E160: F. E. International CEO Thomas Smale Discusses Buying and Selling Companies

[00:00:00] Ronald Skelton: Hello and welcome to the How2Exit podcast. Today I'm here with Thomas Smale and, we are going to chat about his company. F. E. International about buying, selling companies. And, I'm really looking forward to I was telling you before the show is like, man, I can't believe I haven't had you on here yet.

[00:00:16] I think we tried last year. You were traveling and had everybody else in this space on there. And it's time we talk to you, man. I think there's a lot of valuable lessons to learn from you today. And I want to say that I appreciate you taking the time out of your busy schedule to be here. So thank you. Yeah. 

[00:00:30] Thomas Smale: Thanks for inviting me on. 

[00:00:31] Ronald Skelton: Yeah. So let's jump right into kind of your origin story. Even before you had the, the website, FE International, you've been involved in, all the mergers and acquisitions space. So, fill in the gap as to how you got into the space and like what you've learned along the way. Kind of give us an origin story. 

[00:00:49] Thomas Smale: Yeah, so I started out in the early 2000s. Back then, if you owned a business, we would describe ourselves a technology M& A firm. Back then, if you had a technology business worth $20 million or $2 million, there was no way you could go to sell that business. You could go to a big investment bank, like a Goldman Sachs. They would not return your call because the business is too small. 

[00:01:15] You could go to a mainstreet business broker and they would know how to sell a gas station or a restaurant, but they'd have no idea about anything in the tech space. So there's massive underserved market with a growing industry in the tech space with things like SaaS. Which we will know today, if you speak about SaaS in 2023, everyone knows what that is. In the early 2000s, wasn't really a thing.

[00:01:40] Most people were still using desktop software. The idea of having a subscription was uncommon, whereas now it's everything is cloud. Everything is subscription. So it's very early on, but the gap in the market was no one was providing what we do today to technology founders. So if you had a business, you either had to try sell yourself, get lucky with someone approaching you. Or work with a business broker or investment bank or mergers and acquisitions firm who didn't really have experience in your industry, they just knew how to sell a business.

[00:02:15] So that was the gap. Started out doing relatively small transactions. And from there over the years we've continuously represented bigger and bigger deals. So every single year our average deal size gets bigger. That's been the case since I founded the company in 2010. And that's really kept going. So yeah, that's a little bit about how we got started and really just kind of continued what seems obvious today. If I tell people today what I do, they're like, Oh, of course that, that makes complete sense.

[00:02:46] 15 years ago, it seemed stupid because no one was doing it and the market didn't really exist. We were very much kind of market makers from that perspective. 

[00:02:56] Ronald Skelton: Yeah. Yeah. Somebody asked me the other day, it's like, when's the first time you actually bought a business and sold it? I said, well, technically, I grew up around businesses and stuff, but technically the first time I ever bought something with the intent of growing it and selling it, there wasn't any of these Flippa, and FE international or any of those sites like that.

[00:03:12] We hung out on things like warrior forum and we would (digital point, all those ones, yeah.) Digital point. All those things. And we would hunt down decent sites. I would buy them and I would clean them up, and sell them as.

[00:03:23] Unfortunately, there's some people that got on there. It was back then it was really good about spoofing all their data. And I got burned, high five figures. I bought a website and all the traffic went away the next day. They had a private link network of their own and that's where all their traffic was coming from.

[00:03:37] And they, fake financials and everything. So I got out of it for a few years. Got into real estate and other stuff and came back around. But people today have it different. I mean, there's sites like yours, there's other resources. Even brick and mortar companies are more able to be, you can sit in your chair in your living room and, look through I might want to move to Texas someday.

[00:03:54] I wonder if there's a, an auto repair shop I'd like to acquire there and you can go to biz by sell or one of the other sites, right? That never existed, what, 10 years ago. So that's all happened within the last maybe five to 10 years. 

[00:04:06] Thomas Smale: Yeah. It's complete, completely different today than it was 10 years ago.

[00:04:10] Ronald Skelton: And then you guys stuck with the, with the technical side of it. Cause is it because you have like a real good expertise in that? Or what's the, like your tech mostly, right? Software. 

[00:04:21] Thomas Smale: Yeah. We describe ourselves as tech. I personally have, other than the fact I run a technology M& A firm, zero technology background.

[00:04:28] I can't write code. I'm not technical at all. I think what we were doing resonated with founders. There was a gap in the market. And to be really good at selling businesses, which we are, you don't necessarily have to be technical. I have people internally who are like, oh, my team are technical. But I guess my job and our job is putting all parts of the process together.

[00:04:51] I have a personal working knowledge of lots and lots of different things, but then we hire experts at the different parts of the process who are significantly better than I am. So yeah, we've always just focused on tech. We have, businesses that overlap, but they would always have tech or technology somewhere in that.

[00:05:08] Ronald Skelton: Yeah, it's interesting. I have a tech background, that's where I came from. My early part of my career and then I got burned out and it went into the business side of things. I went and got a master's degree in business. But, I still find myself answering tech questions. Like one of our sponsors was having a tech question this morning and I was like, okay, you need to change your C record.

[00:05:24] Like I was telling him how to change the DNS settings on his website to, to get it to work right. And I was like, okay, I gotta get out of that space. But,there's a huge difference, even today, even like everything's different. Like the evaluations, like if you look at the different evaluations for content sites versus, andmedia type of stuff. And then newsletters, that type of stuff, and you look at the evaluation, how they're valued. And then the valuations of how, SaaS companies are and whether or not, their recurring revenue and annual reoccurring revenue are calculated different.

[00:05:55] And then you go to like BizBuySell and look out those guys are doing multiples of stuff. Each one of these industries has a way that they do things. So what do you see inside of, inside of the FE International, how do you guys go about these valuations and the differences between, a standard software company and a SaaS and that type of stuff?

