Jonathan is a Managing Director of Transact Capital Partners, a boutique M&A advisory firm headquartered in Richmond. He has spent over 20 years helping business owners within a wide variety of industries sell their companies to their ideal buyer and...
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Ronald Skelton 0:06
Hello and welcome to the how to exit podcast where we introduce you to a world of small to medium business acquisitions and mergers. We interview business owners, industry leaders, authors, mentors and other influencers with the sole intent to share with you what it looks like to buy or sell a business. Let's get rolling.
Hello, and welcome to the how to exit Podcast. Today I'm with Jonathan Bray brand, and he's an author, entrepreneur and expert in the field advising business business owners on this sell of their companies. Jonathan is a managing partner of transact Capital Partners, and a which is a boutique m&a advisory firm headquartered in Richmond, Virginia, he has spent over 20 years helping business owners with a wide variety of industries, sell their companies to their ideal buyer, and achieve the exit outcome. They dream of his book, The 100 million dollar exit your roadmap to the ultimate payday analyzes Myrt large mergers and acquisitions success and failures to draw practical, actionable advice that company owners can implement to increase the value of their business, and better be prepared for exit. Welcome, Jonathan. Thank you for having me to have you on my show. Yeah, almost there. I always get tongue tied in those, but it's part of the fun. It's like this is a real raw, uncut version of life, right? We're just gonna chat about mergers and acquisitions. So it doesn't have to get in this space. So one of the first questions I asked every single time and is kind of how did you get into this space? What made you want to do mergers and acquisitions? And let's just start there, let's get to know, you know, who you are and how you got into this space?
Jonathan Brabrand 1:56
Absolutely. Great question. So I started in this industry right out of college. And admittedly, the what drew me to it, from the beginning was a little bit self serving, that seemed like the opportunities that I was looking at, I went to University of Richmond and got a finance degree. And the opportunities that we're looking at coming out of college for entry level positions all seem pretty boring, and seemed like they had very little responsibility. And then I stumbled across investment banking analyst. And the more I learned about it, and talk to the people, I get a year ahead of me, and two years ahead of me and what they were actually doing, it just fascinated me that people that young would have that much responsibility and exposure to senior people. So I got into it, because it seemed exciting and fun. And it has been, but that was, you know, over 20 years ago, and the reason I've stayed in it is because I really like working with entrepreneurs and business owners, I love hearing their story I love you know, getting to know their companies and ultimately helping them with sort of the the pot of gold at the end of the rainbow, helping them monetize what they have built over, you know, sometimes generations, that's really, really rewarding to me, and I really enjoy that aspect of it.
Ronald Skelton 3:08
That's awesome. So that's kind of why I've got into the same same thing I got in this space, I didn't realize how much I love talking to entrepreneurs until I was participating in a fairly large roll up project. And ended up talking to a couple 100 marketing agencies over a very short period of time, like 190 200 days, we were really, really active 2530, you know, one hour interviews a week, right? We were busy. And the thing I found most interesting is the origin story and like, you know, their challenges and what they're trying to accomplish. And really add here to that you said that you said a couple of key times inside of what you just said, of helping the entrepreneurs get where they want to go. You know, that's what I that's what I want to do when I'm on the phone with these guys is I'm not like hey, do you want to sell your business? Where do you want to get and how do we get you there? Right, right. So and that's important. I mean, a lot of people don't understand the psychological side of this. We were talking about this on the previous show is a lot of the exits, people are doing money is not their highest motivator, right? That's right. If you're selling you want to get as much money as you can, when it draws when you draw down the line of I can get as much money as possible, or, you know, my brand will still exist and my employees that work there for 30 years are still going to have a job. Most of these entrepreneurs are going to lean towards making sure other people are taken care of. And a lot of them are going to be interested in their legacy their brand. Right? So
Jonathan Brabrand 4:45
100% that you've touched on a couple key things there. One is we've seen you know if we run a competitive process, the goal of it is to have multiple options at the end of the day for the entrepreneur or the business owner to choose from. And we often see people go And I think rightly so with the second or third highest bidder, and not just go for the top bid or the most money. And there's lots of reasons for that. That's actually one of the top mistakes that that I see people make is over emphasizing price, and not focusing on some of the intangibles that you just mentioned, because there's a lot that goes into making that perfect match. And it's not always the top dollar. Now, I will say there's a correlation, though the buyers that find the most sort of complementary, it's not just like economic synergies, but culture synergies, and the good bit, they often also seem to value the company the highest, and it's sort of works well. But the best fits also are toward the top of the range of value. But it's not always the case. And the other point that you mentioned, that I think is really important is, you know, a lot of times people think the exit is sort of the end of the line. And to some degree, they put it off, because they don't want this fun thing to end. And they wanted to lay what they think is like the finale. But in reality, the transactions that we work on, are really all about creating new chapters really for three different you know, they're three different new chapters that are created. The The first one is for that business owner, entrepreneur in their family, about what's next for them that you know, oftentimes will now have, you know, a monetized and have some wealth, that they can do other things with, whether it's family goals, or, you know, philanthropy or travel or start other businesses in different industries. But it's also new chapter for the company, and where it can go next with with a new partner or part of a new large organization. And that can bring excitement to the founder to see that their legacy to your point is going to continue on. And the third is a new chapter for the employees and the new opportunities that that new partner or that new strategic buyer bring to them. We, you know, as a quick example, we had a company that sold a few years ago, where there was a key employee that had basically been given as much responsibility as possible, and was yearning for more, there just wasn't any more to give, it was actually willing to give her in this family run business. And it was worrying the owner because she was such a key individual. And through the sale process to a large, much larger family held business, she now checked in with her with him a few weeks ago, she's moved up in the parent organizations ranks and has much more responsibility is using her talents more fully than she could have in a smaller organization. So it's a great example of a transaction, you know, providing new chapters for the employees as well.
