Transaction Options: Variety Is The Spice of Dealmaking

 

Transcript:

00:01
welcome to transaction options
00:03
variety is the spice of deal making this
00:05
session is presented by gallagher and
00:07
cascade partners
00:08
let’s meet our panel first welcome mark
00:11
mccammon
00:12
co-founder and managing partner of
00:14
strength capital next meet jack lawless
00:17
ceo of bell tire welcome to jay
00:19
schreibman
00:20
area chairman from Michigan of Gallagher
00:22
and this session is moderated by Raj
00:25
Kothari
00:25
managing director of cascade partners
00:28
raj
00:29
virtual floor is yours
00:32
well thanks dustin and thanks to our
00:34
panelists for joining us today for the
00:35
conference really looking forward to a
00:37
great conversation
00:39
talking about how the the world of deals
00:41
is evolving and things that we can do to
00:43
prep
00:44
for transactions whether we’re buying or
00:46
selling
00:47
and just looking at some of the variety
00:49
of transactions as you guys all know
00:52
the market still remains robust there’s
00:54
nearly a billion
00:55
two of dry powder capital in just the
00:58
private equity world
01:00
waiting to be deployed in transaction
01:03
that along with another
01:05
quarter of a billion dollars of debt
01:06
capital is creating probably one of the
01:08
most robust
01:09
uh investment markets we’ve seen in
01:11
decades and with that is coming a lot of
01:14
flexibility and creativity
01:16
in deal structures interest and minority
01:19
deals
01:20
and a variety of other tools that are
01:21
available so today we get to hear from
01:24
an entrepreneur that sold their business
01:25
an entrepreneur that’s actively
01:27
acquiring businesses
01:28
and a private equity team that is
01:31
investing every day
01:32
so look forward to having this
01:33
conversation getting your insight and
01:35
learning about some of the new
01:36
opportunities some of the challenges
01:38
that you’ve all seen as you’ve looked at
01:41
and gotten transactions done
01:43
so jay let me start with you you know
01:46
you you obviously just went through a
01:48
significant transaction with lsg
01:50
and and partnering with a.g gallagher
01:53
you know what did you what what did you
01:55
to prepare for the transaction that
01:57
actually made a difference that you know
01:59
made a
01:59
difference and and what do you wish you
02:01
had done
02:02
to now that the deal is done that would
02:05
have helped you out through the
02:06
transaction process
02:08
uh russ thanks um it’s a great question
02:10
you know i
02:11
i’ve uh i’ve been as you know a buyer
02:14
and a
02:15
seller um and an advisor to many deals
02:19
um for for many years on the on the pe
02:21
side of the business and
02:22
um i thought i knew it all and i thought
02:25
i knew how to get ready for a
02:26
transaction but there are so many things
02:28
that you
02:29
just can’t possibly imagine as you go
02:32
through the process
02:33
we did all the standard stuff right so
02:35
we worked with ernst young we got the
02:37
quality of earnings in order the
02:38
finances in order
02:39
every little detail and understanding of
02:41
the company
02:42
um uh well documented for the process we
02:46
have the right bankers and
02:47
representation to tell our story
02:49
all those standard things but um what i
02:52
you know what did i do really right well
02:54
i did that right i think
02:56
we also paid a lot of attention to our
02:58
human capital and our team and making
03:00
sure that i had
03:01
forward-looking alignment for all of um
03:04
the human capital that made the company
03:06
what it is and
03:07
made sure they would all stay on board
03:09
we can certainly dig into that if you
03:10
want but
03:11
that’s a little different but a super
03:13
important thing to do
03:14
expensive but worth it um and uh and
03:18
what i wish i had done better is the old
03:20
shoemaker
03:21
has you know has no shoes story um and
03:24
being in the insurance risk management
03:26
business the biggest issues around
03:27
getting our deal closed
03:28
we’re managing to cut off the
03:30
liabilities
03:32
um and get the proper tail coverage in
03:34
place because deals are fluid mark will
03:36
tell you that jack will tell you that
03:38
right and when something switches maybe
03:40
from a stock purchase to an asset
03:41
purchase
03:42
the liability transitions and where
03:44
those things end up belonging
03:46
um if you’re not properly prepared for
03:48
that you can derail a deal and
03:50
we’ll tell you frankly ours took a lot
03:53
longer than it should have because
03:55
i wasn’t prepared so in particular jane
03:58
your deal
04:00
it was a little bit of the challenge was
04:01
really around directors and officers
04:04
insurance
04:05
and that and putting that in place and
04:06
having that ready to go
04:09
yes that at the last minute as well as
04:11
tail coverages for all the other
04:13
policies we had right because
04:15
the liabilities of the previous entity
04:19
uh for the most part or large part were
04:21
staying with
04:22
its prior shareholders me and my two
04:25
partners and
04:26
as a result of that um we were wholly
04:30
unprepared
04:31
because we thought we were being bought
04:33
as a stock purchase
04:34
and that changed and uh we were just
04:37
unprepared to
04:38
to mitigate that risk so scrambling
04:40
around an insurance market
04:42
at the last minute begging for cover
04:47
you’re kind of going to pay whatever
04:48
price they ask you to pay so
04:50
i failed miserably on that one which is
04:52
a humble embarrassment from an insurance
04:55
guy but
04:56
super important to have all of your
04:59
ducks
04:59
in a row in that area yeah it’s
05:02
