Episode Transcript
[00:00:00] Speaker A: Welcome to the Independence by Design podcast where we discuss what it means to be a business owner and ways to get unstuck from the day to day so we can design a business that gives us a life of independence, Bud. Happy Friday.
[00:00:18] Speaker B: Same you Brian. Thanks.
[00:00:20] Speaker A: I'm excited to have you on this call. I got the introduction from you or to you from my dear friend Dave Deal from Perry Capital Advisors.
[00:00:31] Speaker B: Right.
[00:00:31] Speaker A: And how he framed you up. And I'll let you like I, I was just really excited because of why he refers people over to you. Why don't you just give everybody listen in just a little quick little story arc because I, there's plenty of stuff that I, I'm going to where you can guide us through of what I'm interested in. But your investment banker, how'd you get here?
[00:00:50] Speaker B: Right. Well, first, thanks. Thanks for having me, Ryan. Really nice to be. Nice to be on with you.
[00:00:55] Speaker A: Yeah.
[00:00:55] Speaker B: So boy, long story. I'll just try to give you the Cliff Notes. Started as a runner on the board of trade, did this, did a series seven, went back, this is in Chicago, trading options on the cboe.
Did that for about two or three years. Then there was a crash.
And I don't know if you're familiar with options trading, but you know, the really, you know, if you're in the pits, there needs to be paper flow to, you know, make a living.
[00:01:32] Speaker A: The oxygen evaporated. What, what crash was it that would have been.
[00:01:36] Speaker B: You're going to date me now? That was 87.
[00:01:38] Speaker A: Is it the saving ones?
[00:01:42] Speaker B: Yeah, I think so. I think that was it. Yeah.
Right.
So yeah, 87. Then you know, paper dried up. And so six months later, you know, I'm looking at these other traders going, boy, this is, you know, what are we going to do? Okay, what's next? Turns out I, you know, my father in law had just opened a business brokerage in Florida and I thought to myself, well, that sounds interesting. He said, why don't you come down?
You know, Bill was an interesting guy. His background was metallurgy. Worked for IBM for 10 years, then became a, a CPA. The guy was just incredible. And still is. He's still with us. But so learn business brokers doing just Main Street, Main street stuff. Ryan, that was, you know, early 90s.
[00:02:33] Speaker A: And then did he hang a shingle or did he like, was he with a franchise or was he just doing was his own?
No way.
[00:02:41] Speaker B: Just hung a shingle, huh. So yeah, learn the, the Main street stuff from him, you know, because I really, you know, I had Some, you know, banking background and you know, I just, but you know, his accounting background really helped me.
[00:02:58] Speaker A: What was it? The, the contrasting Wall street options trading compared to like up and down the street businesses. Like, what was that experience like night, night and day.
[00:03:13] Speaker B: It was, you know, literally, you know, buyers coming to the closing table with bags of, you know, green money
[00:03:22] Speaker A: versus,
[00:03:24] Speaker B: versus, you know, today's bank wires and
[00:03:26] Speaker A: just all over the point and even on the, like we talk about in the bullpen, like of all the money going back and forth in options compared to like it's a ongoing monthly close with a real business that has cash flow constraints and begs money.
[00:03:41] Speaker B: Yeah, it was, it was a trip. Then my family called. So my dad had, you know, my family, my family, I come from a manufacturing background.
Grandfather, dad, dad, this is early 90s now, burned out and said, hey know I need your help.
Come back to Chicago. Let's you know, you and your brother can run this, run this company. And did that for 10 years and then left there and went back into lower middle market M and A with a, A kind of a larger group, worked with them for seven or eight years and then hung out, you know, hung my own Shingle in 2009.
Yeah.
[00:04:26] Speaker A: What so fascinating because when I first met you, I didn't know that you actually had business brokerage experience even before the family business. Yeah, lots of different parts of that story arc that I'm interested in pulling the thread on more bud.
But before we do, I think framing up what you're doing now is like worthwhile because of how unique I call, I call it the like the lower middle market total. Like, you know, it's a gaping hole that actually is not service because of the difference between brokers, investment bankers and then where you play and why Dave Deal prefers you people and why. I'm also interested in our collaboration too. So why this space and maybe like frame up what you're doing compared to investment bankers. I'm sorry, compared to brokers versus what you're doing now. And like why would someone like Prairie refer you people?
[00:05:19] Speaker B: Yeah, yeah. Well, you know, look, it's it, you know, you do anything long enough, you meet people and you know, get a reputation.
And so I'm lucky enough to have done that with certain guys like Dave and others. So it's, it's nice referral business is what we're all looking for. You know, early in my career, you know, you're banging phones and you know, really it's, it's kind of like business development, you know, but so now I have the luxury of, of getting referrals and, and you know, the market I'm in is, yeah, I, you know, I'm, I'm flying under the radar of the big banks. And you're right, those, this kind of the slot that I'm in is you know, underserved.
