How Banks Really Evaluate Middle Market Deals

Josh W: Good day everybody. Welcome back to The Deal Podcast. Um, this is powered by FA Mergers and we're, we're really focused on the middle market, m and a deals, sell side advisory. We, we love deals and, and one of the missions that we created for this show, the, the reason that this show exists is to meet with great deal makers and as we learn from each other to share it with the community, right?

So that's mission number one, is to learn and grow ourselves. But secondly, we love deals. So if you have a deal out there, like let, let's talk about it maybe on the show, or maybe let's do a deal together. So bringing in deal makers, sitting in the seat. We're here in Lafayette, Louisiana, in studio, uh, to to record.

And we're here with Mr. Larry. Welcome to the show, buddy. 

Larry A: Thank you. Thanks Josh for having me. Appreciate 

Josh W: it. Yeah, absolutely. So let's start with this. Who are you and what do you do? 

Larry A: Yeah. Um, I'm Larry Atten Hoffer. I, uh, I'm a middle market and commercial banking manager with Hancock Whitney. I've been banking for about 30 years.

I've been with the, with Hancock Whitney for the last 26. So, um, really just focus on those middle market and commercial, uh, customers and that 5 million and up revenue range and, uh, that's kind of our sweet spot in my group. 

Josh W: Okay. Explain what middle market is for. People might be listening then they, they might have absolutely no clue.

So, yeah, 

Larry A: I, you know, everybody may have a different definition of middle market. Uh, in my world, middle market is 20 million and up in revenue. Um. Uh, some other institutions may have a higher ceiling, but that's, that's our sweet spot for middle market 20 million and up. 

Josh W: Okay, got it. And are you guys focused, uh, like geographically wise or niche wise?

Industry wise? 

Larry A: Um, Hancock Whitney, of course, we're, we're uh, really an I 10 base bank from San Antonio to, uh, Tampa. Uh, we, we do have an, uh, presence in Jackson and Nashville, but really the I 10 Gulf Coast Corridor. Um, and in, in the kadana regions, we, we cover, uh, the Lafayette market and the surrounding parishes.

Josh W: Got it. So you've been commercial banking for, for a while now. Experience my whole career, yeah. Okay. 

Larry A: Got it. 

Josh W: How did you get into commercial banking? 

Larry A: That's a good question. Um, uh, graduated from LSU with a degree in finance and, uh, really went through their career services program and got connected with Hancock Bank at the time and went through a very robust, um.

Two year training program with Hancock Whitney, management Development Program. And, uh, the first six months really just going through every department of the bank, spending a couple weeks trying to figure out what I wanted to do. And at the end of that program, it's kinda like speed dating. I picked my top three departments and if they had a match, they matched.

And mine was commercial banking. So I spent, um, 18 to 24 months in credit analysis. Really just in the nuts and bolts of, uh, of a deal and, and, you know, worked my way up from there. Okay, 

Josh W: so starting in credit, let, let's begin with analysis, right? Yeah. Like what, what makes a good deal? What makes a bad deal?

So you were looking at those kind of, you know, a, a piece of paper came across your 

Larry A: Yeah. 

Josh W: Desk, here's an application, and your job was to do what with that? 

Larry A: My job was to break it down. So I, I would get, you know, someone's financial statements and we call spread 'em, put 'em, commonize 'em, put 'em together, look at three or four years of history.

Um, identify trends, um, identify weaknesses, strengths. Um, if you found a weakness, try to mitigate that weakness. Um, really just putting it, you know, putting a deal together in a narrative format for the end user to make a decision on. Okay. So who's, who's the end user in this case? That would be our credit officer, or at that time it was a loan committee.

Today it's a, it's a credit officer. Okay. That approves a loan. 

Josh W: So you get a stack of papers, applications, and you're looking through this and you're, you're not able to, you know, to see the person or to see the, the, the deal. You could only see numbers and, and what's on this piece of paper? How do you, how do you, you know, what are you looking for?

For maybe potential red signs, red flags to go. Maybe that's not a good deal. Or maybe let's just start there. 'cause I got a follow up to that. So what's not a good deal? Yeah. What's not a good 

Larry A: deal? I mean. I'm a balance sheet guy. I, I look at the balance sheet. I know the income statement is what, what everybody normally goes to.

I love looking at a balance sheet. I think the balance sheet tells the story of a company. It tells you the history. Um, I can tell a lot about reading the balance sheet, but if there's any irregularities to, um, the financial statements to the balance sheet, if I can't reconcile it to previous years, to me that's some red flags.