nothing like the insurance guy making
05:04
sure he figured out insurance so jay
05:05
appreciate that
05:07
that anecdote and the reality of what it
05:09
takes to
05:10
to do that look at jack you you’ve done
05:13
many
05:13
acquisitions um and uh
05:16
you know you’ve seen sellers kind of do
05:18
all kinds of different things
05:20
um if you if you if you could give them
05:23
one
05:24
bit of advice that would help you get a
05:26
deal close or
05:27
or actually pay more what what would you
05:30
be telling
05:31
a seller to hey if you really got this
05:33
organized before you came
05:35
talk to us or other buyers this would
05:37
really help
05:38
well i think it really depends on on the
05:40
deal there’s a lot
05:42
i think your first thing you have to
05:43
really understand is what the acquirer
05:45
wants to buy you for they want to buy
05:48
you for distribution your product
05:49
pipeline your personnel
05:51
your your ability to grow new stores
05:54
whatever it is i think you have to
05:55
understand what they want
05:58
and then kind of pivot off that and kind
06:00
of build your
06:01
your your introduction to them around
06:03
what you feel is why they want to buy
06:05
you i think that’s number one but
06:07
but generally speaking i mean i always
06:09
look for like a solid track record of
06:11
improving metrics
06:13
throughout the company from ops to
06:15
distribution to marketing
06:17
to hr to finance because i like to buy
06:20
something that i i feel like they got
06:22
their ducks in a row they have a good
06:23
reporting good financials
06:26
they have a track record of hitting
06:28
budgets they have believable forecasts
06:31
um and you know i like when they want to
06:33
take a meaningful stake in the company
06:35
so they have some skin in the game too
06:37
uh you know one thing one one tidbit i
06:40
think that
06:41
that i’ve done i i when i was running an
06:43
international building products company
06:45
we probably came to uh
06:46
to bell i wanted to buy a company that
06:49
had a great product they had a brand new
06:50
emerging product that would fit very
06:52
well into my distribution
06:54
and and i wanted to buy it and they they
06:56
said 20 million
06:58
and i said the company’s worth 10. and i
07:02
had
07:02
developed a great relationship with the
07:04
with the two owners and i said hey
07:06
listen guys here’s the scoop
07:08
if you can do these five or six things
07:10
over the next 12 to 18 months i’ll pay
07:12
you 20 million
07:14
and i put my team in there we worked on
07:16
the on the
07:17
on the plan expansion finance metrics
07:21
uh for operational issues we worked on
07:24
a good marketing plan and all those
07:26
sorts of things
07:27
and over the next uh over the next 13
07:29
months i paid him 20 million dollars
07:31
which was about six months forward
07:33
earnings
07:34
and they took since it took a lot of
07:35
risk off of me
07:37
because i would had i would have had to
07:38
do that i was willing to do it for free
07:41
had a great relationship and that’s a
07:42
company i own for two times
07:44
earnings in two years after we bought it
07:46
so
07:47
so it all really depends a little bit on
07:49
the company and what you’re buying but i
07:51
think the key thing is
07:52
understand why they are buying you and
07:55
then kind of build your pitch
07:56
around why they’re buying you and why
07:58
they should buy you
08:00
going from there or down to the bottom
08:01
of the pyramid
08:03
so that great great advice jack i mean
08:05
what i heard you saying is hey make sure
08:06
you understand your value proposition
08:08
right back that value proposition up
08:11
with data
08:12
right often metrics and data
08:14
entrepreneurs of
08:15
hey i’ve run my business i get the feel
08:17
but that metrics and data helps a new
08:20
potential partner come in
08:22
and the third thing i heard to say which
08:23
i think is really compelling is
08:25
you know take the time to figure out
08:27
what else you could do to drive value
08:29
uh in your organization and step back
08:31
and look at hey are there some simple
08:33
short putts that i could accomplish
08:36
that can materially change the value
08:38
proposition
08:40
for me and mark i’ll i’ll call an
08:42
audible on you and say i know you’ve
08:43
been in that situation
08:45
where you’re looking at that you’re
08:46
looking at that opportunity
08:48
where can you okay where can you change
08:50
the dynamics and move the business
08:53
um are those similar similar situations
08:55
that you’ve seen in the in the variety
08:57
of
08:57
companies that that you’ve acquired and
09:00
you know i lord knows i know you did it
09:02
very well with hivol and keo
09:04
you know transaction that we worked on
09:05
together where you really materially
09:07
change
09:08
the trajectory of the business certainly
09:11
so
09:11
i think that if you for us it would be
09:15
painting the picture of the future and
09:17
what the future could be
09:18
and then having passion behind that idea
09:20
and who’s going to be
09:22
the the parties that are going to manage
09:25
that vision and and so
09:28
if we’re going to learn about a company
09:30
in its history and its value in the rear
09:32
view mirror
09:32
that’s great and we will pay a certain
09:34
amount for that but
09:36
what it really can turn into and how we
09:38
can help
09:39
create or participate in that growth
09:43
uh really adds that extra value that and
09:46
sometimes that value can come in the
09:48
form
09:48
of increased purchase price that glows
09:51
or it can come in the form of
09:53
uh earn outs and other ways to enhance
09:55
your overall
09:56
uh value from the transaction
09:59
and and so if we’re going to come you
