Insights

  • No Significant Drop in M&A Activity During This Recession 
    POSTED 4.28.20 M&A

    We are entering into a serious recession due to the ongoing worldwide pandemic. The economy has taken a big hit, and it’s not over yet. But I see opportunity out there, especially in the M&A world.

    Let’s put this in context first. Think back to the last recession – The Great Recession of 2008/2009.

    There were lots of opportunities for businesses back then too, but there was no money. This time around, thanks to conditions prior to the downturn, there is plenty of dry powder available, not to mention very favorable lending terms.

    Will there be opportunities to invest and acquire? We expect and hope, but we’ll see for sure soon enough.

    Pace of Deals Now Versus What’s to Come

    It’s true that currently the pace of deals has fallen off a cliff. Deals are not simply being delayed… but actually cancelled. That’s bad, of course, and it has people worried. But conditions are already shifting.

    We’re moving from a Seller-friendly market to a Buyer-friendly market. Like everything else in the near term, prices will be coming down.

    As a Seller, you may have had a potential deal in the works. But, due to recent events, the Buyer is reluctant to move forward. Understandable, given it’s a time of uncertainty. And, many Buyers are reevaluating and focusing on other priorities. On the upside, if the price comes down low enough, Sellers in a bind will have other suitors. It’s a Buyer-friendly market, after all.

    Why PE Firms Are Sitting Pretty

    In this environment, PE firms have the advantage. PE firms may have been more aggressive price-wise in the recent past, while Strategic Buyers were spending more freely. Now the tables have turned. Strategics will be less aggressive while looking at takeover targets because in the near term they’re trying to protect as much cash as possible.

    This opens the door for PE firms and other financial Buyers to make lower offers and pick up those targets themselves (and then sell them later for a premium).

    This is all set against a backdrop of declining valuations.

    Some of these target companies have had recent valuations of seven to 10 times EBITDA. Just a short time ago, they were valued at 10 to 15 times EBITDA. A company with $10M EBITDA was being targeted at $100M to $150M. Now that the price tag has dropped below $100M, there are a lot more interested Buyers. That’s one of the reasons this looming recession is still a good environment for M&A. And, as I mentioned, it’s a Buyer-friendly market… especially for financial Buyers.

    A Foundation for Continued M&A Activity

    Despite this pause in our economy, let’s look at the underlying forces that support robust M&A activity:

    There is a lot of dry powder among buyers, specifically financial buyers.

    Sellers were demanding record high valuations – and getting what they wanted. Those valuations will be coming down because we are seeing fewer Buyers. This gives remaining Buyers more leverage.

    Financing costs continue to be low.

    The dynamic of aging owners and founders that want to exit.

    Continued digital transformation and tech disruption in every industry. Companies have to upgrade their tech at some point with regards to IT security, cloud computing, and more. Those lifecycles and disruptions will continue.

    These market conditions are out there, no matter what… despite COVID-19.

    That’s why I think that once we have falling metrics regarding the spread and impact of the coronavirus and a stable stock market for three weeks, we’ll be right back in business, and M&A activity resuscitated. Spring has come.

    Another factor to consider is that there are a lot of distressed businesses out there in industries like transportation, restaurants, hotels, retail, etc. There are a lot of capital raises out there now – funds set up to go after good – but currently distressed – acquisition targets.

    How R&W Insurance Fits In

    Under these current conditions, I see Representations and Warranty insurance as being a very favorable benefit because it factors into a few areas:

    If a Buyer has more leverage in a deal, they will impose broader Reps and Warranties and other conditions. If a R&W policy is covering the deal, the Seller doesn’t really need to worry about more Buyer-favorable terms because it’ll be insured anyways. (A caveat: Underwriters are still conducting normal due diligence in these cases. They are not lowering the bar or loosening eligibility standards.)

    Cash is still king. Getting R&W insurance means Sellers get more cash at closing and don’t have to worry about money being tied up in escrow for a year when they have to satisfy creditors or wish to invest elsewhere.

    In distressed acquisitions, M&A Buyers need R&W coverage because often they don’t buy whole companies, just the assets. And the Seller may not have a choice. Having R&W is kind of like having protection for those assets if the Buyer has done diligence, but they are later compromised unexpectedly.

    Without R&W coverage, the Buyer has no recourse to go after the Seller because they already took the funds to pay creditors. R&W insurance is the backup. Whatever dollar amount it cost for the policy… it’s more than worth it in those cases.

    The longer a deal sits and doesn’t get closed, the greater the chance it will fall through completely. R&W insurance will accelerate negotiations all the way to closing.

    Next Steps

    It remains to be seen for sure, how this pandemic will impact the economy as a whole, and M&A activity in particular. But I feel confident that we’re shifting to a Buyer-friendly market and smart Buyers will take advantage of this opportunity.

    In that case, it’s more important than ever to get Representations and Warranty insurance to cover deals for the protection of both Buyer and Seller.

    If you’d like to discuss coverage, please contact me, Patrick Stroth, at pstroth@rubiconins.com.

  • Codie Sanchez | M&A In The Cannabis Industry
    POSTED 4.21.20 M&A Masters Podcast

    We have a very exciting show for you this week! In this episode of M&A Masters, we’re joined by Codie Sanchez, the managing director of Entourage Effect Capital Partners and one of the most sought out speakers in the cannabis business.

    Entourage Effect is a unique private equity firm as it was the first to focus exclusively on the cannabis industry. Since 2014, Entourage Effect has invested over 100 million dollars in over 40 companies!

    We’ll chat with Codie about how she got into the cannabis industry, what sets Entourage Effect apart from other private equity firms, as well as…

    • The entourage effect
    • What potential investors should ask about cannabis
    • The way cannabis is viewed as an investment
    • What makes cannabis different than other agricultural products in terms of due diligence and the M&A process
    • Entourage Effect’s ideal target market
    • And more

    Listen now…

    Mentioned in this episode:

    Transcript

    Patrick Stroth: Hello there. I’m Patrick Stroth. Welcome to M&A Masters where I speak with the leading experts in mergers and acquisitions. And we’re all about one thing here, that’s a clean exit for owners, founders and their investors. Today I’m joined by Codie Sanchez, managing Director of Entourage Effect Capital Partners, a very unique private equity firm which was the first to focus exclusively on the cannabis industry.

