Behind the Scenes of Middle Market Deals: A Roundtable with FA Mergers

Joshua W: Let's walk through the, the sales process. We, we have a, you know, a few companies that we're exploring at, you know, serving them and, and walking through a sale. And, uh, just kind of want to hear from start to finish what that might look like. So, you know, June for a middle market company that, you know, they, we just got off the phone with.

Kind of walk us through what the initial conversation looks like. 

Jude D: Yeah. So when we start. Almost everybody just has the idea that maybe they want to sell. Um, most of 'em have waited a little bit later than we would like. Our, our typical person who's calling us is late fifties or in their sixties, and they're ready to retire now.

Um, and so there's not a lot of room for planning. Ideally, we get folks, you know, five years out whenever they're thinking about selling, and we, we get to help 'em have a conversation about their value. Uh, but we love working with business owners right at the end as well. They just have to understand that, you know, the value in their business today is what it's gonna be.

And we start that conversation by helping 'em to understand what that value is. Because I find that most business owners, whenever they're talking about the value of their business, the numbers that they're throwing out there have a lot more to do with what their neighbors business sold for, or what that other business in their industry sold for.

And a lot less to do with any valuation metric. You know, what was the multiple of EBITDA or what are the assets worth or contracts or whatever else. Um, and so we, we try to break through that, help 'em to understand that, um, you know, it really doesn't matter what anybody else's company sold for that they know of.

It doesn't matter the challenges that another business owner had in their sale. You know, every sale's unique, uh, but they rhyme. You know, you're gonna see a lot of things that are very similar from one to the next. And you know, if you have a sample size of one or two, it's gonna be, you know, very limited knowledge that you have.

But we have a sample size of thousands, and so we're gonna help 'em understand based on the world of deals, you know, what is it that they're likely to get for their transaction. And so that's always step one. Tell us your story. Help us to understand who you are. Tell us about your business. Let's take a look under the hood, see the financials.

We'll help you to know what it's worth. 

Joshua W: So in that step one, you know, process, we all come to the table and we start, you know, looking under the hood. What kind of resistance might we feel in that first call that a, a seller before they let us under the hood? You know, what kind of, what kind of questions might they be a little resistant to, to answering, but it's vital for them to, to answer.

Jude D: Well, I'll tell you the answer should be done. Um, you know, we're there to help you. To advise you through the process. It's kind of like if you went to your doctor because you were having a bunch of symptoms and you were thinking to yourself like, I'm only gonna tell him half. Like, I don't, I don't wanna tell him everything because, you know, maybe he will diagnose me with cancer.

And it's like, well, maybe just tell the doctor all the symptoms and we'll, we'll take it where it goes. Um, it's so important in that conversation to be so open with us because we can paint a really good picture of what you can expect. You're never going to pull the wool over everyone's eyes. From the first call all the way through closing, you're never gonna get some off market transaction that pays more than the company was, was worth, or at least not significantly more than the company was worth.

So it's really important to be very open in that conversation. Go ahead. Yeah, we see all kinds of attempts to hold things back. You know, one of the most common ones is that a seller had their best year ever a year ago, and now the earnings are just falling off a cliff. And so, you know, they know instinctively in their mind, I should have sold a year ago when we had our best year ever.

But I'm regretting that I didn't. And so now I'm talking to an advisor. Well, it's gonna come out like you're not gonna get to closing and have somebody pay you based on the financials from a year ago. But we've seen that scenario so many times that people try to hide it, that the business is declining.

Um, but timing's so important, you know? Timing that sale correctly based on when the business is on an upswing matters so much. And that's why, you know, it's very frustrated when we talk to business owners and they say, why would I sell? I just had my best year ever. It's like, because now's the exact moment to sell.

Now's the moment when you can capitalize on all that enterprise value. 