10:01
know the the situations were paying
10:03
oh what i would consider be a value
10:05
multiple would be
10:07
there’s not a well-developed strategy
10:09
going forward they’re saying well
10:11
okay you’re the buyer what do you want
10:12
to do with the company well if we have
10:14
to figure out what to do with the
10:15
company then we’re the ones creating the
10:17
value of developing that strategy and
10:19
you shouldn’t get any
10:20
of it so but if if we come in and say
10:22
hey we’ve got this jazzed up management
10:24
team they have all these ideas they
10:25
haven’t been able to do all their ideas
10:27
this is what they want to do over the
10:28
next five years and things can really
10:30
grow a lot and all we need is a partner
10:32
who can help us make that happen
10:34
great what an awesome platform and and
10:36
we’re willing to
10:38
pay more and and ideally have success
10:41
alongside with that team
10:43
so important insight mark right really
10:45
understanding and being able to
10:46
articulate
10:47
the growth opportunity whether you’ve
10:50
been able to seize it or not
10:52
is important because we remind folks
10:55
you know when you’re going through and
10:56
selling your business
10:58
95 percent of the choirs have to grow it
11:00
in order to get their return so if you
11:02
if there’s not a growth opportunity
11:04
there’s not a growth picture
11:06
um it becomes a really a really big
11:08
challenge
11:09
yeah those stories where
11:12
it’s an entrepreneur and they have some
11:15
either themselves or their team that is
11:17
saying well we always wanted to do this
11:20
but you know the entrepreneur didn’t
11:22
want to
11:24
keep all his capital in didn’t want to
11:26
over invest well
11:27
fine great we’re the partner now we’re
11:29
the capital partner we can help fuel
11:31
that
11:31
those are exciting conversations jack
11:34
you wanted to add
11:35
yeah i mean on that i agree with mike
11:36
100 and you know i think one of the
11:39
things i think
11:39
i like doing too i like paying 90 95
11:43
of the purchase price and then give them
11:45
a 15 to
11:46
20 percent premium hit the the agreed
11:49
upon first year budget
11:51
because that way you work with them in
11:52
the first year
11:54
while you’re buying the company while
11:56
you’re going through the diligence you
11:57
come up with a
11:58
a budget that everybody agrees to in the
12:00
first year
12:02
and and and that’s where i tell the guys
12:05
i’ll pay you a premium
12:06
you know these guys want to pay a
12:07
hundred percent i’ll pay 90 95 but i’ll
12:10
give you 15 to 20
12:12
to hit these first year numbers as you
12:14
guys all know the first year in a deal
12:16
is probably the most important and uh so
12:19
i’d like to make sure i get major buy-in
12:21
and tell them hey listen i can i’m going
12:23
to pay you 15 to 20
12:24
more than everybody else because we’re
12:27
working on a plan that i can pay that
12:29
much more if we hit the first year in
12:30
numbers
12:31
and then you get more buy-in early on in
12:33
the process as you’re doing the
12:34
diligence coming up with a plan for the
12:36
for the first 12 months and it could be
12:38
mike that you know a lot of these guys
12:40
don’t have the capital so you give them
12:41
the capital to do it if we did this
12:43
would you do this and
12:44
so you you you develop a real good plan
12:47
and and
12:47
like we all know the hitting the first
12:49
year numbers is a big
12:51
big deal for for the success of the
12:53
acquisition and
12:54
now we’re seeing the capital providers
12:56
on the bank side i would just piggyback
12:58
on that and say
12:59
that was our experience as well it it
13:02
played out differently jack
13:04
um uh i require was super interested in
13:07
not only you know understanding the
13:09
quality of what they were buying in the
13:10
budgets and the money was right but
13:12
the first year matters a lot and i
13:15
learned a lot i’ve only sold once right
13:17
and really making sure that all the
13:19
alignment of the company and the goals
13:21
for integration and transition are all
13:23
understood by everybody
13:24
and i was structured similarly there was
13:26
a big bogey out there
13:28
that i shared with my entire team and
13:30
all the people who were driving those
13:32
methods
13:32
make sure that that first year stuff
13:34
happened that we met our numbers that
13:36
the integration got done
13:37
their customer base wasn’t affected in
13:40
fact they they saw
13:41
increased value in it and that was a lot
13:43
of pre-work with my acquirer
13:45
for them to really deeply understand my
13:47
business
13:48
kudos to them for that by the way and
13:50
learning how to translate that back down
13:52
to my customers so they were super happy
13:54
about the transaction as well
13:56
and then of course in my view sharing
13:59
that with my team
14:00
who could make those things happen
14:02
mattered a lot and i’m proud to report
14:04
we killed our first year numbers
14:06
and everybody was happy with with the
14:09
deal including my team and my customers
14:11
and certainly our buyers so
14:12
yeah you can’t underestimate the value
14:15
of hitting your first year it changes
14:16
the whole tenor of the relationship
14:18
really big point fantastic well i’m
14:21
going to shift gears a little bit
14:22
and talk about kind of the growing
14:24
trends you know as i said in my earlier
14:27
comments
14:28
the amount of capital in the marketplace
14:30
has has grown significantly
14:32
not just in the overhang but the overall
14:34
dollars and the amount of private equity
14:37
family offices independent sponsors you
14:41
know lp
14:41
co-investments has increased the pool of
