The Chamberlain Group

Introduction

In the Business Planning course, we have covered early-stage startups, including Lawyer Metrics and AutoVisa; later-stage startups with significant liquidity events, such as PactSafe and VisaNow; sell-side investment banking; the successful growth of owner-operated businesses like the Chocolate Moose; and real estate developments that require complex public-private partnerships with Re:Land and the Bloomington Trade District.

In contrast, the Chamberlain Group case study introduces the class to the family office sector and its significant and growing overlap with the private equity industry. The class for Chamberlain Group was held on Thursday, October 26, 2023. Our guest speaker was Mike Flannery (IU Law ’83), CEO of Duchossois Capital Management, which is the family office of the entity that owned Chamberlain Group before the transaction with Blackstone.

What is this case study about?

In 2021, Duchossois Capital Management completed its approximately $5 billion sale of the Chamberlain Group LLC to Blackstone, the world’s largest private equity firm. This case study delves into the journey of the Duchossois family, tracing its evolution from humble beginnings as a freight car repair business to establishing a multi-billion dollar family office. It is the story of how visionary leadership, with an intense focus on engineering, built Chamberlain into a multi-billion dollar powerhouse by transitioning this heavily industrial manufacturing business into a knowledge-based intellectual property platform.

This case study is organized into the following seven sections:

1. History of Duchossois: How the Duchossois family grew from a small rail spur servicer into a large industrial holding company.
2. Introducing the Trusted Advisor: A discourse concerning Mike Flannery, who has helped lead Duchossois for decades in various roles, including leading the sale of Chamberlain.
3. Creation of Duchossois Capital Management: How Craig Duchossois and Mike Flannery transitioned Duchossois from a holding company to a family office investment firm.
4. Purchase of Chamberlain: The origins of Chamberlain through its acquisition by the Duchossois family.
5. Power of Intellectual Property: How Duchossois grew Chamberlain into a multi-billion dollar company by focusing intently on intellectual property and its differentiating power.
6. Sale of Chamberlain: Find out why Duchossois decided to sell Chamberlain, how they navigated the sales process, and positioned Chamberlain in the market.
7. Negotiating the Deal Terms: How Duchossois took advantage of the economic climate to sell Chamberlain and overcame several challenges threatening the deal.

1. The History of Duchossois

The Duchossois story really begins in 1916 when A.J. Thrall, Richard (Dick) Duchossois’s father-in-law, founded Thrall Cars. At its founding, the business concentrated on repairs and selling used and refurbished rail parts. Over time, the business slowly began to grow. However, it wasn’t until Dick joined Thrall in 1946 that the business truly experienced its supercharged growth.

Dick Duchossois returned from World War II a hero. He served in five European campaigns, earning two Bronze Stars, a Purple Heart, and the French Legion of Honor, and included time spent as a tank destroyer commander under General Patton. In battle, time and again, he showed his tremendous tenacity and willingness to take calculated risks. This confident determination is exactly the mindset he brought when he joined Thrall in 1946. Duchossois had a vision for what Thrall could be—no longer simply supplying and servicing used parts but manufacturing new rail cars to compete with the big players in the industry. His vision proved prescient as he eventually grew Thrall into the second-largest freight car producer in the world.

Dick did not limit his ambitions to the freight car industry. Instead, he invested in many operating companies, primarily industrial ones, significantly increasing the family’s holdings. One of these transactions was for a controlling stake in Chamberlain, which will be discussed in detail later. Between 1980 and 1997, the family engaged in over 71 transactions creating a diverse portfolio of operating companies under its umbrella.

During this time, Craig Duchossois, Dick’s son, took on a greater role, eventually taking over as President and leading the family business in his father’s place.

By 2010, Dick then 88, and Craig decided it was time to start divesting their operating companies. Without anyone from the family with the ambition and know-how to run the various operating businesses, it was time to change the nature of the family business from a holding company of operating businesses into an investment organization. The man they tasked with this change was Mike Flannery, someone who had been working for the family in senior leadership roles decades.

