[00:00:00] Ronald Skelton: Welcome to the How2Exit Podcast. Today I'm here with special guest, John Carvalho. President of Mergers and Acquisitions advisory firm of Stone Oak Capital. John is also the co-founder of Divest Pedia, and, which is a leading online educational resource for mid-market mergers and acquisitions.

[00:00:18] Thank you for being on the show today John. Did I get your last name right or did I butcher it just to?

[00:00:22] John Carvalho: No. You got it right. You got it right. 

[00:00:23] Ronald Skelton: I said it and I was like, I don't think if I said it the same thing. I said it earlier when he told me it was okay. Was like, man, did I do that again? 

[00:00:29] So, I wanna thank you for being here. This is gonna be fun. You've got a lot of experience. It looks like you go back 20 plus years in the merger acquisition space, and it looks like you've been in that mid-level. I'll have to tell you, not to plug anything here, but we own The Hub, which is a curated newsletter for small, medium businesses. And we do a thing inside of the Hub every week. We're like teaching a lesson. We do quote a lot, I send a lot of links to your, divestopedia because it's just a great resource for, like, if somebody's been asking like, what's a roll up?

[00:00:57] You guys have great definitions and terms and explanations on those sites. So a lot of times we, we feature articles when you guys put stuff out. 

[00:01:04] John Carvalho: Yeah, no, that's awesome. I appreciate that. And,that was, probably took me, and a partner of mine about five years to really get that content going.

[00:01:13] So I, I wrote, a number of those definitionslate night. And for me,not only is it kind of I'm proud of kind of the database that we've built and the educational tool that we've built. But also it was good, it was good learning, right? Like it just sharpens the knife writing those definitions and really thinking through, what is a roll up? What is an acquisition thesis? What is trailing 12 month EBITDA? How is it calculated? So, all those articles I think,not only are useful for the community,but also have made me a better kind of acquisition advisor.

[00:01:47] Ronald Skelton: It's interesting as I think I spent as much time on that as I did paying, mentors and study and other stuff on your site learning this. I came from, the tech industry moved into marketing. Got a master's degree in marketing. Then went into one of my, clients was acquiring real estate.

[00:02:03] So I ended up with a real estate firm and, funny thing how I got into the space is, I hired a performance coach. One of my real estate firm that I had created, was starting to kind of falter. I couldn't tell if it was me just getting burned out or if it was, the market was shifting, which is what I thought it was. So I hired a performance coach and he is like, you should be playing a bigger game. Quit buying residential real estate. Which was cool. It was an ego boost to have somebody go, you're too smart to be playing this small game. Go play something bigger. So I started looking to merge an acquisition, and there's an entire different language here.

[00:02:33] There are things I didn't know existed. Maybe because of my, grassroots Oklahoma upbringing. Had no idea what a family office was. I knew what private investors were. I used them all the time to borrow money for houses. And I did some time in the venture capitalist world, starting companies and tech companies and stuff in the Silicon Valley. But there's a million terms inside of this that aren't used anywhere else. And, I use your site quite a bit to, like, whenever you Google what is something, divestopedia shows up, is the answer to a lot of that. So I probably attribute a good percentage of the learning of this space, to those definitions you wrote. So that's really cool.

[00:03:10] John Carvalho: Yeah. Well then, that makes me really proud.

[00:03:12] So I'm, super appreciative and grateful of,you, you finding that resource useful. And truthfully, I mean, the words change all the time, right? Like the definitions and there's new words. Like, just before we hopped on here, you were talking about acquisition entrepreneur, right? That wasn't a term that was around even two years ago. And there's so many, ancillary words that are equal to that fundless sponsor. Sometimes just individual private equity, independent sponsor, like, there's so many words that kind of mean the same thing.

[00:03:39] But you know, there's just the flavor of the day and acquisition entrepreneurship is kind of it for that specific definition. But, yeah, it's cool. It keeps me, keeps me always learning, having to be a person that's putting out that education out there. 

[00:03:53] Ronald Skelton: Let's take a step back. How did you end up in the world of mergers and acquisition? I mean, this isn't something, I kind of just give you the 52nd view of how I ended up, randomly ended up into this, this field of space. Funny is, I went straight from like, big, real estate, investment firm. Buying many houses to getting mentored by a couple of gurus on what this space was.

[00:04:14] And one of the first things that we did is we created a roll up. Which probably too big of a project coming right out the door. But that was a baptism by fire. I got named a chief marketing and sales officer for a big,I say in our world, big. We were looking to exit at about 500 million. Marketing roll up where we were rolling up marketing agencies, and cut that story short, a year and a half into it we had about, I think it was like 26, 27,agencies under LOI. People were starting to sign 'em, and two of the partners split off and bought the rest of us out. So we kind of had a coup at the top. And it was either sell to them or sue 'em. And, it seemed more logical at the time.

[00:04:52] How did you end up in this space? What's the story behind, John, man? How did you,come to be the president and an owner of a,an advisory firm?

[00:05:02] John Carvalho: Yeah, I mean, my story is not as exciting as yours. So, I went through kind of a more, kind of typical road, I guess. Where I graduated from university with a business finance degree, accounting major. Went into an accounting firm, became kind of a professionally designated accountant.

[00:05:19] Knew that I probably,didn't want to do that for the rest of my life. So, found a position within kind of a larger organization, it was Deloitte actually. So I worked at Deloitte in their corporate finance group for about 10 years. But knew that I, I had kind of an entrepreneurial,just kind of bug that I wanted to explore. So broke off and started my own firm and just kind of went at finding clients. Through that journey of being on my own, I, was able to create Divestopedia with, a partner, who was the founder of,Investopedia. So he was a local guy here. Had SEO expertise in, just the expertise of building websites.

[00:05:59] So he and I partnered together cuz we knew that there was kind of this necessary education that was needed for this lower middle market, m and a world. And then from there,I did some acquisitions myself. I've been,kind of an advisor in this space. I've also been an owner in this space. And then, you know what, just continued to build my m and a advisory practice. So pretty boring story of going from kind of professional, working for somebody to just working on my own, but always kind of doing m and a advisory, and, building kind of this m and a community through Divestopedia.

