• Jordan Selleck | Why Valuable Content Matters
    POSTED 3.24.20 M&A Masters Podcast

    In today’s episode, we sit down with Jordan Selleck– the founder of 51 Labs. 51 Labs provides digital marketing services to the lower-middle market and were founded based on a string of failures that blossomed into success. Our guest, and 51 Labs, focuses on generating quality and engaging video content for their clients through using original ideas and avoiding “templated” content.

    We’ll chat about why LinkedIn doesn’t work for 51 Labs’ target market, the biggest mistakes people make when marketing on LinkedIn, and how to be front of mind to the advisor community…

    As well as:

    • Being the go-to marketing firm for the lower-middle market
    • LinkedIn engagement strategies
    • Using Vlogs in your marketing strategy, and
    • Sourcing deals from LinkedIn

    Listen now…

    Mentioned in this episode:



    Patrick Stroth: Hello there, I’m Patrick Stroth. Welcome to M&A Masters where I speak with the leading experts in mergers and acquisitions. We’re all about one thing here, that’s a clean exit for owners, founders, and their investors. I’m really looking forward to today’s conversation because it covers a topic that is near and dear to my heart, which is marketing slash business development. I’m joined by Jordan Selleck, founder of 51 Labs. 51 Labs provides digital marketing to the lower-middle market. And I’ll let Jordan tell you more about that. But first of all, Jordan, welcome to the show and thanks for joining me today. 

    Jordan Selleck: Thanks a lot. 

    Patrick: To give our listeners some context why don’t you tell us how you got into 51 Labs? What led you to this point in your career?

    How Jordan Got to Where He is Today

    Jordan: A string of failures. So it’s been this crazy, crazy journey. I got to college into 2007 and went to Merrill Lynch, Private Wealth Management. Nobody in their right mind was going to give someone 50k who was fresh out of puberty, like in 2007 2008. And so I actually met a person at a Christmas party in 2007. She taught English in Italy, and I thought that was much better than doing Merrill Lynch, Private Wealth Management at 22 years old. So I actually headed to Shanghai. And I taught English in Shanghai for 18 months. 

    Met a guy at a bar who did investment banking, and then made that kind of seamless transition from teaching English in Shanghai to banking in New York. I did six years, two months, eight days of investment banking. And it was, yeah, it was, I forgot the hours. It was actually an awesome experience and it really taught me how to market myself and how to do development. You know, we were in the New York office, we will get hired by a, you know, a Japanese private equity firm to sell a business for them. Part of what we would be doing is contacting global buyers. 

    And in the New York office, you know, we would be helping to contact the US sponsors, the US Corp dev teams, in addition to being hired on US all sides. So did that for over six years. And then my former boss gave me the swift kick in the tail, which I actually needed. He basically said, like, I know you are interested in doing your own businesses. I know you’ve probably been doing it for a couple years, like, here’s three months severance. 

    Best of luck, and I’ll support your first business. And it was actually the swift kick that I needed. He paid for two of my early events. He’s one of my customers now, one of my clients now at 51 Labs. And so this kind of brings us to February 2016. And I’m kind of wandering in the desert trying to figure out what the heck am I going to do with my life and my career. And then in late 2016, I started a business called DebtMaven. So basically think about a platform that connects private equity firms with lenders. 

    Have 400 lenders in the network. And the whole idea is that, I mean how do you basically be the eHarmony of lower-middle market debt financing? So raised $100,000, built a team, we sourced 750 million dollars of deal flow. And actually half of that came from LinkedIn for free. So with DebtMaven, ran it for a couple years then just decided that I don’t think I was as passionate as I needed to be about the technology platform. 

    Didn’t raise enough money, failed with vision and just a whole bunch of, you know, first-time founder mistakes. But, you know, this was at the end of 2018 when I decided to really shut down the technology platform, but kept the brand open. And I’ll come back in a couple seconds why that’s important for keeping the brand open. But at the beginning of 2019, my wife and I were talking, and actually wasn’t really talking. It was her telling me you have one week to find $15,000. 

    So I first asked her do I need to do it a legal way. She confirmed that I did. And then at the beginning of 2019, I just had to really think like, what am I best at? And what I was best at is sourcing deals through LinkedIn. And that goes back to how 50% of the 750 million dollars and around 55 deals that we source, half of that came from LinkedIn for free. And so at the beginning of 2019, I was really just freelancing because the people from my network, you know, I’ve been in the financial for now, 10 years, they just saw what I did on LinkedIn. 

    They were kind of curious. And they basically said, you know, here’s five or 10,000. Can you just do whatever you did for us? You know, one thing led to the next and, you know, actually some of our earlier clients, our earliest clients who really got us off the ground were firms like, SPS, Compufit, Middle Ground Capital, Nipson, my former investment bank at DDA Partners and Live Oak Bank. And so one of the things that I was really curious about is like, is this going to work for, you know, outside of me? 

    And at the, on the second half of last year in 2019, that’s when our clients started to say the first post you did for me, got me four new deals. Another client said the first post you did got me five new deals. In fact, you know, I’m down here in LA right now and we’ve been on a week of pitching new business. And in every single meeting, the managing partners are mentioning how they see our videos, they see our posts on LinkedIn, even though they don’t like or comment on the post, they definitely view that. 

    And so, you know, I’ll kind of get into some of the tactics here in a couple minutes, but to kind of round out the story with 51 Labs, I really started because I, out of necessity, you know, I don’t have a marketing background. I come from investment banking and doing a FinTech platform. And I just kind of felt my way, stumbled my way into this. And so now we have a team here in the US, we have a team overseas, a couple videographers. And what 51 Labs is best at are kind of two swimlanes. 

    Number one, LinkedIn and number two, video. So for example, on LinkedIn, how do we get you 10,000 views a week for free and then on video, how do we make sure you have a quality brand video that doesn’t just suck and it’s this corporate with getting suits and ties and pretend like we’re something that we’re not. You know, our vibe, our tone is kind of the anti-corporate. And I think that kind of leads to an interesting topic that we can explore in terms of the state of the market with today’s m&a community versus the last vintage and kind of the earlier decades. 

    But yeah, we’re focused on LinkedIn and video. And that’s kind of the life story. I think one other thing to note is a couple years ago, I started a nonprofit called Elite Meet. Co-founded it with a former navy seal. And, you know, that’s a passion of mine is helping transitioning veterans. This nonprofit Elite Meet helps transitioning special operations, veterans as well as fighter pilots and intelligence agencies. Veterans for communities to get jobs. We found 200 people jobs, have a million dollars of sponsorship and have 800 members, done 55 events. And people can check out the organization at a Elite Meet, just kind of googling that.

    Patrick: How about that. And I would encourage our audience, I mean, I’m a visual person, we’re talking about digital marketing, we’re talking about visuals, I would strongly recommend anybody to go into LinkedIn and look up the company 51 Labs, and you’re going to see probably about a half dozen of the videos that, the digital marketing videos that you’ve done for a variety of private equity funds, the lower middle market ones, and I got to tell you, they are absolutely professional. 

    They are not templated where each video looks like the other one. So it’s not, you know, insert name here and have the same couple shots. Sweeping cinematography, great audio, which you can kill a video by having lousy audio. And it’s absolutely professional. And you know, people need to kind of put a face to the names they see on XYZ Capital. And let’s talk about real quick the market out there for the lower-middle market. I mean, the need is for lower-middle market private equity funds to stand out from the crowd. How many are out there and tell us the value that they get from doing this kind of thing? 

    Jordan: Yeah, actually, if we could rewind just a little bit on the company page. So this is actually a very interesting takeaway for everyone to remember. I don’t have a website right now. We’re launching it next month. Our company LinkedIn page is actually not that good. And this is really, really important. 

    There is a misconception in the market that when you’re active on LinkedIn, it needs to be company down, but that is the opposite of what works in our market and the opposite of what works on LinkedIn. So what does work is if you go to my LinkedIn page, my personal LinkedIn page, just type in Jordan Selleck on LinkedIn, and you go to my post, the post in a given week for me are getting, you know, five to 15,000 views for free. 

    If you do those same posts on your company page, you might get a 10th of that if you’re lucky. And that’s because the algorithm wants you to pay for that. So we can come back to kind of some of the top mistakes on LinkedIn. In fact, here are three very, very easy ones. So, you know, I was actually looking through your posts, and like one of the quick fixes for your posts, Patrick, are not doing external links. So that’s kind of mistake number one. 

    And Mistake number two that people make is sharing. On LinkedIn, sharing is not caring. So for example, if you close a $50 million deal, do not post to your company page and then share it to your network. It won’t work. I’ve seen it for three years, personally and with our clients. Number three, and I think the biggest mistake, is people produce boring content. If you just get your PR Newswire link from the hundred $200 million deal that you did, you copy and paste it and you press post, it sucks. 

    Like, just be honest with yourself. It’s bad content. And so we’re in this new era of private equity, private credit, the m&a community where people don’t do business with brands. They do business with other people. And this is particular to the lower-middle market. An example of that, let’s say a well-known lawyer from one firm jumps to another and they have a great tech practice. A lot of clients aren’t going to stay with that same law firm. They’re going to follow, you know, Jane Smith, who’s going over to the new firm, because they like Jane. 

    They’ve been working with her for 10 years, they feared all the ECGs, she posts online and it’s her brand. And that’s a really interesting takeaway for our market is don’t focus on the company, focus on your personal brands, because it is what the market longs for. They want to know who are you, not the brand in the lower-middle market. And secondly, it just doesn’t work on LinkedIn to do company posts unless you’re going to throw 10s of thousands of dollars behind it. That’s more like core middle-market and Large Cap. 

    Patrick: Well, let’s talk about your ideal client in terms of the need is to set yourself apart from the rest of the competitors, the other players in the market. And let’s give the audience an idea how large is the lower-middle market for private equity, number one. And then number two, how does this help them separate themselves?

    Size of the Lower-Middle Market for Private Equity and Standing Apart From the Competition

    Jordan: Yeah, so, you know, you’re in private equity and private credit. You’re talking to thousands of firms, right? You can have anywhere between, depend on how you slice and dice it, funded or independent sponsor, which is now a very large community. You’re talking two to 5000 firms, depending on how you slice it. 

    The fundamental argument to the firms that we’re speaking with, is that, you know, I’ll come in there to do a vlog, you know, 20-minute video interview. And they’ll usually start off saying, the reason why we are different is that we have an operating bitch. I’m like, cool. I have never heard that before. Okay, no, no, the reason why we’re different is that we focus on entrepreneurs and founder on businesses. Like cool. I’ve never heard that before. And so they say no no always focus on the lower-middle market, like, you know, sometimes we’ll go a little below that because we’re really really focused on that side of the market. 

    And I say, cool. I’ve never heard that before. And so one of the things that, you know, the state of the market today is that equity capital and credit is commoditized. It’s just a reality. I think people know that, but they don’t really know what to do about that. For example, if you just zoom into industrial, lower-middle market private equity, we could probably rattle off 50 firms that are either solely focused on it, that’s one of their three target areas, or they’re generalists and they do a lot of industrial deals. 

    So if you’re in an auction process, if you’re in a, you know, a small process, like what’s really separating you? How are you different to the sellers? How are you front of mind with the advisor community? How are you doing something different to LPs? Because you’re one of 50 plus industrial-focused private equity firms. And one of the things that we’ve discovered is that the market wants to follow the journey. And they’re kind of two things. Number one, awareness. And number two, reputation. Do people know about you? And do people like you and trust you? 

    For example, with reputation, one of our clients sent us out to their portfolio company to shoot some video, and we’re talking to the seller who had the business for over 40 years. And I asked him on camera, why did you sell to this firm? And without flinching, he said, Well, you know what, you weren’t the highest price, but I really, I did a lot of research. I saw your videos and I saw kind of what you have online and it just made me feel that you really understood manufacturing. So that to us, number one I verified who that was. We were recording now that great testimonial let’s get this one.

    Patrick: Oh, that’s a one in a million Yes. 

    Jordan: But when if you have 10 private equity firms that are all in industrials, and let’s say all their information is the same, like, who to do business with? You’re going to do business with the person you consistently see in a positive way. And price is not the only variable. So the, it’s been really interesting actually because, you know, honestly, I did not know the aspects such as LPs wanted to see this. I didn’t know that our clients would show this at their AGM. I didn’t know that, here’s actually another really cool case study. 

    One of our clients did a post about a manager at one of their portfolio companies. It got something like 25,000 plus views over a couple of posts. That manager saw the post. And then she did a before and after post in the manufacturing facility about an area that they cleaned up and they improve and that they’re applying Kaizen principles that post got like 275 likes on LinkedIn and 50,000 views. 

    So what is this really saying? A manager at a private equity-owned portfolio company feels more deeply connected to the private equity owners. Now, the private equity owners get to show a completely different image to their LPs, to the sellers who say like, do they actually care about their businesses, the shop manager and the others at the portfolio company now think like, our owners really care about us. So it’s a win all around. 

    Patrick: I can imagine that as people watch these videos, they’re picturing themselves being interviewed or being highlighted in this way. I can only imagine. There is a private equity firm out of Chicago called Parker Gale and they have a podcast and one of most popular podcasts actually. And they would interview people throughout m&a and technology and so forth. Well, their most popular podcasts, were conversations with interns that were working for them, then going off to business school and then being recruited back. 

    And you can get the feel and now they’re doing the same thing where they’re doing interviews of their portfolio companies, the principles of the portfolio companies and talking about it. So I think it has a great cumulative effect along the way. You had brought this up earlier, but why don’t we just briefly go over how have things changed in digital marketing, particularly for private equity in the lower-middle market in the last 10 years? 

    Four Factors of a Comprehensive Digital Marketing Strategy

    Jordan: So I have a thesis called BD Version 3.0 and BD Version 1.0 was, you know, multiple vintages ago when your partners and principles are responsible for doing their own deal sourcing through their fast beat networks. Version 2.0 happened, you know, five or 10 years ago, really in the past five years, where BD became a distinct function and it became a whole career track. 

    And then version 3.0, which really happened I think in the past year, is when the BD and investment professionals generally are starting to realize that they can’t just do what everyone else does in terms of relying on the Rolodex of people that they’ve known with a few people go to the same conferences that everyone else is going to and do things in a very one to one way. 

    They have to do things in a one to many ways that complements the one to one. And that’s really where the digital marketing skillset comes in. And it could be a little bit nerve-wracking like, Okay, what the hell do I post? What do I even say in an email blast? Do people even care about what I’m doing? 

    Or is this spammy? I thought this was private equity. I thought this was private credit. But we’re not in that air. Like, those days are gone. You need to make a decision as a firm. Are you going to be private and you truly don’t need a website? Or are you going to be where we’re at today, in this new reality of BD version 3.0, which is using the digital marketing skillset with what you have been doing and building on top of that. So what does that kind of specifically mean? One are you doing, do you have a LinkedIn strategy? 

    And are you consistently executing as a small team or firm-wide, including the administrative assistants? So with LinkedIn marketing, do you have a video strategy? For example, we just did a study of private equity firms and 95% of sponsors do not have a single video. If you look back on LinkedIn, 77% of the 330 individuals that we study 77% have never done a single post on LinkedIn. 88% have either never done or they rarely post. 

    And that’s not even talking about the quality of the post. Because when people do post, it’s usually boring content. They just copy and paste an external link. So number one, sponsors, lenders, bankers, everyone else in this m&a community, you need to have a LinkedIn strategy that you’re consistently doing. Number two, you need to have some type of videos, whether it’s one brand video and 10 quick creatives that are easy to do, you need to have something because people will see it and they will see others who have it. 

    Number three, you need to have an email strategy. So this is more than just your one to one communication. You need to have quarterly, at least quarterly email blasts that go out to a targeted group that is pulled from your CRM. A lot of firms, I think they have, the vast majority of our market has come up to speed and not leveraging CRMs effectively. But it’s not integrated into the other stuff that they should be doing. So, you know, breaking it down and kind of rehashing this one LinkedIn strategy, two, video marketing, three having email marketing and four I just completely forgot. 

    Patrick: I think those three or three more than what most companies are doing right now, so I think you get it.

    Jordan: You could actually, here’s why this is important though. It’s important because if you’re a small fund, and if you’re an emerging manager, or if you’re just generally a smaller fund especially, you need to use these tools to leverage yourself because you can only go to so many conferences. You can only do so many calls and meetings in a day. 

    And here’s from this trip, there is one quote, that stuck out to me this entire trip to LA. and that’s what I went to ACG Orange County, and a managing shareholder of a law firm here said, I think I’ve talked to you, maybe two times, but I feel that I know you better than anybody else in this room because I follow your posts on LinkedIn. And that’s when it sunk in that this is what our market feels. They’ve been watching the story, even though they never like, comment, but they definitely view the content. 

    Patrick: I can second that. I can absolutely second that with our audience and both on our podcast for M&A Masters and our content pieces they go out where I will come across people and they, and you can’t tell whether or not they downloaded or they open things but they’ve seen it. and they’re Oh, you’re the firm. 

    Yeah, you do these every month or you do these every couple of weeks, okay. And so and you never really know until out of the blue, they come up and they show you a whole bunch of your content or they reply to your email blast to say I have a deal, I have a quick question for you. And they’re replying to your email blast, which is a lot of fun and very heartwarming and so forth. 

    Jordan: Well, yeah, I have another thought here which is if you are a BD professional, what percentage of your job is telling people about what you do? Like literally half of your job. Your job as a BD professional is sales and marketing. And, yes, there is the part of it where you are true like assessing deals, you’re working with your IC, you’re working with the rest of your team and thinking through deals, but half of your job is just getting your name out there and staying in front of people. So why would you not use tools that make your life easier and give you leverage and that are one too many to complement what you have been doing for five to 10 years? 

    Patrick: Absolutely. Well, why don’t you briefly tell us, because I’m sure there are now many, many of our listeners here who would, are interested or you caught their attention. Talk about the engagement process. How do you onboard the client? What’s that look like? And, you know, give us the profile of your ideal client. 

    51 Labs’ Ideal Client Profile

    Jordan: Yeah, our clients are exclusively within the private equity, private credit, general lending, m&a community. It’s really like how can I be the marketing firm of this, of the lower-middle market plus, I think like the Oprah Winfrey of lower-middle market, like that’s what I’m trying to be. So a typical engagement will be, for example, like we’re going to like next week, we’re flying out to Chicago to do a shoot with one of our private equity clients. 

    On Wednesday, we’re going to be at their office, and we’re going to be doing interviews with their team, getting the brand video done. And then day two, we’re actually doing a portfolio company shoot at their newly acquired company in Chicago. Within five business days, we turn the brand video to them, which usually takes 10 to 15 days with others. And then with that brand video, it just gives us so much content that we can use to fill out their LinkedIn calendar for three months ahead. 

    And so depending on the client’s needs, what we’ll usually do is we will do the content strategy that you could use across email, LinkedIn, however you want. And then we will do the content planning on LinkedIn. We will do the content drafting, we will do the content execution, and then the actual tracking. And then all of that includes the video services, which is, you know, really complimentary to LinkedIn, because it’s getting really high engagement right now. So, you know, a typical project will be anywhere between one to three months, and then we kind of decide, you know, is this working? Do we need to readjust? 

    So for example, one of our industrial, private equity clients that are, you know, thank you for making us number one on LinkedIn. Now, we just acquired a couple more companies and we’d like for you to just focus on doing video for that. You gave us the tools that we need and we can execute on LinkedIn. Perfect. Another client Live Oak Bank, they have a 25 person marketing team. All they wanted was our LinkedIn playbook and for us to do a workshop for them. 

    And actually on their first deal, they got five, on their first post, they got five new inbound. So it’s, you know, a typical engagement is one to three months, it really depends on where they’re at. It can be anywhere between, you know, five and $25,000 a month. It all depends on the scope of the services. But, you know, there are a couple of basic packages. And it’s really tailored to what they need. I wish I could give, you know, here are the three standard options but it’s just there’s so many different variables that go in and what they’re where they’re at. 

    Patrick: I think it’s, as something as specialized this is tailored specifically to whatever the particular needs are for each respective client. And that highlights their strengths or needs ideally. And nobody wants a one size fits all off the shelf canned product so that’s great niche. 

    Jordan: Yeah, it has been simultaneously good but also a pain because you’re figuring out how do I approach this? 

    Patrick: Understood. Well, and if you’re making a 10x to 25x return, price becomes no object. 

    Jordan: That’s, I didn’t actually understand that until some of our clients said, Yeah, why would we not? This costs us, you know, 10k to do a brand video and it brings in one deal, guess how much we’re going to make off that? 

    Patrick: How can our audience, because I’m sure they’re chomping at the bit right now, how can they get ahold of you? 

    Jordan: Easiest way is go to LinkedIn and type in Jordan Selleck, SELLECK, or you can hit me up on email at That’s 5149. Labs. com. Don’t go to our website. We don’t have one. We don’t really have a need of one. No, we really haven’t. So hit us up on LinkedIn, or an email and we respond quickly.

    Patrick: Great. Jordan. Thank you very much. And on top of all this, I have a feeling you and I are going to be working together in the very near future. So thank you again for being a guest today.

    Jordan: Looking forward to it. Thank you


  • Bud Moore | Why Community Matters in M&A
    POSTED 3.10.20 M&A Masters Podcast

    In today’s episode, we sit down with Bud Moore, who is the founding partner of Valesco Industries– a lower-middle market private equity firm in Dallas, Texas. We love everything Valesco is doing, especially because there is a large need for their expertise, guidance, and capital in the lower-middle market.