Um, maybe something's not reported correctly or missing. Um. Uh, you know, uh, I look at the equity section. Has the company built up profits and equity in the company that hasn't, that, that could be a red flag or maybe there's a good reason why. And so I look for those reasons and hopefully the balance sheet can tell me those reasons.

If not, it would require a follow-up question with the client. 

Josh W: So it paints a picture for you and you're looking for, Hey, does this line up, does it, does it balance right? Like it, does it actually follow the financial principles and then you're looking for it to paint a picture? Explain, or maybe give an example of how it paints a good picture and then maybe like a, Hey man, maybe this isn't, maybe there's something missing here.

Yeah. Where it paints a bad picture. 

Larry A: Yeah. You know, on the balance sheet, um, I look at a couple of things. Uh, two to three things. Working capital current assets minus current liabilities. If that's negative, that's a red flag for me. Uh, as you know, that's, that's basically, uh, do they have enough assets that, that are liquid or, or can get access to within a year to, to cover their debts that are.

Uh, do within a year. So do they have cash to, to operate? Um, I look at working capital. I look at leverage, uh, uh, debt to worth, um, your liabilities. Um, over your net worth. Uh, a good ratio is probably three to one. The lower, the better you want lower leverage. Um, also, uh, on the, the larger size transactions and, um, more of the acquisition type financing, I may look at a cashflow leverage.

Of course, that's not, uh, that'll take both the income statement and the balance sheet. Um. Uh, look at cash. Uh, any trends in cash or receivables? Uh, there's a lot to balance sheet can tell. Um. Uh, but, but those are probably the main points for the, the balance sheet. 

Josh W: Okay. Yeah. So super interesting. You're taking a look and this, this is how you got your start is is as that analyst going in, and then you moved to a different role.

You said you did that 18, 24 months or so. What was that next role that you moved into? At banking, 

Larry A: it was more of a junior role. Uh, I was in corporate lending group with Hancock Bank and more of a junior lender. And from there I evolved into a business banking role, uh, on my own, inherited some portfolios.

Business banking was the smaller segment, probably, you know, the 5 million revenue and less great companies. Uh, but, but probably a little more complex because the financial reporting's not as, as sophisticated. You won't see as many reviewed and audits. You'll see more tax returns in that business banking segment.

So a good way to, to come up in the bank, uh, through the business banking world 

Josh W: for sure. So you, you talk about maybe levels of sophistication, you know, under $5 million it might be. Here's a, you know, shoebox of receipts and here's a tax return, and, and here's our story, here's our bank statements, right?

Mm-hmm. Once they hit a certain level, they get a little bit more sophisticated. We have a bookkeeper, we have maybe a, a controller or CFO that comes in and they use, they might be using GAP to, to kind of prepare their financials for you. As you, as you played in that smaller business role though, what did you learn that catapulted you forward in the middle market?

Larry A: You know, probably one of the biggest sticking points, and I've helped clients through this, um, and it, it seems common, but a lot of business owners don't understand it 'cause they're worried about the tax return. Um, the tax return provides a lot of good benefit for paying taxes, but for bank underwriting, it's, for me, it wasn't as beneficial because of the cash basis versus accrual basis.

Mm-hmm. Um, so I found, found that more of the business banking clients relied on tax returns and, uh. If they didn't have the compilation of the review, there was more gap accrual based. And that was probably the biggest challenge in that segment. But, uh, what I was able to do, I think, you know, as an advisor, uh, not just a banker, but an advisor was, show them that, hey, um, on a cash basis, this still may not work, but ask, go back to your CPA, let's do this on a gap basis and see what it looks like.

Throw your receivables in, throw your inventory in, and, and let's get a true picture of what. Your company looks like. And it, it's, and what I've found, it's a completely different picture. Nine times outta 10. And so that's what I mean by sophistication is just getting a, another level of accounting. Have another advisor, CPA, that's, that's in your, in your corner, 

Josh W: right?

So middle market deals, we start getting into 20 million in revenue. You start to see, uh, you start to see a little bit more record keeping. You start to see a little bit more structure. Things go in the right column more, more often than not. So now you're looking at a, you, you moved more into that junior role and you started learning more about the middle market.

You're getting bigger deals, bigger opportunities to kind of see what, what kind of, what kind of deals are applications are coming across your plate at that point. What do middle market companies need? 

Larry A: Yeah. Um, a lot of acquisition, uh, m and a activity. Okay. Um, uh, equipment finance, expansion plans. Um. C and I, uh, most of the businesses that we deal with on the the middle market side are commercial industrial that, that really, uh, utilize operating lines of credit.

