E180: Mark McRae: From Casino Boss to Deal Maker: Lessons in Business and Acquisitions

[00:00:00] Ronald Skelton: Come to the How2Exit Podcast. Today I'm here with Mark McRae and he is, an advisor, a leader in the space, been in the space for 30 years. 

I'm glad to have you here. Uh, I'm looking forward to learning from you. Where are you at right now? Yeah, I'm in the Redwood Forest in Northern California. You're in a really cool place. Where are you located?

[00:00:16] Mark McRae: Well, thanks for having me. first of all, Ron. So I'm in, uh, Australia, north of Brisbane and Queensland, which is on the East coast of Australia in a place called the Sunshine Coast. So, uh, we get about 300 days of sunshine here. So it's, good weather. 

[00:00:33] Ronald Skelton: Let's get started with kind of telling people who you are, where you're from, what you've done, the kind of the origin story. And, uh, let's get people to kind of know who you are. 

[00:00:42] Mark McRae: No worries. So, uh, as you can probably hear by the accent, I'm originally from Scotland, born in Glasgow. My mother and father were market traders. So they, sold things in the markets, scatter cushions, lighters, you name it. And that was really my first entry into business, was standing in the market selling things.

And I remember when I was seven years old, I noticed that, uh, the people who were walking around the markets, they never brought anything to carry the things that they bought. So as a kind of side hustle, I went and I bought a thousand carrier bags at 10 cents each and sold them at 20 cents each. 

Made like 10 pounds, 20 pounds, then 30 pounds. Until the point that just before I was eight, I was actually making more than my mother and father. So I've kind of been hustling ever since then, but, my first kind of career job was in casinos. So I started off in Glasgow as a croupier or a dealer.

And, from there I progressed to, South Africa, uh, in one of the largest casinos at the time, which was Sun City. And eventually became a pit boss there. And from there I progressed to, I, took a share in a casino and then, you know, eventually had two or three casinos of my own. 

That took me to basically,around the world. Landed up in Central America for a bit and Costa Rica, Went back to the UK and in the UK, I studied and became a derivative trader. And this has come back to 98, the late nineties, just as the internet was taken off. And um, after I became a derivative trader, I got in contact with a lot of people and somebody suggested I write a book about trading.

So I wrote a book about trading. And online it became a bestseller, trading for Beginners. I wrote a few more. Then people who were interested in that field, institutions and other traders asked me if I could help them do the marketing. That developed into a marketing company and then a publishing company that took me to different parts of the world.

And in between that, I've probably owned or bought over 30 different businesses in different parts of the world. So it gives me a kind of interesting perspective when I'm talking to people, from around the world. And when I'm trying to promote, uh, products because I don't think you really get to know people until you live with them for a long time.

You can't go to the States and, and have a holiday in New York and say, you know America. I mean, so each state is unique and each east coast is different from the west coast and so on. You really got to live in places to understand it, at least a little bit. So I think that has given me a unique perspective on how to do business online because I can appreciate other people. Gives me more reference points.

And that's kind of, took me to here in Australia. I still have businesses that go back 20, 25 years, but along the way I have learned about business. I have bought businesses. I have made more mistakes than anybody else I know. So I've had some good things and bad things happen to me along the way, but I always feel priviliged Ron, because I think I'm doing exactly what I should be doing.

There's nothing else I would rather do. I can't sing. I can't dance. I have no other talent. I'm virtually unemployable. But I love doing what I do. I love that the concept and the idea that you and I can have a conversation now and tomorrow we could be in business together and making money or making things happen or be, philanthropic.

But you can take a concept and I have the freedom, um, and the network to make things happen. So that's where I, I'm really happy about it. I think I'm in the right place at the right time in my life. 

[00:04:46] Ronald Skelton: It's awesome. And you've been to enough locations and stuff. You have a breadth of knowledge that a lot of people wouldn't.

I've interviewed a bunch of people who have done international travel. I wouldn't say I have. I've lived in the United States. Lived as far as Hawaii and Acapulco. Been to Mexico a few times, but that's probably the furthest I've been. I want, I think I want to travel more, now that I got young kids that are getting of the age where it's probably safer.

Like I've got a seven year old at a 12 year old now. So that's pretty, pretty decent. But I think there's a unique perspective and seeing other cultures, seeing other marketplaces, seeing how they interact, there's some value learned.

I have a entrepreneur friend who does really well by, he travels, then he finds really cool products that are doing well in other areas that you've never seen in the United States. He contracts, contacts the manufacturer, gets a license agreement and drags them back here and he has a, a pretty much a, it's online now, but it used to be in person. where he would, you know, basically own the license and then get other people to retail it for him.

But he, he just finds stuff that's doing well in other places like, Hey, Americans would like that too. But, the one thing that caught my ears when you were giving your story that I didn't know before we got on here is that you were in the casino business. There are two businesses I've always looked at thinking. One of these days I probably should get in that. They look like they make a lot of money and that's casinos and banks, right?

Because they always have marble floors and beautiful, they got to be making money because they're always building, they're always becoming bigger. Things are having a little trouble right now they're over leveraged, but you know. Is the casino business as profitable as they make it look? 

[00:06:13] Mark McRae: It was a my day, you know, it's, I think it's, it's, it's a lot more regulated.

It's designed in such a way that if there's that much profit, you're going to get clobbered with tax. And the world is different now. I mean, we used to deal in cash and casinos don't really have cash that much anymore. The hard part about the casino, the whole casino thing is getting a license.

So the fact is, you open a casino somewhere, they call it the honeymoon period. You're going to do exceptionally well, but to get to that point is extremely difficult. And I traveled looking specifically for a casino license to countries like, Zimbabwe, um, Angola, uh, Zambia, Trinidad and Tobago.

I mean, lots of countries that I thought were semi, legal and, you could, they were credible enough where you could do things. And I dodged a bullet in a few places like Zimbabwe. I'm glad we, it never happened there. 

[00:07:12] Ronald Skelton: It's like, I think that place was rough, right? 