[00:06:14] Thomas Smale: So, we have tens of thousands of, hundreds of thousands of data points from businesses we've valued over the years. We value thousands of businesses every year and we have done for over a decade. So we have a lot of data internally. A big part of valuation in general and part of the reason why I think valuations have improved and got more accurate in the industry as time has gone on, is valuation tends to be based on real estate. What has a similar business sold for.

[00:06:43] So as time goes on, more businesses like yours have probably sold 15 years ago. If you had a SaaS company, what's another SaaS company sold for? No idea, because there weren't any. Whereas today, there's hundreds and thousands of examples similar to yours. So, generally valuation works off comps or comparables.

[00:07:04] What's a similar business sold for? What variables did that business have that yours has? So is it profitable? Is it growing? If it's a SaaS business, like what was the churn rate? That revenue churn, is that customer churn? If it's a marketing agency, do you have 100 percent of your revenue coming from one client?

[00:07:21] Do you have 5, 000 clients? Lots of different things we'll look at, but it's all comparing to past deals that are sold. There's very little speculation where we will look at a business and say, Oh, we've never seen anything like that before. So we're just going to guess. It's always based off past data. Either that we have from deals we've closed, or deals that, we've seen or deals that we can research.

[00:07:47] So it's always based on data and always based on similar businesses sold. And then it's a case of comparing the variables. And then to your point, the variables that matter really depend on the particular business model. So in, in SaaS, most SaaS businesses have recurring revenue. If you have a content driven business that relies on ads, it probably doesn't have any recurring revenue.

[00:08:07] So the dynamics of valuation did differ depending on the business model.

[00:08:12] Ronald Skelton: So I'm going to circle, stick us out back there and, because valuation is a little bit into the conversation. In the brick and mortar businesses, the things on, the auto repair shops and brick and mortar manufacturing facilities, a lot of times when a broker advisor or somebody is talking to those people who want to exit, they have to break the news that it's a three to five year process because they just don't have their systems processes and accounting in order. 

[00:08:39] Do you find in the tech space because people are more technically inclined that everything's online. That timeline is a much shorter timeline to get somebody from the time they say hey, I think I want to sell this until the time it's, I guess I want to call time to market or whatever.

[00:08:52] There's got to be a Kpi you can track but from the time they call you to the time they're truly at their peak value that you can actually sell them. You find that's different than the brick and mortar companies? 

[00:09:03] Thomas Smale: Completely changed over the last 10 years. Today founders are more prepared than ever.

[00:09:09] I think part of it is 10 years ago, podcasts like yours didn't exist. You couldn't get good information. You were relying on friends or peers or forums. Whereas now there's a hundred podcasts you can listen to about selling your business or people who sold their business. Thousands of people have done it.

[00:09:28] Those people who sell their business, then either go launch a new business and share their knowledge, or they launch a course or they do training or they invest and mentor people. So the average founder today it's much more prepared than they were. I think the nature of, and to your point, the nature of technology businesses tend to be quite tech savvy.

[00:09:47] So if you ask like the average kind of manufacturing founder, where's your P& L? They'll probably go like, oh, it's on the paper. You have to go dig around. Whereas the average tech founder is probably using QuickBooks or Xero or, it's not a right or wrong accounting system, but it's probably an online system.

[00:10:03] Makes it a lot easier. So being tech savvy helps. Does that mean the business is ready to sell? Not necessarily. There are lots of factors that go into it, but quite honestly probably the most important variable is, where are the business owner's expectations, and where is the market valuation wise? If you come to me with a perfectly prepared business and say, Thomas I would like to sell my business for 100 million dollars, we would love to represent you. 

[00:10:31] But if your business is currently worth 10 million dollars, then no amount of fancy accounting or preparation or listening to your podcasts and every other podcast about how to prepare is going to make any difference. You're still only worth 10 million. So most of it's usually an expectation game from that perspective. The tech side of getting ready for sale tends to be pretty good these days with the average founder.

[00:10:56] People think about it in advance. There are a lot of people are building these businesses. But not necessarily to sell, but with the eventual aim of an exit. Which is completely different 10 years ago, because 10 years ago, we had FE International, we had a couple of other firms, but now there's hundreds of companies you can call and thousands of businesses that sell every single year in the tech space.

[00:11:22] So it just makes a lot more sense that you would be thinking about it all the time and not necessarily being ready if the perfect offer comes along but a lot of people are.

[00:11:32] Ronald Skelton: Let's dive into one little thing real quick. So you had first movers advantage because you thought of this and had the foresight to build the site and start helping these people. Pretty much before anybody else or at least one of the front runners.

[00:11:42] I can't think of anybody off the top of my head that started before you or right around the same time. I think everybody has a few years afterwards. That said, now that you got a hundred or thousand choices out there, how does that work in your business? What's your competitive advantage now besides being the first people to do it and fairly well known name, right?

[00:11:59] When we're talking in small groups and stuff, people ask me if I've checked, Hey, have you looked at this site, this site? You're always in that top list of, Hey, have you looked here? If you're looking for a tech company. So people know who you are and what you do. But, other than that, how do you stay competitive in a space that now has a thousand selections?

[00:12:16] Thomas Smale: Yeah, and I think every single year, particularly in this industry, you get a lot of fly by night companies. So that list we've been on of like top five tech M& A firms you should speak to. We've been on that list for 10 years. Have any other companies been on that list for 10 years? Maybe one or two, but companies were on that list five years ago, don't exist anymore because the founders have moved on to something else. 

[00:12:40] So a lot of it for us is just longevity through being consistent. If you said to me Thomas, how is your real estate portfolio? I don't know anything about real estate. Yes, I own a house, but that's about as far as one which goes. All we do is m& a that we haven't feared from that path to, that 100 percent focus I think a lot of companies pivot or change their mind. A lot of companies that come into space that tried to compete with us, tried to compete on price.

