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  • Alex MacLaverty | Effective Communication in M&A Transactions
    POSTED 7.7.20 M&A Masters Podcast

    Clarity is a public relations firm that offers communications strategy, positioning, marketing, content creation, and other services to companies in the fast-moving world of global business.

    As Global COO, London-based Alex MacLaverty guides the growth of this ambitious agency. Part of that growth has been through recent strategic acquisitions of complementary PR agencies.

    Alex explains why they chose those specific agencies, how it will change their business, and why they had never met the team at one of the firms before the sale.

    We also talk about how they handled integrating two teams when they bought the other firm so that they had a running start when the deal was signed.

    In both cases, Alex and her colleagues were guided by a change management model known as ADKAR.

    In our talk, she explains the five parts of that strategy and why it’s key to follow in times of large-scale changes in an organization to ensure all the key players have the right mindset going forward.

    Tune in for all the details on that, as well as…

    • The biggest drivers of their strategic acquisitions
    • How they prevented client attrition
    • Why they don’t forget the people side of acquisitions – and how that impacts operations
    • What they do to get buy-in at a “deep level” from new team members
    • And more

    Listen now…

    Mentioned in this episode:

    Transcript

    Patrick Stroth: Hello there. I’m Patrick Stroth. Welcome to M&A Masters where I speak with the leading experts in mergers and acquisitions. And we’re all about one thing here, that’s a clean exit for owners, founders and their investors. Today I’m joined by Alex MacLaverty, global CEO of Clarity PR. Clarity PR defines itself as an agency with the heart of a startup working with rebels and titans.

    We take risks, solve problems, learn, adapt, and deliver fearless global communications. I like that fearless part. This will be the first of two conversations I have with Alex as she shares with us her perspectives on the importance of communication throughout an M&M process. Today as strategic acquirer, Clarity PR has had a number of acquisitions lately. Then on the next recording, as an advisor to other buyers, both strategic and financial, Alex, welcome to the program and thanks for joining me today.

    Alex MacLaverty: My pleasure.

    Patrick: Before we get into communications and Clarity PR’s fearless communications and everything, let’s give our audience a little bit of context. How did you get to this point in your career?

    How Alex Became COO of Clarity PR

    Alex: So, I’ve got about 20 years in primarily technology and PR. I started out as a commerce consultant and then moved into agency management as tends to happen. I’ve worked in agencies large and small with some of the world’s largest tech brands as clients.

    And I’m based in London, as you can probably tell by my accent, but my role for the last 10 years has been global, overseeing businesses across the US and Asia pact. And Clarity, I mean, Clarity is a very fast-growing, ambitious agency. We’ve got offices in London and across the US. So my role now is really all about ensuring we’re set up in the right way to achieve our ambitions.

    Patrick: Well then we’re going to talk about communications a little bit later, but, you know, let’s put it in the context of communications in an M&A process from your perspective as an acquirer, not advising outsiders. But let’s talk about, you know, give us a couple examples of experiences you’ve had with being part of Clarity through various different scenarios, because not every acquisition is the same.

    Alex: No, absolutely not. And I thought I’d share with you today the examples of our two most recent acquisitions. The first was completed in around November of last year. And that was the acquisition of a complementary PR focused agency out in Los Angeles, which we plan to add as a standalone office within our US business. The second completed in around December time of last year and was of an agency that was much more focused on technology startups and digital communications.

    So most of the team we’re based in London with a few people out in San Francisco. And this deal was much more focused on integrating their team into our existing London team. So slightly different setups for each of those deals. But not only that, they’re also very different in terms of the way that we roll them out. And we sort of manage those acquisitions.

    Due to the nature of the LA deal, we had the sort of interesting experience of not actually being able to meet with any of the team on the ground before the deal completed. So we haven’t met any of the key players, obviously, we’ve heard a lot about them and all good things. And we’re very excited to meet them. But we hadn’t actually spoken to any of the people that were going to be running the business for us out in LA. And the first time I met them, it was to tell them that they had been acquired.

    Patrick: So this was big-time confidentiality at the extreme.

    Alex: Yeah, absolutely. There was a lot of focus on the paperwork, getting the paperwork all done correctly, and making sure that that had happened before we said anything to anyone. So it was a very kind of secretive process. So there wasn’t really the ability to get much done behind the scenes in terms of communications, putting together a plan for that.

    Or any of the operational side of things which obviously had to follow. So it was quite a, everything was resting on the moment that the signature happened. I jumped on a plane over to L.A. as soon as I could, and then was able to meet the team. But it was an interesting experience too because when I got there, I felt like I knew them all already.

    I knew so much about them, their business, how things were working. And of course, they’d never heard of us before. They had no idea this was about to happen. So it was an interesting, not a clash, but it was an interesting differentiated between sort of my feeling going into it and obviously, they’re feeling being on the receiving end of our attention. So it’s quite an interesting experience.

    Patrick: Yeah, there’s a lot of pressure there because this isn’t just you’re gonna have to make a really good first impression. This opening message is, Hi, you don’t know me, but we own you now. What was the challenge like? How did you guys do that?

    The Big Acquisition Introduction

    Alex: I prepared very thoroughly in terms of trying to understand as much as I could without meeting them, the team, what will likely to be their concerns, their triggers, the things that they were going to be most interested in finding out about us, but also working out the best way that I could position our business for them so that they would understand their role moving forward within it.

    It was a bit like some sort of strange blind date where I’d done all the cyberstalking and I sort of found out all the facts about them, but they hadn’t done the same on me. So was trying to make sure that it was a, still felt like a collaborative process, even though actually the deal was already done. And to be honest, there wasn’t much they could do about it.

    Patrick: I’m gonna take your analogy there, instead of a blind date, it’s an arranged marriage.

    Alex: Yes. Yeah. Totally, yes.

    Patrick: There were mechanics that go into this and we can talk about later. What about the other situation?

    Alex: So, the other deal, the London deal was totally different. From very early on, the teams were told about the plan to that we were going to acquire the business and integrate the teams. It was important to us that we did that as early as possible. I think because so much rested on the teams getting on with each other.

    But there were also commercial imperatives. There were already clients that would have benefited from the combined team that we wanted to work on. And it also obviously made a lot of the operational planning much easier and communications planning much easier when we’re able to have the teams working closely together. So, in that deal, the team that we were acquiring actually moved into our office several weeks before the paperwork had been finished.

    Patrick: Sorry, say that one more time.

    Alex: So the team that we’re requiring moved into our London office several weeks before the paperwork was done. Which I appreciate is quite unusual, quite a risky move. And, you know, it was fun. I think there’s something, you know, we’re in a very lucky position to be able to work in that way. There was a great cultural fit between the teams anyway, which was one of the big drivers for making the acquisition and we felt that the team on both sides would respond better to being brought in as early as possible getting to know each other, raising their concerns as we went along, rather than having it landed on them suddenly.

    And that absolutely proved to be the case. We did have to swear everyone to absolute secrecy. And there were some tricky moments even just having the team members walking in and out of our office in case somebody saw them and was able to figure out what was happening, some challenges around that.

    But actually, it worked out incredibly well in the long run in that we have no client attrition, no team attrition, and due to the acquisition, which is a quite normal, you know, thing to happen in these circumstances. But more importantly, the team felt like family. Once the paperwork was done, we opened some champagne, but they’ve been part of the family for the last few weeks. And so it was a very natural sort of harmonious thing to do.

    Patrick: You were already joined and it was just a formality at that point.

    Alex: Yeah, it was. It was as if we’d all been living together for years before we actually got married.

    Patrick: Yeah. The two extremes, which is great. And both of them, and it resulted in successful acquisitions, successful integration, which is evidence that there’s no one way to do these things.

    Alex: Yeah, absolutely. And, but I think it’s, yeah, both were interesting learning experiences. But I think, you know, I know which way I’d prefer to do it in the future.

    Patrick: Gotcha. There was a lot of trust involved and so forth that has to come across with this. I think that with what, you know, Clarity PR does and what you do specifically dealing with communication, that’s a skill that I believe a lot of us take for granted because we’re communicating in one way or another all the time, formally, informally. And so there’s not the same appreciation for.

    And when you’ve got situations where you have a potential volatile situation where the wrong word, the wrong tone can damage a relationship, sometimes irreparably, that’s a big balance that’s got to be there. Now it’s your profession, is communication. So clearly you’re not winging it when you do this, okay? So there’s got to be a plan in place. Is there, describe your process or your plan in assessing a situation then how to deliver communication, when, how, all that.

    Alex: So, a long time ago, now I was introduced to a change management model called Adkar, ADKAR, which I found to be incredibly useful in any number of business and personal situations actually, in terms of planning out the right way to move forward with something big that requires not just a structural change, but a behavior change, a mindset change, an emotional acclimatization.

    And that’s really been at the heart of the processes that we’ve focused on around M&A and making it successful. And it’s a really great way to make sure you bring everyone along on the journey with you. And I think what it does, and I’ll sort of explain it a little bit shortly, but what it does is it allows you to, I think when you spend so long working through a deal, you as I was saying earlier, you feel like you really know the business, you know, the people you get really into the details of it.

    But you tend to forget quite easily that the people who are actually going to be on the receiving end of all this, the people who actually work in the business, this is all new to them. And so it’s very easy to skip far too quickly to the how, the operational side of things. Okay, so we’re going to change this, we’re going to do that we’re going to move things along without actually getting their buy-in.

    And so this process just is a very useful way of reminding you at every stage that the buy-in is probably the most important thing. And if you’ve got that emotional connection and that desire to be part of the business, then you, the operational stuff kind of works. itself out. And people are much more forgiving of any glitches in how the new structure works. The Adkar model is a really good way to do that and it makes things a lot easier in my experience. So, if I just talk you through, I’ll talk you through what each of those steps is, if it’s useful. I can explain a bit more to your listeners.

    Patrick: You will have shown us and have this written out. So those of you who were driving or something listening, don’t worry because we’ll, you don’t have to pull over and take notes. We’ll have something available. So ADKAR

    ADKAR Change Management Model

    Alex: That’s right. And you can, I’m sure you can, you know, get the book and read it yourself. But it’s fairly simple. So the A stands for awareness, which is awareness of the need to change. So actually telling people, we need to make a change here for all these different reasons, which hopefully, if you do it right leads to D which is the desire to make that change. So before you even start making any changes, you’re ensuring that people understand why there is a need to change and that they really want to do it and that they’re on that journey with you.

    The K stands for the knowledge of how to change. So actually, what does this practically mean? And the A stands for the ability to demonstrate the right skills and behavior. So that’s why you’re training people up, you’re arming them with the tools that they need to adapt to new processes, systems or different offers, whatever it might be. And then the R stands for reinforcement. So to make the change stick, you can’t just do this once and then think Oh, it’s done. You know, everyone’s moved in, it’s fine, let’s just crack on with our normal business.

    The R also means that you actually almost have to start right at the beginning again, go back to the A, and reinforce with people why we made the change, what are the results people are seeing and back that up so that people really stick with these new behaviors rather than just thinking back into their old ways. It’s very, you know, everybody knows that humans don’t like change and will naturally go with the easiest route, which is usually an old way of doing things in a change situation.

    And so, what we found is that, if you can follow this methodology, it really means that everybody who’s involved on the leadership side of things in making that change happen is thinking about creating a sort of heartfelt change in behaviors and understanding and all the rest of it rather than just an on the surface, people are doing things differently, but actually, they don’t like it or they don’t believe in it.

    And if you can’t get that emotional buy-in, and that sort of heartfelt support for what you’re trying to achieve, then that’s when I believe you see the attrition. That’s when you see people going back to their old ways, non-compliance with processes or structures. It’s where a lot of these deals seem to fall apart.

    Patrick: Well, it underlines something I’ve said ever since I got into mergers and acquisitions. This isn’t Company A agreeing to merge with Company B. This is a group of people here choosing to work and join forces with a group of people over there and then the two of them coming together. And if it’s successful, the whole is greater than the sum of its parts. I like the way you talk about this where a lot of people, particularly if they’re just hearing about a sudden change and a change in job is foundational.

    I mean, look what people are going through today as we record this. When this change happens, they’re thinking, What’s in it for me? What, how is, how am I impacted? And I like the way that you outline without getting personal, here’s why change needs to happen. Otherwise, there won’t be, your survival could be at risk. So there’s this change, this isn’t being done at the whim of some executive.

    And this is, you know, we all want to go in the direction, I like to desire because you’re getting everybody to go the same direction. And then you give them the tools on how to do it and then you follow through. And reinforcement. I agree, people, sometimes a lot of us need to be reminded over and over again, particularly as you’re going through the adjustment process that, you know, it’s out there. So that’s a great plan because then you can structure the communications and you can pivot from there as issues come up, I imagine.

    Alex: Yeah, absolutely. And when problems come up, you simply start from the top again. So you start, go back to the awareness. When you see problems happening in terms of, you’re not seeing the behavior change you want to see or people aren’t getting with the new systems or whatever it might be, signs that it’s slightly unraveling, it tends to be because they don’t believe in it.

    So you have to go back to the beginning again and remind them of the need to change and try and reinstall that desire for it to work. And so I found it to be very helpful. It works outside of M&A obviously, as well in lots of other, you know, any changes within a business environment and a personal environment actually.

    Patrick: A lot of people need the why. You know, why are we doing this? And once they, whether they accept it or not, at least they understand, you know, the reasons that are supporting the change in environment, whatever. And so they go through that. So and that’s, you’re not just advising other firms about this professionally. You were doing this yourself. So if you’ve exercised these exact steps with your processes.

    Alex: Yeah, absolutely. But also advised, counseled lots of clients that this is something that they need to be doing. If you look at the way that governments are trying to get people to change their behaviors at the moment, you know, it has, people wouldn’t stay in lockdown if they didn’t believe in it. And the moment they stop believing that there’s a good reason to do it, they’ll go out again. So I think, you know, any kind of, if you’re trying to communicate effectively, it has to be to do with the heart more than the mind in many different ways,

    Patrick: Especially for those of us who had to avoid cutting our hair for eight weeks. Well then, as we’ll talk about Clarity’s, what’s an ideal target for you? For our listeners out there, I mean, you’re out there, you’re looking at PR companies, give us ideal target for what you’re looking for.