Chase K: They're also, yeah, and as Jude was saying that I, I was thinking about, um, some of the friction in, in like intake calls. Um, when sellers were very defensive because there's so many bad brokers and advisors out there. So maybe they've been burned because they paid like huge upfront fees and had a very passive broker who really didn't do their proper due diligence, source the right buyers and really just let the, the company sit.

So they've been burned in the past, um, or just bad advice. And so, uh, we see that a lot as well. Um, and so they're very defensive, kind of closed off, but they need help. They need to retire one day. There's no one there to inherit their business or, um, and so very often it takes us a while, uh, for someone who's very closed off, but then they start to see, okay, these guys have some mileage.

They've, they know how to work deals. Uh, we're very transparent. Um, and quickly they can see our credibility. And then they begin to, you know, open up. Um, and that, that trust starts to build because, you know, we're, we're building a relationship. This is one of the most intimate. Discussions you're gonna discuss with a business owner.

It's their number one asset, right? Mm-hmm. So, um, you know, uh, being patient and figuring out what's really motivating them as well. Um, you know, it could be they want to give to family. It could be they want to take chips off the table, de-risk diversify, their net worth. Um, so just really trying to, maybe they're sick, you know, we've had that in the past as well.

Uh, and so really figuring out what's motivating them. And then concentrate on that, right? Because usually that's the reason why they have the anxiety that they have. That's what's keeping them up at night. That's why they're in front of us having the conversation to begin with. Uh, and so addressing that, um, and, and providing clarity around the process, what we do, and that usually, you know, settles those emotions and then we can, we can start getting to work and, and helping these people.

Yeah, most of our clients. 

Jude D: Have had a different advisor before us, or at least they've talked to other brokers about what their company's worth. Uh, maybe Chase you could give 'em, uh, an example like, uh, a good one was the specialty trucking company we did last year. 

Chase K: Yeah. 

Scott S: Yeah. Or, or do you wanna Yeah, absolutely.

It was a, uh, incredible company who had had a very poor experience with a, a broker in the past that was, um. Really set no appointments or potential buyers. He said they couldn't 

Chase K: sell a barbershop. 

Scott S: Yeah. And, uh, we ran a, a process, it took a while for him to build trust and, and, you know, believe that we could actually generate interest with buyers.

'cause he had been so unsuccessful in his first attempt. Um, but it was an incredibly, probably the most competitive process we've had. Um. The deal was closed in, I think four months. So it was crazy to think that he was so 

Chase K: unsuccessful in his first attempt. For a few years, Scott and I sat in his living room and we're looking at this business and we're like.

This, this is incredible. You know, great earnings, uh, very consistent, right? So a lot of integrity wi within the financials. Um, long history, uh, he's been, he ran it for decades. And so, you know, we, and we, you know, we had a pulse on the industry, right? We did our homework before meeting with him, and we saw all the transactions.

So there was a lot of activity going on, and, um, yeah, we were like, this is, this is a fantastic company. 

Jude D: We had another one, uh, earlier this year that was a, uh, a specialty oil field company. And uh, that's a very common scenario too, where the owner has already pumped everybody he knows, trying to see if they'll buy the company, and then whenever he strikes out, he comes to us and, you know, we see that constantly.

Maybe one of you guys could share that story. Uh, 

Joshua W: before answering that question, uh, about the, the, the, the seller, you know, the, the business owner they're looking at, I want to exit for whatever reason, and they go, I'm gonna do this myself. And maybe it's 'cause I wanna save on the fee. I can't imagine striking that check.

I don't care how much I'm getting, but I can't imagine striking a check to. An external group to pay them to sell something that I know more than you know anybody about. I should be able to sell this thing with my high school. So they go to the market, all their potential friends or allies or competition or even whatever, and then they strike out.

I 

Scott S: think it usually starts the opposite from what I've seen. They usually get approached initially. Okay. And get the idea that, oh, people want this, and then they may try to reach out to people. But a lot of times it's competitors, so they don't really want them to know. Um, and sometimes they're successful, but to me it's a very long process 'cause they're entertaining one buyer at a time that could drag three, four years, versus having a process that's designed to generate all of the buyer interest at once.

