E219: Unlocking True Business Value: Strategies and Insights for Mid-Market Sales w/ Trever Acers

[00:00:00] Ronald Skelton: Hello and welcome to the How2Exit podcast. Today I'm here with Trevor Acers and we're going to talk all things mid market. Yeah, you do mid market, uh, valuations. I think you said 20 million to $200 million. We're going to take some of that stuff that you, your knowledge or multiple years with 20 something plus years and experience in this.

And we're going to bring that down to our level and, and talk about it in a way that the mergers and acquisitions guys out there listening. We know what we are going to sell to and how we're going to do our projects and present this when we go to sell it, right? This is our end goal. Our end goal is to come contact a guy like you.

So that's, that's the goal. They got, the goal is we're going to build companies. We're going to buy companies. And one day we're going to need to call Trever and say, Hey man, I need to put this on the market. It is mid market and it's ready to go. So, thank you for being here and let's just start with the origin stuff, so.

[00:00:49] Trever Acers: Yeah. Um, so, part of the objective, uh, investment banking and valuation been around for 15 years. So we, within our group, we, we essentially have two parts of, uh, part of our firm. One of the groups that I'm in is an investment banking group. And we see represent sellers, who are, or business owners who are going through the process of selling their business.

And then we have evaluation practice that does very simply a business valuation. And then they do a lot of exit prep, which is pretty interesting as well. I started my career in strategy consulting. Uh, went from there to tech, from tech to private equity, and then from private equity into investment banking and doing it for a long time.

[00:01:29] Ronald Skelton: You know, it's interesting. I've only seen, got to see a couple of deals in that mid market level. And it's a different ball game. There's whole rooms like data rooms. They have essentially a Dropbox folder with everything you could ever want is already in there. They're well, I would say they're, the deals are, well, way better groomed, I guess, is the word I'm looking for there.

Everything's put together. You, if you ask for something, it's usually that's on page six of this, or it's not like give us three weeks and we'll create it or give us two days and we'll come up with that. It's usually put together well. So, I guess that's part of when you say, exit prepping is building that data room, building, collecting all that data, making sure it's legible and understandable.

[00:02:08] Trever Acers: Yeah, it's interesting. We've, we've, uh,think it's an investment bank that the things that sort of differentiate us as we help these business owners and call it 20 to 250 million of value. Really, the things that differentiates end up being, we end up being very, very strategy driven in the way that we take a company to market.

But the other piece of it that's interesting is our business and our practice is tailored to business owners, right? Of this size company. And when you're call it 20 to 75 million, you may not be as, quote unquote, buttoned up to start with as a billion dollar company. So you really have to have a process in the team that understands how to work with you, how to get the,the monthly financials into an adjusted EBITDA format. That is, that we can go and justify what that is to acquire, really get that value. So, yeah, we spend a lot of time with these types of companies. 

The other thing I would share with you is, it's interesting to see how many of the strategies that we use. We do some things that are relatively different than most investment banks. Many of the strategies we use are incredibly applicable to a company at 10, 000, 000 or 20. It's, it's not a situation where, hey, this only applies to that 100, 000, 000 dollar company. A lot of these things that entrepreneur, the best entrepreneurs are learning and starting to implement in their sale process.

Which oddly enough are pretty, pretty logical, pretty straightforward. But these are the strategies that are applicable to any, to businesses of most size.

[00:03:40] Ronald Skelton: Do you guys specialize in, like a lot of investment bankers in mid market, they specialize in certain industries and certain markets. Do you guys specialize in anything like any industry or, 

[00:03:50] Trever Acers: Yeah, we have six, uh, six industry groups. So we spend, this day in investment banking, you really need to know, uh, the industry segment, both in terms of how to describe the company properly to, to acquirers. How to really know what the value drivers are. I don't know who the best acquirers are in that space.

So that industry experience is something that's critical. We have 6 industry practices, everything from tech, manufacturing, consumer. And then a three business services practice, pharma services, business services, and healthcare. And it's it's a lot of fun. It's a lot of fun to watch people who are you know, I've been, one of my colleagues has been in manufacturing for 25 years.

You start talking to him about how something is made and he is just this incredibly deep level of expertise. And then that translates when he's able to characterize to buyers, what's so special about his client.

[00:04:44] Ronald Skelton: And you build a trust in the industry that people know that if you bring, if your manufacturing guy takes a manufacturer to, and put it on the market when, when they, when you reach out, because it's a little different. Business brokers in the zero to, you know, 10 million often make a listing, stick it on buy, biz, sell, and hope somebody comes.

And it's sad that that really truly happens, but it is, it happens often. The investment banking world, as far as I know, you actively seek out logical and strategic. These people should acquire these and you reach out and you have your, you already have your databases and who buys what and why. But you do a lot of research into this would be great for, the big guys or Coca Cola or this PE firm is buying this. They're in that pool and, those guys have trust in you because you have built that expertise in those different markets.

You have, they know that you're going to have your act together when it comes to manufacture or healthcare services.

[00:05:36] Trever Acers: Yeah. It's, and it's interesting because the investment banker 25 years ago used to say, well, I know the buyers, so that's my value proposition and I tell you, I think that's pretty deteriorated. I, and the reason is, is everybody has Google and LinkedIn, right? Our clients are smart CEOs, so they can talk.

They know who many of their buyers are. So the key is not necessarily having exclusive knowledge about who their buyers are, but understanding, boy, with this type of strategic buyer, this is what they're trying to achieve. I've been watching them for the last 10 years. Here's their behavioral characteristics.

And by the way, here's why there's such a strong fit with your company and this acquirer, or here's something we really should be concerned. I've seen this three times in prior deals with them. Let's watch this aspect and tailor our process around it. So it's that sort of next level intelligence where you can really add value.

Because ultimately, the only reason people hire investment banks is they can get more money, increase the probability of getting a deal done, and make it, and facilitate the process, that labor component. And so,that's the key to that intelligence. You've got to be able to increase purchase price.

[00:06:48] Ronald Skelton: You know, from the buyer's perspective, being a small business buyer, it sounds horrific to me that it's going to be a bidding process. There's going to be 40 other people eyeballs looking at this. Like, I used to be in the real estate business and I didn't go to the big tax auctions and stuff, because there were 300 people in the room and I didn't want to be the highest bidder.