14:44
capital
14:45
uh looking and chasing for deals
14:48
and the pool of deals hasn’t grown that
14:50
dramatically
14:51
so it’s it’s forced a lot of creativity
14:54
in the market
14:54
and you’ve seen an increasing number of
14:57
obviously you’ve seen direct debt
14:58
funds and we’ve seen an increasing
15:00
number of investors establishing
15:02
minority our own local
15:04
uh huron capitals have started their
15:06
their flex equity fund
15:08
uh new mountain capital just raised a
15:10
700 million dollar
15:12
fund starting specifically in minority
15:14
deals
15:15
a recent survey that was conducted with
15:17
private equity indicated
15:19
over 50 percent of the private equity
15:22
funds general partners
15:23
were looking at establishing some kind
15:25
of minority investment vehicle
15:27
in order to find more attractive
15:29
opportunities
15:30
expand their to the top end of their
15:33
funnel for deal
15:34
and create value so i’m curious mark i
15:37
mean you’re
15:38
you’re our private equity guy here today
15:40
why do you think this trends
15:42
you know why do you think this trend is
15:44
growing and how do you see things
15:46
playing out kind of in
15:47
in the future and how does that help
15:49
help entrepreneurs that are looking to
15:50
grow their business
15:52
and expand what they’re doing not
15:53
necessarily just just interested in
15:55
selling
15:56
sure um and you hit on it some
16:00
it’s it’s maturity in this in the
16:02
private market and the private equity
16:04
market
16:05
you know i think a simple way for
16:06
entrepreneurs to think about the
16:08
private equity market is it’s actually
16:10
the private stock market
16:12
it’s where companies trade it’s where
16:14
companies raise
16:15
equity money and that are private and um
16:18
and there’s
16:19
a lot more there’s a massive amount of
16:21
demand for that
16:22
by investment capital but what there’s
16:25
always been
16:27
on the other side is a demand for
16:29
minority growth equity
16:31
or for a sort of a section of the
16:33
capital structure that’s not supplied by
16:36
traditional uh bank lenders or
16:38
subordinated desk
16:39
uh investors or um control equity
16:43
investors like the average private
16:44
equity firm
16:46
is and so that demand has been there for
16:48
a long time
16:49
i think the massive amount of liquidity
16:52
including the rise of the family office
16:54
and all the
16:55
liquidity there really started to fill
16:59
that demand on the private company
17:03
business owners side with a supply from
17:06
the private capital market
17:07
and and we we have we’ve seen many many
17:10
opportunities where
17:12
it’s a it’s a company that would really
17:14
prefer to take on
17:15
a minority equity investor to try and
17:18
juice growth to maintain control
17:20
and to be the one sort of owning and
17:23
operating the company still without
17:24
giving up control
17:26
and for the longest time that was not
17:28
well served
17:29
as a a a product let’s say
17:32
by the private equity market but that
17:34
demand has been there forever
17:35
so now that there’s just so much
17:37
liquidity and and
17:39
sort of including a um
17:42
a search for yield my uh equity
17:46
investors and just investors across the
17:48
board
17:49
i think that that that demand is going
17:52
to be met with increased supply
17:54
uh over time you’re seeing that with the
17:56
examples that you said
17:59
and mark um don’t you think the success
18:03
that many of investors have had and what
18:05
they thought they couldn’t do with
18:06
minority deals
18:08
has been a contributor to that growing
18:10
appetite you know the old success to get
18:12
success
18:13
yeah absolutely so you uh the returns
18:16
are definitely there i think that there
18:19
was probably a hang up years ago by
18:21
control investors that you couldn’t get
18:23
the return you were looking for because
18:24
you didn’t have control
18:26
but what you do maintain in a minority
18:29
position
18:29
is really the incentives are extremely
18:32
well aligned with the management team so
18:34
if you get involved with the right
18:35
owners right management team
18:37
a team that has passion to achieve the
18:39
growth and what you’re looking for
18:40
well that sort of the formula is all
18:42
there to have an excellent return
18:44
and so there’s some some insight or even
18:48
religion
18:48
being uh absorbed by the market out
18:52
there that this is a route that
18:53
can go and and it it put just another
18:56
tool in the toolkit
18:57
of entrepreneurs of how they can think
18:59
about their business growing it getting
19:02
liquidity
19:03
because this this could be a source of
19:04
capital just for growth or
19:06
half liquidity half growth or some small
19:09
component of equity
19:10
and so it’s a very good tool for the
19:13
stock market idea i’m talking about
19:16
because you usually just
19:16
have to sell control it used to be the
19:18
old way now great incident i think even
19:21
jack said it in his comments you know he
19:22
likes to make sure they’ve got an
19:24
interest
19:24
in alignment and you know the growing
19:27
interest and role of equity is
19:28
is a similar uh concept of creating
19:31
alignment and we talk a lot about
19:33
when we’re working with companies about
19:35
alignment jack described it hey make
19:37
sure you understand what they’re
19:39
they’re buying you for what they see is
19:41
your value proposition
19:43
but also it’s understanding hey what’s
19:45
the
19:46
you know what’s the relationship how are
19:48
we working in alignment or not in
19:50
alignment if i’m packing my bags and i’m
19:52
leaving at the end of the transaction
19:54
that has a material different value