[00:06:34] Ronald Skelton: It doesn't sound boring to me at all. I mean, the fact that you started out at Deloitte, built a foundation for you that, I mean, college is great, but if your, degree in, in business isn't anything like my master's degree, you're real education's when you hit the ground.

[00:06:49] I jokingly tell people, my MBA gave me a great dictionary in my head, or, encyclopedia of terms and definitions. It wasn't until I got to the real world where I realized, one, an MBA in marketing, a marketing MBA doesn't make you a great marketer. It makes you a great employee for Coca-Cola and the big guys out there, right? When it comes to marketing small to medium businesses where you're, you're not playing so much the branding game, but you're playing the, like, we gotta turn, ads into dollars fast. I think that first job or that first set of,companies you work for out of college really gets to show you how to apply it all.

[00:07:24] And, I've interviewed probably three or four people now that had spent some time at Deloitte. And most of them are out, I guess, just cuz the nature of who I'm interviewing. They're out on their own doing really cool stuff. So you said you did some acquisitions already. What type of like, in what space? Just sometimes I find randomness in this. Were you in your lane? Were they, advisory firms or what did you guys acquire? 

[00:07:48] John Carvalho: Yeah, so, I had a couple of different partners. So one, one partner and I, bought an environmental drilling company. It was, probably sub $10 million deal.

[00:07:57] I wasn't running it. We had somebody that was running it. And, really unfortunate story where we had a fire in our facility that burnt down half of our fleet. And it really made it challenging for us to continue to run the business. So, we had to sell off the equipment, and, just pretty much shut the business down. Now that I look back on it, at the time it was very stressful. Cause you're thinking, okay, how am I gonna continue to run this business? You have,some, dollars invested in this, so you're worried about how your investment's gonna turn out. But, for me, it made me realize that even in a real kinda unfortunate situation or scenario like that, like I, I had some pretty good skills in terms of like winding the business down. And being able to liquidate, the assets and, sell what the remaining portion of the business off to a strategic buyers. So that really, you go back to your, what you said about real world experience, like, all the stuff I was doing at Deloitte was cool. But it could never have given me the experience that, that one, experience of winding down a business. Making sure that all kinda stakeholders were fully repaid in that scenario.

[00:09:00] So, that was one business that we acquired. And then a second business that, that I acquired was with another partner in the oil field services. And we actually did a roll up, of a number of companies, where we went from like, our first acquisition was 5 million. And then we acquired,in, various different kind of like scenarios and contexts. We acquired 17 other entities. Took the business public in 2019. I became the interim CFO for a bit of this publicly traded company. Realized that's not what I wanted to do long term. I'm still an investor in that business. But just wanted to roll back into the advisory side of things.

[00:09:35] So, and again, that experience of,actually, when you're doing, an acquisition or you're doing a deal for a client, although you want to really do your best for your client, it's that personal kind of impact that you have in taking on debt, signing personal guarantees. Actually being the one that puts your signature on any sort of purchase agreements. Like there's a, there's just a different level of,kind of commitment. A different level of understanding that you really need to go through. And truthfully, all of that experience of, winding down a business of acquiring 17 businesses, I think have just full circle made me a better advisor, in really understanding what my clients are going through now.

[00:10:18] So, again, just really humbled at the experiences that I've had and,now what I'm able to deliver is, as a pure advisor that's been through it personally.

[00:10:28] Ronald Skelton: Yeah, I mean, I've interviewed quite a few, I've had more than, I've interviewed over 150 advisors and professionals in this field so far. And I probably have that many people reach out to me and ask to be on the show that I've told no. 

[00:10:41] And, it's mainly just because they're an advisor with one year experience, a good college degree and no closes, right? I think a lot of people enter the advisory world a little too early, I guess is what I'm trying to say. So I think you do bring something to the table. If you've done, 17, 18, 20 deals that you've been, on the hands-on side, plus all the ones you've advised on. There's a level of empathy and knowledge that goes with, you've been there that just doesn't exist.

[00:11:06] You might have the knowledge, you might be able to learn that from a book. You might be able to learn that from other, helping other people. But that natural, like knowing where somebody is and the stressors they're dealing with, I don't think you can get that feel from only playing on the advisor side and never being in the field.

[00:11:22] John Carvalho: All of these things are learnings, right? The divestopedia, the actually doing it yourself. Like I'm a student, of this game and I'm always learning. And that's why I love having conversations with guys like you and, and others and I've been so blessed, to be, have that kind of like opportunitythrough divestopedia, through some of the, things that I've done to, to be able to really learn from awesome mentors.

[00:11:44] So, I'm always growing. I'm always learning. But those, those personal experiences of me actually acquiring businesses, I think accelerated that learning. In 10 years is like, stuff I couldn't learn in 30 years of advising businesses. So, 

[00:11:59] Ronald Skelton: I agree. Let's take a step back. Let's go back to that, you're at Deloitte, you're entering into this world of mergers and acquisitions. You're cutting out on your own. What do you know now or, what would you learn in a different order, I guess I'd say. What do you know now that you'd, you wish you'd known on day one? Or at least earlier on in the process?

[00:12:16] There's some lessons learned that, at least in my experience in life, there's some lessons learned that come later in the game where you go, man, if I'd learned that first, we'd have done a lot, we'd been here a lot faster. So, what are the value lessons learned you learned along the way, you wish shoulda learned earlier?

[00:12:31] John Carvalho: I think a good one, that's a really good question, by the way. But,I think,early on starting my advisory practice. Like, I had lots of things on the go. I was starting divestopedia, I was buying businesses, I was trying to run this m and a advisory firm.

[00:12:45] There was just a lack of focus. And not that I would have given any of those experiences up, but it really, trying to do three big things, probably madeeach of them like not as great as they could have been on their own, right? So I think the focus piece, is important and I'm glad to have a second chance of just kind of like cleaning off my plate and really focusing back on building an advisory firm. So I'm really excited about that. And the other thing I learned too is when I first started, I wanted to do this value creation stuff. There was a few people talking about it, but nobody really understood it. And it wasn't really exit planning, but it wasn't really like m and a advisory work.