2. Introducing the Trusted Advisor

Before getting into Mike Flannery’s story, it must be noted that this case study has only been made possible because Mike took the time to discuss Duchossois’s long history and his storied career with the class. Many of the graphics provided in this case study come directly from Mike’s presentation.

Mike Flannery has not had the career that he envisioned when he attended the University of Illinois Urbana-Champaign as a finance major and then later at Indiana University’s Maurer School of Law. But if you ask him, he wouldn’t change a thing. After all, not many people can claim they’ve worked as the general counsel for both private and public companies, run the world’s largest freight car producer, and led multi-billion dollar transactions. However, Mike can, and his remarkable career has only been possible because of the trust he developed working for the Duchossois family office and the relationships he built there.

After graduating from law school in 1983, Mike began his career at a mid-sized law firm specializing in transactional work encompassing mergers and acquisitions, banking, and real estate. For five years, he honed his craft and sharpened his skills as a deal-making lawyer. Then, one fortuitous day, he received a call from a headhunter seeking an associate general counsel for the Duchossois family. Although he knew next to nothing about their business, the opportunity to act as their primary deal lawyer and direct teams of outside counsel, a very familiar role, was too good to pass up. He quickly learned the firm’s operating methods and built strong relationships with its senior leaders and family members, including Craig Duchossois. However, when the pace of deal-making slowed, Flannery realized he was ready for a new challenge.

He accepted the role as the primary deal lawyer for Cummins Engine Company, a Fortune 500 public company based in Columbus, Indiana. However, Flannery’s time there was short-lived. Although groomed to soon take over as Cummin’s General Counsel, Mike left after only a year and a half. He returned to Duchossois at the behest of its new CEO, Craig Duchossois, holding the dual roles of General Counsel and Chief Administrative Officer.

In those roles, Mike became deeply involved in the business side of the Duchossois operations. This involvement eventually led to a significant opportunity: leading their largest operating business, Thrall Car. While Mike concentrated on strategic objectives like company growth through mergers and acquisitions, he delegated the operational aspects of building the railcars to his more experienced colleagues. Soon, Mike found himself engaged in merger talks with Thrall’s largest competitor and the number one producer of rail cars in the world, Trinity Industries. After nine months of extensive negotiations, the deal finally closed and Trinity’s Chairman asked Mike to stay on and run this public behemoth as CEO, overseeing 9,000 employees and operations throughout the globe.

Mike ran the world’s largest freight car manufacturer for several years as CEO. However, just like his short time at Cummins, he realized a large public company was not the right cultural fit. Throughout his tenure as CEO of Trinity, Mike remained close with the Duchossois family, and Craig asked him to join them a third time, this time as CFO, a role that he would hold for the next ten years. In this role, Mike led the family’s dispositions of several of their larger operating companies, and with this infusion of cash proceeds, he was tasked with building up the family’s new investment business, Duchossois Capital Management (DCM), as its CEO.

3. The Creation of Duchossois Capital Management

There’s a common saying in the world of family offices, “if you’ve seen one family office, you’ve seen one family office.” This statement goes to the core of the individuality and distinctiveness that each family brings to its own operations and culture. Some family offices are structured as traditional holding companies, some as private equity firms, others as private foundations, and most are a mix between the three.

So, when Craig Duchossois tasked Mike Flannery with building a family office from the ground up, from the proceeds of their operating company sales, Mike and the rest of the senior team needed to discover the identity of what this family office would look like.

When asked about that time, Mike said, “[w]e wanted to rely upon our values and ethics, the reputation the Duchossois Organization had developed in the marketplace and this long-term perspective that [we had because we didn’t] have to return the capital within a specific timeframe. We could hold the business or an investment as long as it made sense.” His comments touch on some interesting trends that have occurred over the last couple of decades in the investment space. As family offices have become more visible, they have attracted talent from traditional private equity and now compete with them for many of the same investment opportunities.