    Since 2014, EEC formerly known as Cresco Capital Partners, has invested over 100 million dollars in over 40 companies. Codie is one of the most sought out speakers on the business of cannabis so I’m thrilled to have her with us today. Codie, welcome and thanks for joining us today.

    Codie Sanchez: Wow, thank you for having me, Patrick. Lovely, since I’m working from home this week, like everybody else, this is a perfect opportunity.

    Patrick: Gotta love technology here. Now before we get into EEC and Canada’s overall type of industry, how did you get to this point in your career? Because it’s got to be a great story.

    How Codie Got to This Point In Her Career

    Codie: Yeah, well, I don’t think very many people wake up as a young teen and decide that they want to go be in drug financing, so I’ll tell you that it wasn’t my high school counselor that I talked to about this. I really started out my career as something completely different from finance. I was actually a journalist. I worked on border issues along the US-Mexico border, particularly narco-trafficking and human violence and atrocities along the US Mexican border.

    And so I did that for a few years. And then as one does, realized that it’s really not enough to shed light on people’s stories and to raise awareness. I wanted to make some real change. And it seemed to me like the way to make actual change was to go to where power flows from. Which, at the time, I started to realize was largely monetary. He who had the biggest checkbook made the biggest changes in society.

    And so with that, I sort of pivoted my journalistic focus and moved to finance and kind of worked my way up some of the larger companies in the financial realm. Everybody from Vanguard to Goldman Sachs to State Street until my last firm where I ran our emerging markets division, specifically in Latin America. And that’s when I really started getting interested in these nations and emerging markets. We did really well in Latin America. And so when I was exiting that business, I was looking for what was the next nascent and emerging asset class.

    First I was looking at it from a profitability standpoint and where did I actually think we could make more money on, from an investment standpoint, and then I was looking at it from a standpoint of where you can make an impact. And I sort of lucked into cannabis by feeding this first fund back when we were Cresco Capital Partners in 2014. And tracking in the cannabis industry from there. That’s when I saw how profitable this industry could be and the sort of what we call generational wealth opportunity.

    And then secondly, I’m actually married to a military man in the Special Forces. And so I saw the impact that it had on veterans with PTSD, which we’re very involved with. And so that got me really interested in it from a societal standpoint.

    And from a total return standpoint, it made me comfortable enough to take the leap and actually make moves in this industry that was capital-starved, had a huge latent demand within it, was over-regulated and also had a large amount of innovation coming from the proliferation of products from both cannabis and hemp.Patrick: When we think about context of time with this 2014, California probably had medical marijuana legal. Had they gotten direct recreational by then?

    Codie: No, they had not gotten to recreational yet. So, you know, at that time, this really looks like a big risk. Not to mention the fund was actually headquartered out of Texas, which certainly loved its veterans but was not interested and still hasn’t made major moves on the cannabis front.

    Patrick: That’s really prescient being able to, you know, be ahead of the curve there and see where it is because it’s easy falling back today and being able to predict expansion of this industry. But, you know, six years ago, that’s something, is really, really prescient there. But with the focus exclusively on cannabis, that’s not too much different from other private equity firms that may be focusing on a vertical as well. Other than the exotic vertical that you have, what is it that sets EEC apart from other private equity firms?

    What Makes Entourage Effect Different From Other Firms?

    Codie: Yeah, so first and foremost, it was certainly originally that we were in cannabis. And I was not dissimilar from many institutional investors at the time. I had only really worked with pensions, sovereign wealth funds, endowments. And at the time in 2014, I wasn’t public with my engagements in cannabis. I invested as a passive investor.

    And, you know, continued to do that through the GP up until 2018, when I actually went public and became more comfortable with the legal ramifications of that. But it certainly took me a while. Matt Hawkins, our founder, was the one who took a lot of the early risk, was putting his name out there. That, I think, has pretty much gone by the wayside. When we talk to investors there aren’t very many any longer that are worried about legal ramifications. So that has changed wholeheartedly, even in a couple of years since I’ve been full-time focused on this business.

    And so, you know, that’s one of the big differentiators is one, we know where all the bodies are buried because we’ve been in this game a long time and it is still a cottage industry where you can pretty much reach out and touch about any of the major C suite executives across the industry if you’ve been in it for a few years. But the biggest differentiator, in my opinion, is that we really have been preparing for this moment. Did we expect a pandemic?

    Absolutely not. I wish that we were that forward-looking. But what we didn’t expect was a major valuation reset in the cannabis market. We thought the market was simply too expensive back in 2018 and 2019. And so we started structuring our terms more like a distressed investor with a lot of financial oversight with the ability to take over companies if milestones aren’t achieved with larger check sizes coming out and that has just accelerated for us as we continue to launch new funds that are focused exclusively on distressed opportunities.

    I haven’t seen in this industry, very many true distressed and turnaround experts. And thankfully, we have a few on our team. Tiffany Lifs and Joe Blizeddie are the two that came on to really head up this segment of it that are from some of the bigger distressed shops in private equity. And so this ability for us to get into a, you know, generational wealth creation event industry like cannabis, it’s growing at a 25% tagger.

    Right now with Coronavirus hitting, the industry from a sales perspective is up anywhere from 100 to 160%. It’s a vise industry which is, has some, you know, historical insinuations of being recession-resistant. And then on top of that, it experienced about a 90% downtick in the valuation of public stuff which trickled to private companies. And so if we can take advantage of those distressed companies to do turnarounds, like we have in a few of our portfolio companies, I think that we’re positioned probably similar to how some of the big PE firms were positioned post-2008 that had capital to deploy.

    Patrick: Well, I think you’re bringing in both the resources and the commitment to this sector. I mean, 40 companies investment in the last few years, probably more than that now, but you’re definitely walking the walk. Talk about the element that you and I discussed earlier about the entourage effect. It’s more than just some series from Showtime. What is the entourage effect? And how does that encapsulate what you guys do?

    What Is the Entourage Effect?

    Codie: Well, yeah, thanks. I mean, I think it’s probably apparent that we’re all finance nerds and not exactly marketing geniuses because you would have laughed if you listened to any of our phone calls about changing our names once we had merged our two companies together. There’s another large cannabis company in the space that we’re friends with called Cresco Labs that we kept getting confused with.