19:56
perspective
19:57
from private equity partners and
19:59
strategic acquirers alike
20:01
as opposed to the executive of the team
20:04
that’s willing to stay on and you know
20:06
jay and i we talked a lot about this
20:08
before the transaction
20:10
and a kind of a universal recognition
20:12
that
20:13
the deal wasn’t going to happen very
20:15
well if jay and todd
20:16
uh pack their bags at the end of the
20:18
transaction right jay
20:20
we talked a lot about this uh oh for
20:23
sure
20:23
and while it wouldn’t wasn’t a minority
20:26
situation and i i
20:27
have a comment on uh what mark was said
20:30
there in terms of minority investment
20:32
because
20:33
i have made small investments in
20:35
partnership with
20:36
mark and others in this room as a
20:38
minority
20:39
and now seeing minority investments in
20:42
companies for yield so i do think you’re
20:44
completely on point with that there’s an
20:46
appetite for that and if you have
20:47
alignment management you can get a good
20:49
return without owning and controlling
20:51
the whole thing i think that’s your
20:52
point there
20:53
right um in my deal uh yeah right
20:56
a hundred percent um uh
21:00
had to be very focused on um on that
21:03
alignment
21:03
uh across the board for choir for
21:07
customers yeah rule of the world
21:08
customers number one people for number
21:10
two
21:11
stakeholders are number three i’m last
21:13
my job is to get number one two and
21:15
three right
21:16
and um and that’s what i found
21:19
in this choir so strategic buyer who
21:21
wanted to make sure
21:22
that we were gonna work together over
21:25
the next number of years to continue
21:27
um the great foundation we’ve started
21:30
and i kind of view my choir not as money
21:32
capital
21:33
fuel for the engine but intellectual
21:35
capital and resources fuel for the
21:37
engine
21:38
and i’m enjoying even through the
21:40
pandemic garage which has been tough on
21:42
everybody i’m sure everybody in this
21:43
room
21:44
has that war story um but we really
21:47
enjoy
21:48
expanding what we can do and what i can
21:50
bring to my customers and
21:52
before i became part arthur jay
21:53
gallagher i wasn’t running
21:55
companies uh risk management programs in
21:57
23
21:58
countries across across the globe so um
22:00
that’s a perfect example of why that
22:03
made sense to you okay and we often find
22:06
it’s much more than just the capital or
22:08
the money
22:09
that’s driving that interest and so
22:12
so jack you know i’m going to turn to
22:14
you and say that’s a great
22:15
tea up for you know how do you make bell
22:18
tire and your organization
22:20
an attractive acquirer to someone that’s
22:23
looking to sell their legacy and their
22:25
business
22:26
have you positioned bell and and how
22:28
important do you think that is for
22:29
requires
22:31
uh to be able to position properly well
22:33
you know
22:34
you know i’ve done a couple of billion
22:36
dollars worth of transactions before i
22:37
came to bell
22:38
and uh and i think that the best part
22:41
buying
22:41
you really got to get into their heart
22:43
and soul so you’ve got a
22:45
it’s a it’s a it’s a courtship and it
22:49
might take a year or two
22:50
to to get to trust and recognition and
22:53
and talking about their business and
22:55
and feeling like they many times these
22:57
guys are turning their baby over to you
23:00
so you need to make sure it’s in a lot
23:03
of people just want to
23:04
you know go to the honeymoon as opposed
23:06
to having a courtship
23:07
and and that gets sniffed out pretty
23:10
good so i i really think it’s about
23:12
starting a casual relationship and
23:15
building trust
23:17
some of the deals that i’ve done in my
23:18
life took me three or four years to get
23:20
when i wanted to do it or do it in the
23:21
first six months
23:22
some took a year but you have to develop
23:24
the trust with the owners
23:26
and talking about the business and then
23:28
go from there because
23:29
the more you can do that the less it
23:31
becomes an auction
23:33
the less becomes who’s got the most
23:34
money and and the and you know and that
23:37
last dollar of leverage
23:39
which generally doesn’t work well uh
23:41
particularly the last dollar
23:42
leverage which um but i think that’s how
23:45
you
23:45
that’s how you do it that’s how you
23:47
that’s how you acquire companies at a
23:49
reasonable
23:50
price and have a very good start because
23:52
you’re building a relationship
23:54
talking about the future and building a
23:55
plan before you even get in a driver’s
23:58
seat so
23:59
and that’s something that a lot of
24:00
people don’t want to do because it takes
24:01
time
24:02
but but once you got that you might have
24:04
developed a list of five six seven guys
24:07
in different parts
24:08
of the of the funnel of acquisition so
24:12
that’s great great insight jack i think
24:14
you know people forget especially on the
24:16
acquisition front
24:17
it’s a game of patience you’re playing a
24:19
long game
24:20
and you described it as a relationship
24:23
often when we work with
24:24
buy side clients you know we talk about
24:27
selling before you buy
24:29
right if you’re especially approaching a
24:31
company that’s never been
24:33
on the market that isn’t actively
24:34
selling uh
24:36
engaging with them and convincing them
24:38
you know you’ve never thought about
24:39
selling but you ought to sell to me
24:41
uh takes a lot of work and a lot of
24:43
relationship and a lot of patience
24:45
and an understanding of that value
24:48
proposition
24:48
right what do i bring to the table what
24:51
did gallagher bring to the table to lsg
24:53