    More Isn’t Always Better

    Alex: Yeah, it’s kind of, it’s easy in some ways to say and hard in others because we’re very ambitious and we’re a very agile kind of agency. And so while we’re always working on a number of intentional strategic, very well thought through plans and deals and we’re also very open to those kind of serendipitous opportunities that just come up through having the right relationships.

    So there’s a combination of the very targeted and strategic and the opportunistic. I think currently, our focus is really on businesses that help us do probably one of four things that help us expand geographically. So give us a new location that will be useful that broaden the services we can offer that open up new vertical markets to us or that strengthen our existing teams. So there has to be ready, you know, we don’t want to do these deals for the sake of it. They have to add something to our existing business. But we look for, you know, we look for different things in those businesses.

    There’s got to be something special about them. We’re not interested in being an average agency and so we don’t want to acquire average agencies that do, you know, standard boring work. We’re looking for something a little bit special. And so there is an element of gut feel to it as I think most people who do M&A work, you know, there, you can look at a lot of spreadsheets but there has to be something that makes you really excited to do that deal.

    Patrick: More isn’t better, more is just more.

    Alex: Yes, exactly. Very well put. We’re also very conscious of finding deals that are going to be the right size for us. And we’re not a massive agency and we don’t particularly want to be massive for the sake of it. As you say, more is just more we want to so we’re looking for agencies that are going to be a good fit but aren’t going to overwhelm us. You know, that Going to be too big for us to handle or that will change the way we do things to significantly. But I’m also looking for a cultural fit.

    I mean, it’s absolutely crucial. And the work that we do communications is all about the people. So if the people bit isn’t a good match, there’s literally no, you know, you’re not buying anything. All you’re buying is a fantastic team, hopefully, really. And so it’s important to us that the fit is right and that there’s a really good match on that front.

    Patrick: Yeah. Fit’s one of those real difficult elements to identify. It’s one of those intangibles but you’ll know when you see it.

    Alex: Yes, I totally agree. And I think obviously, and then the, you know, the standard stuff, it’s got to be a good business. It’s got to be, have a great team. It’s got to have a, you know, a strong client base. All of those things are important, but I would say usually, the cultural fit almost going to clinch it as to whether we’re going to do the deal or not. Even if it was a great business, if the cultural fit wasn’t there, we probably wouldn’t go for it.

    Patrick: So Alex, as we record this, we’re hopefully in the second half, the downslope of the settle in place COVID process right now. So, understanding that things do change quite a bit from week to week, actually, I don’t want to ask you to go out on a limb there. Give me a prediction, you know, where do you see, you know, transfer M&A, transfer activity, either globally un public relations to communications or for Clarity PR. I mean, what are you seeing? And make it whatever timeline. Six weeks to a year in, what do you see out there?

    Alex: I think from our business perspective, you know, Clarity is in a really lucky position, our business is still growing and fingers crossed, we’re going to remain in a strong position. So we’re still powering ahead with a number of deals that we had in the works prior to this happening and we’re still on the lookout for more deals to be done looking ahead, I think we’re seeing something similar in the market from our clients.

    You know, we work with VCs and PEs and things like that as well, is that deals that were in the pipeline are getting done. And there’s a lot of activity on that front to close out deals that were already in the works. I think what remains to be seen is how many new deals get struck over the next few months, given all the uncertainty around. I think there is a lot of nervousness, obviously, in the market.

    So how this next phase goes, I think, will have a lot of impacts on how much, how many deals happen towards the back end of this year. I think in terms of the work that we do, you know, as a communications consultancy, there’s never been a more important time for people to have a good comp strategy and not just in terms of promoting your brand or whatever it might have been in sort of normal times.

    But as we move into, you know, global downturn, quite possibly, it’s about things like internal comms challenges. It’s about being able to handle a crisis in your supply chain or whatever it might be. It’s about communicating effectively with your customers and your clients. And the brands that get it right at this time, you know, will obviously come out of it much better at the end of this than those that bungle it.

    And I think we would be seeing larger brands suffering because of the way that they’re handling this crisis. So I think it’ll be interesting to see what that does to the shape of things when we come out the other side and who will still be standing because it won’t just be down to sort of the economics of it, demand. I think lots of it will be how businesses have treated their clients, their staff is going to be really important and obviously, commons has a lot to do with that.

    Patrick: Also, you’re gonna want to get that message out. You know, we’re back. We’re open. We’re back to business or we’re back, we may not be ready at full capacity, but be patient.

    Alex: Yes. Absolutely.

    Patrick: Those are the optimists out there. Alex, how can our listeners reach you? How can we find you?

    Alex: You can go to our website. Just www.clarity.pr. And I’m, you can email me directly at Alex, ALEX@clarity.pr. And be, yeah, happy to be, to hear from people.

    Patrick: Well Alex, thank you very much and look forward to speaking with you again soon.

    Alex: Thank you.

     

     

  • Christie McFall | Upcoming Trends In M&A Post-Pandemic
    POSTED 6.30.20 M&A Masters Podcast

    On this week’s episode of M&A Masters, we speak with Christie McFall, Business Development Director of Great Range Capital. Based in Mission Woods, Kansas, Great Range Capital brings a unique combination of institutional-grade experience and Midwestern values to middle market and lower-middle market firms in the Heartland.

    “Our whole goal is to take a successful business that has a strong management team that is looking for some sort of succession plan, if it’s taking equity out of the business and slowing down, or just growing that business to the next level because they can’t. That’s one of the things that I find appealing from these businesses in the Midwest is you get to find somebody who’s talented, took an idea, and grew a successful company. But when they can say, I just don’t know how to get to the next level, and I need some help, those are the types of relationships we’re looking for,” says Christie.

    We chat more about Christie’s career and Great Range Capital, as well as:

    • Helping already successful businesses in the lower-middle market grow to the next level
    • Rep and warranty insurance
    • Upcoming trends in M&A
    • The importance of acknowledging the emotional aspect of selling a business
    • And more

    Listen now…

    Mentioned in this episode:

    Transcript

    Patrick Stroth: Hello there. I’m Patrick Stroth. Welcome to M&A Masters where I speak with the leading experts in mergers and acquisitions. And we’re all about one thing here, that’s a clean exit for owners, founders and their investors. Today I’m joined by Christine McFall, Business Development Director of Great Range Capital. Based in Mission Woods, Kansas, Great Range Capital brings a unique combination of institutional-grade experience and Midwestern values to middle market and lower-middle market firms in the heartland. Christie, thanks for joining me. Welcome to the program.

    Christie McFall: Hi, thanks for having me. I’m excited to be here.

    Patrick: Well, before we get into Great Range Capital which we’ll short to GRC, why don’t you tell us about you? What got you to this point in your career?

    How Christie Got to This Point in Her Career

    Christie: Yeah, so I’ve always done business development and marketing. And prior to the firm, I was at a company called UBM. It’s based out of London. You won’t find that name anymore because over the last three years it was bought and sold three times. I think it went from UBM to Informa to a company called NJH Associates. My role was when I was hired was to grow the company through M&A.

    And I was able to do that. I bought a couple of data firms and a few media companies to round out my portfolio. But in the process, they were buying and selling my group at the same time. So although I learned a lot and enjoyed the process, I wanted to stop being on the receiving end of the acquisition and be on the buying side. I really enjoy the process and I enjoy, you know, meeting new people.

    And that’s one of the biggest benefits of the role that I have is getting out into the marketplace and meeting business owners and influencers and deal brokers. And I like that a lot. I don’t necessarily love the integration part of being bought and sold, where you’re trying to figure out a new process, procedure, email capabilities, integrating your finances into a new business. So more of the operation side. I like being on the business development side.

    Patrick: Lots of ironing out the wrinkles. GRC has a real pride where they’re strong in the heartland in the region. Briefly, though, for you personally, are you originally from the Kansas area?

    Christie: I’m originally from Iowa, Des Moines, Iowa.

    Patrick: Okay. As a Californian would say, same thing. But

    Christie:  Yeah. Close enough.

    Patrick: So your travels have brought you around now. Now you’re here in Kansas. So tell us about Great Range Capital.

    What is Great Range Capital All About?

    Christie: We’ve been around for 10 years. It was founded by two gentlemen, Ryan Sprott and Paul Maxwell. They grew up in Kansas. They went to KU. They’re brothers in long so they’ve known each other since they were teenagers. And after they graduated, they both went to the east coast to learn the business inside and out.

    Worked for major firms, you know, did the billion-dollar deals. But along the way, they always knew in the back of their mind that they wanted to come back to the Midwest and felt strongly that the Midwest was underserved from a private equity standpoint as well. Yeah, a lot of people fly in, but not a lot of people actually live and work right here with the companies that are based here.

    Patrick: Huge competitive advantage.

    Christie: Very much so. And it’s really where we win. So our thesis is similar to others. We’re looking at lower-middle market companies, three to $15 million in EBITDA. Manufacturing is our sweet spot, but we’ll look at pretty much any company that doesn’t play an oil and gas or has some cyclicality to it. But the difference is we can sit down at a table and have that connection and that chemistry that a lot of folks who fly in for the day cannot have. We are, we drive there. You know, we only really look at businesses in the Midwest.

    So typically, the seven states that touch Kansas. And then we’ll go outside those seven states, but they have to be in the Midwest for the portfolio company. Add-on opportunities we may look outside of that geography, but really tightly looking at the Midwest. We drive there, we’re there in a day, we didn’t fly in our private jets. We are raising our families here. We understand the emotional decision that this is for an owner rather than just a financial.

    Listen, if it’s just a financial decision, meaning I want the highest multiple for my business, we’re probably not the partner. If you are looking, we want owner-operated businesses that are healthy and strong. Those folks usually stay involved at least for a time period and roll some equity in alongside of us to help grow the business. And we understand that that business is important to them. Their families usually work there. Lots of the people in the town or there. It’s a very big employer usually, so we are comfortable having conversations about how to maintain that business.

    We aren’t coming in to put in 10 new executives, sweep out the management team and start anew. That isn’t, our, we aren’t operators. We don’t want to run the business. We want them to run their business. We might bring in somebody who can grow it from a strategic level, either a CFO or CEO, some board members, but we don’t want to run the business. We want them to do what they do best. So it’s a chemistry conversation and it takes years, a long time to earn the people’s trust. But that’s our differentiator, which really are, we understand where they’re coming from. We can speak their language.

    Patrick: You guys have a commitment to the lower-middle market, middle market as a market segment, okay? Is that a choice? Or are you restricted just because that’s all that’s there in the Midwest?

    Christie: Yeah, absolute choice. There are so many businesses, valuable businesses here in the Midwest, we choose to focus on the lower-middle market, middle market range. for a few reasons. Obviously, you know, we like to say that we can drive to your business within a day. We don’t fly in from the east coast.

    We’re here in addition to Ryan and Paul being from KU, everyone else in the firm is from Kansas except for me, so they really went out on a limb hiring an Iowa girl. But we all are from here. We grew up here. We’ve all spent time either in Chicago, Milwaukee, Minnesota or Minneapolis, sorry. And East Coast, I was in LA myself. And we’ve all come back here to raise our families and focus on the businesses. So when we sit across the table from a business owner, you know, when we talk about shared values, we can say that honestly and mean it.

    We’re a firm based in the Midwest, we drove to visit you today. You are listening to and talking to folks that understand the value of your business. We understand the value of the employment here to the town, to the folks that work here. And we understand that this is mostly an emotional decision and not just a financial decision. And we find that that sets us apart. You know, the businesses that we target are, you know, within three to $15 million of EBITA range. We believe, you know, most of these folks are owner-operators that want to stay involved or help the business grow in some way.

    Maybe they just want to slow down and let somebody else come in and help them continue to grow that business. But it’s an emotional decision. And we focus on that size and that type of owner-operated business where we can sit down and have those relationship-driven conversations. That’s where we win and that size seems to be the most effective. We’re also wanting to be a majority owner first in on capital raise and so that seems to be the size where that’s really a typical arrangement.

    Patrick: You said a couple of things that stood out to me. And it’s the power of having focus in a particular market and enjoying that market that you’re in. One of them was that personal aspect that you’re, you’ve got boots on the ground and it supports the philosophy that I share is that mergers and acquisitions are not the combination of Company A buying and Company B, it is one group of people choosing to work and combine forces with another group of people. And when you put those together in an ideal situation, the intent is that the whole is greater than the sum of its parts.

    And so if people get together, cultures mix, interests mixing and align, it all works. And that’s usually the remedy for success. And so there are others out there, and I’m sure you’ve come across this where there are other competitors that are probably offering a lot more money than what you’d be offering but you just don’t have the fitness. One thing that’s just critical and you can’t overlook. I think the other thing is essential is that the lower-middle market is a lot bigger than people think it is.

    And the crying shame out there and the reason why we wanted to talk to you today and introduce GRC out there was that the lower-middle market is large, but it’s really underserved. And I mean underserved in a big way because if you don’t have in house core dev or you haven’t gone through a lot of transactions and you’re a founder, you don’t know where to turn. And by default, they’re going to pick the brand names, large institutions and go in that direction to seek help. And, you know, they’re going to find out that they’re going to be overlooked because of their size.

    They’re going to be underserved. They’re going to probably have somebody who’s condescending to them. And the large institutions, while they’re very large, they don’t have the bandwidth to handle the solutions or deliver an alternative to a smaller client. And so the lower-middle market company ends up getting some prepackaged solution. And so they’re not only overlooked and underserved, they exit poorer, I’ll put it politely, not as rich as they would otherwise if they partnered with a firm like GRC. So give us an example just of one of your deals where you guys added value, where that connection worked.

    Grand Range Capital Offers Honesty and a Personal Connection

    Christie: I mean, it’s hard to pick just one. I’ll highlight two. I, you know, all six of our portfolio companies are based in the Midwest. They were all owner-operated and relationship-driven deals. In Mountain Valley, Spring Water-based and Hot Springs Arkansas was owned by the JB Hunt family. All were relationship-driven.