    And so we changed her name to Entourage Effect and it turned out to be kind of perfect because what it means, this is a medicinal term in the cannabis realm, which means that the whole is greater than the sum of its parts. And so there’s this odd effect in cannabis within the plant where, if you know much about it, inside of the cannabis plant are things called cannabinoids, and these varying cannabinoids up which we haven’t even charted all of them, but there are upwards of 60. When they come together, you have an effect that people talk about in the cannabis plant that helps with let’s say, nausea, or it might help with inflammation or it might help with sleep or anxiety or all the things that people use cannabis for.

    And what we found Is cannabis, very interestingly, if you were to pull out one of the cannabinoids, like THC, that’s the psychoactive portion of it is a cannabinoid, CBD nonpsychoactive, now more mainstream, is another cannabinoid and you were to use both of those independently, the effect is not as strong or comprehensive as when you use the whole plant. And that is what’s called the entourage effect because it has all those 60 cannabinoids in there working together to do more for you than if you took any one of those cannabinoids individually.

    Patrick: And tell me how the entourage effect works for one of your portfolio companies.

    Codie: Right. So the way we thought about this from a venture capital and private equity perspective is the Japanese have a thing called karatsu. And this has been sort of brought over to the VC landscape which is kind of like a gang of people that all get together and they help one another as a grouping of companies create unfair advantages. And we think about our entourage as stuff like that as well. We’ve actually invested now in over 64 companies.

    And one of the benefits that companies have when we invest in them as let’s say we give a company $10 million. They certainly are happy, yes, perhaps about that. But one of the other advantages is those 64 companies that we’ve invested in, they are many of them now the largest names in cannabis. And since the ecosystem is one-modded, so you can’t have out you know, external forces coming in and playing in cannabis yet due to a federal illegality, those 64 companies play a huge part and are very interconnected in the ecosystem.

    And so for instance, we have a company called Sublime. They have a product called Fuzzies. It’s one of the top pre-rolls, or is the number one pre-roll which is a pre-rolled join in California. And this company when we invested in them, we put in the capital, we helped them from an operating standpoint, we did a bit of a turnaround with some efficiencies inside of the company.

    And then we went on to introduce them to our largest MSOs and vertically integrated company, which means companies that are dispensaries, so they’re the ones that are the retailers giving out the product to consumers. And we were able to take those Fuzzies into some of the biggest retailers in space, and we can immediately add millions of dollars to top-line revenue by engaging them within our portfolio company ecosystem. And those companies are willing to put those products on their shelves because we continue to fund them. And so it’s a beautiful unfair advantage that happens when you become an EEC company. And the same thing is true of ancillary services as well.

    Patrick: Yeah, you just get all that automatic infrastructure and channels open that otherwise weren’t accessible and it’s all established. I think it’s also impressive that, particularly on the turnaround side, you’re not dealing with exclusive cannabis people that have worked in cannabis that know turnaround or finance or some for cannabis. You’re funding financial experts, turnaround experts, legal experts outside that we’re doing things for larger institutions. And they’re taking that skill set and that knowledge base and bringing it to bear on this underserved market.

    Codie: I think that’s crucial. Yeah. I mean, if you were to look at some of our chief restructuring officers that we bring on board, or, you know, the CEO of a company like Sublime has, his background is in semiconductors and also a time at Amazon and rolling out the Kindle. So we’ve sort of moved to professionalize some of the management in the industry, paying homage to the institutional knowledge that comes from those that have been in it for a long time. But onboarding those who have worked at the largest, most efficient companies out there.

    Patrick: Explain how cannabis is viewed as an investment. What do you think of it you know, what should potential investors think about cannabis?

    Codie: Sure. Well, I mean, I think one of the best ways to think about it is if you’re looking to invest in a private equity fund or a venture capital fund, you first look at the math, right? So if you were to replace cannabis with the word widget and you were to say that you have an industry that is doing 25% tagger, or average growth each year, it’s been doing that for the past six years, that you have a 200% increase in consumer adoption year over year that in this pandemic, let’s say, it’s listed as now an essential service right up there with doctors and grocery stores and gas stations.

    And in tandem with that, you have an industry where capital is nowhere near a commodity. The industry is completely capital-starved and so investors get to drive the terms in a way they never should be able to with an industry that’s doing double-digit growth and it’s the number one employer, actually in the US, for the past two years from a new employees growth perspective. And so

    Patrick: Yeah, that’s not getting reported.

    Codie: Yeah. No, it’s not. It’s actually, if you Google it, you’ll see Codie’s not making it up. But you can see there’s a couple Forbes articles that show you about eight to 10,000 cannabis jobs are being created a month. And those actually are not reported at the federal level because of the illegality. So if I was just to tell you those numbers, and I didn’t tell you cannabis, you’d probably be thinking and that’s really interesting. What industry is this?

    And we should probably have some exposure. And if I was then to tell you, oh, by the way, the industry just had a massive reset, in which it is down 90% from its highs across the board, and is now trading at a very standard, let’s call it consumer staples, consumer discretionary level, but people would be stampeding into this industry. But the beautiful part for us and for other investors is that the big boys can’t invest yet due to vice clauses and the legal status.

    And so we can invest now but to be frank, you know, Patrick, I think I’ve got two or three more years left of this because if, you know, if governments are willing to list cannabis as an essential service right now during a pandemic, how much longer can they say that it should be federally illegal?

    Patrick: There’s something that makes cannabis different as you’re looking just from an m&a perspective. So we’ll talk about that. How, what makes cannabis different from other, you know, other ag products or other businesses in terms of either diligence or whatever you have to go through for an m&a process?

    Cannabis Is a Diverse Commodity

    Codie: Yeah, well, one, I think it’s important to say you’re not wrong by saying that some parts of cannabis are, you know, an ag type product or a commodity. You know, in fact, flower prices continue to decline and that’s all baked into our models. But the part that I think is important to look at is, you’re not really looking to make your margin on the individual flower, which is what we think of as the cannabis products, they call it flower. And that’s when it’s just in its raw form that you go and smoke with or cook with, or whatever the case may be.

    But that segment of it is a commodity and is agriculture and is declining from a margin standpoint, no doubt about it. The part that’s really interesting, though, is that as we move, you know, downstream towards the consumer and away from the actual growing of the plant, that’s where you pick up all your margin. And you pick it up and things like brands, and retailers and all of this is very similar to consumer staples or consumer discretionary or alcohol or tobacco. And so that’s one differentiator. And then you also have an industry in which it takes consumer goods, right?