that made them more attractive besides
24:56
the dollars
24:57
right and what i like to sell raj too
24:59
it’s because when i do something
25:01
when i buy i always want them to have
25:02
steak in the game being an earn out
25:04
20 retainage or whatever it is because i
25:06
want them to
25:07
have uh have steak in it and you know
25:11
you know that that’s uh that’s an
25:13
important feature for me big time for
25:14
them to have a stake
25:16
in it and and how they can make more
25:18
money as well so
25:21
fantastic and jack don’t don’t you love
25:23
it when the seller
25:25
puts every single employee in the
25:27
company not just the management team
25:28
but every single employee in the company
25:31
into that stake
25:32
everybody which is hard to say
25:35
we did i love pat myself on the back for
25:38
it because it was the right thing to do
25:39
the company
25:40
you know just ethically is its people
25:43
and that created like the
25:45
ultimate ultimate alignment for everyone
25:47
yeah i mean all the deals i’ve done i’ve
25:48
had 30 40 people in the equity side of
25:50
it all at varying amounts but it does a
25:53
tremendous amount
25:54
to hit the numbers and everybody’s
25:56
working toward making more money and
25:58
and uh you know i think you know i think
26:01
that’s a big deal the other thing i like
26:02
to sell is that i’m not going to
26:04
leverage this thing up to the nth degree
26:05
because i know something’s going to go
26:07
wrong we don’t know what the hell it is
26:10
but something’s going to go a little
26:12
amiss that i don’t want to be at the
26:14
you know flipping leverage covenants the
26:16
first six months in or year in because i
26:18
put that last dollar leverage in
26:20
uh you know we all know stories that
26:22
that last dollar leverage
26:23
you know when the deal blows up you look
26:25
at each other and say what the hell do
26:26
we do that for
26:27
and uh there’s always times to take
26:29
dividends out down the road or
26:31
re-leverage it when you know exactly
26:32
what you have
26:33
because anytime you buy something the
26:35
seller knows a hell a lot more about it
26:37
than you do i don’t give a damn how much
26:38
time you spend in it
26:39
and there’s going to be something that
26:41
goes wrong and putting that last dollar
26:43
leverage in my view is a is a massive
26:47
massive problem and i sell that to
26:49
people i want to acquire i’m not going
26:50
to load this up with debt you’ve got a
26:52
20
26:52
interest let’s keep this the the
26:56
leverage modest until we know what we
26:57
have coming out we can do dividends
26:59
refinance down the road
27:01
i i’ve seen mark do the same thing i i i
27:04
did not sell for the highest bidder jack
27:06
it was about the relationship people how
27:08
is this gonna work going forward
27:10
is the alignment good are you gonna it’s
27:12
a legacy thing right
27:15
31 years building a baby and it’s a
27:17
legacy thing
27:19
you do the same thing mark you you don’t
27:21
have to be the highest bidder
27:22
yeah i don’t think so to win a a company
27:25
but you shouldn’t be by the way
27:27
yeah i agree because i mark that’s a
27:28
good i’m glad that you do that i mean i
27:30
and a lot of guys don’t i mean i could
27:33
tell you uh
27:34
you know a lot of but we all know the
27:35
horror stories that last dollar leverage
27:37
did a great company in
27:38
usually it’s not you know bad comp a
27:41
good company over leverage is not good
27:44
yeah so yeah exactly leverage should be
27:46
a component of return but
27:48
the the wrong buyer thinks it’s the
27:50
primary driver
27:52
and so the uh we tend not to do that you
27:56
know
27:56
and we tend not we tend to everybody
27:58
doesn’t want to pay the highest price
28:00
but you guys have all talked about how
28:01
you
28:02
avoid trying to pay the highest price
28:04
and maybe
28:06
maybe we’ll find ourselves in situations
28:08
where we told well we’re not the highest
28:10
but there’s other people who are willing
28:11
to pay the same as us but and we’re
28:13
winning the deal
28:14
because of some of the soft factors that
28:16
that jack put forth and that could be
28:18
good enough
28:19
maybe you are willing to pay the market
28:20
price um but you’ve done a ton of work
28:24
and just winning the deal because you
28:26
you did some of the softer factors like
28:28
building the relationship etc
28:31
and that gets you over the finish line
28:32
and so we spend a ton of time
28:34
uh working on that and just being those
28:37
people
28:38
and um i think you can do that by
28:42
building relationships with who you want
28:44
to be in business with
28:46
and um acting uh like you’re the partner
28:49
that you’re going to be
28:50
and then be a good partner and then
28:52
you’re reference the ball in the market
28:54
as somebody to do business with and that
28:56
will win
28:57
you a lot of friends going forward yes
29:00
at the end of the day whether you’re a
29:02
buyer seller it cannot always be just
29:04
about the numbers
29:06
and that relationship you guys all have
29:07
talked about is important
29:09
but but in the end mark you’ve done a
29:10
lot of transactions over the last 20 25
29:13
years
29:13
there’s always some crazy stuff that
29:15
comes up
29:17
and there’s the crazy things that come
29:18
up that people couldn’t expect
29:20
but i’m sure you’ve seen a number where
29:23
just a little bit of preparation on the
29:25
part of the seller
29:26
would have helped made the transaction
29:28
easier are there some
29:30
are there some ones that you know your
29:31
early radar screen to check that hey
29:34
this is something we should
29:35
get done and fixed early or what have
29:38
you seen in that
29:39