It is served but not always well. So what I try to do and, and you know, with my background having been in several different businesses, been in small manufacturing, you know, I have coming up, you know, kind of a penchant for these guys, you know, I, I want to see them do well. I want to help them get their exit, you know and do what I can to position them for, for that.
[00:06:38] Speaker A: There's a lot of different ways you could do that though, bud. And what I think is fascinating is how you're choosing to do that and you know, and I, I can even frame it up for you to broker and brokerage firms compared to you're running a controlled auction and process. As a lower middle market investment banker, you want to just pull that thread a little bit and explain how your position in there, like how you're, like how you actually go to market. Because a lot of different ways people could be help, you know, I agree with you on that mission. A lot of different ways people choose to help owners in that mission, how they choose to make money. But you've chosen a specific service offering that I think is unique, which is why I'm interested in our collaboration and I think why Dave refers you people because you're not just a brokerage firm that slaps people onto a website in hopes that there's a bunch of buyers. Like you're actually running a process.
[00:07:26] Speaker B: Right? Yeah, well, look, it's different for any, you know, each client, you know, you have to think about, you know, where you're going to go with, with, with the auction, you know, some, some clients, you know, in most, I'd say in 90% of the cases, Brian, I am, you know, I, I, I do use the bulletin board websites, you know, but in collaboration with just having been around, you know, so I, I understand.
You know, I get, you know, I probably get a dozen emails a day from, from the PE groups, you know, so I'm in touch with those guys. They aren't my primary focus but if they're, you know, if they're, if I know about their criteria, I will talk to them if they've got a portfolio company. So they're not really, you know, those guys are constrained. Of course, you know, the financial Type buyers have constraints.
My clients are typically going to be an add on.
Most of my clients will be not a platform. It's going to be a little different than the big banks.
[00:08:36] Speaker A: Let me double click on that bud, because.
[00:08:37] Speaker B: Sure.
[00:08:39] Speaker A: This is my observation from the marketplace. I'm curious if this is true in your world or not.
If someone like Prairie is hovering at the 4 or 5 million in EBITDA and above.
I think the no man's zone is like 1 million to 3 million in normalized Ebit. But to where like it's my definition, like that is a meaningful business. Like that is an actual asset that is like the backbone of America. And the fact that unless someone stumbles across, someone like you or I've got, you know, a couple other people that I've stumbled across, it's not many but it's like two or three who have, who are running processes versus like throwing it on a brokerage firm. Like the difference between selling a two million dollar laundromat and a 80 employee manufacturing firm that does 20 million in revenue is a different thing. Right. And like two minutes.
So what I see is like the no man's land is that 1 to 3 million in normalized EBITDA where then because of the math and how the debt service and all that stuff works, it becomes back to your bull time conversation. It makes sense why that size becomes more of the bolt on because it's either strategic buyers or a PE firm that has you know, a strategic platform because the math and the way the math works. But like you get more into like the 4 and 5 that becomes more platform ready because of the resources that are available. Is that a, what do you think about that? Kind of so.
[00:10:05] Speaker B: Well, you know, the guys that are, you know, the companies that are 3 to 5 and EBITDA, you know they typically have management in place.
You know, they're candidates for, for a platform there. You know, it's just less risky in the, especially the financial buyer's mind where you know, there's management in place and, and the business, the business does not rely on the seller as much as the smaller companies in the, in the 1, you know, 1 to 3 million EBITDA.
I mean I, yeah, know you can, you can argue that like I, I tend to agree with you. You know a million five to two million five in EBITDA is a pretty nice business. I, I don't feel like we're, we're slumming in that slot. You know that's a, that's a great business and A lot of. In a lot of cases, you know, the.
The financial guys with the platform that they don't really, you know, they'll. They'll do a bolt on and go lower than that.
In some cases, much lower, you know, even less than a million in ebitda. So.
Yeah, so I guess to get back to your question, I, you know, my clients, the process I run for them, it's. It's really not much different than the bigger, you know, platform size companies. It's. It's really pretty similar.
[00:11:28] Speaker A: That was where, like, one of my clients, who, you know, me and Dave, or Dave referred me Nora, I'm, like, having some conversations. That's how you and I stumbled across each other.
One of the things that I was skeptical on was, and I see a lot of is like, oh, there's, let's say, Bud with his five contacts from his old industry, and he's trying to make a commission, like, because I see that all day long. Right. And like, where. It's like in the. And the owner might not necessarily know that. So I'm really concerned about what's the process going through, start to finish. You know what I mean? Like, is it. Are we, you know, is it just the websites or is it just the Rolodex, or is it a combination of both? But you walk me through, like, yeah, it's a legit process. Like, okay. Because we want to increase the odds that we get what we want for the price and the terms.
