John Chapel, CEO of AVIEL Systems, talks about his next move

June 10th, 2008 by Lisa Singh

CEO John Chapel incorporated AVIEL Systems, Inc., in January 2006 in order to bring AVIEL’s two subsidiaries, OPTIMUS and PMC, together under a single banner. “We were able to take a $33 million dollar company and grow it to about $75 million with a decrease in the number of overhead personnel,” says Chapel of AVIEL’s success. In the following Q&A, Chapel shares a few tips on moving a deal forward and discusses what’s next for him as he looks beyond his role as CEO.

Tell us briefly how AVIEL Systems came together and what your role in it was?

John Chapel: I joined OPTIMUS Corporation in May of 2005, not long after the CHM sale. Eric Adolphe, founder and majority owner of OPTIMUS, had previously discussed my joining OPTIMUS and once the CHM sale closed, it seemed like the right time to do it. Eric had some other interests he wanted to pursue, including spending more time with his young children. We came to an agreement where I would come in as president and part owner, with an option to purchase all of the company at a later date. My first tasks were improving OPTIMUS and looking for an appropriate acquisition. Through an introduction, I started negotiations with Performance Management Consultants (PMC), a provider of management services to DHS. We closed the transaction in September of 2005 and immediately began integrating the two companies.

In January of 2006 I exercised my option, bought the other OPTIMUS owners out, and became the sole owner of OPTIMUS and its subsidiary, PMC. A couple of months later, I recapitalized the company and formed AVIEL as the holding company for OPTIMUS and PMC. Integration of the two companies was a natural fit. OPTIMUS had too large a back office and PMC had no back office. We started out with about 40 people on overhead, and when we sold AVIEL we had 37 people on overhead. We were able to take a $33 million dollar company and grow it to about $75 million with a decrease in the number of overhead personnel.


At some point you decided to sell, how did you approach the market?

John Chapel: It really started after I put the company together in January of 2006. I was approached by TAC, a SPAC, to do a merger with them. We went through a year-long process and in the end the TAC stockholders voted no because we refused to accept some of their requirements for a yes vote. So the TAC deal did not happen. Looking back, I am glad it did not happen. From what I have seen of a couple SPAC deals that did happen, I believe that the SPAC structure is a tough way to go.

After having gone through the process of potentially becoming a public company, we had one of the cleanest companies in Northern Virginia. Everything had been scrubbed and procedures were in place to ensure that everything was done by the books. I am very proud of the fact that the company went through both the 2006 and 2007 year-end audits without any adjustments of any consequence. Having gone through the process, and after consultations with advisors in whom I have a lot of faith, I came to the conclusion that now was a good time to sell. First, we had built a company that was both very strong and had great customers and contracts. I was also concerned that the political environment might change and lead to an increase in the capital gains tax rate. All things considered, we decided now was the right time to sell.

What surprised you about the market looks at in terms of the M&A space.

John Chapel: Nothing in the current transaction surprised me. Since 2000, and even prior to that, I have been involved in a number of M&A transactions — probably about 10 — as either a buyer or a seller. As a result, I feel that I know the M&A process fairly well. The biggest change that I see right now is the turmoil in the financial markets. An example of that is that the buyer of AVIEL, a private equity company, had another private equity group that was going to loan the balance of the acquisition price. Working on that premise, it was not until a month before settlement that they found out that this other group was not going to fund the whole deal. That caused the PE firm buying AVIEL to have to put together a different financial package.

Luckily, that actually was fairly easy to do. They took their bank and our bank and added one more bank and were able to put together a very good package using three banks. I believe that the first deal not working out was as a result of the well publicized tightening of the credit market as the result of the mortgage crisis. I believe that we will continue to see this turmoil in the financial markets impact the M&A environment.

What are you doing now?

John Chapel: First thing is that, to the delight of my wife and the surprise of many who know me, I am learning to gear down. Prior to the sale, other than a week off last fall to help my son and his family relocate to Switzerland, I hadn’t had a vacation in four years. We are relaxing a little bit, traveling some, and just “chilling.”

I have also spent some time putting together my personal affairs, including getting a family foundation off the ground. My wife and I feel that we have been very fortunate and we want to take some of the proceeds from the sale and use them to help others: colleges, high school, fraternities and local organizations. I am a firm believer you don’t just take from the community; you also give back to the community. We are going to do that through our foundation.

After a couple of months I will weigh my options for the future. I have no desire to become a couch potato. I want to stay active, but I don’t want to be a CEO anymore. I have done that for too many years. One possibility is to serve on some company boards. My experiences may be able to be used to help others. Secondly, along with some friends and associates, I may start a small equity group that will focus on investing in small companies. I believe it is a good market and that there are good deals to be had if you invest properly.

What do you need to get a deal done?

John Chapel: First off, you need both a motivated buyer and a motivated seller. Without them, the deal will just not happen. Secondly, you need a saleable product. The company must be in good shape and not carrying a lot of baggage. Thirdly, and very important to the seller, one of the biggest factors in getting deals done is to put together a good outside team. The team should include your attorney, accountant, and, of course, the M&A banker. If you put the right group of advisors together, with the right synergies, they can make the deal happen. One of the best pieces of advice I give to a people is to pick partners with whom you are comfortable.

What are some of the mistakes most companies make?

John Chapel: Too many companies want to go to market before they are ready and once they get in and start getting their book ready, or even in due diligence, they find out that this or that is wrong with the company. This then leads to problems in trying to put the deal together. The buyer is going to want concessions. He/she will want a lower price or much stronger reps and warrants. I advise any owner to clean the company up and don’t have things on the books that shouldn’t be there.

Don’t have a bill in A/R that is three years old; get it cleaned up. Don’t have contracts that have not been closed out. Don’t have ancient unbilled receivables on the balance sheet. Have the company’s policies and procedures in place. Pay particular attention to HR and finance, as they can become issues that will haunt you. If you operate the company as a business and keep it clean, you will find that your company is actually worth more and the process is a lot easier. And this is good advice whether you are selling or not.

Interview with John Chapel conducted by Lisa Singh

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