However, because family offices are largely self-funded compared to the limited partnerships, with many investors that private equity (PE) operates with, they have distinct advantages to the traditional PE model. Family offices can stress the long-term perspective with a focus on an investment in innovation and people. They are not worried about hitting the next quarter’s numbers like many public companies, nor exiting an investment in the 3-5 timespans that private equity traditionally operates under. When trying to woo potential targets, this patient capital is often key to winning the deal. Additionally, Duchossois offered decades of experience operating family businesses and achieving great returns.

A chart of the core differences between Duchossois’s offerings and traditional PE can be seen below. Duchossois’s emphasis on flexible holding periods, allowing sellers to roll over equity, its immense operating experience with family businesses, and a high degree of management autonomy are all important deal considerations that Duchossois highlights compared to the traditional PE model.

In its new form, Duchossois wanted to be an investor, it did not want to be the primary operator of its holdings. Therefore, under Flannery’s leadership, the family office decided it did not want to take over 50% position in any of its investments. Instead, it wanted to partner with undervalued companies and other family offices, offering its financial capital and institutional knowledge to create value for its investments.

Today, the family office operates much closer to a passive investor than the holding company it used to resemble. It uses best-in-class managers focused on five investment strategies including: (1) liquid portfolios, (2) private investments in public equity (PIPES), (3) private equity, (4) private capital, and (5) real estate. Its investments are divided up roughly 50-50 between liquid and illiquid portfolios with the goal of a blended return of about 12-13% annually, although it has consistently exceeded that objective.

In 2021, DCM received its largest cash infusion yet with the sale of the Duchossois family’s most valuable asset, the Chamberlain Group. Chamberlain was the last of Duchossois’s operating companies, yet the Chamberlain sale was the largest because of its excellent management and strong bets on intellectual property. In the next section, you’ll read how Duchossois built up this small garage door manufacturer into the multi-billion knowledge-based entity it is today.

4. The History of The Chamberlain Group

The Chamberlain Group was established in the early 1900s, focusing on producing low-technology industrial goods for the defense and consumer sectors. Chamberlain’s business was primarily composed of manufacturing facilities throughout the United States, producing large caliber munition shells for the US Department of Defense. Over time, the company gradually expanded its consumer offerings, including aluminum doors and windows, shelving, and outdoor products such as awnings and sheds. Then, in 1954, the Chamberlain Group established its Garage Door Opener (GDO) business.

It wasn’t until 1959 that the GDO business began to take off, when Sears Roebuck, the largest US retailer at the time, approached Chamberlain to become Sear’s captive supplier of GDO products. Sears identified the garage door business as an emerging market, and through this strategic partnership, Chamberlain soon emerged as one of the largest GDO manufacturers in the country.

About fifteen years later, Dick Duchossois began accumulating stock in the publicly traded Chamberlain Group before ultimately proceeding with a takeover bid for the company in 1980. His purchase of Chamberlain represented one of the earliest leveraged buyouts (LBO) of the 1980s, before private equity became a household term, and the decade became marked by increasingly over-the-top LBO transactions. Dick saw an underperforming company with extraordinary growth potential, a thesis core to the private equity industry. It quickly became apparent that this transaction would be especially successful.

Since its establishment, Chamberlain’s GDO business operated as the primary supplier for one customer, Sears. While Sears targeted the “Do-It-Yourself” market, Chamberlain management identified an opportunity to expand into the professional installer market. Although obvious in hindsight, this decision was far from a sure bet then. So, in 1985, Chamberlain established its LiftMaster product line to service the professional installer “Do-It-For-Me” market. Today, the professional installer market not only dwarfs the “Do-It-Yourself” market but has also proven much more profitable.

Over the next decade, with its two primary GDO businesses, Chamberlain and LiftMaster, the Chamberlain Group grew to become one of the largest GDO suppliers in the world.

5. The Power of Intellectual Property

When discussing his success, Warren Buffet once declared:

As a leading GDO manufacturer, Chamberlain had already established itself as a significant capital entity. However, Duchossois sought to fortify its position by developing competitive advantages for a business its old CEO once described as “just a dumb motor on a stick.”