Ronald Skelton 7:34
Since you're saying I've seen that a lot in the marketing space, because there's an inherent problem inside of marketing agencies where they get to a certain size. And they've they've groomed this talent, train down talent and the talents ready for bigger, more creative projects bigger, like they're ready for, like trying to do a project for Coca Cola or PepsiCo or something big. But the agency still still too much small to land, that type of client. So one of the things that the agency owners look for, is like, when we were looking at acquiring them is what were the opportunities for their employees to take on those bigger projects. So they didn't lose them. Right, they usually would train, you know, one of the problems inside of that industry is you train you into training your employees right out of a job, right, you trade. So they're so good, they go somewhere else that you know, can get those contracts. And it makes, you know, it makes a problem. They're so interesting. Um, right now there's this market is just really I'm personally I think it's just really good. There's a lot of people that baby boomers and, and stuff that are coming out of COVID they've had it right. Right. And they're looking, you know, they're looking at what their next chapter is and stuff. I don't know that there's been a better time. You know, one of the reasons I'm in this space is I don't know, there's been a better time and recent history to take a look at, you know, buying businesses and set of you know, starting from scratch. Are you seeing that too? Are you seeing this, you know, like, a good steady flow of just available opportunities around.
Jonathan Brabrand 9:08
Absolutely. And that that trend, the m&a market has been strong and continues to be strong, I think it's building momentum, partly because of just generational transfers that are needed. second, and third, fourth generations aren't staying in many businesses. And so that leaves those owners without a succession plan that maybe they thought was going to be there and therefore they're looking to sell and the challenges of coming out of this, you know, the last several years that has kind of maybe put some business owners to the point where they just want to exit but you know, one of the there's there's kind of three markers that we counsel our clients to think about when trying to decide when the right time is to sell. And the higher the activity within m&a market is the number one is the first one to look at. So you've touched on the important one there. The good news is except for some, you know, particular little stretches across time m&a market is pretty robust. And there's some real reasons for that we just talked about some of the supply in terms of businesses that are coming to market and will continue to come to market. There's also demand for those businesses drivers there as well, capital has been raised in private equity funds. And historically low interest rates, even if they jump up some here in the next year or two, still historically low, lots of cash and strategic buyers balance sheets, where they need to show more growth to their stockholders than they can organically and so making acquisitions as a stated part of their growth trajectory. So you have all these factors that are driving demand for deals, and then you've got the supply of deals growing and it's a it's a convergence of factors that leads to a seller's market.
Ronald Skelton 10:46
Awesome. So you have a book out called the 100 million dollar exit. So tell us a little bit about like, you know, what's inside of that. And like how you went about, like you said, He's analyze large mergers and acquisitions. So what were some of the key lessons that you learn by analyzing the bigger deals? Yeah, so
Jonathan Brabrand 11:04
I look, the the premise of the book is to is, I think it's a pretty well known fact that large transactions and we picked $100 million, as sort of a template for what a large transaction might be, in the eyes of many business owners, large transactions, by their nature get higher multiples, they sell for not just higher dollar prices, but a higher multiple of earnings. And some of that is based on pure size. But there's also aspects that that I wanted to investigate to see if there's some things that that could translate to business owners of any size. And that was sort of the premise of the book. And so I interviewed and drew from deal experiences that I've personally had to look at large transactions, and were some of the takeaways that drew that led to those higher value exits, and what could what could a regular ordinary business owner take from them. So you know, the first two, three chapters all about preparing, and the idea of being in a sale ready posture, which I think it's really important and is, is overlooked. And so that's the idea that you as a business owner, you should be ready to react to things from a sale perspective, even though a sale may not be in the cards, at that moment, may have something you're actively pursuing. And so that involves things like building relationships with future buyers, even before you need, particularly before you actually are asking them for any response or to look at any information. getting in the habit of doing annual strategic planning, and holding yourself accountable to reporting out the results of those plans, and starting to think about successor, not just successor for the owner of ownership of the business, but for your role in the business. Because ultimately, if you can't step back from the business, you have a job, you don't have a saleable business. So some of is to get these ideas out into the hands of business owners who aren't ready to sell and wouldn't have come found wouldn't have come to find me. In that mode of I'm now ready to engage your service to sell the book was designed to get to them ahead of time and help make their business more valuable.
Ronald Skelton 13:18
So on the topic, you know, as you're going through, you're building a business and stuff, when's the right time to start identifying? You know, if you if you know, you're going to build it to sell it? Are you going to exit at some point? When is the right time to start identifying that end buyer? And like, how do you how do you identify them? Like?