    You can, it also touches beauty because the cannabinoids such as CBD are now proliferating around beauty products. The third aspect it touches is nutraceuticals. So people are using different types of cannabis plants in order to not do medicinal changes to their bodies but to do some changes from a nutraceutical standpoint like a vitamin.

    Then you have the medicinal component of it. GW Pharmaceuticals, billion-dollar-plus company which uses a derivative strain of THC to deal with one type of medical issue. So we have, you know, pharma and medicine. And then you add on top of it the fact that hemp and cannabis, the actual plant itself, the fibers and the stocks can be used for everything from construction departments to clothes and even Levi’s. Levi’s, for instance, is making you know, hemp jeans. And so it really goes across a, I wouldn’t say majority but quite a slew of sectors in order to have impact.

    Patrick: You are having members of this industry, still to this day, coming out of the shadows, and they need somebody to help, you know, walk them through that process I imagine.

    Codie: Oh, absolutely. I mean, the due diligence in this space is one of the most critical aspects of it. And you just have to assume, you have to assume that every rock needs to be overturned, that most of the books and records are not going to be complete in and of themselves. If they are complete, they’re probably not done exceptionally well. And, you know, many of the providers, for instance, couldn’t tell you by individual view, what is the margin that they make on each of their underlying products.

    And so there certainly is a level of sophistication that has to come into the industry. And inside of that chaos lies the opportunity for those that are diligent. You know, if you’re wanting to come in and make quick, fast money. cannabis is not a great place. But if you were wanting to come in and you have expertise in other similar industries and an ability to do financial modeling. I mean, we’re not talking about really complex Silicon Valley, you know, let’s say advanced data collection or AI. We’re talking about a better than industry with some of the highest margins out there.

    Patrick: Who’s your ideal target now for EEC. What are you guys looking for?

    What Entourage Effect is Targeting Now

    Codie: So from a company perspective, what we’re really doing right now is we are 100% focused on growth equity. And so no longer are we investing in companies that are seed stage, or really early stage because the capital is so needed, that we can de-risk our investments quite a bit.

    So when we go on the market right now, what I’m looking for as a company that’s doing 10 plus million dollars in revenue, that has some distressed aspects to them or a real need for capital where we think that we can come in and they’ve already found their product market fit, they just haven’t made it incredibly efficient. They perhaps need some professional management on top of it, and they need capital yesterday. And in those instances, we can really provide huge value and turn around a company to profitability with a quite impressive speed.

    Patrick: Well now return over to the business of cannabis. Just as and, you are as of this time right now, one of the foremost thought leaders in this space, that’s why we’re very, very excited to have you here today. What are you seeing? I’m glad also that we’re not having this conversation two months ago because I’m sure it’d be very different from today.

    But what do you see as a first-quarter 2020 in the beginning, hopefully, the middle innings of this Coronavirus pandemic. But what do you see for the cannabis industry, either segmentally, product wise, whatever, for the future in the next 12 to 24 months? You did mention something about valuations. But give us a, give us your picture.

    Codie: Yeah, I mean, I think every single industry that can be disrupted will be disrupted in the near future. And I think that cannabis is no different. And so what I would expect is more pain. You know, this industry and every other industry is at an unprecedented place today and that is that the economy has officially really stalled. And even though cannabis sales are up, eventually as jobs continue to be furloughed or people are fired, nobody’s going to be spending. And so in my two cents, we have a really unique opportunity right now to take advantage of the fact that there are going to be distressed companies left and right that cannot continue operations by themselves.

    That means we are going to come in and we’ve been building a war chest specifically to do this, to take over companies that are in this position and make sure that they can weather the storm and build platform companies that are big enough to while everybody else is buckling down, they can start to sprint. And so what do I expect? I expect not much different than what most economists do, which is that we are going to have a very severe sort of V that’s going to happen in the economy.

    And that next quarters GDP numbers are going to be probably some of the worst numbers ever. And the only difference I think that I see is I don’t think the government will continue this for months and if I’m right about that, then we will see more of a V-shaped recovery and these companies will do incredibly well on the upside. And so that’s kind of what we’re preparing for. We’re putting capital to work and markets like this with companies that are at bottom-level valuation and making sure that they have enough capital to buy for the next 12 months and to really sprint as we get out of this unprecedented period.

    Patrick: What can you tell us about products? Anything in the research development area on products?

    Codie: Yeah, I mean, there’s a couple different things. One, there’s, this is a little bit specific to cannabis, but there’s a company called Cellibre that we invested in. They’re a biosynthesis company, I definitely think they’re worth a look. Biosynthesis, essentially is, you know, for you guys, if anybody else does, say fish oil products, or krill oil products, and you think you’re getting fish oil on this little tablet.

    What you’re actually getting is a synthesized version of fish oil that is created using a strain of algae. And Cellibre, which is a portfolio company of ours, is doing something very similar with varying types of plant strains to create different cannabinoids from THC to CBD to CBG to BGA. And if you can imagine that it costs you one-tenth, let’s say, to synthesize in a lab, the same amount of THC or CBD as it does for you to grow it.

    You can see the opportunity herein. We think that Cellibre actually is multiple farther along than one 10th the cost with a level of consistency in the product that’s pharmaceutical grade, which means if they do what they say that they’re going to do, companies like this biosynthesis company could be some of the biggest wins we’ve had in the portfolio thus far. So that’s on the science biotech side. The other side, you know, everyday users can think about are the, you know, edibles. The different way that we consume cannabis is fascinating. You know my 93-year-old grandmother has arthritis.

    She uses creams from some of our portfolio companies at Harbor Side and Urban Leaf in California to help with her arthritis. You know, we have many of the moms that are investors of us or partners of investors, of EEC who used edibles from a company called Thunderstorm. They have these edibles called Kanna that are microdose very, very low levels of cannabis that help people sleep and with anxiety. So these edibles are going to be the future of cannabis, in my opinion. It won’t be smoking flower, they will be there but we won’t really consume cannabis in either drinks or edibles in the long term for the mainstream of people.

    Patrick: That’s a lot to think about. That is just amazing. And really what I wanted to hear and to share with our audience today is just coming into this topic in this subject, speaking with you opens up to all these other areas we didn’t even contemplate. So it’s very, very exciting. Codie, how can our listeners find you?