Chamberlain initiated the construction of its protective “moat” with an unexpected tool—its intellectual property portfolio. As garages became a mainstay in the American home, concerns arose about their security. Before 1993, garage access was controlled by something known as the DIP switch, which typically contained a numerical code for each garage. Crafty criminals quickly learned how to steal such codes and a national outcry led Chamberlain to seek a solution. Its then small engineering team developed a proprietary new technology, the rolling code, which prevented criminals from stealing an individual’s garage code. The Chamberlain team believed it was solving a narrow security problem but would soon realize how much more it actually accomplished.

Soon after developing the technology, Genie, the largest GDO supplier on the market, stole Chamberlain’s rolling code technology, leading to a lawsuit between the two companies. Ultimately, Chamberlain prevailed with a $20 million settlement and an epiphany about the power of intellectual property.

At the same time, a shift occurred in the US market. Garage doors were no longer considered a luxury product but became a necessity for the American consumer. Chamberlain’s GDO market share grew to about 70% of the market. As garages became commonplace, automakers realized the growing consumer demand for garage-access features in their cars. Chamberlain leveraged its immense market share to license its proprietary rolling code technology to a company named Prince, which provided automakers with pre-installed garage openers known as HomeLink. For each car installed with a HomeLink garage opener, Chamberlain received a royalty. By leveraging its intellectual property and huge market share, Chamberlain unlocked a new revenue stream with zero costs, a strategy that would prove successful for Chamberlain time and again.

Shortly after, Chamberlain began to expand its retail operations. For almost half a century, the only place a consumer could purchase a Chamberlain garage door was by visiting Sears. By the late 1990s, Sears was rapidly declining, and special retailers such as Home Depot and Lowes were experiencing tremendous growth. Chamberlain again leveraged its immense market share to renegotiate its contract with Sears to allow it to sell to other retailers. This move proved prescient for Chamberlain to maintain its retail footprint when Sears filed for bankruptcy and shuttered many of its storefronts a short time later.

A. Investment in Brivo – Setting the Scene for Future Success

The Duchossois Group maintained a venture business, Duchossois Technology Partners, to invest in businesses on the periphery of its operating companies. In 2000, this venture arm invested in Brivo, a business focused on access solutions for home delivery.

Brivo developed an access box for home porches to secure packages that were delivered when no one was home to receive them. While this idea seems obvious in today’s same-day delivery and porch pirates age, it was an innovative concept in 2000. In fact, it was too novel for its time. Its product failed, and Brivo was forced to pivot or face failure. Instead of secure access boxes, Brivo instead focused on providing commercial door access over Wi-Fi. Duchossois’s experience with Brivo’s unattended home delivery and wi-fi enabled technology would help them navigate the market when Chamberlain faced similar challenges.

While Chamberlain expanded its retail operations to new specialty stores, it also doubled its intellectual property investment. Its engineering team developed the ability to open and close garage doors over Wi-Fi, perhaps drawing inspiration from Duchossois’s experience with Brivo. Chamberlain filled its burgeoning engineering team, traditionally filled with mechanical and electrical engineers, with software engineers. Today, the Chamberlain Group has 424 active patents, whereas Ironclad, another billion-dollar technology company discussed in week 8, has only 1.

Once again, what seems obvious in hindsight, Wi-fi enabled access, was revolutionary at the time, especially before smartphones flooded the market. However, once the smartphone boom hit in the late 2000s, Chamberlain capitalized on its early investment in Wi-Fi-enabled technology by developing a smartphone application to remotely control and monitor garage door access. While this new offering received lots of positive press coverage, Chamberlain did not experience a corresponding increase in sales for new garage doors. A new challenge manifested itself: figuring out how to make this new technology more accessible to its current installed base and identify additional services its technology could provide.

B. Entering the Smart Economy – Smart Hub and Remote Access

Chamberlain’s engineering team responded to this challenge by developing a product known as Smart Hub to retrofit any garage opener, not just Chamberlain products, with Wi-Fi capabilities. For just $50, any homeowner could modernize his or her garage door, massively expanding the addressable market that could be served by Chamberlain’s Wi-Fi technology services.