Chase K: And the buyers, I feel, don't take them seriously because when you're running a process, they know that you've, you've hired a firm who's going to find the right buyers across the nation. Both, you know, different bio categories and you're gonna allow them to peek under the hood and you're creating a, um, your own private marketplace of buyers.

And, uh, and so that's a huge commitment for business owners. And so buyers then that psychology sort of flips and, and they play ball, right? They, they see an opportunity, they know someone's gonna end up with it. It, they want it to be them, right? And so they, they jump into the process wanting to win that process.

So the competition is everything. But when a, I feel a lot of sellers have a hard time doing it themselves, not because they're not capable, um, but because it's just a different psychology. The buyers don't know how serious you are, right? Because you're not letting everyone peek under the hood. And, and so, uh, maybe, and, and it is just such a huge investment.

To buy the company, do your own due diligence, hire legal auditors, the whole nine. Uh, and so what if you, you know, what if the, the seller backs out midway, right? Uh, and, and so then they're gonna just say, well, okay, I'll be interested at this price, right? Try to heavily discount it to entertain the conversation.

So it's just, it's just a completely different behavior I feel that you're gonna get from the 

Scott S: buyers. And no momentum. There's no momentum to the process. Business owners running a business. You know, someone may reach out, they may ask for financials, well maybe they'll get 'em to 'em in two months. Like there's just, there's the lack of process leads to no momentum, which they say time kills all deals.

And yeah, that wasn't made of, it's cliche, but it came from somewhere. 

Joshua W: Yeah. 

Scott S: Yeah. You only get 90 days of goodwill 

Jude D: between buyer and seller, so you better not waste a day. Um, at some point that goodwill starts degrading and. The wheels fall off. 

Scott S: And, 

Jude D: uh, and I think most sellers who try to do it themselves don't realize how much of a challenge it is to run their company and run a sale process at the same time.

Speaker 6: Yeah. 

Jude D: Um, whenever owners come to us, uh, you know, a lot of times they're looking for us to give them a valuation because they already have a buyer who's approached 'em and they're trying to figure out if the number's right. Usually they don't tell us that they're gonna be a little coy about it, but, but they're trying to figure out if the number's right.

Speaker 6: Mm-hmm. 

Jude D: And, uh, whenever we figure it out, they wanna do it themselves. I, I'm always happy to tell 'em, look, go for it, man. You know, good, good luck. I make sure they know what their business is worth, because I want them to understand that they're not getting the value that they should be getting. Um, you know, very frequently independent sponsors will try to tell you a certain number.

Get you into diligence and then afterwards try to retrade the deal down. And their hope is that you're so invested at that point and you put so much effort into this deal that you just say yes. And it's amazing how often it happens. 

Joshua W: So, okay, so we're, we're gonna be moving into like, this is the why people call.

FA mergers, why they make that initial phone call. I'm thinking about selling someone. You know Scott, great point. Someone contacted us looking to buy, maybe it was a, a independent sponsor. They gave me a number and I'm like, man, this number looks really good. I'm excited about it. They're like, ah, maybe you should have it checked.

You know? So they come to, you know us, we do evaluation. And they, they check and they go, okay man, this, this independent sponsor looks really good. They go through this really long process and they start getting deal fatigue. And then the, the retrade starts to happen and then that number starts to drop and drop and drop.

They've taken their foot off the, the, the growth of the company 'cause they're kind of managing multiple sides of the deal. And then what happens right now, is this a strategy that independent sponsors not all. But is this a, is this a buying strategy to actually get businesses for really good prices?

Chase K: It's a symptom for when you, you don't have access to capital. 

Jude D: Yeah. Regularly. Getting access to capital to pay market value for businesses is incredibly hard. You have to have a great reputation. Uh, and in the world of financial buyers, there's a small percentage of them that have any money. So if you wanna know what an independent sponsor is, you know, imagine you're selling a $10 million house.