[00:07:14] Mark McRae: Oh yeah. And it's one of those things that seems to attract a particular type of people. There was a time in those days, you know, that was it.

You wanted, those people who wanted an airplane, a ship and a casino, or a boat. But it was because it was my first career, I became obsessed with it. So, you know, uh, it wasn't a case of, I knew everything about that particular industry. There's very few things I would consider myself an expert in, and I would no longer consider myself an expert in casinos.

But at that time I was so involved and engrossed with it. I knew how tables were made and knew how the chips were made. I could do any job in that casino. I was one of the first people to learn card counting. All right. So, and there was a booklet beat the dealer by, his name escapes me just now, and he wrote a book about card counting.

And he's a very young man. I read that book and in that particular casino organization, I was the only person who had read that book. People didn't read when you were a manager of a casino there, you just got knowledge passed on to you. And I could spot card counters because I did that. And that helped me get promoted.

So then I read books on marketing and, applied marketing to some of the very old traditional ways that they used to do business in casinos, which is basically just open the doors and see what happens, to put some kind of events in there. And that also helped me kind of skyrocket through the casino, uh, industry.

And it gave me a good footing. So when I did eventually open my own casino, I was a hundred percent confident. I didn't, I knew that was going to work well because I knew not just how to run the casino part, I knew that parking was important. Bathrooms were important, lots of different things. So I was very comfortable in that industry for a long time.

[00:09:14] Ronald Skelton: Interesting. So you've made it from, you know, marketplace. When I, in my vision, my, when you say marketplace, I'm thinking like a street market. Like, when you were a kid, uh, to. 

[00:09:25] Mark McRae: This was rough Ron. I mean, this is Glasgow and winter when it's cold. I mean, I remember there was one guy, I'm standing in the middle of the street selling carrier bags.

And people, even though they needed carrier bags, they hated paying for it because they thought it was just something you shouldn't pay for. And people used to just sit and abuse me. They used to say, Dick Turpin wore a mask, you little shit. And they would like carry on. And you got to know characters there and you got to know a good business principle. So uh, it was a great foundation. 

[00:09:57] Ronald Skelton: I bet it was because, developing a thick skin makes you good for sales, right? Being told no, being a little verbally abused is probably a good training ground for being decent at sales, right? I, some of the best salespeople I've ever seen in my life come from the United States.

They have a door to door salesman that sell knives called Cutco. Or vacuums Hoover vac, not Hoover. What's the other one? Rainbow vacs. Those people get the door slammed in their face day in and day out. But if they succeed and they make six figures in that, you want to recruit those people all day long, right?

If I've got a sales job opening and somebody says I used to work for Cutco, I'm like, okay, what did you make in your, before you left? What was your finishing salary? And if it's good, I know they can sell. 

[00:10:36] Mark McRae: And I've always been envious of the American accent because, uh, when, whenever I try to sell something that half the time they're asking me to repeat it, but the Americans always sounded as though they were exciting to me.

[00:10:47] Ronald Skelton: So let's go into, uh, we, we were talking a little bit before the show. You've bought a lot of businesses.

You've been around a lot. How do you know, like, what is your process for choosing the right business? What do you, how do you go about looking at something and thinking, that's the right one? 

[00:11:03] Mark McRae: I think it's different now from what it was before, because what it was before was, kind of, uh arrogance and ignorance.

Brute force and ignorance is that anything I thought could make money, I'd have a go at. And that's where I had more failures probably. And now, number one, I'm a lot more patient and do a lot more study and investigation and due diligence, but I have to believe that I can add some value there.

So for example, marketing, right? So they're having a marketing company it lends itself to a lot of different things. But you know, one of the mistakes I see people who are in M and A, and I think even the word M and A is a kind of misnomer. I think that when you're talking to people about deals in business, you should really be a deal maker and looking for the opportunity in every conversation if you're in that space.

So people that get into that space, one of the, usually the first thing they say is I need a marketing company. But they don't understand how digital marketing works. And, the, it's one of their biggest mistakes, I think, is to try and acquire a marketing company. And to give you an idea, Ron, a couple of years back, the, even though I owned a marketing company, I wanted to start to do a bit of a roll up. Look for other ones to, bring into the organization.

So we looked at probably 3000 marketing companies. And over a period of three months, I had 150 conversations. And all those 150 conversations I realized number one, even though I'd owned a marketing company for over 20 years, I didn't know as much about marketing as I thought, because I spoke to people who were in things I'd never even dreamt of. Marketing that specialized in agricultural things, marketing that specialized in alcohol.

So I spoke to a whole bunch of people who were in a different, kind of stream of marketing. But over those 150 conversations, what I found was that something that 80 percent of those people, they did a million dollar turnover with, an EBIT of say 250, 000, unless it was a C, SEO company. And then I would have a higher margin, maybe 45 percent.

But the vast majority of them, and I'm thinking 98%, no longer had a traditional office with staff, because they didn't have good utilization of staff. So, for example, going back maybe 10 or 15 years, you would have, maybe not that long, but you would have experts for different things. You would have experts for Google, experts for Facebook, experts for this, that, and the next thing.

But now it's more generalist and it's all outsourced. So of those, 150 conversations, there was only two companies, both in the States that actually had traditional offices with 10, 20, 30, 40 staff. Now, if you're thinking that you're an M& A and you need a marketing company, that's what you get. You actually lined up with a group of outsourced people. And if you're not familiar with that, it can be difficult to control. 

[00:14:18] Ronald Skelton: Yeah, I have a similar experience. When I first, when I took the two courses I told you about before the show and, came up my master's degree, my MBA is in marketing. That wasn't doing me very much service as a small business owner.

So I went and got trained by, uh, the guerrilla marketing guys, Jay Conrad Levinson's group. And I was one of his coaches for a little while. I went through his certification, became a Jay Conrad Levinson. If you know what it is, it's the guerrilla marketing coaching. We're low cost, high impact marketing strategies.