Cause if I'm the highest bidder out of 300 people, I probably overpaiD. So that's one of those, but I get it in the realm that these are extremely sophisticated buyers. They know what their range is and they're playing for the long haul, right? That's why you can do what you're doing. It's why it appeals to them and they're willing to be the highest buyer or highest bidder. And, uh, it's why it works.

[00:07:26] Trever Acers: And there's been this, this sort of revolution that's occurred in M& A. M& A has become a normalized business activity. 20 years ago, it was a strange, weird, odd thing that happened that we kind of heard about, but it was very, very much in the shadows. It is a normal business activity today and that has caused some real,some real opportunities and some challenges.

And as you, as we think about it as, as business owners, I happen to do business as well, we really think about how these conversations, how the fact that now M& A is so common impact us. And one of the factors is, is we've seen incredible increase in the outreach of buyers calling on business owners. They're getting calls or emails or letters every day now. And, uh, there's some strategies we can talk about, about how, how we think that impacts it. But one of the things that we're seeing is it used to be, I hire an investment banker to go run a market process. I want them to go talk to the 150 buyers within the world, who might be great fit buyers. More and more we're seeing what we call acquirer catalyzed deals.

It's really interesting where, we got a call from a potential client who says, boy, Microsoft just called me. And I've been partnering with them for a number of years and they want to buy me. What do I do? Do I just talk to them, see if they'll pay us a premium? Do I talk with them on a couple others? Or do I go run a full market process? Or do I disqualify them and tell them to go away completely?

And so that's the decision making and it's really interesting. It used to be that investment bankers only really ran that market process. And now there's so much more intelligence that we can help business owners with because they're getting hit on earlier and earlier.

[00:09:11] Ronald Skelton: You know, even in our, and I, I would always lean towards getting representation, get an expert on your side, because it's, I absolutely promise you Microsoft has experts on their side. They have mergers and acquisitions experts, helping them do what they're doing. And you're, if you're not, I don't care if you're $20 million or $200 million, if you're not in the M& A game, you probably don't have staff in there that that's what they do when they're trained on, unless you've been in that game, unless you've been acquiring other businesses or planning for this for a while. 

[00:09:38] Trever Acers: Yeah, and as you say, like that buyer, that buyer is smart, right? So they're looking for a good deal. That's what they're, they're never going to put their best foot forward first. They want to see, they want to get that good deal. And this massive increase in buyer outreach, for me brings highlights the thing we're passionate about.

And here's the stat that sort of drives me is that I've seen this in a number of different third party surveys. But they basically say greater than 80 percent of business owners surveyed two years after the sale of their business report back. They feel like they failed in at least one material part of their deal.

And when I saw the data and the different responses, I have, in the different stories, it's not one thing. You think would all be about price. Some certainly it's about price. Boy, I didn't sell enough or but it's also things like I sold it in a structure. I took an earn out that never got earned or I took a note that never got paid.

But you also hear these qualitative aspects of where they fired all my employees. They didn't take care of my clients. They moved my operations to wherever. It, these are the things that impact folks. So if we're, when we're talking to these business owners and you're saying, why are you feeling like the vast majority of them are feeling like they failed?

It's because they followed the default process. Because they got the offer and thought about it and, maybe they ran a default process, but that default process is going to get default results, right? They're going to be in that 80 percent or they get lucky. So one of the things that we, we really,that's the thing that keeps me up at night, right?

When I get up Monday morning and you're trying to find that reason why you're going to go work hard and fight for somebody it's because of that potential for failure for people who have put their everything into their business. So we see a number of strategies, things that are, that you can do different than everybody else. That significantly impact that. That ensure you can be part of that 20%.

And it's really comes back to the root cause. The root cause of that failure for most of those people, they did not know what they wanted when they went into it. Had they known what they went into it, they would have designed their process around that objective. And, and then much more successful.

[00:11:45] Ronald Skelton: If they're, if they, you know, if they grew that thing from scratch and they started from zero and they're, they're now working with investment bankers, they still have that mom and pop mentality of, looking for a safe pair of hands. You see and hear that a lot in the, in the small business community where a lot of times the top bid doesn't, doesn't win.

It's the safest pair of hands, the safest, uh, like, Hey, they're going to take care of my employees. They're going to take care of my brand. It's going to stay in my small town and provide jobs for my neighbors. that as is as important often as the price tag. When you start getting big and private equity starts playing in, I say, I always say, if you know what the phrase cap table means, you probably are going to have to sell for the highest and best prices. 

Cause now you got too many shareholders that, that one of them is going to hold out for price, right? Like in our small business world, I always tell people, if it's got more than two partners, I probably don't even want to chat with them. Cause you know, in the small world, getting two people to align without a team of attorneys and everything else is tough enough.

You start getting third, fourth, and it's all becomes down to somebody's going to be stuck on just, it's just a numbers game. Right? 

[00:12:48] Trever Acers: Yeah, one of the big differentiators when we start talking about private equity, private equity has moved down, right? They started, they used to start at, 4 million of EBITDA at minimum, now they're sort of at 2 million. You see a bunch of private equity firms that are sub 2 million of EBITDA. So I think one of those things that you're looking at from that qualitative perspective is, who's the right partner?

Not only who's likely to close the deal, who, if I'm going to roll, which often you're rolling equity into the new deal with private equity, that's one of their often common requirements, who am I in with? Who, when we have a bad day, who's going to be my partner versus my detractor? Who's going to help us scale to our full potential?

There is a certain selection bias there as opposed to this perception that somehow private equity is all commodities.

[00:13:32] Ronald Skelton: You think that's due to them dipping lower and lower. I think it's due to competitiveness, right? Five years ago, they could buy up, you know, quite a few mom and pop heat and air, plumbing companies at 4 million and EBITDA above. Now, every PE firm's kind of dipping into that space, home services.

So if they want to get some action, if they want to, you know, be a little you know, not in a bidding war with another PE firm down the street, they kind of have to go, okay, I'm looking for that fast growing two million dollar one. Okay. Now that's good, that space is getting crowded. Now I'm looking for that 1. 5 million, will be 2 million by the end of, you know, in 18 months or less. So it's necessity more than anything that's making them go smaller, I think. Is that what your opinion? 

