An interview with Steve Barber, former owner of Red Island Hospitality Group
In the Summer of 2018, the founder and co-owner of the Red Island Hospitality Group (RIHG), Steve Barber, took a well-deserved step-back as he transitioned the business to two of his Senior Managers – Jeff Sinnott and Chad MacDonald. RIHG runs four popular restaurants and bars in Charlottetown, P.E.I. – Hunters Ale House, The Factory, Charlottetown Beer Garden, and John Browns Richmond Street Grille.
Steve and his business partner Jacob Heimstra engaged Confederation M&A as their exclusive sell-side advisors to help them come up with a plan to transition their business and see it through to new ownership. While external owners were considered, ultimately the best fit and preferred option for the ownership was when we presented the option of a management buy-out (MBO). Jeff MacKenzie, Senior Advisor with Confederation M&A, sat down with Steve to discuss his decision to step back from the business, his experience during the selling process, and life since the sale.
Jeff: It’s hard to believe its been over a year already since we wrapped up the transaction with you. I have to admit, when you first came to us to discuss wanting to sell – I was caught a bit off guard. You’re still a young guy, lots of working years left. You don’t exactly fit the mold of what comes to mind when someone thinks of the typical retiring business owner at the end of their career! Take us through your thought process in coming to the decision to step-back from the business when you did.
Steve: Well, I was coming on close to 15 years since starting the business. I’ve put my heart and soul into it and in short, it just got to the point where I was ready for the next chapter in my life. The business was in a good, healthy position and just like Seinfeld…I decided if I was going out, I wanted to go out on top! I never wanted to reach the point that I was feeling tired and for that to start reflecting in the business. Jeff and Chad, who have been working with me since day one and helped me build the business, still have lots of energy to keep it going strong so it was the right time for me to pass the torch and let them run with it.
Jeff: Not everyone is familiar with the details of your sale, but you went through an MBO – a Management Buy-Out. Many business owners don’t realize that an MBO is an option for them when it comes time to sell. We see it all the time where business owners say, “I would love to sell to my managers, but I just don’t think we could pull it off”. How did you get around some of the hurdles and challenges that comes with doing an MBO rather than selling to an external party?
Steve: One of the biggest hurdles was keeping it quiet amongst the ranks. The managers were excited at the prospect of taking over ownership, but trying to quietly get the ball rolling on the sale while keeping everything under wraps is tough. Coming up with the money and making the finance structure work is no doubt a challenge too that many owners doing an MBO would face. While some lenders may offer good terms for an MBO, they’ll still want the new owners to put some skin in the game. Hiring professionals to help you put together some of those pieces is key.
The relationship dynamic between the current owner and the managers buying you out becomes interesting through the process. In my case I was still working in the day-to-day and starting to prepare the guys to takeover the business, but at the same time you are sitting on opposite ends of the table as buyers and sellers. Fortunately, we were able to keep the negotiations fairly amicable and were able to work through those things. We kept our advisors and professionals in the middle who worked on crossing all the t’s and dotting the i’s, so we were able to keep running the business as normal and at the end of the day when all was said and done, we were able to get the deal closed and still remain good friends.
Jeff: What were some of the benefits of doing a management buy-out?
Steve: A huge benefit is you are not introducing someone new into the picture. There is not nearly as much training required and staff don’t feel the same stress that can come with change. I have seen cases in other businesses where there can be some staff versus new owner clashing following a sale. You might have an employee that’s been there for 20 years and a new owner coming in who doesn’t know the business who is now giving that employee orders. That’s tough. That’s where an MBO is much simpler during the transition.
Although I have only been through the selling experience once, I imagine that the due diligence process when selling a business is also totally different. Where an external buyer might be trying to turn over every stone during due diligence, the managers buying in my case already knew pretty much all there was to know about the business.
Jeff: After the sale, I know you stayed on for a period of time to help Jeff and Chad to ensure it was ‘business as usual’ after the sale. Do you mind sharing some details about what sort of transitional agreement you worked out and what was your experience like during that initial transition?
Steve: In our case, I essentially spent about a year working behind the scenes assisting the guys as needed, helping with some marketing and training some new staff. Really anything they needed me to do, outside of working on the floor at the restaurants. Although I’m no longer the owner, this is still a business that I built up over many years of hard work and the last thing I want to see is for it to not succeed – so I’ve been helping where needed, but also trying to stay out of the way a bit too.
I’ll admit it is a tough shift of mindset when you are staying on to some degree after the sale, but you are no longer the one calling the shots. You can give advice, but you need to train yourself to let things go and to let the new others run with it. Everyone has different management styles too – how you deal with people, how you market the business, what you put on your menu. I am sure the business will continue to change and evolve over the years but we were able to transition the business in a very smooth way that I think really went unnoticed from the customers perspective.
Jeff: You have developed a reputation through the years as perhaps the hardest-working guy in Charlottetown. Quite possibly PEI. It must be quite a change for you stepping back, having time to go to the beach in the summer – not to mention finally getting to go to bed before midnight! How has your life changed since the sale and how are you spending your time these days?
Steve: Life is 100% different. While I loved the business, any business owner can probably relate to me when I say that your business can quickly consume every aspect of your life. In the restaurant industry it is particularly difficult as the hours can be crazy. I used to go to bed at 5am….now I wake up at 5am!
One change I didn’t really think about until after I sold is that I can finally try out other restaurants…guilt-free! It’s sounds odd to say but if I was seen in a restaurant before, people would think I was either on some recon mission to gather information about competitors, or they would wonder “what’s wrong the food at your restaurant?”. Don’t get me wrong I love the food at the RIHG restaurants, but it’s nice after almost 15 years to try out a few new spots. I think I’ve gained 40 lbs from eating out since the sale!
The other side to selling your business that I’ll mention is that it’s hard to go from 100 to 0. Most business owners aren’t suited to do that. For me, I’ve been making sure to take some time to relax and travel, but I’m starting to do some things that I didn’t have time for before. Nothing overly demanding, but I’m starting to get into some more passive business interests like real estate investments. I’m sticking to things that don’t require me to be up past midnight anymore.
Jeff: Now that you’ve been through the full cycle of starting, building and selling your business – what tips would you have for any business owners who may be starting to think about selling?
Steve: When I first started to think about selling I called a friend of mine who referred me to you folks at Confederation M&A. For those reading this….I swear Jeff didn’t tell me to say this, but the best thing you can do is hire a professional advisor who has experience in selling businesses. For those thinking that they can do it themselves, you need to be focusing on what you do best – running your business. Not worrying about selling it. A professional advisor will work with you in a confidential manner and bring their experience to the table to get you over any hurdles you might run into.