    “Our ideas are muscle, and so we put that behind companies to help them grow and become a bigger and better version of what they were,” says Bud on the topic of how Valesco came to be. 

    We’ll chat about Valesco’s primary markets, value-added distributions, and…

    • Moral and ethical commitments
    • Banishing preconceived notions
    • M&A trends
    • Rep & Warranty

    Listen now…

    Mentioned in this episode:


    Patrick Stroth: Hello there. I’m Patrick Stroth. Welcome to M&A Masters where I speak with the leading experts in mergers and acquisitions. We’re all about one thing here, that’s a clean exit for owners, founders and their investors. Today I’m joined by Bud Moore, founding partner of Valesco Industries, which is a lower-middle market private equity firm based in Dallas, Texas. Bud, thanks for joining the podcast today.

    Bud Moore: Hi. Patrick. I appreciate you including me.

    Patrick: The reason why we reached out to you is that there is a growing ocean of opportunities in the lower-middle market. There are more and more opportunities. We are seeing not only in here in Silicon Valley with technology, but throughout the country for a variety of reasons. 

    And as I speak with experts in m&a I’m struck by this growing chasm between the middle market and upper market companies and the amount of services and resources available to them. And then you get to the lower-middle market and there is just this crying need for not only capital, but expertise, guidance, and so forth. And it’s, there’s just this wanting audience out there that’s really looking for help. 

    And I think firms like Valesco Industries are ideal to come in and provide just the types of help that they need to move on. I didn’t want to steal your thunder, but if you translate or define the term Valesco, that means to grow strong, which is a very, very helpful name. And that’s where a lot of the lower-middle market companies are trying to be. They’re trying to do that before they ultimately go to an exit. So I appreciate you making yourself available. Before we get into all things. Valesco, let’s talk about you. How did you get to this point in your career?

    How Bud Got To Where He is Today

    Bud: So mine was a bit of a circuitous route. I started out actually in investment banking on the sell-side. And did that for a number of years in a market downturn, decided I would switch to the buy-side and did that for about four or five years until I found myself in a place that I was so full service for my clients that I felt like I was a private equity guy and not getting paid for it. So I thought I’d fix that problem and actually get into the private equity side of the industry. 

    And did that in 1994 as in what today is referred to as an independent sponsor. So our ideas are muscle and putting that behind companies to help them grow and become a bigger version and a better version of what they were when we made our investment. So did independent sponsor work really until the great recession of late 2007, early 2008 timeframe. 

    And during that period of time, we had exited almost all of our investments, I’d like to say because we were brilliant and saw a recession coming, but really more so people found value in what we had. And in that particular market, we’re paying quite well for what we build. So we sold what we had, and then a private moment, sat back and thought about what we hadn’t done that we should do next and thought raising a private equity fund might be a great idea. And so we set off to do that and raised our first formal fund in 2011. 

    I guess the lesson that I learned from that is, if you’d like a lesson in humility, you should ask everyone you know for money in the midst of the worst recession they’ve ever seen. But fortunately for us, it was successful. And that’s led into a successive fund and we’ve had great success and putting that to work and what for us is our lower-middle market companies and we kind of define that as 25 to $75 million in revenue.

    Patrick: Okay, and then the industries that you target being based in Dallas, people are going to assume it’s either, and now, this is a Californianian speaking, but if you’re based in Dallas it’s either you’re doing something in the energy or the cattle industry. Tell us what are your specialty areas.

    Bud: It’s a great assumption. We’re actually kind of embarrassed being here in Texas. We’ve never actually done an oil and gas transaction. And we really regretted that several years ago and went out and spent quite a bit of time doing a white paper on whether or not we should invest in the energy industry. And what we discovered was we just weren’t smart enough to do that. That’s a very complicated industry. So for better or worse for us, we’ve really focused on manufacturing, value-added distribution and business services. 

    And that’s been our focal point for a long time. And if you take a look at industries, there are some industries where we’ve had better luck in and others. The food industry has been good for us, heavy equipment, things of that nature. But I would tell you, we’re looking really more for a unique profile than a particular industry. And in doing that, we find really great niche market companies that we’ve had good succession growing and building. 

    Patrick: When you say unique profile either operationally, a need they’re fitting, location, what do you mean by that? 

    Bud: So and we kind of boil this down to three basic financial characteristics that define a broader list of operational characteristics. For us, we take a look at the EBITDA margin, you know, our principles say it needs to be 10% or greater. I would tell you most of our investments are far greater than 10%. We look at working capital efficiency being defined as inventory and accounts receivable as a ratio to sales being 30% or less. And we look at six asset utilization compared to sales for turns or greater. What that tells us is we’ve got a company that is in a niche market in its industry, it’s able to produce, it doesn’t burn working capital. 

    It generates working capital and doesn’t have to invest every dollar of earnings into its next dollar of growth. Let’s just roughly speaking kind of the principles that we’ve operated under. And as we apply that against industries that we’ve looked at and invested in, you’ll find really a broad variety of things all the way from aerospace to heavy equipment to food manufacturing. We even currently own one of the largest producers of drug testing for professional and amateur sports in the world. 

    So it’s a wide variety of things that we’ve invested in, but what we like a lot and we think this is true across numerous industries, and even in an industry that people would consider to be unattractive, they’re always one or two players that have figured out how to do it extraordinarily well. And what we’re looking to do is invest in those companies, work with that team to be able to continue to professionalize and build that business and really grow it into something of true significance.

    Patrick: One of the things you mentioned earlier was value-added distribution is value-added. Explain that for me.

    Why Value-Added Distribution?

    Bud: Sure. Value-added distribution is we take a look at distribution. Commodity-oriented products really aren’t of much interest to us. We would define that as products that generally carry kind of a 20 or 25% gross margin, resulting in maybe a 5% 6% net margin at the end of the day. Unfortunately, if you want to grow in a distribution business like that, you’re investing this year’s earnings and next year’s growth. 

    And you really don’t really generate any free cash flow for your investors. You just invest in the business with, you know, with your end being when you decided to stop doing that. So for us, we look at businesses that are taking products and doing something tangible to them. 

    A great example, we invested in a business a few years ago that was producing high school promotional and high school fundraising items. So think of it as your local sports team for your high school but instead of buying cookie dough or pretzels or things that you probably really don’t want to support the team, you go to our online portal and you buy the team’s sweatshirt or t-shirt or ball cap and you support the team that way. We were mining substrates that are already manufactured, t-shirts, or anything that we were making. 

    But we would put on them the school’s insignia and then sell them out to their fan base. And to us, that was value-added distribution. And, you know, that’s the type of thing that we think really has, you know, great consumer desire in the marketplace. And we really like businesses like that, that have figured out a creative way to address a customer or consumer want or need.

    Patrick: As I was researching your organization and looking through your website, it’s unmistakable that you see this undercurrent, talking about not only the financial component of what you’re doing and adding value to your investments and so forth, but there’s a real moral and ethical commitment that seems to drive your operations. Can you talk about that, please?

    Ethical and Inclusive Operations

    Bud: Sure. We, when we look at the investing in lower-middle market businesses, we really can’t make the claim that our money is greener than anyone else’s money. There are a lot of investors that try to invest into that space. What we focus on is how do we do the right thing for the business, the right thing for the employees, the right thing for the community. It’s something that’s extremely important to us. 

    And the way we look at it is, you know, every day the companies that we’re invested in are providing hundreds of jobs for people in the community that allow them to have mortgages, allow them to have, you know, pay for their family’s expenses and overhead and really creates the future for them in their community. And so, that’s extremely important to us. So rather than just putting money into a business, we really like being able to come in and make a difference in the business to make it a bigger and better company. 

    So that people have a career and not just a job and, you know, you’ll see that throughout our companies in the way we’ve invested in teams and in areas. Not all of our companies are in a lower-income community. But many of the people that work for our businesses may go home tonight to a lower-income community. And so we’re respectful of that. And you’ll find that better than 60% of our employees are minorities and the businesses that we’ve invested in, you’ll find that we have promoted women and minorities into positions of leadership within the companies. 

    And so we really, we believe strongly in people that want to work hard and apply their abilities, that we should be giving them the opportunity to succeed. And that’s been a driving principle for us. In addition to that, we try and spend a lot of time working with the companies themselves, to help people with a vision of how they get better in terms of their business. And I think that’s something that not everyone in private equity, actively does. And we’ve prided ourselves on doing that for a long time.

    Patrick: I think as I got into working in mergers and acquisitions, you have a preconceived notion on how the players work and the relationships and so forth. And then when you get deeper into it, as you see, particularly if you’re a target company out there and you’ve got more than one option for prospective buyer or partner, financial partner. It’s not always the top-line number this out there that leads to a successful close or successful exit. 

    I always look at this as, you know, this isn’t company A buying company B. It’s people working together. Mergers and acquisitions as people. And one of the great value adds that I think private equity, your entire industry can deliver. Particularly for owners and founders is they can only grow so large on their own. And to take that next step, they need partners to get them there otherwise they may take a misstep or, you know, not get to where they want to get. 

    And, you know, the concept with private equity where I’m sure you guys do this, too is you know, making a partial investment or maybe rolling, they roll over some equity. It is amazing how an owner or founder may sell 60 70% of the equity in their firm to a private equity company. And then five years later, their remaining 30 or 40%, is worth significantly more than the original batch of equity they had sold over. 

    And I think that’s just that second bite of the apple is something I did not know about with private equity until I got into the business. And boy, that’s a real great thing, particularly for the people that are responsible for coming up with these companies and these services that in most cases didn’t exist until the owners and founders created them. And I think that’s a great thing you do. As you look you know, you’ve been involved with this for a while, are you seeing any trends in m&a that you can comment on?

    Recent M&A Trends

    Bud: I think the ones that everyone sees out there right now there’s just a lot of capital seeking return. And the public markets have been pretty good over the last year or two. But just in general, if you look over a more extended period, you know, those types of returns are not projected to continue. 

    And so people are looking for return. And as they look for returns, alternative investments, of which private equity is one, tend to drive a lot of interest. And I think it’s different in the lower-middle market. Looking at putting your money to work there is different than putting it to work and KKR or Blackstone or someone like that. This is money that’s going to work for which you’re going to have to put elbow grease behind it to really make it pay off in the right way. So as money comes into the marketplace, I think it has the hazard of increasing prices. It’s not great for us, it’s great for sellers. 

    But as it increases prices, you really gotta have a plan for what you’re going to do with the business because you can’t just put money in and step away and hope that that works out. So we think that the real trend that’s going on right now is, we can’t change pricing. So what we need to do is change how we look at the value proposition. And I think if you’re going to step up and pay a larger price for a company, in this market, you have to be convinced of how you’re going to grow that business going forward. 

    It won’t be for a flat company, it’ll be for a growth company. So I think right now, lots of capital in the marketplace, I think people looking for ways to grow that business and grow that enterprise are really the big things that we’re seeing going on. And then what I hope I’ll continue to see as more and more people focusing on the operations side of the business, to help make that plan for growth really come true. Because it’s all great on day one when you see the hockey stick projection of what we’re going to do over the next five years, but you’ve actually got to execute on that to be able to make it real. 

    Patrick: I think also that there are if you get a target at the right price, that capital tends to be a little more patient than other capital. And so I think it all, it goes in with that where you really do have to have not just this idea of an investment, but Okay, now how do we make it work five years down the road from now? And I think there’s a lot more focus on that delivery than just we have to get this target right now at whatever price.

    Bud: No, I think your statement is right, as far as, you know, look, how you look at the investment, how you want to optimize it. but the thing that we try and keep in mind, it’s really more than just the day of the investment and it’s more than financial economics. If you want the economics to turn out in your favor, you’ve really got to get the team behind you. The people that you’re investing in, they have a business and yes, we’re buying in some cases, patents and we’re certainly buying brick and mortar and we’re buying machinery and equipment but what we’re really investing in is people. 

    And we’ve got to work with those people to help them be better at what they’re doing. We’ve got to create a relationship that makes them want to grow and build their business. We have to give them an understanding of how they win in this process. And I think doing all those things together really makes for the right investment. In our experience, if you’re selling a business, this is the most one of the most precious assets in your life. It’s really, it’s more of your family, in some cases, than your family itself. 

    You see people more that you work with, you’re there five days a week, if not longer, you’re there for long hours. And when you’re ready to exit, you have a lot of personal connection to those people and when you sell, you want to make sure that you’re selling or taking on an investor that’s got the same passion for helping and working with those people and growing them that you had. And I think that’s part of what makes an exit meaningful for people that are really looking and do it the right way.

    Patrick: Bud, quick question. We didn’t cover this when we spoke earlier but just off the top my head, have you guys on any of your acquisitions or your transactions, have you guys use rep and warranty? I’m just curious if you have, what kind of experience you had with it.

    Why Rep and Warranty?

    Bud: You know, we’ve used rep and warranty on numerous of our transactions and really made that almost a universal standard practice probably three years ago. We’ve found it to be, it’s not covered that we have very often had any type of claims on. But I can tell you, it makes our closing process much easier. Dealing with the representations and warranties inside of a purchase and sale agreement is one of the scariest things that I think sellers deal with. 

    They don’t want to have their big payday and then turn around and write checks back to the company. They really don’t want to deal with big escrows that everyone’s going to argue about later, whether or not there should be a claim or not. And so what we found by using rep and warrant insurance, it’s really eliminated many of the discussions about what the reps and warranty should look like it comes down industry standard set of reps and warranties. 

    There’s a very minimal exposure on the sellers part. And from an insurance standpoint to the extent that you have a bad circumstance, that’s why you have the insurance protection there to be able to cover that eventuality. And we found that to be a really seller-friendly process. And so we’ve adopted that over the last few years as our standard.

    Patrick: I could not have said any better than that. So I won’t. Thanks very much for that. Bud, how can our audience reach you? How can they find you?

    Bud: Probably the easiest way is through our website That’s On there, we have all of our bios, our history, many of the videos on the management teams that we’ve worked with, as well as our contact information for easy access. 

    Patrick: And I would say it’s a story that is worth reading and worth following. Bud Moore, thank you very much for joining us today.

    Bud: Patrick, thanks. I appreciate you having me on.

  • Vania Schlogel | Why Your Ideal Client Profile Matters
    POSTED 2.25.20 M&A Masters Podcast

    In today’s episode, we’re joined by Vania Schlogel– the founder and CEO of Atwater Capital, who focuses exclusively on the media and entertainment sectors.

    In our chat, Vania shares with us the fine line between being able to have the formal, polished side of the business in conjunction with the creative and operational side.

    Vania also chats about the areas she specializes in, and…

    • Streaming services
    • The emergence of technology in the media and entertainment world
    • Her ideal client profile (and why it matters), and
    • Building relationships with managers and founders

    Listen now…

    Mentioned in this episode:


    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. Very excited today, as I’m joined by Vania Schlogel, who is the founder and CEO of Atwater Capital. Atwater capital focuses exclusively on the media and entertainment sectors, two areas that are unique throughout business in America and it’s a topic that a lot of people want to go and lean forward in. And so Vania, thank you very much for joining me today.

    Vania Schlogel: Thank you, Patrick. Thanks for having me.

    Patrick: Before we get in talking about Atwater Capital and the media and entertainment industries, tell us about yourself. How did you get to this point in your career?

    How Vania Got to Where She is Today

    Vania: Well, I started life in a vastly different format. So I grew up in Idaho, in Boise and also Nampa. And really decided, you know, to apply to a school system where I didn’t have to make too many applications, which ended up being the UC system, because you could apply once and I think cover five colleges or so through the application.

    Patrick: It’s its own team now.

    Vania: is that right? Okay. So, this ended up taking me to UCLA, which quite frankly, probably also facilitated in moving into media and entertainment. And I decided, well to be completely frank, I knew I liked business. My father was always a small business owner. But I didn’t grow up with a lot and to be completely frank, googled in my junior year, what are lucrative careers upon graduation?

    I can’t remember exactly what the Google search was, but it really, and two things came back, engineering and finance and I mentioned this little anecdote to perhaps dispel the myth that one must grow up obsessed with M&A or knowing exactly that that’s what one wants to do in life. Because, for me, I sort of kind of fell into it, and that precipitated internship, and then full-time position at Goldman Sachs for a few years in the Los Angeles office, and then London. And then I spent six years at KKR, which is a large private equity firm, investing in media and entertainment.

    So that’s really where I cut my teeth, in terms of sector specialization. And from there, you know, it’s funny how networking is so important and a lot of the opportunities that are presented in life are really just sort of who you know, not necessarily what you know, because I got a call one day while I was at KKR, and it was from the folks at Roc Nation and that precipitated in me going to be Jay Z Chief Investment Officer at Roc Nation.

    And it was an interesting experience because I got to see firsthand how working in tandem with creative folks and creative communities could create a lot of equity value. And I also saw that this wasn’t a natural, it’s a relationship set that was happening between investors in Wall Street and a lot of creative communities. And so that’s why I founded Atwater Capital in 2017. We have offices in Los Angeles and Seoul, South Korea. We manage about 160 million dollars of assets under management. And as you mentioned, we focus on the media and entertainment sectors.

    Patrick: Well, I’d like to ask you a little bit about more is that that balance between the financial discipline and the investment, operational discipline and the creative side of a project or a venture. And the only parallel I have or analogy is the story I heard about the folks at Pixar. We’ve got little kids back at the time, but they would have their creative meeting where they’d sit down and talk about their next few movies that they wanted to do. And you’d have one about talking cars and I just would sit there as a, they want how much money for that kind of thing? And, you know, being able to evaluate what creative idea is actually gonna have value or not, and how do you keep them from going off the rails? Discuss how that works of what you’ve seen.

    Vania: I would say that for that balance between sort of the financial or commercial side of things with the creative and then the operational execution, the way to keep that fine balance in check, and quite frankly, moving to the best outcomes is a mutual respect and understanding amongst those different parties. What I, when I’ve seen it go badly, it’s typically because, you know, for example, the investors and the finance guys just give zero credence or respect to the creative aspect of things because it’s not the same language, quite frankly, or vice versa.

    And that’s when things go badly because things must be creative, but they also must be commercially rooted with the return on investment. And when there’s a fine balance between all of those different elements, it works out really well. And the way that we deal with it at Atwater Capital is we seek to be very respectful partners who respect the opinion and domain expertise of our partners.

    So we set up very deep partnerships with operators and creative folks and companies and essentially say to them, Look, we’re going to be supportive partners. We’re going to have a different kind of discussion with you than we think has been historically presented in your interactions with Wall Street. And that means that what you do does need to be commercially viable, but we’re not going to mess with your creatives. And typically, that works out really well.

    And the other thing that we do is you mentioned discipline, which is exactly the right word because at the end of the day, we have a strong fiduciary duty towards our LPs who give us capital. And so we make sure that we do or I should say, we contribute what we’re good at in terms of evaluating the financing of creative companies or projects. And that’s things like financial judgment, portfolio, curation and diversification, legal structuring, collateral perspective, things like that.

    And where we stay out of is the creative. We’re actually, this is going to perhaps disappoint lots of people, but we also have policies in place like none of us are allowed to attend red carpet premieres, for example, if we invest in a movie. We just need to make sure that as investors, we let the creatives and the operating folks do what they’re really good at. We stick to what we’re good at and make sure that our views are not somehow wrongly influenced by the things that we shouldn’t be focusing on as investors and financiers.

    Patrick: So you keep that arm’s length to avoid conflict.

    Vania: That’s right. Yep.

    Patrick: With entertainment in media is like software. There are many different elements of that. Are there particular areas of media and entertainment that you specialize in? Or is it pretty much everything in that channel?

    Vania: What we try and do is be investors who see where trends are going and get ahead of those trends. So the short answer is we’ll be quite generalist in the sector, but we will drill down into our view of sub-sectors and where things are going and try and place capital ahead of those trends.

    Patrick: Which leads me to this question because this was an opportunity we had and, you know, as with a lot of things in entertainment just kind of died on the cutting room floor. But give me your idea with the new streaming services that are out there as we go from bundle entertainment packages two is rapidly unbundling, but it looks like that unbundling is going to result in, a different type of re-bundling is people have to buy more things all a cart. What are you seeing out there in that field?

    The Evolution of Entertainment Delivery

    Vania: It’s interesting because I think specifically, you’re speaking to filmed entertainment. And if you look at what’s happened in the music industry, this process really unfolded in a much earlier fashion than it has been filmed entertainment. So we used to buy a bundled hard good in the form of, you know, vinyl or CD. Things, essentially that bundled good disaggregated and digitized into a digital download that was an owned digital goods. And now, things are re-bundled into a streaming which is access, not ownership subscription bundle.

    So I think we’re just finally seeing filmed entertainment come around to that. So it’s quite funny because initially, so many folks were excited, or at least I did a lot of equity. Research analysts were super excited about the golden age of streaming when it came to filmed entertainment because the bundle was breaking. And that’s right. The bundle was breaking on the traditional media side, but it’s absolutely re-bundling.

    And we’re in a period where it’s great for the consumer because competition creates innovation. It creates choice. And so right now we’re in a golden age for the consumer because we’ve got tons of different platforms, whether they are relatively, I’d say technology-centered players or tied to a traditional media player, who are all investing GADS as money to compete for our competition. Sorry to compete for our attention.