    Met with them still to this day we, you know, we own, we just sold that company I guess a year and a half ago. still connected to that group, still send them opportunities when we see, you know, add ons for them that might look good. Fair Bank Equipment in Wichita, Kansas is owned by the Rei family. Cody Wright is the President and CEO. He’s been with that business for 20 years plus. He’s the grandson of the founder. And I think he eats Thanksgiving dinner with our two founders as well.

    I mean, these have become family members of ours talking about what we’re looking for from an owner-operator relationship. You know, it takes a few courses, you know, a few of these folks are looking to slow down. Well, they say they’re looking to slow down, they really do. They say they’d like to retire or slow down over the next three years. And the fact is, once we get in there, and the business starts to grow, half the time, they’re reinvigorated in the business and spend more time.

    So apologies to their families who they told that they were finally going to go to that lake house or that beach house in Florida and slow down because that’s rarely the case. Usually, it invigorates them to get back in the game and somehow find the energy to keep going, which is impressive. And that’s the case with most of our businesses. What they’re really looking to do is maybe take that second bite at the apple, and that’s really what we offer, you know, from our perspective. I think you’ve mentioned exiting poorer than when you started or not as rich as when you, as you’d hoped you’d be.

    Our whole goal is to take a successful business that has a great strong management team that is looking for some sort of succession plan, if it’s taking equity out of the business now, slowing down, like I mentioned, or just growing that business to the next level, because they can’t. You know, they’re very honest about that. And that’s one of the things that I find appealing from these businesses in the Midwest is you get, you find somebody who’s certainly talented, took an idea and grew a successful company.

    When they can say, I just don’t know how to get to the next level and I need some help, those are the types of relationships we’re looking for. And that’s really, when we can bring some value, and aside from just the capital, we can bring in a next-level CEO or CFO or strategy person that can grow that business. And then three, four years, five down the line when we sell that business, again, which we have, Mountain Valley, Springwater and Heartland Landscaping we sold again and those owners get another, you know, bite of that apple.

    They get another opportunity to financially benefit from the growth of their company. And that’s truly what it’s all about. We are not, you know, we’re not flying in for the day. We are here. We live here, we drove to visit you, we want to see you successful, we want to see your business grow. We all benefit from that. And it seems to be a win-win all the way around. We are connected to these folks. We deeply understand their business.

    And I would say that over the last, you know, six weeks as we have turned inward as a community and as a business, we have focused solely on keeping that business healthy and the employees that are healthy and how to see everyone through this time. I’m not on the, you know, quote-unquote investment team side. I’m on the business development side. So while they have really turned inward to focus on those companies, I have strengthened my relationships, looking to network and grow our deal flow. And people are hungry for interaction and talking. So it’s been an interesting time on both sides of the coin there.

    Patrick: With the number of deals that are going on with you, I’m curious as to what experience you guys have had with a product called rep and warranty insurance and whether or not that’s impacted you as it has. For those of you who don’t know, rep and warranty is an insurance policy that ensures the seller’s representation.

    So in the event the seller reps are inaccurate or breached, despite the due diligence of the buyer, and the buyer suffers financially rather than the buyer pulling funds from an escrow or trying to carve back money from the seller, instead they have an insurance policy that will pay the buyer their loss. Buyer gets certainty of collection, seller gets A, no escrow or very tiny escrow, and they get a clean exit from the deal. And so I’m just, it’s been a very exciting growing product throughout M&A, largely on the mega-deals. I’m just curious what experience you’ve had.

    Christie: Yeah, absolutely. I had a chance to talk to Ryan and Paul about this as well. And we’ve used it on our last two sales. We feel strongly that it’s great product. The cost is much more reasonable than it has been, you know, 10, maybe 15 years ago. So we expect to use it much more going forward. And we think the usage in general across private equity and M&A is going to just continue to increase. So we’re excited about it. It’s a really good product. Cost-effective and makes a whole lot of sense for us.

    Patrick:  Now, as we record this, we’re getting near the end, hopefully, the beginning of the phase of the reopening of America from COVID-19. Could you give us your best guess as to, or what trends do you see either globally, in the US or with GRC for M&A in the next six months to fall?

    The New Norms of COVID-19

    Christie: Sure. So I think there’s a couple of things. I think the biggest impact I see on it is truly on deal terms, specifically due diligence issues and the time it’s going to take to get a deal done. And what’s, and by no means were these deals ever quick. They take quite a few years, you know, weeks months. But I think that’s going to continue to take quite a bit of time as new modeling has to be done and things that we’ve never considered in the past are taken into consideration.

    So that’s going to have an impact. I think that the way these transactions are developed and negotiated are going to change. This is a business where getting everybody in the room literally has been a big part of the process. And I’ve spoken about it today. The relationship-driven aspect of our business is sitting across the table from somebody and making a connection.

    So that’s, we’re gonna have to do that different. That looks different. It’s technology, it’s how you and I are, are talking today. You know, the Zoom, the WebEx, the virtual meetings that, you know, not shaking hands when we can meet in person. There’s just going to be some changes that people will have to embrace. And so that looks different. From a Great Range perspective, we have a very focused investment thesis that we have followed for 10 years.

    You know, we don’t forget our roots. We don’t forget that thesis, even if something looks really great but it happens to be based in California, it’s just not a part of our investment approach. So we’ve been lucky in deal flow and continuing to see nice deals. We have based all of our time in networking and relationship-driven, not only from a deal perspective on with the owners, but also with influencers and brokers. So we’re still seeing those opportunities because we’re honest and straightforward and we’ll tell you right away, this is for us, this isn’t for us. We won’t beat around the bush.

    So we’ve been lucky to see deal flow continue. You know, and I think that’s because we have a tightly held thesis. You know, we’re only in those seven states. We only invest in the Midwest. We’re only looking at companies that are healthy, owner-operated. The size three to 15 million in EBITA. You know, those things are pretty tight and we’ve held true to that. So we continue to see some deals. So for us, it’s been okay. You know, we’re continuing to look at a few businesses we had under LOI prior to going into COVID-19.

    And we hope to continue with those businesses and close those deals, you know, within the next 90 days. So, I think It depends. I think there’s some larger private equity groups, global groups, where deal flow has come to a halt. People have backed out of some deals that were, you know, newsworthy if you will. But we’re chugging right along in the Midwest and we hope to continue knew to deploy capital. There is money to invest, and we have it and we would like to continue to see those good deals.

    Patrick:  I think that discipline, plan your work, work your plan has served you guys well. And so you’re not immune from the environment out here but you’re definitely protected against that. That would make you just a strong, vigorous, active and a solid partner for owners and founders out there.

    Christie: Absolutely. You know, we didn’t invest in distressed businesses before and that isn’t where we’re headed now. The industries we like to look at are, you know, manufacturing and distribution and business services and healthcare services. Those have been impacted certainly, but hopefully, will you know, rebound and stay strong, typically usually do. So that sets us up for a nice, hopefully, a nice future.

    Patrick: Well, I don’t think there’s gonna be any shrinking in manufacturing in terms of new ventures. And if there’s any place for manufacturers, it can be in the middle of the country, just cost-wise. You know, so I think that bodes very, very well. Christie, how can our listeners find you?

    Christie: Well, they can reach me a number of ways. So they could go to our website, which is greatrangecapital.com or they can email me at christie.mcfall@greatrangecapital.com. And my name is spelled CHRISTIE.mcfall MC F as in Frank, ALL, @greatrangecapital.com. Or the easiest way is probably my cell phone, which I don’t mind giving out. I’m in new business so I expect phone calls and I answer them even if I don’t know where the number’s coming from, strange. 913-952-3037

    Patrick: So if you can’t find Christie, that is your fault. Christie, thanks very much. I recommend everybody take a look at Great Range Capital. And thank you again.

    Christie: Thank you

  • Ben Mimmack and Andy Waltman | How Founders & Owners Can Benefit From Private Equity Firms
    POSTED 6.2.20 M&A Masters Podcast

    On this week’s episode of M&A Masters, we chat with Ben Mimmack and Andy Waltman, Director of Investor Relations and Director, respectively, of private equity firm Baymark Partners.

    Ben got his start in banking in London before coming to the US to attend SMU in Dallas. After completing business school, he went on to work in finance at American Airways before ultimately being brought on at Baymark Partners. Andy got his start in accounting, earning a CPA before moving into private equity at Energy Spectrum. He also went on to attend SMU, where he earned an MBA before being presented with the opportunity to work with Baymark.

    We chat about private equity and working in the lower middle market, as well as…

    • What a private equity firm can do for an owner-founder
    • How rep and warranty insurance is changing
    • Opportunities for minority investments
    • How Baymark is going about navigating the uncertainty imposed by COVID-19
    • And more

    Listen now…

    Mentioned in this episode:

    Transcript

    Patrick Stroth: Hello there. I’m Patrick Stroth. Welcome to M&A Masters where I speak with the leading experts in mergers and acquisitions. And we’re all about one thing here, that’s a clean exit for owners, founders and their investors. Today, I’m joined by Ben Mimmack, director of investor relations, and director Andy Waltman of Baymark Partners. Baymark Partners is a Dallas-based growth-oriented private equity firm acquiring growing middle market companies, providing owners with liquidity and resources to accelerate growth. Gentlemen, welcome to the podcast. Thanks for joining me today.

    Andy Waltman: Thanks for having us.

    Patrick: Now, before we get into Baymark Partners, let’s set the table and get a little context for our listeners. We can start with Ben here, but Ben and then Andy, tell us what led you to this point in your career?

    How Ben and Andy Wound Up With Baymark Partners

    Ben Mimmack: Well, Patrick, I grew up in the UK. You may be able to tell from my accent. Although I’ve been in the US for 10 years now. So I feel like it’s starting to disappear, but I did grow up in the UK. I went to university and law school. I was very briefly a practicing attorney. And then I worked in banking in London for several years before I came to the US and went to business school in Dallas at SMU. You’ll find there’s a very strong SMU presence at Baymark Partners. And in fact, when I was at business school, I interned with David and Tony at Baymark Partners in the early days of the life of the firm.

    After business school, I went and worked in finance at American Airlines and spent the last five years of my time at American in the investor relations team there. And then when I was looking to do something a little bit different than big company, public company investor relations, the guys at Baymark called me up and said would you be interested in doing some work for us? And I jumped at the chance and I’ve been in Baymark since November of 2019. So I’m still relatively new to the PE space, but I think it’s fascinating. The kind of work we do is really very interesting. And I’m delighted to be on board.

    Patrick: So it was a safe change from loss of airline miles you were getting to having your feet on the ground.

    Ben: Yes, it’s more like real life, I would say. But given what’s happening with the airlines right now, you could say it was a very lucky escape.

    Patrick: Very good. Andy.

    Andy: Sure, sure. So, I would say I have a not a very typical background for private equity. I started my career, I came out of Trinity University about 11 years ago now. I came out with more of a typical accounting degree. Went down the Big Four path. I started at Price Waterhouse Cooper. Spent two years there in the audit and tax departments. Got my CPA, but I realized that public accounting world was just not for me. I was very fortunate. I got an opportunity early with an oil and gas private equity firm, Energy Spectrum here in Dallas, which was a fantastic firm.

    I was there for five years. That was a smaller, about a billion, about $2 billion of assets under management, smaller firm and employee size. So I think we had about 20 professionals and I was in the financial reporting group there, but because of the size of the firm, I was able to do a lot there. And after a good again, five years there, I decided I kind of wanted to get out and do a little bit more of a wide range of investments rather than just purely midstream oil and gas.

    And so I also went to SMU while I was still at Energy Spectrum. I got my MBA there. And then I went and found the opportunity with Baymark. And I’ve been with Baymark now for just over four years at the director level and I’ve been helping from everything from due diligence, acquiring companies to continue to work with those companies and our kind of portfolio development process.

    Patrick: One of the things that I like to learn about what I’m meeting private equity firms is the founders are a lot more creative than in other industries such as the law or insurance. In those companies, they usually name their firms after the founders. It’s very boring. No creativity whatsoever. You can tell a lot about a firm by how they named itself. So, you know, tell us about Baymark Partners, how did it come up with its name. Give us a quick profile.

    Ben: Sure. Well, Andy and I had to go back to our founders, David Hook and Tony Ludlow and ask them because we weren’t around when the company was named. You know, I think the true process might even be lost to history. They had to think about it for a bit, but I think it’s connected to the fact that David Hook, one of our founders grew up in Bay Village, Ohio.

    So that’s probably where the bay came from. And he spent a lot of time in the Bay Area when he was a VC investor in the 80s and 90s. So it’s kind of a reference to those two. And I think, you know, they just wanted to make their mark when they set out. So you know, that’s where Baymark came from.

    Patrick: And then the area that you guys are focusing largely is middle, lower middle market. Tell me about the area that you target there?

    Baymark’s Primary Market Focus

    Ben: Yeah, I mean, I would say we’re a middle market firm. Probably if you want to refine it further, more of the lower middle market side then true middle middle market. But any company that two to $10 million EBITDA ranges is really in our sweet spot. We like margins of north of 10%. And, you know, really in terms of what we’re looking for in industries, we love services companies, we love tech-enabled companies, distribution companies, light manufacturing companies, you know, health care, anything in that kind of region.

    But really, we’ve pretty industry agnostic. I’d say the only things we really want to take a look at our hospitality, restaurants and brick and mortar retail. Everything else we’ll at least take a look at. And I think, you know, certainly, David is very much a deal-focused individual. There’s no company out there that he at least at first glance doesn’t think he can make something interesting or do something interesting with. so we look at a lot of potential transactions, we throw them back and forth to each other and spitball whether we can make something happen.

    And that’s, for a lot of us, probably the most interesting part of what we do. And, you know, we like the lower middle market for a number of reasons. You know, the companies that are populating in the middle market really are the bedrock of the US economy. You know, these companies that just provide 10, to, you know, 20 to 30 jobs in their communities that that do very interesting work to fill, you know, unheralded niches, a lot of times that you don’t even think that companies are required to fulfill. They do this work and in many cases, they’re entrepreneur-owned businesses that are looking to take the next step.

    The people who run these companies, they know that they need to expand and grow and diversify, but they just don’t know how to do it. We love those. We love those kinds of companies because they have a lot of potential. And in many cases, they’re small enough that the inflation, the valuations are not as inflated as they are in other parts of the market. So we feel our knowledge and markets we look at, we can get some very, very interesting and good deals in the segments that we plan.