[00:13:23] It was really helping people to build value within their business and somehow find a way to partner with these people for either equity or some sort of form of like compensation for the upside. And I remember talking to a mentor of mine and he said that this very simple thing, he's like, why are you swimming upstream? And it made me realize that I was kind of always going against the grain trying to find something that I thought was a better way of doing it, things. But it wasn't really necessarily, how the market saw it, and it wasn't necessarily how the market compensated people for doing it, right? So, I realized that the value creation, although might be a really good way, to help business owners,kind of increase and maximize value, it's not something that's normally accepted in the marketplace.

[00:14:12] And for that reason, like it's hard to build a business around that. If you think you have the greatest product in the world, but nobody's willing to kind of pay you for it or engage you for it, then is it really that good? So that, that's probably a lesson learned that I wish I would've,kind of followed earlier. 

[00:14:28] Ronald Skelton: It's funny is, it that goes with all markets, all, products, everything. People buy what they want, but not what they need. I have the same mentality you do. Is like, I'll see something, go man, you know what they really should be focusing on is X, Y, Z. 

[00:14:42] And then I go out and try to get 'em to buy that. But they don't want that. They want the A, B, C. They want the other end of the spectrum. They want the other end of the, they're looking for apples and oranges. And I'm like, but you really need this weird watermelon over here. You're like, apples and oranges won't do any good. And It happens and I still catch myself. The other thing you said that resonated with me is doing too many things. I'm an idea guy. I love coming up with new ideas and stuff, and I see things inside of this space and I have to keep telling myself, no, no, no.

[00:15:09] You're focused on, providing the best content you can in this space and owning, owning resources that provide that content. So buy-in, buy-in resources that provide that content. The second I want to go, okay, this, we really could use an app that does this or we, there's really cool AI tool. I should probably have somebody build that does that. All I'm doing is distracting from the things that I, that are working and the things that, are where I should be, spending my attention on. It happens to, I think, there are two different people in this mergers and acquisition space at our level.

[00:15:39] By the time they're at your level, they're probably geared towards more, towards high-end operations. But on the small to medium mergers and acquisitions, you got the entrepreneur. Who is the guy who wants to create, wants to, solve problems and stuff. And then you have the operator. He wants something that's organized, making money and uh, that he can grow in a systematic approach. And often those are two different people. I tend to be more on the, the entrepreneurial side, right? I'm looking for, if you look at my, track record, even in the tech space, somebody's like, why did you switch jobs every two years? Cuz everything that was broken was fixed.

[00:16:15] I would go to a company, fix their, all their, their data center or their tech or get everything systems and processes put in place and there were no outages happening. Nothing's bad anymore. I'd get bored and look for the next big mess. So I'd go to the next company that, you know, once everything's up and running and smooth and there's no, crazy meetings to solve big problems, I got bored pretty quickly. And the same things happened to me in the mergers and acquisitions space. Is I need,I need that constant, problem to solve that constant, thing. One of the reasons I like interviewing you guys is I get to live through your experiences. I get to, to hear the problems you saw in this stuff.

[00:16:51] John Carvalho: And just on that note, there's a really good book that kind of changed my view on that. Cause I'm like you, I'm that entrepreneur and I keep on like bouncing from idea to idea. And it's, Rocket Fuel is the name of the book.

[00:17:02] So, bringing in like an integrator. I hate to call myself a visionary because I've met guys that are visionaries and you know.

[00:17:09] Ronald Skelton: By their measurement I'm a hundred percent visionary. They actually have a test. I'm like 80 and 90 in the visionary and like 20, 30 on the,the other side of it. So yeah. I get it. I wouldn't call myself a visionary in the scope of the great CEOs that were visionaries. I'm no,Richard Brunson, I'm not gonna take you to space, right? 

[00:17:26] John Carvalho: I'm the same way, right? But I have this like, where I keep on like bouncing from idea to idea, and different projects to different project.

[00:17:33] And I think that's why I like the world of m and a is cuz it's project to project. I kind of have that, short year focus, where, okay, let's get these deals done. They take about, anywhere from six months to a year. And then let's move on to the next one. But, I have realized the importance of, hey, if I want to build something, you need to partner with somebody that has a little bit of a different mindset that is about systems and processes, and being systematic about, putting the things in place that you need to build the infrastructure to, to actually grow. 

[00:18:00] Ronald Skelton: Yeah, I have the book right over here and I've had him on my show. I've had the CEO of EOS on the show. Anybody I wanna learn from, I put 'em on here.

[00:18:06] And I think it's critical to mergers and acquisitions that have systems and process and stuff. So I did interview the,CEO of, EOS and I interviewed the CEO or the lead trainer for the Great Game of Business, if you've ever read that book. The Great Game of business might have predate the rocket fuel, but it's about systems, processes, and it's a little more geared towards teaching the employees their, every single employee knows that their impact on the overall company, they all know how to read by it basic financials. And they also know how turning their gear, making their widget impacts the bottom line.

[00:18:37] So, you've been to, you've had one merger and acquisition thing where, quite literally had to have a fire cell, right? Like, okay, major fire. First thing I said is like, why wasn't everything insured? So you went literally from fire cell to, you built a fairly decent sized rollup, right? 17 is no joke. Doing 17 acquisitions in probably what? A few years? Like five, 10 years?

[00:18:57] John Carvalho: Seven years. 

[00:18:57] Ronald Skelton: Seven years. Wow. So, that was absolutely no joke. If you think of, like I told you, we did a roll up. We had a team of eight full-time. Nobody would, we weren't doing anything else but that. Pulling 60 hour, 50, 60 hour weeks, eight of us, and then we had advisors and people lined up. So we probably had, probably a total of 12 to 15 people to get done what we did in such a short timeframe. But,it's a lot of work. A lot of people don't understand, like, 17 companies and like less, more than one company per year. That's really impressive.