    And at the back end of this, we will see various players emerge. I think we are going to, what’s happening is probably not long-term sustainable in order to actually get a proper return on investment for all the capital that’s going into tier one content. We are going to see have to see some big winners emerge at the back end of this. And there will be a re-bundling and a massive wave of content.

    Patrick: So there’s going to be a consolidation and so forth. Can you talk to me, I know we didn’t cover this when you and I spoke, but tell me your impressions on the emergence of technology, within media and entertainment.

    Vania: Overall been, just as from a consumer standpoint, fantastic. Think about the experience, the consumer experience of let’s go back to music, paying $26 for a CD. By the way, inflation, if we adjusted for inflation would be much more expensive in today’s terms, but paying that much for a CD, potentially losing it or scratching it and even.

    You know, trying to play a playlist and verses now where I can walk into my home, voice command any song for $9.99 a month and get that song played over the speakers. From a consumer perspective, technology, or let’s say tech entrance to various sub-sectors within the space has done wonders for the overall consumer experience when it comes to consumption of content.

    Patrick: I just think also just the impact on the economy, the impact on business, not only in America but worldwide, is profound. And how we’re big Nativists here up in Silicon Valley, and we’re the hub of all things tech, if anybody were to venture down to Southern California, you’ve got a mini, I guess they call Silicon Beach. But technology has really transitioned down there very nicely and it’s everywhere.

    Vania: That’s right. And I’d be remiss to not talk about the flip side of it, though, which I think we always have to be aware of which is, there’s already rumblings where, is a consolidation amongst the tech powers that now distribute the content that we are consuming on a daily basis, is that consolidated power going to be good for the consumer in the long run. And so for a period there, I think you saw, for example, platforms like Netflix or Amazon Studios, quite frankly, creating content that was not seen and would not ever get greenlit by some of these major studios and players.

    And so there was really a creative Renaissance that came up from that. And I think one of the things that from a societal standpoint that we just have to keep an eye on, is that as we talked about, just now, on the back end, there will be a bundling, there will be an emergence I think of various large failed And who wins this war. And I think we just need to make sure that in that whole equation, that when it comes to what consumers, their experience and the diversity of their choice and whatnot, that there’s always going to be that natural tension between consolidation of power on one side, and what’s good for consumers on the other.

    Patrick: With Atwater Capital, give me a profile of your ideal client, because there’s the nostalgic idea of a producer or somebody running around trying to raise money for a project and so forth. But tell us what the profile of your ideal client.

    Atwater Capital’s Ideal Client Profile

    Vania: Sure, so I’ll contextualize client in our case as a company or project, for example, that we would invest in. And so the investments that we have made that have been successful, and I would say the common thread between those is a great management team, rather than for example, a very special strong CEO. We don’t like cult of personality. Quite frankly, we like to see great leaders. And great leaders have strong people and a very strong supporting cast around them.

    And so the best companies that we’ve ever invested in have strong management teams that, you know, go down into second, third layers and there’s still a strong core competency there. You have folks who can have healthy debates and discussions around strategy around operation and can be, you know, because as a shareholder, we don’t want to go in and run that company. That’s actually a disastrous outcome for a shareholder. The mantra is we invest in people, not assets. And so you want those folks running the company.

    And you really, as a shareholder want to be the supporting cast where you can just kind of optimize around the edges, whether it’s making introductions, kind of helping to think about strategy. And so management teams are very important to us and core to the thesis. The other thing about it is does this company solve an issue or meet a need?

    A very discernible need? And do they meet it in a particularly efficient or effective way? And I know this all sounds very basic, but quite frankly, investing is down to the fundamentals and basics most of the time. Yes, there’s a level of domain expertise that one must built up of one’s career, but it really comes down to the basics. And so I would say those are the common threads that we’ve experienced in our successful investments.

    Patrick: And you’re looking at investments all over the place.

    Vania: All over the place, yes. We have portfolio companies currently in the US and Europe. We’re looking at, we’re actively evaluating investments right now in Asia, in East Asia specifically. The only reason why right now I’d say we have not focused on certain geographies like South America or Africa is in my belief investing is a local activity and a very human-intensive activity.

    It’s one where you should have a local team who understands local trends who can build relationships with local founders and management teams. And so we have not grown to the size to focus on those geographies. So we focus sort of where we do have incumbent relationships and expertise.

    Patrick: That’s what I was told not too long ago was the reason why so many venture capitalists only investing in the bay area up here in Northern California. They only invested quite a few of them in just the Silicon Valley, the Bay Area companies and ventures, because they wanted to be within a couple hour car ride of their investment in case they had to make quick changes. And if you’re investing in something, you know, two or three time zones away, that gets a little problematic. So that’s not a surprise.

    Vania: Just in general, obviously complexity and communication grows the more timezones you have in between you and your portfolio company. But I, and that’s once you’ve already made the investment. So just from a portfolio monitoring and sort of operational involvement perspective, but I also think, so for Atwater Capital, 100% of our capital is invested in proprietary deal flow.

    And we really pride ourselves on that. And that is also another reason why I think investing locally is important and having local teams is important is the deal sourcing aspect of it. Do you have folks on the ground who are plugged in and who can build those human relationships with management teams and founders?

    Patrick: Vania, how can our audience find you?

    Vania: Probably your website is the best way. So we’re at and we have a submission tool there where they could write a message, give us their contact details. And we’re reachable that way.

    Patrick: Excellent. Well, Vania, thank you very much for joining us today and we look forward to speaking again.

    Vania: My pleasure. Thank you for having me.


  • Bart Vossen | M&A in the Energy Industry
    POSTED 2.11.20 M&A Masters Podcast

    The energy industry is going strong so far in 2020… and the outlook for the future is good as the industry responds to sustainability initiatives and reacts to market pressures.

    Bart Vossen of Houston-based SGR Energy shares how upcoming regulations are impacting the industry, as well as why the company looks beyond U.S. borders for most of its customers.

    We also chat about mergers and acquisitions in the industry, talking about some prime targets SGR considers and how they conduct acquisitions, as well as where the company is headed in 10 years – they have some big goals, for sure.

    Tune in to find out…

    • The biggest obstacle to growth they’re working on this year
    • The product mix that sets them apart from the competition
    • The difference between upstream, midstream, and downstream
    • Energy trends in the Caribbean and Central America
    • And more

    Listen now…

     Mentioned in this episode:


    Patrick Stroth: Hello there. I’m Patrick Stroth. Welcome to M&A Masters, where I speak with the leading experts in mergers and acquisitions. We’re all about one thing here, that’s a clean exit for owners, founders and their investors. Today I’m joined by Bart Vossen of SGR Energy. Bart and I had the pleasure of meeting each other during an event in Houston last October. 

    And as what I had been thinking about with M&A is it’s literally everywhere. And one of the areas that us Californians don’t think about for where M&A is, is in the area of energy. And the Silicon Valley of energy is Houston. And that’s where Bart and I met. So, Bart, thank you very much for joining me. Welcome to the podcast.

    Bart Vossen: Thank you, Patrick. Thanks for the invitation.

    Patrick: Now before we get into you and all things SGR Energy, tell me what led you to this point in your career? 

    What Led Bart to the Business of Energy?

    Bart: Well, I was living up in Bloomington, Indiana. And I was working for a real estate school there and got offered a job down here in Houston to work with the US Department of Treasury and I sold all their ceased property in the Houston area. That contract ended. I went into pressure vessels and structural steel. And I saw an ad, I believe, on Indeed that said timid salespeople have skinny kids. My kids aren’t skinny, I applied for the job. Here I am. So yeah, I came and interviewed and met the guys that interviewed me and then I got to meet the CEO. And soon as I met him, I said I got to work for this guy. 

    Patrick: So tell us about SGR energy. what does it do? How is it in the energy space, and go through the specifics. Keep in mind, our audience probably does not know the difference between midstream and downstream. So if you could just share with us some of the lingo with the energy, that’d be great.

    Bart: Okay, so there’s three basic areas in oil and gas. There’s upstream, which is the exploration and drilling for oil, there’s midstream, which is the transportation and storage of oil, and then downstream is where they do all the processing and refineries and then they ship it out from there. And SGR, we blend fuel for power plants. So technically we are downstream. But actually, if you go past downstream a couple miles turn right, we’re going to be somewhere over to the side over there. So after everything goes to the refinery, what’s left is the six oil, the heavy oil, the residual fuel, they’re all known as the same thing. 

    We take that fuel, we mix it with some diesels and middle distillates, which are actually things that come out of the process higher up in the process. We mix it with some proprietary stuff that we know about and then we sell that the power plants in the Caribbean and Central and South America at the moment. And they burn that and they make electricity. Perfect example is if you go to Sandals or Couples, they have to get their electricity from someplace, Jamaica. 

    The power plants that do that, their ship goes in, drops off fuel, they burn it and they make electricity. Our fuel is probably the cleanest in our area. In addition to power generation, we can also make bunker fuel. We blend bunker fuel, which is also known as the gasoline of the oceans. And I’m sure that your people don’t know anything about the new IMO 2020 rule. The International Maritime Organization is part of the UN. 

    And they designated, I believe, about seven years ago that fuel on ships at sea will go from 3.5%, which it was up until December 31 to 0.5%. So on January 1st, ships had to decrease the sulfur in their fuel by over 85%. Our fuels, and therefore the sulfur will, you know, there’ll be less sulfur, which is a whole lot less polluting. And we can blend to that specification today also.

    Patrick: See, everybody’s thinking about all the plastics in the ocean. And here you are, you’re going to be single-handedly reducing the sulfur in the ocean.

    Sulfur Reduction and Advancements in Energy

    Bart: We’re trying, we’re trying. And a lot of people are going to use more diesel in their fuel. So people at the gas stations when they drive past they’re going to see diesel prices are going to be higher. We don’t use as much so our alternative blendstocks are cheaper and a lot of them are cleaner than the diesel on distillate. So our fuel is burns better and burns cleaner and it’s kind of most of what we use as a byproduct of something else. So we’re also recycling. 

    Patrick: So with this, is the fuel so going toward manufacturing plants, things like that? Because those be domestically used or domestic, US domestic is going just all pure nat gas.

    Bart: In power plants, most of the power plants are doing nat gas. There are some like paper mills, industrial burners such as that, that can use our fuel. We’re in negotiations with a few of those, with a few paper companies in the area in the country, but most of our fuel goes to, goes out of the US because natural gas came in in the 90s. And it’s, they say it burns better and burns cleaner and so everybody switched to that. 

    But you can’t run a pipeline of natural gas from Jamaica to the Dominican Republic. And there’s no pipelines in the Caribbean. So our fuel is made, shipped and then it goes and we’ll put it into a large storage container and as those people need to make electricity they either ship via truck or rail to their facility. They’ll burn it and make electricity. 

    Patrick: Is your market largely, okay is your market largely now Latin America region or the island regions?

    Bart: Currently, we got a lot of customers in the Caribbean. We also have Central America. We’re in the process of closing on a facility in Colombia that will allow us to, it’s a terminal in facility that allows us to store a little bit more and take that good crude that we can use out of Colombia. And we, so the clients in Central America. And once we start those contracts and get all that started and taken care of, we also have clients in Asia that are wanting our fuel. 

    Patrick: Well, that’ll be a big, that’ll be another very large market for you. 

    Bart: That’ll be another huge market. So we’re probably going to double our revenues this year. And once we start those deliveries, they’re going to go crazy. 

    Patrick: These firms right on the cusp of, you know, great than spectacular. Now, with this growth coming up I’m just wondering in there and because you and I were, met at an M&A function. Tell me about SGR’s position with M&A. I mean, are they a buyer or are they a seller? What generally can you tell me?

    SGR and M&A

    Bart: SGR can do both. There are a lot of smaller companies that we could merge with or acquire. And those companies, we could go and, there’s a lot of wells up in East Texas, for instance, that Exxon Mobil drilled and once they got below hundred barrels a day or whatever they can’t use anymore. They’re called stripper wells. So they’ll sell them to somebody and those guys are millionaires just doing that. So we can go and get those guys, take them over, use that fuel. And so we can acquire some of those guys. 

    As for us being acquired, our CEO, Tommy, his goal is to be the largest blender of our fuel in the world in the next 10 to 12, 15 years. And he wants to do that as a tribute to his mentor. His mentor in the late 80s, they supplied all the heavy fuels to like Houston Power, and Light, Florida Power and Light. Large electric companies in the US before the natural gas came in. So his goal is to be the biggest and the best.

    If somebody came in and wanted to buy us, it would have to be a very good offer because the people that have supported us, our shareholders, he wants to be able to make sure that they’re very well taken care of. So, right now, our goal is to go public. But again, if somebody came in and said, Hey, we want to buy you. Here’s the price and he could agree with that and the shareholders agreed with him then we could look at doing something on that side.

    Patrick: Yeah, have you guys had some smaller add on acquisitions in the last maybe 18 to 24 months?

    Bart: Not, well, we’ve had one with the one in Barranquilla, where we just kind of took that over. The company sold it. The company that built it originally was an infrastructure hedge fund in Australia that, they’re not an oil and gas business though. They knew we were looking for something, they contacted us, and we took it over, ran it, made it profitable. And so now we’re going to go ahead and finish the acquisition of it. I don’t know, that’s, I don’t know what’s going on there yet. But that’s really the only thing we’ve acquired so far in the group. And more may come but I don’t know what’s on the schedule at the moment, if you will.

    Patrick: I don’t know if you could tell us this. So I apologize If we’re pressing too hard, but what are the methods by which you guys are vetting opportunities for acquisition? Are you actively, do you have a banker out there helping you look or are you just because of the network and the people that you work with every day, you already have your ear to the ground?

    Bart: Our CFO spotted a few. We’ve already set our eye on a few places. CFO came in I believe July and he’s found a few more. So there’s a few more places that we’re looking at now. Each has their pluses, each has their minuses. Facilities to expand our storage capacity, which we greatly need to do right now. So he’s keeping an eye on those. There’s talks going on with those.

    Patrick: So that’s not very different from Tech. I hate to interrupt but what everybody’s looking for is storage. Tech’s looking for more and more storage. I would tell you in our personal lives, we’re looking for more and more storage. And so now we have this. So that’s encouraging to see is that even with a very mature business like energy that is transitioning out, like, you know, with the, with natural gas, you know, domestically but there are other areas for the needs that are there for the powerplants outside of this area. In addition to that, you’ve got the storage, which I don’t think that’ll go away anytime soon. 

    Bart: No, no. We’re always going to be needing that. And we could, if we had a magic wand and can wave the magic wand right now get one of the storage facilities, we could increase storage capacity because we have the letters of intent for, we could do a 10 multiple on our deliveries right now. 

    Patrick: Oh my goodness. 

    Bart: It could happen that fast with the people that want our product, with the IMO that’s come about. The brain fuels that we can blend. The 10 multiple could double. So we’re in a, it’s a very exciting time. We thought this was going to be a couple years from now but when people call you, you stop and you talk to them. People come and say hey look we’ll give you money to do this and this and this and like okay. We’ll talk.

    Patrick: Okay, Bart, I gotta tell you it’s very similar to, you know, and I’m giving away a lot of our family, you know, insight here but it’s almost like ask me whether I want to invest in Disney right before Avengers Endgame comes out. And that was kind of a no brainer kind of idea there. We didn’t know how all the streaming services would do, but we knew Avengers Endgame was going to be here and it was going to be, yeah, and that sounds to me your situation looks really great. What else is there that you want us to share? What can you share about SGR Energy with the audience that you want them to take away?

    Big Future for SGR Energy

    Bart: Like I said, we’ve got letters of intent for, we could do a 10 multiple on or deliveries right now. We’re looking for investors. Anybody wants to do a shameless plug, we currently pay a 12% dividend to our investors. I got in about three years ago, I’m making about 30. I make over 30% because the shares gone up six times since I bought it. 

    This year is going to be crazy. So anybody that is interested in, we can’t say we’re sure thing but I mean I don’t, I can’t think of anything else that’s better than us at the moment. Anybody’s looking for a great investment, wants to make some money and then plan as you go public. If all goes well, the next two to three, four years, there could be a 10 multiple on that investment. So on investment today so. 

    Patrick: Well, and we’ll be right by along the way as you pick up any additional subsidies or acquisition targets to help build up your infrastructure. Bart, how can our audience get ahold of you? 

    Bart: My number at the office is 832-241-2189. And my email address is B as in boy, AR T as and Tom at SGR So that’s Anybody wants to hook up on LinkedIn, I’ll be happy to connect with them there. But anybody has questions, shoot an email, give me a call. And I’d be happy to tell them how we can benefit them and what we can do to make them hopefully richer in the future. 

    Patrick: Excellent. Well, Bart, I really appreciate this. And while the normal display disclosure out here is this isn’t an advertisement or solicitation to buy or information on investment, it is something that if you’re interested in energy, M&A opportunities or energy investment options, you want to look at something that maybe isn’t on the beaten path, this is definitely ay SGR Energy. Bart, thank you again for joining us and we’re going to talk again.

    Bart: Thank you, Patrick, for your time. I appreciate the invitation.

  • Pejman Makhfi | Easier Acquisitions for Mid-Market Companies
    POSTED 1.14.20 M&A Masters Podcast

    There comes a stage in every company’s life where organic growth is no longer enough. A strategic acquisition is the only way forward.  

    But for middle-market companies, this is a tricky proposition. The management team is running the business… they don’t have time to research potential targets, negotiate price and terms, and all the rest that goes with an M&A deal.

    Pejman Makhfi, the founder of Silicon Valley-based Synrgix, which provides a process management system to support growth through acquisition for middle-market companies, has a solution. And it’s vital that it’s implemented now because data shows that mid-market companies that aren’t acquisitive are likely to fail.

    Tune in to find out…

    • One thing any CEO or CFO must know to manage M&A deals
    • How to manage ongoing M&A activity with minimum impact on resources
    • A strategy to balance organic growth and growth through acquisition
    • Why lack of resources doesn’t have to mean stalled growth
    • And more

    Listen now…

    Mentioned in this episode:


    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 PJ Makhfi. PJ is the founder of Synrgix, a Silicon Valley-based startup company with tools and services to support the execution of the processes in the mergers and acquisitions domain.

    Middle market companies hit a stage in their journey where they face pressure to sustain growth, pressure from the board and shareholders in one direction, and market agility and competition out there from the other direction. Both of these make ma critical to a strategy for middle-market companies if they want to grow. I noticed the immense importance of this effort based on recent discussions I’ve had with PJ and his team, which is why I asked him to join us to talk about synergetics and how they can solve the problems for the middle market.

    PJ. Thanks for joining us today. Welcome to the podcast.

    PJ Makhfi: Thank you, Patrick. Pleasure to be here and thanks for the opportunity.

    Patrick: Tell us before we get Synrgix to tell us what brought you to this point in your career.

    PJ: As you may know, my background is in software with many years of experience in BPM. For those not familiar with BPM, it is business process management. BPM help optimizes and automate business processes, and let you put tools in place for continuous improvement. In the past, I’ve been a part of several acquisitions both on the buy and the sell-side of the deal. What I noticed was that while the deal rationales made sense, and clear synergies, where there, acquisitions didn’t fully deliver on the promises, so I decided to take on the challenge, dig deeper and see if I can make the M&A process more controllable and rewarding. I talked with many executives and practitioners and studied past successful and failed acquisitions. These gave me the insight and a chance to solve the problems that directly impact M&A success rate, lined up a strong team of like-minded members and advisors, and built a solution to help our executives take up M&A without hesitation.

    Patrick: I didn’t know that happen. That’s fascinating. What markets when we talk about middle-market now, what markets are you targeting? And specifically, what are the challenges that they’re facing? How do they know, not succeed in these M&A deals?

    Middle-Market Challenges

    PJ: We’re focused on helping mid-market companies. I would say our sweet spot is from 50 million to 500 million revenue. Our typical clients are companies that strive for rapid growth but have reached a stage where organic means are no longer sufficient. They would like to reignite and accelerate their growth. Just think about what it takes to take a new product from conception to market and scale or taking your existing product to different markets, domain expertise, engineering, marketing, sales, partnership, etc. The organic means are often too slow and uncertain in an age where disruptions are happening every day and everywhere.

    Patrick: I didn’t think about that. Well, when you consider you’ve got a choice for growth is either you get Do It Yourself organically or you grow through acquisition. There are merits to both sides of the equation. And I would just think, anecdotally about Coke and Pepsi where it’s cheaper and faster for them to acquire another flavor than to develop their own sports drink. I think it’s easier for them to just go buy Gatorade, but there’s still that tug between organic and an M&A. Why do you think M&A is the solution over organic for growth?

    PJ: There are some numbers that can share with you, Patrick that support this. Over the past decade, 73% of mid-market companies have disappeared. Of those who survived 70% were acquisitive. historical data shows that M&A helps companies grow three times faster and give a 75% higher chance of success, even an economic downturn. Surveys also show that 60% of mid-market companies considered M&A, but only 22% building into their strategy is M&A gets quick access to revenue and reduces costs. You would ask why don’t all adopt this?

    Patrick: Well, those numbers are compelling. Why is that? Why are more companies not going for acquisitions if it’s such a no-brainer?