Cause basically a MBA in marketing makes you a good employee for Coca Cola, but doesn't do very good for your small medium business. Branding is not a term that should be on the tongue of somebody who's not generating a profit yet. Right. 

That's a soapbox I'll get on. Uh, other than that. So I did, we did a marketing rollup. A group of us got together, we're thinking we should try to do a rollup. We've all worked together. We did what you did. We talked to, we were targeting bigger agencies, so we were hyperfocused on targeting, you know, $1 million EBITDA.

It's close to million dollar EBITDA, to four to $5 million EBITDA companies. 'Cause we're doing a larger roll up. And we had some people on our team that, had led the, some of the world's largest marketing agency. We had two advisors we brought on that were like, I can't say who their name are cause the NDA and stuff, but they were top guys.

And the same thing is, I learned a lot about the industry. There was all kinds of stuff like you were talking about event marketing agencies, and all they did is they set up events and do the promotions for the events and I just, uh, 3d, graphics inside of the events and displays and just all kinds of stuff. PR agencies versus, non PR agencies and, uh, you know, online, offline, just all the different angles of it.

So we quickly had a focus in on, looking at things like, we were looking at building our anchor product and tagging in the smaller agencies that did specialties. So finding a really good 25 million, anchor company who, pretty much broad general. They did most of it. And then we're going to tag in a lot of these, like the event planning and the other stuff.

But I'll tell you, it was so, I think the biggest problem I'm trying to walk, watch how I word this, because I'm not trying to be mean to marketing agencies. Male, female run, man or woman doesn't matter, whatever gender you want to call it these days. That's another stopping. All marketing agency owners have egos and they think they're, they're the best in the world at what they do.

So getting them to work with each other and want to work with each other was an interesting conversation. 

[00:16:33] Mark McRae: I always says, it's same as SaaS companies. You know, they're all prima donnas. They're all, have to be handled. It's like trying to hair cats, but that brings up a good question. So you've got this, your targets and $25 million dollar companies. How do you fund it? 

[00:16:48] Ronald Skelton: So we were looking at a waterfall model. So basically we were only taking, it was a real, true roll up in the sense that, we were bringing them in under one valuation with a three to five year plan to sell it. And, we only got to pursue, it was fairly convoluted. We actually not convoluted complex.

Uh, we had attorneys that set it up, but it was a waterfall model where we only participated in the uplift from where they came in at their current valuation. Versus where we sold it in three to five years. I'm not going to pretend I know that or talk on it too deep because we had other people on the team that had other, you know, tens of thousands of dollars worth of legal expenses that set that up.

So, and at that point I was just nodding going, okay, lawyer said this is good and market agencies seem to like it. We talked to close to 200 plus, agencies that fit our criteria. And then, uh, towards the end of the project, we had 2, 600 LOI. So, and in the process, that, uh, doing in the process of due diligence, where it ended up is, two of our partners decided we had too many,cEOs in the mix.

And I don't disagree. We had eight people who had all been CEOs in the past. Being the leadership of this company and uh, they bought the rest of us out. They wanted to do it on their own. And they're still chugging along, I believe. 

[00:17:56] Mark McRae: I think there's two good points there. I mean, one point is that when you are, if you're gonna do something like a rollup, it can be a good way for people to get into, the advantage of it is you can do it, uh, you, you don't need that much money. If you do it through options and other uh, technical, uh, ways to buy those.The disadvantages, of course, it can be quite complex. But that's one of the things I think that people don't understand about mergers and acquisitions is the funding part, because I talk to a lot of people who have, who want to get involved in this field.

I encourage everybody to get involved in this. Is that they forget that you need money. So somebody who comes into M& A and they say, okay, I'm going to, I'd like to buy a company, but they should be spending really 80 percent of the time looking for investors. Because even if they find it, it's not always easy to make that deal happen unless you've got access to money.

[00:18:54] Ronald Skelton: It's interesting that model was truly kind of a zero down deal for all those agencies and they were signing up for it. But we still needed money. We spent tens of thousands of dollars on legal fees and we were raising money for legal fees because, getting through people through legal due diligence and financial due diligence, on that low level, uh, with that kind of liability of that big of a deal, was tens of thousands, um, you know, per deal.

Close to probably closer to a hundred grand per agency we would have brought in. And in the lifetime value of what we spent on legal and due diligence and all the contracts and, all the stuff we'd have to spend, we were raising money for that.

[00:19:31] Mark McRae: And if people don't understand that either. As a rule of thumb, let's say you spend a 3 percent in legal and accounting. When people try to put a deal together, a lot, I find legal is easier to get people to do things at risk. In other words, you can say to somebody, if the deal happens, I'll pay you and I'll even give you 10 percent above it.

And if it doesn't happen, I'll give you nothing. Accountants, not so much. They like want the money. They just don't like to play so much. But there you have to take that into account when you're doing a deal. 

[00:20:03] Ronald Skelton: the other, uh, the other aspect of that is a lot of those agencies, there's a sweet spot inside of marketing agencies for anybody considering doing roll ups, that they can't get past. So agencies kind of have a, about a five to 10 million, depending on the industry, about a five to $10 million kind of glass ceiling they have a hard time breaking through. Meaning that they're not big enough to bid big on the, bid on the big contracts.But they have talent that they've grown over the years that are ready for them. So now they're going to either have to go get a big contract or lose their talent. So that's the one of the reasons a lot of these guys were motivated. We were playing in the sweet spot where they were losing talent daily because they were going, they wanted to, their talent wanted to go work on a project like Coca Cola, but they weren't big enough to bid on that. 

They had the skillset. They were good at what they did, but you go into a Coca Cola or a company like that, and you've got 10 employees that look at you like, you're not even big enough to help us. You're not big enough to qualify to bid. 

I'll tell you the lesson I learned. The main lesson I learned that we never needed to go that big. 

[00:21:00] Mark McRae: Yeah. I mean, exactly. I mean, and it's easier to do smaller deals or you can do more of them. I forgot the, the principle of a roll up is to add value.