    Patrick: Well, and there’s also a lot more lower middle market companies and unicorns out there. There are a lot more unicorns that people think.

    Ben: That’s very true.

    Patrick: I sincerely believe, and the reason why I reached out to you specifically is because if you want to make a difference, okay, the place to do it is in the lower middle market. And it’s sizable and it does as you say, it’s filling a lot of needs out there that otherwise wouldn’t be filled. People won’t even know they were there.

    But they play key roles in their communities. They play big contributions for the lives of a lot more people than you realize. And it’s just not fair because if these smaller firms, they hit a ceiling, they don’t know where to go. And what happens often is they’re going to default and pick up the phone or reach out to a brand name or the institutions out there. And that is just a recipe for failure for them.

    And, you know, and I mean that in a big way, because what happens is the larger institutions are scaled up, they’ll have limited solutions for smaller clients, they’re going to overlook them, they’re not going to be responsive. Whatever solutions they do provide may not be a fit because they don’t have the bandwidth to offer multiple solutions that could help fit a smaller firm’s individual needs. On top of all that, they’re going to overcharge them.

    And so they will get less and pay more. And I have a real passion for the entrepreneurs out there and the people that started with nothing and created tremendous value. So anybody that’s out there to help get them to the next level and make them multiples of where they wanted to be, that does nothing but good. And the more that we can go ahead and highlight the presence of organizations like Baymark Partners, all the better. And so we’re both on the same page there. Let’s talk about some of the things that a private equity firm can do for an owner or founder versus what a strategic perspective suitor might bring.

    What Sets Baymark Apart From the Competition

    Andy: Sure, sure. So this is, again, this is Andy. To talk about that, you know, we’re usually, I’ll kind of talk about what Baymark can bring and, you know, each private equity firm is going to be slightly different. And I think where Baymark is unique in relation to other private equity firms is our background. We just have for such a small firm, we have a very eclectic group of different backgrounds. I think we might have mentioned one of our founders, David Hook, had a lot of success out in the venture capital world.

    He spent 25 years investing in companies out there. I think he invested in about 50 startup companies from sometime around the mid-80s to the mid-2000s, the OSS, I guess they’re called. And about 14 of those ended up going IPO and going public. So he has a lot of experience of, you know, those are even earlier than, you know, lower middle market.

    Those are even smaller, you know, startup venture deals. And so he has a lot of experience, you know, growing companies, looking at the big picture saying, Hey, we’re here now, you know, how can we quadruple that in five years? And so, you know, we’ve had, you know, one company that had a great management team in place. We’ve had, you know, some companies that really need some other pieces, but we had one company we bought that had a really great management team in place. We don’t really have to make any tweaks there. The big thing that was missing there is just the vision.

    They just didn’t have the imagination. We bought this company, they were about, you know, 12, 13 million dollars in sales and $2 million of EBITDA. And today they are closer to 60 million in sales and six and a half million of EBITDA. So I wish I could say all of our deals look like that. But that was an instance where they would say, okay, what’s the plan? What’s the vision? And now let’s actually go out and execute that. And while I’ll give David and Baymark credit for helping with the vision, I will say that company had a great team and they executed it very well. So that’s one example.

    Our other founder, Tony Ludlow, he has a very eclectic background he has, he was an attorney for some time. He’s also a CPA. I think what really made him ideal for this world is he has a lot of operational experience. So he knows what it’s like to have a team of people working for him. You know, what it means to, you know, have to fire people whether they deserve it or not, whether it’s just something that has to be done, we have to cut 10% even if they don’t deserve it, you know?

    So he’s had to live through that. He really has had that hands-on experience that a lot of entrepreneurs face on a day to day basis. And so he doesn’t have that just kind of pure spreadsheet mentality of like, Okay, this is what the spreadsheet does, we’re going to do. He knows, he understands that there’s a human element to this. And so I think starting with those two guys, that’s kind of spread through the culture of our firm that we don’t just have a spreadsheet mentality.

    That we really try to understand what these entrepreneurs are trying to do and help them achieve those goals. But back to some more about kind of what the, what we can bring as a private equity firm, I think it depends on the company. We’ve had some companies where, a lot of the companies we work with we see this, where we have an entrepreneur who’s trying to wear every single hat in the business.

    You know, when we want to talk to the accountant, we talk to the owner. When we want to talk to the operations manager, we talk to the owner. When we want to talk to the CEO, it’s the owner. And so, you know, we try to come in and say okay, what are you passionate about? What are you good at? You’re obviously a sales guy. You know how to sell. You love working with customers. And every time I talk to you about the accounting you, I can see you pulling your hair out. So let us help you.

    We’re gonna bring in an accounting person, a CFO, you know, someone that can augment you, help your company, but we’re not looking to replace the entrepreneur. We’re not looking to bring in a whole bunch of people to kind of replace what he’s trying to do. It’s more of a, let’s take some things off that entrepreneur’s plate and really, you know, build out his team so he can focus on what he’s good on and we can have other skilled people in position to help build that company. Some of the things we’ve done with companies, we, you know, we obviously have kind of some of the typical benefits.

    We have, obviously, access to financing, we have good relationships with banking. And Patrick, as you mentioned, you know, while we’re not a big firm at Baymark, we do work with I think, right now we have about nine portfolio companies in total that we work with. You know, we have scale in that regard, right? If we’re trying to negotiate new insurance terms we say Hey, we, you know, we’re looking to make these changes for a lot of our portfolio companies. And so that’s something, you know, we can get better deals because it’s not just a single small company doing it.

    Sometimes it’s a whole portfolio companies who are looking to make a change. Or also act as an outsourced m&a department for our companies. We think the best way to grow a company if the owner thinks that we need to go out and make some acquisitions, we go out, we work with the brokers. Our network of brokers, business intermediary, then try to go find those acquisitions that fit the goals that we’re trying to do with our company. So each company is different, depending on what that company is, we try to help fill that hole, whether it be us or with adding people. So

    Patrick: What I see there is you’re flexible enough where the portfolio company, particularly if they’ve got good management or whatever, if they need some day to day help, you’ve got resources there, or if they just want to be left alone, just get him some capital so they can execute more and then find other targets for growth. You can do that?

    Andy: Yes, yes, while we do have operational experience and we’re comfortable in that role, that’s never what we’re looking to do because we have such a small firm, you know, our goal is to kind of set the plan and, and have the management teams execute that plan. But we do have the comfort to go in and be more hands-on if that’s what’s required. But again, it’s usually the ideal if we can, you know, help with the vision, help with the strategy, get the right people in place and then we try not to micromanage and let the companies execute the plan.

    Patrick: Describe your ideal target. What are you looking for either, you know, as a portfolio company or for, you know, a partner to exit one of your portfolio companies? Either way.

    Ben: Yeah, I mean, I can take this one and I think I addressed it earlier a little bit when I said, you know, we like the services, tech-enabled, distribution, manufacturing part of the world. You know, I can kind of go into a little more depth on that, but we like what everyone else likes. We’d like established and recurring revenue streams, we like to diversified customer base and higher retention rates and a competitive advantage, a nice moat, company based in part of the world that’s easy to get to. So all the usual requirements that everyone wants, but certainly I think we are willing to look past perhaps some issues that other firms may not be.

    We certainly, as David is certainly more than once, we like companies with a little bit of hair on them for a couple of reasons. One, I think, as Andy mentioned, we have the expertise in our firm, I think to deal with issues that maybe other firms aren’t comfortable dealing with. And second, you know, you can often buy a good company for a very reasonable price if there is some issues that, you know, other people have been a little bit scared of. So, you know, and we’ll look at any of those companies that we think we can do something interesting with.

    And I think one of the things that Baymark does a little bit differently than other companies and one of the other reasons we play in the lower middle spaces, if you can buy a company with a good multiple, then you don’t have to load it up with a huge amount of debt and then spend your whole time trying to pay the debt off before you exit the investment. We like to grow our companies. And it’s a lot easier to grow a company if you bought it for a more reasonable multiple and haven’t had to load it up with debt. So we’re certainly always looking for companies we can grow.

    That’s how we like to make money is to increase revenues, increase profitability of our portfolio of companies. And then, you know, we like to send out companies on the way into the world, in better shape than we bought them. We’re not interested in buying a company that someone has spent years and years building up and then, you know, taking all profit and leaving it in a bad state. We want to buy a company, improve it, grow it and then sell it. And if we can make money doing that, then we’re very happy and if the company is better for having been owned by us, then that’s great.

    Patrick: One of the big trends that’s out there nowadays is deals are now being, the rest is being transferred out through the use of rep and warranty insurance. I’m just curious because now the eligibility requirements for rep and warranty have come down from middle market down to lower middle market deals are now eligible. Tell me good, bad or indifferent, what kind of experience has Baymark Partners have with rep and warranty on any of their deals?

    Where Rep and Warranty Can Be Beneficial

    Ben: So we’ve used it on one occasion with a deal that we did actually quite early in the life of Baymark. And the reason we used it is because there was a kind of an asymmetric risk profile between the sellers, one of the sellers was going to take a lot more risk with the representations and warranties. And he wasn’t comfortable kind of being point man for some of these reps. And so we use the insurance as a way to kind of even the playing field amongst all the sellers.

    So, you know, in those circumstances where you have a kind of asymmetric risk profile, then it works out very well. One of the other reasons we like it is, you know, it removes the escrow requirement. So that can be a way of getting a deal done that can be something that stands in the way otherwise. So, yeah, absolutely. We think there’s a place for it, where appropriately, we absolutely will use it. And certainly, you know, have had positive experiences with it in the past.

    Patrick: Now, that was my second deal I ever did. That’s the exact scenario we had. We had a tech company that was being acquired by a publicly-traded company. And the tech company, you had one investor that had the lion’s share of the risk and you had 10 other investors, but their shares were so much smaller that that one lead investor, he was the deep pockets.

    And so he was directing that. And fortunately for us, we had a very affable working buyer that agreed to go forward with rep and warranty to help out the seller because they wanted to make them happy. And, you know, it was simple. The seller paid for the premium, was happy to do it, the buyer was happy to not have to cover that expense but had a very happy acquisition target and the team came over. And it went very well.

    So we can see that was been fortunate. The development that we’ve seen come through is not only is rep and warranty available for the sizeable deals but now it’s gotten to the price point where it’s not a bad idea for add ons. And so now as more frequent transactions are happening with add ons, if there’s that tool for an add on and that brings, you know, some cost benefits there’s another usage for it. So we like to trend as it’s going and we expect to see it become about as common as title insurance in real estate.

    So as we record this today, we’re hopefully on the downside of the COVID-19, settle in place. You’re based in Texas and you’re on the verge of opening up. We’re in California. We hope to open up sometime next year, the way things are going. So give us your thoughts in the next 60 to 90 days and next quarter, what do you see is M&A trends either for Baymark partners or you guys, you know, getting yourself all geared up to get, you know, hit the race, or get out and start unboxing sprint or wait and see. What are you seeing out there?

    Navigating Uncertainty

    Andy: Oh, that’s a good question. Right that, we’ve heard that question a lot. And we’ve been asking ourselves. We kind of talk about it weekly. And I would say it’s still early. We’ve actually had we’ve had to had kind of some deals in all parts of the pipeline that have been affected by this. And so we’ve had a couple that we were pretty far along in the process and we’re still trying to complete those deals, even with some of the uncertainty, we’ve been trying to monitor the company’s performance in this time and just trying to get an understanding of the core business and what, and how it’s, you know, how it’s navigating these times.

    And so I would say right now, a lot of the lenders have been slow to react, or have been kind of, I guess, getting a little tense and a little tighter, which is understandable and something we would expect to see in this market. But we are working with some lenders who are still doing deals.

    And another thing that slowed down some of the lenders we work with is obviously some of the banks we work with have been kind of underwater, trying to process some of these cares, PPP loans. So a lot of factors that have been, I would definitely say slowed the process down. But we still have, I would say pretty good visibility on a couple opportunities that we think will close over the next few months. You know, as far as new opportunities that we’re looking at, we do see some sellers who are still very interested in selling. They’re very confident in our business.

    And I think the private equity firms that are going to do the best are going to have the ability to get a little creative, you know, build relationships in this time. I think, starting a deal from today and trying to buy it, it’s going to take a little more time than it normally would, but it’s important. You know, we’re really trying to build relationships with the companies, with the owners, try to keep expectations in line and do what we can to, if the company does go off and has a blip because of this, because of the Coronavirus, we try to do what we can to say, okay, we’re going to give it some time, see if it comes back.

    Or, you know, develop some kind of creative structure where, you know, the seller’s still getting kind of what they wanted for their business even if they’re being slightly affected by what’s going on. So, you know, I think for now, it’s going to be a little bit of a slower process, but we’ve definitely been talking with again, other firms, other lenders. And deals are still going through, deals are still happening, just a little bit of a slower pace.

    Patrick: With the result of this pandemic, it wasn’t a situation where we had a structural fiscal problem or something with the banking and the financial infrastructure here as opposed to 2008, 2009. So I think that even though you’ve got this headwind of all this activity for lenders right now, I think eventually they’re going to get back to what they usually do. They’ve got the resources to do it. I think that the one thing that’s been said about private equity for the last four years is they’ve got their stack of dry powder and it hasn’t gotten any smaller.

    So I think as target prices start coming down and valuations come down a little bit, there could be some opportunities to move quickly if organizations are clear in their thing and what they want, and they’ve got a willing partner on the other side of the deal. I think we could see an uptick in activity. Maybe not immediately. However, I think as things start coming back to normal, there are some that are going to lead the trend and lead the activities and then others are going to be needing to catch up. And so that kind of activity can kind of build upon itself and get us a little momentum. So that’s an optimistic side from my perspective.

    Ben: I know for one Baymark is very, very keen to continue doing deals. So, you know, we certainly see, you know, an opportunity in the next few months.

    Patrick: Well, there are people out there that maybe wanting to reach out you to have that kind of conversation. Ben, Andy, how can our listeners find you?