[00:14:16] Trever Acers: Yeah, you also see, that's, that's exactly the reason they're going smaller. Plus there's, they're chasing that opportunity. The other thing that you see is their expansion in terms of industry interest. You know, historically private equity was looking for that manufacturer, right? That, that widget maker, because that was their model.

They understood how to do that. We see private equity very active in spaces previously that they wanted nothing to do it. So for example, if you look at corporate event services, or business services group spends a lot of time in this space. That is, that can be cyclical based on corporate profitability.

It's a certainly an asset light business. But we see private equity heavily involved in that space, and it's, it's not because they suddenly fell in love with it. It's because it's a competitive pressure. It pushes them to become experts in spaces so that they can find good deals. 

[00:15:09] Ronald Skelton: You know, I think part of it in the home services is anytime you see, uh, the economy getting a little rough, you start looking like, where's the safe, where's the safe place to park money. If you live in the, like I moved to here in California, we don't need a heat and air. We need heat in the winter, but we rarely need our air conditioner summer because it's a nice mild temperature where I live. But in Oklahoma, I'm telling you where, where we moved from, it gets 110 with humidity during like the worst,worst couple of days of the summer and it stays 101 at night sometimes.

You're going to have an AC, right? So whether it's, overpriced in the market or not, the AC is getting fixed, the air conditioner, the heat and air is getting fixed. So, I think a lot of it has to do with, when we, I think the economy is still in that uncertainty stage.

I don't know if we're a depression, recession, it's recovering or whatever, but as long as it stays uncertain, people looking, the PE firms are smart money. If you watch what they're doing, it's smart money. They're looking for things like what's going to be okay if it goes worse. Your heat, your air, your plumbing, your home services, your pest control, those types of things. The reason they're getting rolled up and bought up is, mama's going to get the,the rats and the roaches out of the house. Whether, you know, whether the economy is good or bad, right.

But, um, I think a lot of it has to do with the reason in the last four or five years, you see a lot of them coming into the home services and stuff like that is, it's kind of a economy agnostic. It's going to do good in good economies. It's going to do okay in bad economies and they're going to move forward. 

[00:16:36] Trever Acers: Yeah, no, that's, uh, absolutely, that perception of risk of boy, we think that there is a cash flow that is going to continue, no matter what the economic outcome is. That's why, fundamentally why private equity is willing to pay so much for a subscription software. If they look at that reoccurrence rate and it's incredibly attractive, that means low risk. That means I can spend a lot.

[00:16:59] Ronald Skelton: How do you think the economy right now like, in the small to medium business, the interest rates shooting up kind of stagnated everything. And I hear now that it's starting to pick back up because,it's normalized. People are acclimated to it. I think it's the real reason they're like, this isn't going away.

So they basically, it's got to figure out how do I work with this? They're coming up with solutions and making things work. Did the mid market have that same slowdown when the interest rate shot up? A lot of these guys raise capital different ways. So, 

[00:17:25] Trever Acers: Certainly we saw a slowdown in 2023, of just M&A volume. And when we talk about the middle market, it all really depends on both your industry segments, which were pretty wide, but also your value range of that 20 to call it 250Million.We see a lot of 20 to a hundred million in that space.

We saw a slowdown in 2023, but the, it was amazing to see how aggressive out of the gates private equity came at the start of the year. Because they, they make money by putting money to work. They did a reduced number of transactions. They needed to get acquisitions done, especially add on acquisitions that represent a little bit lower risk.

And we've seen a tremendous increase in the last couple of months here. From buying, basically sellers calling us. Boy, I keep getting called by private equity. I think I want to explore one of these. And that's the, that's private equity driving that outreach and they've been very, very aggressive.

[00:18:24] Ronald Skelton: I get that. And part of that is, is they have a time commitments on the money that's pledged to them, right? So if you go out and do a private placement memorandum and the securities filing and everything you need to do. And you do your raise, you go out and raise your, a hundred million, 200 million.

I've interviewed people in the last two or three weeks that have done 200, $225 million raises, for buying small to medium businesses. And they have a time commitment too. There's a window in which they need to deploy the money and get it to work, right?

[00:18:53] Trever Acers: Yeah. And then I'll tell you that private equity backs, we've got private equity back strategic. So a company that's been acquired by private equity that's now going to make on these smaller add on acquisitions. This, they are possibly the best buyer in the space often. And the rationale is they have both the synergies that they're going to achieve through the, I'm going to sell to your customer.

You're going to sell it to my customer, type of post acquisition economic synergies. But they also have the mandate. I need to go out and buy. I must go buy in order to create value. And the combination of the synergies and the mandate plus the cash to do it, really makes them very, very dynamic buyers.

And it's interesting that the, this is where some of those, those sort of different strategies apply. One of the things that we often get this call from a client way just got called private equity firm. They have a portfolio company in the space. And the default process leads these business owners to a not so great outcome.

Basically the context is, they need to change the frame. So the frame is, Hey, tell us about your revenue. Send us your financials. Tell us about your revenue and your EBITDA. Private equity and strategic buyers as well, but they're very, very focused on, EBITDA, right. And multiple and they're looking at that valuation as a multiple of EBITDA. Which is a very appropriate from a market perspective way to look at it, but we're often encouraging business owners who are getting these calls, especially from private equity backed strategics, of spend a little time trying to change the frame.

If you think there's a great fit here, then instead of just solely talking about your EBITDA and sharing your financials, start a collaborative and partner like conversation about how much money you're going to make in the next three to five years together. Because when you do that, you're helping them understand, is this actionable?

Is this very attractive? How much money am I going to make? But it starts to reframe for that, for that acquirer, how much am I willing to pay? And it starts to hopefully have done right and you really get into the details. You quantify what those synergies look like. You then validate them, make sure they're real together.

And what allows that buyer to do is justify paying premium for the company, because the logically it makes sense. Yes, I understand that your market, for example, might be five to seven times earnings. But I'm willing to pay you 8 and a half because, A, you're in a competitive situation and B, you've shown me that it's a great, still a great deal for my shareholders.