And somebody comes along in a Toyota Corolla and they're trying to kick the tires and look at the house and tell you they love it, and they put in an offer for 10 million bucks. You say, oh great, let's sign it up. And they say, great. I don't have any money, but now I'm gonna go try to convince somebody else to give me the money to buy your house.

And then they go talk to all their buddies who say, okay, I'm in, I'm in. Uh, we'll give you $6 million. And so that guy says, okay, I know I signed a deal for 10, but now the deal's six. 'cause that's all the money I could get. That's what the independent sponsor world is. There's some good ones out there too.

So I don't mean to paint with a broad brush, but I'd say that's the majority of the independent sponsor world. That's how it 

Joshua W: works. How much time did that take out of the business owner's life going down this route? Like is this a month, two months, six months, a year? 

Jude D: Oh, it's six months to a year. It's not a quick process because the entire time it's happening to you.

The independent sponsor is looking you right in the eye and telling you that everything's on track and they're doing diligence and they're doing quality of earnings and they're doing legal, and all these processes are happening and you're proceeding as though you're about to sell your business only to then get, you know, a week or two away from the finish line to realize it's actually 70% the number they told you.

Joshua W: Let's do a little bit of education and training on what are some signs to look out for so that. Business owner might not go down that path. What are some questions that they can ask? 

Jude D: Yeah, ask 'em if they're funded. Um, but you know, ultimately they're gonna make up a lot of stories to try and make it sound like they're funded.

They're gonna say, well, we have the same investors we use on every deal. They've invested with us so many times before. They always invest at the level we tell'em to. And it's like there's an independent sponsored playbook somewhere and that is the script that's riffing it. 'cause they all say those words and they seem like really trustworthy guys.

And so you kind of believe it and you buy into it. The reason we're so su successful at what we do is we're not waiting for those buyers that come to you looking for an off market deal. We're going to the buyers that we know have enough money to compete. And so here's a, a telltale sign that you have an independent sponsor.

You bring 'em a great deal. You have a market valuation based on comparable transactions, and you want them to compete for this really great business. Most independent sponsors will tell you, we don't engage in competitive processes. And why do they say that? Because they don't have the wallet to compete and win.

Scott S: To answer your question though, another thing that I don't know if you could ask, but just doing your research is at least try to see if and what other deals that that group has closed. At least see a track record like Jude said, that they've at least been successful in the past at securing capital, maybe not at valuations, that you'll never know That part, that's often not disclosed at at least some proof that they've closed in the past.

Joshua W: Track 

Scott S: record, 

Joshua W: right? So the, the business owner went down the path themselves trying to sell it, maybe got approached by an independent sponsor, maybe burnt a year. Luckily, the business is still growing and then they come, you know, now they're interviewing, we know we need an advisor. So they've interviewed, you know, three to four advisors.

What questions when it comes, you know, to that initial conversation. We know what questions we're trying to ask them. Let's arm some of the business owners out there. What questions should they be asking us to know that maybe we're the right team to help them? 

Chase K: How are you compensated and have you closed deals recently?

So, um, we're a success based firm, so we're not paid to list companies or not paid to sign clients. We're paid to sell companies, period. Uh, so how the firm is compensated is key, and then because that's what motivates your advisors day to day, right? For us, it's a closing. So, uh, every day we're trying to most quickly and efficiently accomplish the goals of our clients.

Uh, and then also, yeah, are you capable of closing deals? What's your track record? Right? So those. Those are very important. 

Joshua W: And if the, what, what kinda, what kind of answers would, would you assume that a, uh, a business owner might receive that they should be like, you should walk away from that advisory immediate, if you ask those two questions, how are you compensated?

And have you closed any deal lately? What questions should the business owner go, all right, I'm not talking to the right advisor. Let's move on here. 

Scott S: Yeah. I think it's a, it's almost a double-edged sword because. Most advisors or firms that are paying or charging upfront fees and retainers mm-hmm. Are gonna tell you the whole, the market's gonna tell us the valuation, which is what the client wants to hear.