    Ben: So we’re on the web at baymarkpartners.com and we’re very easy to contact by email. I’m ben@baymarkpartners.com. Andy is Andy@baymarkpartners.com. So, you know, we are always available to chat, to have an email exchange if you are interested in what we do and want to learn more. We’re happy to talk.

    Patrick: Gentlemen, thank you very much. Absolute pleasure meeting you. And ladies and gentlemen, please look out for Baymark partners.

    Ben: Thank you.

    Andy: Thanks a lot, Patrick.

     

  • Drew Caylor | Making a Difference in Private Equity
    POSTED 5.26.20 M&A Masters Podcast

    Drew Caylor, managing director, and the rest of the team at private equity firm WILsquare Capital have a passion for helping lower middle market companies grow bigger and better.

    He says it’s all about the leaders at these companies and their commitment to making a difference to their people and the communities they’re in.

    At WILsquare, they help create value through hands-on work with carefully selected businesses. It’s a level of service you won’t get at “brand-name” PE firms.

    We take a deep dive into that topic, the post-pandemic M&A scene, and…

    • The first place they look for future investment in a business
    • 3+ questions they ask about every company they work with
    • Why they view Representations and Warranty insurance as imperative
    • Their management philosophy and how it differs from other PE firms
    • And more

    Listen now…

    Mentioned in this episode:

    Transcript

    Patrick Stroth: Hello there. I’m Patrick Stroth. Welcome to M&A Masters where I speak with the leading experts in mergers and acquisitions. And we’re all about one thing here, that’s a clean exit for owners, founders and their investors. Today I’m joined by Drew Caylor, managing director of the private equity firm WILsquare Capital. Based in St. Louis, WILsquare was established by private equity and operational executives dedicated to provide financial capital and operating experience to lower middle market companies in the Midwest and South. Drew, thanks for joining me. Welcome to the show.

    Drew Caylor: Yeah, thanks a lot, Patrick. Appreciate you having me too.

    Patrick: Before we get into WILsquare, let’s start with you. Just give our audience a little bit of a context. How did you get to this point in your career at Wilsquare?

    How Drew Ended Up With WILsquare Capital

    Drew: Great question. So my path to a career in private equity is not one that I think many in the industry would consider typical. You know, I think a lot of people begin their careers and fields like ibanking or public accounting and make their way to private equity. Instead, I started my career in football. My first job out of college was playing for the Pittsburgh Steelers.

    And after a short stint in the NFL, I ended up moving to St. Louis and working for a wealthy family that was making direct investments in lower middle market companies. Along the way, was asked to be president of one of their portfolio companies. And at the age of 28, I suddenly had 65 employees and had no idea what to do. At that point in my life, I was really better prepared to read defensive friends that I was to manage people.

    But after six years of operating the company, we lucky enough to sell the business to a strategic acquire and all things had a happy ending. So, you know, that experience of operating that business has provided a really nice foundation for me when I think about my career in mergers and acquisitions. Following the sale of that business, I resumed my career making direct investments in lower middle market companies. And in 2019, I was lucky enough to join the talented team at Wilsquare.

    Patrick: Well, let’s go on to WILsquare. By the way, as we record this, we just completed the draft for the NFL and I can’t let this go without asking you. So you were drafted by the Steelers. Where were you drafted?

    Drew: So I was drafted in the sixth round. And I always like to tell people that I was selected a few picks before Tom Brady. He was drafted in a different year, but I was drafted slightly higher in the NFL Draft. So that’s something I suppose,

    Patrick: Well, there, that’s something a lot more of us cannot say, so good for you. Tell me about a WILsquare Capital. Before we get into that, I always like to learn a little bit about a firm by how it’s named. Because if you’re in the legal community or insurance, you’re boring. You just name your firm after yourself or the names of the founders. Tell me about WILsquare and, you know, its focus and so forth.

    How WILsquare Stands Apart From Other Private Equity Firms

    Drew: Yeah, so, you know, WILsquare’s name isn’t that innovative, but it’s really the first syllable in the two founders’ last names, Wilhite and Wilson, hence the name WILsquare. But, you know, more important than the shared syllables of the name is really, I think the values and the commitment to the lower middle market that I think everyone on our team shares. You know, we just really love this space and we do for a number of reasons.

    You know, for me, I had the opportunity to operate a lower middle market business. And that gave me a profound appreciation for the challenges that leaders of businesses in this space face. It also taught me that, you know, value creation isn’t really achieved through simply buying low and selling high. It’s really more about rolling up your sleeves and doing the things that are necessary in order to build bigger and better businesses.

    And so, you know, I really got to experience firsthand the responsibility that I think leaders of lower middle market companies have for their people and the importance that stewardship, when it comes to selecting the right partner for your business has. And so, you know, I just decided early in my career, this is where I wanted to spend my time. These are the businesses where I think there’s talented people and all kinds of opportunity. And I think everyone at our firm has a story like mine for why they fell in love with the lower middle market and the people in this industry.

    Patrick: Well, I’m not a millennial, but there’s no doubt the belief of a lot of millennials is rather than just going out and finding a career and contributing, they want to make a difference. That’s a big focus for them. And when I think about that, if you really want to make a difference out there in American business, I think you’ll look to the lower middle market because there’s a vast number of these organizations out here. They are the biggest employers in terms of overall aggregate number of employees.

    They are oftentimes the soul of a community that, where they serve. And it’s a shame because if you’re in the lower middle market, you’re not involved with mergers and acquisitions on a daily basis. You don’t have in house court dev facilities and resources. So when the off tuning comes or the idea comes to think about an acquisition, and everybody thinks about acquisitions either to be acquired or to acquire. They default to the brand names and the institutions out there.

    They don’t know any better because they haven’t been around. And so unfortunately, when they turn to the larger institutions, what ends up happening is they’ll go to an institution who will overlook them. So they won’t be as responsive. The institution’s nothing wrong with them, but they don’t have the bandwidth to order, deliver a variety of different solutions that fit those little lower middle market companies.

    And they may not be able to just roll up their sleeves and get in on a day to day basis and so forth. So they’re not going to be served there. But on the contrast side, also, the lower middle market company is going to end up either losing money or spending a lot more going to the institutions. And I think where they really get the true value is going to be with organizations like WILsquare, where you’re focused on that.

    That is your passion and it’s where the best fit is. You have the resources available. The more the companies are aware of the great access to solutions that are provided by you that they didn’t even know existed, I think they’re better served. So any way that we can go ahead to promote and highlight organizations like WILsquare Capital that serve this community, I think is a win-win. So I really do appreciate that. Drew, tell us a couple of things on how WILsquare provides solutions on that lower middle market. What can a lower middle market company get from you that they couldn’t get elsewhere?

    Drew: Great question, Patrick. You know, I think what they get from WILsquare is really a diverse set of perspectives. You know, our team is comprised of, you know, not only finance experts, but, you know, also people with operating backgrounds like myself. And I think there is a collective willingness to roll up our sleeves to actually add value to these businesses. We’re not financial engineers. Most importantly, I think cost is not our focus. You know, we look for opportunities to play offense and opportunities to invest in these businesses. We just think philosophically, a focus on costs is not an enduring strategy.

    You can only cut so much cost. What is an enduring strategy is focusing on growth and that’s what we do. Sales and marketing is the first place we look for future investment in a business that we buy. We think about what new products, what new capabilities should this company have? How can it access new markets? And then, you know, we are lucky enough to have a pool of capital to put to work and so we also contemplate, you know, what acquisitions for a particular company could make sense?

    And is there a value-creating combination that can be formed? And, you know, I think the other thing that’s important is a lot of operators of lower middle market businesses like to operate their business. And they don’t want to do it with someone looking over their shoulder. And I think that’s not what we’re about. I think we’re really about being a resource for these operators. And, quite frankly, we think if something makes sense to do in a business, we just ought to do it. There shouldn’t be a lot of bureaucracy. If it’s for the benefit of the business, we just ought to do it.

    So when you think about private equity firms, I think there’s really a spectrum of firm involvement. There are some that are heavily involved in the operations of a company. There are some that are not involved at all. You only hear from them, you know, once a year. And then there are those who are somewhere in between. You know, I think we’re probably in that middle portion. We’re somewhere in between, who we think it’s important to invest in the management teams and ultimately let them run the business that they are the experts in. Truly, we simply aspire to be a resource for these management teams going forward,

    Patrick: So you’re not fund it and forget it and you’re not micromanaging. So two extremes. You’re in the middle. And I’m sure it just varies from company to company, right?

    Drew: Yeah, I think that’s right. I mean, I think we would never buy a business without having some sense for what we can bring to the table. So I think our swim lanes are generally well defined going in and we try and communicate that well with the management teams that we seek to partner with.

    Patrick: Tell us what’s your ideal profile for a target company?

    WILsquare’s Target Company Profile

    Drew: Sure. So as a firm, we focus on businesses generating between three and 10 million of EBITDA. And we like businesses that are situated in markets that are less cyclical and in industries that are growing, I would say we’re simply not a turnaround shop. You know, we’re not out there looking for bargains. We’re truly looking for healthy businesses that are growing and businesses that we can help continue to grow.

    One of the variables we think is truly important is human capital. You know, it’s just a key variable in unlocking the value in any company. And so chemistry really matters to us. We found really great companies that are run by people where there just wasn’t a chemical fit and we opted to move on. But we just think it’s important that we all be able to row the boat in the same direction with the management team. And so we call ourselves a firm with Midwestern values because that’s the truth.

    We don’t view ourselves as very fancy people. We really probably rather eat in a sports bar than a steak house. And I think we really feel a shared responsibility for others and humility to know what we don’t know. And to us, that’s just a simple way of characterizing people in the Midwest. And so that’s how we market ourselves. That’s how we think about ourselves. Are folks that care about others and have a humble sense about them along the way.

    Patrick: That personifies the view I’ve always had had when I first came into M&A on my front was that it’s not Company A buying Company B, it is a group of people over here choosing to work and combine forces with a group of people over here. And to the degree that they can successfully integrate, get along, get their culture moving and handle those human skills, they’re going to successfully move forward. And the ideal is one plus one equals three. The whole is greater than the sum of its parts.

    So it always comes down to people. And I think that anybody that overlooks that aspect and just focuses on either the financial or the technology is really missing something. Drew, tell us what experience have you had one of the tools that we use out here for mergers and acquisitions from the insurance world is a product called rep and warranty insurance. That has gained quite a bit of traction in the last couple of years, driven largely by private equity. And so I’m curious as your thoughts, good, bad or indifferent. Your thoughts on rep and warranty for deals.

    Drew’s Take on Rep and Warranty

    Drew: You know, it really only takes one experience to make you a believer in rep and warranty insurance. And I was lucky enough or perhaps unlucky enough to have that experience quite early in my career. There was a breach wrapped in a small deal I was involved in where it led to a costly legal battle that distracted the management team and cost the business all kinds of opportunities.

    Yeah, I think it’s pretty easy for a lot of people to view rep and warranty insurance as expensive. It is relative to very small deal sizes. But even if you aren’t a believer in the value that these policies can bring, more and more I think providers are being pretty innovative and generating products and policies that are a lot more affordable and tailored to the lower middle market. So, as a firm we view rep and warranty insurance as imperative.

    Patrick: Now as we record this, we’re hopefully on the tail end of the Coronavirus pandemic sell in place process. We’re now beginning to start seeing states not only begin to open but having long-range plans for so. Hopefully, this will be over. But in light of how this is literally touched all the lives of people across the country here, give us your perspective on either for you or WILsquare Capital on deals you’re looking at or where you see the M&A environment going forward. Choose short-term long-term. Give us your thoughts.

    Post-Pandemic M&A Scene

    Drew: Yeah, sure thing. First, I have to acknowledge I don’t have a crystal ball, so I’m not sure I have a ton of insight into what the world will look like. But I can tell you the way that we’re thinking about it is we think that the health of an industry is critical to look at. And we’re focused not only on how long will it take these industries to recover. I think we’re focused on a more important question, which is, how will these industries change?

    What will be different? And that is where I think there is a ton of opportunity. It’s not about, you know, how long will it take people to get on planes again? It’s what will they be doing instead? Every industry has a has a different answer to that question. But that’s the question we’re focused on as we review new opportunities.

    Patrick: I agree that it’s just going to be different. I think the other thing that people are really accepting is that things can change from week to week and you got to be okay with that. And if you’re okay with that, then you’re less encumbered in looking at opportunities out there. And I sincerely believe there are going to be quite a few of them. There is going to be a much more buyer-friendly market going forward.

    And private equity firms have the dry powder. It never went away, to my knowledge. And there are firms like yours that have been most likely taking very, very good care of their portfolio companies and handling their concerns through this process. And the next step is going to be, you know, have an abundance mentality and look for opportunities out there. I think that there’s just quite a bit and just like you said, it won’t be the same, but it won’t be bad.

    So hopefully, all of us optimists will be proven right. Of course, I also projected a month ago that Disneyland would be open the first week of May, so I might have been, yeah, I might have been a little optimistic there. But, you know, we’ll see about some other times though. Drew, how can our audience reach you?

    Drew: Your listeners can find me at our website which is wilsquare.com. That’s WILSQUARE.com. Or you can reach me by email at dcaylo@wilsquare.com. That’s DCAYLOR@wilsquare.com.

    Patrick: Drew, it’s been fantastic. Thanks again. It was just a lot of fun talking to you and I really deeply encourage folks to look for WILsquare Capital. They are a firm out there in the Midwest, but they’re not stuck there. They’re looking at a lot of stuff and couldn’t be happier to have you with us today.

    Drew: Thanks a lot, Patrick. Appreciate it.

     

  • Trevor Crow | M&A Tips for Family Businesses
    POSTED 5.19.20 M&A Masters Podcast

    Trevor Crow works in the M&A space, specializing in what he calls an “underserved” area: lower middle market companies. He says bigger firms chase bigger deals because of high overheads and other internal costs.

    But as a boutique firm, he’s able to work closely with owners and founders of what are often family-owned businesses.

    Trevor says Buyers and Sellers at this level are savvy and smart – a pleasure to work with.