[00:13:07] But the most obvious way to try to compete with a incumbent competitor, Oh, we can do the same thing for half the price or half the fee. The reality is, maybe you can do it once or twice. But it actually doesn't scale. You can't do it for forever. So we've always held firm. We're definitely not the cheapest firm you're going to hire.

[00:13:30] But we do have probably the longest reputation, which helps, and the most experience. I think fundamentally, if you are trusting your life's worth, or life's work, to an M& A firm, and have one, or maybe multiple, but one life changing exit, do you want to do that with a firm that's done it thousands of times before, multiple billions of dollars of transactions like us, and you pay us a little bit of a relative premium? 

[00:13:58] Or do you want to go with someone who's, just started? Has a fancy website, which looks better than ours, and they say they have this new fantastic process and their fee is half. What we find is most people go with us. Or they go with the fancy new competitor, the process doesn't work. And then they go back to, yeah, say to and say, Oh, Hey, how about that?

[00:14:18] Process we, we spoke about. So for us, it's really just kind of consistency. We were talking before the recording about it's sometimes just a bit old and boring. We just do the same thing consistently. And I think, if we were doing a podcast today about secrets of entrepreneurship, I think a big one is just consistency.

[00:14:37] Turning up, doing what you say you'll do always amazes me. How many people or how many companies don't do that. And then they wonder why it doesn't work. And it's like, well, did you pick up the phone? Did you answer your email on a Saturday? If you look at my email history over the last 10 years, pretty much, I might be busy.

[00:14:55] I'm always busy, but I'll reply to you on a weekend that's been consistent. We could argue all day about kind of the toxicity of working weekends and 16 hour days. Maybe not but ultimately that's that what it helps you get ahead particularly in the m and a space. 

[00:15:11] Ronald Skelton: So you learn there's certain different personalities in this space too.

[00:15:15] I have, people I work with on a regular basis and I know for a fact that at least three of them, when I email them, I can expect a reply in three days. And there's other people I email that are just as busy running bigger companies and when I email them, I can expect it at a response within 30 seconds.

[00:15:31] I mean, these guys are just on top of their stuff and both are okay. It's just, I know what to expect, right? The reason I bring that up is that the consistency. I know when I email you on a Saturday that, if I ask you a question, I'm not, not going to check my email back to Monday that if you took your time out that, to respond on a Saturday, cause I sent something, I probably ought to double check it later in the afternoon to see if you had a question of me. Because out of common courtesy, you took time out of your Saturday to answer, answer me.

[00:15:57] And so I pay attention to, be consistent in what I do too. If I put myself out there on after hours or whatever, I'll double check it later just because, a lot of times questions that are answered with questions. It's not fair in any space in business where one person is super consistent and, but they have to wait on the other person to randomly do things.

[00:16:18] But, the circle back to, I'm fascinated by, like how things are built and how, why they were built. When you first created FE International, was it a name something else or did you guys like start with the end in mind? It's like this is going to be an international brokerage. 

[00:16:35] Thomas Smale: We played around with like different business models. Before FE International became a thing we played around with Courses, coaching. We ran a forum, events. Did everything, and then we just focused on M& A.

[00:16:47] It was always international. I think one of the big things we did is we've always been tech and we've always been international. Some of our competitors, I'm sat in our New York office at the moment. I have an office in London, San Francisco, Miami, but all over the world, literally. And physically, a lot of our competitors, which I've always found a bit stupid because we're running technology businesses. 

[00:17:08] They won't work with founders outside of the US. So we actually we work with a lot of clients all over the world. And it doesn't, with some legal exceptions, we work with anyone, anywhere. They have a good business. It's the whole point of building a business in the tech space.

[00:17:23] A lot of the clients we work with don't have or need a physical office. I appreciate the R& D because we have a physical office. I'm not a technology business. I'm building an M& A firm. I have a team sat in New York and you can't hire that same team remotely. It doesn't exist. These people are in New York working for investment banks or businesses like FE International.

[00:17:43] So no, we've always been international from the start. It's been a pretty good source of differentiation for us. And also a source of expertise. It's the reason a lot of firms don't work with Northern US clients is, it can be significantly more complicated. Dealing with elements of like cultural differences, legal differences, accounting differences, FX, like currency differences.

[00:18:10] There's lots of challenges is nice transactions. Which again is back to the point where we were just speaking about why the firms work with us. That's not something. You can't read a book on this stuff. You can get an MBA and you can go get like an accounting qualification or a legal qualification and the book can tell you what technically should happen, but that's not really how deals get done.

[00:18:32] There's obviously an element of the team will follow a technical strict like process but every single deal has some things that are unique and you need to have that kind of experience of having done it before. Particularly with International transactions which can get extremely complex for lots of different reasons. 

[00:18:50] Ronald Skelton: You guys chose, I know you have offices in New York and San Francisco we spoke before. Are those because that's, hubs for M& A activity? Or is the, do you have an office in, say, Austin, Texas, which happens to be now a tech hub too?

[00:19:03] Thomas Smale: We do actually have a small team in Austin and a business we like invested in and help advise. But core New York, San Francisco a lot of the tech deals happening. London, Miami, Austin is actually very new. I haven't even announced it yet. So, we didn't have any PR for this, but I guess, and then we've tried other locations as well.

[00:19:23] We have people in, in other places. Generally, we've a little bit where clients are. And if you say, if you live in the US, almost everybody who runs a business goes through New York once a year. You don't necessarily live in New York, but you go through New York or you go through San Francisco. Or you go through Austin, or you go through Miami. And if you haven't gone through one of those four, you probably don't travel very often, you probably don't run a business. Which is fine, but that's not our target audience.

[00:19:51] So part of it is just, our clients are here, and then from a talent perspective, the team we hire in our New York office, for example, have worked at Goldman Sachs. They've worked at Jeffries, they've worked at Morgan Stanley. Or they've got an accounting background, so they've been at PwC, Ernst & Young, those companies are in New York. They're not really working remotely, so those people are here.