There has to be a reason why people want to do that thing. It has to be improved profit somewhere. And, uh, so I would try to, bend over backwards and make these things happen. And sometimes it's just not there. Sometimes the margins are too thin or there's no practical way to really add value there.

I think my big thing was to make sure if you are going to do a roll up, there's enough margin for everybody to eat. 

[00:21:38] Ronald Skelton: One of the things I did, I called probably about a hundred family offices and private equity companies to figure out kind of do a deal placement for them. Be a introducer or get an introduction fee, um, when I was, trying to figure out, I wanted to evaluate a bunch of industries and figure out which one I wanted to be in.

I thought, Hey, there's a good way I can make some money while I'm doing it. And most of them told me that they, I'll be honest. I talked to probably a hundred, 150. Most of them said they don't want to write a check under 50 million. Most of those, 

[00:22:05] Mark McRae: Work for them to do that as, as to do something small. So they don't, 

[00:22:08] Ronald Skelton: That's what they told me. Exactly. It's the same amount of work to do a 50 million to 100 million dollar purchase than it is to do a 5 million dollar when you're playing too small. Because, I was playing with what I learned to look into, like, what do you need to acquire? so that's another one to look at is,you know, if you're trying to raise capital or you're trying to do something like that, who you call, you got to figure out what's interesting to them, right?

When do they start being interested? The family offices and the private equity firms? They don't seem to be interested in that unless it's 50 million or above 25 million or above. that moves their needle. So, 

[00:22:41] Mark McRae: I think so. I mean they they didn't really have search funds or I don't ever remember seeing them when I was younger, but I think that can be a good way for people to go, especially if we've got some experience in business.

[00:22:52] Ronald Skelton: Would you, you brought up an interesting term earlier and I liked the term. There's all these terms we fly around, fly around ETA, which is entrepreneurship through acquisition. There's acquisition entrepreneur, AE, but you said deal maker. And I liked that because I think it opens the doors to, not just acquisitions, but all kinds of like contract for equity, joint venture deals. You're looking for how to make a deal that works for you and the client. So what's your idea of a deal maker? That phrase you used.

[00:23:19] Mark McRae: Well, let's say you're actively going out there looking for a deal. If you were to randomly go to LinkedIn and talk to a hundred business owners for an acquisition, at 98 percent of them, well above 95 percent of them are not interested.

They didn't wake up thinking, I'm going to sell my business. And there's a very small slice of people who are at retirement age or for some reason they do want to sell. So the majority of people that you're going to talk to have no interest in that. But during that conversation, you're going to learn things.

Maybe they're looking for a CEO. Maybe they want to expand. Maybe they want to acquire things. Every conversation is going to open the door to a hundred different things. And if you're switched on, you can put things together. I can't tell you how many people I've introduced. No hidden agenda. Just said, I spoke to Ron.

He was looking for an entry into SaaS. I know that you're looking for an investor or you want to sell or whatever. So if you're thinking in terms of not, I just want to buy that company, but I'm open to any deal, then, and it's the same as when you own a business, you're constant that every business owner in the world needs something.

If you asked any business owner, what do you need right now? It might be staff. It might be, they have a supply chain issue. They all need something. So you can be the solution. And that solution can get you equity. And just on that point, Ron, where I found was of every hundred people that you speak to, only about somewhere between two to 5 percent of people are genuinely interested in, selling their business.

And then you're going to get about another 5 percent who right away, see, we're looking for money to grow the business. They know they're looking for money, but 90 percent of the people you talk to are looking to grow, but they don't know how. So again, if you're looking for a low entry and to get an equity into companies and you've got a skill and you've, that's where I found. I accidentally was, I wanted to talk to a company about buying them and they would tell me, we don't want to sell, we want to grow.

What would we need to give you for you to be involved with us and help us grow? So it's that exchange of knowledge for equity, I think is a great opportunity for people who want to be involved in M& A, but they don't have a lot of capital, but they do have experience. 

[00:25:41] Ronald Skelton: It's interesting. I considered at one point doing like a Venus, but I think they got a nickname for it or a name for it called the page paid search firm.

So if a company wanted to grow through acquisition, they could work with me. And,I put the, I'll pull together a team. We'll go find something for you to acquire and help you acquire it. The problem I see with that, cause I would look at, like, I look for companies that would want to acquire more than one. So maybe one a year for the next few years or one or two a year for the next few years. Problem with that is you have to really deep dive into that company and I'd either need managerial responsibility of the company to some extent, because the integration of it. You're not going to get the second one if they can't integrate and make that acquisition profitable.

And it's not as easy as they'd like to tell you in the courses or something. You're a million dollar company. You'll buy a million dollar company or a half million dollar company. It's not instantly overnight, a $1. 5 million company, right? There's usually a lot of people will tell you there's usually a dip right after the acquisition where the employees are kind of scattered and confused.

The markets may be a little scattered and confused, and you got to recover from that and integrate that in and regain the trust of both customers and employees. 

[00:26:50] Mark McRae: Well, I think that's a very interesting point because what I see is people who, they get excited about acquisitions. They get excited about buying businesses. But there's actually, there's different, and I also have a different approach to send in letters of intent or heads of agreement.

That a lot of people in that process, they get to the beginning of a conversation and then send an LOI. And then nothing really happens until that's accepted. Those type of deals, in my experience anyway, they have the highest probability of falling over. I won't send an LOI until I've almost done a deep dive into the business, spoken to the person, agreed on terms and then send the LOI that has a higher probability of success.

But if you look at it in three stages, you're kind of doing a search to find companies you can through the legal framework to make that deal happen. But then you've got what happens next. And what happens next is the hard bit. Because, and again, it depends on size. If you're, nearly everything I've ever bought has been self funded.

And I, my basic philosophy is I buy revenue. I'm not really interested in buying a business that has potential. I'm not interested in startups. I'm not interested in what would have, could have, or should have. I want to buy money, right, at a discount rate. That's what I'm looking to do. And sometimes when you're starting, you have to get, you roll your sleeves up and just get involved and really take over, but you can still fuck up.