We, we recently had a client. They're at 4M of EBITDA, they got, they were going to get an offer about 7 times, about 28M dollars of value. And we spent time, we leaned in with that high fit acquirer and found that they had about $3 million of synergies that they were going to achieve very, very quickly, with a high degree of certainty, when they made this acquisition. Which means then for that acquirer, where essentially we, our client represents about $7 million of incremental EBITDA in a relatively short period of time.

And if that buyer was, in this case, they were valued about 10 times earnings. That means that, do the math, that means that we're creating about $70 million dollars of shareholder value by completing that transaction. So that's the logical justification to the acquirer, why they can justify paying more than seven times.

Boy, you're going to pay me 28 million, I'm making you 70? So what if you pay me 35? Does that still make sense? And so that's the, that in some competitive pressure really create logical justification for that acquire to, to pay that, that super premium. 

[00:22:42] Ronald Skelton: I don't feel that, that translates all the way down to the small side. So anything below that, two to $4 million range we really, all the buyers I talked to, myself included, we try to separate the, the performa, the future right, from the past.

Like we ba-, we based, okay, the business is worth what it's doing now and some expectation of growth, but not like, what am I going to make in the next two to three years? Cause that's, a lot of sellers, especially ones that are unrepresented by brokers they're going to go, if you do X, Y, and Z, you'll be making 10 times more money.

And I was like, okay, why didn't you do it? Like the real question is, is,

[00:23:18] Trever Acers: Yeah, right, right. Projections are worth the, yeah, the paper they're printed on. Yeah. I think the synergies, and this is where it does apply to the smaller companies. It's if you, if this big company comes to you and says, Hey, I want to buy you. And I say, look, I'm a small company. What I want to do is say, boy, if you, if you had my products, if you had my service, you can sell it to your, all your customers. And if I had your products and services, I can sell them to all my customers. And so now we can start looking at each of those synergies and that incremental profit contribution. And you, I might say, boy, I think you can sell my product to 70 percent of your customers in the first year. And you say, 70%? Maybe 40%.

Okay. Well, that's 40 percent, say 40%. So now I'm selling my X hundred dollar product to those 40 percent of your customers. That's going to kick off a bunch of revenue and that's going to kick off a bunch of incremental EBITDA. Just by putting that extra product in your sales team's bag. And so that's, as opposed to, Hey, I'm going to grow over the moon.

Growing over the moon is hard. That's a hard projection. That means earn out. That means that, we're going to have a gap here in perspective. But when I start telling you as a buyer uniquely, giving you insights into how much money you're going to make because of these synergies, and then we vet them together, because oddly enough, that's the insights the acquirer wants as well.

They want to know, boy, if my sales team had this product, they would sell it at this price point, at this gross margin. We would be able to apply it to at least X percent of clients within the first year, and this how much the second year. And now I've got a business plan. I can go back to my board and say, I know the guy wants a little bit more than normal, but here's why we have to do this. 

[00:24:57] Ronald Skelton: And then on the non software side, when you start talking about manufactured goods or products, the buying power drives that kind of like, if I'm selling a hundred thousand units at one thing, I'm paying a certain amount for my raw materials. I got more negotiating power once I can go, okay, we're going to triple sales this year.

And I'm buying three times as much material. You go back to the same suppliers and go, Hey, we're getting acquired byso and so manufacturing. They're going to sell to all their customers. We're going to need three times the raw material. Can you provide that to us and at what rate? And if they say the same rate, like, no. I'm going to put this for a competitive bid now, because now I need, I don't need 10, 000 pounds of your raw material a year, I need a hundred thousand.

And first of all, you need to show me that you can do it. And second of all, I think I can get a better price at a hundred thousand units of that particular product. So there's,there's all kinds of sides of this. When you look at increasing sales, you can also increase efficiencies, right?

You know, the production costs and cost of goods sold go down. 

[00:25:54] Trever Acers: I think that's a great one, right? Like input costs, right? As we have buying power, how that changes. We were just talking to a client, uh, today. And, there, we looked at and basically said, Hey, Mr. Acquirer, all this costs below the line, below our gross profit, think about the other synergy. So for example, warehouse consolidating. 

So now instead of that warehouse costs that my client has to incur on a daily basis, they're just going to have the incremental cost of having a little bit more space in their huge palatial existing infrastructure. So what we often do is identify each of those synergies. And we, and we literally walk through in how much incremental profit does that create?

And I want to add all those up, A plus synergy B plus synergy C and look at the incremental profit contribution that my deal represents. And then I multiply that by how, what's the multiple of EBITDA that my, that the buyer is currently trading at. So maybe it's a public company and it's 15 times and I'm creating 10 million of, of incremental value because of all these synergies.

It's a $150 million of shareholder value that I represent. And they're not going to pay 150, but they can logically now justify to their board or whoever else there is that boy, that acquisition at a premium, we don't love it. But it makes sense and we're going to do it.

[00:27:12] Ronald Skelton: So we talked about saving money and stuff. There's actually an opportunity cost and an expense to vetting the whole process. If you're a business owner, especially in the small business, in our SBA, small business administration loan side, when that owner decides to sell, now he's got to put on a new hat and actually prep it and do all the standard operating procedures.

Everything he's going to do, he's got more work to do than he did before, uh, to move himself out of the way. There has to be some of that, too. There's got to be a cost associated, even if it's just opportunity cost for having your executive team go through the M& A process. And it may or may not make it to the end.

[00:27:48] Trever Acers: And it's the, it's possibly the, you know, those things that you feel passionate about. This is one of the ones that I feel incredibly passionate about. We spent a lot of time educating CEO groups about this issue, is that you can lose millions of dollars going through a sale process that doesn't complete.

And it's not the cost of the advisor or the legal team or the accountants. The cost is the fact that if, as you take, as you have your management team start to focus on, a M&A, you know, selling the business and M&A process. It sucks time and focus. So just give you an example, if you're calling it, you were supposed to do $4 million of earnings this year.

Instead, you're going to do 3. 5 million because your team, your management team got so distracted because when Microsoft calls or whoever it is, Walmart called, suddenly you decided to get very, very involved in this conversation. You can look at that half million dollars of EBITDA that you didn't get.