    PJ: Good question, this goes back to lack of experience and resources in a very complex and delicate process. On average, our CEOs have point nine acquisitions in their lifetime. There is uncertainty, complexity, risks and high expected costs. Plus there is still the existing business that they need to run, leaving them with little time and resources to commit to the m&a initiative. There are also concerns about using third parties. Today, the M&A ecosystem is suffering from misaligned incentives for service providers. And the corporation’s several players in the M&A process work in silos and are compensated regardless of their returns.

    Patrick: Yeah, that would pretty much make me pause. I always look at this as if you’re running a medical corporation and you want to acquire another medical corporation. You’ve got to go out and almost get finance and a law degree. Just understand what’s happening, and fortunately can’t do all that at one time when you’re running a company. So what does Synrgix do to offer these companies so that they’re stepping out into the unknown, and they can do so confidently?

    PJ: So we started exactly what the mission to address the challenges that I just talked about. We created a software platform to guide the execution of the M&A process. The platform allows CEOs and CFOs to track and manage the entire M&A process successfully. From strategy planning all the way through integration, and synergy realization, we offer on-demand services to augment the in house team, our need basis. And we aligned our compensation with our client’s success metrics to create a truly trusted relationship.

    Patrick: So you can make the process as simple or as hard as it needs to be. The client has full control There is less of a chance of a conflict of interest because of compensation structures different. That’s fantastic. I’m sure there’s a lot more in it when people dig deeper with the platform and so forth, you can’t be the only one out there. So with other players out there that are providing services to M&A parties, how does Synrgix differentiate itself in the space?

    Why Synrgix is Different

    PJ: The first and foremost difference is that Synrgix uses a process-based approach with end to end transparency. In other words, it gets rid of silos, there is so much at stake in a transaction our CEOs and CFOs want visibility throughout the entire process. Second, objectivity, experience, and control are in the fabric of our solution. We target its identification, due diligence, valuation or integration. We provide visibility and decision support to execute a successful deal. And finally, the curated on-demand services give our clients and the extended deal team they can tap into when needed. That allows them to manage m&a initiatives with minimum resource impact and risk to their in house projects and day to day business. So you’re providing transparency, objectivity, and the ability to pick and choose the services as you need is need fit so that you’re controlling costs. I think that’s fantastic with everything you’re offering there. Is there anything else you’d like to share with the listeners when it comes to this platform? Yes, I like to encourage our CEOs and CFOs to think more about how long and what it takes to prepare for M&A.

    We have learned that M&A transactions take a lot of upfront work before you have a solid plan and a green pilot pipeline of targets. My advice to you or executives is to be proactive in order to stay on top of your game. And ahead of the competition. You can start big or small, build a strong strategy, and in house capabilities and have the processes and tools in place ahead of the time. Be the one-off acquisition or scaling through several acquisitions, make sure you have a repeatable process that builds on top of and learns from the past deals.

    Patrick: I think was really important to keep in mind just something that we forget from time to time is there’s always the focus on a potential target company, thinking that they’ve got a plan ahead and get organized and think about all the things they have to do to get organized to be acquired. And we don’t really think about the other side of the equation we’re all the pre-work has to be done. Done. If you’re thinking about an acquisition, and you shouldn’t wait until you have a clear target in mind, you’ve got to start doing a lot of this pre-work ahead of time and kind of get yourself staged up for that. And it’s helpful to have someone out there that can guide you and do that pre-work without this big, long, cumbersome commitment. Why don’t you run us through a scenario on how you work with a client? Let’s say you’ve got a company that has a concept they do want to grow, and they want to get started, but they don’t know exactly where they’re going. What would it look like for them if they commenced engagement with you?

    PJ: It’s very simple. Patrick. On sign up. What we do is we work with our clients to understand their situation and needs. Our success manager helps them capture their acquisition and growth strategies, selection criteria, and process templates to follow best practice execution. Clients can kick the tires and go at that point, they can use our sourcing services to get a pipeline of pre-scored targets, or do their own target sourcing. It’s as easy as that.

    Patrick: So they can sit down with you get some guidance on a profile and not only get their processes for acquisition and bringing somebody on board, but they can also talk to you and get guidance on where they could find targets with your sourcing services. So that really is a big value add out there. Tell us about the pricing for this out. How is it based?

    PJ: Our pricing is very competitive. It’s a very reasonable monthly subscription fee with no upfront cost or yearly commitment. Our clients get a success manager to help them onboard and run a smooth process. On top of that are on-demand sourcing and other supporting services are there for those clients who like to tap into with a pay as you go, payment model?

    Patrick: Well, I think one of the things we can overlook on this is what you’re doing if you’re an acquirer, what’s the difference between an acquirer and a serial acquirer? A serial acquirer has done more than one acquisition. And I imagine with Synrgix if you can get the templates set up for processes here, and you may come up with more than one target, but you may go for one target at a time. I think it was great as this sets up an individual platform for each and every company. So you’re not only equipped and ready to go ahead and process assessable transition and acquisition for one target. But you can set the template for this being used again and again and again. And I think that’s very valuable that this is not just a one-off tool. This is something that can be deployed and after successful deployment, it can be used as an Again and again and again. And so I think that leads to more acquisitions, which we’re happy about because the smoother acquisitions become, the more there will be and we love more, not fewer acquisitions.

    PJ how can our clients reach you?

    PJ: Your audience, you can reach us by visiting our website or email us at We can offer a free readiness assessment or a demo as our client requests.

    Patrick: Well, that’s outstanding and to our listeners out there, I would strongly encourage you, you have absolutely nothing to lose in these processes to learn something that is a potential tool that can be an absolute game-changer for you, if not for making something easier, at least giving you peace of mind to know that There’s something out there that you can use as a reference point. PJ, thank you for joining us and we look forward to talking to you again!

    PJ: Thank you for the opportunity and I look forward to working with you.


  • Rob Joyce | Financial Buyer Talks R&W Insurance
    POSTED 11.11.19 M&A Masters Podcast

    This is Part 2 in a two-part series about a recent M&A deal in which PE firm Broadtree Partners purchased SAAS company, RedCAT Systems, which provides specialized HR services for major corporations like Uber, NYSE, and LinkedIn. 

    This time we’ll be covering the Buyer’s side of the transaction with Rob Joyce from Broadtree. (Be sure to check out my conversation with Steven Epstein of RedCAT here.)

    Importantly, Representations and Warranty insurance was a crucial part of this deal. Broadtree wasn’t too thrilled about having this coverage in place at first, but, as Rob notes in our conversation, they did eventually come on board. 

    We talk about the initial reluctance to get R&W insurance… what changed their mind… and how this coverage changed the dynamics of the deal dramatically, as well as… 

    • How the due diligence process was delayed because of two key factors (this is something unique to this size of company and industry)
    • The total cost of Rep and Warranty coverage – how it breaks down and who pays for it
    • Why they saw RedCAT as a worthwhile acquisition (great clues for startups here) 
    • The sticking points that delayed the deal along the way – and how they could have been avoided
    • And more

    Listen now…

    Mentioned in this episode:


    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, a clean exit for owners, founders and their investors.

    Today is the second of a two-part series where we’re looking at a case where an m&a deal was insured by record warranty. This time from the buyer’s perspective. Broad tree partners are a financial buyer which purchased a Colorado, Colorado-based SAAS company by the name of red cap systems. In this I’ll have Rob joys of broad tree partners, discuss his perspective and you’re going to note that, at first he was not too thrilled about going after rep a warranty but to accommodate the seller, he agreed to move forward with us And he went through a transition going from being aware of record warranty as a concept to becoming a tool that he is going to use on a go-forward basis quite a bit like an experience that we have all too often here at Rubicon where a majority of our clients are first time users even though they may have heard of record warranty. They had yet to use it and their experience changed their opinion dramatically. The other issue I want to highlight here and be aware of is that this is a lower middle market company with a transaction value under 30 million that did not have audited financials, which would have made it ineligible in 2018 to get record warranty. However, now with the market, the way it is in 2019, not only was a solution available, it came in at the right price and also provided all the same benefits. That billion-dollar transaction gets to enjoy so now have a listen and enjoy Rob Joyce.

    Welcome. I’m here with Rob Joyce, who’s a director over at Broadtree Partners. Rob, thanks for joining me today. Now tell us about brought three partners. And then we’ll get into the context of how you came to this point in your career, but give us a profile on Broadtree.

    Who Is Rob Joyce, and What Is Broadtree?

    Rob Joyce: Yeah, so Broadtree Partners is a lower middle-market private equity fund, and maybe a good way to think about them is they are what I refer to as a search fund incubator. And what that means is as opposed to necessarily looking and acting like a search fund, they act as a private equity fund in almost all aspects with kind of one unique focus, which is at Broadtree.

    Many of the executives are operating partners. And the intention is for these operating partners, to be deployed in the businesses after the acquisition and what means as broad trees focus is not only deploying dollars into new businesses make acquisitions, but also deploying people. And we view that as part of the way that that will help growth inside the acquired portfolio companies.

    Patrick Stroth: I think that’s a really important differentiator from other investors out there who are blind, you know, contributing capital, and maybe a little advice here and there. But you’ve got operating partners that have seen businesses through the entire lifecycle, from established growth into the next transition and beyond. And I think that kind of knowledge and experience is sorely lacking, particularly from owners and founders who have only had one life cycle they’re dealing with, and that’s just the one they have.

    So that’s a great additional feature you guys are bringing. 

    Rob Joyce: I think it’s something that is a real value add in the lower middle market, is I think one of the things that companies need to grow here, not just as capital, but oftentimes from a resource. constraint in terms of personnel, these companies are resource-constrained. And it is difficult and expensive to hire executives that can make a difference in your team. And for a lot of people, especially they haven’t done it, this can be something that’s a pretty scary thing to do. And I think this is a great way to make a large impact in these businesses is not only to deploy capital but to deploy resources as well and full time dedicated resources, whose objective is to grow the business.

    Patrick: Give us some context on you. How did you come to Broadtree, how did you get to this point in your career? 

    Rob: Yeah, so a little bit of background on myself is for a number of years. I did M&A mainly focused on doing integrations with a little bit of carve out work. I did that for about eight years. And then after that, I transitioned and I, you know, went back to business school, and had some experience with private equity and venture capital. And what led me to read cat was I knew I wanted to stick in primary investing. And one of the things to me that was important was as opposed to just deploying dollars, which is, you know, what we talked about a second ago when I was really looking to do was also individually to be able to build something and to be someone who is helping to actually dictate the change and create the change and create growth as opposed to just deploying and stewarding dollars are and you know, investments. And Redcat, sorry, and Broadtree, you know, offered me that ability.

    Patrick: And were you and I came in, came into the picture together was when Broadtree and you were pursuing the acquisition of RedCAT, which is a SAAS company based in Colorado. What led you to that particular investment? What was it about RedCAT that attracted you?

    Why RedCAT?

    Rob: Yeah, so outside of any sort of investment thesis that existed in the area, specifically about RedCAT, what was so interesting was the work that the existing the management team, which consists of the two co-founders have managed to build to this company over kind of its fairly long life. And the kind of proof is in the pudding in the really impressive customer base that the company had as well as the fact that they were really filling a hole that seems to exist in the marketplace. But a lot of it was really a combination of the product as well as the people who are going to be part of the team that’s really what made the difference.

    Patrick: So if you can walk me through the process just overview real quick. You meet with them their synergies, there’s a connection. You decide to move forward to design the letter of intent. How did the process Go for you from that date, how long of a time are we talking about? And then just, you know, it’s not it’s a lower middle market company, that doesn’t necessarily mean it’s going to be quick. And there’s not a lot to look at.

    Rob: Yes, this process was certainly not quick, I would say this is on the length and if not on the far end of long for these processes for a lower middle market company in terms of time. So, there’s diligence, that obviously needs to be performed, you know, small businesses, in companies in the lower middle market in general. So sometimes can be more difficult to your point. You know, sometimes they’re easy because there’s not a whole lot to look at, but sometimes they can be difficult because they also don’t necessarily hold their data or information or are and ways you’re used to looking at for larger companies. And part of it is either lack of sophistication or lack of resources to do it and ultimately lack of resources can also play a real role and how long diligence takes to know if your company has hired if your target rather is hired, you know an investment banker or has an advisor who is actively pushing it into a sale or pushing into an auction process that will be more well defined.

    Now, if you are a company that is not the norm if you’re looking at companies, now, the normal process this may or may not take longer and with RedCAT, one of the interesting things as you know, the founders are also busy running a business during this time. So, you know, acquisition or in their case of sale is a significant amount of effort. And they had to juggle that while also simultaneously continuing to grow their business. So so the process took a while but the kind of key points where there’s obviously for Due diligence, lower middle market companies will tend to have different quality of financials. And you know, which you might expect for a company that’s 10 times the size.

    The next area is obviously tech diligence, because this is a software company, as you mentioned, Patrick, and it’s having someone kind of go through and perform technical diligence and kind of understand feedback on the development process and code base, and everything else like that. And then one of the things that it also comes down to is, you know, once you’ve gone through the kind of some of these key diligence items and spoken with customers is you still have to find a deal. One of the things that pushed us past one of our sticking points in this deal was, frankly, the use of rep and warranty insurance. It was a large concern on the part of one of the sellers that we were able to satisfy by using warranty insurance and it’s part of the reason why our dealership is cross the finish line. 

    Patrick: Well, the concern with that partner was out there and can happen had you use rep and warranty before I always your initial reaction to it, ultimately we went forward with it. But tell me about your reaction if this was your first time if not, give me a few your feelings on the concept of rep and warranty.

    Rob: Yeah, so this is the first deal I’ve executed with rep and warranty insurance as part of process it’s, you know, it’s been brought up and I kind of gone through bidding as well as diligence with this being understood, but I’d never gone all the way across the finish line and that is, I think, a noticeably different discussion when you’re actually going through and executing rep and warrants even when you’re saying you know, roughly how much does it cost to get something that looks like this. And you know, Paul, parking is doing forth in the real world. So that was, that’s kind of my background with rep and warranty. For me, I was in an interesting place because as the buyer for this particular deal, at this particular size, I did not have the concerns that one of the sellers did. And so this was really used on my end primarily as a tool to help the seller one of the sellers become comfortable with the transaction and part of that was based on their prior experience. And not necessarily even with M&A, but with lawsuits and things from a corporate perspective is, is they saw this as a potential area of risk and this person was very concerned very, very, very concerned about this. And rep and warranty insurance pretty much quickly mitigated the issue.

    And this was something that could have really, really been time intensive if we had not used this solution and I and it could have derailed the deal.

    Patrick: It was more of accommodation on your part. And in part of this, and this is one of those common questions I get is OK, if there’s policy here, you the buyer, or the or the policyholder, because if you suffer the loss, the insurance carrier comes to you and pays you your loss rather than requiring you to go pursue the seller on them and then find the seller so it’s more of a direct line. And the question I get all the time is okay, well, if the buyer is the policyholder then who pays for and it varies from deal to deal and it can be one of three ways either the buyer pays for it. The seller pays for or the two sides split it and you were willing to accommodate them and move forward on this and they stepped in and funded the cost.

    Rob: Yeah, I think that’s an important thing to note is, like you said, there’s a lot of options here about where, who pays for what in this process. And I think part of the different factor for this deal, in particular, is that this was not a concern that I had, as the buyer, the policy, the concerns that were brought up, were not one that I reflect that what I reflected was, from my perspective, or something I was concerned about. And so, you know, that’s, that’s part of the reason why it ended up that way. Now. Now, I know through our earlier conversations and through, you know, having spoken to some of my other past and present colleagues, is there are other cases where the answers on the opposite side of table where this is primarily a buyer concern, and that there are some real concerns and that the warranty insurance is there to really protect the buyer. Interestingly enough here, it is a buy-side policy, but it’s primarily meeting the needs. And not primarily, I mean, it really is there to meet the needs of the sellers.

    So I think that’s an interesting way to look at it. And, you know, I think if we’re being transparent about to regardless of whose needs its meeting, that’s not necessarily with to who funds the policy, you know, negotiating point like everything else in a deal.

    Patrick: Absolutely. So as you go through this experience, you had your first rep and warranty policy, any experiences you can share good, bad, indifferent, anything surprise you?

    Experience With Rep & Warranty

    Rob: Yeah, one of the things that surprised me frankly was the variation in responses you get from talking with different brokers about rep and warranty insurance, everything from you’ll hear some people ballpark mentioned it’s not even possible to get rep and warranty insurance on a lot of these lower middle-market deals. which I know is something you and I extensively talked about that that’s, you know, just not the case anymore. You’ll get that response. You’ll get responses that have differing amounts of, you know, cost, as well as coverage. And you and I working together. I know you kind of already know where I’m going to go with this. But I was blown away by the coverage options that we got working, working with you because they were far above and beyond not only what I expected, but having spoken with my counsel who does an extraordinary number of these lower middle-market deals, as well as some other people who are in this market is no one expected to get this word average. We got them still.

    Patrick: Yeah, that’s one of the big developments, which is why I wanted us to talk about this particular deal is that traditionally, rep and warranty was reserved for the hundred million dollar plus transactions they had in the last couple of years come from 100 million. down to $50 million as a threshold. The product now due to a number of competitors coming into the marketplace are now able to ensure deals with transaction values below $20 million. And the other item that was the big change is underwriters do not like ensuring more than 30% of the deals transaction value. Now mostly in Germany counts we’ve seen out there then between 10 and 20%. There are the outliers but it’s usually between 10 and 20% of the transaction value.

    So the insurance carrier’s comfort level of 30% or less was rarely breached. But when you get these sub $20 million deals, and you’ve got parties out there that want to ensure up to the entire transaction value. That’s a real change but that is now available where we are now getting involved with transactions we’re ensuring 75 to 100% of the traders that So that is the new development that’s out there. Now, how likely we got this through successfully at there were a lot more applications for it and options that you expected? How likely are you to use it again on another deal?

    Rob: I would say that the first step in that is this is immediately now part of my toolkit before it was kind of reactionary. On the only previous times prior to this deal, that revenue, I’d really looked at revenue mortgage insurance, and like you mentioned part, it’s the market I’m working in, in the deal size, you know, this was something that kind of I only looked at based on seller requirements, you know, they really should be happy to have this, you know, give a banker or someone else who basically says this is you know, you must include this, I kind of used it under those circumstances only, I would say now, this is an immediate part of my toolkit, one that can allow some risk mitigation on my side if I feel the need and too, I think it’s also a great tool to help overcome some buyer discomfort, as they’re worried about any sort of risks to the deal. things that can happen, that rapid warranty insurance can cover. This is exactly the tool to use that.

    Once again, it’s everything is about the cost. So, it depends on you know, whether or not you need it, how comfortable you are. I will say for me personally, I would not hesitate to use it again, as a tool to help overcome buyer objections or to make them feel comfortable or in some cases where I do feel there’s a risk here to protect myself from the risk.

    Patrick: I think it’s a great tool that can be deployed strategically just wear it particularly if you’re in the position as a buyer. You can offer terms that letter of intent with the seller where you say, here you go, we were looking at traditionally there is an escrow or there’s a withhold, and here are some of the risks we’re going to look at if you will so here’s another option where we don’t have to have as big an escrow or any escrow we can ensure the deal is about this is about the cost of it and seller, which would you prefer, you know, having the funds in escrow or unlocking the funds is just going to cost a little bit more, we’ve got a ballpark for you.

    And I would think more often than not the seller is going to jump in at getting insurance. Ideally, you’ll get over once they see the cause they get a custom to the cost is the peace of mind and the lack of worry of a lot of these risks as the process goes on, particularly as they go through the whole diligence process with you.

    Rob: I think you nailed the one thing that I probably didn’t highlight well enough in my response, which is, this is also a way like you mentioned to differentiate your bid because it does allow you to minimize dollars in escrow. And from my experience, at least that is something that sellers actively look at it’s not just How much money is you know when under what conditions they get it. And I do think this is a way when you are bidding with a company or structuring an LLI or whatever your process is, this is a way to differentiate yourself. And I think that is invaluable outside of the risk mitigation factor. Simply unlocking the cash for the sellers is a very important thing to note.

    Patrick: I couldn’t have said it better myself.

    Rob: Thank you very much.

    Patrick: Now, Rob, you’ve with RedCAT, which we closed a few months ago, you’ve gone through by now your first board meeting with them, how are things going with them?

    Rob: Things are going well, working with the sellers, we’ve been visiting some customers, we’ve acquired some new customers as well during this time and we are getting ready to make a big hire to continue to push growth. So things are going well and everyone is excited about working to kind of take RedCAT towards the next level.

    Patrick: Well, I know you’re busy, a success brings on more and more Success for you. And I know that you’ve got a lot going on with us. But if there are some other folks out there that are in the same position as RedCAT, where you got owners and founders of the lower middle-market company, and they want somebody who’s not just going to throw money at them and put demands for growth, but somebody who really wants to partner with them, I really think they should reach out at least think about you and Broadtree. 

    Rob, how can our listeners find you?

    Rob: Yeah, so you can find my contact information, as well as my partners is on And I would encourage you to reach out to someone there if you’re looking to meet with anyone at Broadtree Partners. And we’d be happy to discuss anything with you tonight.

    Patrick: Well, Rob Joyce, thank you very much. It was an absolute pleasure working with you and I look forward to working with you again very, very soon.

    Rob: Thank you, Patrick. I look forward to as well.