Mm-hmm. Um, working capital needs. Um, and, and really just understanding that cycle. Uh, 

Josh W: got it. So. Some categories that I heard. I, I think in terms of categories mm-hmm. We've got m and a mergers, acquisitions, right? I want to buy a company. I need some, you know, financing to do that. I can't write, strike a check for, you know, a hundred million bucks equipment.

Right. There's some financ in there, uh, real estate. But, uh, CNI explain what CNI is. You say you, you guys have done a manufacturers, 

Larry A: wholesalers, distributors, uh, those type of businesses. Okay. 

Josh W: What needs might they have? So they come to you and they go, Hey, we have some needs. All of them need a 

Larry A: working, a working capital line of credit.

Everybody needs a working capital line of credit. Um, and there's a lot of benefit for that. Um, if you're, if you can sell fund, that's great, but, uh, a lot of our clients will use a working capital line to take care of, to take advantage of, uh, discounts, uh, trader discounts, uh, or vendor discounts. Um, uh.

They need it just for timing differences. 'cause it may take 60, 90 days to collect on a receivable. So, you know, we're able to fund some of that up front and then, you know, they pay the line down as they collect. 

Josh W: Okay. 

Larry A: Or to purchase inventory up front to sell and to convert it to receivable. 

Josh W: Got it. So that, that whole process for a manufacturing group, you know, I, I've never, I guess I have worked on a manufacturing loan before, but you know, from.

The order placed to actually being delivered to then 60, 90 days later. Actually getting paid could be a long thing. So that, that working, that working capital line of credit can help make sure you don't go bankrupt building the, the, the widget or gidget. Right? Yeah, yeah, yeah. What other benefits are there for, you know, working capital line of credit?

Larry A: Um, we, we don't really like for it to be used for a, um, a. Fixed asset purchase, you would normally want it to match the maturity of, or the lifespan of what you're purchasing. Um, uh, line of credit can be used for payroll. Um, you know, you, you may have a client, you, you may, well, I do, I have clients that have make payroll on Friday, but they only bill monthly.

So they pay weekly, but they, they bill monthly. So you have a four pay, at least four payrolls, uh, probably eight payrolls before they actually get paid. That they have to front up front before their money comes in. 

Josh W: Yeah. Got it. So take us through you. You know, you, you, you were a junior banker. Yeah. And then you, you started to advance what makes a good junior banker, because now you're on the, you're on the side of, uh, you know, higher levels, you know, for, for people that advance in their, their world and shout out to LSU, we have a lot of friends, uh.

Here in the office that went to LSU? Yeah. And you know, a good friend Rick went to LSU and, and he's involved in the finance group over there. But you know what, what makes a good junior banker, 

Larry A: a good junior banker? You know, probably one word for me would, is humility. Humble. You come outta college, go through credit.

You think you know more than, you know, uh, learn from the guys that, that have been doing this for a long time. The guys that have been there and gals that have been there 20, 25 years, 30 years experience is, uh. Is can't, you can't teach experience. So I think for me, listening, being humble and uh, trying to absorb as much as you can, learn as much as you can from the people that did this before you and made many mistakes, and they're trying to teach you not to make the same mistakes.

Um, that, that's, that's probably the best. 

Josh W: Got it. So a, a junior banker mistake might be, I know, you know, I, I know this, this is easy. You know, this was just like. I, I learned in the textbook and I, I approve this. Yeah. Push it up the line and you, and then it gets pushed back down. What might that mistake be?

Larry A: Uh, you know, I could think someone back in my career, it could be something policy related, like, um, uh, uh, maybe closing on a loan before the appraisal was ordered. You can't do that. I mean, that, that's something that you, you just can't do. Um, luckily everything worked out, um, right. You know, some. Trying to think of some other mistakes.

Um, there weren't anything, nothing really big. Uh, it's probably more just the way you communicate with people. Yeah. Uh, communication is key and, uh, uh, and treating everyone with respect, um, for sure. 

Josh W: Yeah. And there might be industries that are against the, the, uh, banking. Core mission or core vision or, or core, uh, values, right?

That might buck up against this. How do you feel, um, the world of maybe AI is affecting those, those position roles, the analyst and the junior bankers? 

Larry A: I think there's a place for ai 

Josh W: and 

Larry A: I think it's coming. If it's not, if it's it, it's here. It's starting to come into our world already. 

Yeah. 

Um, but I think it's gonna make us more efficient.

But at the end of the day, you still have to have the experience and the people behind it to interpret the ai. The AI can't make every decision for you. Um, you have to have something behind it. I, I, I think I'm more on the analytical side and the financial statement spreading. Mm-hmm. Um, you should be able to put those in the AI system and get pretty quick results.