Jonathan Brabrand 13:37
Yeah, so two things are the first one is, it's going to sort of, I think under undermine the second part a little bit, but it's really hard to predict the ultimate single buyer. Now we can certainly, I'm going to talk about ways to identify likely buyers. But in all the deals that I've worked on, it's rare that you could pinpoint with accurate absolute certainty. This is the group that will buy my company, and then you know, run a large process and that one group ends up at the end of the day, there's so many variables that can go into it. That being said, I think it's never too early to start that process to answer your question. And so one of the ideas that we talked about in the book is identifying a handful of likely buyers, and that can come from, you know, in the industry, larger competitors, people in ancillary industries that you think, man, if I were partnered with them, we could do great things together. And so it's a little bit of a dream, a wish list of like, who was like the best companies in my sector or in a related sector, where I can see a lot of great fit and what if I could, if they had what I have and I had what they had, we could do great things together. And then just reaching out to them again, without asking them anything. And saying, I'd like to introduce myself to get to know you a little bit tell you what kind of company I'm building Hear what types of things you're looking at in terms of acquisitions pick up as a public company, you can do research on, you know what their stated acquisition criteria is or what some past acquisitions have been getting them talking about what they liked about the last deal that they did and what they're looking for next, all that it does two things. One, it influences your strategy to your point, if we know that many of the buyers in my industry are looking for the same characteristics that maybe I should make sure that I'm creating those characteristics in my business. And, you know, other other input that you can glean can help decide, you know, how you set up your operations, how you expand, there's lots of things you can get from it. The benefit externally, though, is you start a file essentially, in their, on their side of man, I just talked to this really cool company, they're, you know, not ready to sell yet. But I like what I heard, I like what they're doing, they're doing cool things. And you check in with them, you know, every year or two, again, I'm not asking you to buy my business admin ask you to value my business, I'm just letting you know what I'm doing. And the discussion is not anything, you know, confidential, it's really nothing more than they could find on their website, you're more putting a face to and a story behind what you're building. So that when the time does come in, they hire someone like me, and I make a call and say, Hey, I'm calling about a company, I think you may have heard of them XYZ, instead of saying, Oh, that sounds interesting. I've never heard of them, send me the information. And I'll see, it's like, oh, I can't, I'm so glad that you finally called I've been talking to that, you know, on and off that person for years, I'm excited now that there's an opportunity to actually do something with you basically laid the groundwork for yourself to make that conversation, you know, quick and painless.
Ronald Skelton 16:46
So you mentioned the different criteria. Do you see that? You know, the different buckets of buyers, for instance, private equity, family offices, strategic acquisitions, competitors, and strategic partners and that type of stuff, type those type acquisitions, to each of those buckets kind of fall within the same roles, are they kind of all Wild Wild West, and when different things when they do acquisitions, or I mean, if I'm going to, if I look at it, here's what I'm getting at, if I look at a business and go, You know what, if I did XY and Z, I'd be really attractive for private equity companies, and they pay a decent premium for a company of this size, Is that doable?
Jonathan Brabrand 17:24
It is. So in many ways they are both of those types of buyers are looking for the same types of things. So there's been diagram, there's a lot of overlap, in terms of high quality characteristics that both of those types of buyers are looking for. And keep in mind private equity, are looking to buy businesses that they may ultimately want to sell to a strategic buyer, but they want to do they want to help get it bigger in the meantime. So to some degree, strategic buyers are often sort of the the end of the line, whether you go straight there, or whether you go through one or multiple rounds of private equity before you get your business gets to that point. That's oftentimes sort of the way a business through acquisitions will evolve. But a key difference to think about as you're evaluating as a as a business owner is evaluating those two different categories. So I'll put strategic buyers in one bucket and all types of financial buyers, family office, private equity, you know, funless, sponsors, all there's a bunch of different kinds of financial buyers, search funds, but into the in the same bucket. And the key care thing in I would also say that we often counsel our clients to to look at both. It's not like you're picking one or the other is to actually contact samples or a broad swath of both sides that you can evaluate, maybe meet with groups from both sides to determine which path makes sense for your company that stands at that stage. But the main difference that we see is strategic buyers have a plan strategic plan that they're executing, they're heading in a certain direction. And what they want to know is does your business help their them further their strategic plan? Are you a puzzle piece that's missing from the puzzle they're trying to build. And frankly, if you're one of the last puzzle pieces of a puzzle they're trying to build, it's going to be, they're going to be willing to pay a premium to get to fill in some capability gap or talent gap or GIAC geographic gap, but they're on a path that they're looking to see whether you fit to help them in that regard. A potential buyer is different. They're actually they have no preconceived notion of a plan. They want to hear what your plan is, and whether the capital and expertise and connections that they bring to the table can help accelerate the path that you're on. So they're the focus is much more on what is your business independently, where is it headed today? What could it do with more capital with what could you do if you were able to make acquisitions of your own? Bring in other senior level resources that maybe are outside of your budget today, but You would feel more comfortable if you had a financial partner. And so there's a there's a difference there around Are you joining someone, you're jumping on someone else's train, or you getting an accelerant for the train that you're on.
Ronald Skelton 20:12
So, I have a lot of listeners that are actually in this space of buying companies growing them and then turn around and selling them. In that respect, are there industries that you see like you just you would avoid? Right, they're just notoriously hard to get deals done Insider.