    Codie: So I think the easiest is probably if you want to hear more investing and market news that would be LinkedIn. I’m just Codie Sanchez, CODIE Sanchez, SANCHEZ. If you want to follow along to some of our portfolio companies, I’m probably more active on Instagram with that, which is the. Just my name. And then if you want to learn more about the fund family in our firm, it’s entourageeffectcapital.com

    Patrick: Codie, thank you very much for just an action-packed 28 minutes and really appreciate it. I look forward to speaking with you again soon.

    Codie: The pleasure was mine. Thank you, Patrick. Hang in there with all this craziness.

    Patrick: You do the same.

  • The Future of Cross-Border Acquisitions
    POSTED 4.14.20 M&A

    Since last year, trade tension between the U.S. and China, as well as other countries, has been at a high-level. After the signing of the so-called Phase 1 trade deal with China earlier this year, that feeling has slackened somewhat, although the full, final deal is still being negotiated.

    As part of this deal, China has agreed to buy more American agricultural goods, as well as oil and gas, pharmaceuticals, and other manufactured goods. Yet U.S. companies are still looking for alternate supply chains and manufacturing hubs. For example, Apple has been seriously looking at moving at least some operations to South Korea.

    This is not the only impact.

    Many companies are signaling that ongoing global trade disputes like this one – and the uncertainty they bring – will continue to influence their M&A strategy going forward. (The impact of the coronavirus pandemic remains to be seen.)

    In a survey conducted by Deloitte and highlighted in their The State of the Deal: M&A Trends 2020 report, 40% of respondents (which include Strategic Buyers, as well as PE firms) said trade disputes would not change their M&A strategy. But it’s important to note that 30% of those surveyed said they would focus more on domestic deals instead of going overseas for acquisitions.

    PE investors in particular are worried that tariffs will have a significant and harmful effect. 70% of those surveyed in the Deloitte report said that “tariff negotiations are having a negative impact on their portfolio companies’ cash flow.” The same percentage felt tariff troubles were harming portfolio companies’ operations, too. That’s compared to 55% and 58%, respectively, in 2018.

    This decline in M&A deals abroad is not new and not tied to the coronavirus impact on the economy. As I wrote in March 2019:

    “Cross-border activity decreased in 2018, hitting the lowest level in four years, continuing a trend that started in 2017. There were only 2,192 cross-border transactions worth $655.6 billion in 2018, compared to 2,983 in 2015. There are a few factors at play here:

    • Global trade tension
    • Tariffs
    • Anti-Trump rhetoric
    • A push for anti-globalization by the U.S. government, as well as other countries, i.e. protectionism
    • Brexit, which has caused European companies to be cautious to spend on acquisitions
    • Potential recession in Germany and France (based on economic indicators)

    All of these factors are still at play.

    As we reported earlier this year, M&A activity is expected to hold strong in 2020. But U.S. companies and PE firms will be looking at domestic acquisitions more than cross-border deals. This was true before the coronavirus and now is even more so as the pandemic spreads across the globe. You can’t ignore the impact from interruptions to manufacturing, trade, and economic activity from interruptions like this.

    This negative impact also creates even more uncertainty surrounding emerging markets, where U.S. companies are increasingly hesitant to invest.

    The other problem is that already emerging markets were already more risky investments than they had been in the past, with companies earning less and less returns.

    There is a caveat here.

    Look for increased M&A activity where U.S. companies invest in European Union acquisitions, excluding Germany and France. It will be Italy and Spain instead, because they have smaller companies, i.e. small targets. European companies are being adversely affected by Brexit and that will make them ideal value opportunities for U.S. acquirers.

    With smaller deals happening domestically and internationally, insurers have responded by offering Representations and Warranty insurance for those under $15M to $20M in transaction value.

    For more information on this specialized type of insurance with a host benefits for Buyers and Sellers, you can contact me, Patrick Stroth, at pstroth@rubiconins.com.

  • Tash Meys and Viv Conway | Instagram vs. Facebook. Which One Wins?
    POSTED 4.7.20 M&A Masters Podcast

    In today’s episode, we sit down with Tash Meys and Viv Conway, who provide consulting and execution services dedicated to fast-tracking a company’s Instagram growth and engagement.

    “I think if you’re not using social media, it can be overwhelming with which platform to choose,” says Tash, when asked about what Instagram is and how it’s different from other mediums.

    We’ll talk with Tash and Viv about how to learn about Instagram, why Instagram is an important business tool, and…

    • The true difference between Facebook and Instagram
    • How to create trust and engagement with your brand on Instagram
    • Why Instagram is great for targeting individuals in the financial sector– such as private equity, brokers, investors, and business owners
    • Why you need an ideal client profile
    • The impact of good content, as well as…
    • The importance of monthly analytics

    Listen now…

    Mentioned in this episode:

    Transcript

    Patrick Stroth: Hello there. I’m Patrick Stroth. Welcome to M&A Masters where I speak with the leading experts in mergers and acquisitions. And we’re all about one thing here, that’s a clean exit for owners, founders and their investors. Today I’m joined by Natasha Meys and Vivian Conway, better known as Tash and Viv, founders of Ace the Gram. From their home base in New Zealand, that’s right The country in New Zealand, Tash and Viv provide consulting and execution services dedicated to fast-tracking a company’s Instagram growth and engagement.

    Now, what excites me about this entire subject is this challenge that all business owners have, not just emerges and acquisitions, but attorneys, bankers, private equity. The challenge is how can you separate yourself, your firm and your message above all the others and cut through the clutter to distinguish yourself to your ideal clients. And so we’re always interested in finding new tools, or new processes or new platforms.

    And this is one that, you know, I didn’t think about, but contrary to conventional wisdom, Instagram isn’t just for millennials. Business owners right now are racing to find ways to better connect their customers, prospects, as well as colleagues and influencers through this most powerful new social media platform. So Tash, Viv, thanks for joining me today and welcome to the podcast.

    Viv Conway: Thanks for having us. Patrick. Very happy to be here.

    Tash Meys: Yeah, thank you so much for having us. We’re excited to chat about all things Instagram marketing today.

    Patrick: It’s got to be eye-opening, to say the least. Before we get into Instagram, and, you know, Ace the Gram and other Grams that might be in the discussion today, why don’t you tell us about yourselves. Also do identify you know, which one is talking every now and then so we can get a feel for that. But tell us how did you get to this point in your career?

    Tash: Yes, sure. So for reference, it’s Tash currently talking.

    Viv: And this is my voice. I’m Viv.