  • Steven Epstein | An In-Depth M&A Case Study
    POSTED 10.29.19 M&A Masters Podcast

    The first of a two-part series of a real-world M&A transaction. First up, I’m talking to Steven Epstein, the founder of RedCAT systems, a Colorado-based SAAS company involved in HR and compensation solutions for clients like LinkedIn, Uber, NYSE, and many more.

    They were recently funded by PE firm Broadtree Partners. 

    Specifically, we’ll be looking at how Representations and Warranty (R&W) insurance played a key role in the transaction. What’s interesting is that RedCAT would not have been eligible to use R&W coverage to be reimbursed by a third-party – the insurer – if there had been any breach in the Seller’s reps. 

    We’ll talk about why insurers were willing to play ball now and how that could impact whether or not you can use R&W insurance on your next deal, as well as…

    • Why one of their partners insisted on R&W insurance – and the Buyer said yes
    • What they did to find a Seller who matched their philosophy
    • The biggest thing he would have done differently prior to the sale
    • The top benefits of R&W coverage and the surprising impact they had on the deal
    • And more

    Listen now…

    Mentioned in this episode:


    Patrick Stroth: Hello there. I’m Patrick Stroth. Welcome to M&A Masters where I speak with the leading experts in mergers and acquisitions. We’re all about one thing here, that’s a clean exit for owners, founders, and their investors. Today is the first of a two-part series where we’re going to provide a case study of an actual M&A transaction from both the Buyer side and the sell-side perspectives, where rep and warranty was used and played a key role. The first side is with the Buyer side, which is Mr. Steven Epstein. He’s the founder of RedCAT Systems, a SAAS company based in Colorado. 

    I’ll let Steven tell you his experiences in his own words and the benefits he got. What’s important here is for you to understand that prior to 2019, RedCAT Systems would not have been eligible for consideration for rep and warranty. It was a lower-middle market company with a transaction value well below $30 million. They did not have audited financials, and they were seeking insurance to a level that was well over half of the transaction value. Any of these three would have made RedCAT ineligible. But in 2019, not only was there a solution available, but it came in at the right price. 

    The other thing to consider for any of you that are either part of a lower-middle market company, or represent a lower-middle market company, the benefits that RedCAT both on the sell-side and the buys I’ve received are no different from benefits that are received with billion-dollar transactions. And now let’s turn it over to Steven. I’m here with Steven Epstein of RedCAT Systems. And Steven, if you could tell us real quick, tell me about RecCAT. What exactly is it and how did it start? Give us the background of the organization. 

    Origins of RedCAT Systems

    Steven Epstein: Sure. We formed a company prior to RedCAT in 1996 and started doing HR solutions. Started with recruiting. And then throughout the years, it’s worked on various projects for lots of mostly friends, and then that turned into acquaintances. And then as people moved, we grew holistically. And then in 2014, we formed RedCAT with a new partner. 

    And we kind of focus more on enterprise HR. Basically replacing technological solutions in the HR space, and then our specialty became compensation. So we end up doing our primary thing is high-end compensation for fortune 500 companies, the large global footprints of how they manage their compensation process, and then also in the performance management space a bit as well. 

    Patrick: Now the very important stuff, particularly as you get more and more people, you’ve got to keep track of who has stock options, who has shares in the company, all those types of things. 

    Steven: Oh yeah. And it’s difficult for large global organizations with 10s of thousands of people to manage this. If you’re in, say, 120 countries, you have a lot of currency fluctuations. You have a tremendous array of compensation decisions, from base salary to bonus, exponents, retention, performance-based stock, market conditions, performance conditions, you know, top performers retention thing. There’s a whole array of how a company would do this, but totally separate from things like payroll, actually giving an employee compensation. 

    So the tools that we do allow companies to manage that process efficiently, either sometimes with small teams. You know, some of the companies might have 50 people on a compensation team. 50 full-time people are actually thinking about compensation. And so the tool becomes a focal point and allows them to A, you know, look at all the data and manage the entire process efficiently. Because it’s easy for companies to forget that in most cases, for a lot of companies compensation is their business expense, by far. 

    It vastly outnumbers any other expense in those companies. And people take it for granted like, Oh, well, we just have to pay that. 94% of our total expenses, oh, that’s just a given. And they’re not really optimizing the fact that compensation totally affects more, you know, its morale, its retention it’s growth. It’s how employees view the company. Even though it’s sort of a fairly, you know, a  basic metric, it’s sometimes not viewed the right way. And if you,

    Patrick: Yeah, it’s a very intimately personal viewpoint held for every single person in and organization so that is central to their core why there with a company. That becomes a pretty daunting task when you got that many people. 

    Steven: Exactly. Yep. And even, sometimes even smaller companies in the financial services sector. Some of our clients may only have 1000 or 2000 employees, but especially in financial services, one of the key things is compensation. That’s why they’re at the job that they’re doing. And therefore, it’s extremely important. A lot of white-glove services, you have lots of people that are very interested in the outcome of compensation that year. So, 

    Patrick: Absolutely, absolutely. So as you got going in 2014, what led the decision to go out and be acquired?

    Why Steven Chose to Sell

    Steven: So the decision to be acquired was mostly related to the fact that we have a lot of pressure to grow. And we didn’t really want to go with the venture capital route. We had various friends and acquaintances that, you know, had gone that route, the whole bit of it and we were finding it difficult to stay our current size and get the types of clients, very top tier clients, often multi-billion-dollar payout, run the cycle, it was difficult with our headcount. 

    We’re very small. And so we knew to be able to stay relevant and to meet the types of compliance for GDPR and complexity, technically, we needed to grow. And we had tried a little ourselves and we just knew we needed more help. And so we kind of helped to, decided to find individuals that had our same philosophy, or cultural you know, had our vision group culture and philosophy, and to help to get the help we needed to be able to grow. 

    Patrick: So, as you looked at culture, philosophy. How did the process look? Did you run out and solicit a bunch of contacts that you had or did the organization come to find you? How did you go out there to find a partner that you could team up with? 

    Steven: So we originally, I mean, we were somewhat blessed because one of our partners is very well connected in the financial services industry. And he had various friends that had, you know, connections through banks and advisors and people in the M&A space who do this, right? As that’s their full-time thing is to go and find and connect Buyers and Sellers. And so for a year or two, we hadn’t you know, there was a DAC into words and approached lots and lots of possible requiring entities about us, but I think for a little while it was we were just a little too small at that time. 

    And you know, there’s a, you know, there’s sort of like this unwritten say 2 million habit of rule that sort of seems to be out there, revenue, whatever it is. And finding the kind The type of client, the type of company was we work with, we had, we began negotiations with a few that were interested, but we could tell right away that they were more interested in like, massive growth Lots of money, hire lots of people and try to mass market. And that really wasn’t our, not our client base and it wasn’t our philosophy.

    Patrick: So how did you settle on Broadtree?

    Steven: The Broadtree was more, you know, when we first were introduced to them, they had a different idea of growth. It wasn’t like let’s hire 10 or 20 people right away and just sort of throw them in the fire and see if they can grow. It was much more measured growth, which was myself and Bonnie, our philosophy was more about that. Because of the clients, we had a fairly small number of clients. About a dozen at the time, and they were all very high-end. 

    They’re all you know, names that pretty much anyone in America would generally know if you just said it. And from that, we wanted to would make sure that our clients were treated very well, right? Which is very high-level service. There’s really nothing that we would be asked that we weren’t able to fulfill on time, on budget and pretty much the experience was exceptional. That’s why we were able to get the types of work that we do. And we wanted someone who would had share that philosophy and maintain that while at the same time doing measured growth.

    Patrick: Okay, and so then the process begins about when did you guys start the process of Broadtree? Just give us an idea of the time scope on this so, timing. 

    Steven: So when did we start Broadtree? I think it was about from now about a year and two months ago. We had a process, effectively once we had assigned LY it took roughly nine months to actually close the deal. That’s something that I had read about like, oh, diligence is hard. Oh, no diligence is nutty. Nutty hard. Oh, Welcome to the diligence process, detail. We did an okay job prior to this whole process. Had I known at the time, like now what I knew then, as a company if that was your plan I would be just keep much more meticulous track of documents with every single document. 

    The same copy, the dated copy the stamped copy. We have like 600 pages of documents like this is part of our binder. Every contract, every single thing, we’re normally like in an email, you don’t think about it, you get back a signed PDF and you’re like, Okay, they signed the contract. And whether or not you signed it immediately filed it, stored in the right thing he date it, back that type of thing and all the minutes. 

    It’s every little bit of every single dollar was ever spent took a lot of effort to come up with. And then all the contracts for you know, thousands of pages of contracts that we had already signed, but then looking and reviewing every single thing took quite a while. 

    Like when we started in September, we’re like, oh, we’ll be done by the end of the year. Like wow, that’s great. That’s already a couple of months. And just things seem to take longer than they should. Even when we are near like after all the months and diligence, even near the end, when we’re getting closer to actually doing the deal. It still kept slipping. 

    Like oh, it’ll be next week. Oh, no. Oh, we don’t have the certificate from California because you know, it’s only good for 10 days and then it expires and you have to get a new one. And oh, we have seven of those in all these different states. Oh, and this state only accepts mailed copies, things like that. Like constantly there was always some extra-long extra thing that made it difficult to close but in the end, we did. 

    Patrick: You make one, that’s one real danger out there is that you get so busy getting everything set up for being acquired and going through the diligence process that it becomes a separate full- time job, you still have to keep your eye on the ball and keep, you know, operating and doing your client work.

    Steven: Absolutely, that’s actually something that a few of the delays are just because of that exactly. Like I don’t really have time to respond in an efficient manner, because we’re in the thick of doing a project, for example. But really that in our case, it was more like I just sort of worked too hard for me for the nine months, rather than pushing it too much. 

    But it’s something that that like you read about, but you probably don’t fully understand the depth. At least in our industry, like in tech, of the level of diligence. And every bit of open source code, even when it was like 20 lines of code that was copied from something that was then felt like had no relevance whatsoever. Well, technically, it’s still an open-source piece of code that prints a little warning message. Oh, okay. Well, we have to disclose that.

    Patrick: Gotcha that, Gotcha. There’s a lot to that. Now one of your partners was insistent on having a deal insured with rep and warranty insurance. What was the background on that? And how did you actually, how did that lead you to us? 

    What Led Steven to Seek Out Rep and Warranty Insurance?

    Steven: Yes, good question. So the background is that one of our partners is part of a high net worth individual and he was more concerned about liability, about being personally sued or doing this big deal and then like what if some crazy thing happened, you know, in personally fantastical scenarios but conceivably possible given the type of, you know, our size is a very small company, versus you know, the giants and Oracle. If Oracle decided to sue us for no reason, just because we technically compete with them in an area that they would likely win, simply because they can outspend any possible sense. 

    In that vein, he wanted to have the ability need to have coverage effectively, to be able to help shield that liability. And so at the time, and when we first looked at this, the expectation for everyone we’ve spoken with was that rep and warranty wasn’t really available to a company of our size. Because it seemed to be in the 50 million hundred million, you know, big, big deals. And I, of course, did a quick Google. Google’s great, and, you know, spent 20 minutes actually reading various things, and they came across some, an article that you had written actually. 

    And that really resonated. I was like, Oh, that sounds like something, you know, an opportunity to have a solution here rather than just like we can’t do it. Like we’re going to put in a max cap that’s too low because I knew that the Buyers wouldn’t go for that. They’d be like, Well wait, if we’re spending all this money, we want to be able to have a higher limitation of our expense rather than say, a couple of million dollars. 

    So that seemed like there was actually an opportunity. And then the next thing that came out was cost. We’re like, oh, Well, you can get this revenue warranty insurance as a smaller entity, but is the cost prohibitive? Is it completely, if it’s like, oh, it’s 10% of the deal price, most likely that would make it completely prohibitive. But it, you know, obviously, as you know, the rates have been dropping, and it became something that was in the realm of possibility. 

    Patrick: When you presented this to the bar, what was the Buyer’s response? 

    Steven: Well, at first, the Buyer’s response was, Oh, that’s great. We don’t think we need it. Because the liability from us was very small because of the relatively limited number of possible infractions. We didn’t have that many contracts. There wasn’t that many, there wasn’t that much code that actually could possibly be infringing. But still, I think in the end, they were appreciative. It allayed our partners’ fears, basically of the deal as well as the liability. 

    It eliminated, from our perspective, because we stayed on, right? We’re staying on as very integral to the continued success. And if something did come up, I think it would be tremendously valuable to have in that. And why? Because if something came up, and it was like, oh, well we’re going to put something back on the Sellers originally. Like, let’s, you know, let’s say we had, we didn’t in the end because we haven’t RW. But let’s say, we did put the same, you know, million five or $2 million in escrow. 

    And then some kind of obscure thing came out, right? And we disagreed with it. We’re like, well, we don’t really feel that this is a valid thing. The defense wasn’t done right. That would cause a serious breach. Not only of you know, say it’s a million or two dollars, but then we probably wouldn’t want to stay on. And the effect is that most likely would be the failure of the business, the new business. 

    Patrick: That dilemma is something we see quite a bit where you have technology Buyer and post-closing they bring on the target company and they bring on a bulk of the personnel, the management team and so forth. They bring them on in, and that new group are just rock stars and they’re getting along great. And then all of a sudden there will be great to happen. And now the, you know, the dilemma, well do we take away their escrow that we’ve been holding? Or do we just eat it because we don’t want to have a drop in morale? 

    And we don’t want these guys mentally checking out on us. And so they end up a lot of times having to eat a loss that otherwise would have been insured. And so yeah, that’s a real great point. And  I think that the Buyer, I agree, I think the Buyer was at first, you know, a bit ambivalent, but as the process went on, they really started to embrace it, largely because, you know, it put your partner at a lot more comfort and I think that really helped the process move forward a lot smoother. 

    Steven: Oh, absolutely. I completely agree. Yes. So in the end, I think I mean, obviously it still is. You know, the numbers still feel big. You’re like, wow, that’s expensive. That’s a lot but the peace of mind can be priceless, right? Just that feeling like well okay, well, I don’t have to worry about this. If some frivolous thing happened then we’re covered. It’s not a thing that will A, damage the relationship and B, you know, just consume life energy where you’re fighting about something that is likely frivolous. 

    Patrick: Well said. I could not have said that better myself. A lot of times with the rep and warranty policies, they’re dealt with between the Buyer and the insurance people. I don’t know how much involvement you had. Did you have any involvement in doing anything other than getting us connected with your Buyer team?

    Steven’s Involvement in the Rest of the Process

    Steven: A little bit. Sure. We looked at, you know, obviously the actual policy itself and then you push back on like the wording of a couple things like, Oh, we won’t cover this little obscure thing and you say, oh, why not? And then we discuss it a little bit and we tweak those and but nothing truly material. It was all fairly small and benign.

    Patrick: It didn’t slow down your process of the deal or anything like that. It wasn’t too much extra work being dumped on you? 

    Steven: No, not really no. The insurance bit was relatively benign timewise. We didn’t spend I mean, you have to read it. You know, we read a lot, you know, still 20 pages of reading, but that it wasn’t like we spent a lot of time and effort on it. And as far as you know, the actual timeline of the deal, it was fine. Had we closed, like right away, it still seemed like that was, it was something that we could have if we were extremely expeditious, we would have been able to still meet our deadline. As it turned out, we had extra time. So it was fine. 

    Patrick: So aside from now having the knowledge of watching all your documents very closely and making sure you pay attention to every dollar that’s spent and why and all the code having that accounted for, any other lessons from this experience, or is there you know, anything that really surprised you other than the minutia on the documents and details?

    Steven: Document details was big. I would say, you know, obviously, you work very closely, in our case, with the Buyer spending a lot of time going through a lot of diligence, a lot of discussions. And so making sure that probably and that’s something that would evolve over time, but I would think that would be very important to ensure that the people that you’re working with your Buyer for your company like us, that you liked them. That they’re good people. Luckily we worked out. Our Buyer is great. I talked to him right before this call. He’s great. We love, I think it’s a good working relationship. 

    Other surprises that came up, not tremendous. I think that we, it’s easy to focus on some things that in retrospect, we spent too much time focusing on. Some of the numbers and so forth that it’s easy to imagine scenarios that are completely unrealistic to focus on like outcomes or future cases. I know that they can happen, which is why, obviously, like rep and insurance rep and warranty insurance, why it exists. But I think that probably could be streamlined. That’s something I’d like to see actually, like from you, Patrick, would be like a cheat sheet. 

    Hey, just in a lot of deals, these are the things that probably that you should be focusing on rather than this generic like oh, what if? What if that? What if this? And then coming up with language to address cases that are probably discovered for good like, reward too. Like, we did a lot of that before we had the rep and warranty. Like, oh, what about this case? What about that case? What’s the limit of this liability? How many months for this? And really all that was a waste of time because we knew that once we knew we were going to get several warranties. 

    Patrick: Yeah, then there were fewer contingencies to worry about. 

    Steven: Exactly. And some of the, and a lot of the contingencies, we spent too much time talking about that. We’re very far-fetched from my perspective. Things like oh, some unknown company in Russia is going to sue you for code that, like you’ve never really like, things like that. 

    Patrick: Yeah, gotcha. Well, now you’ve already gone through your first board meeting with your new partners and everything. How are things going? You mentioned that you liked them, which is always a really, really positive thing. But how’s it going? 

    Steven: It’s going well, yeah. I mean, you know, as I may have mentioned, our primary problem is capacity. Capacity strain, meaning that we’re small, and to really handle like larger volumes of the types of clients we work with, we need, you know, highly-skilled people that are really good. And that is a difficult challenge to find. But we’re doing our best, you know, we have fairly, you know, we’ve had recruiters, we’ve had thousands of applicants. 

    And then we have, you know, various tools that we’re using internally to try to ascertain, you know, is this person a good fit? And assuming that goes well, and hopefully it will, it should be good. Yeah I mean, then it’s just more of a How much do we want to scale? How long do we want to play this game? I mean, while it’s still fun, and that’s a big thing, make sure it’s fun. Like you have to enjoy what you’re doing or otherwise you probably shouldn’t be doing it. 

    Patrick: Absolutely, absolutely. Well as you’re having fun, there may be some other people that could have some questions for you. How can people reach you? 

    Steven: I think LinkedIn is a great way. Just reach out on my LinkedIn and ask a question. That’s easy. 

    Patrick: Sure. Okay. So it was on LinkedIn. Steven with a V, and then Epstein, EPSTEIN? 

    Steven: Yep. On RedCAT Systems. 

    Patrick: Great. RedCAT Systems. Well Steven, thank you very much. This has been real helpful and I’m glad that this all worked out. I mean, our objective on this whole venture that we have at Rubicon is we want to help people who created something from nothing be able to move on and exit one platform and move on to another where whether that you know, being acquired by a strategic or just going riding off into the sunset with a clean exit for a great retirement. 

    You’ve added tremendous value. RedCAT Systems is very successful. And your company are a list of the who’s who of Fortune 100 firms and you’re definitely adding value with what you’re doing. And I really sincerely wish you the very best of luck. And hopefully we’ll be with you when the next, you know, nine or 10 figure deal comes up for you. 

    Steven: That sounds great. Yeah, I mean like this was another interesting thing you could add of course is that once you’ve done this once you think oh, wow what about this idea? That would be fun. So there’s lots of ideas out there. I think it’s just finding the passion. And one extra thing that I’ll give you a little bit that you can throw on if you’re editing something together is when I first found Rubicon from the article, which I liked, and give me, you know, basis, of course, there’s everyone else had someone like did you talk to Marsh? Did you talk to this person? Did you talk to that person? And it was fine. 

    I tried to stay out of spending a lot of time on it. In the end, I think that everything you did was fine. It was great. The pricing was all similar normalish. It wasn’t a lot of like, wow, I need to shop around a whole lot. And it was very convenient that you were like, had worked with enough companies that you could quickly give us like an overview that you’re able to shop to the various insurance companies. So we didn’t have to spend lots of time shopping. Meaning like I felt confident that that was approximately what we would expect, and was great. It saved more time. 

    Patrick: I appreciate that. Yeah. That’s the other thing that is new out there is there when you and I spoke our first conversation was in fact, there were probably about 11 or 12 insurance companies active in rep and warranty. There are now as, just in a few months now we’re up to 20 companies. 

    And they are going all over the map from one stage focuses just on sub $50 million transactions and then others that won’t go below 100 million because they want that segment of the market. So it’s definitely maturing and something to go forward with. But I just wish you all the best of luck and we’re going to do what we can to stay in touch with you, Steven, and keep track of RedCAT Systems.


  • Austin Leo | Insurance That Increases Sales
    POSTED 9.17.19 M&A Masters Podcast

    In the world of tech, a lot of companies, especially the smaller ones and startups, their financials are quite opaque. You never know on the surface if one is about to go under or go unicorn.

    Austin Leo, VP of USI Insurance Services, highlights a specialized type of insurance, once reserved for large manufacturers, that can help larger companies identify who to do business with… especially those with the least risk of going under before they pay their bills. 

    And that’s just one benefit.

    It’s a great example of insurance coverage that adds tangible monetary value… even when you don’t have a claim. Austin walks us through the many ways these policies help and how they work in real-world terms. 

    Tune in to find out…

    • A strategy to prepare for a gap in your accounts receivable
    • A “backdoor” way to get information on potential clients
    • How to increase sales with insurance
    • Why lenders love this insurance – and are ready to spread the love to you
    • And more

    Listen now…

    Mentioned in this episode:


    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.