And you do that through, you know, a controlled auction. And so you walk me through that. I was like, holy cow. That's awesome that you're doing that. Because that's where like, you doing this with yours, with your. I mean, you and your handful, couple of people, like, is a. It's hard to find. But that's, I guess, where I'm going with this. Yeah, it's very difficult to find, to find that service and that quality in this space.
[00:12:36] Speaker B: Yeah, I, you know, how do I. How do I put it? You know, it's. I. I guess I would say, yeah, the, the process, it's. It's a combination.
My Rolodex bulletin board sites, and there's some good ones.
And then, you know, having.
I've got my own database. Haven't done this long enough. So I've got databases of, you know, dozens of different industries. So I go back to that. But then I have other outside resources that I use. So, yeah, I put together.
[00:13:13] Speaker A: Normal bankers have like, pitch deck and stuff like that too.
[00:13:15] Speaker B: Right.
[00:13:16] Speaker A: I don't Know if that was one of the two.
[00:13:17] Speaker B: Like, there's so many.
[00:13:18] Speaker A: Sure.
[00:13:19] Speaker B: Yeah. So, you know, I'm. I'm using PitchBook.
[00:13:22] Speaker A: Oh, PitchBook, sorry.
[00:13:23] Speaker B: Yeah, so that. Yeah, that's one of the resources. And. Yeah, then we'll. We'll put together a target list.
Usually it's, you know, a couple hundred targets. I'll take that to the seller. Hey, you know, Mr. Seller. Anybody here you do not want me to contact, you know, and then collaborate with them a little bit? Hey, you know, anybody you don't see on the list that I should be contacting? Right, yeah. And then, so. And then it's really just, you know, using a shotgun approach. Ryan.
We're trying to, you know, we're trying to get multiple offers. Really. You, you know, you hire a guy like me to. To run that process so that. Yeah, we're putting the seller in a good position.
Yeah.
[00:14:10] Speaker A: Doing typical IOI loi due diligence. That let me know we don't have to go into the whole detail, because I've done a lot of podcasts about that. But I just think it. What I wanted to highlight for the listeners is that the process matters and how you're going about the process matters. It's something they should ask for then, like the, you know, whether they trust the person, the person's expertise, and then the. The. The strategic advantage of understanding someone's industry, too. Walk me through what your thoughts are on how important it is to understand the industry and have industry exposure.
[00:14:48] Speaker B: Yeah, that's key. And, you know, we can certainly get into the weeds about that, but, you know, just having a database and using PitchBook is. That's only part of it. You know, you gotta.
You really need to put some thought into. Okay, who are the strategics. You know, certainly having industry experience is nice, but you really kind of, you know, Ryan, you probably know this. You want to go.
You know, the guys in the industry already, already are not necessarily the best buyers. You know, it's somebody that's. Somebody that's in an aligned industry that wants to be in. That. In. In your clients biz, you know, that really wants to be. That has the motivation to, hey, this would be a great add on where, you know, two plus two is like five or six. Right. So.
Yeah.
[00:15:40] Speaker A: Is there industries that you won't. Is there industries you won't touch?
[00:15:48] Speaker B: Yeah, I mean, I.
There's not many. You know, if. If there's. If the client has cash flow that I. I've turned down clients that have businesses where there's Green money revenue. You know, I kind of, I worry about. Because often they'll come to you and say, hey, you know, this is not really the whole picture. And I, I just, I'll stay away from those. Yeah.
And there's fairly large ones, you know, the guys that serve the convenience stores, you know, they may have, and you know they may have millions in revenue, you know, in some cases 100 million.
But the margins are thin and it's all cash, you know. So I tend to stay away from stuff like that.
[00:16:42] Speaker A: Yeah. What are some of the criteria for a smooth deal for you? Like what, like if you were to go look at. Maybe walk us through like one of the, like when you look back and like that was fun. Everybody got what they wanted. Like what are some of the criteria for success?
[00:16:58] Speaker B: You know, with a successful auction, you know you've got multiple bidders and the buyers understand that, that they're not the only buyer.
So they're held, you know, they're kept honest basically throughout the process. They know that they got to move and they have to move at a crisp pace.
Otherwise we're going to go to buyer B, you know.
And so if you can keep things moving where you know, you're not on day 180 trying to get a deal closed, you know, it's more like day 92.
I view that as a successful process. Yeah.
[00:17:47] Speaker A: What is a typical timeline for the clients you're working with?
Start to finish?
[00:17:53] Speaker B: Well, start to, I mean at from the time of engagement to closing average about eight, nine months.
You know because it takes a month or two to put the book together and then you know, several more standards. Yeah, yeah, yeah. A few weeks to then solicit offers. Right.
[00:18:18] Speaker A: Given the fact that you're working more on bolt ons and strategic fits, what is like a typical deal structure like percentages wise and I know it's all ranges but like, of like cash and closing earn outs, rolled equity. Like what kind of variables do you see and what kind of percentages and then follow up question is the reliance and how people look at the management team if you, if they're, if they're bolt on kind of strategic fit is part of that because what maybe the further clarification behind that question is like what is the correlation between the deal structure and the management team and if you kind of fall on some of my, if my question's clear.