Jonathan Brabrand 20:29
So, some of it goes a little bit back to the, what makes businesses valuable and, and to some degree valuation is just tied to perceived risk. So the perceived risk in a business, the higher it is, the lower the price, the multiple that that a buyer is willing to pay, you know, there are transactions that, you know, probably can get done in, in any industry for the right price. The challenge is trying to make sure you don't get stuck into an industry where the multiples are low, because the perceived risk is so high. And so and investors, buyers of both strategic or financial nature, you know, are looking to minimize risk that is outside of, you know, essentially their control. And so where I'm heading with that is, you know, highly cyclical industries, industries that have a lot of regulatory exposure, where, you know, one change in a law could annihilate, you know, the profitability of a sector, or the legality of a sector. You know, cannabis in the US is an example where, you know, there's not a lot of of investment because it's still federally, you know, not legal, but Canada is a different situation. You know, cryptocurrency is another example that is seen as a little bit of too risky for most, not for investors of the capital, but for businesses based on crypto, but even some old, you know, economy ones, a lot of construction trades, where it's highly, highly project oriented, and you don't have a lot of backlog. Maybe it's tied to, you know, the government funding a highway transportation bill, you know, is an example of you know, that's kind of boom or Boston, you get a you get a gas tax hike, and those businesses are flush with cash, and then that wears out and construction companies get really tight for work, and then it kind of goes again. So businesses that are highly cyclical, owning the gas is another example those can be challenging. And often buyers will look at a multi year average, but they don't want to buy off a peak and get caught.
Ronald Skelton 22:37
So for instance, I had I actually had a group of investors come to me said, hey, if you'll do a roll up and go out and acquire a bunch of veterinarian clinics, we'd like to be the buyer of them at the other end. And then I did the research on it. And most states, you know, an individual cannot Oh, I think some stuff like 40 Something of the states, an individual cannot buy a veterinary clinic, which have to do is set up amended, medical service organization, right. And yes, they you own the MSO. The MSO can own the building and own the equipment, hire the doctor, but can't tell the doctor, the veterinarian, anything, they can't tell you. You can't tell what prescriptions they can make or can't make what procedures they can or cannot do. But you're pretty much their their office manager and their marketing tool is the same way with dentists offices and some other stuff. Even do a DSO in most states. But what that introduced was like about 25 to $30,000 with the legal fees and setup fees in every single state you wanted to do it. And so we haven't pulled the trigger on that one yet. But that, you know, that just be aware, there are some things out there that you know, an individual just can't run out and buy without, you know, some extra, you know, legwork and some extra legal paperwork. So,
Jonathan Brabrand 23:51
yeah, I mean, a great example those to add on to that are many professional services firms, you know, like an architectural firm typically has to be owned by an architect. Many accounting firms have to be owned by a licensed CPA Class A contractors have to be owned by a Class A contractor license holder, you know, so there are definitely some of the more technical trades where that licensing becomes a key, a key element of it, and maybe you could even buy the business but you're dependent on if you don't have the license on the license of some person that if they left, you would be out of business.
Ronald Skelton 24:25
Yeah, I bought a pesky very small pest control company before I even took the courses on how to do this to employ some relatives of mine that I really like and but the thing is, I end up having to rebrand it and go out and get all the licenses myself because like you have to have the license in order like one of the one of the owners has to be all fully licensed but really gonna take interest I went out and took all the test. I never intend on touching the chemical. And we realize that the previous guy that we got the equipment from and we're in the middle of you know, buying his customer list and everything. Didn't do his paperwork right didn't hold up to the standard. So we just pretty much did a startup. Like, right we already had all the license we already everything we even that my, my little daughter name it, it's a if you can see that it's lullaby pest control we, we were, we were brainstorming on what to call it. So my daughter at the time was four or five and she's like, you can even call it blah, blah, blah. But, uh, you guys don't kill bugs, you just put them to sleep. Yeah, they're gonna sleep for a very long time. But that, yeah, I got that, like, you know, I got that that lesson the hard way. And then I, you know, I just turned the dial. I like buying them as opposed to building them. I built quite a few in my past. But, uh, I went out and got trained and, you know, studied some different things to not do not by myself another job. Right, right. Let's go back to the lake, you know, excellent. Right. We had some discussion before this, that we wanted to like kind of cover what are the biggest mistakes people make when they're preparing for exit. So I'd love to get your insight on that.
Jonathan Brabrand 26:03
Yeah, so one of them is waiting too long to sell. So if you think about the baseball analogy, you know, you want to sell like in the seventh inning, you know, you want to have some nice trajectory behind you. But you also want to have some, some pretty good opportunities ahead of you, the mistake business owners often make and it ties back to that delaying what they feel like is some type of finale is they just wait too long, and they're in the you know, extra innings and, and the issue with that is no business, their business may plateau, or even start to decline a little bit. And business buyers are buying the future, they're not buying the past. So the fact that you had your best year, two years ago, it's good for you, but not good for the your next partner. And so they're really focused on what's the business going to do next year, and the year after that and into the future, either independently or in conjunction with what they bring to the table. And so waiting too long, is an issue, they certainly are going to look at the historical financials. So I don't mean to disregard that. But they do that to one understand where the business has come from and to to validate their beliefs about where the business is heading in the future. But again, what happened under your watch is for your benefit, not for theirs. So I'd say waiting for to waiting too long to sell is a big one, prejudging buyers is another one. So when the time comes to engage a firm and to run a process, you know, there's always times throughout the process that you can kind of kick a buyer out, if for some reason you learn something that, you know, is disconcerting to you or you realize that they really aren't the right buyer for you. But so there's no commitment, when you begin a process, if you're going to contact a buyer