I mean, I bought a company this year and, there, I was convinced I had done it right. I thought for the first time ever, I've really got this. I've done enough of them. And within a week, all the staff left. And I couldn't believe it. It's like I mean, I actually sat down with some people, promised them equity in the company. The person swore on their firstborn child, they wouldn't leave.

We made plans. We were, we had all planned out and then the next day they just wouldn't come back. For whatever reason. So there was come, there was something that I had missed. But what it did was it put me in a position where I had to take over and take over the operations of that organization for the first 60, 90 days.

So I think it's a, that taking over the companies can be the hard part. Sometimes it's great. Sometimes everything works out the way that it should, but normally there are skeletons that you never thought of. There will be things happen that you never thought of. Sometimes intentional, but the majority of things that go wrong when you take over are things that neither you or the seller thought of. Something.

[00:29:35] Ronald Skelton: That's startling that they, they would do that. And it happens all the time. That's the number one like topic we talk about integration, is the, here in the United States where you just use the phrase earlier on revenue is turnover. That's what they call turnover. Here in the United States, we talk, when we say turnover talking about employees leaving.

So a turnover of five percent means, if I have a hundred employees five, five of them leave every year, right? I have a turnover a yearly turnover of five percent of my staff. So there's a, for those of listening that when he says turnover he means uh revenue and I'd say turnover i'm talking about people leaving. Churn or what do you call it. It is very common and communication is the only thing that can slow that down, like pre, pre closing and like, but sometimes you can talk and build rapport with the employees and they're still going to do what they do.

[00:30:23] Mark McRae: Well, one thing we never considered it may be helpful for people who were listening, who would be listening is that the company that we took over was a national company that shrunk when the owner had a heart attack.

So he kind of shrunk it down. And the staff had been running the organization for about two years. So they had it easy. There was no supervision, no management, no drive, nobody trying to make the company work really. And then when we took over, it's a different attitude. Now we actually want things to happen. And people left because they had to do a day's work. Ah. It's too much for them.

[00:31:01] Ronald Skelton: What is the rule of thumb that I keep hearing from all of you guys that I interview? Don't change anything in the first 90 days you own any, own a business. Just watch, just observe, right? Observe and learn. A hundred, 90 to 180 is what I've been told, right?

I get it now. They said for the first 90 to 80 days, 90 to 180 days, your whole job is to learn what they're doing and build rapport with them. yeah, and that's true. Yeah, I agree with that. And the second one, the lesson I learned from that is said, when you're ready to make changes, interview every single person in the company, figure out what changes they want to make and start with the ones that align the changes you think need to be made, and the ones that they think need to be made, because they'll think the idea was theirs and they'll do it better.

So you always start with those first and that's what you warm them up with. And I never thought about that, but that was brilliant. I forgot which one of the guys, the guests that said it, but it was brilliant. Like there's, there's some, you're going to have alignment. When you look at things over, those employees know what need to change, right?

So go down interview every one of the key players at least, depending on how big the company is. Figure out what they think needs to be done and then look at your list of what you think needs to be done. And whatever is alignment start with those because you'll go, 

[00:32:02] Mark McRae: One of the great tools, I've never heard it used before, so I'm going to claim I invented it.

Is that, if you have a reasonable size, uh, number of staff and you're trying to build that alignment, that alignment, that culture that you want, is to get, and I'm going to ask you this. So think about it. So as to get the entire group together and on a whiteboard divide a whiteboard into two sections. And on one section ask every person individually, who's the one person that you admire and it could be a fictional person that could be from the future or the past or whatever. And what is it that you admire about them?

So let me ask you that question. Who's the one person you can think of that you admire? 

[00:32:45] Ronald Skelton: The one person, while I read so many books and so many different things. It'd be odd. In the entrepreneur space, I would tell you it was Shaquille O'Neal. And you wouldn't think that, but the guy's bought 400 companies. He's philanthropist. He gives, he gives and buy his kids stuff. But, uh, you know, everybody thinks of Shaquille as a basketball player. He owns over 400, companies at this point.

He owns pizza, Papa John's franchise. A lot of franchises, but he also does good in the community, takes care of his family and stuff. And he, he doesn't wear that. He doesn't wear his money on his sleeve is a lot of, like a lot of other people. That he dresses normally, he drives fancy cars, he can, he lives in a big house, but,you know, I, I 

[00:33:23] Mark McRae: like a good example. A national leader. But what's the one thing you admire about him?

[00:33:28] Ronald Skelton: Uh, the one thing I admire about him is stay in, stay in touch with normal, you know, regular people, mom and dad, humility. That's the word I'm looking for. Like a kid walks up and wants to play with him. He'll bend down and play with that kid. 

[00:33:44] Mark McRae: All right. So if you have an entire team of people who tell you the people and the one characteristic, like humilitary, honorability, or whatever, that, then you can say to them, that is the soul of our company.

All of these characters that you admire from these different people, that's who we are. So when you talk to our customers, think of this, think about being honest, think about having integrity, thinking about being a leader. So all of those things. That's how I define a culture in a company. And I think that's one way that you can get everybody swimming in the same direction.

[00:34:20] Ronald Skelton: I like that. That's a good, uh, a good thing. One of the things I do, and I don't know if this is a, I don't know if I should admit it. I ask, I individually talk to every single employee and say, you know, who here is undervalued? Like there are people here that are doing way more. Like a good example is I've met companies where the guy who has a tag of maintenance, the company can't run without him, right?

All the machines, he fixes all the machines. He run, you know when things break, he runs out and gets parts when like, he's the aglue. 

[00:34:50] Mark McRae: Yeah, I found that as well. That mean you never know who that key person is and it's kind of, and this last company is a good example of that.

We have a warehouse person who really is the glue. Because he's happy. He gets everything done. He talks to people. He knows everything inside and out. He's like a Wikipedia of knowledge for that. But he's not the person that you would normally assume, right? Is that the key person.