[00:18:56] Speaker B: Yeah, well if I, I think I got it. I mean you know every deal is different but the bulk of them Ryan, are, are cash. Cash at closing Tom, we're seeing some structure, not a lot. The one I'm working on this week is 95% cash, 5% on a earn out. But the earnout is really makeable. It's not tied to, it's not tied to financial metrics. It's more tied to integration.
[00:19:34] Speaker A: So to make sure things go smoothly,
[00:19:37] Speaker B: there's a couple integration milestones. You know, seller stays for six months while we integrate to our CRM and then move to a, you know, fold it into our loc, other location. Got it.
[00:19:53] Speaker A: So is that because of the bolt on strategic buyer profile that you're.
[00:19:59] Speaker B: That one, that one's a bolt on. Yeah.
[00:20:02] Speaker A: Well, just the fact that you say cash at close because let me give you some context, bud. You know, when we sold our family business, it was mainly cash close and there was some sellers, seller's note. But like the nature of the deal came with a lot of strategic synergies that tore my heart apart. So like more cash at closing, higher purchase price, rent, negative ramification on my, what I liked about the business and running it and the culture and the people and stuff. So like kind of the whole. My omo for over a decade now is if we build a cash flowing company, then we have choices between ESOPs, internal transfer, third party, PE firm, whatever. But if we're going straight to like a third party, it becomes more about the strategic fit, cost synergies increases, cash at closing could have negative ramifications on cultural stuff.
But like that's where I'm trying to like, you know, the, the philosophy I've had is build a cash flow business that solves all these problems. Then you have negotiation, power and choice. But if you specifically go after like a bolt on or a strategic fit, the chance of higher cash at closing, it goes through the roof. And just based on what I'm hearing from you, is that because a lot of your clients, when they're going out that, that route with you, it's mainly bolt on strategic. I mean, how does that, is that, is that a true statement or not?
[00:21:19] Speaker B: I think it's a true statement. Yeah. You know, often, you know, the buyers we're working with, they're just writing a check from the balance sheet. You know, they're not, not using banks.
[00:21:33] Speaker A: Is it because they're entities, Bud, whether when you say from the balance sheet because it's a company buying it, not necessarily a fund or a person or like it's a, or an esop, it's a company writing a check, right? Yeah. Yep.
[00:21:47] Speaker B: You know, in some Cases, there's structure, but often it depends on the seller, too. And what, you know, it's hard to answer, Ryan, because each. Each seller has a different, you know, goal.
Some don't really mind the structure. I had one this week where we had two. Two bidders that, you know, were finalists. One was 90% cash, and the other one was a little higher number, but only 50% cash. And, you know, my seller didn't really mind because of tax reasons, the note.
[00:22:29] Speaker A: So what gave him confidence in that Was it. Was there people being treated differently? Did they see the buyer differently?
[00:22:38] Speaker B: They saw the buyer, yeah, they saw the buyer differently.
There's a relationship there. So it's a friendly competitor, so to speak.
[00:22:50] Speaker A: Yeah, no, this is all very helpful because, like, the listeners have been hearing me talk about deal structures, your desires, of goals with legacy and culture and all that for a long time. So just continuing to reiterate these decision trees, I think are super helpful for people.
[00:23:04] Speaker B: Yeah.
Your sellers are like, what's a rollover?
[00:23:08] Speaker A: You know?
[00:23:10] Speaker B: Yeah. I mean.
[00:23:11] Speaker A: Yep.
How many. How many people do you come across that actually know that?
[00:23:19] Speaker B: Very few.
[00:23:21] Speaker A: That's so interesting. I was on a call.
I can't remember.
[00:23:25] Speaker B: Maybe it's just the term, you know, I know, but.
[00:23:28] Speaker A: But this is. I mean, it's literally what. I mean, I don't know what episode this will be with you, and I.
[00:23:32] Speaker B: I'm still learning the jargon.
[00:23:35] Speaker A: Well, and you've been doing this for almost 20 years. And, like, I mean, this podcast, I don't know what number this will be, but it'll be damn near close to 500, bud. So I've been doing this for over 10 years.
[00:23:44] Speaker B: Holy smoke.
[00:23:45] Speaker A: Yeah. And. And so it's not uncommon because that's part of my mission. Like, hey, like, this is all jargon for people. Like, I believe that the owners and sellers understand the concepts. They just get over acronyms. You know, they get to death of all this other.
[00:23:59] Speaker B: You know. Yes.
[00:24:00] Speaker A: It's like, okay, tell me what that is. Oh, I get it. I think one of the big missing components in the marketplace, but has been a deep, true understanding of how valuations work from, like, the discounted cash flow, the market multiples, and all that kind of stuff, which I spent a lot of time on. But I think it's fascinating just hearing you and different people in your space. What. What's going on? Like, what's the state of the market? I mean, like, honestly, like.