    For most people, insurance is something that you pay for, but you hope you’ll never use. Even when it works, people are still not happy because something bad has had to happen in order for you to put your policy to use. Now there are insurance products out there that provide tangible monetary value without the policyholder ever having to suffer a loss. Rep-and-warranty insurance for M&A transactions provides this very value-added capability, and that’s what inspired me to pivot our program here at Rubicon M&A insurance to focus on insuring M&A transactions.

    Today, I’ve asked Austin Leo of USI Insurance Services to join me to discuss another product out there called trade credit insurance. Like rep and warranty, trade credit provides significant financial benefits without ever having to incur a loss. That’s probably why private equity firms are now warming up to this and using it on more and more of their portfolio companies. But,  I’ll let Austin tell you how. Austin, thanks for joining me today. Welcome to the program.

    Austin Leo: Hey, Patrick, thanks for having me. appreciate you having me on. Glad to be here.

    Patrick Stroth: Well, let’s give everybody listening here some context. How did you get to this point in your career, where you’re a specialist in this very technical area of insurance?

    Austin: Sure, so good question. Sometimes I asked myself that myself. So, you know, I started off my career actually working in PR, and then ended up at a company, they were a French company, that specialized in company information in the B2B sector and advertising your products in that sector to specialized clients. Ended up you know, you know, really like that part of the business, especially the information side of that. And, I ended up at an insurance firm by the name of Coface. Now, Coface is a French insurer (second-largest trade credit insurer in the world), and I started off there as an underwriter and soon found that insurance was fascinating to me. Especially the trade credit side of things, whereas you mentioned, you know, you don’t really need to find the value when a claim happens— you can do that much earlier. And we can talk about that. But anyway, ended up you know as an underwriter, a Coface. Then went to manage our global clients, and then went on to the broker sodas business with my own firm. And then, eventually joining USI. 

    Patrick: Well, as with a real diverse industry like insurance, there are products that can cover any number of different exposures. Why don’t we help the audience out here— what is exactly trade credit, and then who uses it, or who’s the traditional user of a trade credit insurance policy?


    What Is Trade Credit Insurance?

    Austin: Sure. So trade credit insurance helps companies identify their risks, it provides companies with information on their customers, the insurance side of it really covers a company who is selling on open account terms— open account credit terms to another company— it helps them mitigate that risk against non payment, slow payment, or bankruptcies and insolvency.

    So you’re selling to another company, for whatever reason, they don’t pay you or cannot pay you. That’s when credit insurance would kick in, and pay a claim on the non-payment side of it.

    Patrick: So they step in and pay your outstanding accounts receivables because the client disappears or is somehow unable to pay?

    Austin: That’s exactly right.

    Patrick: And the traditional policy was— I can think of these where you’ve got big ARs out there were large industrial manufacturers, textiles, commodity type things. That could be the typical client of this. But nowadays, are there other clients, particularly in the tech sector, where this could be used?

    Austin: Yeah, absolutely. And you’re right, Patrick. You know, a lot of companies that have used trade credit insurance are, you know, manufacturers, distributors, the commodity traders, but, you know, manufacturer or distributor of components. And that was kind of the traditional side of a user of trade, credit insurance. Use it for multiple things, you know, both for mitigation and enhancements, financing, and sales. But now we’re finding that in the tech sector, you know, a couple of things are happening, right? Tech companies tend to be a bit focused on sales, especially to companies they might not have a ton of information on, or are new to the industry.

    So that leaves you, you know, at risk to non-payment, or lack of information on your companies. And as I always say, you know, a sale isn’t a sale until it’s paid or collected, right? So, it’s great that you’re sales focused and offering open account turns to other companies, but until it’s paid, it’s not a sale. So, that’s where we find tech companies benefiting from the trade credit side of things, you know, the heavy AR stack on the book, the last thing you want is for multiple companies not paying you, customers not paying you. 

    And then I mentioned on the information side, you know. Newer companies, prospective clients… it’s tough to pull information. I mean, of course, you know, you can, you know, Dun & Bradstreet, CreditSafe is a provider of B2B company information. The insurance companies also have big databases filled with information, and they do their due diligence. I mean the last thing they want to do is, you know, pay a claim, right? They want to be profitable. So, the information that we find from the insurers tends to be better than some of the stuff we find from, you know, like the DMV. So, yeah, I think the benefit in the tech side is, you know, data information on your prospects, clients. And then, of course, you know, mitigating the risk of non-payment or insolvency from those clients.

    The other thing that we find is the financial benefit.

    How Does Trade Credit Work?

    Patrick: Before we get into the financial benefit, I just want to go back just on a really nice use case scenario. So you have… what the service that you can provide as your insurance product can provide background checks for prospective customers. So if you’re a tech firm, you’re about to sign a major contract with a potential customer, they could turn to their trade credit insurance and say, we want to sign up this company in South Korea as a client, they’re going to pay us X dollars… and we don’t have as much information. But, the insurance company with their resources, can find out whether or not that potential client in South Korea is a good or bad credit risk. Is that is that how that works?

    Austin: Yeah, that’s correct. So yes, you know, we want to sell to company A in China, you know, notoriously, it’s kind of known in China, that it’s tough to get financials. The insurers are able to do that along with banks. So yeah, you know, we expect to have, you know, 2 million open, you know, AR exposure at any given time… high AR exposure at any given time. What do you guys think? And then the trade credit insurance will come back and say, “well, you know, you know, either yes, will approve the 2 million and, and here’s why. Or we’ll do a partial approval of that.” And give you information on why, you know, maybe they’re late to pay other suppliers, and that’s in their database, maybe their financial conditions have worsened Or, you know, the last answer you want here is, is “no,” but it’s relevant, you know, information, right. 

    The last thing you want to do is try to turn bad credit into good credit. Never works out. We’ve seen it time after time. So, yes, the credit insurance information… or I’m sorry, the credit insurance companies are all members of the Berne Union, and they share information with one another.

    So you’re seeing the information that you know, the bank’s get…. the insurance gets, but you might necessarily not.

    Patrick: Wow, so then, not only are you protecting your client from from a perspective loss, but you’re just giving them that that background information so that they can make a better decision that’s got to improve, you know, they’re not necessarily I think, guaranteeing this AR is out there. But, they are really protecting those.

    That’s got to make a company’s lenders really happy. I mean, you had just referenced me there is a financial benefit, I can imagine, you know, with their, with their lenders, companies, lenders would love if the company had this kind of protection.

    Austin: Yeah, and you bring up a good point, Patrick. So, yeah, the lenders, they love trade credit insurance. Especially when there is ABL: an asset-based lending facility in place. You know, companies… everybody thinks about their assets, right? You know, you have the people, you have your property, you have your inventory, all of those are insured, right?

    A lot of times companies don’t think about your receivables as an asset. And they are, and in some cases, they’re the largest asset a company has. So the lenders love it when the foreign receivables are insured with trade credit insurance because it allows them to include those into the borrowing base of an ABL. It also allows them and their credit folks in the bank to feel comfortable raising advance rates, which is really key. You know, you could have a company that has a facility that’s getting, you know, an 80% advanced rate on their assets. With trade credit insurance, the bank can bump that up to 85%-90%. 

    We’ve seen companies that have gotten, you know, 1 million-2 million, just an increase in working capital, just from having a trade credit insurance policy.

    Patrick: Wow. And so, in addition to mitigating risk on the one side, you’re now improving their accessibility to more cash. And that’s got to be just a great benefit that offsets any costs. And this can also be used in a couple of other things, not just for increasing your cash flow, but does it impact on other operational things like your sales? 

    Austin: Yes, yes, it does. So, you know, you could have you can have a group of customers, right?  Where your credit folks internally, within the organization say, “we’ve looked at the financials based on the information that we have, you know, credit report financials, we’re comfortable granting $2 million dollar limit for them in credit.” 

    Whereas you there could be a credit insurer saying, “you know, that’s great. You know, we have information, we can justify a $4 million limit, and would be willing to include that in a credit insurance policy and underwrite that and ensure that.”

    So, I mean, in essence, you know, you can go above and beyond what you might be comfortable doing internally, from a credit standpoint. And you’re just having a partnership with the credit insurance company, letting them take on that risk and really risk transferring that which in turn, you know, you can sell more to a customer… you’re obviously going to increase your sales, depending on how many times a year you do that, and what the open account terms are. So yeah, we’ve seen companies, I mean, in general— we have statistics on this, based on what the insurers provide— companies can increase their sales by 20%, just by using the trade credit piece.

    Benefits of Trade Credit Insurance

    Patrick: Okay, so that’s benefit three. Benefit one was protecting yourself with the information on prospective customers that you can get from the trade credit insurance company. Number two is improving terms from your lender, so they can get more cash flow probably improve their lending rate, and then you can increase sales. So all those are tangible, testable, you can do with evidence and so forth.

    So that really is something. Do you have any case studies or just use examples in the technology sector? I know, you’ve been writing some tech company lately, you share with us some examples of that?

    Austin: Sure. So, you know, we had a tech company that we’re working with, that had a private equity company go in, and partner with them, right. One of the things that were not making them look, so financially sound was the bad debt reserve that they had on their balance sheet.

    So, you know, tech company, as I mentioned, you know, tech companies can be so much focused on sales. So they, were, but to the wrong companies, right? So, piled on a ton of AR, which turned into bad debt, which, you know, when you have bad debt, you have to keep a bad debt reserve on your balance sheet, which negative negatively impacts working capital.

    So, what we did for them, is, we were able to use credit insurance as a way to take out that bad debt reserve, right? You can completely remove that from your balance sheet, transfer that risk to the insurer. In addition to that, they had, you know, two or three clients that were a concentration risk. So the three clients made up about 70% of their business. So what we did, and what the lender liked and in the private equity company, they liked that removing that risk of concentration, right? Because God forbid something happens to you know, one or two of those three big clients completely would put them out of business. So we’re able to transfer that risk. 

    And then from a financial standpoint, they were able to get additional working capital, from some of the foreign receivables and increase to their advanced rate on their ABL facility. So the working capital paid for the credit insurance policy times ten. And the main thing that, you know, we’re sitting down, we’re talking with the CFO, and he goes, you know, what I don’t want is to detract from sales, right? We’re a sales-focused organization, that is where we want to stay focused, we need to grow. So the tool that they really liked was, you know, using one of the large insurers for their database, and even before selling to a company, a new customer— they were able to go into the online portal of the insurer, putting the company’s name, where they’re located, and the credit limit needed, they would know before they even made the sale, if that would be eligible for trade credit insurance. Which gives them a competitive advantage, right? So you know, the information, the lending, and then removing the bad debt reserve off their balance sheet, completely changed this company. It was actually amazing to see what we’re able to do for them.

    Patrick: Yeah, the one thing is private equity firms are notorious when it comes to insurance, they really do not like spending any dollars on premiums unless there is some real value coming in. So, it’s a real validation for you to have private equities firms now becoming more active and really warming up to that. Have you seen a growing trend of that with private equity?

    Austin: Yeah, absolutely. I mean, you know, when private equities go in, and they invest in a company, they want to make sure that they’re getting the best return on their investment. Right. And they don’t want to spend any more money than needed. That’s for sure. So yeah, yep.

    You know, we’ve seen I mean, yeah, there’s a way for us to do a financial benefit review. Right? So, before you even get the trade credit insurance policy, there’s a questionnaire that we have, there are things that we like to review, to see if it would be, you know, cost-effective or cost-prohibitive to the, to both the company and then the PE firm.

    So yeah, we’re seeing private equity use tree credit insurance a lot more. You know, over in Europe, the trade credit insurance market is like 60% to 70% of companies use trade credit. Here in the US, it’s about 12% to 15%. So I think it’s just, you know, a lack of knowledge… a lack of people out there in the marketplace really educating people on trade credit. And we’re starting to see that come around. So, yeah, private equity firms are getting very keen on it. And understanding the benefits and utilizing the trade credit, you know, from the financial benefit, and from a risk mitigation benefit. For sure.


    Patrick: Well, it’s all it’s also nice, because even before they have to commit to securing a policy (there is an application process) but they can find out dollar-for-dollar, how much more they can make before the even have to get a policy, I think that’s a really nice element. We see the same thing and do it proposing terms of rep warranty where you can go ahead and get the terms of a deal set up and we can already kind of model “well, here are ways that you’re going to be able to exit the transaction with more cash than you would if there were no insurance.” I mean, and usually, the financial benefit is a multiple of whatever the cost is.

    So it’s as a lot of people say, once they learn about trade credit a little bit more just as with rep and warranty, the same to word description they just say it’s a no brainer. And that’s why I really think the more people that learn about this, and see how it’s being deployed is a real benefit. What’s the application process? What is there a minimum eligibility requirement? What’s the process? So if someone were to reach out to you, how would they get started?

    Austin: Sure. So no, there’s no minimum requirement for trade credit. There used to be. But as we’ve seen, you know, I was talking to a client of mine 10 years ago, there’s about, you know, maybe 10. In insurance companies who’d be willing twice, right trade credit. Now, there’s about 25, or 26, we can go to, which kind of, you know, change the market and added a ton of additional capacity into the marketplace and softened the market as well, which is good for prospective buyers.

    So no, listen, not a very labour-intensive application process. Basically, they want to understand, you know, who is your company? What do you guys do? Have you had losses in the past? Who are your customers? You know, one of the benefits from going through the application process is, as I mentioned, you have lots of markets to go to, you have lots of insurers who have big databases full of information. Basically, you get a free review of your top 20 customers, by multiple sources. So you could have five or six trade credit insurance companies saying, here’s what we think about all of your top 20 customers, here’s how we would risk rate them. And if we see any problems, here’s what we see. So it’s a nice kind of due diligence process, as well, as you know, looking into the product itself. So no, essentially, you know, you can reach out to me, we have our own application that all the insurers accept, and we’d be happy to guide you through the process and see if it’s something that’s right for the company.

    Patrick: How long does the process take?

    Austin: Generally, applications, you know, sitting down working on it, I’ve had clients fill it out within, you know, 20-30 minutes. I’ve had clients take months to get back to me, but I think it’s due to other priorities. But listen, you know, I think, you know, sitting down, it should take no longer than 20 minutes to maybe an hour if you have all the information necessary.

    Patrick: Well, the other issue is just how long does it take for the insurance carriers to processing? Assuming full submission, complete submissions out there to you go to the 20 markets for them? How long is it approximately… weeks? Days?


    Austin: No, it’s… you know, Patrick, it’s relatively quick. If we have a filled-in application, and we submitted to the market, we expect to have responses back from the insurers within a week to 12 days. So, you know, two weeks if you’ll all of the markets have quoted, and will sit down with people and talk about the pros and cons to each. 

    Patrick: Well, that’s that is it, there is no reason for someone not to reach out because just having the information will… even if it’s a no-go, that that information, I think, is a tremendous use to business owners out there and management firms and so forth. 

    Austin, these products are tailor-made for each and every particular client, there’s not a lot of heavy lifting, the cost is a fraction of what the benefits are. So there’s no reason why you shouldn’t be flooded with people reaching out. How can our audience get ahold of you so that they can see if this is a fit for them? 

    Austin: Sure, so you can feel free to contact me via LinkedIn, which is Austin Leo. You can reach out to me at or there’s always the phone which is 908-240-5145.

    Patrick: Excellent, Austin. Thank you very much for helping me bring in another value add that doesn’t require somebody suffering pain in order to get benefits. So thanks again.

    Austin: Patrick, thanks for having me on. I appreciate it, it was a pleasure.


  • Colin Campbell | Strategic Buyers vs. PE Firms
    POSTED 9.3.19 M&A Masters Podcast

    After culling through a decades-worth of data on IT services companies, Colin Campbell, Associate Director at Livingstone Partners, sees the potential for a market downturn on the horizon.

    He shares what trends he sees that point to this potential slowdown, as well as how Buyers and Sellers approach M&A deals to account for it.

    Colin says that Strategic Buyers are being quite selective in companies they target and tend to go after the company aggressively once they “fall in love,” wanting to move quickly and are willing to pay a premium.

    This is in contrast to Financial Buyers (like private equity PE firms) who may have a wider appetite for acquisition targets, but factor into their analysis the possibility that values may level-off or decline due to an economic slowdown or other factors – they are mindful of the potential downside when pricing a target.

    In our conversation, we take a deep dive into the above concepts, as well as…

    • The type of revenue that is most attractive to Financial Buyers
    • What drives real value in data processing companies;
    • Who’s buying IT services companies today;
    • The disconnect between Buyers and Sellers in the IT services space;
    • And more

    Listen now…

    Mentioned in this episode:


    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 Colin Campbell, Associate Director at Livingstone Partners. Livingstone Partners is an independent M&A advisory firm with a proven track record of delivering exceptional outcomes for private and public businesses and financial sponsors. Colin recently published a piece titled “Does An Old Bull Need To Learn New Tricks?” which outlines possible changes in the M&A sector for tech. Which is counterintuitive to the current thinking of late of the unending robust market for M&A in general, and tech in particular. And if slow down is in the cards, well… what middle-market companies do about it?

    Colin, thanks for joining me, and welcome to the program!

    Colin Campbell: Thank you, Patrick. I appreciate it.

    Patrick Stroth: Before we get into this report that focuses largely on the IT services companies… tell me about you, give our audience a context for you. How did you get to this point in your career?

    Colin Campbell: Sure. So, I’m a multi-time entrepreneur. I’ve started a couple of businesses over the years, I’ve been an operator, I was in private wealth management for many years, focused on estate planning, asset management. And, I think at some point, I had experience from a private wealth management standpoint, guiding my clients through mergers and acquisitions, and decided that that was really an interesting part of the business. And, I think an aspect that really sort of captured my attention.

    And so, at some point, I pivoted towards an M&A role coming out of USC, so I did USC undergrad at Marshall School of Business, and then graduate school, also at USC Marshall School of Business. And now, in my spare time, when I’m not advising middle-market businesses on sell-side transactions, I’m also an adjunct professor at the Marshall School of Business.

    Patrick: Well, you’ve kept yourself pretty busy there! Now, with this report you recently published, “Does An Old Bull Need To Learn New Tricks?” (which we’ll link to at our show notes here at… what led you to focus on the report? Where did this come from, and give us an overall genesis of what led up to this report?

    “Does An Old Bull Need To Learn New Tricks?”

    Colin: Yeah, so, we spend a lot of our time talking to business owners that are contemplating a transaction in the next 36 months. And, at the same time, by virtue of the processes that we run, and then staying current on the market, we’re talking to a lot of buyers. And, what we find is that there are some interesting trends going on right now, not only from evaluation perspective but also from the overall economic timing, the catalyst as to what’s driving some of these transactions, and felt like in many instances, there’s a bit of a disconnect between sellers and buyers and the thought processes. So, we thought it made sense to do a little deeper dive, look at it from a historical context. And so, we pulled all the transaction data for the last 10 years in the IT services space and tried to start drilling down into what sort of conclusions can we start to extrapolate from the data?

    And I think what we found is that, you know, there’s a longer-term trend— not only in deal size (and by that I should say multiple), and also deal count— where there are the beginning impressions that while we’ve been in a very, very long bull market, that there are indications that things are starting to slow down and potentially turn. And from our perspective, our clients are generally operators that are looking for a sell-side transaction. You know, there are important considerations to take account for when you’re thinking about what could happen to the economy, and specifically, what could happen to your particular sector in the next 12 to 24 months. 

    So, the idea behind the article was: let’s start to suss some of that out, let’s start to talk about what some of those trends are. And, obviously, the actual implications are going to be very specific company to company, operator to operator. But, it’s important to start thinking now for many of these business owners, how does that actually impact their specific business, given their specific situation, and their businesses nuances?

    Patrick: Well, where you’re targeting this with technology when people talk about technology is as diverse as somebody talking about retail. You can have everything from widgets to items over at Tiffany’s, in the scope of the wide variety of things. And what I liked about what you add here is you are trying to broaden your research for all things, to all people in tech. You focused on a real finite specific group with the service providers. Tell us about that… is it just because those were the most numerous classes out there? Or is there a preference there? You know, most describe the categories of tech that you looked at in the service provider side, and then why those projects?

    Colin: Yeah. And, Patrick, you make a great point, right? I mean, as you look across all of the various industries, even some of the most traditional ones, you’re seeing more and more technology being infused in these businesses. And, that’s ultimately impacting those valuations and those transactions. I think the reason why I tried to focus is that you can’t look at all of it in one fell swoop. It has to be distilled down more than that. And so, where I spend most of my time, is within the broader landscape of business services. We’ve drilled down into IT services, and that’s really what this is focused on.

    Beyond that, I spend even more time really thinking about IT consulting and other services businesses, which is one of the three legs to the stool, if you will, in this IT services landscape. That tends to be where we spend a lot of time talking to business owners that are operating on one of the cloud platforms that are: providing consulting services, that are leveraging technology to impact other businesses, that are managed services providers, that are actively shifting their business towards a slightly different mix (from maybe an older, more traditional consulting business). And so, that’s seemed particularly relevant to my experience, and where we were spending a lot of our time these days.

    So when we take this broader IT services space, and we drill down into data processing and outsource services being one tranche, internet services and infrastructure being the second tranche, and then IT consulting and services being the third… What we find is that there’s each one has their own DNA, their own trends. And, it’s important to think about, even though they do overlap, overlap in some instances, where specifically a business would lie, and then that’s going to significantly drive, how they ultimately become viewed and valued in the market.