'cause they always think their business is worth more than it really is. But it's not the advice they need. 'cause they're gonna waste six months to a year running a process where they never get the market value that they were promised. Um, but it's successful 'cause the firm gets their upfront fees and their monthly retainers.

Um, so it's a great, to me, a great line to get clients signed up, but not a great line to get them a closer. Yeah. You know, the, the 

Jude D: easiest way to con someone is to tell 'em a lie that they already believe, and business owners have this tendency to think that their business is worth more. Than any other business, or it's worth more than similarly situated businesses out there.

And, you know, sometimes that's true to an extent. Uh, there's, there's some great businesses that we've sold and they've optimized everything they can to make it worth a little bit more. Um, but there's this, you know, built in belief that a lot of business owners have that if their business is worth four times, because it's.

So special by comparison to everything else in their industry. Theirs must be worth eight times. And it's just not true. There's not a buyer out there that's gonna pay eight times for it. Um, and so we, our industry gets a bad name because that why that they already have kind of sitting in their mind is so easy to manipulate.

You can come in and say, Hey, look, we're gonna let the market decide what your business is worth. Yours isn't like anybody else's business. Don't worry about comparable transactions. Don't worry about what other businesses have sold for and what a typical multiple of earnings is. Don't even worry about what a bank would lend.

You know, there might be a buyer out there that has just piles of cash and they think your business is worth so much more than anybody else. So we're gonna let the market decide. And it's like you have to wave your hands in the air. The market will go aside. 

Speaker 6: Yeah. What

Jude D: your business is worth. Um, and it's really great for the advisor.

Who is charging an upfront marketing fee and who is charging fees every single month because the market keeps deciding every single month that your business isn't worth, worth one, and they keep getting paid. So 

Joshua W: the market's deciding that that advisor should be getting paid a monthly retainer month 

Jude D: after month after month.

Yeah. And that's why most of those firms have five year engagements. They're getting paid monthly for five years. 

Chase K: We don't get engaged like that. We get engaged with sell businesses. Yeah, we're, we're gonna invest 2000 hours in a six month process, and we get paid if it closes. We don't want to mislead anyone on valuation.

We need to all set, we need to set realistic expectations, and we need to all be on the same page to move forward because we don't wanna waste our time. And, uh, I'm pretty sure the seller doesn't wanna waste theirs. There are enough bad actors, however, in this, in this industry, that, you know, you go looking for an answer.

You go knock on a few firms doors, you're gonna get the answer that you're looking for. Going back to what Jude said, 

Scott S: it's not just sellers either. I, I've seen it with, you know, really good buyers will typically ask like, what is your value valuation expectation for this deal? And we usually answer them, right?

We'll say, Hey, we think it's gonna land here. Obviously we want more, but so often they're told the same, that we're gonna let the market dictate what it's worth. And these buyers know what they're doing. They don't want to hear that. Um, so they almost seem relieved when we actually have a transparent conversation of this is what we expect, this is what our client expects.

Chase K: Yeah. Buyers want to know they have a shot, right? They want to, they want to know that they can actually close this because there are other deals to look at, especially good ones. So yeah, they, they, we, we always look them in the eye and say, look, based on comps and feedback so far. Yeah, here's the range. Um, we think we can get it a little more competitive, however, um, and, and, and get here.

So, and very often we'll have a preempt number in mind. So if someone wants to preempt the process, 'cause once again, our, our goal is not to complete the process or, you know, check the box on a sales process. Our goal is to close. So if that means someone wants to come in hot and preempt this process because they're willing to pay, pay a premium to eliminate competition, well, if it aligns with our goals, uh, with the goals of our clients, then so be it.

Joshua W: Um, so this is, you know, we're having a chat around the table, a deal review committee, right? We're taking a look at some of the deals that come through. Uh, the sellers wanna sell and we're looking at, you know, maybe five deals at a time and we say, man, out of all these deals, these are two that we shouldn't do as sell side advisors.