that you you know, have to consider them all the way through to the end. The mistake, though, is starting to narrow. And it can make cosmic to a belief that, you know, I know that these this buyer, this buyer is gonna be the right one, we don't need to contact any others. And the challenge with that is you don't know what's going on those buyers board rooms right now. And maybe they were a great buyer last year, but things have changed. And they're putting out fires internally, and they're not looking at acquisitions right now, they just made another one. And that windows closed for six months until they can integrate that business, or they are interested in your company, but they're going to pay you half of what you know, the business is actually worth. And because you've never had any real discussions, the Fit sounds great. But when it comes to valuing the business, you're two separate planets. And so allowing a broader universe of buyers to start I think is the right is the right move, understanding that you may be surprised positively with with buyers that you didn't expect would be aggressive that, again, not knowing what's happening on their side of the table, they may have been looking for a business just like yours, and just were more quiet about it, you didn't realize it. And again, as you sort through the feedback, and it's definitely a two way mark to a interview process, it's a little bit like a speed dating, you're getting to know them, they're getting to know you through this process. And we help facilitate that. If you learn something that is not going to fit, you can just say this, I don't think this one's going to work. And by having more options out there and not putting all your eggs in one basket, you had that flexibility to be met with five or six, seven groups, and one of them kind of rubs you the wrong way. That's no problem, you've still got plenty others, whereas if you start to narrow, it kind of pigeonholes you a little bit
Ronald Skelton 29:32
sinteres and you were saying that, you know the buyers buy in on the future? I would say as a buyer, I think I would say we buy on the past we we buy on the future but we pay on the past. Right? Are you looking at the EBA it's a multiple of EBA what you've done over the last three years average, and most of us are given some leeway of COVID hitch and we look a little bit past the three years and kind of give you some benefit of the doubt inside of those numbers just because it needs to be adjusted. Right. And then but if you do don't have a future if you can't show us like the trajectory of where you're going. It's not a fool's errand. But it's a bad idea to just assume that you could do better than somebody that's running it for 30 years. Right. So, if an owner comes to me and says, you know, I'm at my wit's end, I don't know how to take this to the next level, unless it's in my lane, like I've done it a bunch of times, if it's in real estate, or marketing, or maybe computer security, I've been out of that for 15 years, I might take a deeper look, because I might be able to figure out where we could take them that they didn't think of on their own. Right, the other 90 million industries are out of my lane. And unless you can show me I've got a team here, we have a path and we have a plan, I need to exit and these guys can continue this plan without me and you lose me he lose a lot of underwriters that way, right? 100%. So I totally aligned with that. I say we buy on the future we pay on the past, from the buyers perspective, right? There might be some when you're what's the word, I'm looking for an up brand equity, there's a name for like, the performer, they're looking forward to the future, there's some number or something given that you might get a slightly, if you can paint a very beautiful picture, you'll get a little bit higher of a multiple, because if we buy into it, and we think your team can execute on it, they have a history of setting goals and achieving them, you know, then you know, that that opens up an opportunity for us to so
Jonathan Brabrand 31:19
yeah, so a quick note on valuation, I agree with everything you just said, you know, if we, there's an art and a science to valuing private companies, right? So public companies, you can just see what their market cap is, you can add that if you want to enterprise value, but it's they they're priced every day, every minute, private companies, that is not the case whatsoever. And it's very much the values in the eye of the beholder. There is a science element to it. And, you know, there are valuation models, and you can you can hire people to do business valuations for one purpose or another. And that that's a good starting point. And a lot of buyers will use those as a foundation. But there's an art to it as well, that is driven by competition, the need to, you know, to fill a puzzle piece, you know, from a financial buyers for more strategic buyer for financial buyer perspective, you know, pressures that you may not even think about, like, you know, we raised a fund and we've gone nine months, and we haven't put any capital to work and this business was right in our wheelhouse. And I know, the model say we ought to pay 50 million for it, but I'd pay 55, just to get my you know, investors off my back that we got one done. And so if I were to if we run out a process, and we got back, after sending out you know, creek for qualifying people, they sign an NDA, they review the materials that we prepared, and we get a first round bid of just based on the book haven't talked to anybody, we think the valuation range for this company is x to y. And we laid them out just you know, numerically, you see this kind of bell curve, and you'd have some tire kickers value buyers, they're hoping to get a good deal, but they're kind of underpricing it, you see, at the peak of it sort of where everybody is running those same models, and they're coming out with basically the same kind of market value. And if we were going to tell you before running the process, which your company's worth, we we'd probably be in that same range, we want to give you a range that, you know, we have a high degree of confidence in delivering, but there'd be that other tail that spike bidders where they ran those same models, but there's something else about the future of the business about something they liked about the team about how it fits that they're willing to go beyond that. And ultimately, it's not like a democracy, you're not trying to figure out what a consensus of what everybody thinks the company's worth, you're trying to find that most aggressive spike better, who maybe usually looks at three years of financials and averages them, but for this business, they're going to just look at the last year and give you a multiple of that and not have the average plan. And so the purpose of running a process to some degree is to make sure that you're letting the market speak and you find the most aggressive buyer, not just the one that's in the you know, in the highest probability range.
Ronald Skelton 34:05
Right? I noticed that you call your firm an advisory firm, and there's people out there that are investment bankers, and then there's a group of REO that are just brokers. What do you see is a big difference between like somebody reaching out, just go into a brokerage, in a Murphy's brokerage or something like that, and actually working with what you do is m&a advisory. Is there is there a clear difference between what those would be?