[00:19:29] John Carvalho: It was, I'm not gonna lie, it was a stressful time in my life and kinda, there was lots of moving parts and lots of things I would've learned. Lots of things I did learn and would've done differently. Kind of, looking back on it. But it was, again, wouldn't trade it for anything. It was an awesome experience and I think again, it's made me a better, a better m and a professional. 

[00:19:49] Ronald Skelton: Yeah. A lot of people don't realize when they hear like, okay, they did 17 clo-, I mean 17 deals. They probably don't understand.

[00:19:54] That means you probably looked at 1500 freaking companies, right? There's a difference between, how many did you look at and how many LOIs are actually signed. How many rounds of due diligence did you guys go through? And then how many extra closed? It's actually, I mean, that would be extremely stressful. I know. 

[00:20:10] John Carvalho: Yeah. The pace was probably a little too frantic. And maybe that's one thing I would've done, I would've slowed it down a bit. But, again, we kinda, we're on a roll. And actually this is kinda like another phase of my business that I think I want to explore, is there's lots of people that are doing great sell side stuff, and Stone Oak is one of those firms as well.

[00:20:29] But the buy side is an area that I think needs just, as much education as the sell side does in terms of like improving processes, and creating, really good acquirers. People that know how to generate deal flow. People that know how to, quickly evaluate opportunities. People that know how to put Lois together, people that know how to, do effective and efficient due diligence to close deals. Like the,I think the real issue that, that I'm trying to solve and help with is,educating the sellers so they're ready to sell, but also educating the buyers is just as important, and as necessary. What I think is a real social economical, issue in society today with all of these kind of like, business owners that need a succession and need to monetize the wealth that they built within their businesses.

[00:21:19] Ronald Skelton: So you guys are primarily sell side advisors. What does a great buyer look like to you? I mean, cuz that's something we, I mean you talked about a little bit right there, but, somebody walks through the door. You've got a client you've been working with for probably at least six months to a year to get 'em ready to this point.

[00:21:35] They're starting to, entertain offers and stuff. What is a great buyer to you? What are the, not just having money in the bank. I mean, other than, they can stroke the check. What makes a great buyer in the eyes of, a sell side advisory firm? 

[00:21:49] John Carvalho: Yeah, so just a clarification, we do buy side as well. We're probably doing about 50 50 right now, sell side. And it's something I can get into here in a bit, but even, compartmentalizing the buy side to do just deal sourcing for companies. So that's, we talked about focus, but this is a new business that I'm starting, on just providing deal sourcing for corporate acquirers, and family offices.

[00:22:11] But that's something we could chat about. But,I think a buyer, a real, ideal buyer,obviously it's gonna have the capital, resources to be able to do it right. So you can easily kind of assess whether they,are able to access the capital. Either, they have kind of the cash in the bank, or they have kind of the financial wherewithal to go out and find financing and do a deal. But I think the other thing, with a buyer that, that would give me a lot of comfort, would be that they come to the table,relatively quickly with what a deal structure looks like. And this was the great thing that I learned from my partner, where he and I,did this roll up.

[00:22:51] So the first acquisition that we did, I introduced him to the opportunity. We went and we met the, we went out and we had kind of the first initial conversation with the owner. And within five minutes of sitting down with this owner, my partner had a deal, kinda like structured, hammered out. He had talked about evaluation and they shook hands on it. I walked outta that deal with my mind, I'm thinking like, how the heck did you come to like, move this quickly and get to a point where we were able to structure a deal and kind of evaluation with this buyer. So it, it's just,I think a buyer recognizes that, doing an acquisition, there's risk.

[00:23:33] So understanding, that concept and understanding that there are gonna be ways to mitigate the risk. Either through, the deal structure itself, through kind of what you can do within the legal kind of structure and the purchase and sale agreements. Or,what you're gonna do with operations after the fact. So I think a lot of buyers that, that kind of cross my desk and the ones that, that I don't, put as much like, faith or commitment on, are buyers that, that just come back and keep on asking questions after questions, but they don't actually start showing how they're going to structure an acquisition and what kind of value that they're willing to, to put on the table. So that, that frustrates me.

[00:24:15] Ronald Skelton: I think the same problem exists in the small to medium-sized businesses, right? A lot of the people come to this space from other areas. Either they're operators, like they, they're an employee at a company, they run the whole division, and now they're ready to go out on their own.

[00:24:27] Like, or they come from academics where they're search funders and school told 'em so. But a lot of these guys come from worlds like real estate investing, like myself and somebody told 'em, Hey, there's a bigger game out there. And they start looking at that. Problem is they start talking to companies before we really know what we want. And I think corporations do the same thing too. They've heard that the best way to grow or they, maybe they should look at acquiring another company to grow instead of spending the time and research to go, okay, what does that look like? How do I formulate a great, offer? What exactly am I looking for?

[00:24:56] They just start talking to, they start talking to advisors who have, sellers under contract. And that's destructing to both sides I think. I think some homework ahead of time of going what exactly it is I want and what does a good deal look like for the seller? What does a typical deal look like in this market? How are these things done? Knowing all that, is get gonna more likely to allow them to hit success. Like in our space, in the small to medium size businesses, they say over 20, only 20% of the businesses ever listed for sale gets sold. And a lot of people bring that on their broker.

[00:25:33] I think it's both sides. I think a lot of the reason a lot of those don't sell is the acquirers are wasting the broker's time.

[00:25:39] John Carvalho: It think both right? And I still do lose a lot of sleep when I have a,a client that I'm working with and just having maybe some difficulty in finding the traction on it, thinking like, okay, maybe I haven't brought the right buyers to the table. How do I, really kind of, maybe expand the search for the acquirers. But it falls back onto, it also falls back onto the seller. Like, maybe there are some, attributes or something within that business that is making it unattractive to the market.

[00:26:09] We talked about this earlier where, what you're selling is just not what buyers are wanting to buy. But you're right. I mean, it goes both ways. Maybe it falls on the seller, but it also falls on the buyer where there, there needs to be, just concept of being a deal maker, of going out and,of just wanting to buy businesses and learning how to actually execute on that, right? I think we have a lot of book smart people that, that are trying to do this, but we don't have a lot of deal makers that are willing to, to take risks and understand, kind of that risk back. The risk aspect of doing transactions.