Concurrently, Chamberlain expanded its technology offerings to include garage video monitoring and unattended package delivery. Consumers became attracted to the technology so they could remotely monitor their homes’ security and, possibly, the late-night movements of any children sneaking out. Still, the unattended package delivery service became the game-changing offering.

Unattended package delivery has been a constant problem for logistics companies and retailers, such as Amazon, who need to replace stolen items or incur the additional expense of conducting multiple deliveries when nobody is home. Thus, unattended home delivery is not just a consumer issuer but is just as much about solving the problem for suppliers and boosting their bottom lines.

Amazon reacted very favorably to this new technology, striking an agreement to pay Chamberlain for each unattended delivery made through remote garage access, and promote it through its notably large platform. Like its experience with its rolling code, Chamberlain found a way to grow its revenue streams by leveraging its intellectual property and market penetration at very little cost. It constructed its own moat and leveraged strategic partners to widen it at an increasingly rapid pace.

6. The Sale of Chamberlain

Since 1999, the Duchossois family began to reshape its portfolio by occasionally selling off various operating companies. However, these sales began to represent a strategic shift from an operating company to an investment company when it established DCM to manage the proceeds of these sales. Despite Chamberlain’s tremendous growth, the family thought the transition from a controlling operator towards passive investments was the best long term approach. Various other factors also influenced the family’s thinking, including potential tax changes, a friendly economic environment with low interest rates, and recent tailwinds to the business from its partnership with Amazon.

After the 2020 election, in which Joe Biden was elected president, Duchossois began seriously considering the sale of Chamberlain. After winning, Biden announced plans to increase the capital gains tax rate from 20% to as high as 39%. Darla Mercado, Wealthy investors may be in for a capital gains tax hike. Here’s how they’ll manage, CNBC, May 4, 2021, https://www.cnbc.com/2021/05/04/biden-capital-gains-tax-increase-proposed-how-to-save-on-taxes.html. Such a change to the tax law could be very costly to Duchossois, representing nearly a billion dollars of lost revenue, considering the low tax basis associated with Chamberlain. Additionally, the economic climate could not have been more inviting. Company multiples, a common method to value businesses based on their EBITDA, were higher than ever, and low interest rates meant that debt was readily available for potential purchasers.

Finally, to cap everything off, Chamberlain’s partnership with Amazon, utilizing its remote technology, demonstrated proof of concept, and created a springboard for even greater market penetration. Although revenue from its new technology services business was still relatively low—only about $8 million in 2021—there was enough momentum that the Duchossois family decided the time was right to find a buyer.

A. Finding the Right Buyer

Duchossois began the sale process initially focused on finding a strategic buyer that could realize synergies from the potential business combination. It narrowly tailored the sale process, bringing in twelve strategics and four financial buyers (i.e., primarily private equity) to test the market.

The prospect of a financial buyer emerging successful seemed unlikely, given the synergies strategics could realize. However, the financial buyers were brought on to help drive the process and, as Mike Flannery put it, “keep the strategics honest.” The strategics Duchossois particularly focused on were technology companies that would be willing to pay a technology premium for Chamberlain’s rapidly expanding digital platform, myQ.

Initially, Amazon was targeted as a potential buyer, given the companies’ partnership, Amazon’s purchase of Ring in 2018, and obvious synergies with one another. However, Amazon, and eventually the other strategic technology companies that participated in the sale, viewed Chamberlain as too much of a physical asset company, operating outside of the traditional technology models. While these companies raved about the emerging technology platform, the price tag would prove very expensive, especially for a company whose revenue was still primarily driven by its industrial business. Thus, marketing Chamberlain as more than a brick-and-mortar company became especially important so the family could realize a premium from its technology services platform.

B. Marketing the Company

When Duchossois brought Chamberlain to the market, it positioned Chamberlain as an access control company rather than a traditional OEM. With over 50 million households, 150 million cars, 50,000 residential communities, and 200,000 commercial facilities, the technology was well positioned to be taken to the next level and grow additional revenue streams.