Why would we not take on a client, you know, to represent on the sell side? Like, we could just sign everybody up, right? Yeah, I'll sell your business. I'll sell your business, I'll sell you what? But why would we say no? Maybe give us an example and, and why? 

Jude D: We do it all the time. Um, businesses without earnings, we're gonna say no just about every time.

Um, and we, we've been down that path too many times trying to sell a business that has the next great mouse trap or whatever it is, and, you know, it's going to be so lucrative and there's so much potential. But if it doesn't have earnings, uh, you can't lend on it. If you can't lend on it, buyers aren't gonna be interested in it.

And so that's gonna be number one. Um, but two, we're, we're looking for all of the. The best practices in a business, you know, we're looking that they aren't too concentrated around the owner, that they've got scalability, um, you know, that they have some assets or some consistent earnings that you could lend against.

And ultimately what we're trying to decide is, is there a marketplace for this business? Are there buyers out there who are gonna, you know, take a swing at this business and come buy it? And so if we look at a business and determine that it's gonna be really hard to sell, it's gonna take a really long time or, or too owner centric, 

Chase K: you know?

Jude D: Yeah. It's too owner centric and we can't sell it. Or, you know, for whatever reason, you know, the industry's tough. Uh, you know, project based construction businesses are hard. And so, uh, you know, we're gonna look at those with a little bit more skepticism and need all the stars to align just right. If you come to me with a recurring revenue SaaS business.

We'd be like, great, we'll sell that tomorrow. So, you know, obviously we're gonna pick clients based on what aligns with our goals. You know, we're looking to find companies that we could sell and we could sell efficiently, uh, 'cause we're not getting paid by 'em. 

Joshua W: So group comes to us and they go, you know, what question they should be asking the advisors?

And this is, I think, a good topic to, to explore is how are you compensated? And, you know, what are some of the last deals you closed? So give us an example of our compensation structure and how we approach that. And then maybe give, give, 

Chase K: I have another 

Joshua W: question they should ask. What's that? 

Chase K: Uh, what type of buyers would be interested in my company?

Joshua W: Okay, so I think that's enough. How are you compensated? Have you closed any deals lately? And what kind of buyers do you think would buy this company? Okay, so why don't we. Why don't we answer some of those questions? 'cause people are gonna have those questions 

Chase K: when we're trying to decide whether or not to take on a new client.

We're trying to see how competitive that deal process would be. And, um, one of the, one of the, you know, characteristics of a process that makes it most succ successful for the client is that you can, you can drum up interests, uh, from different buyer categories. Um, sure. Sometimes there's a company that you know, Hey, we really don't think this makes a lot of sense for financial buyers, but corporates would be all over this.

But you have to also understand that the corporate buyers competing are going to, they know that, um, financial buyers aren't gonna be interested, and so there's going to be an inherited discount on the, on the valuation. Um, and so you, you have to get creative and. And how you're gonna drum up that buyer attention.

And so those are all things that, that we think about. So, um, knowing which types of buyers your, your business will attract, um, gives us insight into how competitive the process will be, and then how does that impact the final sales price. So it's all related, right? 

Joshua W: All right, so when, when looking at a business, you can kind of see these are the type of buyers or buyers.

Did that make sense? I blacked out. Well, what, what kind of buyer groups are there out there, right? So I'm bringing you a company, I'm a mid-market company, and I'm, I'm bringing you some, some potential here. What kind of buyers would buy my business? What kind of categories would you see? 

Chase K: Yeah, I mean, typically you're gonna have, um, large competitors or publicly traded companies, you're gonna have, um, financially backed, uh, companies who are just large platforms for private equity firms, and then, uh, private equity firms, financial buyers that are looking for a new platform to invest in.