[00:26:44] And that's one thing that my one partner, really taught me. And he is just so good at assessing and analyzing risk, and really contextualizing it and saying, okay, like, here's the risks that I see. Here are,the probabilities of these risks ever coming to fruition, right? I think,Seneca that said that, most of what we worry about is imaginary and it's not gonna happen. Really putting a probability around,what's the possibility of these risks coming to fruition? And then if they did, what are the things that I would do?

[00:27:16] So he was just so great at rationalizing through all of that. And I think that's what made him a great deal maker. 

[00:27:22] Ronald Skelton: It's interesting. One of the things you said earlier that kind of clicked in my head is, I didn't realize or didn't click until just a second, kind of an aha moment, is that, the selling businesses and the standard marketing term product market fit, have a correlation, right? There's you, the product market fit in most, products is, does the market really need this? There's actually a buyer side, seller side where, and I think it's a little more now than it was maybe two years ago or maybe a year ago when the economy was a little differently. I think buyers are more selective.

[00:27:55] They're looking at less risk. They're looking at, they're still doing deals. There's some money out there to be, to do deals. But I think from what I'm hearing and what I'm seeing is people are tightening up. Going for more solid companies, more companies with higher revenues, less risk. Companies in industries or have industries that are a little recession proof. With that tightening up, making sure you have a product that fits what the market's looking for and knowing how to work that, is I think critical in from that advisory role.

[00:28:25] Do you see the market tightening up like some of the other advisors and stuff I've had on here? 

[00:28:30] John Carvalho: Yeah, the market definitely is tightening up. Like, rising interest rates. The automatic finance makes,just makes it more goal to do transactions. But maybe going back to this concept of risk, right?

[00:28:42] Like, I mean, there is added risk, but there are also these levers that you can pull, right? You might not pay as much. You might structure the deal, where there's more seller financing or earn out, right? So it's really understanding the levers to pull in terms of like these risk things that are coming up. I think you can really do deals in any sort of environment. But I feel like people are so risk averse, and this is going back to your, question on, kind of buyer profile. So somebody that I see that is so risk averse that they're not willing to do a deal that's fair. That to me, is an immediate put off for a buyer that comes to the table.

[00:29:20] And I'll call 'em out on it. I'll tell 'em that, Hey, like what you're proposing is not fair. Put yourself in the seller's shoes. I mean, would you accept an offer,where you're trying to low ball somebody and just get a really amazing, business at a less than fair price? I don't think that's something that you can really successfully continue to do transactions over and over with that philosophy. 

[00:29:41] Ronald Skelton: So given, the current state of the market, and I know, our market and your market kind of, mirrors each other. So what happens in America ends up happening in Canada and maybe a little bit on the reverse. We feed off of each other. We do a lot of, exchanges. I can't say for sure, but I don't know in history if there's been a time where, Canada was having a booming economy and we were in an oppression and where the other way around. We kind of, I think we do mirror each other.

[00:30:06] That said, how long do you think this, I'm gonna ask you to put your forecasting hat on. Is this a temporary thing? Or are we entering, are we just entering into it or are we coming out of it? Or what do you see the current economic cycle as? 

[00:30:18] John Carvalho: I think,Rob Slee had, I don't know if you've ever interviewed Rob Slee, but he should be another guy to interview. He's the,godfather, grandfather, whoever, whatever kind of relationship you wanna put it to, to kind of this private capital m and a world. But he had like this 10 year transfer cycle, that he talks about. I think right now that there's a lot of risk and a lot of uncertainty out there.

[00:30:40] Rising interest rates, kind of like economy,slowing, geopolitical risks. Those transition from kinda like, where we are a resource kind of sector business. We're transitioning or, uh,economy, where I'm located. I mean, we're transitioning into this kind of tech base and we're, growing some, tech, companies within the region that I work in. But really, we're seeing that there's this kinda shift away from, natural fuels and natural resources to,kind of electrical world and EVs and all of that. So, I think there's this shift in the world that's, people are starting trying to get some footing in terms of how this is all shaking out.

[00:31:22] I think one of the biggest drivers though is this transition of aging business owners, that need to create some sort of liquidity, and needs to kind of monetize the wealth that they built in their businesses. So that continues to grow and the demand for,the demands for businesses that need to be acquired is there. As well with all of these kind of like acquisition entrepreneurs and all of this capitalist out there. So I think, although like valuation ranges might change because there's rising interest rates and there's, challenges to access capital. The actual volume of deals that are happening are gonna continue to, gonna continue to be there. There just needs to be a shift in, in how the deals get done. 

[00:32:05] Ronald Skelton: Yeah, it's scary actually. Here in the United States, over 50% of all employees are employed by a small to medium business. Somebody in that realm up to where you guys are doing deals and below. And like, there's just not enough buyers around. If you look at what's happening like, in other areas of the world, I was reading articles I think a couple weeks ago now, about Japan. Japan's aging market is so bad. They're actually giving away multimillion dollar companies to successors. Their culture's a little different than ours. Their legacy and, honor is so important that they really don't wanna shut the things down.

[00:32:38] And they really wanna make sure that customers and their legacy's taken care of way more than I would say here in the United States. We're more likely to, shut a business down than we would be to just give it away. But they're at the point now in, in Japan where a lot of companies are just like looking for that great successor to take over. And they're talking about, like they're being given businesses. I don't know if it's truly $0 given, but you know, they're talking, way under valuation just to get somebody to acquire it. I think we're running into a world where if we don't train more buyers and we don't train more companies on acquisitions, that the economies of Canada and United States and stuff are gonna be hurt because of those baby boomers.

[00:33:20] They own so many companies right now. They're hitting 65, 70 in the next 10 years, 20 years. They're not, nobody lives past a hundred. It's not gonna be long before either, they're gonna either retire. There's gonna be a succession, everybody succeeds, right? Either die in a chair or you hand the business over to somebody else, but eventually you're no longer the CEO. What do you see inside of the space of, do you see that people are gonna step up? You think there's gonna be more acquirers in this space? Or you think it's just gonna be, an environment where, a lot of things just go away? 