Because, like, I can teach. Like, I was on a call this morning, and we're Talking about we got the five year forecast, three statement model, we could see the distributions and then the like the five year valuation targets. We can see all this and I met, we measure this all every month, every quarter.
But that's the cash flow valuation. It's not what's going on in the market.
Which could be different. Right. Because you could have a higher strategic premium because of all the reasons. And so any, any like curious on what the gossip is in the spaces that you're playing right now, are there? How are people viewing valuations like other industries or sectors or narratives that are worth noting right now?
[00:24:58] Speaker B: Well, manufacturing and distribution, you know, always pretty good, Ryan, but particularly the last, you know, 12 to 18 months.
Part of that I think is the view that you know, we're, we're going, you know, on a ma. I mean this is going to sound.
[00:25:20] Speaker A: Because onoring, I'm sorry, is all the onshoring from the China trade wars and stuff. Yeah, yeah.
[00:25:29] Speaker B: So manufacturing in particular is pretty good right now and I think that's part, a good part of that. Yeah, distribution is always nice because it's, you know, in certain sectors, good cash flow and not a lot of employees. You know, it's, it's viewed certain.
But then you know, I mean there's also, you know, some service businesses that are really high demand too, but I think in general. Yeah.
[00:25:56] Speaker A: What kind of service business are you seeing that are in high demand?
[00:26:01] Speaker B: Well, you know, I've been involved in a couple of, you know, anything that has recurring revenue due to like fire safety is, you know, I've had three of those recently.
[00:26:12] Speaker A: Interesting.
[00:26:14] Speaker B: You know, customers really don't have much choice in the matter when it comes to getting their stuff checked out. And you know, I would call any, anything that has, you know, requirements that are mandated like that.
[00:26:30] Speaker A: Yeah, love it. Your experience with your family business, what were some of the toughest challenges that you encountered?
Oh, you're smiling for the people that can't see if you're, they're listening in which, which means you lived it.
[00:26:50] Speaker B: Yeah, I, I, we, you know, family business, it's tough. You know, it's, it's all right. You know, it's the whole family legacy and then, you know, especially if there's siblings involved in which my case there was.
Who's right. I, you know, you can't really look some, everybody has a different view of where things should go and then when, you know, you're, when you're young and, and you know, you have good Runway, you know, some people want to Grow it. Other people are happy, you know where it's at, who's. Who's right. I don't know. You know, but for my, for my case, you know, I wanted to grow the business and know when we were butting heads with family members, you know, I decided to. I should probably move on to something else.
Tough to do. Tough. Really tough to do because you know, again, it's the family.
Yeah. Family business.
[00:28:01] Speaker A: The.
It's interesting the choice of words that you use because you say who's right. It's interesting because like the way that I've framed up my program but is when we have a company and we're for partners with someone, especially because if it's a legal entity where you have to have distributions in the exact proportion to your ownership, more distributions now means less wealth tomorrow because they'll evaluate because you're suffocating the valuation. So the way I try to frame this up is like I don't care what you do, but there are mathematical constraints.
So like me, my dad, we're so close and we can always. Him and I can talk about this. Like he wanted like 50k a month in distributions after taxes. I wanted to scale and grow.
Like it just became this constant battle of distributions versus reinvestment and there was no framework to make decisions again against what's the trade offs. So it becomes that like those odds of.
[00:28:57] Speaker B: Very similar to my.
[00:28:59] Speaker A: Different goals.
[00:29:00] Speaker B: Yeah.
[00:29:00] Speaker A: And, and it's not that someone's right or wrong, it's just different goals. And I like we're like somewhat. If we're running a three legged race and we're tied together, you want to run and I want to crawl. That's a problem, right?
What, what is some of the challenges that you guys had? Like, I mean, what were. Was it because you guys. I mean was it. What'd you say you were. How long? 10 years.
You were working together.
[00:29:22] Speaker B: Yeah. Yeah.
[00:29:23] Speaker A: Was there like, what was the story arc? Was it always kind of at odds or did you guys learn that over time or how did that journey go?
[00:29:34] Speaker B: You know, I, I don't want to say like we were really, you know, in trench warfare battle. You know, it was really just. I think over time we grew to understand that, you know, our visions were different. So.
Yeah, I, Yeah.
[00:29:56] Speaker A: When you have people that come to you and they have partners and family involved, what are some of the questions you want them to answer or how do you assess whether you're willing to take them on or not? Like how do you vet that out?
[00:30:14] Speaker B: Yeah, well, I so before I take any assignment. Yeah. I need to, I need to flush that out.
Okay, how many partners. Okay. Are the partners.
All right, Is everybody on board, you know, who wants to stay, who wants to go?
Right. You know, and then try to build a consensus on, okay, what everybody wants and then best path.
And so that's usually the process. It's not always.