So, you know, going back to my credit analyst days, that that could be an area where. You could see some more efficiencies through AI that I see in my world. 

Josh W: Yeah. So this is, this is great, Larry. So you we're, we're kind of taking the, the path of, of finance, right? We're, we're, we're building the career path for finance.

And you start analyst, then junior banker, what's, what's next after junior banker. 

Larry A: Well, and, and so then from there I went into, like I said, the business banking world. Mm-hmm. Took 'em up, took two portfolios and, and ran with that for a couple years. Uh, just to get, you know, some more experience more on that, the, the 5 million and under revenue size companies.

Yeah. On my own without, without any work or any help, but also prospecting and developing new business that the other side of the business, um, not just the analytical piece, but going out and getting business on your own without having, being that junior guy where someone's coming in and handing you a deal and put it together.

Yeah. You know, be responsible to go get your own 

Josh W: business. Got it. Before we go into Biz Dev, let, let's talk about, you said you, you, you had a few portfolios. Yeah. What, what do you mean by that? 

Larry A: So we had a couple people retire and, uh, they needed somebody to take their loan portfolios. Um, you know, it might have been a, a $30 million portfolio combined.

The two portfolios. Okay. And this was, uh, 2001, I think. Got it. So it's been a while. Um, yeah. So really taking that existing book of business, growing it, and getting know those clients that don't know me. Yeah. And, uh, and, and trying to grow that book. 

Josh W: Got it. Okay. So Larry, I'm now working for you, right? Yeah.

And you're, and you're teaching me the world of business development for commercial banking, right? You're like, all right, Josh, step one, here's what we need to do to go get some deals. Let's go. 

Larry A: Yeah. It's a relationship business. Um, uh, I think everybody has a different style. I think this, what the question you're asking is really hard to teach.

I think it comes down to your personality and your style, and the person that's sitting across from you. You gotta adapt to the person you're trying to talk to. Um, the worst thing you can do is not talk to somebody and be afraid to make the phone call, make the phone call, uh, make the introduction, work the rooms.

Uh, that's how I think you do it through my successes have come through the social aspect first. Try to get to know people, uh, uh, understand who they are, where they come from. You know, learn about 'em a little bit before you go in and, Hey, I work at a bank. Can you come bank with me? You gotta, it's, it's all about relationships and, uh.

And, and, you know, you continue on from there. Yeah. Um, that's a hard part to teach. And I tell someone coming into the bank, I can teach you the credit side, the, the business development side is, is the hard part. Yeah. 

Josh W: Where did you, where did you find that you did well in business development?

Larry A: It's a great question. Um, probably getting involved in the community, uh, business development. So, um. At one point, probably at my peak in Lafayette, I was on five boards at one time and now, so I, I don't join a nonprofit board for business development. That is not, that. Joining a nonprofit board is one of our core values and that's why I do it.

Um, but from that, I meet people in the community. I'm at social events, social functions. And what I try to do is, is talk to people at these events, but also make a mental note or, or a handwritten note and follow up with that conversation later on. So may take a key piece of that conversation and follow up with an email the next day, Hey, I enjoy talking to you about this, this, and this.

Um, would love to have grab lunch and continue that conversation. And it doesn't have to be business related. It's, it's building relationships. Yeah. 

Josh W: Deal aside, what, what kind of, what kind of boards were you on and what, what kind of things, you know, juiced you up? 

Larry A: Yeah. You know, I have a passion, uh, for helping kids.

So, um, uh, I worked in central Louisiana for a little while and I was on the board for Casa there. Uh, court appointed special advocate or court appointed some something advocate. Okay. No worries. 

Josh W: Keep going. 

Larry A: Uh, so yeah. And so I was, I was on the CASA board and, uh, we moved to Lafayette. I joined the CASA board, and, uh, now I'm on the state board.

Cool. Uh, so really that, that organization is near dear to my heart. Um, uh, uh, Lafayette little league. Uh, my son played baseball, so I, I said, well, if he's gonna be there every day, I'm gonna get involved and be on the board there. Um, uh, I'm on the board of United Way. Uh. Uh, leadership Institute of ACA at one point, so mm-hmm.

Uh, you know, various boards of different interests, but, uh, my, my, what's near and dear to my heart is helping kids. 

Josh W: Kids. Yeah. So, I was on the allocator committee for United Way. Okay. How did, uh, you know. Every day people are asking for money from, you know, from nonprofits or these foundations or these organizations.