Let's say you're valued at seven times, seven times earning. So now you're talking about $3. 5 million lost enterprise value. That's a hell of a lot of money. So that's what we're playing for as we think about as business owners, how we make a good choice. And that the key is we call it aggressive disqualification.

Wait, when, who do I talk to? When do I talk to them? And what do I share? And that our perception is that, there's tons of outreach going on. So when I, the first thing you need to know is what we call your number, right? I need to know if I'm going to sell today, what number must I get in order to justify the sale of this cash engine that I'm building. 

And that's, uh,we start with typically pre tax. I mean, sorry, we start with after tax and then we build up, we build that up into pre tax. So we can tell the acquirer when they call, what that number is as part of our strategy. We can use that to aggressively disqualify. The next thing I ask is like, who do I talk to?

Well, if I'm early in my building process, no one's going to pay me what I want.So I'm not talking to anybody. I am just keeping heads down. When I start getting a little bit further through that growth curve, I'm going to start having select conversations with the highest fit acquirers in my space.

Maybe the private equity firms that have a portfolio company in my space, who I think are a great fit. I'll start having those conversations. I may or may not be interested in, in actually taking a little bit further, but I at least want to establish the relationships. And then when I get to a point where I can kind of see exit from here, I'm not there yet, but I can see it from here.

That's when we start recommending using this, this aggressive disqualification approach to basically saying, hey, I'm executing a growth plan. I'm not done with it yet. I get a lot of interest, but you're, this fit is really interesting is that you are such a great strategic buyer. So I'm open to preempting my process.

But if I were going to do that, I would need at least X million dollars in order to sell this. And what I'm trying to do is create a floor, not a ceiling. I'm trying to help them understand that this is the buy now price that they were, have to be willing to pay off into premium in order to justify that sale.

And I want them to go away. I want them to say, Oh no, no, no, no. We can't, thank you so much. We can't pay that at this time. Great. So I can keep back focused on my growth or the alternative is true. They say, you know what? I know that's a premium, but we're open to that. And now I've created a situation where I can take that next incremental step with them and I can justify spending a little bit more time. I want to avoid the scenario where I blindly take the call, jump in six months later, we talk about price, they're 2x off where I need to be. And I've spent millions of dollars of my shareholder value on that mistake.

[00:31:41] Ronald Skelton: There's a lot of power to being open with some of those key strategics too. And that, in our small to medium business world, I've interviewed a couple of guys where they just off camera, they said, Hey, you know, I said the fastest way I really sold this, and I can't really say it is, I told my, one of my strategic partners, one of my, kind of not competitor, but somebody we upsold and shared referrals with. 

Like if they couldn't handle a client, they were too big and they would up, They would, you know, basically pass that, you probably should call x, y, and z. And those conversations, like when they would talk about the companies I made a regular conversation that our intention was to grow this to some point where we sell it to you or one of our, one of your competitors. So they put that bug in the air. And the conversation is brief during that.

It's like hey, well, if you were to sell us what were you looking for? Well, we're trying and they had a number in mind. We're trying to get to at least a 12 million dollar, 15 million dollar exit. And uh, you know, what would it take, and there's a short conversation. What would it take for you to acquire us at that?

Well, you need to be at this number. So now they've both got goals to work on and they know, you know. And it's funny that they're, It's often groomed. I mean, you'll groom that business for not just one, but you, if you're smart, you're doing it for two or three in case the guy says no. But you kind of know what the industry wants, what they expect out of you, and that's what, if you're really building something to sell, you're building it towards that, the need of the upper market. The market that's just above you, or just a couple steps above you that would be your typical acquirer.

[00:33:06] Trever Acers: Yeah, that's a very common strategy for us to talk with a couple of the highest fit acquirers, establish a relationship. Humans are really interesting. Not only does it put them on their radar, so their M and A team is watching you, but humans perceive that if, they perceive there's less risk there, if they're familiar with you and by less risk, that means they're willing to pay more.

So it really sets you up for, they may or may not be willing to buy at a super premium today. But three to four years from now, when you're ready, they know your name, they know who you are, they've been watching you. They're so excited and they're much more willing to pay a premium price as opposed to just approaching them.

[00:33:42] Ronald Skelton: So private equity in my mind has something really well going with it. And I know a lot of people who have sold a private equity. I've interviewed a lot of people who work for private equity. And one of the things they have is they have a solid deal team. So if they acquire so and so software company and they're going to build on it.

They're not distracting that general manager, the new CEO, the person responsible in the early stages of other deals. They have an in house deal team that's going to go out, vet these things, look at the corporate culture, look at the numbers, and it's not until the final realm of a, we're really serious about that, that there's any distraction.

And I think the brilliance in that is there's an opportunity cost when you start getting distracted by all these other tasks to do when you're trying to run a company. Where your innovation kind of dies down and some of the other stuff that happens that would normally help you grow because you're looking at, well, I'm, I don't have to grow 30 percent this year because if we acquire this, I double, I double in size, right?

Your back's not against the wall anymore. To where you feel like your back's against the wall if you don't have these strategies in place.

[00:34:43] Trever Acers: Well, and I think what we're seeing is business owners are getting called on earlier and earlier in their growth cycle. Or we have a client we're advising today and they're saying, look, we're like five years out from where we thought we'd be talking about this, but one of the biggest strategic acquirers came by. And what do we do? 

How do we know, what do we share with them? How do we navigate this? And that's the strategy we said, right? Let's establish a relationship. Let's try to disqualify them. That means we're either going to be friends today. We're going to be business partners today and looking for opportunities to partner. Or they're going to acquire us or they're going to acquire us in three years. And it's a, that's the kind of, we call a string of options that we want to have in front of us. And the fact that they're each of these, all these, uh, companies have a private equity firm, essentially supporting them makes them really easy to work with. It's great to have professionals on the other side, as long as we don't just follow their request for data, because if not careful, what happens is they just keep asking for more and more and more and more and more data.

And next thing you know, we've told our direct competitor, everything about our pricing. So we need to be able to qualify or try to qualify or disqualify them way before we start sharing too much information and get too distracted.