[00:35:15] Ronald Skelton: There's one in every company and that's one of the things I learned through all this interviewing and talking to companies.

We are looking at acquiring this stuff as somebody in that company is a nosy next door neighbor. Like if you think about a little neighborhood, I used to do a lot of real estate. When I buy a house in a neighborhood, I would always figure out who's watching me when I'm like checking the house and I go make friends with her.

I give her my card, right? She's the one that's called me in the middle of the night when somebody is moving out with that because they didn't pay rent. 

There's somebody in that company and every single company knows everything there. They know where all the skeletons are. Make friends with the person, understand what's going on. I think it's huge beneficial and for God's sake, don't lay them off. 

[00:35:47] Mark McRae: Well, by extension of that, if you have any kind of social, following, if you have, we used to have a lot of forums and different niches. We, and I actually got the idea from a book called the tipping point. Where the people, there are some people in a community that are hyperactive.

They know, you can ask that person where the best restaurant is. They know everybody there. They're well connected. And if you observe any kind of forum, there'll always be one or two people who are hyper helpful. They do, they want to be involved. And we would wait for those people to develop and then we would pay them as moderators.

We'd say, listen, and it costs nothing. You would say, here's 300, 500. Would you mind helping us moderate this? And they would basically take the thing over. They would be happy to, because that's what they do. 

[00:36:35] Ronald Skelton: One of the traits I find with most business owners is they keep employees around when they probably, they have the wrong butts in the wrong seats.

And it's because, loyalty issues. It's because their dad used to work for me or whatever. When you step into a company, do you see, do you see a lot of that? Where there's good, I don't think there's, I'll be honest, I don't think there's anything such thing as a bad employee. I just think some people would be better off flipping burgers at McDonald's and working for me. They're a good employee for somebody. But. 

[00:37:02] Mark McRae: Yeah, I think it depends. So if you look at, a company like Upwork, you can hire outsourced people. I've hired, probably a thousand people there. And even when it was ODesk, and I still have a 4. 8 or something rating out of five.

Because it's very clearly defined what I expect from them. And I'm, I would consider myself fair. So if something's not working out, I will, you know, I have a process that I'm going to work through before I let them go. But they know it's coming. Yeah. I've asked you to do this. You didn't do it. Let's talk about it.

Here's a goal. Okay. It's still not done. If it doesn't happen, then I'm going to let you go. You can find yourself, particularly in online businesses where you're trapped. Because there's so many things in the internet that don't really have a definite job. Like, so that person might know a lot about that, how the, your websites are put together, or they've got some unique knowledge that was very hard to get rid off and you have to work around them. So you don't want to cut your nose off despite your face. You have to, you sometimes do have to have people keep them around until you grow out of them or retrain them.

Offline is, I think, a lot easier, um, in some ways to define what's expected and what's not expected. So what I try and do is to make every company and everything that I do into some kind of framework. it's a kind of measure what matters type thing. Where we've got, here's the objectives, here's your KPIs, here's what we're trying to achieve, and let's work with you until we agree that you have to achieve this.

And if you're not achieving it, they get the message. It's not a surprise. But when you let them go, but ultimately you've got to make a decision, that's, you know, it's a business or is it a hobby? And if it's a business, you've got to make those tough decisions. 

But ultimately, if you want to be in business, you've got to be able to make those decisions.

[00:39:03] Ronald Skelton: And I agree. And I also see a lot of business owners when they've been in business for 15, 20 years. They have at least one probably, depending on the size of the company, a few of people who are there surely because of loyalty and other reasons they don't. They're not revenue generating, they're more of a pain than they, I mean, there's, it's just,

[00:39:24] Mark McRae: Is that so wrong? I mean, if they can afford it, right? So I know that everything, and the bigger companies you have, they measure the utilization of staff. How productive is somebody in an eight hour day, for example. And they're not that productive. But one of the, things that I've come to value the most is loyalty. Oh, I have, yeah.

So there, um, if you're in business long enough, you're going to see it all. You're going to get screwed. You're going to make a lot of money. You're going to have ups and downs. But to have somebody who's there, who is, you know, is a hundred percent loyal and you can say, listen, take my car in to get cleaned or go talk to this guy and negotiate a deal. 

Even though he's not the sharpest knife in the drawer, if you're in that position where you can afford it, it's not that bad. If you're running on the, you know, kind of smell of an oily rag, that person's got to go. 

[00:40:16] Ronald Skelton: I wanted a circle back around cause we talked about, you know, picking people off of Fiverr and some of the other sources out there and how you lay that out.

I'm a big fan of, uh, outsource work and especially temporary work, work that I just need a project done. A lot of times we keep those people. It's a great resource to find, find people. Have somebody come in and do two or three projects and all of a sudden you're like, Hey, would you like a, would you like a full time gig here?

A lot of times you can find people, uh, I liked using, onlinejobs. ph, and some other stuff. Just like Fiverr. But one of the things I've adopted and, we were talking about books and thing you admire earlier is, uh, have you read Dan Sullivan's Who Not How? Yes. So, he has a concept, a lot of people read the book, but they don't download the booklet that goes with it, the impact filter.

I use that. It's a way he uses to define what you're trying to achieve, the vision you're trying to explain to the employee or the person doing it. Kind of like a mini project plan and measurement for success. What happens if you succeed, what happens if you fail. All in one little spreadsheet type of, form.

That's what I use to hire and run a lot of these outsourcing. I give them an impact filter, explains here's what we're trying to accomplish. Here's what it looks like when it's done. Here's eight ways, here's eight ways that we're going to use to measure your success or eight steps to get it, to getting this done.

Here's what it means to the world if you get it done to us in a company. And here's what it means if we don't do this. And, I think it's best laid out simple one pager I can give somebody. And it actually, there's some spots in there on when I do it, there's spots on where they have to forecast their own ability, right? And perform against that forecast. 