How did your job as analyst, junior banker, senior banker, help you with these boards and boards decisions? 

Larry A: Um, you know, I think every time you get on a board and they know you're a banker, it gravitates you to the finance committee. Sure, absolutely. So, um, I think the credit analyst background helped me. Uh, in those roles.

I think every one of those boards I just mentioned, I was a treasurer or director of the finance committee. So, um, yeah, that, that, that was the strength that I brought to those boards is trying to help them make financial decisions, analyze financial statements to make sure everything was in order. 

Josh W: Yeah.

Very cool. So as you progress through your career, you know, what's your focus now? What, what is your roles and responsibilities on a day-to-day basis? 

Larry A: Yeah, so now I manage a group of, uh, four, uh, commercial and middle market bankers. I do carry a portfolio, probably 80% of my time is working with that group, making sure, or helping them hit their goals.

I'm only successful as the group is. Um, the other 20% is for me, business development and, uh, managing my portfolio. 

Josh W: Okay. Very cool. Yeah. What's the, what's the next level up or the next path for, uh, a deal guy 

Larry A: like you? Um, I could do this for the next, uh, 15, 20 years and, and be perfectly happy. Um, I, the next step in my, I guess, natural progression of career, I guess it could go two different ways.

One would be the regional president, um, which is more what I'm doing now, business development, but a, overseeing the market or to the credit side and, um, uh, more of a credit role approving loans. Yeah. Um. So those are probably the two career paths for me. Okay. If, if I choose. But I'm really happy doing what I'm doing now.

Josh W: You like what you're doing now? Yeah. In in the deal process. What is, where do you find your greatest joy?

Larry A: Probably, you know, getting in with a client in the early stages of their growth plan, helping them achieve that growth plan and seeing them exit that growth plan. And what I mean by exit. Uh, every business owner has to exit at some point. 

Yeah. 

Um, but exiting and helping them meet their financial goals and setting them up for whatever their goals are, the next phase in their life.

So that, you know, we've seen that happen a few times and it's been, it's uh, it's like I had a small part in that, you know, it makes you feel good. 

Josh W: Yeah. 'cause you were there when they wanted to borrow. A couple hundred bucks to buy a lawnmower. Yeah. And then they grew it into a landscaping company and then a conglomerate.

Yeah. And then seeing that exit. So you got to see the full lifestyle. Yeah. Or the life cycle of a, a business to exit. I like what you said is everyone's gonna exit their business. Right. What are some of the things you could do to prepare for an exit, especially when you're working with a. Uh, a corporate banker like yourself.

Larry A: Yeah, I think it, it's good to have that conversation early. Don't wait till you're ready to exit to have that conversation. So I, I really think any middle market, really commercial, middle market business or, and even business maker needs to have the right, uh, team behind 'em. You need a good banker, a good CPA, and a good attorney, uh, and that those three need to work in conjunction with each other and act as advisors.

Um, you, like I say, you don't wait till. The exit's happening to have the exit discussion. There's a lot of planning that that needs to go in, in ahead of time, really more tax wise. But you do want your banker involved in that discussion as well. 

Josh W: Mm, yeah. That's good. Name those three again. 

Larry A: Banker, CPA, and attorney.

Bankruptcy B and those could be your quasi advisory board, but they, they, and look at 'em as advisors, not as, um, uh, a vendor relationship. They're really, truly advisors. 

Josh W: Yeah. And you're saying the good time to start thinking about that is far beyond, far before when it's really needed to exit. Yeah. So how do you know when that, if you, if it's before you need it, how do you know you need it?

Larry A: Well, you know, I think as a business owner starts achieving their growth plan, they're trying to think the next, what, what are we doing next? Right? So you, you know, at that point, they probably need to get that team together and start, I need a plan. I want to exit in 10 years, five years. I don't know when I want to exit, but I want to get a plan together and I need help structuring that plan.

Josh W: Yeah. So, all right. So we, we talked about the, the kind of the rosy side of, uh, deal maker and, you know, analyst, junior banker, senior banker, manager. Yeah. Right. But there's sometimes in banking, for example, in 2008 for me, I was on the spec side of real estate. Mm-hmm. I built a bunch of spec homes, $8 million worth of spec homes.

That didn't work out too good in the, in the housing market crash in Florida. Right. So I lost my shirt. Uh, when, when walking through those kind of scenarios with. You know, with the banking team, like what are some ways that you guys view that, or what are some of the, um, things that you could do to maybe hedge from market downturns or those kind of risks?