Yeah, that's, that's your typical buyer, buyer categories that we see 

Speaker 5: Is there anything of that nature that a seller needs to understand? We go, when you, you know, 

Chase K: you take the business to market. Yeah. You can be more flexible, the more attractive the company is. Um. So there are, yeah, trying to time it perfectly. Um, you're talking about buyers that are in the market looking that, that can, there can be some cyclical, uh, so many barriers, cyclicality to 

Scott S: that.

Interest rates being a big one. Um. The biggest one I would think. 

Jude D: Yeah, 

Scott S: interest rates 

Jude D: are a huge market driver. Massive. So, yeah. Yeah. High interest rates hurt the deal market. You get low interest rates now. Debt is very cheap and it's very easy to go buy companies. Um, I think rather than broad industry trends, it has a lot more to do with buyer specifics.

And they do go through cycles, and we see that all the time that we'll approach a buyer with a deal. And it's perfect for 'em, but it's just a bad time. Yeah. They're right in the middle of two other processes on two platforms, and there's no way they can take on anything new and it's just, there's no way to predict that.

I mean, it'd be, it'd be great to know that before you're going to market and be able to, you know, get that timing just right, but you're not gonna see that. The good news is we're approaching enough buyers that. You know, even if it's the wrong time for half of 'em, we can build a great process with the other guy.

Chase K: Yeah. And we make a call as a team, perhaps waiting a few weeks to get that buyer up to speed will allow us to create more attention and maybe, you know, tighten the screw a bit on, on the others and, and, and, uh, lift evaluation or, or perhaps, um, bids were coming in with a little. 20% earnout, maybe we can eliminate it by bringing this buyer in, right?

So we, we make a, we make a call, we round table it, we talk to the client and we get a feel to figure out whether or not it's worth waiting. But if there's five 

Jude D: really well-funded buyers that are all hot to trot on a deal, there's not a thing we're gonna do to try to slow that down. We're gonna push as fast as we can to get under exclusivity with one of 'em.

Um, it's, you know, if the deal process is a little bit slower and we just feel like we need that. Little bit of extra momentum. Maybe we bend a little bit to try to get that right buyer in the mix. Timing 

Scott S: with timing with private equity, just the mechanics too of, you know, if they're raising a fund, for example, uh, maybe their strategy's been played out, they're now looking to exit companies, or they're in the process of establishing a new fund.

There's timing, things like that too, that could, you know, not in our control. Just the nature of how private equity operates. 

Chase K: Yeah. And, and usually when a, a buyer decides not to participate, uh, because of timing, they're usually like an incredible buyer and they sort of want to see whether or not we have other interests.

And uh, and I usually get a phone call like, oh. Why y'all didn't wait. That was, that was such a great company for, and it's like we told you we had other buyers. We weren't bluffing. There's time 

Scott S: public companies too, just 'cause they have, you know, disclosures and quarterly earnings and different things there too that they may try to time when they facilitate transactions also.

Joshua W: All right, so as a, as seller, bringing a deal to the table. I, you know, I, we, we answer some of the recent deals that you guys have sold worked on and also throughout the career and, and some of the things that you guys do to, to bring to the table. We have, uh, what kind of buyers? Now let's talk money, right?

You guys are gonna do. Valuation, which takes a lot of work. You're going to, you know, start knocking on doors, you're gonna prepare all sorts of documents and financials and start doing that. A lot of round table discussions, you're gonna start having tons of meetings and conversations with external buyers, right?

Like, there's a lot in that process. So how do you guys get paid? Right? Let, let, let's go over that, because I think that that's a conversation that must happen before they sign that on the dotted line, right? Can I answer the first part? 

Scott S: Sure, please. I think there's a. Big myth about valuations. Okay. So we have lots of clients who ask us to do valuations.

Yeah. And we can do them very quickly and they're always surprised when they send us as a follow up, the a hundred page report that they spent 20 grand on. And we nailed it with a one page overview. Um, there's a lot that can go into valuation, but we look at valuations from what will the market pay for your company?