    Viv and Tash Taking Instagram By Storm

    Tash: So we started our business Ace the Gram about four years ago. We met when we were studying at Otago University, which is in New Zealand. We’re actually studying Food Science at the time. But Viv began a sportswear label, a sportswear brand. And she started using Instagram to market that business. And she was finding that she was getting a lot of website traffic and a lot of orders from Instagram from people finding her brand on Instagram. And simultaneously, I was starting a creative account on Instagram where I could showcase my photography and my healthy food and recipes.

    And so gradually, that became what some people call an influencer account and I was doing collaborations with various brands. And Viv was getting more sophisticated with her Instagram marketing techniques for business. And then we kind of went down the line a little. We were consulting a lot with each other. And we started taking on clients and helping them do what we had done for our pages for their business. And then eventually, we combined and then four years later, it’s kind of been a crazy journey. But yeah, we’ve learned a lot.

    Patrick: And Viv, you want to throw in anything?

    Viv: Yeah, no, I normally let Tash give the backstory there. And I suppose Yeah, just does make us unique coming from that brand and influencer point of view. I think that’s what a lot of our clients enjoy about the way that we work with the general understanding of how it works from both sides in terms of collaborations. And I think as well, one of the favorite things about what we do is we’ve worked with such a range of industries.

    So from, you know, real estate agents, to consultants, to product business owners, to events companies, every Instagram strategy is so different. And we tailor an Instagram strategy exactly for the company because that intention is really different. So we really like, you know, the creative way that you have to think of different strategies for each specific industry or company.

    Patrick: A lot of us aren’t real social media savvy right now. We’ve just either by choice or intimidation or whatever just haven’t gotten into using social media as, you know, the younger folks have. Do me a favor for the audience, describe what Instagram is, how it’s different from some of the other social media platforms. And then also, if you could talk about what are influencers and some of the other jargon that’s out there, relative, that would help us as we learn more about Instagram?

    Viv: Yeah, great question. I think when, you know, if you’re not using a lot of social media, it can be really overwhelming with knowing which platform to kind of choose. And it really depends on where is your audience? Where do they spend the most time? You might find that your audience spends a lot of time on Twitter or Facebook. But Instagram has just hit more than a billion monthly active users.

    So which is a massive number and it just means that your audience is on the platform. So it’s about in our position, how can we get in front of our audience because we know that we’re, that they’re there, and they’re using the platform. We’re seeing some different platforms come out at the moment with the gen z really leading the charge around the Tik Tok sort of era at the moment, but a lot of people are still, you know, advertising on Facebook with pay to play because people are still there and so on.

    Tash: Yeah, so I think the differences between the main platforms, and so Facebook actually owns Instagram, they bought them quite a few years ago now. And Facebook’s more for information and, you know, to your friends with all your friends and family. You might like a few business pages, but Facebook is different now because to create any impact as a business on Facebook is pay to play.

    So you won’t be shown to that audience and who likes your business page on Facebook without paying. And you’re gonna get shown into I think 0.01% of those organic reach at the moment, whereas Instagram is a more visual platform. So it’s more about the visual content that you’re putting out. And you are on a level playing field with a normal user. So if you have a business account, you’re shown an algorithm to just as many people as a personal account would be.

    And so we’re seeing that because you’re not getting penalized for that and because Instagram has such a high engagement rate, which means various people using the platform tend to action more than other platforms. So for example, all you can do on Instagram is scroll down a fate of images and like or comment as you go or watch stories.

    And that means that the engagement on the platform is really high because they’re laser-focused on this one piece of content at one at a time, which can be super powerful for brands. And a picture speaks 1000 words so when a brand has a grid of images that, you know, display, they came messages in visual form, and then they’ve got some captions and some other assets to back that up, then that can be amazing for, you know, a business’s messages and to show those messages to their target audience.

    Patrick: Well, the goal for business owners, and I’m coming from the platform of LinkedIn, which is the more business CD’s resume display out there and it’s amazing how many people are on LinkedIn that don’t even have a picture, which is a tremendous, you know, hurdle for a lot of people to deal with. But, you know, the goal for business owners right now is to get out there and they want to develop trust, and then also create sustainable relationships with both clients and I guess centers of influence is what we used to call our influencers. How can that be accomplished in Instagram? How does that work?

    Building Trust and Sustainable Relationships on Instagram

    Viv: Yeah, that’s a great question as well. We was having a chat with. I’m not sure if you’re aware of Sabrina Phillips. She’s a woman’s business coach. And part of what she talks about a lot, and she talked about it on our podcast a little bit was that, you know, a website can only say so much. And it can be often static. But the thing about social media and the thing about Instagram in particular, is that you can give people insight into more than just your services are offering.

    So you can take them a little bit behind the scenes, you can really build trust and through authenticity and relatability, build a connection with someone at like a one to many ratio, not just a one to one. And with that being said, it also allows, you know, it also becomes a channel that you can communicate with people back and forth as well instantly. So it’s a massive tool that can be used in this space as well.

    Tash: Yeah, so Sabrina has a multi-multi-million dollar consulting business company, and she credits a lot of that to her Instagram and her social media personal branding presence. So she not only talks about, you know, say she’s running a big business mastermind in Bali or Morocco, then she’ll take her audience in a more intimate form through that experience so that then they want that experience too so they’ll buy it. So they’ll see that displayed on stories and various posts, she’ll talk to the camera, she’ll show that whole business journey, which you can’t really do as well on any other platform.

    So Instagram, that’s Instagram’s superpower, as you can show the whole holistic of, holistic picture of your business more than you can on any other platform, which really resonates with people. Because I think in 2020, and for brands to be successful, they have to take more like people and for people to be successful, they have to act more like brands. And it’s that intersection which we’re seeing. So we’re seeing those, you know, those key business leaders often have a really strong personal brand, or they’ve bought a strong brand and personality into the business. And Instagram can showcase that incredibly.

    Patrick: Okay. Well, you mentioned Sabrina. Let’s talk about business applications because a lot of our audience are going to be in the financial sector, between the private equity business owners themselves, investors, bankers, particularly investment bankers, and m&a attorneys and other corporate attorneys. Give us some examples of how a business owner or a professional in this space that you’ve worked with has engaged you and what you’ve done for them.