[00:20:13] Ronald Skelton: I understand San Francisco and I understand New York because one, your talent pool is there. I understand Austin because tech companies are hanging out there and you guys, help them exit. And then the one that doesn't stick it out in my mind is, and I'm going to ask is why Miami?

[00:20:28] Thomas Smale: Well, I think a lot of that, we opened that one during COVID. A lot of people were moving from New York to Miami. So a lot of the talent that was previously in New York. Which then in Miami or that kind of (that's something I didn't know. Okay, cool). Yeah A lot of people in the tech space as well. So we tend to follow the talent rather than the founders.

[00:20:47] You will find us, part of the reason it's taken us so long to schedule this podcast is we're always on the road. I'm not in, if you come to our office, we do have a physical offices team here every day. I'm not here. Rarely here because i'm at events. You can meet me in all sorts of random places in the world and people are not in our team because we travel around and meet people.

[00:21:08] I guess we, we live up to the international name. We fly a lot. I think probably more than a lot of people. 

[00:21:14] Ronald Skelton: What's the, let's start with the most interesting. What's the most interesting company? Like I'll give you an example. I have people on the show all the time and I'm like, I didn't even know there was a company that made something like that.

[00:21:25] We had a guy on here that bought manufacturing companies and he bought a company that manufactures devices, sorts shrimp. And you would never think there's a big automated vices, sorts, big shrimp versus small shrimp and can take bad shrimp and kick them off the side. Big stainless steel food grade device, that are quarter million, half million dollar devices.

[00:21:42] Never even thought of it. In the software space or in the, in your genre, what's something really cool that you guys have helped, exit that you're like, okay, that was something I didn't even know there was a SaaS that did it. 

[00:21:54] Thomas Smale: I would say almost every deal we do. If you looked at it, you wouldn't even know that was the thing. We're not selling company.

[00:22:02] If we say we're not selling companies like Salesforce, like everyone gets it, you need to sell CRM. But we have sold a business would be like a sales CRM for dentists to remind people that they need to turn up to their appointment. And to remind people they need an appointment, which is obviously revenue generating activity for the dentist.

[00:22:19] But you wouldn't really think products like that exist, because most people, again, they go back to their dentist, and the dentist has a sheet, and they have a receptionist, and everything's done manually. So lots of products that you would use day to day. Big name products exist for sub niches and sub industries, and we see that all the time.

[00:22:38] So I don't know if I could point to one specific deal. There's hundreds and thousands of deals with businesses of things. When you hear about it, you're like, Oh, of course that makes sense. Like I, I personally love shrimp. So to me, it makes complete sense that what you're saying, like the shrimp shorting machine.

[00:22:55] Yes, of course, I would like to buy the biggest shrimp because they're the ones I want to cook on my, my grill and that's what I want. So that makes sense. Well, if you asked me to write 10 cool business ideas that probably wouldn't be on there. I think about so, that's one thing part of reason I live in the US. I'm originally from the UK is, the American dream is a big stereotype particularly like around the world. You can build a business out of almost anything in, in the US. I'm a firm believer that not every business can reach a hundred million in revenue. 

[00:23:23] But, almost anything can reach a million dollars in revenue. We see all sorts of companies at that level that you never heard of. You never would have thought about, and even if you saw it, it'd be like, Oh, that probably makes $5, 000 a month, but no, it makes 5 million a year. 

[00:23:39] Ronald Skelton: Yeah. I've been surprised by some of them too. A guy says, Hey, I got a little blog I want to sell you. Like, all right. So I'm looking for B2B content sites is what I look for. A B2B, profitable B2B content sites that preferably have some subscription news. People are subscribing to their content and, it was a little bit big for me.

[00:23:58] He showed he's doing 10 million a year in profit off this little niche site. And I'm like, okay. Give me a couple of days. I might ask around, see if I can raise some funds, but it's a little out of my space. But, maybe next year, a year after when I'm up at that level of the game.

[00:24:12] So that said, there's a lot of those weird ones out there. You're like, how is that making that kind of money? Well, he just found the niche that people wanted. He answered it really well and became the point of reference point for that particular space.

[00:24:24] So the other question I had in curiosity, just because it's me and I'm insanely curious. What's the, the coolest, weirdest, smallest kind of country where you're like, okay, we'll take that on. And you guys do probably your international, but you do projects in just ran, somebody reaches out to you.

[00:24:40] I'm sure like major competent, countries, the UK, Dubai, and that stuff you've all done. But anything like really cool product, come out of some weird place that you'd never thought that product would come out of?

[00:24:50] Thomas Smale: I think we've worked with almost every country at this stage. And particularly not necessarily founders who are from that country, but lots of people run technology businesses and travel all over and might be based in a particular place when they sell the business and then they might move.

[00:25:07] And that's kind of the, what I realized when I started the company is that, that was not going to slow down. Yeah. You're going to get arguments about work from home, not work from home in the office, but if you run your own businesses, technology focus, you can probably be wherever you want. If you want to run it, wherever you want.

[00:25:22] So we work with people from all over. So I think if you looked at the time zones we've worked with, it would be literally everything. All the time zones you could possibly think of. We've dealt with, and we've coordinated calls with someone in New Zealand, someone in London, someone in New York, and someone in somewhere else.

[00:25:40] We see that all the time. So a lot of the time is spent coordinating multi time zones, from that perspective. But no, you name the country, unless it's kind of not legal for us to work there. We've probably done a transaction in that place. 

[00:25:53] When you say not legal for you to work there, is that because of embargoes? Or because usually like sanctions. Yeah we would follow like the sanction list or there might be some other circumstances, but usually sanctions. US sanctions that is.

[00:26:05] Ronald Skelton: I say when I was in software, I'm gonna date myself that's probably 15, 20 years ago. There was also encryption standards where we couldn't, like if you built something at a certain encryption level, you couldn't sell it outside of the U S. Is that still, still out there?