Jonathan Brabrand 34:30
I think there is and I think I have a lot of respect for Business Brokers, and I think they play a valuable role in the overall ecosystem. But the way that they they bring they work with clients and bring business and ultimately we all sell businesses, but the way that they do it is different. And so a business broker is typically working with smaller businesses that are more oftentimes looking for individual buyers. And so the approach that they take is typically Similar to a real estate agent, where they will list a business without name, but they will list it with an asking price and a little bit of information about it. And it's a little bit of first come first serve the first buyer that has an interest that is, can be at or near that listing price, we'll engage with them. And, you know, we've got lots of businesses listed and tell me what you're looking for. And we try to get those done. And those that process works really well, for individual buyers who are looking to buy business they're going to get involved with typically, in the, you know, under $2 million range, if I had to put a number on businesses that are, you know, 5 million and above, and there's a gap sort of an overlap in between an m&a advisory firm or an investment bank, I'd use those synonymously. Like, what we do is we don't list businesses, and we don't give us a price listing price, we do play more work upfront to create a more robust set of offering materials about the business. And it's kind of split between historical facts and projections and opportunity and forward looking information. We do research on likely buyers, and identified likely buyers work with our client to get those approved from them. And then we just reach out on an individual basis to those buyers. There's never anything listed. There's never anything publicly available. If you're not on the list, you would have never known that business Scott was being sold. And frankly, if you don't, if you if we reach out to you and you aren't interested in any acquisitions, or you're, you know, you're not focused on on acquisitions of that type, we'll end the conversation and you didn't know why I was calling to begin with, it's a very confidential process. The reason that this works well, for larger businesses, it takes more time it takes more involvement on the advisors. And is that we run a an auction process where unlike that kind of first come first serve, we have all those buyers on the same timeline, looking at the same information, so that on a date certain they all give us feedback. And it's like having, you know, multiple bid or situation for a house, we can line them all up, excuse some move forward with the others. There's gates, later in the process, where we have them rebid. And so you're kind of doing it once and doing it thoroughly and having them all compete, versus taking one at a time serially.
Ronald Skelton 37:26
So you've been doing this for 20 years, is there anything you know, now that you wish you'd have known on day one of starting this whole process?
Jonathan Brabrand 37:34
Um, you know, I've seen a wide variety of businesses, in all types of industries, I think the thing that gets overlooked the most often is the quality of the management team makes a big, big difference. And it's not just the owner, but it's that second tier senior management leadership, that can make a real difference in the multiple and on the depth of buyers that that are interested in your company. And I recognize it's hard as a small business owner to hire, you know, the typically the most well compensated folks in the organization, it's hard to make those hires, sometimes they don't work out. But really focusing on your direct reports and finding the best individuals you can for those roles, will pay dividends when it comes time to exit. And being able to show a team that's capable and and exceptional and has a plan as you were talking about earlier in your example, whether it's a financial buyer or strategic buyer, they're going to look to the quality of the team. And if you're wanting to step back, who's going to fill your role, who's going to take the mantle forward. I think sometimes business owners think strategic buyers don't care about that they they've got management teams in place, and they just need you know, your customer list or you know, your product line or whatever, but they they're thin too they're looking for talent and they they may you know, be able to do some of the overseeing of your business it could becomes a division of their organization, but they still need people on the ground in your facility, running it and they can help with some back office stuff but they need the the key people to keep moving your business forward. So they're looking at the quality of the management team. Maybe just as much as the financial buyers are so really investing in the senior management team I think is something that I've seen make a big big difference over time that's often overlooked.
Ronald Skelton 39:28
So in the deals I mean, in this in this space of you're looking at the deals you got coming across are there there's some what I'm what I'm seeing in the market is there's some real like hot spots. And from a buyer's perspective, I'm kind of trying to avoid them so for instance, SAS right Software as a Service, the multiple done SAS companies good well, random ones are absolutely insane right now, in my view. That's right. So even even the smaller ones, right even the smaller one, the other one or the the Amazon stores, what do they call them FBA or whatever the The Amazon stores, remote, I've got, you know, a few friends that have some of them are offered 1520. So even as high as 30 times their their EBITA multiples, I don't like sell it now before that, you know before it cools off, you can build anything else you want to sell that thing right now everybody's crazy spent overspending for it. So, and for those of you that don't understand what that is, is that multiple 3x or 30x. And from a buyer's perspective, that's how many years it's going to take to return that money. If you if you stay on the path they're on, you're paying three times profit or five times profit, and, and that, or whatever the number is, and the case, we were just talking software as a service. And as Amazon stores, you know, selling products on Amazon, you're talking about a 20 or 30, multiple, you're not making all the money back for 20 to 30 years unless you drastically increase revenue. Right? So it's a very long flies. So are there any other industries like that, that are just kind of crazy hot right now that you know.
Jonathan Brabrand 41:03
So they come and go, and you mentioned veterinary clinics and dentists practices, that might be on the tail end. But that was definitely really, really hot. And, and there's probably some sectors that that continues to be a really good good place to have a business to sell. We've sold a number of businesses in those sectors, and they've done really, really well. Those are businesses that are seen as I mean, fragmented, and that can be rolled up where the economies of scale can be played. And that could be a lot of savings, if you have a core support network that can you know, provide services to a broad geographic set of deliverable, you know, businesses to do to actually deliver the services, home related services, fundamental pest control, that's that and you know, it things in and around the home, plumbing, HVAC, electrical, less construction oriented, more service oriented businesses, even some, you know, chemical treatment for lawns and things like even Lawn Care businesses, believe it or not, things with high degrees of recurring revenue, where you get on a, you know, a plan, and that person just comes and provides that service. And it's sort of on AutoPay those businesses are hot right now, things that weathered the recession, well. You know, what to be leery are things that spikes because of, of COVID, and maybe start to be cooling off. And so, you know, we see businesses that, you know, doubled and tripled their revenue in 2020 and 2021, and want to get a full multiple off that when everybody knows it's coming back to reality. And buyers know that too. And so
Ronald Skelton 42:42
it's like the liquor business. Yeah, the liquor, I was looking at a few, I guess, about a month or two now. And he's like, why are your numbers so crazy and high for the last two years and turn around and they started making hand sanitizer during that time, under another brand, and this same stuff? It's distilled alcohol, or whatever? I mean, they use the same equipment by guest. So it's very easy for them to switch the line and, and make their own line of hand sanitizers. If they're not going to stay up there with those big brands once the shelves are not cleared of them. So
Jonathan Brabrand 43:13
Exactly. Yeah. Yeah. But no, I think there's there's always, you know, the markets that are sectors that are in favor, and those are some of the ones right now, you know, the the trick with those Amazon stores that you mentioned, and we've seen that same activity is, I'm just leery of, when you've got so much of your business that's going through, you know, essentially one channel, you know, a change in their law in their algorithm, or they decide to look at your bestsellers and knock them off. There's a there's risk there. So, I agree with your advice to your friends about Get out while the getting's good.