[00:30:44] Speaker A: How many people, how many people are on the same page when they come to you, if they got partners.
[00:30:52] Speaker B: Trying to think if I've ever had a deal that blew up because the partners.
[00:30:58] Speaker A: The fact that it's not at the top of your mind means it wasn't as traumatic if you had one.
[00:31:04] Speaker B: Yeah, I'm not coming up with one. I did have one where, you know, the son.
Parents. Parents wanted to sell. Son was in the business and son clearly didn't want to sell.
That's right. And then that deal fell apart because the sun.
Yeah.
Was not on board.
[00:31:26] Speaker A: What did they do?
How did it fall?
[00:31:30] Speaker B: I would bring groups in to tour, and since the sun was kind of like coo, he would just, in so many words say, this company will never make it without me.
[00:31:45] Speaker A: You know, I'm sorry, I'm laughing because, like, when we sold, I was 27. I was not very pumped about the whole situation. And like, I, I was on board with the last, the last round because it was like, sell, not sell on, sell for like two years. But it was exhausting when I was running the business at the, in the, the management level. And I just like. Because I've had plenty of experiences with companies like this, and I'm like, that person that's run the business has a lot of say. And I, like, I remember at any point, I'm like, I could sabotage this whole thing.
Like, and all the animal instincts are like, do it, do it. You're just like, no, it's for the family.
[00:32:22] Speaker B: Yeah, but it's.
[00:32:23] Speaker A: What does that do to the buyers when, like, like what, like, what are the buyers thinking? Like, put the buyer's lens on for a second for the, for the listeners.
[00:32:30] Speaker B: Like, okay, some buyers, some we had, we had some offers on it. Some buyers were. Were, you know, so motivated that they, they felt like they could overcome it. Ryan.
But ultimately we, we never made it through diligence.
We did have a. Yeah, we did have this. I'm. This is going back, like, almost 15 years now.
That's right. I had to, I had to have a heart to heart with mom and dad after a few tours and just say, yeah, look, this isn't Going to work.
And then subsequent to that we did have an offer, but it never, you know, family wasn't on board.
Yeah,
[00:33:16] Speaker A: that's. Yeah. What are some of the, when you look back at what's your favorite deal? Like what? Like why was it, why was it your favorite deal and what was your favorite deal?
[00:33:27] Speaker B: Wow.
My favorite deal, probably one of the fire safety clients only because, you know, small business, you know, like 3 million in revenue and we ended up hooking up with a $5 billion publicly traded company and seller was ecstatic.
And anytime I can, you know, do that where the seller is just blowing
[00:34:03] Speaker A: me kisses, you know, you're an affirmation junkie like me.
[00:34:07] Speaker B: Yeah, yeah. You know, pays my fee with a hundred dollar bottle of whiskey. Yeah.
Yeah.
[00:34:19] Speaker A: That is a crazy combo of a $5 billion public company and a $3 million.
Like what happened there? Because usually would, they wouldn't. I mean they're probably, normally they're not even interested in a $3 million EBITDA business, let alone a 3 million revenue. Like how, why did you take on the company and how did you see that fit happening?
[00:34:38] Speaker B: Well, I took on the company because I knew that industry was hot and wasn't ever concerned about not being able to reach my sellers know, expectations.
Yeah, it surprised me too. But you know, you reach out to everybody in spite of, hey, you know, I mean, the call goes something like this, hey, you know, small business here, you know, get that out in front.
But if they're consolidating, I mean, some of those guys were just hoovering up even the small ones. So in that industry especially. Yeah.
[00:35:17] Speaker A: How many deals do you do a year and what is the criteria that you use to select people?
[00:35:27] Speaker B: Yeah, it's. Well, starting with criteria, you know, I don't take every assignment. I'm, I'm a generalist.
But I, I want to know that I want, it's, it's, some of, it's just gut.
Ryan, you know, when you, you meet somebody, I don't want to feel like, you know, I'm going to work on this for six, seven, sometimes 12 months.
You know, I, I want the seller to level with me and you know, not that I want to, you know, be his priest or pastor, but, you know, I want honesty and I don't want any surprises down the road.
So I can, you know, I've been having done this a while now. I can usually suss that out in the first meeting or two.
[00:36:28] Speaker A: Yeah.
[00:36:29] Speaker B: So I think that's really the most important thing to me.
What was the second part of that question, right.
[00:36:34] Speaker A: Just like the. Because you're not. What, you don't have like 50 employees or 60 employees, like Prairie. Right. I mean, it's you and like, and the, you know, the kind of the behind the scene, like the question was.
Yeah. How many transactions? Half a dozen transactions or something like that. Yeah.
[00:36:48] Speaker B: You know, it can, it can be zero and it can be.
[00:36:53] Speaker A: I don't mean to laugh. Sorry. I mean, because. Yeah, it doesn't work. Right. I mean like, you're in it with, you're in it with the sellers.