    He talks about the biggest benefits a small firm like his can offer companies, including quick response times. Tune in to get all the details on that, as well as…

    • The last person you should hire to shepherd the sale of your business
    • Strategies for balancing risk and the cost of appropriate insurance
    • One of the most “dangerous” potential liabilities for companies today
    • The biggest obstacle to closing a deal – and how to overcome it
    • And more

    Listen now…

    Mentioned in this episode:

    Transcript

    Patrick Stroth: Hello there. I’m Patrick. 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 Trevor Crow, founder of Crow Legal, a Denver-based law firm specializing in the purchase and sale of businesses, private securities offerings, tax, and other transactions for the lower middle market. Trevor, welcome to the podcast. Thanks for joining me today.

    Trevor Crow: Thanks, Patrick. Looking forward to it.

    Patrick: Before we get into your practice, and you’re focused on the lower middle market, let’s get a little context for our audience here. Tell us what got you to this point in your career.

    Trevor: Okay, yeah, so I grew up in Denver, for the most part, and bounced around a little bit on the East Coast when I was really young but grew up in Denver and went to the University of Colorado at Boulder for undergrad with a degree in finance. And after that, I worked for three years before going to law school doing several different jobs.

    But most notably, I worked at an auditing firm doing the consulting side of an auditing firm. And then I went to the University of Denver law school. Which it was, if those of you who remember 2009, it was not a great year to be graduating law school or really coming out of school anywhere.

    It was right at the downturn. And so the firm that I was at, or I had clerked at, at that point, you know, I was doing just transactional work, getting a lot of great experience, but a lot of transactions died in 2009. And so the firm I was supposed to go to kind of said, “Well, you know, we don’t really have transactions going on, but if you want to do litigation, we’ll bring you on.”

    And so, you know, my start in my career was actually in litigation, commercial litigation, which was an interesting place to start and, you know, good experience as well, I think, because I was able to see how contracts blow up. And prove with arguments that people can make in court on what a contractual provision says when it seemed clearly written the other way, in my mind, but so that was one experience.

    We found out pretty quickly I didn’t want to do litigation and, you know, I kept working towards doing more deal work at the firm I was at. Leaving there, I went to a couple other firms doing just transactional work, M&A work. These were all mid-sized firms in Denver. So most of our deals were lower middle market deals.

    And so that’s kind of where I cut my teeth and kind of grew to love that area. I started this firm in February of 2018, after I had made partner at another firm in town, another mid-sized firm. And, you know, I just wanted to strike out on my own and develop more of my corporate practice. The firm that I was at did a lot of real estate work and so I was kind of the corporate guy to the real estate firm.

    And it was harder to develop the M&A business. And so I started my firm in 2018. And now we have a couple of attorneys working here as well. And just been kind of doing mid-market M&A deals, lower middle market M&A deals, private securities offerings, and that sort of work. So we’re kind of a boutique transactional firm.

    The M&A Mistake the Lower Middle Market Makes

    Patrick: Well, tell me why you focused on the lower middle market as opposed to other segments. What is it about the lower middle market you like?

    Trevor: The lower middle market is a unique area in my mind because, for one, I think it is underserved. There’s not a lot of… Big shops don’t chase those deals, they’re chasing the bigger deals because they have high overhead and a lot of other things that they need to cover so they want to chase the bigger fees. And so this lower middle market is underserved.

    I also like it because you get to deal with sophisticated buyers and sellers. Really smart people who build businesses, a lot of family-owned businesses. So you get to hear, you know, the interesting stories on how they’ve been built up. There’s a lot of smart people that you’re working with, but they’re also the type that are gonna roll up their sleeves and get involved.

    It seems like a lot more than these, you know, higher ticket deals. And so I like that. There’s usually less ego and each deal is unique. And so those are sort of the, what’s kind of attracted me to this market.

    Patrick: I agree with you that the lower middle market is underserved. I mean, there are thousands and thousands of these companies out there. And because they don’t deal in M&A transactions on a daily basis, they don’t have in-house corporate debt. They’re not used to the services that are available out there.

    So what they usually do is they default to going to a brand company or Big Four accounting firm or the major top 10 law firms. Nothing wrong with them. It’s just you’re not going to get the value with those organizations. They may have tons of resources. But those resources are built and designed for major-size deals.

    And you know, the lower middle market members, they’re going to get shortchanged. Not only are they going to get less response time and get overlooked, they’re going to pay a premium, and they’re not going to get solutions that are really fit for them.

    The larger firms don’t have the bandwidth to have multiple solutions, whether it’s on a quality of earnings, whether it’s on some legal diligence or other services out there. They don’t have a lot of solutions or a wide enough variety of solutions out there. So you end up paying more and getting less.

    And I don’t think that’s fair for a lot of these owners and founders who, you know, took it upon themselves to create something where nothing existed and just build tremendous value. It’s just not as large as Walmart. Okay, so that’s where I passionately feel about wanting to serve that community.

    Now, Trevor, explain what a boutique firm like yours can do for the lower middle market. What are the types of things that they’re looking for that you deliver that possibly the other larger firms aren’t going to be able to satisfy?

    Trevor: Yeah, so I think you kind of hit on a couple of them there with response time. I mean, when you’re a small fish in a big pond at some of these larger service providers, they don’t provide you the time and attention, typically, that you need in an M&A transaction. As anybody who’s involved with M&A knows, time kills deals, and so you want to be efficient, and you need to turn around, be able to turn around, documents from a lawyer side.

    That’s what we can do is turn around documents quickly, we answer the phone, you know, so when somebody calls, whoever our client is called, somebody’s going to answer, and we’re going to be able to schedule a time to talk, and we’re going to prioritize, you know, those deals that we have in our shop and that we’re trying to get through.

    So I think response time is big. One of the, you know, my pet peeve is seeing people not hire the right team. And that happens, not at any fault of the people that are the buyers or sellers. So a lot of times it’s usually just because they don’t know, and so they either end up hiring people that are not specialists in this area, or they’re going to the big shops and not getting treated well.

    And so that’s kind of a pet peeve of mine and I, you know, it just breaks my heart to see when these companies have built a lot of value. You can see deals die because of it, either because it’s a, you know, a family-owned shop or family-owned business that has grown up with an attorney when they were nothing that was kind of a general practitioner, and they helped them with some commercial contracts, maybe some employment issues and that sort of thing.

    And then that’s just who they know and so they try to use them for an M&A deal and it can lead to a train wreck, and sometimes it can kill the deal honestly, and I’ve seen deals die because of the counsel, and that’s a problem. You know, you can also hire those big shops and then they can totally over-lawyer, you know, a $5 million deal.

    And we’ve dealt with that plenty of times on the sell side representing sellers to, you know, private equity companies and things like that. And so that, I just hate to see that. And so we strive to be, you know, the firm that we come in, we don’t have an ego on the documents, you know, we take a practical approach to it.

    These are M&A contracts or an allocation of risk, right? Which you know very well, Patrick, and how that works. And so these, with allocating risks back and forth, you’re not going to get an agreement that takes all your risk away. And so you gotta, at some point, I think a good attorney who’s experienced in this area is going to be able to come to their clients and say, “Hey, here’s where we’re at. Here’s the risk of going this way. Here’s the risk of going that way.”

    And there are certain things that I would consider are more legal, but there’s… Ultimately, a lot of it becomes business decisions, and it’s navigating the client through those. “Alright, here’s the risk of this way, here’s the risk of that way. You know, what do you think? How do you feel as far as taking those risks?” And helping them guide to that as well as, you know, telling them what kind of market is out there, what do you see in typical deals.

    And I think we’re uniquely positioned to provide that sort of counsel to clients. We have, you know, I’ve worked on at larger firms, I’ve worked on $200 million deals, you know, I’ve been on these larger deals, and it’s, so I have the experience and, you know, the other attorneys here now have developed that experience as well to deal with these M&A transactions. And I think we’ve just kind of been laser-focused on it, which has allowed us to do them efficiently and help deals actually get closed.

    Balancing Risk & Cost

    Patrick: With what you’re doing there, as you were talking about this, a thought struck me because the parallel I would have is with insurance. When you see startups, startups need insurance, a variety of policies, but the thing is, you can bankrupt a fledgling company by over-insuring them, getting every possible line of coverage out there where you have to go ahead and balance and there’s an exposure here, we’re not going to insure it today, such as Directors and Officers Liability.

    Let’s wait until you get funding. Okay, when you get some outside funding, when you get some outside person that’s going to sit on your board, then we will think about a D&O policy, but you’re privately held, let’s get you up and running first, you just, you’re not that big a target, so why lump you up with it?

    So I see where you try to find that balance, where you don’t want to under-represent them, but, you know, they’re not going to be taken to the Supreme Court for, you know, a nine-figure, you know, penalty.

    Trevor: Right.

    Patrick: Yeah. And so–

    Trevor: You’re absolutely right. You gotta fit the market and the deal, and again, I think, you know, there’s just not, there’s not a riskless transaction, so at some point, there’s some risks allocated to you in that contract, and you just gotta take it with your eyes wide open. And that’s what our job is, I feel like, is to educate the clients on here’s the risk you’re taking. And if there’s a business risk you’re going to do or that you’re willing to take, then let’s move forward.

    Patrick: Yeah, and you’re not going without a net here, there’s going to be some stuff that they’re going to need and just the expert weighing all… prioritizing the exposures out there and then addressing those, I can imagine that you also have a network of other resources. They’re not in-house, but if they need a quality of earnings report, or they need some other diligence documents, you’re not directing them to the Big Four accounting firm, you can find things that make sense.

    Trevor: That’s right. Yeah, we have a set of resources, you know, a network of resources that we can direct clients to, whether they need to queue up, you know, they need valuation experts to come in, they need a regulatory expert. You know, we’ve done deals where patent portfolios have been an asset.

    And so we’ve had to bring in, we don’t have any patent lawyers in-house, but we know them. We know patent lawyers that can come in and evaluate those patents and whether they have value or if they’re defensible, that sort of thing. Or if there’s other regulatory issues, like, you know, we did a healthcare deal where there were certain Medicaid issues that we needed to have looked into.

    And so we brought in another attorney who was a Medicaid expert who could help with transferring those licenses over. And so yeah, we just, you know, part of the problem with M&A is that there’s so many issues that can come up, and so from an attorney’s perspective, you really can’t be…

    Your M&A attorney needs to be like a quarterback in some senses from the legal side to say, “We need to talk to this person here. You need to talk to this person there. Or we need to bring in an expert on this piece.” Because there’s just so many things that can come up in a business or in an M&A transaction that may require an expert in another area. And that’s why the, you know, the team is so important, I think, in an M&A deal.

    Patrick: Well, let’s provide some context here because we’re talking about lower middle market or almost micro middle market. In terms of transaction value, what’s your range of your typical client?

    Trevor: So our typical clients, most of our deals are, you know, in the 3 million to 15 million range, I would say. And so that’s, you know, it depends how you define it, but I thought people would define that as the micro middle market or even just, you know, lower market.

    And it’s, you know, it’s not quite mainstream deals, like, you know, selling hair salons and things like that, but we’re, you know, we’re doing businesses that are 3 million and you know, the big shops really don’t want to touch those sometimes. And we get referrals, actually, from larger law firms that say, “Hey, you know, this one, this is probably a good deal for your firm, but we would charge too much on fees to handle this one. So we’ll refer it over to you.”

    But yeah, that’s the market. I would say if a $25 million deal or a $30 million deal came in, we would probably take it and be able to handle it very well, depending on, you know, the industry and what other needs that the client may need for that transaction. But I would say the bulk of our deals are in that 3 to 15 million range.

    Patrick: Well, now, our focus on the insurance side for M&A is using rep and warranty insurance. And even though rep and warranty insurance eligibility thresholds have come down, so now you can have deals that are as low as $10 million transaction value, where it can be insurable for $2 to $5 million in the full $10 million transaction value when the fundamental reps can be there.

    Rep and warranty isn’t always a fit for everybody. There are other things that can be done where, like you said, you can’t cover all the exposures. Well, let’s value which ones are there. So there are rep and warranty light type products out there that are available. What kind of insurance problems do they run into?

    Trevor: A lot of them. D&O insurance is a big one, a lot of them just don’t have it. And so we have to talk to them about that and getting D&O insurance because we also do private securities work where we’re helping companies raise money and then, you know, a lot of times that’s when it pops up is, you know, where you got either large angels who want to come in and they want a seat on the board or sometimes VC funds are coming in and they want a seat on the board and they’re gonna require it.

    And so, you know, a lot of times we’re talking to clients about the D&O insurance so that’s a big one. Rep and warranty insurance is something that we’ve looked into and, you know, you and I have talked about it a bit.

    And so that’s, you know, I’m glad to see that those prices are coming down and can be a fit for some of these transactions that we’re working on now because it’s a huge [inaudible] attorney standpoint in that it makes negotiating the reps and warranties provisions a lot easier and that’s the heart, you know, that’s the biggest negotiated section of a purchase agreement is typically the reps and warranties and indemnification. And so, you know, to the extent we can make that simpler and get us to that closing table quicker, that’s huge.

    Patrick: Anything with cyber, is that becoming an issue with what you’re saying?

    Trevor: Cyber insurance, you know, we recently had a client asking about cyber insurance, and, you know, we had trouble finding it honestly. And maybe I needed to talk to you about it. But that was about, gosh, a year ago when we were looking into that, and we were having trouble finding it, at least one that fit.

    And so, yeah, that’s, I mean, data privacy and protection is becoming a huge issue right now. It’s, you know, all the continuing legal education providers out there are doing events on this, there’s no specialist in this area, because, you know, GDPR, you got California, just, you know, passed new laws on it.

    And it’s kind of a, given how the internet works and how it goes, you know, across state lines easily, you kind of got to comply with the most stringent requirements. And so this is becoming a big issue and more and more it’s something that, yeah, more and more clients are asking about. So we’ve run into it. And you know, now I’m glad we have a connection with you that they could talk more about that.

    Patrick: Yeah, that’s one of the things with the lower middle market is you’re allocating resources because everybody’s got finite resources. And so you’re not necessarily going to be buying a multitude of insurance policies.

    Whenever you start getting and realizing new exposures, it’s usually not until you get to, you know, a transaction, and then all of a sudden, you have to start taking inventory. And so now you’ve got these new developments. And there are a lot of policies out there that suddenly you now need to just check the box.