[00:33:51] John Carvalho: Yeah. I think,and this is why I've been on this mission, of divestopedia, educating the sellers. I'm with you. I think the world needs, not more buyers, I think they need better buyers, right? There's lots of buyers out there. I get emails, I probably get about 10 emails a week of people telling me of what kind of, acquisition types that they're looking for, that I just purely ignore.

[00:34:11] Because,you need a little bit more than just in sending out an email to try to find and build trust. You still, there still needs to be a building of trust,when you're looking to buy a business. It's very personal. But that said,I think educating the deal makers, again, are just as important as educating the sellers. And I guess back to what I was talking about before, I think one thing that we've, we have been doing a lot of buy-side work, for corporate acquirers. But what we're seeing is,and where, the challenges lie on the buy side work is that,you had said it before, you need to look at like a thousand potential businesses to get down to like, four or five that you think that you're gonna acquire on, right?

[00:34:51] And that just takes time, energy, effort, resources, people to do that. And a lot of buyers don't understand that funnel that's needed, right? To really be able to get in front of targets, and to execute on this strategy of being a corporate acquirer. So they'll look at 10, and nothing will happen. They'll get frustrated and they'll just throw their hands up in the air and say, oh, this doesn't work. Like, this acquisition strategy is not something that works or it's not working for me. And that's where, I saw a real opportunity to use and leverage some of the m and a networks that I've built through Divestopedia.

[00:35:27] I have a LinkedIn group that's called Mergers and Acquisitions Network. It's the biggest, m and a network on LinkedIn. So using and leveraging kind of like tech enabled, communities and more tech enabled processes to automate that, that outreach and that searching, is what I'm doing now. So I've actually, started another firm, it's called Deal Institute Inc. with, a partner that has that tech enabled capabilities. To now be that outsourced service provider for these corporate acquirers that,really want to be committed to growing through acquisition. I think it requires the commitment and I think it understands the, it requires the understanding that, this is a long term game, but this is how the game is played.

[00:36:11] Looking at thousands of opportunities to land on like five or six that actually get closed. 

[00:36:17] Ronald Skelton: There's so many integral parts. A lot of people say like, there's a funnel. It's like, yeah, it's more than a funnel. You actually have to have a highly efficient funnel and like what you're creating, a lot of people don't get is not just a funnel to showcase key, acquisition targets to buyers, but the systematic process of weeding out what's not, right?

[00:36:37] There's a systematic, number one, you as many years as you have in there, I like to call it a built-in BS meter. You actually have this natural gut feel when you're going through these. You can eliminate a lot of the stuff that is out on the market fairly quickly just cuz you know they're not ready. And then there's a system and process you guys are building to qualify and only present to your clients. Things they should really acquire. I mean, like, this isn't something that like, you could, or might or, Hey, here's something interesting. If you're running a, a buyer's side,search fund or a, or search company where you're, finding acquisitions, you're putting stuff on a platter side. Here's something that really meets what you're looking for.

[00:37:17] Here's what you ask for. Here's exactly, we're recommending you buy it. That is unbelievably valuable. Especially with somebody with your experience. 

[00:37:26] John Carvalho: Yeah. And what you said about the BS meter is actually a really relevant thing. And that's what I felt that we got really good at. That process of us getting in front of targets, being able to, say, here's what is important to us. Figure out what's important to them and to, there's a lot more than just fit, right? Anybody could do, a Google search and say, these five companies would be perfect fits for us to acquire.

[00:37:50] But are they ready to acquire? Are they at the right valuation? Can you get them on a call to have the conversation? Like, what would be kind of a win-win structure for the seller to, to want to be acquired by, the corporate acquirer, the acquisition entrepreneur, whoever it is, right? So, being able to assess that really quickly, and dismiss it, if it's not, if the transaction, uh, variables to close a deal aren't there, then move on and go to the next one. So it's not just about finding the perfect fit, it's finding the perfect fit, for a deal that you can actually get closed.

[00:38:25] And that's what we got really good at. And, that experience is what we hope to bring with the Deal Institute and for corporate acquirers. 

[00:38:32] Ronald Skelton: People hear me talk about that marketing roll up and like they hear me say that we had over 200 marketing agencies, these songs on the phone in less than 200 days.

[00:38:40] Like we, but what they don't get is for the nine months prior to that, we didn't talk to a single one. We spent nine months researching the industry. What are their pain points? What are they looking up for and being acquired? What are they getting offered by private equity? We really did a lot of analysis and spent lots of hours into what does a great deal look like for them and how does that work for us? And we structured something when we presented it to 'em, like, yeah, I'll get on the phone with you. We wanna chat.

[00:39:06] John Carvalho: You know what I think the other real, opportunity for corporate acquirers is just,if you think of it logically, like I have clients that say they get reached out by private equity firms, all the time.

[00:39:17] And, most business owners that I talk to will dismiss that and say, you know what? I don't wanna talk to a private equity. They don't have experience in my industry. I don't know if they're just on a fishing expedition or maybe if they've taken one call, it's been a bad experience, they'll never take another private equity call again. The thing with a corporate acquirer, like most business owners will take that call, right? If we reach out to somebody and say, Hey, we're working with, a large, I don't know, construction company in your industry that's looking to grow through acquisition. We've identified and targeted you as a really good fit to our acquisition strategy.

[00:39:55] Will you,take a call and hear out our proposition? Most business owners will take that call. So I think corporate acquirers need to understand that they are most times the logical buyer, and it's easier for them to execute an acquisition strategy because of that advantage that they have where they can get in front of business owners a lot more easier than a private equity firm can, than definitely in an acquisition entrepreneur can. Who's looking for, one business and it's their first business that they acquire.

[00:40:27] Corporate acquires so much easier to execute on the strategy than kind of the other buyers at the table. 

[00:40:34] Ronald Skelton: Yeah, it's actually, it's difficult for somebody to go, come from a world of never acquiring anything and want to, be the logical safe pair of hands for a corporation to hand over their business to.