[00:26:21] Thomas Smale: There are definitely situations where people in, or businesses in certain countries can't buy businesses from certain countries. Or, it might be perfectly legal to run that business in France, but if you run that business in the U. S. it's illegal. Or vice versa. So that comes up all the time.

[00:26:38] That's one of the big challenges actually with international transactions. Your business can be 100 percent fine and legal and legitimate in the country you're domiciled. But where the potential buyer, it might not be a tool. So either you need to register a company in a different country, or you need to just sell it to a different buyer.

[00:26:56] So no, that, that comes up all the time. Things like, data privacy laws, the same. Like the way, if you speak to Europeans, at least a few years ago, everyone was talking about GDPR. We speak to the average American company. Most of them don't care about GDPR. It's not a, it's a European regulation.

[00:27:12] They're not bothered by it. And things like that. That's just one example. There's, tons of examples like that, which are nuanced around the particular country. And that's really what makes those deals so challenging because you have to have a, to my point, I have a working understanding of all sorts of random things.

[00:27:28] Am I an expert at one particular legal element of like privacy law in the Netherlands? No, but have we dealt with it? Deal that had a privacy law, consideration and inference. Yes. 

[00:27:42] Ronald Skelton: I've had a tiny bit of experience on that. A company hired me to come in and write. So in the United States this rule is different, but this is also 15, 20 years ago. So Europe had a thing if you're gonna cut credit cards and do stuff that used to call it safe harbor. And it's a different thing here in the United States.

[00:27:56] It's about child protection here. In the United States there it's about, credit card safety and data safety. So I was a computer security guy and office guy. So I went into a company and helped them rewrite their security standards, their operational, stuff to pass a harbor. And it was easier than it sounded.

[00:28:13] Basically, I went in, I called the office in Europe and said, Hey, I've got this contract I'm doing X, Y, and Z. Can you send me three that you like to pass? So I could have examples. And they sent me three and I basically can model the whole thing right off of something they've already passed. But, so I can see there's differences and it was way different than what we would have as rules.

[00:28:32] They had staggeringly back. This is 20 years ago. They had different rules than we had here in the United States. Do you find a lot of times, that like a U. S. software company sells to U. S. companies mostly? Or occasionally it sells off? Or is it really just mix? You put a company, a software company comes up for sale in the U. S. and you'll get offers from all around the world every time. 

[00:28:52] Thomas Smale: Yeah, it's a mix. Almost all of our transactions are international or cross jurisdiction. So it might be different state within the U. S. and again, states can have completely different rules and regulations. So what's legal to run in California might not be legal to run in New York. There's lots of nuance considerations like that. So often we'll take on transactions knowing that certain buyers or buyer types might be excluded. I would say in general a lot of the I mean there's something like four trillion dollars of dry powder and in the US in private equity firms. A lot of the acquirers are based in the U. S., but sellers and founders are based everywhere. 

[00:29:33] Often the opportunity for those founders is, you can live in Moldova, and you can build a software business that sells to primarily U. S. customers. You could have Moldovan cost of living and build a team there, and then you can sell that business to a New York based private equity firm. Where kind of cost of living and the amount of capital they have to deploy is completely different.

[00:29:56] And that would not exist in Moldova. There's probably not that many, I don't know the country that well, there's probably not that many multi billion dollar private equity firms. Whereas in the US, if you have a private equity firm that has 100 million dollars assets under management, you would get laughed out of many rooms for being like tiny and not even a real fund, in the eyes of lots of people.

[00:30:17] Which is really the opportunity in this industry as well. It's the 100 million dollar fund can be fantastic. There's lots of opportunities buying 10 million, 50 million, 5 million dollar valuation businesses, which even today, like Goldman Sachs, they're not picking up the phone. They didn't care.

[00:30:31] Talk to me when you hit half a billion valuation, but there's still a huge amount of opportunity that's underserved. And lots of people are still, still ignoring. 

[00:30:40] Ronald Skelton: That's the primary audience that's listening here today. Is they're buying companies that are SBA loan qualified, up to maybe a little bit above that. With the aspirations that in, 5 years, 10 years, they're going to be able to grow it and sell it to a PE. 

[00:30:55] If they're doing their job or if they're playing the game, the way they tell me they're playing it, they're really watching where the PE is dipping down to private equity and these big funds or stuff. What are they buying?

[00:31:03] In certain manufacturing areas like they won't buy anything under 25 million, right? And there's certain areas where they'll dip all the way down into, they're doing roll ups and weird stuff and they're dipping down to $5 million valuation. So they're kind of getting in your space.

[00:31:15] If you're trying to do an SBA loan. But, Yeah, that's the primary game that's being played by most of our listeners is I'm going to buy something. I'm going to grow it. I'm going to buy it at a multiple, that makes sense at this level. And then when I get it a certain size, that multiple goes up because the, the bigger companies, the private equity, they pay a hire a multiple.

[00:31:34] So you, everything it goes through you guys. If I buy a software company and, put it on the market space, it's a good chance there's an international audience looking at that. So that's an interesting thing, because I figured that U. S. businesses pretty much got most of their offers from U. S. businesses and then, European. 

[00:31:51] Do you do any, here's one for you, out of curiosity I had earlier when you were chatting. Let's say I build a software company here in the United States, I know that,it's pretty much geared for what we're doing and stuff, but I have a, an interest or whatever to try to enter a new international market.

[00:32:06] One of the ways that's done sometimes is licensing agreements and, selling the license to another country in another, another state. Do you guys help do that type of stuff? So if they want to enter Europe, can you find somebody to buy the license to run the software in Europe and not buy the whole company or you play with that at all?

[00:32:24] Thomas Smale: It's not a core of what we would do, but there are definitely circumstances where the primary driver of interest for a international acquirer is expanding into the country that they're based in, or maybe it's a region. So maybe it's, you have a company in the U S and you just have American clients and a European company can buy that and sell it to every or most countries in Europe.