    And you don’t want to spend a ton of money on that. But at the same time, you want something that is viable, that, post-closing, is going to respond to a claim, and you’re not going to get a call in the middle of the night saying, “Yeah, that policy bought for a thousand dollars.” Yeah, that’s not valid for what you have, I mean, you need something that’s gonna be there.

    But it’s very important, particularly for the smaller organizations out there where, again, you don’t want to bankrupt them with buying too many policies for every exposure, but then when they need coverage, you’ve got to get itemized specific things.

    There are some real laser, finite, purposeful documents and products out there that can provide the coverage and at a good value, I mean, less than what having a policy for ten years would cost. So there are things out there, and it’s important that everybody is aware of that.

    Trevor: Let me ask you this, Patrick, if you don’t mind. I don’t mean to turn the tables on you here but they, you know, in any M&A deal nowadays, there’s going to be a rep and warranty about data privacy and that you’ve got laws and, you know, any buyer is going to push for that in there and obviously, you know, from my standpoint, if we’re representing a seller, we’re trying to push back on those and make carve-outs to the extent we need to, but how does that work with say, you know, you have a seller who doesn’t have cyber insurance, they have that rep and warranty in there, but they want to get rep and warranty insurance. Will that cover that or is that carved out?

    Patrick: Yeah, a lot of times, the rep and warranty policies are now trying to carve out the cyber, what they will prefer doing is encourage the seller to go purchase a standalone cyber policy, liability policy. Those usually are anywhere from $3500 in premium to $10,000 in premium depending on the size of the company and how your records look.

    Okay, that’s purchased. Then what if that is in place and the seller has to have cyber policies and procedures just for protecting data, they have to have, you know, basic firewalls? They have to have policies and procedures among their team, that, you know, that information is weak.

    And there’s a protocol so they have to have some things in place similar to employment issues where you’ve got to have an employee handbook if you got fifty employees, okay, you can’t just, “I have an insurance policy, but we have no handbook.” Okay, so you have to have some common-sense policies and procedures in place.

    If you do, and you have a cyber policy, a rep and warranty policy will just literally sit on top of that cyber policy. If the rep is breached, and this does happen quite a bit, is post-closing, you don’t know about a breach until months after it happened. And you have no knowledge of it at all until something erupts six to twelve months later, and then you’ve got people coming after you.

    Well, if you’ve got a cyber policy in place, they will respond to those claims. The rep warranty policy will then just sit as an excess policy right above it. So those damages usually can be contained within the rep and warranty policy, within the cyber policy primary, and then the rep and warranty.

    Keep in mind, rep and warranty insurance policies usually have a deductible that’s 1% to 2% of the transaction value, so you could have a minimum retention of $150,000 on your rep and warranty policy. Cyber policy might only have a $10,000 retention. So you want that early attachment point at that, you know, three to seven thousand dollar premium item, then you’re gonna have the rep and warranty supplement. So that’s how they’re addressing those.

    Trevor: Well, that’s good. That’s a good point on the deductible piece, you know, to have that and a good reason to have that cyber policy.

    How COVID-19 Will Impact M&A

    Patrick: Yeah. Now, as we’re sitting here right now, as we’re recording this, we’re midway through the COVID-19 settle-in-place. At least I hope we’re on the latter half of it now. And I usually ask my guests what they see trend-wise for M&A or their particular specialty.

    I’m just curious from your perspective on the lower middle market. Let’s say we get back and up and running, we start opening up in late June, early July. I mean, we’re from California. So we may be shut down until August. But for the rest of the country, probably getting out May into June. What do you see trend-wise for you? How fast or slow? Do you think activity is going to pick up for you on the transaction side?

    Trevor: I’m hopeful that things are picked up and going like they were in June. I think that’s hopeful. But I don’t know if that’s going to be the case. And I think, you know, it’s tough to predict now, how it’s going to go, but I know that we had a bunch of deals that were in the process in early March, and those deals have been put on hold.

    Actually, one did go through and closed. But the other, you know, four deals are either on hold or they may be dead, I’m not sure. As of now, I think that my hope is that there is a quick recovery. I think it’s gonna affect different industries differently. In other words, there’s a lot of talk about, you know, is this going to be a U recovery, is it going to be a V, is it gonna be a W, you know, a lot of letters thrown out there.

    And recently I heard somebody say, maybe it’s gonna be a Y. And I think that’s kind of what I’m thinking it might be, whereas there’s going to be an uptake, I think, hopefully, a quick uptake on certain industries, whereas other industries are probably going to stay down for a while, you know, retail, restaurants, things like that.

    I think we’re gonna have a tough time managing this shutdown and coming back, you know, there could be others, but there’s other industries that I think are going to pop back in, you know, start doing deals again.

    And so I’m hopeful that that’s how it, you know, at least as part of the economy starts coming back, certain industries come back and deals start going again, I think that, you know, there’s obviously a lot of private equity money out there, and there’s, you know, reports of a ton of private equity money out there ready to buy and so, you know, there could be some, a lot, of shoppers out there looking to get good deals right now, you know, they can push on valuations and hopefully pick up some good deals.

    And so that could help get the M&A market back, I think, quicker as well. So, hard to say, hard to have a crystal ball here. But my hope is that by June, certain industries are going again and M&A is picked up.

    Patrick: Trevor, how can our audience find you?

    Trevor: Find us on our website: crow.legal. Or you can email me directly, it’s just trevor@crow.legal and so there’s no “dot com” it’s just a “dot legal.” And you can catch me there or, you know, call me directly (720) 230-7123.

    I’m happy to talk to anybody who’s out there in this market–service providers, buyers, sellers, anybody. We love doing deals here, and I think that we provide a lot of value to the lower middle market. So if you need anything from me, please send me an email or give me a call.

    Patrick: Fantastic. Trevor, I appreciate it. Great talking today, and we’re going to talk again real soon.

    Trevor: Sounds good. Thanks, Patrick.

  • Michael Butler | An Optimist in Today’s Crisis
    POSTED 5.12.20 M&A Masters Podcast

    When it comes to M&A, lower middle market companies often get overlooked and overcharged by big institutions. But Cascadia Capital is an investment bank that specializes in working with this underserved market.

    Chairman and CEO Michael Butler explains how they help “stage the house” for a company about to go to market, including the financial, legal, and operational aspects, among others.

    We also talk about Michael’s unique take on the current financial crisis, including the key differences between what’s happening today and what happened in the Great Recession of 2008 and 2009. He says he’s optimistic about a quick turnaround… including a significant increase in M&A activity this summer.

    We go into depth on the reason for that pickup, as well as…

    • The underlying factors that make the quick upturn in the economy likely
    • Personal financial planning an M&A deal – and how to minimize tax obligations
    • What companies should be doing right now in the downturn to spot opportunity
    • The role of Representations and Warranty insurance – and why it’s become a must-have in deals today
    • And more

    Listen now…

    Mentioned in this episode:

    Transcript

    Patrick Stroth: Hello there. I’m Patrick. 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 Michael Butler, Chairman and CEO of the investment banking firm Cascadia Capital based in Seattle.

    Cascadia Capital is a team of transparent, client-focused, trusted advisors with deep expertise in a broad range of industries. Michael came to my attention following an article he posted in response to the coronavirus pandemic just a week ago, with the title “Opportunity Does Not Go Away, It Only Changes Form.” We’ll link to this in our show notes. Michael, thanks for joining me today. Welcome to the show.

    Michael Butler: Thank you, Patrick. Thank you for having me.

    Patrick: Before we get into Cascadia Capital and the article you posted, let’s give our clients a little bit of context. Tell us how you got to this part in your career.

    Michael: Sure, Patrick. I’m a Seattle native. I went to the University of Washington, then went out to Philadelphia to get my MBA at the Wharton School. And then after that, went up to Wall Street and worked on Wall Street for eighteen years with Lehman Brothers and Morgan Stanley. And then in 1999, with two small kids in New York City and a wife who didn’t want to raise a family in the city, moved back to Seattle and co-founded Cascadia Capital.

    Again, that was in the middle of 1999. All was good for about a year, year-and-a-half and then we hit the internet bubble burst. So not good timing on my part, but I think you’ve got to make the leap at some point, and I did so in 1999.

    Patrick: Well, at least now you and I can both say that we’ve gone through three… Now, this is our third real big shock to the economy because we had the dot com issue there, then follow that with the banking crisis in 2008/2009, and the one that we’re going through here.

    Michael: Yeah, I agree, we’ve seen a few. I think it makes it easier. You know, you’ve seen this movie before. And if you’ve seen the movie, you kind of know what’s coming next. You kind of have an idea of how the movie is going to end, and it enables you to be proactive and look at the opportunities rather than just focusing on the challenges. And that’s what we’re trying to do here.

    Patrick: Yeah, I completely agree. I mean, that’s the thing is that, unlike some other people in the society right now, if you’ve gone through this, you know, the lights will go on. And so you have to have that in your mindset that this isn’t Armageddon and we’ve got a long way to go.

    Now, tell me about Cascadia Capital. I always like finding out how you came up with the name. And then talk about what the focus is because you’re not agnostic being a generalist. You guys are very specific on a couple of specific areas.

    Michael: Sure. So Kevin Cable and I co-founded Cascadia in 1999. We couldn’t decide whether to call it Cable and Butler or Butler and Cable. I bought a house on Cascadia Avenue in Seattle, Washington. And Cascadia is kind of the name for the region that encompasses Vancouver, BC, Portland, Seattle, and Boise.

    And so I said to Kevin, look, maybe it’s a good omen that I moved to Cascadia Avenue. Why don’t we just call the firm Cascadia Capital? We thought that was a great idea. And that’s how we came up with the name. It was no brilliant thinking. We didn’t hire a, you know, marketing firm. It was kind of a coincidence of me moving to Cascadia Avenue and that being a name that just got to describe this region that we live in.

    Patrick: It’s also helpful nobody took the name ahead of you.

    Michael: Absolutely. Yeah, sometimes you got to be a little bit lucky. What Kevin and I originally tried to do was focus the firm exclusively on the Northwest. You know, our thesis was the Northwest was going to become a great region, and we were focused on the Cascadia region. That plan worked well for about fifteen months until the internet bubble burst.

    And then we quickly realized we had to broaden our footprint and we became a national firm over the years. We also determined that the day of a generalist was going away and that you had to have domain expertise and really understand the industries you worked in to add value to your clients. So those were a couple of the big lessons we learned from the internet bubble burst.

    M&A Experts Who Will Prioritize You

    Patrick: And your commitment, in terms of the sector of the industry that you’re looking at, in terms of size, is lower middle market, the middle market?

    Michael: Yes, our client base tends to be at least 75% non-institutionally backed. So entrepreneur-owned businesses, family-owned businesses that typically have an enterprise value of between 50 to 500 million. I would say our sweet spot is 75 to 200 million. Again, we’ll do deals bigger than that and smaller than that, but that’s really the sweet spot for the companies we work with.

    Patrick: I think that sector is a great sector and some people may think it’s on the larger side, some think it’s on the smaller side. I sincerely believe that that lower middle market, under $70 million transaction volume, is a vast and underserved market. And so the more people who find out about specialists such as Cascadia, I think it’s nothing but helpful because, unfortunately, a lot of these organizations, if they’re not doing M&A all the time, they’re not aware of organizations like yours.

    And they make the mistake of defaulting to the big institutions and the brand names. And what ends up happening is they get underserved. They get overlooked. And they also get overcharged. And a lot of times, there are solutions for the middle and lower middle market that are out there that the big institutions just don’t provide.

    And it’s in the interest of the lower middle market members to really find out the specialists like yourself because you’ve got solutions that are beyond the bandwidth of the larger organizations that would alternatively just go ahead and pull out some stuff off the shelf canned product for them because they just don’t have the bandwidth to handle that one service.

    Michael: I completely agree, Patrick, what we found is, there’s a different set of circumstances that impact lower middle market companies compared to larger companies, you know, typically they don’t have the infrastructure that a larger company will have. They might not have the CFO or the processes or procedures.

    So when we work with a company, a lot of times it takes months and months to get them ready to go to market because we have to help them think through their infrastructure and their people and their processes to kind of get them ready to be able to go to market. That takes a lot of patience.

    It takes experience. Having done it before, I think the larger firms just don’t have a business model that allows them to spend that amount of time with a company.

    Patrick: Give us a couple examples of what you did with clients like that where you literally have a face to house before it went on the market.

    Michael: Yeah, exactly. So what we try to do is put together a team to help a company. And that means bringing in the proper accounting firm, it means bringing in at least a temporary CFO, if they don’t have a CFO that is up for the task. And it also means bringing in a good law firm.

    So it’s going through the various contracts that they have with suppliers or customers to make sure that those contracts are in a form that will be acceptable to a buyer. It’s making sure that they have the right checks and balances in their financial function. And robust books that can withstand the diligence process don’t need to go through.

    It means making sure that their strategy, their operations, and their financials all tick and tie, right, that the financial model reflects the operational model that reflects the strategic direction of the company. And so after you’ve done this, you know, the number of times we’ve done it, you kind of know where to look for issues. And once we find those issues, you know, we know who to bring in or how to help them solve the problem.

    Patrick: That avoids surprises during the diligence phase or during the negotiations, doesn’t it?

    Michael: Exactly. What we tell our clients is, you want to take as much time as needed to get ready to go to market. Because if you go into the market and you’re in diligence and the buyer finds a problem, they’re then going to look for the next problem, right? It lessens their confidence in the company being a clean company, so to speak.

    So we spent a lot of time making sure clients can withstand the diligence process. The other thing we find, Patrick, with our client base is a lot of them have not done the personal financial planning that they need to do to minimize taxes or to maximize, after tax, proceeds.

    And so we also recommend that they work with, you know, a financial advisor or personal attorney to make sure that their own personal house is in shape. So that when they go through this process, they can maximize the after tax return to them. And that might mean gifting shares to their children, it might mean setting up trusts. And that all takes time to do.

    Patrick: That’s nice because you’re caring about the people, not just making sure the deal gets done and then that’s, the owner or founder, that’s their business. We’re not going to touch that. I mean, that could be everything.