Larry A: Yeah, I mean, that, that's a loaded question. I think the first part is, is communication. Yeah. Relationships. Um, we expect businesses are gonna have downturns. I think the big key here is to communicate with your banker. Don't let your banker find out by getting your financial statement and. Being surprised, 

right?

The better you communicate, the better the outcome will be for everyone. We could come up with a plan, come up with a strategy. Um, getting caught by surprise is just, uh, you know, that throws up some red flags for everybody for sure. Uh, so communication is key in all aspects of life, but more particularly when things aren't going as well as you had planned.

Josh W: Yeah. So being proactive and calling your banker and saying, Hey, there, there's stuff is starting to get tight. 'cause you might have an option, it might be a working line of credit, right? It might be, Hey, let's repackage this, and you could drop your 

Larry A: rates or restructure some debt. Maybe move some from short term to long term.

Put it on an amortization, right? Release some payments, uh, but don't wait till it's, it's. Too late. 

Josh W: Yeah. So there's strategies that could be done and let, let, let's talk about the moving stuff from maybe a short term to a long term, or maybe bundling stuff, or maybe repackaging. 

Larry A: Mm-hmm. 

Josh W: Talk to us about some of those recapitalization strategies that you've seen work well, 

Larry A: yeah.

You know, we, we've had instances where, um, lines of credit were used for equipment, uh, real estate purchases, and really. The intended use of a line of credit, it should revolve, it should pay off within 12 to 18 months. We look at the history of that. So if we see a portion of a line of credit that may be stagnant, uh, we start having those conversations.

Is this permanent working capital? Do you have assets that maybe we could put this on a five, 10 year amortization and have a plan to pay that permanent working capital back your line of credit's? Really short term use, it shouldn't be permanent. Yeah. And so that's when, when I look at the balance sheet, I wanna make sure your balance sheet is structured correctly and that we have the debt the right way.

Josh W: Sure. Well, the, the, the shorter term is gonna have higher interest rates or faster, you know, amateurization, I don't know if I said that correctly, but the, the, the longer term, it could actually potentially lower their, their monthly nut. Right? 

Larry A: It, it could, you know, lines of credit most of the time are interest only.

So, um, it may not lower it, but it, it will definitely get a plan to get rid of it. Okay. You know. Yeah. 

Josh W: Copy that. So as you, uh, you, you said one of the things you can't really teach humility and part of a good deal maker is experience, right? So you need experience and humility going into the world of finance and banking.

Um, what are, I guess, on the flip side of that, where could, where could ego and lack of, uh, experience really get a banker into trouble? 

Larry A: I'm gonna go back to communication. 

Josh W: Yeah. 

Larry A: Um, not communicating. Uh. We're in a risk-based business. So yeah, there's risk in every deal. We have to identify that risk and find ants to that risk.

And if we can't find ants, maybe we can't do the deal. But, um, I think communicating upfront and, uh, being open, honest, uh, not saying anything again, is, is. Not the right thing 

Josh W: for sure. Yeah. So one of the, the great joys that we have in interviewing people is passing on questions. Mm-hmm. So, um, we had a interview with Thomas Hooks and, uh, he has a question for you, and then you get to ask a question to the, the person coming right beyond you.

So what is something that you have recently said yes to that? In hindsight, you should have said no to. And why? This is from Thomas Hook. So you could thank him for that. 

Larry A: That I, that I said yes to, that I should have said no to. Yeah. And why? And why?

That's a great question that, that I don't have an answer for. That's so Thomas. He 

Josh W: might have to come back to you. 

Larry A: Maybe it's doing this podcast. Yeah. Now that you ask that question. That's hilarious. That's, um. 

Josh W: So let, let's, let's pose it this way. Yeah. Is you were asked who asked you to be on this podcast?

Larry A: Uh, Jude. Jude, uh, Dave. 

Josh W: Okay. So talk to me about your, uh, relationship with Jude and why did you say yes? It sounds like you're relationship driven person. Yeah. So talk to us about how you met Jude. 

Larry A: Uh, Jude and I actually went through Leadership Lafayette together, uh, a number of years ago. I'm trying to remember the year.

Probably 2014 or so. And so I met Jude through there. We developed a relationship and uh, and then a business relationship thereafter. And, uh, uh, I think a lot of Jude and when he asked me to do this, I think I might have told him though, uh, I said just not my comfort zone. But, uh, uh, I thought about it some more and thought it would be a good thing to do to, to.

To, for me to get out there and do this, get outta my comfort zone a little bit. 

Josh W: We, we've heard that, uh, a few times recently, is getting out of the comfort zone as, as deal makers. Man, it feels like we get in a comfort zone and, you know, things go smoothly and they, you know, we can, we could sail, but like when we get out of our comfort zone, you know, sometimes there's a catapult forward or a new joy found.