[00:32:49] And they know how to do that because they have another business that's strategic and they understand all the local rules, regulations and other considerations like that. So that happens a lot, but do we broker like licenses or anything like that? No. Do deals get creative where things like that are discussed? Absolutely yes, all done. 

[00:33:07] Ronald Skelton: I was just curious because that's one way you can exit without exiting, right? You can actually just license your product to other countries and other areas. Now, there's always a trick, but it's all online. I see that there's a little bit of risk that like if I license at Europe, what's stopping them from selling to US based customers, right?

[00:33:24] Thomas Smale: Well sometimes we'll do deals where the seller says hey, I want to maintain the rights to sell this product in India. And the buyer says, you know what? I don't care. We just wanna sell it in the US. So that's where the creativity comes into it. There are definitely deals like that where it happens. Particularly as deals get bigger, which against that say 10 to a hundred million range. There's lots of creative things that can be agreed.

[00:33:47] If you're buying a business with an SBA loan, you tend to be somewhat bound by the terms of the SBA and what you're allowed to do. You can't really get that creative. At least you're not supposed to kind of follow the rules, but as you get above that things get more creative. It can be a little bit different. 

[00:34:02] Ronald Skelton: What is the range for you guys? Is it a, a million dollar exit or a million dollar EBITDA to X? I mean, what's the, what's your target market?

[00:34:12] Thomas Smale: We don't do much at the moment below a million valuation. And some on the higher end at the moment, we're in the kind of two, 250 million range. And everything in between. So we've been consistently going up market. If you asked me that question 10 years ago, it would have been a different answer.

[00:34:31] Moving up. And part of the reason we're in New York like the talent, like our team come from backgrounds where they worked at Goldman Sachs and they would work on one billion dollar transaction every three years. And that's all they did and they come work at FE and they're working on maybe two transactions a month. But they're a hundred million dollar valuations, like that's more interesting for a lot of people because you have that. Take if you have it like a type a, kind of personality and you like doing deals.

[00:35:00] You're very competitive. The volume can be just as exciting as the size. Particularly if you do a lot of them. 

[00:35:07] Ronald Skelton: I understand the side of the website where I can just go in there and search. Actually, I was just in there this morning getting familiar with it again before the show. And there's something on there I'm slightly interested in. So I'm gonna dig a little bit deeper and see.

[00:35:17] It's fairly high level on there, so you have to go ahead and submit a request for a, for information and stuff. Is there, I know some of the other sites out there, and I won't name names, but some of the other sites are starting to do a little bit more of a concierge service to where, somebody gives you an investment criteria, shows you proof of funds, say here's exactly what I'm looking for.

[00:35:34] If it pops up, fire an email to me, even if it's automated in your system. Here's my buying criteria. And that way I don't have to remind myself every Friday to crawl through and do a search. You guys have anything like that on the site where we can insert a, like here's my buying criteria. Show me search results on a regular basis.

[00:35:52] Thomas Smale: Yeah, if you provide us your more advanced criteria, the team will reach out with deals generally before other people see it who haven't given us any information. And that's not because we're lazy, it's because you are more qualified if you tell us exactly what. Someone that comes along and says, yeah, I have a hundred million dollars, I want to buy a business, doesn't really mean anything.

[00:36:11] If you say, I have twenty million dollars in cash, here's proof. I would like to buy XYZ with ABC criteria, much more likely to reach out. Even though on paper you have less money. That a worse buyer. And as transactions get bigger, they tend not to go on our website because the average person browsing the FE International website is probably not buying a hundred million dollar business.

[00:36:36] They might be buying a 10 million dollar business. Those transactions almost entirely sell through outreach or not friend of a friend, but those kind of like referrals of, oh, I know who should buy this business. I'm gonna forward it to Jim at xyz capital. They're the ones doing those deals. So that's how those tend to work from that perspective.

[00:36:54] The website is more of a marketing tool for us, rather than a, as a marketing tool to bring in clients to every international. It's not a lot of people look at our website and be like, Oh, like design sucks. Like this UI isn't great, but we're not a marketplace. We're an advisory firm. We don't sell a hundred million dollar transactions, listing your business on a marketplace and emailing a bunch of people who already know about you.

[00:37:21] Our job is to find people who don't know about you. That's what we've been hired for in the first place.

[00:37:26] Ronald Skelton: A lot of people don't get that. A lot of people in our space, they don't realize there's different tiers here. And tier one is if you're FB, if you're selling your business and you only, only people buy and it can all qualify, say it's your valuation is 5 million or below.

[00:37:40] Those are going to be in the marketplaces. They're going to be on the BizBuySell and stuff like those. Those are going to go through standard brokers most of the time, or people who do what you guys do. Once you get above that range, the whole game changes, right? I had a younger guy, I almost called him a kid, but he's in his twenties.

[00:37:56] I'm 51. So everybody under 30, I think of as a kid this day. He calls me up and says, Hey, I'm having a hard time, I'm a lead generator. I generate leads for business deals. I can't find a broker. They'll take this one. I was like, cool. What do you got?

[00:38:07] And he is like, I have a heat and air company out of Tennessee that's doing $35 million a year. I was like, 'cause you're calling brokers, right? He's like, yeah. I was like, that's not a brokers game. You got a mid-market product right there. And you, the owners weren't only gonna work with him.

[00:38:21] And, I say that's an investment banker's game. So you're going to have to find somebody that's in that mid market investment banker that, understands preferably one that understands heat and air in the mid, in the middle of the United States, but, I had some people to send him to, but a lot of people don't get that there's a different model.

[00:38:38] I broker, your SBA loan, you're going to end up on in a directory. They're going to wait for people to contact them. And then they're going to, farm that out. You got a business that's going to sell for 10 plus million, $20 million or more. All of a sudden now the game changes. People like you are going to take that, put a package together, figure out how to best present it, and then reach out to, create a list of 25, 30 people and then weed that down and go, these five probably should buy this. 