yeah and so the um it’s interesting
29:42
the uh some of the people on in the room
29:45
probably have heard the phrase every
29:47
deal dies three times before it gets
29:49
done
29:50
that’s absolutely true we count them you
29:53
can you might get to four you’re
29:54
probably not gonna only get the two and
29:55
and so
29:56
when you’re a buyer and you’re looking
29:58
at things you will sit down after a ton
30:00
of work and be like
30:01
well it’s over we’re not gonna get past
30:04
this
30:04
and then you figure out if you can get
30:06
past it and so tons of things pop up all
30:09
the time you’re not going to anticipate
30:10
them all so the more that you can
30:12
anticipate
30:13
and work on the things that you have
30:15
awareness of are essential to put time
30:18
in and i think if i can stress one thing
30:20
we’ve already talked a bit about it but
30:22
having clean accurate accounting is
30:25
absolutely essential
30:27
and it really is about momentum in the
30:30
transaction if you present
30:32
numbers uh to the buyer group and uh
30:35
their end up
30:36
doing the during the due diligence
30:38
inaccuracies
30:40
found it won’t just affect value
30:42
necessarily it could affect the whole
30:44
momentum of the transaction
30:46
including like say if your margins were
30:48
11 on the ebitda and somebody has a ten
30:50
percent minimum
30:51
and with an adjustment you’re down to
30:53
nine and a half maybe you’re still
30:54
willing to sell
30:55
maybe they had a minimum ten percent and
30:57
you were always with the wrong buyer
30:59
and you’re in your process i’m the wrong
31:01
buyer because you’re
31:03
information was inaccurate you’re going
31:05
to have a representative
31:07
if uh you know like raj out there uh
31:10
trying to
31:11
um present your company for sale
31:14
and if they don’t have the the accurate
31:16
information they’re not going to find
31:18
the right partners for you so any prep
31:20
like that is
31:21
extremely important and then i would
31:22
also reiterate the idea of
31:25
having your management team um
31:28
for who’s going to be the decision
31:30
makers and the drivers of the vision
31:33
having them well aligned having those
31:35
seats filled
31:36
you know you if you decide well i just
31:38
want to retire and
31:39
you know my the new buyer kind of needs
31:41
to take it over or find some people
31:43
that’s probably a 20 discount total
31:46
amount
31:46
you’re really just not going to maximize
31:49
if you would
31:50
look a year 18 months out and fill those
31:52
seats and have
31:53
talented people ready to run the company
31:55
forever it’s going to take over
31:57
that adds 20 of value and so those those
32:00
can make huge swings into what you’re
32:02
trying to do
32:04
great well and what it says is both you
32:06
know hey there’s an element for the
32:07
seller to be prepared and organized
32:09
but if you’re the acquirer the flip side
32:11
of that is if you have
32:13
the resources and the inclination
32:16
you can create additional value by
32:18
finding those organizations that don’t
32:20
have that
32:21
and and building that in and creating
32:23
the team that can go execute that
32:25
yeah so it’s it’s really okay there’s if
32:27
there’s a problem in a transaction
32:29
the person who solves the problem is
32:32
either maintaining or creating value
32:35
so if a problem is there’s not a full
32:36
management team and i come and say well
32:38
okay
32:38
i gotta go recruit and do one well i’m
32:41
probably winning the deal versus other
32:42
people and i’m not having to pay as high
32:44
a price
32:45
if if a an issue pops up some legal
32:48
issue you didn’t know about
32:49
and you’re the seller and you look to
32:52
the buyer for their advisors to kind of
32:54
figure it out
32:55
well they’re going to extract value from
32:57
doing that because the momentum has gone
32:59
down the demand has gone down
33:01
if a problem pops up that you aren’t
33:03
aware of you have to solve it you’ve got
33:05
to solve it for this the buyer
33:07
it’s not their problem you’re the seller
33:09
problems with your business you got to
33:10
solve it
33:11
if you don’t take that direct attitude
33:13
you’re not going to be as happy
33:15
at the end of the transaction you may
33:16
not get a deal done you may get a deal
33:18
done at a price that isn’t as good so
33:21
so the ownership of the whole process
33:23
and trying to get across the finish line
33:25
and being a solutions
33:27
oriented sort of participant very
33:29
important
33:30
rather than well this popped up these
33:31
guys need to figure it out
33:33
great well as we’re getting close to the
33:35
end we’re going to do the uh the you
33:38
know the variety is the spice of deal
33:39
top top two issues and for each of you
33:42
and so jay we’re going to start with you
33:44
you know what’s your top two things that
33:46
you want to leave either a buyer
33:48
uh or a potential seller with sure so
33:52
so i i think i i set it all on uh
33:55
my view as a seller and what mattered to
33:57
me i don’t know if it matters to anyone
33:59
else but jack and mark is
34:01
big acquires their their wisdom i think
34:03
was completely on point
34:05
um and and if you have to find the right
34:08
partner right and um and all of these
34:11
comments of discussion about
34:12
relationship and alignment i think
34:14
is probably the number one most
34:16
important thing um
34:18
second to that you know i would maybe
34:20
rise up you know i’d say
34:22
as an advisor to buyers um
34:26
you really need to be ready and of
34:28
course this is my work but you need to
34:30
be ready in the risk management space
34:32
as a seller you need to know what your
34:34
acquirer is going to look for
