Preserving Business Legacies When the Kids Won't Take Over
The landscape of mergers and acquisitions is constantly evolving, but one area that remains underserved is the small to mid-sized business market. In a recent episode of "Mergers, She Wrote," Kazem Harfouche, Managing Partner of Cedar Crest Capital, shared invaluable insights about this gap in the marketplace and how his firm approaches acquisitions differently than traditional private equity.
Cedar Crest Capital focuses specifically on businesses with sub-$3 million EBITDA – too small for most private equity firms but representing significant wealth for their owners. These are often legacy businesses that have been operating successfully for 10-40 years but face succession challenges when the next generation isn't interested in taking over. As Harfouch poignantly noted, "There's all these amazing businesses where they need a permanent home. They need somebody to step in and purchase them and keep the legacies alive."
What sets Cedar Crest apart from traditional private equity is their long-term approach. Unlike PE firms that typically aim to sell businesses within five years to return capital to investors, Cedar Crest acquires businesses with the intention of holding them indefinitely. They avoid forced growth strategies that can damage stable operations and instead focus on maintaining what has already been working well. This philosophy allows them to preserve company culture, retain employees, and maintain brand identity while generating returns through consistent cash flow rather than exit multiples.
The due diligence process represents another stark contrast between Cedar Crest and private equity. PE firms often request upwards of 1,000 items during due diligence, many of which aren't critical to understanding the business but serve as protection against potential investor lawsuits. This burdensome process can actually harm the business when owners become distracted from operations. Cedar Crest streamlines this process dramatically, focusing on approximately 15 truly important items, which expedites closing timelines from 60-120 days to around 45 days.
For business owners considering an exit, timing is everything. Harfouch emphasized the importance of planning years ahead, establishing standard operating procedures, and systematizing knowledge so the business can operate without the owner. This preparation not only maximizes value but ensures the business can survive after transition. As he noted, "It breaks our heart when we hear about sellers unfortunately getting ill or something happening to them and they just shut the doors down... their family left millions of dollars on the table."
Cedar Crest has also developed innovative approaches to acquisition, including partial buyouts where they acquire 51% of a business five years before an owner's planned retirement. This allows owners to "take some chips off the table" while continuing to work with a partner who can provide guidance and eventually complete the full acquisition. This phased approach reduces risk for both parties and facilitates a smoother transition.
The most challenging aspect of business acquisition, according to Harfouch, isn't financial or operational but psychological. "What we do I say 70% of the time we're psychologists, we're not investors," he explained. For first-generation business owners, their company is often their identity, making letting go extraordinarily difficult. Cedar Crest recognizes this emotional component and approaches acquisitions with sensitivity to the human element behind every transaction.