    Tash: So I think, for example, if you’re a lawyer or an accountant, so we’ve worked with an accountant who was like, okay, cool, we’ve got this big accounting company, corporate and they want to get their name out there more and attract that target audience using Instagram. So a lot of that came about, okay, how can they provide the best value to the audience so that they’ll choose them above their competitors and they’ll have multiple touchpoints with that company? And one of those ways was education.

    So it was thinking, Okay, what are these little tidbits that people can find out about the accounting world, that’ll just give them quick fixes that we can make visual for Instagram? So then we made like branded tiles, which were just little text, colorful in your face sort of visually appealing tiles that we could post on their account with little fix and little helpful tips for the target audience. So that was one content pillar.

    And then another content pillar would be, you know more about the people that they work with and showcase some of the brands that they work with and the story behind them. And then the third content pillar was more it’s kind of if your audience has heard of Gary Vee, it’s that jab jab jab right hook mentality on social.

    So it’s value value value, and then you offer your service or what you can offer someone that they can buy from you. And then that would be the fourth content pillar or the third content pillar. So we break down an Instagram strategy into what that person’s intention is and then who the client is. And then the best value that we can give that client and then what that looks like in the form of content and captions. And then we can either run it for them and do all of that, or we can consult with them on the more strategy level.

    Viv: And you’re actually an advantage when you are in an industry, which can be confusing for the end-user. So you know, if you are the expert, and you’re either the attorney or say you are the accountant, there’s a lot of information in your field that other people or your clients find really confusing. So for example, that accounting firm I saw being put up, you know, a story the other day saying, Hey, did you know minimum wage is going up on the first of April? You know, and it’s just little tips like that, that are actually really helpful and relevant to the audience. And they just been seen as providing constant value, which is awesome.

    Tash: Yeah. And I would say that as well for investors who want to create more value for the companies that they’re investing in is you look at someone like Mark Cuban and he talks, he’s got a strong personal brand. And if he uses a platform like Instagram, if he then starts to showcase some of the brands that he has invested in, then it’s suddenly giving them more traction and them more audience eyes because he’s then providing value to them and then, therefore, making them more valuable to help himself. So it can really benefit in that way as well.

    Patrick: So you can be an investment banker or an investor in a company, you could be that company’s Kardashian as the Ambassador going out and really pushing up the profile of a company.

    Tash: 100% it’s like it becomes a self-fulfilling prophecy. It’s like how Gary Vee prides himself on being, you know, investing in Facebook, or Snapchat or whatever it is, and then watching them blow up. And now he’s so influential that when he, you know, has invested in Tech Talk and then says, I’ve invested in Tech Talk, so, therefore, it’s going to be so big and successful and all these companies who say him as an opinion later in social media, therefore, jump on Tech Talk. It is the self-fulfilling prophecy for him. And that’s what he’s created purely from his social media presence.

    Viv: I love the Kardashian of the company analogy. That’s great. We’ll use that.

    Patrick: Very good. It’s all yours. I steal from a lot of other people and other things. So that’s quite alright. Would you define what’s your ideal client profile for Instagram?

    Viv and Tash’s Ideal Client Profile

    Viv: Yeah, awesome. Okay, so the best, when we really gel like we were really in our zone of excellence is when we are working with often marketing teams, we’re often working with public companies and larger corporates. And we’re working in with a marketing team on working out, okay, how can we front for your brand messages?

    How can we get across to your audience? What we want to share because often a lot of larger companies are actually doing really positive initiatives in the community. So it’s about not only sharing what the in terms of key message is but actually, you know, spreading the good work that they do as well. And it’s, we’ve seen some really good results in that area as well.

    Tash: Yeah, I think it becomes, you know, there’s obviously the ma and pa businesses that have their business and want to showcase its key messages and that’s really important for their direct sales. Whereas when it comes to a bigger corporate, it’s actually about all these things that’s happening behind the scenes of the businesses, you know, the things that they’re sponsoring the clients, they’ve taken on the initiative that they’re doing the core messaging, and it’s about streamlining all of that information into, you know, what do we actually want to share?

    And what do we want to get out to our audience and prospective people? And how can we do that in a really value-giving impactful way? And I think that’s what we specialize in for that type of client is streamlining what is actually going to resonate with people on social and then curating a fade around that.

    Patrick: Okay, so essentially, it’s going to be not just a publicly traded companies, it can be all sized companies, preferably somebody with either chief marketing officer or they have some resources toward marketing already, just not this particular channel. And organizations or founders or investors, they don’t need to create content or create their identity from scratch. They have a message. They can fine-tune it, but they know what they want to say. They’ve got it. It’s just I don’t know how to get this message onto this platform.

    Tash: Yeah, differently. And I think what we’ve realized is so many of these big companies, they have this cool message, which is why they started. But this seems to get sort of diluted and lost across all the different things that they’re a part of. Whereas what Instagram does is it brings it back to that core message and their core reason that they exist and then it streamlines the messages that reflect that into the world to then resonate with those people as to why they started the business.

    And so that’s why, yeah, we like to work with people who already know the brand and know their identity, but they’re like, okay, you know, marketing managers are often so swamped with all the things that they have to do. And founders don’t have time to suddenly learn about this social media platform that they should be on. And that’s where we can take the reins for them.

    Patrick: And then I just think with the requirements, you have to post certain things. What do you post? When do you post? If there are responses coming in how do you deal with them? I mean, it’s just somebody that organizes that kind of platform is would be most helpful for somebody who’s done it already. So you kind of can set up the process or the schedules, the timetables, for the activities and so forth.

    So I think that’s really good. What does, if you’re bringing on this ideal client, okay, what is an engagement look like? What’s the time frame? If they’ve got a message, they haven’t done any videos or anything yet, which, you know, they could pretty much do that fairly quickly, but what’s it like timeframe-wise, onboarding, what does that look like? Because I can see a lot of people very interested in this to get a feel. So what’s it like, engaging with you guys?

    What Ace The Gram Can Do for Your Business

    Viv: I like that you bring up content. Because often, you know, we could start, you know, we could have a chat with someone and break down a strategy session in an hour or so and get started on an Instagram tomorrow. But the reality is it comes back to content. So the, you know, the basis of any Instagram account comes back to you in value. So we need to understand what kind of content they’ve got available, what kind of, you know, photos, videos, whatever it is, what different key dates are coming up, what needs to be covered in the stories and how. And also where we’re sort of hidden.