34:35
the smart ones are looking under the
34:37
hood it isn’t about
34:38
you know quoting the insurance or
34:41
somebody has a broker friend there are a
34:42
lot of things that can be dealt with in
34:44
that
34:45
transaction rep through wrap and
34:46
warranty insurance
34:48
or figuring out as a buyer that hey
34:51
my uh cost the benefits i thought was
34:54
you know running x it’s really running x
34:56
plus 30 percent
34:58
i’m really only buying 15 million ebta
35:00
here not 20
35:01
and the whole transaction policy
35:03
department so as a seller if you don’t
35:04
really understand what you look like
35:06
on someone else’s platform or shoes
35:09
right in line with mark’s accounting
35:10
requirements
35:11
and you don’t have your arms around your
35:13
risk management program and really
35:15
understand what it looks like in your
35:16
buyer’s world
35:17
and it’s the buyer if you don’t
35:19
understand that and where the holes are
35:20
that you need to stay out of
35:22
um those are areas that from my
35:25
professional expertise you’ve got to pay
35:27
attention to because it can lead you to
35:28
that dead deal
35:30
that mark talked about i more than once
35:32
told that gentleman you can’t buy that
35:33
company
35:34
sometimes he listens sometimes he
35:36
doesn’t win
35:37
but um but but he knows the advice is
35:40
true
35:41
right and when they make a decision to
35:42
go forward at least you got your eyes on
35:44
the problem
35:45
and we go through and we find a way to
35:46
solve it so i think that’s the
35:48
best expertise i can leave everyone with
35:51
jack how about how about from your point
35:52
of view
35:53
no i mean i guess the whole thing for me
35:56
raj is always looking
35:57
you know you know pragmatism right i
36:00
mean dealing with
36:01
you know dealing with the realities
36:03
pragmatism
36:04
um dealing with the the tough issues
36:06
before you buy the damn thing
36:08
it could be personality a product line
36:10
could be a location whatever it is it
36:12
could be
36:13
you know billy the the uncle that’s
36:15
that’s over his head whatever those
36:17
things
36:17
are dealing with all the issues with
36:20
pragmatism from the beginning and
36:21
getting people
36:22
involved at the very beginning because
36:24
to me that’s the whole thing
36:26
and and and because that once you if you
36:28
if you start out that way deal with the
36:30
elephant in the room early on and that
36:32
kind of stuff
36:32
you don’t burn as much time chasing
36:34
after deals that you won’t do at the end
36:37
i like to do all those things quickly do
36:40
i have a good
36:41
pragmatic people running the place and
36:44
and
36:44
everybody everybody knows what the
36:46
issues are in the business and what they
36:48
freely talk about and what we’re going
36:49
to do about it when we own them
36:50
together so if i have that kind of an
36:53
attitude going on as i’m
36:54
as i’m courting or working through a
36:56
relationship as a buyer or a seller
36:58
i feel better about it as we move
37:00
through the relationship
37:02
the other thing is when you have to hit
37:03
a point where you think okay
37:05
i don’t like this point going on going
37:07
forward
37:08
you you you cut bait and stop as opposed
37:11
to keep going
37:12
when you know it’s not going to probably
37:14
work out and you you cut bait early on
37:17
so you don’t
37:17
you know you don’t burn a ton of dollars
37:20
on things that you you’re not going to
37:22
ultimately end up buying so for me it’s
37:24
it’s pragmatism that the relationship
37:27
and and dealing with the issues
37:29
throughout the process is what i would
37:30
tell both the buyer and the acquirer
37:32
both the buyer and the seller fantastic
37:34
so mark you’re in the hot seat you got
37:36
the you got the clean up there and
37:38
they’ve given uh great bits of advice
37:40
how about how about from your point of
37:41
view
37:42
yeah i think i’d boil it down to um you
37:45
know the hard the hardest thing is
37:46
securing the transaction if you’re the
37:49
buyer it’s getting somebody to sell to
37:50
you
37:51
if it’s the seller it’s finding the
37:53
right buyer and
37:54
both of those are we probably we try not
37:58
to understate but we can’t understate
38:00
how important the relationship factors
38:02
are on that
38:04
and so if you’re whatever seat you are
38:06
in you really should put yourself in the
38:09
shoes
38:09
of the other side as you’re thinking
38:12
through how you’re going to behave
38:14
what you’re going to make important in
38:15
those discussions and what you’re trying
38:17
to accomplish
38:19
so as a seller we talked a lot about
38:21
those okay what is the buyer going to
38:22
want to see as the buyer it’s
38:25
it’s being positive and sort of
38:28
focusing on what is important to the
38:30
seller first and then
38:32
checking to make sure that everything is
38:35
the way that it was said
38:36
it could be the the wrong the one the
38:40
the teams that aren’t great at securing
38:42
transactions
38:43
will go in and focus on the negative
38:45
first focus on the checkings first
38:48
not building the relationship and trying
38:49
to find somebody that they want to be
38:51
partners with and do business with if
38:54
you start with that
38:56
you’ll have a much better chance of
38:57
success for both sides of that
38:59
equation great yeah
39:02
great insight folks i really appreciate
39:05
sharing your thoughts
39:06
as we wrap up here i hope folks will
39:08
join us for the live q a session
39:10
that’ll joining us next so again thank
39:12
you gentlemen for joining us on the
39:13
panel
39:14
look forward to seeing you soon great
39:16
thanks thank you
39:18
thanks guys