The install base not only provided millions of potential services users but created a network of access control throughout almost all points of day-to-day life. Chamberlain marketed its myQ platform as an ecosystem that provides users with knowledge and control of every access point in the home and could be expanded to commercial facilities as well.

Chamberlain was positioned as an emerging technology platform protected by patents that produced hardware. While Nest and Ring may have been the most familiar home access products, myQ actually experienced the fastest growth of the three and was primed for the fastest forecasted growth, considering Chamberlain’s extensive installed base and products such as Smart Hub.

Today, in 2023, myQ recently passed 10 million users and shows no sign of slowing down. With new technology continuing to revolutionize many traditional markets, Chamberlain positioned myQ as the nexus that could connect the world through its access point solutions. By this point, Duchossois was saying this is no longer your parents’ “dumb motor on a stick” but something much greater.

Aside from positioning Chamberlain as a smart access control business, the Duchossois Group highlighted other key differentiators, including its strong intellectual property portfolio, high-quality manufacturing, recent product enhancement, and its very strong distribution network. From 2000 to 2021, Chamberlain grew its engineering team from 40 to over 450 engineers and has more than 424 US patents. Its focus on developing its intellectual property portfolio paid dividends for the company and transformed it from a heavy industrial company to a knowledge-based one. Chamberlain’s investment in its myQ products and services showed an ability to rapidly innovate and utilize existing technology at a fraction of the traditional cost of such scaling efforts.

Yet, at its core, Chamberlain was still a manufacturing company. Its 2021 net sales was forecast at $1.4 billion, almost exclusively from the sale of hardware, primarily garage doors. Instead of letting this fact detract from the business’s valuation, Duchossois highlighted the company’s strong history and experience manufacturing high-quality products. Almost all of its manufacturing was done at a mega-facility in Mexico that experienced much lower turnover than traditional Mexican manufacturers. This reduced turnover created a culture able to churn out over 3.5 million garage doors per year with superior quality than most of its competitors. At the time of its sale, Chamberlain had been building GDOs for almost 70 years, and although this brick-and-mortar presence was viewed as a negative by some, Duchossois painted its experience with extensive operations as a positive because no one else had as much institutional knowledge when it came to the GDO business.

Similarly, Chamberlain had the most built-up GDO distribution network in the market. It maintained strong relationships with traditional retailers such as Sears, Home Depot, and Lowes. Its dealer/installer network was considered best-in-class and offered over 20,000 distribution points. This strong distribution network was only further bolstered by the digital partnerships Chamberlain continued to build through its myQ platform. By positioning itself as the first choice for physical hardware and digital access control, Chamberlain further differentiated itself as a value proposition.

Finally, Chamberlain demonstrated its immense growth potential in various sectors such as residential, automotive, and commercial. It showed prospective purchasers the platform’s power—increasing its user base in one sector means a higher likelihood of adoption in other sectors because of how myQ’s interconnected ecosystem operates.

For instance, greater automotive adoption means more residential communities and commercial garages are incentivized to adopt the myQ platform as well. Commercial solutions likely promise to be the most lucrative, yet today only make up a small fraction of myQ users, showing the massive potential growth that the product holds. By demonstrating these various differentiators and growth opportunities, Chamberlain positioned itself as more than a traditional OEM to prospective buyers.

7. Negotiating the Deal Terms

After beginning the sale process, the technology strategics initially sought dropped out due to Chamberlain’s heavy physical asset footprint. Four strategics, primarily conglomerates, and four financial buyers remained as potential buyers. Soon, Blackstone emerged as a unique option, a strategic financial buyer. Because of its size, Blackstone has one of the world’s largest real estate holdings and distribution networks. Although a financial buyer initially seemed like a long shot, the potential synergies that Blackstone offered meant that the private equity firm thought of itself—and thus bid— as a strategic rather than a financial buyer. 