    Patrick: Why don’t you give us a quick synopsis of each. What is data processing? And then, what the predictions are based on the report from what you observed. Segregate that from internet services, and then segregate that from IT consulting.

    Data, Data, Data: Processing, Internet Services, and IT Consulting

    Colin: Sure. So, data processing and outsourcing services businesses are what we might think of as your traditional data, big data business, right? They’re dealing in a lot of numbers, are dealing and a lot of data points. They’re trying to draw out really unique insights from vast quantities of data. And I think what we see here, in some of the analysis is that the number of transactions in this space is somewhat limited. And I think there’s a number of reasons for that. I think you have to look at deal volume, in concert with deal value. And what you find is that, for many of the historical years, the deal value has been very volatile. So, multiples in this particular space have been very high and very low. And, I think that’s a function of the limited number of transactions that you see in a space. And so, it’s a common interaction right between supply and demand that when there’s an imbalance in the market, it’s going to drive values either very high or very low.

    Recently, we’re seeing a downtick in multiples in the data processing space. And I think there’s an argument to be made that as data is becoming ever more prevalent. And, I think there’s plenty of sources out there that say, we’re generating more data today on a daily basis than we were generating monthly, or annually, not that long ago. And, the rate of data creation is becoming such that to just be able to analyze the data is not becoming as unique, and it’s becoming almost maybe more— dare I  say— commoditized to take data points, compress them together and try and pull out some insights. It’s becoming much, much more difficult to find something that is truly unique and insightful, versus something that’s become almost a little bit more regular way. So, I think that’s driving down some of the values in that space. But there are so few transactions in that sector, that I think there is room for someone to come out if they truly have something unique, whether it be unique insights or a very differentiated data set that is truly proprietary to their business, that I think that drives meaningful value in that particular sector.

    Patrick: I hate to interrupt… On one thing, though, with the data processing, and just a quick question for some of us less tech-savvy folks. With the data processing, you’re processing… you’re handling raw data and organizing or analyzing that, does that then lead toward artificial intelligence? Or is AI a factor… a part of data processing?

    Colin: It’s a factor of it, I think it depends on how you. And that’s where part of the complexity with trying to distil down a large data set that it tends to get a little bit murky around some of the edges. And so, there are companies that are, are effectively both a consulting and advisory practice, but leverage AI and have data processing capabilities. So, if we think about it more in its pure form— I think the data processing itself tends to be more data collection, data aggregation, and data analysis, and less the true cutting edge AI. Now, the more technology-infused and the more cutting edge of the more advanced you are, certainly, that pushes you towards a higher value because now you’re talking about something that is truly unique. It’s truly differentiated, and typically has some kind of moat around it. In terms of it’s difficult to replicate, it’s one of a kind, right, it’s something that is not readily available across the market. 

    Internet services and infrastructure. This is really going to be when you think of e-Commerce when you think of online, and what I would consider information services businesses. So, this is going to be oftentimes a B2C model, and it’s really online-based, I think these businesses, again, from a volume standpoint, there are fewer trades that go on year in and year out. And, the range of size of the business is very, very broad. And so, that also creates a fair amount of volatility in terms of the valuation of those businesses.

    So right now historically, call it the last three years, these businesses have been trading high single digits, and year to date, we’ve seen actually a limited number of transactions to validate any sort of thesis around where they’re currently trading. They really tend to be predicated upon, what is the type of traffic the businesses generating? What is the type of service that they’re providing? What is the information in the case of online information commerce that they’re providing? And here, again, it blurs the line a little bit, where are they getting the data from? How are they aggregating it? how unique is it? Are there more proprietary insights that they’re able to pull out and then deliver to the consumer from their data set? So it’s, it’s a tends to be a bit more volatile space, just because there are fewer trades.

    Patrick: And then we have IT consulting?

    Colin: Correct. So IT Consulting… this is going to be the bulk of the market. And I think one reason being is that it tends to be more of a traditional consulting model. You have a high headcount, oftentimes there’s a little less technology development, there’s a little less proprietary technology. In this category, you might see companies that are considered the value-added resellers. These are called bars, or IT consulting businesses, that are truly doing what’s considered the lift and shift. So: helping businesses that are in more traditional industries integrate into the cloud. These are also managed service providers, which tend to be outsourced IT services providers. So if a company, maybe an industrial business, that is very tried and true, very traditional and its operations, but is now moving its back-office and ERP systems into the cloud and is looking to create a mobile application to empower its workforce out in the field, this would probably be an IT services or IT consulting business that is helping them to do the integration, and then build out that application and empower that workforce.


    Patrick: And even though, unlike the other two categories, you have a lot more people involved. In terms when you said the headcount which was striking to me. You are saving… an IT consulting firm is saving a business by doing the work of hundreds of people with only two or three, but you still have two or three, that’s two or three more people than a data processing company may have to engage. Is IT consulting as a business… is the value and also the cost-driven by the depth and scope of the headcount? Is it a lot more tangible with people, then  technology?

    Colin: It is, right, technology tends to lend itself to being highly scalable. You tend to see that in growth rates, you tend to see that in margins. And so, in the IT consulting business, there’s maybe a bit more stability… certainly in the valuations of the companies there tends to be more stable. Partly, because there are more deals to be done. There are, you know, there’s the argument to be made that there is a lower barrier to entry into the IT consulting space because practically anybody can hang up their shingle and say that they’re an IT consultant. What I would argue is that there’s a greater barrier to excellence, where there are a limited number of folks that have truly been able to differentiate themselves, and build that requisite skill set that sets them apart from everyone else when it comes to cloud integration, app development, managed services, and really providing something that is value add to the end consumer. So in this case, it’s a B2B model, where data processing or technology as a whole is going to be highly, highly leverageable in terms that it’s very scalable, you get a lot of operating leverage. The more you can build-in from a sales standpoint, typically the much more profitable, the business becomes. In IT consulting, because there is typically a larger headcount, that it’s oftentimes about billable hours. It’s oftentimes a story of a project versus recurring revenue. And, that has a huge impact on value as businesses are looking to go to market.

    Patrick: This is a little bit off-topic from your report, so I do apologize for this. But, in your analysis, I’m just curious… who was doing the acquiring of each of these categories? If you if you’re a data processing company, was it being bought by a larger data processing company? Or from others, some strategic buyer that says we need that capability, so we’re going to bring you in, we’re going to take you away from the market, and we’re going to bring you in the house? What percentage of the deals roughly involved that scenario where a strategic would go and take one of these three categories and bring it in the house thus removing them from the rest of the market?

    Strategic Buyers vs. Private Equity Firms

    Colin: It’s really been a mixed bag. And, I think as you go year by year, it changes. Whether it’s more of a financial buyer, like a private equity group, or whether it’s going to be a strategic buyer, like other operating businesses looking to bolt-on new capabilities. And I think what we’re seeing in some spaces, is you’ve got very large, very large operators that are creating platforms, right. Microsoft is one that comes to mind. And they’re creating an Azure platform. And, what they’re doing in many instances, is they’re out there buying businesses that have created unique technology or have captured large swathes of viewers, of users. And, they’re able to quickly onboard, either the capabilities, the technology, or the traffic, into their platform. And, that carries significant value for them. They’re not necessarily in the market of saying “we want to be a consultancy.” They have plenty of businesses out there that are able to do that on their behalf. And that’s where I think you see folks in the IT consulting space, where there are a large number of businesses that are operating with very good capabilities in the space: whether it be AWS, whether it be Microsoft Azure, whether it be one of the other cloud platforms. They’re able to cater to clients and operate on those different platforms. Whereas, you know, in data processing, in internet services… it’s less about whether or not you’re able to provide support services to a larger platform, it’s really more about your capabilities.

    And I think when you see the economy has been very strong for a number of years, you’ve got strategic buyers that have built up a lot of capital. And much of that capital exists not only just on the balance sheet in terms of cash, but in many instances can be equity. And that’s where as a seller, you need to be cognizant of what the consideration during the course of a transaction is going to be and how you’re going to be compensated. Because, in many instances, we’re seeing strategic buyers, and this is across all three buckets. They can be very acquisitive, and very aggressive. But, oftentimes, they’re using their own equity. Which may, or may not, be considered overvalued at the time. They may look at that equity and say “that’s actually less expensive to me today, then maybe cash would be”

    Patrick: Very interesting. So now with this report, what were the major takeaways you’d mentioned early on about a disconnect? What’s the biggest takeaway from this report?

    Colin: Yeah, so from the buyer’s perspective, we’re seeing there are strategic buyers that are very, very specific right now in where they’re looking to allocate funds and spend money. And so they’re typically coming out with very targeted investment theses. That is, they’re looking for a particular type of asset or many instances, a particular asset, one type of business, one business in particular, that will augment their existing operations. When they get excited about a business, they’re willing to move rather quickly, and they’re willing to pay up for it. Remember, strategic companies are typically going to realize some kind of synergy, some kind of benefit from making an acquisition that a private equity company may not necessarily if they don’t already own a business in the space.

    So strategic companies are able to be very aggressive, and typically pay a premium for a business that they love. But they’re going to be much, much more selective. Private equity companies right now are… they’re cautious. I think they’re looking at where we stand today in the economic cycle, and I think most if not all of them, when we start talking about projections and estimates, they’re looking at it from— I would even argue, a fairly realistic perspective— that is, there’s going to be a correction at some point down the road. Nothing goes up forever, right. Real estate didn’t, the stock market does not. So, they’re starting to bake in downside cases into a lot of their projections. What that’s doing is that’s changing their model that’s changing their financial return profile, to say that they maybe aren’t willing to get as aggressive. And so you’re seeing that private equity companies are struggling a little bit to compete in those cases where there’s a strategic company that’s getting very, very excited about a particular asset.

    Now, there are still plenty of private equity companies out there with capital that has raised funds in the last couple years, that are looking to deploy that cash. And so, they’re being more thematic about their investment style. And I think that’s where — again, in particular, I focus on the IT consulting space— private equity companies are spending a lot of time thinking about particular platforms, whether that be Microsoft, would that be Amazon. They’re spending a lot of time thinking about what is the difference between project-based businesses and recurring revenue types of businesses? Like a managed services provider, where there’s a contractual agreement, that they’re going to get a certain amount of revenue every month from their end client, right. That carries a lot more value to the operating entity, and therefore, to the private equity company, when they can project out that revenue. They know it’s coming every month, it’s much more secure. And it gives them a lot more visibility into their long term revenue, that has a significant impact on their valuations today. And that’s where we’re seeing transactions start to occur. I think more often, and I think with higher values, is when you can substantiate there’s a high degree of recurring revenue.

    Patrick: Well, I think another consideration out there is it really depends on the management or the owner/founder of the businesses that are considering themselves for an exit, to sell their company, would it be a strategic, or private equity. One of those things I recently learned about was that if you want to have an exit, you’re a founder, you want to ride off into the sunset… sometimes going to a strategic may make more sense, because a lot of times the strategic will bring you in, and they may be making some big significant changes in the short term with management. Whereas, if you come on board with private equity, they want to keep the existing management in place to help them as they add value and other areas. So that’s another consideration out there.

    With this, this view of, you know, the possibility of what particularly with the financial buyers looking at building in possible downsides down the road and so forth. What steps should owners and founders take? I mean, this is a perspective that is out there, you can’t guarantee outcomes across the board, but you need to plan for contingencies. What’s your guide to them on what they should start thinking about?

    Colin: So I think the first step that we always take, anytime we’re talking to a new business owner, is really to understand what is it they want to accomplish? What is their desired outcome? And you talked about a business owner whether or not you should sell to a strategic and sponsor based on his outcome… That’s exactly right. And so, is his goal to stay on and run the business for another five years? And does he want to transact in the next six months, or 36 months? And I think that’s an important consideration. When you think about what are the next steps.

    I think, first and foremost, I would— and maybe I’m biased— but, I would argue that maybe the right place to start is you start with someone like me, or Livingstone, or whomever that can offer you advice as to what’s currently driving the market, what’s creating value? And what are those things that you need to be thinking about?

    Because we’ve seen businesses to try to run quickly for a transaction thinking that the timing is right, something’s happened in their lives, and they want to go now. But the problem is, is that if their house is not in order, running that fast they end up stubbing their toe, they trip, and it creates bigger issues for them during the course of the transaction. Versus taking a step back, taking three months, six months, and making sure they’ve got their house in order.


    Now, Patrick, you and I both know that a time that time kills all deals, right? So it’s a trade-off between? Do you want to wait six months? 12 months? And do the work necessary to make sure that your finances are clean, you understand what all the data is? And that’s probably one of the biggest issues is that a lot of companies that we see, certainly that are privately owned, haven’t really thought about… What are buyers going to look for when they come in and due diligence? And do I have all of the data compiled? Reconciled? Do I have all of my KPIs in place? And, having a conversation like that with someone like Livingstone upfront, I think can go a long way to making sure that you have a smoother process, which shortens the overall timeline to actually getting a deal done, and ultimately improves the probability that not only you get a deal, but that you get the value you’re looking for.

    Patrick: I think one of the things is is that a mindset that sellers really should have is you should begin with the end in mind, what is the outcome you want? How are you going to get there? And, I think probably what really is a big killer, or time killer for deals in my experience has been, when you’re a seller, you’re disorganized, you don’t have the right answers, you’re not prepared for a serious buyer to come in. Even an unsolicited buyer comes in. If you are not serious and aren’t equipped to respond to them proactively, things can drag on and what the the biggest thing that happens with the time is those multiples, that valuation, just starts shrinking. And the longer it takes because you’re not prepared— and you and you may have the right answers — but that’s not formatted in a way that the buyer is prepared to receive them. It just kills everything. And I think that’s the great value you add, it’s almost like staging a house for an open house. You’re going to you’re going to incur some expenses to paint and furnish the house and get it all souped up and be cluttered and everything. And for every dollar that you pay an expert in doing that you probably reap $25 to $30 in return.

    Colin: I think that’s very fair. I think that’s very fair. And if you use that same analogy, you probably aren’t going to, accept the first offer that comes in off the street, unsolicited. You’re going to want to run an auction. And I think that’s again, a value add that folks like Livingstone, folks like my team and I can provide, which is we make sure that that not only is your house in order, but that it’s being presented correctly, in order to maximize value and help guide you through that process in that transaction.

    Patrick: One other thing I was thinking about, and this is because we’re based here in California, and I’m a Silicon Valley, and you’re down in Southern California. But the M&A community, particularly in tech, is not that huge. And so I think another value you probably add is not only do you know the market out there, but you know buyers, and which buyers are serious and which buyers are kind of grinders and wheel spinners. And that can be particularly helpful.

    Colin: Correct. So we maintain… Livingstone has been around for more than 20 years. And all of us have been at prior firms prior to Livingstone. And so, we’ve got a very good sense as to who’s serious versus who’s just tire kickers. We know how people behave in the course of a process. And, I think that goes a long way to lending value, when you’re in the throes of a deal and you’re trying to compare different types of bids. You know which one has more teeth to it, has more meat to it. And you have a sense as to how people are going to behave during the course of the process. I think that’s that’s your point, right? That’s the value of having a more seasoned team behind you guiding you through the process.

    Patrick: Well, what’s what’s the ideal profile for an ideal client for you, and for Livingstone in general, but for you and your practice in California? I know you’re not limited just to stay in the Golden State, but give us a quick profile.

    Colin: Yeah, so Livingstone has offices across the US, Chicago and LA. And then we have offices throughout Europe. And so, a fair amount of our deals are in fact cross-border. I spend most most of my time working on sell side transactions. So, typically business owners that are looking to exit their business or bring in capital, whether it be private equity, or whether it be debt financing. And so, generally they’re they’re located in North America, I tend to look at businesses that have EBITDA between call it $5 and $25 million. That typically translates to enterprise value. We have a strong restructuring practice out of our Chicago office for companies that maybe need a little bit more help, have a little bit more of a story to them. Those businesses are probably in the $20 to $25 million enterprise range. And then, once we get healthier sell-side, you know, we’re typically looking at businesses that are $50 million upwards to $500 million in enterprise value.

    From a sector standpoint, I’ll add, I think where I spend most of my time, is, as I said, the IT consulting and services business. And so, that tends to be anything in the IOT space, managed services providers or MSP space, anything that is cloud-related, those tend to be where I spent a lot of time thinking about, talking to buyers, talking to sellers, and tend to have a pretty good grasp of what’s going on in the day-to-day. We’ve got a number of transactions that we’ve completed here recently that have been in that space, that have gone a long way to helping inform, I think what it says in the article, but just again, our sort of industrial knowledge of of the space. 

    Patrick: I also think just your initial background, being in wealth management and estate planning, you definitely convey a perspective of looking for the welfare of the owner/founder or investor in this transaction and helping them transition either to short term or long term. So, I think you have an experience of beginning with the end in mind, which is very helpful. Colin, how can our listeners find you?

    Colin: Yeah, Patrick, so you can email me at Campbell, spelled like the soup,, or you can reach me in my office 424-282-3709.

    Patrick: Thanks very much. This has been a great insightful look into the possible outcome with a slowing tech space, but just how diverse it is. And, there are ups and downs throughout. And the best way to do this is navigate with a professional who cares about your outcome. Colin, thank you very much for joining us today and we’ll talk again

    Colin: Thank you, Patrick.

  • Jacob Whitish | Getting a Piece of the U.S. Pie
    POSTED 7.23.19 M&A Masters Podcast

    Acquisition can be the ideal way to experience fast growth as a company. But there’s no need to stay within your home country when looking at potential target companies.

    Jacob Whitish is the San Francisco-based vice consul for financial services for the U.K.’s Department for International Trade. And he doesn’t just work with U.K. companies looking into the U.S. but also American companies looking to expand in the other direction.

    We chat about the unique challenges – and benefits – of these sorts of cross border acquisitions, including…

    • Why Silicon Valley is an attractive market (and why Boise or Boston could be a better fit for certain companies)
    • The most attractive U.S. acquisition targets for companies looking to accelerate into new markets quickly
    • What win-win deals in multinational expansion look like
    • Matching resources and business goals to a geographic region
    • And more

    Listen now…

    Mentioned in This Episode: and

    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 Jacob Whitish from the United Kingdom’s Department for International Trade. Jacob serves as vice council for financial, professional, and business services.

    The Department for International Trade helps UK businesses export and grow into global markets. They also help overseas companies locate and grow in the United Kingdom. Now, when I think about business growth, business expansion, I see two ways to get there. Either slowly through organic growth, or instantly through acquisition. And since we focus on M&A here, we’re a bit more biased in favor of the instant growth approach to doing things.

    That’s why I asked Jacob to speak with me this afternoon to talk about opportunities for M&A. Not just with UK companies coming here, but also for US companies seeking targets in the United Kingdom. Good afternoon Jacob, welcome to M&A Masters.

    Jacob Whitish: Thank you so much, Patrick. Great to be here and thanks for having me on.

    Patrick Stroth: And I promise today, Jacob, this will be a Brexit-free zone. And before we get into all the fun stuff for the Department for International Trade, let’s get a little context for our listeners here. Tell us what brought you to this point in your career.

    Jacob Whitish: Sure. It’s been a little bit of a winding route, but in all of the kind of weird different paths that I’ve taken, it all somehow added up perfectly to get me exactly where I needed to be. After college I worked in the state of Washington for the state level government, so got used to what it was like to be in these massive behemoth bureaucracies that is national politics and state level politics.

    And from there I saw a lot of friends that were jumping into the tech sector. They were having a great time with different startups. A lot of fun. And I was looking a little envious, decided that I wanted to go over and figure out what was going on on that side of the fence, so to speak. And so taught myself some different tech skills. Ended up as a kind of country lead for a Canadian startup that was trying to get into the US market.

    So ran all of the US operations, did all of our marketing campaign, and effectively was kind of the in-country CEO. From there went to another small FinTech startup as the very first employee after the founder, handling everything on the business side. And then after a little time there, went out on my own. Started my own company doing marketing strategy and advertising. Ran that for a while. Ton of fun. Ran it entirely distributed online. I was able to travel around the world with my then girlfriend at the time, now fiancé.

    And that was a lot of fun, but eventually was starting to get a little bit burned out on the just kind of endless cycle of finding more and more clients, doing everything myself, and wanted to find something little bit different, something more interesting. And just kind of stumbled upon this job with the Department for International Trade. And it was the right weird mix of background of government service, startups, self-employed, to be able to do my job here very well.

    I work for a government, but at the end of the day I’m out there interacting with companies, founders, executives, all day long. So it’s kind of an interesting mix of both public and private sector.

    Patrick Stroth: Well, when we think about international activity, cross-border M&A and so forth, we always initially think about it as it being instigated by a company A, usually a multinational or what could it be a multinational targeting company B. And it all stems from there.

    It was interesting and refreshing to see that you’ve got a government controlled entity that is doing what they can to accelerate the process or assist there in domestic companies in that kind of expansion. That’s a great set of services that are available. Tell me about the mission for the Department for International Trade for the UK.

    Jacob Whitish: Sure, absolutely. At the end of the day, my role is really to I guess primarily add economic value to the UK taxpayer. We’re entirely funded by taxpayers. We are a part of the actual government, so at the end of the day we have to be able to draw some line back to having provided value to the UK. Now, how we do that is a little bit more reform in terms of we can help companies expand internationally from the US to the UK, and thereby adding jobs into the UK. We can help UK companies grow into the US, and then therefore hopefully helping add more tax revenue back to the UK entity.