Right? So talk to us about that. You know, in the world of banking is. Typically risk adverse, you know, like, let's look at the risk, but there's some rewards, right? So how do, how does someone who's maybe risk oriented look at a yes like this? 

Larry A: So I have a saying, it's kind of been my motto this year, and I hope I'm answering your question if I understood it correctly.

My motto is, find a way to, yes. So I get a deal. It may not be the perfect deal, but can we find a way to Yes. Yeah. Not always. Will you find a way to Yes, but what I mean by that is, uh, can we bring a, a, an S, BA or A-U-S-D-A partner in to mitigate a risk that we're just not comfortable with? Um, can we consider a different structure?

Some different collateral to find a way to, yes, if there's a weakness, mitigate that risk and let's try to find a way to do a deal instead. It's easy to say no. It's easy to say no to a deal, but can we find a way to, yes. 

Josh W: I like that a lot. It's easy to say no, find a way to say yes. Um, you get to kind of choose the path forward.

We could talk about m and a finance and maybe some of the, the things there. Or we could take a turn towards maybe some personal development for future bankers and maybe, uh, some career advice for them. You choose. 

Larry A: Um, either way we could, we do personal development. That, that'd be good. I, I, uh, I met with, uh, a finance student last week and to try to help him, you know, find his career path going forward.

And so, uh. I love talking to, to, to, you know, I guess they're not kids, young adults that are mm-hmm. In, in the, in finance or accounting and looking for a career path. So, yeah. Um, my, I was very fortunate, my career path, uh, you know, you make decisions along the way and you don't know if it's the right decision or wrong decision, but you don't look back and, um, I'm very fortunate for decisions I've made, so, yeah.

Um, but do you want to go that route, the career path? I would love that. Yeah. Yeah. 

Josh W: So, uh. For future bankers, future finance, um, you're sitting across from, you know, one of them. What, what kind of questions would you ask them or that they should ask themselves? 

Larry A: You know, college is important. College is a great experience.

You learn a lot in the books. Um, I wasn't a book guy. I'm a more of experienced guy. And so when I'm talking to people and I'm recruiting folks, I look at your experience. And so if you're in a student or. Uh, looking to get in a finance program or, or a finance career. Mm-hmm. I think experience is key.

Internships, uh, part-time jobs. Uh, something that that shows that you've interacted with, with, uh, individuals, um, that you can work in a team environment. Mm-hmm. Um, it doesn't even have to be in the finance world, but just something that would, uh, one of the best hires that I've made, uh, in my career was a pharmaceutical rep to be a commercial banker.

And the reason I did it, his personality, his sales, he could sell. I said, you go sell and I'll help you structure a deal. Um, so, uh, you, you know, I think experience is, is, uh, work experience is key for me in college. Um, I was a part-time teller. I worked as a teller for three years in college. Mm-hmm. Uh, and said, Hey, I think I wanna stick with this banking world, but, you know, maybe do something different.

But it taught me a lot. By the way, the teller job is, is one of the hardest in the bank. It's a lot of stress. A lot of pressure. Yeah. Um, but it taught me a lot. 

Josh W: Yeah. I too was a teller. And you have to make sure at the end of the night, the, the everything balances out. Yes. If you're over a penny, you have to recount everything.

And 

Larry A: man, it could be, if you're a 19-year-old college student and you don't balance your, uh, your box, at the end of the day it's a lot of stress. 

Josh W: It's a lot of stress. Yeah. Overs and unders, man, you, they, they make you recount it. But you get pretty good at, at accounting bills pretty fast. Yes. You know, when you're with someone 

Larry A: in your face.

Josh W: Yeah, exactly. Um, this is really good When it comes to, uh, that, that student that you, you know, that you talk with, and you gave a good example. You, you met a pharmaceutical rep who's great at sales. Mm-hmm. And you said, don't worry about the deal so much. You're great at relationships, you're great at sales.

You identified a strength and you said, I'll help you on the deal side. Do you think that that idea of collaboration on a deal is actually better for the bank or better for the business? Right. Good at sales, good at the deal structure. Why not work together? 

Larry A: I think it's better for everybody. It's better for the bank, better for the client experience.

Mm-hmm. Um, it's, it's, it's a great, it's hard to find someone that, that is good both at the credit side and the. The sell side. Yeah. Um, like I said, you could teach the Creb side. Yeah. Um, you bring a deal in, we'll work together through it and after we do it a few times, you're gonna get the hang of it. 