Um. And it's a science, but it's also, you know, there's data to support it. Yeah. Um, so just something interesting that, that the pretty a hundred page valuations don't always tell you much more than what you can figure out rather quickly when you got a lot of deal experience. 

Jude D: You know, too, like we, we've had so many that come in and like from the gut, we just ballpark what the evaluation is.

And then somebody goes and does all the work behind the scenes to try to figure out the comparable transactions and all the add-backs and whatever. And I mean, we're a plus or minus 5%. Yeah. So we'll, we'll do it 

Chase K: onsite and nail revenue within a couple million, like standard deviation. Like Yeah. There's just no substitute 

Jude D: for experience.

So like we've seen it enough times, we know what we're doing. Um, we get paid purely on a success fee. So, you know, at the closing table, whenever the client's getting paid, we take a portion of it. Um, and the amount of that success fee can vary based on a lot of things. Um, you know, size of the business being a big one.

You know, if we're taking a, a small business that's, you know, $2 million in EBITDA to market, um, that'll be a very similar amount of work to us as taking a 10 million in EBITDA business. Uh, to market. And so, you know, we can't compromise on our fee too much on a smaller business. Other things are, you know, how, uh, difficult the sales process will be, how long the sales process will take.

So if we take a heavy construction company that's all project based to market, knowing that it might take a year or 18 months, our fee's gonna have to be a bit higher than if we're taking a, a small SaaS company to market. Um, and so all of those things factor in, um. You know, but the things you just said about, you know, all of those steps that were taken, the valuation we're doing, the internal due diligence, the crafting marketing materials, taking it to market, negotiating with the buyers, doing uh, you know, buy side due diligence, quality of earnings, legal, all those different steps, like we're doing that without getting paid.

All on the belief that we're gonna get to that finish line, get your deal closed, then we get paid. Then it's very easy at that point to look backwards. And like we've made the whole process very simple for our clients and they look backwards and go like, man, this was so much easier than I thought it was gonna be.

Like, why did I agree to pay y'all that percentage? Yep. Oh, no, no, no, no, no. We haven't been paid anything. We've been working our butts off getting it here. So, uh, every now and then we get that conversation. I can't blame anybody whenever they come and, and, you know, take a stab at it. Hey, you mind reducing the fee?

No, 

Chase K: no, we've got you a great deal. 

Speaker 6: Yeah. 

Chase K: And that's part of it. You know, we, we protect them. We take all the blows and hits and we're lit on fire at the end. And, and, uh. But that's what we do. You know, I think that, 

Joshua W: go ahead Scott. 

Scott S: No, I was just gonna say to add that we're extremely confident in our process and the way we run it.

Um, we often tell clients we may not get you the number that we think we can get you, but we are almost positive we will get you the best offer that's out there. Um, we will exhaust the market and our process will extract the the best offer bid. Maybe less than we thought. We've been wrong. We're not always right.

Um, say more times than not, we get higher than we expected because of the process, but, uh, we are confident we will get them the best offer 

Jude D: available. Yeah. We're usually pretty conservative with our evaluations, so it's, it's rare that we get surprised on the downside. Um, you know. We say no for that reason.

Sometimes it's like when we know a business is gonna be difficult and it's not gonna attract a lot of offers, we'll tell a client no, uh, that we're not gonna take 'em on. Uh, but usually whenever we sign 'em up, it's because we know it's gonna be competitive. We're gonna go get a number that hits our valuation.

Yeah. 

Joshua W: So I think that's a, it's a great compliment when the, the client says. Man, that was a lot easier than I anticipated, or what I experienced in the past. That's, that's a great compliment to have. But they didn't see the, you know, all of the moving parts and the thousands of hours that has been spent on that one deal.

Creating the competitive market, talking to all the buyers, creating that fire tension, which you've kind of pointed out, chase. And that leads up to them saying, I choose. This team here to represent my business. Kind of in the next set of, uh, things that we create as a part of this video series will be what do we do now that the deal's signed?

But today, that's all. Thanks guys. Appreciate it.