[00:35:54] Ronald Skelton: If you're playing the long term game, wouldn't it be smart to do kind of a channel partnerships or something like that? To where like, look, I'll sell your stuff to my customers. You go ahead and sell my stuff to your customers. Here's our price point. You, we'll become channel partners or whatever. I don't know what, if I'm using the right phrase there.

But you make the strategic alignment inside of there early, you start making the sales, you get the more revenue because they're, they're selling your product, you get a new item out for your customer. So both companies are making more money and you,some of that stuff early on, if you're going to play the three, five year game and, uh, you, and you're still not married if it, you know, to that person to,to be the buyer. 

[00:36:32] Trever Acers: Yeah. It's a, it's a, classically good strategy for that reason. And that in the short term it drives revenue and it helps support our growth. They may, may not be our forever person, right? But today it's a great partnership and supporting where we're trying to go. And then it's amazing how many acquisitions come out of partnerships.

Boy, we've been working with them for five years. This story is what we hear all the time. We're working with this company for seven years. They're a great fit. They're such a nice partner. Now they want to buy us. Well, why do they want to buy you? Because they want to take our tech and do something slightly different with it.

They want to take our products and create exclusivity in this market. They want to do, there's this comfort and familiarity that gets created by being a partner, it's an incredible catalyst for M& A.

[00:37:17] Ronald Skelton: I seen this in the VC realm. So I came from, I come from tech. When I got out of the military, I went to work in the defense contracting space and all my buddies were making millions in the tech space. So I jumped in there just in time to watch it blow up. But I got to see some really cool things inside of that.

And one of those things that I got to see is,just like we're talking about companies being groomed to be purchased over time. I won't say any business names because I don't know if this is totally okay, but I know of at least two or three of these venture, venture capital backed startups where the company they ended up acquiring, acquiring them was one of their key investors, you know early in round two or three. At some point like one of the ones I worked for they were a key investor, they ended up on the board and then when we, our ceo left, they, one of their general managers came over, quit his job and became our CEO.

And then a year later, we were bought by that company. And, that general manager from the other company became the CEO of the big dog, big company. And, uh, I don't want to call it out, but I've seen it twice. Where it was kind of groomed to where they invested in it, they really were in, you know, they had, they had inside eyes into it. And then, you know, they ended up buying it. 

[00:38:29] Trever Acers: What, one of the things that, that we see business owners as they're sitting and looking at all these options, is they do this, the question becomes like, so what do I do, right? What investors do I take? Let's assume that now that I, that I'm going and I'm growing, like where, what do I do that's going to be able to have the greatest impact on that outcome?

One of the things I've seen that's, it's,it's relatively new in, um, in M&A, is seeing valuation groups start to do this, help give guidance on where should, what should you do in order to make yourself more and more attractive. Because historically valuation folks did compliance driven valuation.

You're gonna do a stock option plan. You need a 409 a valuation, or in divorce, evaluation of the business. But now they're starting to really apply some smarts and it's cool where you're looking at saying things like, boy,they're identifying some lines of business, in your business are more attractive to acquirers than others. And then, so what does that mean? Uh, we see things, for example, we see that,uh, in software, uh, subscription revenue is dramatically more attractive than maintenance revenue. Okay. So then the question becomes back to the company of, is there any way you can take some of your maintenance services that you currently charge for, wrap them into your subscription, increase the value of your subscription, increase the price of your subscription, because you're getting paid, call it four to six times.

ARR, reoccurring revenue, for that subscription revenue. And you get paid one times for maintenance. They start to really work collaboratively with entrepreneurs and start to apply this intelligence.It's having a day, it's making a difference on a daily basis to see these guys do this. We see questions like, uh,we saw recently a change in the business model.

We had a training company that was very, very hands on in person training. Looking at their, how do we compare the focus on that growth versus the growth of our called online delivery. The online delivery was a lot less in terms of revenue. The price point was much smaller. But to acquirers, it was much more scalable, much higher profit in terms of margins.

And the low cost of delivery then allowed this company to get from the enterprise into SMB. So there was these like, that's the kind of stuff that as entrepreneurs where we're sitting there a couple years out as business owners and thinking, I think it's really neat to get minds around that. How do I, what do I do in a prioritized way?

There's a thousand things I can do to improve my company. What are the three or four that really add a zero to the end of that outcome?

[00:41:13] Ronald Skelton: At what stage in a business do they start looking at, who's my up river? Who's the, who are people upstream and what do they need? Because if you're thinking, a lot of people do, they just create a business and they grow it and grow it. And they don't think about like, okay, someday I'm going to sell this.

But at some point, everybody sells, right? There's only been four. I think I did the research ones. There's like three or four companies that ever made it, ever made it over 700 years. Only two have ever made it over 1500 years. One of them was a little place that built temples, in, uh, Japan or another country.

And the other one was a pub. So everything else is always either sold or shut down, right? Something's happened, so your business is either going to sell or dissolve some way, some shape or whatever at some point in the future. Even that temple one, when I did the article, they were still, that I read and wrote on, they were still own.

And at some point they hit financial difficulties shortly after, and they, they're owned by somebody else now. Right? So everything sells.

[00:42:10] Trever Acers: Yeah, or goes away. That's exactly right. And it's amazing. I mean, I'm a, I think if you look at it statistically to be able to sell your business, no matter what the outcome, to be able to sell your business, what an amazing compliment, right? What a tremendous outcome. And so like the question that we're talking about today, they're already victors.

They're already successful. The question is what level of success can you get to them? And can we do some things in those last couple years? Or even just in that negotiation with the buyer that significantly increases that success. 

[00:42:45] Ronald Skelton: It takes some self awareness of the owner to go, okay, I've taken this, this horse in this race. As far as I probably can take it, I'm either entering retirement or I'm hitting some plateaus. The next phase of the, of this business is probably to be acquired by somebody else. And what does that look like?

And how long do I need to prep for that? In the small to medium business, I'll tell you, most people, they wait until it's too late. They think they can sell their business in six months and they don't realize there's three years of work to do for prep. Especially if they, if they're doing their accounting, if mama's doing the accounting on the kitchen counter, and you'd be surprised at how many millions people make before they get a CPA, uh, but that, you wouldn't be, but a lot of people out there listening would be surprised.