[00:41:57] Mark McRae: Well, let me ask you, maybe it'd be interesting for your listeners. I mean, you've done over a hundred podcasts. And, and around and talking about M and A. What do you think is the most important thing about an acquisition?

[00:42:11] Ronald Skelton: I'll hands down say rapport with the owner, rapport. Just the general term rapport with the owner, with the staff. Understanding where and the key in that rapport is listening. Listening to what they're trying to accomplish and helping them get there. So that includes with the owner. When he's trying to sell that includes the staff when you take them on. if you don't do that you're introducing all kinds of problems. 

A lot of people go into these deals and they're like, want to know the numbers and is it a great business or something like that? I don't even ask those questions until I kind of know where the owner's trying to get. If the first two calls, the owner looks at me, he goes, I want 3 million for my business. My, my natural response these days is, cool to see how we can get you there. And then we go back into,what are they going to do with it? What is the plan? You know, what is their envision? Cause if I don't know that, I think more deals fail towards the end, because they don't, the owners don't either don't have a vision for what's next.

So they kind of get scared at the end. Or they don't have trust in you towards the end. Especially if you're doing anything creative, seller finance and stuff like that, because you just never spent the time to build deep rapport with them. 

[00:43:15] Mark McRae: Very interesting. I mean, and that's a great point.Something I should listen to more. But during, uh, lots of conversations with companies, what I realized was, the having those conversations initially was very hard. 

I'd get on a call and wait for the person to talk to me. I didn't realize they would expect me to talk or do all the talking. And then the second thing was they need a reason. They need a reason why you want to be talking to them about buying them.

But the most important thing as you go through that due diligence, is that that one question that I would ask them. What's important to you in this process? And you, some people will say, there is nothing too important to me. I'm just interested in getting rid of the business. A lot of people will say they're worried about the legacy of has had a business for a long time.

So it's different things for different people. But if you don't ask that, it always seems to be that thing that's missing that kind of relates to what you just said.

[00:44:19] Ronald Skelton: I 100 percent agree. And, that's what I'm trying to get out of the first call, two calls, three calls, even have with some of the owners, will get numbers cause they naturally come up people will tell you this stuff. But I'm more interested in like, tell me the story of what you built, right? They expect you to talk first.

So you end up like, Hey, why are, why are we on the phone? Like you gotta get, I gotta give them that. So look, I invest, I partner with invest in help people grow. I don't know where you're going or what, you know, what in the world has you on the phone at two o'clock in the afternoon with a guy who buys and invests in the company?

But i'm here to help you get where you're trying to go. So what you know, let's talk about that first before we go there. Could you tell me what you built here? What is tell me all about the company? I've seen the website. I've seen the the generalist But what is it you've built here? I want to hear the story and most people are proud to tell it. So they want you to know.

And then I'm just insanely curious through the whole process. So if somebody, 

[00:45:09] Mark McRae: I think that's it, Ron. I mean, you've got to be cured, you've got to be, I don't think you're going to be good at M& A or anything, unless you actually are curious. Yeah. I mean, I don't care whether you make mugs, coffee cups or sell jumbo jets. I'm curious. I really want to know how that thing works. 

[00:45:30] Ronald Skelton: And that's, that's the, and they want to tell the story. They want to make sure you get it because they, most people, most, and they're right. Most business owners don't think if you don't get what they built and why they built it there this way, you're going to destroy it when you own it.

[00:45:41] Mark McRae: Let me ask you, I mean, if you've, all of these, uh, M& A people that you've spoken to, do you think that, what keeps them going? Because they reach a point where they have enough money, right? Why do it? Is it always about the money, do you think? Or is there some, what is that thing, 

[00:45:57] Ronald Skelton: think it's the challenge. It's the entrepreneur spirit of the challenge of solving a problem. Helping somebody get to another, you know, to achieve things. There is some natural entrepreneurial thing to solve problems.

There's also a natural entrepreneur thing, like, If you're truly an entrepreneur, you make more money by figuring out what another human being wants and helping them get it. So when a business owner wants to sell or whatever, if a business owner comes to me and says, I want $3 million for your business, the natural instinct when I first started, I was like, cool, how did you come up with that number?

That is a horrible question to ask because it puts them on the defensive. But I, when I say cool, let's see how we can get you there. Right. 

[00:46:32] Mark McRae: Something I'm guilty of actually. Yeah. How did you get to that number? 

[00:46:36] Ronald Skelton: Is that how, I used to do it every call. How did you get to that number? And I'm like, well,my, my CPA told me that. Like, okay, apples and oranges, your CPA doesn't know how to evaluate businesses probably.

but the, instead of saying that, it's like my, my natural response now is like, cool, let's see how we can get you there. And a lot of times the conversation is on order to get you to there, we're going to have to grow you. Industry pays X multiple for companies. You're here, and you wanna be there, right? So if you really need or want or feel like you deserve a $3 million exit, we can get you there.

[00:47:06] Mark McRae: That's an excellent, yeah. The philosophy right there. And a point that I missed, and this is where I'm thinking, you've gotta be the deal maker. . So, I mean, that business might be worth a million and he wants three, but if you adopt the attitude, let's grow you there. , You just opened up you know, a whole new world. 

[00:47:23] Ronald Skelton: And then the conversation becomes, okay, if I can get you to three, and because that's where you think you're worth now. And in your mind, you go, I can probably get him to seven. Can I take 50 percent of everything? And to be honest, if you think you can, and you go, can I take 50 percent of everything we get above three?

Can I come in as a partner? We work together. It's going to take a little while, 18 months to two years, maybe three years even. Can you hold in that long? Can we work together? And, uh, at the long run, that's the one, the guys, and I'm learning this from you guys, right? The people like you, I bring on the show, those guys are making money. Those guys are doing deals. 

I have a guy I'm talking to now that, I'm friends with. We chat all the time. He shows up to my hangouts. I do hangouts for the, for this industry. He shows, he showed up to the one this morning at 8 a. m. my time. Even though it was like in the middle of a weird day for him in Europe.