[00:40:47] To where I can see in your, what you were just saying there is the strategic buyer's got a better, chance of getting that call. I've been in positions where we knew that, private equity wereoffering to buy companies like ours. Like when I, when it was in tech industry and stuff, where they wanted to come in and invest, but they wanted, control and all this other stuff. There's a callousness. Especially in this, I think anything in the small to medium sized businesses where legacy is important, everything like that, the private equity world just doesn't appeal to 'em. They feel, for even some of the marketing agencies when they realized we were investors.

[00:41:24] Like we're not a big marketing firm that just wants to pull them under. We were investors and we had a strategy to grow them for three to five years, and then were gonna sell the whole package. That was a big obstacle to overcome for a lot of the small companies. They just weren't interested. I think that the, if you're the big construction company, you're talking to a smaller construction company, it's more logical. They see that as a safer pair of hands than a private equity calling 'em, and going, we're buying 15, we're buying 15 construction companies over the next five years, or we're gonna sell it for a profit.

[00:41:50] We'll give you a little money now and a little bit more money later. You're interested? I know they don't ever say that, but that's the story that's simplified down to its core essence for a private equity company. 

[00:42:01] John Carvalho: The challenge too is that, I mean, a lot of these business owners are looking for an exit, right? They're looking for like, Hey, how do I get out of this business,in a relatively short period of time and, take my chips off the table? A corporate acquirer provides that. that exit a lot, the path to getting there is a lot clearer than it is with,a private equity group or an acquisition entrepreneur or somebody else, right? So. 

[00:42:22] Ronald Skelton: Yeah, the private equity is like, we want to buy you, but we want you to hang around for the next three years, and the majority of your check's gonna be at the other end of it through earnouts and other stuff. Now I've interviewed some people that done really well in that realm. I interviewed Adam Coffey, who actually wrote a few books on it.

[00:42:37] I think it was a Heat and Air company, got acquired multiple times and ended up with a billion dollar exit. And he got a piece, he got paychecks along the way as it acquired. Those do happen, and for some people it appeals for them to play that game. For other people, that's just, like you said, they're ready to retire. They're ready for their next project. If they're entrepreneurial, they're ready. They got this other idea. Most of the time they've already got the idea rolling on the side, and they need to focus, right?

[00:42:58] They're like you and me. They might have two or three projects and yeah, this one's going pretty good, but it's not my core focus. It's time to sell it, hand it over to somebody that can run it right and focus on the things that I really am passionate about in the moment. 

[00:43:10] John Carvalho: Or just moving on to the next phase of life. Like, I've built this business, it's created a lot of wealth for me. Now I wanna enjoy it. I wanna spend time with my kids, my grandkids, maybe I wanna travel, maybe I wanna, buy some property in another place in the world. So, going into a private equity firm where you're selling, 60%.

[00:43:26] That private equity firm is going to, say, hey, like, here are growth targets and this is, what we need to achieve over the next five years. Like, it's just at a person that's at a different phase of life. And, we've mentioned it before, but you know, there's a lot of business owners that are at that retirement phase that wanna move on, and a corporate acquirer presents a logical opportunity for them. And this is why I'm beating this drum of saying, Hey, corporate acquirers a, it's awesome for,as a growth strategy, there's a McKinsey report out there that shows, being a systematic and programmatic acquirer creates more value than any other type of m and a kind of strategy. So go out and buy a lot of these small businesses, get really good at it.

[00:44:09] It's a lot easier for you to do than it is for, again, private equity firms or acquisition entrepreneurs. 

[00:44:14] Ronald Skelton: So, cool. What's your biggest win? It don't have to be monetarily either. Like, name something you've done in the last 10 or 15 years that you consider your biggest win, your biggest gain of knowledge, or maybe it's a monetary win or something, but what's your biggest win that you can think of?

[00:44:30] John Carvalho: Yeah, I mean, divestopedia was,definitely I'm proud of the community I've built there. I get emails all the time of people thanking me for, an article that was written or,definitions that, that have helped them. So that, that is very, humbling for me.

[00:44:47] And that's something that, I'm super grateful that I've had the opportunity to be able to build. And our roll up. I look at it and,I think I like to kinda check my ego a bit. It was hard, and challenging and I think it's made me a better advisor. So I look back on it with a lot of, just, thankfulness, a lot of gratitude with, being able to build that. And it was a good win. Like, obviously building a business, 17 acquisitions, taking it public, it was, definitely something that,I don't know that I'll have an experience like that again.

[00:45:15] Ronald Skelton: So divestopedia, how is it monetized? Is it, just through ads or you guys get lead generation from it, or how does it benefit you? I'm curious here cuz I, I have a set of follow up question with that one. 

[00:45:26] John Carvalho: Yeah, it's mostly ads right now, but, again, kind of linking it to this, deal institute and really using the network to help put rocket fuel on, corporate acquirers acquisition strategy. So most of the,our ideal client, for the Deal Institute is gonna be a,a corporate acquirer that, that has, potential to acquire globally. Cause we can use our global network to be able to kind of source, and really uncover great opportunities. 

[00:45:52] Ronald Skelton: That's something I didn't ask you. Let's do that real quick cuz we're hitting the top of the hour. Let's make sure everybody knows, where you're located? What areas you specialize? Let's talk about, Stone Oak Capital and all these different things you got working on right now.

[00:46:04] I know you're up in Canada, but what areas of the world do you service? What sectors of the market do you play in or don't play in? Who's your ideal customer type of thing? 

[00:46:12] John Carvalho: Yeah, no, I appreciate the, the platform to be able to, to share this, with your audience. So, Stone Oak, we're middle market, transaction size of 10 to $150 million. Industry kind of agnostic. I feel like the execution of the deal kind of trumps the any sort of industry expertise. But just given the region I've been, a lot my work that I've done has been kind of in the industrial sector. Oil fields, services, mining, manufacturing, construction.