[00:39:03] It's a great business move for them to buy it. And then you pitch it. You're actually reaching out to these people and go, Hey, I've got something you really should take a look at.

[00:39:11] There's a bit of a, instead of catching people interested in, maybe interested in something you post on a public market space. You guys are out there, happen to, be the pitcher. You put together the package and deliver something to people. 

[00:39:23] Thomas Smale: It's completely different. I think what a lot of people don't realize as well, even though, appreciate some of the irony. I'm in a physical office in New York.

[00:39:31] A lot of these deals happen in person. Almost all of them do at that level. We'll be jumping on a plane. It's okay, you've got a meeting in Philadelphia. You're on the next plane tomorrow or the next plane today, and you go discuss it in person. That's often how business at that level is done.

[00:39:47] But no, absolutely, hundred million dollar valuation companies are not selling themselves on marketplaces with people who are buying businesses for a living, browsing and being like, Oh, I like that one. Yes, there is an element of that. It's definitely part of the process, but it's not, it's reaching out to The CEO of company X and hey, CEO of company X, this is why you should buy this business.

[00:40:09] The CEO of company X is not browsing that marketplace. They're busy running their business. So, it does change. 

[00:40:14] Ronald Skelton: He often didn't know he needed that business until you presented it to him, right? 

[00:40:18] Thomas Smale: He doesn't because he's busy doing other things. Like, how do I grow my company? And as a CEO, you have a hundred options.

[00:40:24] One of which can be acquisition. If they are only doing acquisitions like private equity firm, that's a little bit different. But they're not always the buyers of bigger businesses who have to speak to lots of different people for lots of different reasons. 

[00:40:36] Ronald Skelton: A lot of people the reason I wanted to bring that up is a lot of the guys I talked to they think those bigger businesses are sold because Amazon reaches out to you and says, Hey, you got the software.

[00:40:45] I'm interested. I want to buy you. And I was like, no, that's not really how it happens. When those guys are ready to actually, that can't happen. And it does happen. Google reaches out to people all the time and says, Hey, I like what you're doing. But it also happens where the teams at the point where they're wanting to sell.

[00:40:58] They reach out and Google's not freaking searching, BizBuySell or, not you. If they work with you on FE International, they're not browsing your website, right? They've got somebody in house that they've talked to there and say, Hey, this is what we're looking for. What do you got? Go find us something.

[00:41:13] Or, a lot of times it's even that it's like, Hey, keep your eyes open for X, Y, and Z. I really need this. This is where we're at. It's a different game. A lot of people, a lot of the guys they're coming out of their ETA courses in college, or they're coming out of some course they took online or something, or they listen to my podcast and others does another, shows and read a hundred articles, and now they're thinking I want to buy a company. They don't understand that there are things in this world, in this space that you didn't know existed that do.

[00:41:40] And it's important because, not at your level, not at our level,to understand how the investment banking world works, but when you get ready to exit, you probably should, right? If you do your job right, you need to know what, you need what you're playing towards. That's your end goal. if you're thinking about football and, you're looking at the other end of the, that goal at the other end is, strategic buyers, private equity and investment banks. Investment banks is your quarterback getting you there. 

[00:42:04] And you guys play that realm, right? Like I don't know what you, how you classify as an advisor, investment bank type of, but you're in that role. You're at that strategic advisory role to get these deals done. 

[00:42:15] Thomas Smale: Yeah, that's exactly right.

[00:42:16] Ronald Skelton: What's something out there that right now, that would help you guys out if my audience is listening to it? What's that ask that you can tell, hey if you see X Y Z, we're looking for it maybe it's advisors.

[00:42:27] Maybe it's, I don't think you have a hard time getting the listings. Everybody knows who you are, but, what's something that the audience can help you keep a lookout for? 

[00:42:35] Thomas Smale: I mean we always want to talk to new people in the industry and think about the industry same as competitors. New competitor every year or probably every day. Now there's new and every day. Same with acquirers. The acquirers who are doing lots of deals two years ago, might not be doing deals anymore.

[00:42:51] Maybe they've deployed all their capital. So we always want to speak to new people. No one for us is Oh, we'll only speak to you if you've done transactions before, or you have to have a certain amount of money. Yes, there is a entry point, of course, to acquire a business we're representing. But we're always happy to speak to new people in the industry.

[00:43:11] Ronald Skelton: Okay. And then, there's a lot of people out here trying to, they're working their way into this space by they're doing lead generation or they're like reaching out to all the PE firms and strategic. They're reaching out to family offices and trying to figure out what they're buying criteria and earn a living off of, what I refer to as finders fees or whatever.

[00:43:29] It's like, Hey, call 25 family offices, figure out what, if they're buying, what they're buying and what they're buying criteria is. And do you pay a finders fee if I bring you something. Sometimes you'll be surprised. I think there's a shift recently. I think, this word is getting about, acquisition entrepreneurship, buying companies instead of investing and growing them, is getting out.

[00:43:48] People are starting to realize there's a huge marketplace. I don't think that there's any ability right now. We don't have enough acquisition entrepreneurs, private equity firms and everything to consume the number of business that need to be sold in the next 15 to 20 years. Especially small to medium ones, right?

[00:44:03] These Mom and pops have 50 employees. They're doing, two, $3 million a year. There's so many of those that most of them are going to have to go away if somebody doesn't step up and buy those. But on that private equity and family office and stuff, if somebody stumbles across, like the last private family office I spoke to, they basically don't even call me if you can't find something that's over worth more than $50 million.

[00:44:27] That's the smallest check we write. So different world than what I'm playing in. But, what's the entry point? Like if somebody is looking for something that X number of dollars that they probably should, reach out to you guys.

[00:44:37] If you're looking for software companies that are bigger than X, we've got them lined up. 