Josh W: Yeah.

Larry A: Um, so yeah.

Josh W: Do you think it's shortsighted to say you have to run your own book of business? You have to run your own analysis, you have to like. Here you go take this and run with it to the, to the end, or do you, do you think it's better, like kind of like compare and contrast of having that team approach?

You go get, get a deal on the hook. We'll walk through it together? 

Larry A: Yeah. Um, I like the team approach. You know, doing it all on your own sounds great, but it's not sustainable. You'll have burnout. You may miss something. Mm-hmm. And you can't sell and underwrite together at the same time. Um, so I think it's good to be able to have a independent third party look at your deal, make sure that what you see it, what they see is what you see, and, and that you collaborate and agree on a, a, a path forward.

Yeah. Yeah. 

Josh W: On the flip side, there might be that analyst who's fantastic at destroying a deal, looking through a deal, shredding it, saying yes to it. Right. Like, but they might be, you know. Uh, Excel junkies, but have them go knock on doors or cold call people that might really deflate them and they might have a, you know, that they might not find their joy or success in that role.

So, pairing with someone who's extroverted, who could run deals all day. Synergy. Right? Yeah. I've 

Larry A: seen the industry change over the years too. You, you would see that analyst program, portfolio management program always. It was a training ground to be a commercial banker. Mm-hmm. Well, now that's a career path.

There's no pressure to be a commercial banker. You can be an analyst for your career and it's a great career. It's a great career. Um, just like you said, that's their strength. Go get it. Um, and, and, and we have great analysts and great portfolio managers that have made careers out of that. Yeah, 

Josh W: that's smart to have that path.

Um, and I, and I love your, your team approach to, to deal making. Um. What question during this interview about deals and about banking that I probably should have asked you that I screwed up and did not ask you?

Larry A: You covered pretty, pretty good. Um, can't, I can't think of anything you didn't ask. Um,

um, you know, a lot of things that times that comes up is, um. Is personal guarantees. Uh, that's always a hot topic. 

Josh W: Personal guarantees, non recourse. Let's talk about that. I can't believe I'm 

Larry A: bringing it up, but yeah. Non recourse financing. Um. Most of the stuff we do in our segment, by the way. We do have personal guarantees.

Yeah. 

But, but you know, it's the thing that's important to explain why we have personal guarantees. We want to share the risk, um, with the business owners. If you're signing on it, we're signing on it. We don't wanna be in the deal alone. Um, but there, you know, there is a space and a place for, um, uh, non-recourse lending as well.

Mm-hmm. And we do some, uh, you have publicly traded companies where you can't ask. CEO to, to guarantee a deal. Um, and you may have some low leverage, um, uh, really seasoned, strong companies that, uh, you feel comfortable without that personal guarantee. Mm-hmm. Uh, really that personal guarantee provides another source of repayment.

We always look for two sources of repayment, so gimme two sources, and then I may not need a personal guarantee, but, uh, you typically look for, uh, business cash flow as the first re uh, source of repayment and then guarantor support. Uh, and then sometimes the tertiary will be your, uh, liquidation of collateral.

Mm-hmm. So, um, 

Josh W: we don't want to go that round. You don't, yeah. You don't wanna go over that 

Larry A: round and you don't ever wanna be relegated to one source of repayment. 

Josh W: Yeah. 

Larry A: So, um, uh, yeah. So we like to share the risk. Um, I think it's, it's fair. 

Josh W: Yeah. Yeah. That's great. So, um. Great having you on the show, Larry.

This, this has been very educational, like kinda path of finance and careers and I like what you said towards the end of, you know, there's now paths for analysts who are really good at dissecting deals and understanding the financials and that's their strong suit. It's not mine. You show me a balance sheet.

My, you know, like I'm an investment banker, but like, so I see that and it takes me a while to get through it, whereas. And analysts will, will breeze through it. Yeah. And you know that, that would be a, a great relationship, a great partnership. So thank you for that. Um, people in the audience, especially like future bankers, future finance, you know, as you're listening to this journey, if you have questions for, for Larry or our past guests about the, the future of mergers, acquisitions, finance.

You know, we'd love to hear from you, your perspective on what's going on in the industry and as you're entering into the, the workforce. Um, if you have deals that you'd like to talk about here on the show, or if you're that student that would like to learn more, head over to the deal podcast.com. Fill out a quick form and maybe start the conversation.

Heck, maybe even get you on the show next till then. We'll talk to you all on the next episode. Thanks, Larry, for being on the show. 

Larry A: Thanks for having 

Josh W: me, Josh. Appreciate it.