[00:46:42] So those spaces have been,just, because of where I'm located have been the ones that have,I've come across and I've worked on. Stone Oak will now focus primarily on the sell side. Again, of those deal sizes. Yeah, I'm working on a couple of transactions right now in, in kind of the manufacturing and, in the resource sector. So really cool opportunities,kind of in that $50 million space. So those would be the deals that would be our best target. And our best kind of client for us, in terms of the deal Institute, again, that's primarily focused on, done for you services on the deal sourcing side for corporate acquirers and family offices.

[00:47:23] Because we have the benefit of using our communities, our global communities with divestopedia and the merger and acquisition LinkedIn group network. We're really our ideal client would be a corporate acquirer, that has kind of a North American or global kind of acquisition aspirations. Those would be the two things that we're focused on. And then of course, with Divestopedia, we're always looking for media partnerships. We have some great webinars and some great guests, that come on very specific acquisition and m and a kind of middle market topics.

[00:47:54] So we're always looking for guests that wanna join us and sponsorship opportunities that wanna reach our network. 

[00:47:59] Ronald Skelton: That's awesome. Awesome. We have that little curated newsletter that, focuses on the, probably right underneath you guys, the $10 million deals and below. But, we often feature articles you put out and we have an event calendar on, at the bottom of it.

[00:48:13] So we're always looking for events and stuff that are happening. Mostly for the acquisition entrepreneur, the ETA guys and stuff like that, service funders and that type of stuff. But, I'll make sure we, my team, I have a couple of assistants and a partner in this. We actually bookmark your, your site and we'll dig through there and see if you have events and stuff we could feature too. That would be cool. 

[00:48:32] John Carvalho: Yeah, love to find ways to work together. 

[00:48:34] Ronald Skelton: Awesome. So how do you want people to reach out to you? If they've heard something interesting today and they think, man, I really wanna work with John on this. Or I have a business that meets his needs, would you be interested in helping me out? What's the best way you want people to reach out and connect with you? 

[00:48:48] John Carvalho: Yeah, LinkedIn is always the easiest. People can connect with me on LinkedIn. It's pretty easy to find, I think on there. And then just DM me on there and, we'll find a way to connect. 

[00:48:57] Ronald Skelton: I'll make sure that links in the, show notes too, so everybody cango to how2exit.com. Look at the show notes. That'll be on there. Or they can go the YouTube show notes we'll have it too. So, if you're driving down the road right now and you don't know the spelling of the name, or if you're hearing this on the podcast, don't pull over. Don't cause a wreck trying to write this down.

[00:49:13] We'll put it in the show notes. When you get to a safe location, pull it up, you'll be able to click on a link and get to John. Last question I always like to ask is if somebody can remember, maybe two or three things from the show today, what would you want them to be the takeaways from you? What do you want 'em to remember from you? 

[00:49:29] John Carvalho: Yeah, that is a great question. I think maybe just this one, like, for anybody that wants to acquire a business, like be a deal maker. Don't, don't like, throw away the books, throw away kind of all, maybe some of the things that you've read and put an offer on a business that you know, you feel comfortable with. That you feel like you can stand behind, and that you feel it's fair.

[00:49:49] I think,fair transactions get done, right? Warren Buffet said, he wants to buy wonderful businesses at fair prices, and I think that's why he's been able to do it right, is because people obviously know his reputation, but he pays a fair price, for these businesses. So, find fine sellers that are willing,and, open to transacting at fair value. And put those fair values in front of them. Don't like, go and, and grind for more information over a period of five months, right? Like, find a business as soon if you like it and you wanna acquire it, put a fair value and a fair offer in front of the buyer or the seller.

[00:50:26] Ronald Skelton: Awesome. Thank you. What's an ideal timeframe for you? Like somebody from the day they introduce you to the day they should have an LOI in front of you. what is ideal like, uh? 

[00:50:36] John Carvalho: Again, this was one of our advantages, but we got so good at it that like within two weeks we could have an LOI in front of somebody.

[00:50:41] I don't think it, it's not rocket science. It's not hard to do. You can always, if you put an offer and it's totally offensive to somebody, you can always go back and say, okay, well I apologize. Maybe I didn't have enough information to make a fair offer. So tell me, gimme more information so I can put a more fair offer on the table. Or I can evaluate if it's, if it continues to be a fit. But,that, fear of offending somebody or that fear of like, overpaying or that fear of like, just not really understanding what a deal structure that gets a deal done.

[00:51:12] Like, we gotta get over that and we gotta move transactions forward a lot quicker. 

[00:51:17] Ronald Skelton: Yeah, I can see how that,I think it plays against this, the old saying, the first person that puts an offer in loses, that's not true. You gotta have a starting point if you guys are waiting for them to give you a number.

[00:51:26] I've seen too many cases where, people call me and they're talking to me like, Hey, I'm just trying to get the guy to gimme a number and what he wants for a business. And I was like, well just put a fair offer in front of him then. And he's like, well, I don't want, what if I offer more than he would, what his idea was. I was like, yeah, I just told you to, it's a fair offer. Put a fair offer in front of him. If it's fair to you, then it's okay. But what if he wanted, what if his idea is lower? And I could get a like, that hangs up too many people. Everybody thinks that the first one who speaks loses and it's not true.

[00:51:54] It's absolutely not true. Could you overpay? Yeah, you could. But if you really know your stuff and you do your valuation, if you overpay and it's still a fair deal, does it matter?

[00:52:03] John Carvalho: Well, and and I know we're at the top of the hour, but,the ability to then mitigate risk around like, what if you did overpay? Like we overpaid for lots of businesses, right? But we found ways to mitigate it. And we found ways to kind of find solutions in the backend. And they weren't easy. None of this is easy, but we did it. So I think you just have to go in with that mindset that, Hey, I'm gonna pay a fair price, like you said. And if things go wrong, which they will,how am I gonna fix it? 

[00:52:29] Ronald Skelton: Well, I wanna thank you for being here. Any final, parting things? Anything you wanna say before we call it a day? 

[00:52:37] John Carvalho: Yeah, I just, appreciate the opportunity to share my story with your audience and,thanks for this, Ron.

[00:52:42] Ronald Skelton: Oh, it was good. And we'll call that a show.