    A lot of kind of playing matchmaker, introducing different people, doing some kind of upfront market research to help companies even understand if this is the right decision for them. One of the biggest things that I don’t ever want to see is a company that’s gung-ho on coming out here, spend all of the overall CAPEX and operational expenses and time, and just all of this energy to try and get into a new market, only to find out that it wasn’t the right market for them.

    So hopefully upfront we can do a lot of things like helping out these companies just to figure out if this is even the right decision for them. And then if they decide it is, hopefully make that process a little bit easier through our networks, our connections, our just experience of watching companies do it over and over again.

    Patrick Stroth: Almost like being a liaison. It’s an extension of the ambassadorship where they’re coming into an unfamiliar territory, you’ve got a presence here, and you can guide them and mentor them through the process that are unique to that geographic location.

    Jacob Whitish: Yeah, absolutely. Absolutely. I mean, you could think of the ambassador as being the political side of what we do on the commercial side. And in fact the Department of International Trade operates out of several different consulates and offices all around the US under the purview of the ambassador. But then our kind of specific remit is the commercial side, whereas the actual consul’s general and the ambassador are a lot more about the political and policy side.

    Patrick Stroth: And it’s interesting too because you’ve got a much more favorable or positive view of overseas expansion, where in America we keep thinking about it as expansion means, oh, we’re outsourcing jobs, we’re outsourcing activities that we should be keeping here. Conversely, you’re looking at, well, if we can expand internationally then our UK domicile businesses can grow, and that’s how it will benefit the home country or the headquartered company there in the UK, is through growth in revenues.

    Jacob Whitish: Yeah, absolutely. We don’t see it as a win or lose scenario. There’s absolutely win-wins here. We can provide jobs for the home country, we can provide jobs in the new country that they’re expanding to. At the end of the day, we don’t care that much as to exactly what this line looks like from point A to point B, as long as somewhere along the way we can say, “Hey, we’ve helped out the UK taxpayers.”

    Patrick Stroth: So then when you’re describing what you do with providing information and mentoring services and informational resource, so what specific services do you provide to UK companies looking to come here? They’re coming on over here, they look to you for assistance. Specifically, what can you do for them?

    Jacob Whitish: Sure. I think I can also kind of give it a little bit bigger picture of an approach at the same time. So probing a little bit more context in my specific role, which is I specialize in all things financial services. So anything from a traditional bank asset manager, insurance, all the way up to these brand new cutting edge FinTech, InsureTech, RegTech, you name it. If it touches money or the compliance of money in some way, shape, or form that’s kind of my industry.

    Geographically I represent the entire Western US, so the 11 Western states. And then I have several colleagues across the US who cover different geographic regions. Now within all of those different regions, each of us kind of have our own specialties of things that we’re particularly just good at as individuals. The kind of standard sort of things would be like providing access to reports on the cost of real estate, or the cost of talents, or even the availability of talent and how it might be distributed throughout a particular region.

    So that would fall under that heading of helping companies figure out if it’s the right decision for them and where they should go. So a lot of times companies will come out, I’m located in San Francisco. Everybody wants to come out to San Francisco just because it’s the tech capital and people want to be out here and see the VC money and hopefully magic will happen.

    But it’s not always the right decision for everyone. For some companies Denver, or Seattle, or Phoenix, or LA might be better choices, just depending on where they are as a company, what industry they’re in, and really the resources that they have available. It’s pretty darn expensive living out here. So not always is it the right decision for a company to come here. So that’s kind of the advice and sort of research portion.

    In terms of just kind of like more softer sort of resources, I have my own personal network out here that I’ve built up. I’ve got different organizations that we’ve worked with to build out this community that we can help introduce these different founders and companies into to try and help make their transition a little bit softer. And then of course just a very extensive network of different service providers and experts that we’re able to connect people with for whatever their particular situation may be.

    Maybe it’s immigration attorneys, maybe it’s someone helps them set up their US entity, or insurance, or and M&A specialist, private equity, VC. You name it, we probably have somebody in our network somewhere that will be a good fit for connecting up those people and hopefully making all that happen.

    Patrick Stroth: So you’re not just providing services to startups or super huge company. You’re available for a variety of companies through whatever stage in their life cycle they’re in.

    Jacob Whitish: Yes, absolutely. It goes the whole gamut, and those different services change a fair bit as you go across that different spectrum. So we’ve got people from maybe 5 or 10 just random folks in a small little one-room office. They’ve got one round of funding under their belts and they’re eager to get into the market, all the way up to some of the biggest household brand multinational names that anybody would have heard of.

    At that earlier business stage, so the smaller companies all the way up to kind of the middle-sized companies or so, a lot of that tends to be more around that advice, resources, networks, things like that. That’s where it’s providing a lot more value to those companies. As companies get larger they have the financial resources, they have their own in-house specialists and experts. They don’t necessarily need us to tell them what the cost of a new developer is going to be in San Francisco versus Seattle.

    At that stage what tends to be a lot more valuable is having a voice in policy discussions. So it’s not to say that we go and stick these people right in the room with the ministers back in London, though it has happened. But a lot of times we’ll bring experts out here or we’ll bring different members of the government out here to do kind of a tour of different businesses.

    And they want to hear usually what are the current concerns, what are companies seeing, what are they liking, what are they not liking, what do they wish was different. And from having those different kind of open channels of communication, then they’re able to go back to the policy makers and the government officials. They’re able to then go back to London, and as they’re working on new policies or reviewing old policies, they’ve got these different connections to the larger institutions and have those kind of in-market points of view to pull from as they’re trying to determine what kinds of things are or aren’t important or what directions.

    So right now actually is a great example where we have just in about two weeks’ time a senior trade policy official coming out from the East Coast to do a tour of the West Coast, just talk with different institutions and see what kinds of things would be important to them in a future US UK financial services trade agreement. Now, of course they’re not going to be making this agreement in the room. They’re not going to be pulling these people in and saying, “We promise that we’re going to do this thing for you.”

    But they want those voices, and the companies like having their voice at that table also because these are massive decisions that are going to affect them pretty drastically. So having that opportunity is a really great resource that we’re able to provide a lot of these larger companies.

    Patrick Stroth: That’s absolutely a channel that can’t be found elsewhere. So that’s one huge benefit. As I think about, you mentioned with the expensive of San Francisco particularly, but the Bay Area in general, I keep wondering why companies overseas would look to come to the US, just because it’s prohibitively expensive. Less of a concern with regard to culture or language. But just the cost of doing business here, I can imagine the regulatory is pretty steep compared to other places. But what drives the demand or drives UK companies to look to the United States for expansion?

    Jacob Whitish: You kind of nailed part of it all already in the question. Just in terms of language and ease of doing business to a certain extent are translatable from, especially in this case, from the UK. But really from a lot of different countries around the world. If you don’t have to change the language that you’re working in, that’s already a big benefit.

    On top of that, the US is a massive market. Most companies will eventually find their way to either doing business with someone in the US or full-on opening a new office or trying to get access into this market. It’s just such a great opportunity. And then likewise for US companies looking at the UK, business laws are very friendly, corporate tax rate is pretty darn low and falling. It’s one of the largest economies in total investments behind the US and China. So there’s just tons of great opportunities around the markets themselves.

    But then on top of that, when you’re looking at especially UK company coming back to the US, access to capital is a massive driver. Most tech startups, I think, at least the ones that are going to be larger names eventually, always find their way to Silicon Valley or New York, or for some other sectors. Like life sciences going up to Boston, or the payments industry out to Atlanta. These companies will make their way out to the US to just try and get that growth capital to really fuel their overall growth as a company.

    I think one of the kind of gaps in the market for the UK that’s also a great opportunity is that there is a pretty good amount of early stage capital around, but not as much later stage capital. In terms of like the CDE plus rounds, these massive rounds that take a lot more kind of institutional capital and knowledge to really be able to drive those sorts of deals.

    There’s also a really good component, it ties into that in terms of talent. Tons and tons and tons of talent that have been through the entire life cycle of a company out here. They’ve gone from two folks in a room all the way up through IPO, exited, and started over again. The UK has a great tech scene and still growing. But they don’t have just as much of that sort of multigenerational founder and institutional knowledge of how do you go from this small company in one room all the way up to something like an IPO.

    They have a great amount of talent that is kind of going up through mid-stage, and then going through different mergers, acquisitions, or other sorts of liquidity events or exit. Not as many that have taken it from that sort of mid cap to massive company. So, yeah, a lot of companies.

    Patrick Stroth: The pool of … Yeah, I think the pool of serial entrepreneurs every year it gets deeper and deeper. And one thing that’s unique about being out here in Silicon Valley is that I keep seeing these people become enormously successful, enormously wealthy, and think to myself, “Well, they’re going to get their clean exit, which we try to do with the insuring their M&A transaction, and think they would ride off into the sunset. Buy an island, go shopping for yachts, and all that fun stuff.”

    And what do they do? They get bored. They turn right around and open up another firm and start participating in that. And that’s been going on now for the past 20 plus years. And so, yeah, there is definitely that talent pool has gotten much, much deeper.

    Jacob Whitish: Definitely. Definitely. So you get a lot of people that will bring their companies out here just to try and tap into those kinds of networks and resources that come along with all of that. They’re getting better. They’re starting to very slowly move in that direction. I’m seeing a lot more founders in the UK network go back and start to do that next generation of businesses. Not as mature as say West Coast US, but it’s getting there.

    In the meantime, you’re still going to see a ton of these companies coming out here to the US for either that access to capital, access to talent, or just access to market overall.

    Patrick Stroth: What about the talent on the entry level, and I’m thinking about this just from your opinion, slightly off topic. But if a US company were looking to expand into the UK, and there would be a need for entry level tech talent there, I’d imagine that talent pool in the UK is broadening and deepening as well.

    Jacob Whitish: Oh, absolutely. It’s actually some of the best minds in their industries are coming out of the UK. Things like DeepMind and some of these great artificial intelligence and deep learning companies, they’re coming straight out of that Oxford, Cambridge areas, right out of the universities. Overall, the UK definitely has pretty much anything that you’re going to be looking for. If you want the financial talent, London has it, as well as just kind of a nice mix of a little bit of everything.

    The Manchester Midlands area has some great kind of back-end, back-office talent. Scotland has the financial and asset management experience. Northern Ireland is starting to become this really interesting tech sort of little paradise. In fact, they’ve got some really great programs out there where they’ll … Actually, the government will go out to … Or I guess lack of government, sorry. Will go out to universities to work with them and create custom programs to train individuals specifically for companies, if a company is willing to put a large enough investment into their local economy.

    And so there’s some really interesting little sub sectors. And you look at it, Wales, or you get this awesome hardware talent in the semiconductor space. And so there’s a little bit of everything all over. And you can find pretty much whatever talent you want somewhere within the UK.

    Patrick Stroth: Well, on the US side we’ve got this huge market. It’s not only large, it’s wealthy. And it’s deeply wealthy, which attracts a lot of suitors here. But it can’t be all great. What are some of the challenges that companies face coming here? And don’t just list the challenges for me, but support that with what can you do to help companies overcome these challenges?

    Jacob Whitish: Sure. I mean, I can kind of actually play a little bit off of that last question even and say that talent is a double-edged sword. Out here you have a ton of great talent, but it’s also really expensive and in very high demand. So for a smaller company coming in, especially if they’ve maybe only got a couple rounds of funding under their belts and not terribly deep pockets, might be shocked at what the total comp packages are for, especially like really hardcore development talent.

    But really anybody out here in the Bay Area is going to be a lot more expensive than somewhere else. Which is kind of also then why a lot of times I’ll be working with these companies and kind of pushing back a little bit to say, “Is this the right place for you? Maybe you should look at Phoenix and go check out Arizona’s new FinTech sandbox and see what you can do with that. Or go up to Seattle and-

    Patrick Stroth: Idaho-

    Jacob Whitish: … find out what’s going on up there.”

    Idaho. Yeah, there’s tons of great kind of second-tier cities that have lots of opportunities, lots of great talent. Maybe not quite Bay Area level talent, but still great talent. And even that’s changing. People are getting sick of living here in the Bay Area and they’re moving out. So those people are still looking for jobs, and they’re still great talent. So that’s definitely one of the bigger challenges.

    Within the financial services sector specifically, I would say one of the biggest things is just the regulatory environment. It is absolutely insane for companies coming out here that are used to having one overarching regulatory regime for the entire country, and then they get out here to the US and see that there’s 50 different states, which are basically 50 different countries, even though it’s all one massive country.

    And all of a sudden they just kind of get paralyzed and don’t know what to do. How do you handle 50 different regulatory regimes? And not to mention just the paperwork involved in all of those sort of applications and compliance measures that are required for all of that. So that’s definitely the number one thing that I hear from anyone within the financial industry, is just trying to figure out that sort of environment.

    Now, on that side of things there’s all kinds of different opportunities like working with private equity groups to find things like reverse merger opportunities, or even just straight-out purchase opportunities to basically find a company in the US that is maybe not doing so hot financially but already has those licenses in place. So that’s a great opportunity for companies coming into the US to be able to, I won’t say circumvents the rules, because it’s not circumventing it. It’s all perfectly legal. But sort of accelerate the process of getting into market quickly.

    There’s also different strategies like just saying target New York and California, go after the biggest economies, or find local partners that you can just partner up with on deals. All of these are different things that we would bring in a lot of the experts from our network to help identify these opportunities, or to just try and figure out what opportunities are available for a particular situation.

    Patrick Stroth: Great. So you’ve got not only the network of service providers that you probably, just in addition to the service providers you’ve got the law firms, you’ve got other advisors. And then you’ve got relations with private equity firms and other organizations such as that.

    Jacob Whitish: Absolutely, absolutely. If you are a service provider out there or any sort of firm that works with other companies, frankly, we want to have you in our network. We want to know who you are, what you’re doing, where you’re at, and what kinds of companies are you looking for. And we may or may not have a lot of referrals for you, but maybe we will.

    That’s just kind of part of our game is knowing who’s out there, who’s doing what, how we can be of help, so that when a company approaches us or gets referred into us and they say, :Hey, I have a problem with X,” hopefully we’re going to know someone who can fix X. So that’s at the end of the day the biggest value that we can provide.

    Patrick Stroth: Yeah. I mean, the analogy I have with that and the importance of having a good network like that and the value you add there, it’s no simpler analogy than if you were to leave your home or your work and move across the state or to another country. You just want to find somebody who says, “Well, where’s a good pizza place? Where do I go shopping, and where can I get my hair done?

    Jacob Whitish: Yeah. Exactly

    Patrick Stroth: And they’re really mundane things, but everybody needs them. So I think that’s a great source. And you’re a trusted advisor in this because your objective is to help out the taxpayers and add value for the UK companies. And so you’re a real credible resource because you’re looking out for their best interests.

    The idea on the reverse mergers is real interesting, just because it’s nothing more than a workaround. But it’s also, if you’ve got owners and founders or investors that have a company that is maybe not doing well financially, they can leverage an asset that they didn’t realize they had, which are their licenses, that maybe they did not have as great value in them. Now suddenly there’s some great added value in the licenses and so forth to facilitate a reverse merger.

    So with that in mind, who’s an ideal candidate for UK companies to partner with? On the reverse merger in that scope?

    Jacob Whitish: You know, it really depends a lot on the company that is … So like the UK side company that’s coming in and what sort of services that they’re doing. It wouldn’t make a whole lot of sense for an insurance company to try and partner up with a bank because they’re not going to have the same licenses. So a lot of times it’s going to be kind of the smaller to midsize regional institutions. Perhaps they’ve been around for a while and maybe it’s a generational shift sort of thing.

    There’s this great opportunity right now where there’s this massive shift from one generation to the next of assets and businesses. And sometimes the younger generations don’t necessarily want to step into the family business. So you have this older generation of maybe the founder who they want some liquidity to be able to go off and fund their retirement, and they just don’t really want to operate it anymore as the day-to-day person.

    So maybe this is a great opportunity for a company to come in and partner with them, reverse merger with them. All kinds of different creative arrangements that you could find. But in the end of the day, then you have this UK company coming in being able to relatively easily get access to these licenses. Perhaps even to built-in clients. And then for the merging company, then they have a liquidity event. They have the ability to, maybe if it’s this kind of generational issue, walk away to a nicely funded retirement and not have to worry about it anymore.

    Or there’s a lot of kind of fun, creative ways that companies can approach this and find different partners that maybe they wouldn’t have even expected. Maybe it’s a card issuer looking to partner up with a small regional bank and be able to cross promote each other’s products into each other’s clients. The opportunities are really just very wide open.

    Patrick Stroth: I was thinking just that the small regional banks as being one of those ideas or candidates out there, because there are fewer and fewer of those out here. But they don’t want to get rolled up by the major banks. They’d prefer to have something else happen. But what’s usually the situation is one regional bank is acquiring another regional bank.

    So I think that would be an ideal opportunity for a UK-based financial institution who wants to get a foothold where they don’t have to be in New York, where they can be in a couple of other regions. I think that would be an ideal place, particularly in the South, and in some parts of California.

    The other idea I was just saying off the top of my head, accounting firms.

    Jacob Whitish: Accounting firms, wealth management, anything that has some sort of licensure or governmental oversight, great opportunities.

    Patrick Stroth: Okay. I can see that both in the insurance agency and brokerage business and in the accounting space you have a lot of independent small regional organizations. They are going through this very specific generational change, and you’re not having the next generation coming in, stepping in in the shoes of the predecessor. So those opportunities are going to be around for the next several years. What trends do you see in UK expansion to the US going forward?

    Jacob Whitish: You know, kind of overall, I’ve seen companies coming out a lot earlier in their life cycle. Used to be waiting a little bit longer, getting a little bit more mature in their home market. More and more it’s been a lot of companies coming out earlier and earlier wanting to not quite necessarily shun their own market, but they want a piece of the US pie earlier and earlier in their life cycles.

    So a lot of times they’ll be coming out, maybe even too early at times. And I’ve had that conversation with companies before of saying, “Do you really think that right now is the right opportunity for you to come out?” Of course earlier and earlier for funding, as the overall funding climate is changing. And I know we said we weren’t going to go there, but I think this fall the political situation in the UK is going to probably decide a lot of what the future direction of those different trends are going to be looking like.

    Patrick Stroth: Is there also just a byproduct, not to pump you guys up too much with you guys, but I mean is there a growing awareness of the services that you’re providing in the Department for International Trade, where your resources are clearly providing some benefits. And there’s got to be more awareness. So if you’ve got somebody who’s going to help you out, I mean that could probably speed up the decision process too.

    Jacob Whitish: I mean, that would definitely be … I wish I could say that. I’m not sure what the kind of overall volumes are. But based on just kind of our own internal metrics, there’s definitely been a growth in the number of companies that have started to figure out that we’re out here and we exist. I know we’ve, as the Department for International Trade specifically, only been around for a few years. There have been some other incarnations in the past. But as far a name recognition goes, it’s definitely a growing trend. But I think we’re on the right track.

    We’ve got some really great leadership in place that’s not tied to politics, so they’re going to be around for a little while. And it’s definitely a great resource. I wish that more companies knew that we were out here. Almost everything that we do is absolutely free. And we are all sworn to secrecy. We take actual, have to get our actual security clearances and everything to be here, and everything that we do is considered commercially confidential.

    So unless the company tells us that we can talk about them publicly, or they have said something publicly themselves, we keep tight-lipped on it, everybody’s plans.

    Patrick Stroth: Well, I’m new to the knowing about what the Department for International Trade does, and it’s a shame that you are one of the best kept secrets out there in the UK government. And the more we can advocate for you, and the more people learn about the services you have, both here and abroad, I think the better it’s going to be for a lot of organizations and a lot of people. Because one of the thing is just really unique and the reason why Silicon Valley is the epicenter for all this great tech innovation and growth and so forth, is unlike generations past where in order to succeed you had to literally do it yourself. If you couldn’t steal it from somebody else, you did it yourself, and you grew bigger and bigger and you did it on your own for yourself. And you wouldn’t because of competitive reasons or envy or fear, you wouldn’t share the secret sauce with anybody else.

    That’s how what happens here. This is probably one of the most a collaborative environments out here where there are always people looking to provide some kind of support, some kind of assistance, mentorship, whatever. Sometimes for obvious profit motives, others for altruistic because they have the vision that you know the rising tide lifts all boats.

    So from accelerators, to incubators, to mentors, to angels, sources of funding and everything. There are so many resources out here getting founders from zero to one, and then from one to two, and then from two to Google. You know, this is just another great resource out there, and it’s been an absolute pleasure learning about this. And Jacob, if there are people out here that would like to just benefit from all the things you have, how can they get ahold of you?

    Jacob Whitish: Sure. I am on LinkedIn is probably the easiest place to find me under my name, Jacob Whitish. W-H-I-T-I-S-H. Likewise anybody can feel free to email me directly at You can probably put that in the show notes or something.

    Patrick Stroth: We’ll make sure we have that whole mouthful in the show notes and so forth. And I would also say, unlike me from time to time, I may not be on my LinkedIn on a daily basis. Jacob is on it hourly. So if you put a connect request out there you’re going to get a response almost in real time. So I can personally vouch for that. Jacob, thank you. It’s been a pleasure speaking with you and we will speak again.

    Jacob Whitish: Absolutely. Thank you so much, Patrick.