[00:36:59] Speaker B: Yeah. It ebbs and flows. It can be no transactions. It can be six or seven.
Let's see, 23, I had five, 24.
It's like three or four. 25 was off. And I think that was again part of the shift from, you know, demand from COVID geopolitical, you know. Yeah.
[00:37:27] Speaker A: And a lot of, A lot of, lot of demand, Covid and the free money and all that stuff. I mean, it is roller coaster, you
[00:37:33] Speaker B: know, is looking really good. So, you know, I don't know what the average might be three or four.
[00:37:38] Speaker A: You know, I think the intent behind this and like what anybody listening and I'm hoping that they get out of it is like when you're taking like what's, when you're taking on a deal, like, what's the probability of a deal getting closed under what expectations? And I think it's meaningful to understand what's the resources that are going to be applied. Because you wouldn't take on a deal if you didn't think you can close it based on the expectations. Yeah, and I think that that is a first pass because like, you know, the client that we're working with potentially together, it's like, hey, here's what I think I could get for it. Well, you're. You're not going to take something on that you don't think you can get that for, because then all of a sudden you're not. The deal doesn't go down. So like there's just this, like, you know, a couple of these gates to say, okay, what's the confidence level we have in this situation? And you're thinking about it from the eyes of can we get a deal done under what expectations? I think it's just helpful because there's also a lot of other firms out there that'll just sign a deal, get a retainer, and they're not as meaningfully on the hook, whether it's lower level associates or they just, you know, they're getting Paid off of the SIM pitch deck that they're putting together, whatever it might be. I just think it's important for the listeners to remember that.
[00:38:45] Speaker B: Sure.
Well, yeah, once, once I get past the, the first meeting and I feel good about things, you know, I'll, Yeah, that's the, the very. One of the first steps is, is giving my opinion of value and if the seller is not, you know, if he's in the same area code, because I, you know, I give a range. I have a fairly good idea, but I don't always know, you know, and hopefully, you know, what I try to do is give a conservative opinion because again, I, you know, I, you know, ultimately I don't get paid unless we have a transaction.
So I give a reasonable number.
The seller is, you know, and I, I'll, I'll tell the seller, look, this is a conservative number.
I, you know, I love your business.
Here's why. And often we're surprised on the upside.
[00:39:42] Speaker A: That's awesome.
[00:39:42] Speaker B: But here's, you know, here's a reasonable number I think we can, we can count on. What do you think?
How does that meet your expectations? And if he's in the same, you know, general vicinity. Yeah, I'll take the assignment. But again, I don't, you know, I turned one down today.
[00:40:01] Speaker A: What was the reasoning?
[00:40:03] Speaker B: Not profitable enough. You know, growth in revenue.
[00:40:07] Speaker A: But yeah, like, what is the, like the state and cleanliness of people's financials and forecasting and this. I'm just curious that you. Of what you said.
[00:40:16] Speaker B: It's getting better. You know, it's, it's not always perfect, but it is getting better over time. You know, I, I mean, this one I turned down today had beautiful monthlies in Excel, but just had an issue with cost. You know, the cost of goods went through the roof and just, that was not, you know, I.
[00:40:40] Speaker A: Really interesting. I literally just got done with a podcast with a couple of them on pricing and holding the margins.
So.
[00:40:45] Speaker B: Yeah, but I mean, to answer your question, yeah, it's the, it's, it's not.
You might be surprised. I mean, you know, I, Yes, I'm in the lower middle market.
Not everybody's as sophisticated as they could be. Not because, you know, I mean, they're.
A lot of these business owners are, you know, they're in the trenches every day and they're not really concentrating on the numbers, understandably, you know, so they rely on somebody else to do it. But more and more now are, you know, comparable financial statements, Excel, monthly spreadsheets. Yeah. So it's getting better over time.
[00:41:29] Speaker A: It's. It's interesting to hear you say that. Getting better over time. Cause, like, I mean, I've been, It's been a while to me to realize like, how, like what people are operating with or the lack thereof.
Because like when I. Then when I show like the financial model that I want people to have, it's a five year, three statement, totally interconnected model.
And like. Yeah, I mean, it's just your, your
[00:41:51] Speaker B: clients are, are gonna breeze through diligence. I mean, that's the worst.
[00:41:55] Speaker A: We should be telling everybody else what we want. That's like the intent. It's like if we're gonna go to, we're going like we're saying, like, here's what we want and why. And what the distributions are the working capital, the debt, the taxes. Here's literally how much you could pay and why. I mean like, we tell everybody what we want versus the other one.
[00:42:11] Speaker B: I expect you and I are, are preaching the same.
Yeah. I mean, there's often, I mean, clients, you know, will. I mean, ideally a client will come to me and you know, 18 to 24 months before going to market and here's, you know, here's what you can do.
Yeah. And cleaning up the books and having them in a presentable, you know, monthlies at a minimum, quarterlies, but comparables. And then Excel spreadsheets, customer concentrate. Yeah. So you and I are probably preaching the same thing. You know, do what you can to minimize the customer concentration.