[00:44:41] Thomas Smale: Yeah, I'd say generally you have a million dollars in cash or more. Occasionally we have other deals, but the vast majority of buyers who work with are at that level. You might have done an entrepreneurship through acquisition course within providing, but then part of the Harvard entrepreneurship by acquisition courses have met many years now.

[00:45:01] So we know that world. We work with people that come from like more traditional private equity backgrounds and they start buying or strategic or people that have access. A really common type of buyer actually is someone who has built a business, sold it, didn't want to start a new one. So now we're acquiring companies. 

[00:45:18] Yeah. But we represent a range of different businesses. And to your point, if using SBA and other forms of financing, you don't necessarily need to have a hundred percent of the cash available to do a transaction. Often you could have a small fraction and you can still get a deal done.

[00:45:33] Ronald Skelton: You're talking about raising private capital and doing, having banks fund part of the transaction and all that. Doing different capital raise, debt versus investors and all that. What is the typical, if you say if i'm gonna buy a hundred million dollar company, what do I need to have access to?

[00:45:49] As kind of a down payment to have skin in the game, to even get these banks and stuff to listen to me. 

[00:45:54] Thomas Smale: That's rapidly changing. You asked me that question two years ago. I'll give you a completely different answer to today. A lot of it depends on the profile of the business you're acquiring. If you're trying to acquire a SaaS company for a ten times revenue multiple and the business you're trying to acquire is burning cash. Getting bank funding is probably going to be difficult, unless you already have a business with a line of credit and it's a strategic acquisition.

[00:46:19] And you can show a very clear path to profitability and you can model that out. If you, for whatever reason, have managed to find a way to buy a business at three times ebitda, then you might be able to get away with a significantly lower percentage of cash. So it really depends.

[00:46:37] I'll say the banks that are lending part of it as well, the game is a little bit rigged against you. You've never made an acquisition before and you have no experience. You can't go to a bank and say, oh, I have, $10 million. Will you lend me $90 million to acquire this company? Even if the numbers are perfect.

[00:46:53] Like banks aren't doing that, particularly not in this market. Neither are private lenders. Not to any level where the rates have been viable. If you've done it before, if you've had a successful exit, if you sell your business for 20 million dollars, and then you go back to a bank and say hey I want to borrow 20 million to buy this company i'm going to put in two, then you can probably do that because you're relatively safe bet. So part of it is it depends. Similar to if you like try get a credit card or try get like a loan for a car, depends on your credit rating. It's not exactly how it works for big borrowing or big lending, but definitely like a factor. What's your kind of history with that bank or that lender?

[00:47:32] A lot of the time they'll want to write a relatively small check. So maybe we work a lot of clients who, have a lender relationship and they started out and they went to the lender and they borrowed three million dollars. They put in their own three million. They buy a company for six. Sell it a few days, a few years later for 30 million, and then they go back to their bank and be like, hey, i'm gonna buy another business. I'm gonna put in 10 million.

[00:47:54] I want you to put in 20 and we're gonna go do it again. That's a good way to do it as well. Again, there's very similar concept to building credit right. When you get your first credit card at least remember when I moved to US, my credit limit personally was $250. Now, fortunately, it's significantly more than that.

[00:48:10] But how have I got to that level? It's not like spending nothing on my credit card. You max it out, pay it back, you keep doing that. And then over time you build that. It's exactly the same with lenders. There's obviously a little bit more discretion in their formula. But that's really how it works.

[00:48:24] Build the trust, pay them back, show them a return, keep doing it. 

[00:48:28] Ronald Skelton: It says something for, even if you have an exit, for not just funding the entire thing off of whatever your exit was, to work with the bank, build that relationship. So that when you're ready to exit that one and you do need a bigger, when you do need that bigger thing, you've bought that, like for example, for me, funding through private, I have no intention or had no intentions of even touching the banks funding through my private assets and, private investors that work with me.

[00:48:55] And people work with me in the past, people that want to work with me and you want to raise it in that way. But there's something to be said about, okay, give a bank a piece of this deal. So that later on, when I want them to do a bigger deal, I've got that relationship and that trust there. 

[00:49:07] Thomas Smale: Yeah. For sure. I mean, it's similar to like getting a mortgage for the bank. If you go to them and say, Hey, I want to buy another property, and I want to do that with you again, as long as you've got a history of paying them on time. There's no different with a business. 

[00:49:19] Ronald Skelton: So I can see that. So let's make sure everybody knows how to reach out to you, man. We're getting close to the top of the hour. If somebody wants to reach out to you and or your company, what's the best way to do it? 

[00:49:29] Thomas Smale: Yeah, sure. So we try and be everywhere, but you go to our website.

[00:49:32] It's probably the best way you navigate around. If you want to buy, you want to sell, do you want to just read some content, listen to some content. The FE international. com. website. Check any, your favorite social media channel, we're probably active there. You can find us, or you can find me. We regularly share industry content.

[00:49:50] So even if you're, not necessarily ready to buy or sell, it always makes sense. To my point earlier about founders being much better prepared today, that's because there's lots of great content. And we're not the only ones producing it, but we certainly do produce and share a lot of it. And fortunate to spend time with people like yourself and kind of experts in the industry.

[00:50:08] Talking about it, having an open discussion like we've just had. So hopefully everyone's found it helpful from that perspective. Always happy to ask questions. You don't have to, I don't only reply to paying clients. You can email, we're an advisory firm. I like helping people, so feel free to reach out. I'm happy to help. 

[00:50:26] Ronald Skelton: Well, I appreciate having you here today. I learned a lot. I think the audience learned a lot and it was very valuable to have you here. So, I want to thank you. 

[00:50:32] Thomas Smale: Yeah, thanks so much. Really appreciate the opportunity.

[00:50:35] Ronald Skelton: Cool. We'll call that a show. Hang out for a few seconds.