Ronald Skelton 43:46
It's interesting as I, I had, they asked me, Hey, you're buying business, you want to buy my Amazon store? I was like, I don't. And I just have to tell him, I don't touch anything where a single party can ruin my day. Right? That's right. And I'm in Oklahoma. I'm surrounded by cannabis businesses, but it's not federally legal. So for two reasons. Again, a single party can in my day, right. And the second reason is, is I like to play in these larger team mergers and acquisitions, projects, roll ups and stuff like that. Some of those are international. And I can't put that team at risk as I'm involved with something that's okay locally, that the federal government is MCIS you know, on the hand anytime they wanted to, so I stay away from it even though like there are more like cannabis. You would call it dispensaries between here in my house and there are gas or gas stations and grocery stores. It's insane. I live way out in the boondocks. And from the last point or like I can get groceries I pass three dispensaries before I get home. Right? You know, out in the boondocks I'm talking like you know when it snows I can't get out of my driveway kind of place. I own a little private Valley. But uh, so I get the hot markets and are there what's this like? There are markets out there that just steady they you in and year out, there's always a decent market for them. I'm thinking Home Services probably in that space, right? There's always gonna be somebody out there that wants to grow their business. I know I do. I'd like to turn them all by pest control into like I was telling you about, and a lot of my home services, mainly because if I have a cleaning service, what are the cleaning ladies find when they go clean behind stuff, right? If I've been called to upsell, cross sell, environment, you know, handyman, one of the biggest things I have to do for that for that company is we have to call handyman out to do certain chores, like replace door thresholds and stuff like that, because it's exclusion, keeping things from able to crawl in, is a very valid part of the process. So, you know, strategic acquisitions around that realm of somewhere, I'm definitely doing that. But are there other industries that are just steady, you know, think of probably marketing firms will never like just taper off, because they're people are always going to want to better market their product or grow their own marketing agency by acquiring somebody has developed a talent or skill that they don't necessarily, you know, have yet.
Jonathan Brabrand 46:01
Right? Yeah, well, that expertise, particularly, that's an exact example where that that world is ever changing. And, you know, it's worth paying people the expertise to have the expertise to be able to maximize that environment for their clients, rather than trying to figure it out on your own. So, yeah, I mean, I think that there's, to some degree, there is a case to be made across a wide variety of industries. For all it's, it's finding the businesses that, you know, have a dependent, defensible, competitive advantage, which can be in a lot of different ways, but can be achieved in different ways, you know, recurring revenue, you know, having some competitive moat around it, where it's difficult to be outsourced, you know, or, or sent to overseas, strong relationships, lack of customer concentration, as you mentioned, not having one group ruin your day. But a topic that you touched on that I think is really important I want to just hit on for a second is, is another mistake I see business owners make is poor positioning when they go to sell their business. And what I mean by that is defining the landscape in which your business operates more broadly than you might think, is really valuable. And so, you know, your pest control business could be a pest control business, but it also could be the first leg of a multi leg home services business, where there are all these other Titans. And whether you've done any of the other ones or not defining what your business is more broadly than what it actually does today, helps to plant that seed in the buyers mind, this is something bigger than just a local pest control company. It attracts more buyers that maybe weren't looking for that, but are looking for a multi service, you know, Home Services business, and this could be one element of it. And it helps show them that you've got bigger growth opportunities ahead of you than just simply adding on more of the same. And so it points to that, that opportunities example. And so giving you know that that example can be applied to businesses across the board and being a little bit more creative. You still have to be intellectually honest with how you describe your business. But being more broad, open minded and broad in describing and how you position your business, you get to decide how you you know when the time comes, exit, how you want to describe it, and the broader the better.
Ronald Skelton 48:25
Cool. So I've asked you a bunch of questions. We talked about random topics, one of the favorite things I like to do is say, What should I have asked what what did what, you know, is there anything that's come up in this conversation that you'd like a we probably should talk about that world? Ziza? No, it or? I mean, is there a question that we're skipping over here that I fell to ask you.