It takes something for that CEO to go, you know, the writing's on the wall. I'm,67. I don't want to work here until I'm 80. What do I need to start to do to make this the most valuable for myself and the employees that are here and that built this?

[00:43:42] Trever Acers: Yeah, and I think the other thing that as they start having those conversations is to think about that full range of options, right. Selling the business is one of them, but are there, I, we always encourage clients to think about it within that full range. Is there someone in your management team who could take this over?

Either in terms of like the operations, maybe you continue to hold it, but you trust them enough. So you don't have to be there on a daily basis. Or maybe I sell that to them. Maybe I sell that to the team in a, via a number of different mechanisms. But I think it were our, our passion is helping entrepreneurs make really good decisions.

And as part of that, it's setting that context of all the options in front of them. And the only time we pursue sale is when it's like, wow, sale makes so much more sense than these other options because of all the unique factors that make us business owners, all the objectives that we have.

[00:44:34] Ronald Skelton: Yeah, I'm 52. I don't know if I'm going to get there, but some, my long term vision is, is to build something to where, I'm big into having trust and set up to have some form of family office that owns the holding co. And, general managers are there running it and my kids don't necessarily have to run the company.

They're not spoiled rotten. They can, they have jobs to go to if they want, but my long term goal would be that, a family office is created out of this type of actions. That's something a lot of these in your, in your market, that's, there's all kinds of other avenues other than selling, right?

There's employee stock option, you know, transfers where you can sell it to the employees. There's bringing in great management, setting up the right structure to have your own family office and have, have it just run and kind of have a bringing an oversight board or something that can, keep it running for the next generation and it's not your employee. 

The small business owner thinks that, you know, the guy like my father owned a painting and remodeling business. Turned it to me when I was 16, so I ran it for a while. That mindset is like my, if my son doesn't run this, I have to shut it down. Is in that small game to where, you know, if he grew it to, it was six figures, uh, at its peak.Not high six figures, but, uh,when you're talking 20 million to $250 million, you're talking, now you can bring in staff, you can bring in an oversight thing, build a family office out of it. And the family office's job is to make sure that the right general manager's in place, the right team's in place, and that they're hitting their KPIs and their numbers, and it runs for generations. So it doesn't necessarily always have to be an exit, right?

[00:46:05] Trever Acers: Yeah, no, I think it's that, it's really figuring it because there is no right answer. It's really figuring out for that, for that business owner's objectives, right? And maybe it's their family's objectives. Everyone's series of objectives are unique, but for their objectives, what is that best option?

And sometimes it's parallel, right? Sometimes you need to run those in parallel. Boy, we think it's a sale, or if we can't sell it for as less, for at least x, we're going to give it to our nephew, or we're going to sell to our employees. We're going to follow an ESOP process. So it's really, I think the key is really being thoughtful about it.

And then the other piece of it is, is not underestimating the risks. The data says that companies that are not run by professional management teams or founders, tend to not do so hot over long periods of time. So there is some significant risk of the idea of, Hey, I'm just going to let my, some of my employees keep running it and I'll, I'll own it and hopefully take that passive cashflow.

But it's situational, because we come across every once a while, a situation where it's like, boy, this will be spectacular. The best outcome for everybody's objectives is going to be having one of our team members run it or selling it via an ESOP or some other mechanism or keeping within the family.

[00:47:22] Ronald Skelton: One of the best ones and smartest ones I've seen, and I won't call out the industry cause,or the person. But, uh, they did what I, we jokingly named it, because I'm gonna say what we jokingly named it. If you search for it, they could find it on the show. Cause he was on the show. Acquired to retire.

So what he did was he had a pretty good size company. I think it was like between 10 and $12 million, depending on the good year, bad year. Decent profit margins and he was ready to retire. So he acquired, there was a rockstar company coming up in his space, just outside of his market, but he knew the guy, knew it was running.

It was half the size and he reached out to him and said, look, I want to talk to you. I'm going to acquire, we're going to merge the company. And guess what? You're going to be the CEO. You're going to own 40 percent of it. I'm going to own 60 percent of it and you're going to run it, until you don't want to run it. 

And then we'll, if, when you're ready to sell it, when you're ready not to be the CEO, come to me and we'll decide if we're going to bring in another guy in, or we just sell it together then. It was brilliant because now he gets, this guy was half his age. It's just doing, just doing tremendous, great marketing.

Yeah, he really was impressed with the guy, what the guy was doing. So he reached out and said, I'd like to acquire you. Instead of saying, I'd like to sell to you, I want to acquire you. And by the way, you get to be the CEO of both, both parties. And I thought that was a brilliant move, right? He had to sell some of his commercial real estate to do so, right?

[00:48:36] Trever Acers: Yeah, so thoughtful. I mean, that's the intelligence. I think there's been a tremendous change in the opportunities for owners. Where the range of options in front of them is tremendously increased and the opportunity for them to find a liquidity as exit, has increased dramatically.

And that's where the, the man then basically that calls upon the business owner to take advantage of that. To take the pause in their day, the thousand things going on and take that kind of quiet time. And what do I want, right? What are my objectves? That's the first thing I got to figure out. What do I want?

What matters to me? Everyone's unique. Once they figure that out, now they can start assessing all these strategies. As opposed to just blindly starting a strategy and see if it helps, see if it worked. That's unfortunately the common sort of default we see is, people just go down the ESOP path without kind of thinking, was that the right thing for me? Comparatively to the range of options that I have? 

[00:49:33] Ronald Skelton: I've never told anybody, I say never, I don't think, I don't think I have. I don't think I've told anybody, no, I'm not interested after doing two or three calls without sending a follow up email saying, here's all the things you need to, you know, here's where, where it went wrong. Like I've usually a one or two page or if it was printed out, like here's some bullet points.

If you focused on this and you got this stuff fixed, call me. And this is what every other buyer is going to look like. And I take the time to do that because, I believe that on, true entrepreneurs or serial entrepreneurs, you're eventually going to sell that company and you're going to build something else.

And when you, when it's ready to sell, I want you to call me again, right. And even if I didn't buy the first one, if it wasn't a right fit the first time, I want to be the guy, the first guy you call, who's going to take a look at your next business and go, you're almost there, do this and this.

