate. We’re both companies that have gone through a lot of challenges and grown over the years. Both are the type of place where you pull together when you have to. There’s not that, ‘That’s not my job’ mentality. It was clear that Dane was coming in to help us move forward and continue to create a good foundation for the business.”
Coming in Under the Wire
Troy and Mike had challenged themselves with the 3X goal on July 9, 2015. The Dantherm deal finally closed on June 28, 2018.
“We made it by a week,” says Troy. “Almost three years to the day we set that goal, we closed Dantherm giving Dane Manufacturing consolidated annual sales of $32 million — with Dantherm making up the last third of that number.”
“We made it by a week.”
Needless to say, “It was a great July 4th,” says Troy. “Shortly after we received a bottle of champagne from the Axial team. It was awesome, because the deal wouldn’t have happened without Axial.”
Says Axial CEO and founder Peter Lehrman, “As a CEO I know how risky it is to publicly put yourself on the line for a stretch goal like Troy and Mike did with their team at Dane. It’s easier to set the bar low, but it’s not nearly as gratifying when you clear it. The Axial team was watching this Dane deal from the sidelines, and we were so completely elated when Troy and Mike let us know that they’d closed it. At Axial, we really live for these moments where we know we’ve helped move the needle for one of our members.”
Now that the deal is done, Dane has plenty of work to do to integrate Dantherm and continue to grow both teams. Dane replaced Dantherm’s previous president with Greg Kaye, who they connected with through Vistage, and Dane and Kaye have been working together to help Dantherm overcome its financial struggles.
But Troy and Mike have also given themselves permission to celebrate their success. “Sometimes you have to take your nose off the grindstone,” says Troy. “You have to let yourself enjoy the feeling of accomplishing the BHAG and reliving the story. You’ve got to remind yourself that you just went up another level. Three years ago we had 60 people. Now we have 125. As an owner, you have to take time to celebrate and smell the roses, because there’s always a lot to do. Work never goes away.” He adds, “Shawn Achor, who wrote The Happiness Advantage, sums it up best when he says, ‘One of the challenges we have in America is we don’t ever slow down long enough to be happy.’ We achieve the goal and then immediately move the goalposts.”
The financial goal of 3Xing the company kept Mike and Troy going, and ultimately pushed Dane to the next level. “But I have to be careful not to define myself around the sales or the money,” says Troy. “The most important thing is people, and how many people can we bring with it. I’ve always tried to measure my success by jobs. If I’m making jobs and sustaining jobs and seeing the same people day after day, year after year, then I know I’ve made an impact. Otherwise we’re not doing it right.”