Jonathan Brabrand 48:46
The one thing that that maybe would be good to end on is, you know, part of the reason I wrote the book, part of the reason that people like me still have a job is that I think business owners have a lot of misconceptions about exiting their business. And they fall into two polar opposite camps. And I just want to really quickly demystify or debunk both of them. One of the spectrum says, man selling my business will be very easy. I don't have to worry about it. When the time comes, the right buyer will fall in my lap. I don't have to do any preparation for it. I'm not going to think about it until the day I want to retire and I'll just sell it like a house. Maybe it takes 60 days. The answer is it takes six to nine months. But because of that misconception they do none of the things that we recommend people do to prepare. The other end of the spectrum is man, it's so hard. It's going to be super expensive. I don't know what investment bankers do. It kind of feels like they get paid a lot of money. I'm not sure why. And there's this angst and they want to avoid it feels like a big dark cloud. And they similarly do none of the preparation work, and they feel like it's overwhelming. And the answer is it's neither overwhelming nor super easy. And if you find the right advisor to help you through the process assess even well, before you need your want to exit, you will be in much better shape. So just having an egg, you know, all business owners will exit their business at some point for sure. And they may do it on their deathbed, they may do it when the business goes out of business, or they may do it at the peak when all the stars align, but they're going to exit a business some point, rather than avoiding that conversation. Understand it work with an advisor before you need one so that it's an active part of your strategy. Maybe you don't think about it every day, but every year, you might reconsider, where am I? What? How's the business? You know, growing? And how are my exit plans evolving? So that's something you're actively thinking about, just like you would other types of areas of your business and not something that you've stuck away in a corner and trying to pretend like it doesn't exist?
Ronald Skelton 50:51
Awesome. So one of the things I want to make sure we get out there is your contact information and stuff. But also, if, if you've got If people hear this on podcast, and then or listen to watching it on YouTube and stuff, and they have like a business that's ABC, and they want to do XYZ, what is your target market? Is there? I mean, is there something? Like if you've got XY and Z and you're wanting to do this, then you should probably give me a call? Or is there a pretty broad spectrum of what you're looking for? Is there something that you could just tell the audience that, hey, if you got this, I'd really like to talk to
Jonathan Brabrand 51:27
you. Absolutely. So we specialize in working, thank you for asking, with business owners, privately held businesses really anywhere in the US that you know, want to think about. Either they're ready to exit, or they want to talk about a plan to exit at some point in the future. We're in that investment banking range. So typically, you know, 5 million of revenue or more. That's not a hard and fast line. And we know a bunch of great business brokers that if you want to reach out, and you feel like that's the better option to go, you've got a smaller business, I'm happy to help send you in that direction as well. But really people who want to make you know, to get comfortable with this side of their business beside being planning for an exit, or actually, you know, we think the time has come to exit, that will be the way to reach out to us. And, you know, if you think about a timeline, business owner will typically a new buyer or want some type of transition after closing process can take you know, six to nine, maybe 12 months, you got to be you know, is a little bit of preparation before that you got to be a couple years ahead of when you actually want to walk away. And when you start to add up those timelines, so it was really never too early to start to reach out.
Ronald Skelton 52:40
So for your contact information, I have your LinkedIn. Well put that up real quick. Verify that for me. So if you're watching this, you can see his LinkedIn URL. I think though, that's right. If you're listening to it'll be in the show notes to go to whatever app you're you're using Apple or or Spotify or Amazon, we're on on all of them. But if you look at the show notes, the links to contact Jonathan will be in the show notes and the reach. If you want to reach out to me, there'll be there in there also. And then he gave me your email address inside of the inside of the the intake form. Do you want that displayed on here? Sure.
Jonathan Brabrand 53:16
That'd be fine. Okay,
Ronald Skelton 53:17
so this is the email address. It is Jonathan at transact capital calm. And I don't put those in the show notes. So you got to write that down. His name is spelt Jonathan Jao and a tha n at transact capital calm. And the reason I don't put those in the show notes is the spammers can actually scrape them out of there if it's in clear text like that. So I'd rather not get a bunch of junk from because we put this all in the show notes, but i It'll be on the video. You can go to YouTube, watch it on there, it's actually posted on the screen. Or you can rewind, listen to that a couple of times. Again, it's Jonathan spelt Jon a tha n at transact capital calm t r a n s AC t capital.com. So I appreciate you. Is there any parting notes? We're getting close to the hour here? Is there anything you want to say to the rest of the world hear?
Jonathan Brabrand 54:15
No, thank you. It's gonna sound like sound like a shameless plug. But whether it's me or someone else, when you come time to exit your business using advisor you know, just like you would for a real estate transaction don't sell on your own. Find an expert that can help you do you want to do it once you want to do it right and so find an advisor that you trust that can help take you through the process.
Ronald Skelton 54:35
And I'll second that if I'm looking at something and you don't have all your last three if you don't have a package together to show me like who you are as a business. Your last year your financials, profit and loss statements. Kind of your plan where you're where you were planning on going if you don't have all that it drags the process down. So if you're working with an investment banker, and you guys have got what they call a deal room or an exit package or something for me just look through real quick I can put together a team fairly quick to analyze a deal. If the information is there. I walk away from a lot of stuff it's not it's not really super sexy, money wise, or just intriguing. If you don't have your act together, I won't even look you know any deeper. And I know a lot of my guys that I work with and, and talk to you, they're the same. So that advisor is going to make a world of difference in getting people who are, you know, wanting to put together a team to actually buy your business. So, I appreciate you having having you on here hang out a couple seconds after I end the live stream. And thanks for having me. It was fun. The investors and entrepreneurs professional mastermind. The investors and entrepreneur festival mastermind combines that additional peer to peer mastermind interviews first in Napoleon Hills famous book Thinking Grow Rich, with accountability partnering, where your peers help you ensure that you set goals take action and get results. If you want to scale blow past roadblocks and achieve success faster than you might think possible. I suggest you take a visit over to tiepm.com that's tiepm.com and check out the investors and entrepreneurs professional mastermind