And then the next time he's close enough, cause he knows what I wanted. He knows what my team wants and you'll be closer. So I, long term strategic thinking when it comes to that, that realm is to, uh, you know, entrepreneurs are still entrepreneurs. Unless they're at retirement age, they're going to go build something else.

They say they're going to retire. You're 45, you say you're going to retire. Yeah. About six months from now, you're going to get sick of golf and fishing, and you're going to be doing something.

[00:50:39] Trever Acers: Well, we often are giving that advice to clients who, or companies that may not necessarily be clients. And you'd ask like, boy, why are you spending time giving them guidance? And we have this philosophy of give expecting nothing thereof, which is Thomas Aquinas. The idea is like, if you help people, you come from a place of love and help people each time, you might not always get something from it, but I promise you over long periods of time, it's going to work out.

[00:51:04] Ronald Skelton: I believe that a hundred percent. I'm on board with there. And I think the second thing, and it's so critical in the small space, rapport wins over everything else. Business owners in the small space, that 5 million, $10 million and below will sell at a lesser value to somebody they know, like, trust and don't rapport with. Then they will hands down somebody who they just don't get along with.

And I think it happens all the time, even in the mid market space, too. You can't go around, a little less cause you got investors involved in numbers and it's a little bit more of a numbers game, but there's still some element of building rapport and trusting people. 

[00:51:38] Trever Acers: And I think that calls on, I think that calls on buyers and sellers, but to be good citizens, right. To be good partners through that process. We have a client who just walked away after four months with a strategic acquirer, we just walked away from the deal, $80 million deal. Our client would have had more money than he ever thought in his life, but we walked away cause he could not look himself in the mirror. Knowing that his brand and the quality that he brought was going to be taken over by people.

He felt we were jerks. And so we walked. And we felt really good about it because he's going to look back two years from now and say, you know what? That was a great decision and I'll go out and get that plus some in the next market process for him. But I loved that decision because otherwise he would have looked himself in the mirror two years from now, and he would have, it doesn't matter how much money he had in the bank. He would have been heartbroken.

[00:52:34] Ronald Skelton: And, so it's good to hear it still happens at that mid and upper market. I just knew it did. But,to know that you have live examples where people like, look, you know, you're not the right fit. Yeah, you got the right wallet, right? Yeah. your wire transfer looks really appealing, but everything else about you just rubs me wrong.

[00:52:51] Trever Acers: Yeah. And they're not fools, right? They're not doing it because they're like sentimental fools. They're doing it because they didn't want to go spend four years of their life working for those people who they didn't respect. They didn't want that perception and they knew that they could probably get exceptional price from somebody else.

And, uh, so there was, there was good logical justification, but understanding both that quantitative objectives and that qualitative, man, when you know what you want so much more of a higher probability of achieving it.

[00:53:20] Ronald Skelton: Awesome. Well, one more time for everybody listening out there. What is your target market? So that if somebody is listening now and they're building a company and they're going to sell it, they want you, they want Trever to be, uh, take a look at their business. What is that target, what do they need to grow to? What do they need to prep themselves to before you start working hand in hand with them?

[00:53:41] Trever Acers: Yeah. So we're working with companies, 20 to 250 million in value. Within our sort of six industry practices, being at tech where we have a ton of SaaS experience. Manufacturing, consumer, where we do a ton of apparel, specialty, food, recreational products. Our pharma services, where we do a ton of marketing companies, oddly enough, in the center of pharma cities. Business services, health care services, those are the spaces, but it's the only that 20 to 250 million that are, the value. And it's either a scenario of the classic, I want to go sell my business. Or the increasing popular scenario of the private equity firm that I really think is impressive just called me.

What do I do now? And then we either go talk with that one and get a super premium or go run a market process? That's what, that's a great fit for us.

[00:54:30] Ronald Skelton: Is there anything to do with like, I'm at 15 million now, but I'm on trajectory to be at that $20 million within the next 24 months. I need to start talking strategy now. Is that too early to call or?

[00:54:42] Trever Acers: No, that's exactly the time. It's two to three years before you want to sale, or we really want to sit down and talk a little bit about strategy. We want to run what we call sale proceeds analysis. Where, what's our valuation today? Where do we want to get to? And then the other thing they can do is work with our valuation team, doing a gap analysis.

So here's, if this is our valuation today, what are the things that we can do in our business that impact that valuation the greatest?Those are, I mean, that's where you, in a perfect world, you want to start two to three years before, cause you can make a difference in their outcome at that point in time. You have more levers to pull. They can do more to help themselves.

[00:55:20] Ronald Skelton: Awesome. And then how do you want people to reach out to you? What's the best way for somebody to contact you?

[00:55:24] Trever Acers: Sure. Take a look at our website, objective IBV. com. Uh, my email, Trever dot acres at objective IBV. com. We have a team, a very, very collaborative team approach is the sort of culture we've created within our organization. So any one of our senior team members has got deep industry experience and is going to do an exceptional job of guiding you through your exploring your options.

[00:55:49] Ronald Skelton: And for purposes of our short takes, give us two to three things that they can people, somebody can only remember one or two things, maybe three things from today's conversation, what would you want them to walk away with?

[00:56:01] Trever Acers: Sure. I want to, I want them to change the frame of the value, of how they value their business or change the value frame. So when buyers come to them and just ask them for financials, I want them to supplement that conversation with, let's talk about our synergies. Let's identify 'em. Let's quantify 'em.

Let's validate 'em. That changes the value perspective of, are you going to just pay a multiple of EBITDA or are you going to pay me a portion of the value that you're going to get as acquirer? The second thing I would do is really encourage them to aggressively disqualify all of the incoming options. Either we're heads down, we're being very selective, we're being slightly more open, but we're very, very thoughtful about spending time with acquirers because they can suck millions of dollars from us. 

[00:56:50] Ronald Skelton: Awesome. Cool. Well, we'll call that a show and, uh, we'll wrap this up and thank you very much.

[00:56:56] Trever Acers: Yeah, I really enjoyed this. Thanks so much for the opportunity.

[00:56:59] Ronald Skelton: Hang out for just a second.