And, he's done 10 deals this year, this year alone, but they're all JVs. and a lot of it is like, you know, let's see where these owners want to get. And he's really good at helping owners get where they want to go. And, so that's the path I'm on now. 

[00:48:19] Mark McRae: We had, I was invited and asked to come into a negotiation. And this is another strange thing. People, they were negotiating for a business. I said, how much did they want for the business? He said, we never asked.

And I thought, isn't that just weird? And it's not the first time it's happened to me. Somebody will talk to, we'll be negotiating for a business, but they haven't asked the million dollar question. How much do you want? It's almost as if they're afraid to say it. So we're all in the Shreve is on this call and the business was making a million dollars EBITDA.

And so I said, well, you know, how much you want for it? It says 23 million. And I said, okay. 23 million. I don't think that we should go any farther And I ended the car, there's nothing you can do with that, right? 

[00:49:06] Ronald Skelton: Yeah. Now, you know so that you're in the reverse stage. When i'm telling you and I can it's cool to see how we can get you there.

I don't know their EBITDA at this point. If I knew the number ahead of time, then it's a different conversation because we've, now you're saying something that's so far fetched. I'm like, am I wasting my time? And the early stages of the conversation, if that number comes up in the first, probably hour of the first call, or maybe even on the second call, and they've got a forecasted number, if I haven't seen your financials and know what your EBITDA is at this stage, probably my natural response is going to be cool to see how we can get you there.

Once I know that I can start going, that's an interesting number. 

[00:49:39] Mark McRae: And I think you get a sense, I don't know if you would agree Ron, you get a sense when you've been talking to them, whether they're real. In other words, if it's a guy who's owned that business and you know that he wants out and he's looking for that way, as opposed to somebody who's just trying to, feel, kick the tires to see if there's something real there.

[00:49:58] Ronald Skelton: I hit, you hit the nail on the head. So there's a question I ask, and I used to do, I did this in real estate and I do it now. I say, look, I usually work with people who are trying to solve a problem. So on a scale from one to 10, 10, you would pay me to take this company. And one you're just seeing if I'm dumb enough to pay you 50 times what it's worth.

Where do you find yourself motivated right now? Are you really, if I start to detect what you're talking about, I ask best, I literally phrase it that way on a scale from one to 10, you know, 10, you would pay me to take this company. You're done and you need out, you got cancer, something's going on in your life that you've got to get this on into somebody else's hands, right?

And one is, you've got an idiot on the phone that, has a big checkbook and you think I'll stroke you a check for $50 million more than it's worth. Where do you fall? And, you just have to, and I game around with that. My sense of humor will allow it, but a lot of times people will, I would just kick and they'll just come right out because they're called out on their BS at that point. Right? 

[00:50:54] Mark McRae: My version of that is when I've talked to people, I kind of have a process that I go through now and I get to the point where I say to them, look, people, when we're at this stage, they generally fall into three categories.

Category number one, they're not interested. Number two is they need to help grow in their business. Or number three, they want to sell. So if I asked you which one of those, where do you fall in? And they all self categorize themselves. But that's good. I like how you did it. 

[00:51:23] Ronald Skelton: And I always, I always follow up that when they say, well, I'm, I don't think I'm ready to sell it.

Like, cool, I'm only 50, you know, for now I'm 51. I'm only 51. I'll probably still be around when you're ready to. I'm probably still be buying companies when you're ready to. If not, my family trust will, my family office that I'm, I'm trying to build. If it ever changes, anything comes up, you keep my number, keep my card, we can do that.

If you ever need help growing, I probably help you. Either, be on your team to help you grow, be part of your company. Like, you know, being an advisor, kind of I'm a board member cause I don't, I'm not going to pull 48, 40 hours a week for your company. I have too many assets to do that. But if you need help, I can probably help you or I can probably point you to somebody that can help you. So if you ever need anything to move your game forward, let me know.

Cool. So I think we covered a lot of stuff, man. How do people get out and reach, how do people reach to you? What are the ways you want them to reach out? If somebody heard something today that resonated with them and they want to work with you, contact you, what's the best way they can do that?

[00:52:17] Mark McRae: The best way is just to go to my website, markmcrae. com. Hopefully it'll be in the screen somewhere. And yeah, happy to chat with anybody who's interested in growing their business or they would like to have a chat about anything related to mergers and acquisitions. As I mentioned to you earlier on, I don't have any, you know, anything to sell.

We, I am planning to do something next year to help teach people who want to get into mergers and acquisitions. And again, they can get in touch with me through markmcrae. com if they want to talk about that. 

[00:52:50] Ronald Skelton: Cool. And that'll be, 2024, right? We're recording this in 2023 and towards the end of it. So this might come out in 2024, but when you say next year, you might have a program coming out in 2024.

Okay, cool. So they get that at your website. I'll make sure that's in the show notes and it's on the screen. If you're watching YouTube, it's underneath his name. So that's his URL. And, uh, one takeaway, if somebody can remember, only remember from the entire hour, they listened to the show and they can only walk away with one memory of this, and of you, what would you want them, what would be the key takeaway you want them to have?

[00:53:23] Mark McRae: Don't give up your dreams. You know, the, like I started off in a market in Glasgow and I don't profess to be anybody's guru or to have,trillions of dollars, but I've done very well in this industry and it's because I love this industry. And I think that, you know, it's important to give back.

So if you get one thing from this is you, if you have a dream, if you want to do something in business or mergers and acquisitions, it can be done. Don't let anybody put you off. There's a lot of people around. Listen to people like Ron. Listen to podcasts that just learn about the industry and talk to people. You'll get there. 

[00:54:04] Ronald Skelton: Awesome. Well, I appreciate having you here today and we'll call that a show. 

[00:54:09] Mark McRae: Yeah. Ron, thank you very much for having us and to your audience. Anybody who listens, I appreciate that you took the time to do it. And, maybe I'll have you in one of my podcasts one day.