    So it’s about will we be creating content? Have they got content already? Like you said, it can be created. It’s about bringing it back. And then with the captions, understanding that brand’s tone of voice so really diving deep into those brand guidelines and figuring out how we’re going to best push it out there and going a little bit of, you know, getting approval in terms of drafts. And then, but the turnaround time always comes back to strategy sessions as well. So that would happen the first time. And then every month, we continue to sit down and, you know, figure out what’s working, what can be improved on and go from there.

    Tash: Yeah, so I think timing-wise, it would be about three and directions. So it’d be initially just, you know, testing the waters, seeing if it’s gonna work. We only take on clients that we actually see that Instagram could create a powerful impact for because we want to do best for the client. And so the first interaction and then second interaction, as you’re on board, it’s all happening, we’re strategizing, we’re getting the content color and getting everything sorted.

    And then in between the second interaction, the third interaction is when that that marketing manager or founder is getting together all of the content assets or they’re taking that content and we can instruct them how to do that. And then the third interaction is basically cool, we’re up and running. It’s all happening. And this is what we’ve learned. This is what we’re tweaking. Do you have any feedback? And then it’s all go.

    Patrick:  The question I have as a prospective client would look at this is okay, right, I’ve got the content, we’ll have our strategy session. How long from the strategy session until we’re actually on Instagram, number one. So that could be three to four weeks if we, if everything else was kind of in place, you know, tell me if I’m right or wrong there. In addition to that then, when do you get the feedback? Okay, we’ve posted on Instagram, how long does it take to get feedback?

    Tash: So we give it, we do monthly analytics reporting every month. So and that’s also to keep us really fresh with those key dates coming up and what we want to push for that company in that month. So if we did our strategy call and you had all the content ready to go, then we would start your Instagram account that week. And then would be posting, say, five times a week. And then you would get your first report the month after that strategy session. And then from there, you would get a report every month and we would tweak things every month.

    Patrick: So, I’m sorry, so if you say you’re posting five times a week, so Monday through Friday, there would be an Instagram post.

    Tash: Yeah, yes.

    Patrick: Okay. And then, does that go on the whole month or is it just one week of that, and then a week off, and then another week? What’s the pattern?

    Tash: It’s, yeah, five times a week, four weeks in a month every month. Yep.

    Patrick: Wow. Okay. All right, man, that’s a lot of messaging. Well, give me your, that’s not oversaturating a message either. I can just see people would post on LinkedIn, you know, every day and that starts to get a little monotonous. But this is nice and fresh because I guess it’s instant as the messages go through. But the, what’s the timetable for a client response or market response out there? I know you’re doing the analytics. But can somebody expect that maybe they’ll get pinged or liked or somebody will reach out to them within a certain amount of time?

    There’s No Silver Bullet Growth Hack 

    Tash: Yeah, that would definitely straight off the bat because we’ll do it hashtag strategy to get them in front of the right people, etc. so they’ll start to get like straightaway. But from the inquiry standpoint, then it’s often about gaining that traction and building that trust over time. Because as we know, social media platforms, there’s no silver bullet growth hack to make you incredible overnight. So it is that gradual build of trust in touchpoints and getting that traction with people who might be your clients.

    So then we would say, then would start to get probably messages in inquiries after maybe two months, and then we would hope that that would increase more and more and then we would look at what we’ve done the previous month and have a look at what was generating the most feedback. So the most engagement and inquiries and then we would double down on that.

    Patrick: Well, your honesty on the no instant gratification is helpful. I guess what happens is because those posts are going out each day, you’re gonna just have a greater sample size and you’re going to find out a lot faster if a particular content piece or a thought piece that went out, did it resonate or not. So I think that’s helpful.

    They also like, I really think you should push the analytics because I think that’s a very, very helpful thing for those of us that have marketing messaging, but we don’t have the capability for the analytics. So I think that’s a tremendous value add. Anything else you want to tell us about Instagram, how you came up with the name, stuff like that?

    Tash: How did we come up with the name? That’s a great question.

    Viv: It was a reference to cards.

    Tash: But do you want to know something funny about Ace The Gram, is so Ace The Gram is and when we were thinking about this way we’re thinking, you know, the ace card.

    Viv: King queen ace.

    Tash: King queen ace. When you do something ace you do a good job and then obviously Ace The Gram because Instagram. But a couple of times people have been a bit suspicious of our business because of the word gram. And so once we got all these company stickers sent to New Zealand to seem to us with our logo on it. And then they went missing and we’re really confused as to why. And then a couple of months later, a cop called me and they said, Hey,

    Viv: Because this is New Zealand and so like, the Cop knew Tash who was involved. This is New Zealand.

    Tash: Yeah, the cops. Did you ever get stickers made for your business? And we’re like, yes. Oh, if you found them, we’ve never found them. They never turned up. And he said, Well, we’ve actually just done a drug bust and we’ve found your stickers on one of the boxes of drugs. And we were like, oh my gosh.

    Patrick: Man, I know that’s colorful.

    Viv: Yes, yes, definitely a different story. Definitely a different story. It was so funny.

    Tash: Yeah, but safe to say we have nothing to do with drugs. But um, but yeah it was a bit of a

    Patrick: Not that there’s anything wrong with that because there are certain things that are now legal that in the past, were in the gray area we should say. And so what, you know, you’ve got your labels and you’ve got your stickers and everything. And I can also advise people I wouldn’t worry about the time difference between New Zealand and California anywhere thanks to technology. That’s a bridge this easily crossed. As a matter of fact, it’s probably easier speaking with you on a strategy session than driving from Silicon Valley into San Francisco. So that isn’t an impediment of any type. Ladies, how can our listeners find you?

    Viv: Great question. We are available at acethegraham.com and on Instagram at Ace The Gram Podcast.

    Tash: Yeah, and if you’d like to email us it’s just hello@acethegram.com.

    Patrick: Okay. So it’s just a simple hello@acethegram.com. Okay. And then your podcast can be found on Apple, all those other podcast places as well?

    Viv: It’s all the places

    Tash: Yep. Just go to Ace The Gram. Have a listen.

    Patrick: Very good. Really appreciate it. It was a lot of fun learning about this and I wouldn’t be surprised if a certain m&a insurance firm is going to be participating on Instagram in the not too distant future. So, ladies, thank you very much and I encourage everybody to have a look.

    Tash: Thanks so much for having us, Patrick.

    Viv: Thanks Patrick.