You know, you probably are, you know, talking to clients every day about, you know, minimize your duties. You know, what can you.
How can you step away?
You know, can you go on vacation for three months and come back and not have a disaster? Yeah.
So, yeah.
[00:43:13] Speaker A: Make sure you still have company.
[00:43:15] Speaker B: Yeah.
[00:43:16] Speaker A: Anything that you're looking forward to with this year, like, I mean, anything that, that is.
You're keeping an eye on or is it just says you go. I mean, like I said, any industry or geopolitical. I mean, like, there's a lot of stuff going on. That's why I was saying that. But like, is there anything that you're paying attention to that might change your decision making?
[00:43:36] Speaker B: You know, I mean, I do worry about, you know, a few weeks ago I did have a buyer back off because of this thing in Iran, which kind of.
Yeah,
[00:43:51] Speaker A: yeah, yeah.
[00:43:52] Speaker B: I mean, he really, you know, I was surprised because he's, you know, I mean, it was a strategic.
Who.
He told me, you know, bud, we had it in. In December. We had the biggest backlog we ever had. And then all of a sudden in February, it started dropping off. And I'm thinking maybe this war is spooking people and so we're going to back away from our offer on one of my clients. So, you know, it's, it, some of it's just psychology, you know, market psychology. So I, I do worry about that.
You know, I don't dwell on it because there's not. It's out of our control, you know, and. Yeah, I mean, like that. There's stuff like that. Every. It seems like every six months something different. Right.
[00:44:38] Speaker A: So, only thing about this one is the straits closed. And it's 20% of the world's oil.
[00:44:43] Speaker B: Yeah.
[00:44:43] Speaker A: And then like 50% of the world's helium and sulfate and nitro nitrogen and urea. And it's still closed.
[00:44:50] Speaker B: Right?
[00:44:51] Speaker A: It's. Yeah.
[00:44:52] Speaker B: So that. That's it.
[00:44:54] Speaker A: Yeah. Me too. Yeah. Yeah, yeah.
Anything else that like we haven't talked about that would be worth bring up? Just kind of seeing if we can scan the horizon.
[00:45:06] Speaker B: I. You know. So St. Cloud, how close are you to good walleye fishing?
[00:45:13] Speaker A: Yeah. In Minnesota? Well, people that don't live in Minnesota would say that I'm very close. I go to Canada for good walleye fishing. You do? Yes, actually this weekend me and a bunch of my buddies are doing our prep for our flying fishing trip in August. So.
Yeah, we. I do the flying because. Because then I can stick my finger in the water and get a walleye every single time.
[00:45:38] Speaker B: Right.
[00:45:38] Speaker A: Yeah. I've been in Minnesota. I'm an hour from St.
[00:45:40] Speaker B: Cloud and so you're flying. Is that Eagle Lake? Where. Where are you going?
[00:45:46] Speaker A: No, we drive right. Right up north through International Falls. And then we get it. It's called Nester Falls. And then we get in a boat plan. We drive or we fly another 150 miles north.
So it's probably like that's an hour
[00:46:00] Speaker B: and a half in Winnipeg. What is it?
[00:46:03] Speaker A: No, it's Laris Lake.
It'd be straight up from Minnesota. Like straight up. So we drive six and a half, seven hours and we get in a plane and fly another hour and a half. Satellite phone, no one else around.
[00:46:15] Speaker B: Beautiful.
[00:46:17] Speaker A: Yeah. Yeah.
[00:46:19] Speaker B: You asked me what I'm looking forward to. That's. That's one thing I look forward to is. Yeah. My. My fall walleye fishing. Yeah.
[00:46:26] Speaker A: Where do you go?
[00:46:26] Speaker B: Yeah, you know, usually just northern Wisconsin up.
Nice a place there.
[00:46:34] Speaker A: Yeah, yeah. Some. I can't remember if someone that got out of private equity. So the person that we've been doing the. The outpost with.
They bought. So, like, this person that was like, probably more of our background, like, not just like a, you know, an actual outfitter, but like someone that, like, understands value and money and like, they all of a sudden, the new owners, I'm like, no way. Like, I wish I would have known that was for sale, because that is sweet. Like, they have. They got all the planes, they got the lake access. I mean, that. That's a. That's a second chapter kind of thing. That sounds like fun.
[00:47:05] Speaker B: Yeah. There you go.
[00:47:07] Speaker A: Where can people find you? What's the best place? Website? LinkedIn. How they get in touch with you?
[00:47:12] Speaker B: Yeah, well, I. Website's probably best. It's M and.
And the word and spelled out a Connect dot com.
[00:47:23] Speaker A: Awesome. We're put that in the show notes, bud. It has been a pleasure to have you on.
[00:47:29] Speaker B: Thank you, Ryan. I appreciate it.
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