Furthermore, Blackstone viewed the investment with a long-term outlook, fifteen years plus, rather than the traditional 3-5-year holds that private equity is most well known for. See Blackstone Announcement on “Long Term” Investment. As family offices have emerged as competitors to traditional private equity firms in recent years, sellers have been particularly attracted to the patient capital that many family offices offer. Instead of pursuing short-term strategies intended to increase returns immediately, at the expense of long-term value creation, family offices are willing to invest over a long time horizon to maximize value. To compete, some private equity firms, such as Blackstone, have created long-term funds intended to operate over fifteen to twenty years and pursue similar long-term strategies. Nevertheless, key issues still needed to be addressed to complete the transaction before any potential tax hike was instituted.

Although Duchossois expected an aggressive, sharp-elbow approach from Blackstone, its leaders were pleasantly surprised at the cordial demeanor and decency that the Blackstone team brought. Almost immediately, Blackstone showed a willingness to engage in frank discussions on a shortened timeline for a deal of this size. The process involved negotiations around various considerations, including financial terms, tax implications, patent disputes, financing arrangements, employee retention, and the family’s continued involvement in the business. On top of everything, Blackstone had only three weeks to complete their due diligence and close the deal.

Two issues in particular threatened to thwart the transaction. First, Overhead Door Corporation, the owner of Genie, whom Chamberlain had successfully sued for patent infringement related to its rolling code, sought its revenge and sued Chamberlain, asserting Chamberlain’s improper use of a Genie patent. If successful, this lawsuit could have completely shut down operations at Chamberlain’s Mexican manufacturing facility, potentially for months, while Chamberlain redesigned its product. Ultimately, however, Chamberlain and Overhead Door agreed to a global settlement of all issues. Secondly, during negotiations with Blackstone, Chamberlain’s CEO announced she would be stepping down. Although either one of these issues could have prevented the deal from moving forward, Duchossois’s candor and transparency coupled with its willingness to return a meaningful equity position engendered trust with the Blackstone team.

Just as Bob Meltzer (from Week 3) rolled over his equity in VisaNow through a series of private equity transactions, Duchossois believed that it could maximize returns by maintaining a 15% stake in the business and trusting Blackstone to follow through on its value creation strategy. Blackstone also benefited from this arrangement—by allowing Duchossois to maintain a stake, it ensured that the institutional knowledge that the leaders of Duchossois accumulated over their decades-long career would not be lost. Despite the CEO resigning, most of Chamberlain’s management group agreed to stay on and bought into the transaction, providing Blackstone with the confidence needed to close the deal. Unlike some potential strategic purchasers, Blackstone did not have the same human capital and relied on the management team’s continuing stewardship.

Ultimately, the parties agreed on a purchase price of approximately $5 billion, reflecting a 17x multiple of EBITDA, with Blackstone financing $2.6 billion from the debt market. With the federal funds interest rate close to 0%, in an effort to combat the effects of the Covid-19 pandemic, Blackstone raised significantly more debt than would be possible in today’s economic environment, with the federal funds rate exceeding 5%. Luckily, no serious antitrust issues arose, allowing the companies to close the transaction quickly. The key terms can be seen below:

Blackstone, confident in its long-term strategy for the company, remained patient throughout the process. Mike Flannery took a board position, overseeing the new entity, and the parties are very excited about what the future holds for this knowledge-based industrial platform.

Conclusion: A Long Career as a Trusted Advisor

Mike Flannery’s relationship with the Duchossois family and their senior leaders opened doors that never would have been available to him otherwise. Mike jokes that he’s held several roles that he was severely unqualified for, but the truth is that once Mike proved himself, he was tasked with taking on greater and greater responsibility and, time and again, rose to the challenge.

By proving himself indispensable and building strong relationships, Mike has had a storied career. His roles include time as a deal lawyer for the family office and a Fortune 500 company, CEO of the largest freight car producer in the world, CFO of The Duchossois Group, and eventually CEO of their new family office. He is the quintessential trusted advisor that Dwight Drake wrote about in his book, Business Planning: Closely Held Enterprises, and we can learn a great deal about the intersection of law and business by examining his tremendous career.