    Michael: Yes, it absolutely can be. The amount that an owner of a business can save by having the right tax structure in place is immense. And these clients become our friends. We realize that, in many instances, this is somebody’s life’s work. Or it’s several generations of their life’s work.

    And we take that pretty seriously. And so we make sure that we spend the time to get to know them, understand the objectives, and make sure that they’re well-positioned to maximize the returns for what for many is the biggest financial decision of their life.

    Patrick: I always think of M&A, ever since I got into it a few years back, was I always thought about the people aspect myself, just as you do, where it’s not company A buying company B or merging with company B. It is one group of people deciding to trust and combine forces with another group of people.

    And in an ideal situation, the new whole is greater than the sum of its parts. That’s where it’s “win win win” out there, and it comes down to trust when it comes down to people.

    Michael: It always does. Every time.

    Why Representation & Warranty Insurance Is a Must-Have

    Patrick: Yeah. With this, you mentioned the financial impact for owners. As an insurance person, we always look also just on how can we reduce mitigate risk which is very, very boring. But it can be the key to having a successfully executed deal.

    And that’s where we ensure the transaction itself through rep and warranty insurance. A product’s been out there for years then very, very popular recently. If you could–good, better, and different–share with us any experiences you’ve had with rep and warranty on your deals.

    Michael: So we look at reps and warranties as the new quality of earnings. So about three, four years ago, buyers demanded quality of earnings reports, which are basically a Good Housekeeping Seal of Approval from an accounting firm around a company’s finances, and they become just part of the transaction.

    Almost every deal we work on has a quality of earnings. And what it does is it gives the buyer comfort in the seller’s numbers. And it’s a risk mitigation strategy for the buyer. And it’s something that every seller needs to do. We think rep and warranty insurance is on the same trend. We think really every deal is going to have rep and warranty insurance, the cost-benefit is immense.

    The cost is really minimal. When you think about the benefits that the insurance provides, it means less money has to go into escrow. That means more goes to the seller on day one, it allows the buyer to have comfort in case something goes wrong because they have the insurance.

    And so it’s going to become, in our view, standard for every deal we work on. It makes so much sense. It just makes too much sense not to become the case and it, you know, again, from a cost-benefit analysis it’s, in our opinion, a no-brainer.

    Is a Quick Upturn in the Economy Likely?

    Patrick: Now as we record this, we’re hopefully, you know, who knows from week-to-week, but we’re hopefully on the downside of the shelter-in-place environment with COVID-19. And that we are, you know, with the term of your article there, you know, there’s going to be an end to this and we’re going to go forward.

    Just to put this in a little bit of context for folks, in your article, you talk about the comparison contrast between the great banking recession of 2009 and the current environment we’re in right now, and you have a unique take on it. So if you could summarize to share that with us. I appreciate that.

    Michael: Yeah, there are similarities, but there are a lot of dissimilarities. The Great Recession of 2008 and 2009 was due to financial weakness in the mortgage market, in the high yield market, and so there was instability in the financial system, which caused the recession.

    The situation today is different. The government essentially put a healthy economy on hold. And it was a choice the government made, not because of any underlying financial weakness, but because of a health issue. So our view is that there’s an underlying strength in the economy that will begin to show once we get through the quarantine, and even in the last week, we’re starting to see what we call some green shoots.

    Deals are moving along a little bit better than they were three weeks ago. We’re starting to see companies looking to potentially come to market in the next four to eight weeks. We have a couple new deals that are in market and received good bids. So I think there’s some green shoots.

    The biggest difference I see between 2008 and 2009 and the situation we’re in today is this feels like a movie that’s on fast forward, everything seems to be happening so much quicker today than it did in 2008/2009 or in 2001 through 2003 when we had the internet bubble burst, you know, it took time for those downturns to kind of cycle through.

    And today, what we’re seeing is, the things we saw that took six to twelve months to happen, and the last two downturns are happening and, you know, six weeks in this downturn, and it just feels like it’s on fast forward. So we’re going to move through this one, in our view, a lot more quickly than we did the last two.

    Patrick: Well, that’s the type of message, that optimistic message for a quick turnaround that we all want to hear and it’s not, you know, Pollyanna. This is fairly realistic, but, Michael, back, we spoke about what’s going to happen, when this does end, and it will. And you characterize the coming period as “July is the new January.” Tell us what you mean by that?

    Michael: Yeah, so I didn’t coin that. I can’t take credit. We are hearing that in the marketplace from investors and buyers. And there’s a view among investors and buyers that by the time July rolls around, things will begin to be back to normal, and then activity will peak and pick up.

    Typically, what you see each year is just kind of a rush to look at new deals in January because the period from Thanksgiving to year-end tends to be very slow. People put down their pencils, they don’t really look at new deals. So you get a lot of pent-up demand in January because people haven’t really done much the prior six to seven weeks.

    And I think the view is by July, the deal market will open up and buyers and investors will have pent-up demand because they haven’t done a lot of deals over the preceding two to three months. So the thing we keep hearing from, again, investors and buyers is that July will be the new January, meaning there’ll be a lot of activity, a lot of pent-up demand. And you’ll start to see the log jam break.

    Patrick: And you’re open for business and ready for anything that’s coming. Even now, you’re not gonna wait till July.

    Michael: No. So, you know, there’s a lot of things you can do. Right now, you can help companies think through strategy. You can help them think through operations. We have a couple of companies that were looking to go to market in March, and we advised them not to go to market, and now they’re looking to be buyers.

    They’re saying, look, this might be a great opportunity for me to buy some of my struggling competitors, integrate them, and go to market, you know, in a year with a business that’s one-and-a-half times as big then as it currently is now. And so there’s a lot you could be doing during this downturn to prep and get ready for the expected upturn.

    Patrick: Very, very helpful. Michael, how can our listeners find you?

    Michael: So I’m available on my cell which is (917) 865-0962. And the email which is mbutler@cascadiacapital.com.

    Patrick: Michael, it’s been very informative. And I really appreciate the optimistic tone we have here just because I’m getting a little tired of seeing all the COVID-19 warning emails I’m getting from all the law firms. So every now and then it’s nice to have a nice, sunny, happy report.

    Michael: Well, I can say I’m a realistic optimist. Let’s hope I’m right.

    Patrick: You and me both. Thank you very much.

    Michael: Thank you very much, Patrick.

  • Gaurav Bhasin | How Investment Bankers Play A Role In M&A
    POSTED 5.5.20 M&A Masters Podcast

    In today’s episode of M&A Masters, I sit down with Gaurav Bhasin, managing director of Allied Advisers– a Silicon Valley-based investment banking firm with team members in Irvine, Tel Aviv, and Mumbai. Allied Advisers specializes in M&A advisory services, or middle-market companies, particularly in the technology space.

    Gaurav and I met when he engaged Rubicon to provide rep and warrant insurance for a client of his that was being acquired by his commercial partner. Ultimately, the deal closed, but what stood out to me and the reason Gaurav is on the show, were the lessons on the role of an investment banker in an M&A deal.

    We’ll chat with Gaurav about what it’s like to work in the middle-market, the types of services he offers that set him apart, as well as…

    • The common themes of M&A processes
    • How he manages to reach out to 100+ people per deal
    • Gaurav’s ideal client profile, and how he narrowed it down
    • When to reach out to an investment banker in the M&A process
    • And more

    Listen now…

    Mentioned in this episode:

    Transcript

    Patrick Stroth: Hello there. I’m Patrick Stroth. Welcome to M&A Masters where I speak with the leading experts in mergers and acquisitions. And we’re all about one thing here, that’s a clean exit for owners, founders and their investors. Today I’m joined by Gaurav Bhasin, managing director of Allied Advisers, a Silicon Valley-based investment banking firm with team members in Irvine, Tel Aviv, and Mumbai.

    Allied Advisers specializes in m&a advisory services for middle-market companies, particularly in the technology space. Now a brief description on how we met, Gaurav, is you engage Rubicon to provide rep and warranty for a client of yours that was being acquired by his commercial partner.

    Ultimately, the deal closed, but what stood out were the lessons on the wall of an investment banker such as yourself and get a complacent buyer to take action and how important it is to have an advisor in your corner, particularly where there’s a massive buyer 1000 times larger than his target company and negotiations and I put those in air quotes, the negotiations between those parties at that different size can be, let’s say a bit one-sided. Gaurav, welcome to the podcast. Thanks again for joining me today.

    Gaurav Bhasin: Thank you, Patrick, for having me. Pleasure to be speaking to you.

    Patrick: Before we get into you and Allied Advisers, let’s set the table and describe the deal that we’re talking about that brought us together.

    A Lucrative Acquisition

    Gaurav: Yeah, Patrick happy to. So first of all, thanks for stepping in on that deal. I know our client was quite happy with the work you’ve done on the reps and warranties insurance for them. So how we got engaged with that company was they were a software company which was in commercial partner with the eventual buyer for a long period of time. Our client didn’t have a big sales team, so a lot of their revenue was coming from this commercial partner. The commercial partner had told our client that they would buy them at some point.

    But after several years of hearing this, our client got a bit tired and engaged us as advisers. When we got engaged, what we did is after talking to the commercial partners slash eventual buyer, we quickly realized that there was no sense of urgency on their behalf to move forward. So what I suggested to my client is we should reach out to other buyers in the sector and generate interest. We prepared some materials, we reached out to other buyers.

    And luckily for us, we got a couple of buyers interested in the company. And we got some offers as well. Once this happened, we let the commercial partner know that we have multiple parties interested and also let them know that some of these parties actually competed with this buyer and didn’t want to support them post-transaction.

    What this did is it basically got the commercial partner worried about losing access to the technology, which was supporting a big product line of theirs. And then we ended up getting a term sheet, which was a pretty attractive valuation and eventually got this complacent buyer to move forward and close the acquisition with my client on terms that my client was pretty happy with.

    Patrick: The interesting thing that I didn’t realize on that is you have an organization there where they had a situation where the target was attractive because it was something that they’d been outsourcing to, and they probably figured they’d get a more favorable economic outcome if they just brought them in house.

    But then I guess they had the feeling well, why buy the cow if we can get the milk maybe now for free, but we don’t spend as much as the cost to buy the cow. So it was a decision that they can put off as long as they wanted. And unfortunately, that leaves that private merging tech company kind of dangling out there. And that’s not a cool place to be. So it’s great that you came in, you got them out there got a highlight on them and definitely increased the interest level.

    Gaurav: Yeah, I certainly agree with you. I think, you know, the fear of missing out was what sort of prompted them to move forward. You know, they didn’t want to lose this partner. And a partner, frankly, our client also wanted liquidity. You know, they’ve been doing this for a long period of time. So it is, you know, good for us to get them to come to a conclusion that worked for our client.

    Patrick: Well, let’s define the market that we’re both actually targeting because you don’t want to be all things to all people necessarily because there’s a real true value that you can bring in particular segments if you focus on niches. Tell me, you know, about your target with the middle market with the emphasis on technology as opposed to all other, you know, flavors of business out there.

    Why Allied Advisers Focuses Exclusively On Technology

    Gaurav: Yeah, happy to. So Allied Advisers is hundred percent technology. That’s all we do is technology. One of the things better given in the valley for a long period of time and most of the exits that companies have is through m&a. In fact, over 97% of the exits over the last five years have been through m&a compared to IPO. Naturally, where we focus in is on m&a. I’ve done IPOs before at larger banks, but by and large for the last decade, I’ve only been working on m&a.

    The next thing we do is we focus on middle-market, a broadly speaking middle-market. You know, we target these below 150 million, I would say the bulk of our deals tend to be below the hundred million dollar range. If you look at the size of the market, you know, there were about 2500 tech deals annually below hundred million. So as you can expect and imagine there’s a lot of transactions which are happening in that space.

    And what happens in this 150 million dollar and below market is that it’s an underserved market. A lot of the larger banks due to their infrastructure and cost tend to go for bigger deals because that generates a bigger fee for them. But what happens is in this lower middle-market, none of the banks kind of lose attention or don’t pay focus on it. Or worse, you may have a young associate or a VP driver deal and kind of learn on the clients’ nickel.

    So we specialized in this space and I think in this space, you want to have experienced advisers and legal team on staff because the buyer on the other side have pretty experienced development teams and legal stuff. So, you know, us playing in the market, which is underserved, kind of helps our clients and entrepreneurs. So all we do is technology focused on the middle-market almost all m&a.

    Patrick: Another thing that I think you and I should emphasize here is just because of our passion for this segment of the market, where it’s the middle-market, lower middle-market, is that I, you mentioned being an underserved market, we really want to be there to support and provide services and value to the entrepreneurs out there who really aren’t getting the service that they deserve.

    And it’s just because there are so darn many of them. And that’s not a bad thing for us. There’s enough business out there for everybody. And when you got the smaller market and you can provide the attention that they need, hold their hands, bring in the great expertise and experience that they otherwise would have to pay, you know, multiples for, they really appreciate it.

    And you know what, a lot of what we do and why we enjoy doing the deals is that we get great favorable feedback and appreciation from these clients. So why not focus on the people that you love to work with, rather than working with the Apples and the Walmarts of this world? Let’s go out there and there’s no shortage of those clients. And the beautiful thing is they’re underserved. We’re ready to serve them.

    So that’s what we want to do. We do that on the rep and warranty, not only on the transaction side, but other insurance products that may be necessary brought to bear as we do your client. But in light of this huge underserved market graph, explain what Allied Advisers can do and what you bring to the table that the large institutional bankers, you know, aren’t doing or are reluctant to do due to cost.

    What Allied Advisers Offers That Large Banks Do Not

    Gaurav: Yeah, absolutely. You know, as I mentioned, the larger banks due to the overhead and cost, can’t serve the middle market clients like you and I can. So for us, you know, our clients’ success is our success. We are fully motivated to get them over the finish line, to provide an exit to them which they worked so hard to build a business. So, the things Allied Advisers can do is we can provide access to buyers and investors.

    You know, we work hand in hand with our clients and find out who the right seller-buyer is for them. Is it a strategic buyer or is it a private equity buyer? Or is it a strategic buyer backed by private equity? We have done deals with all categories of buyers and, you know, having this access to the buyer is helpful for them. You know, clients are busy growing and building their business, having a banker who can do the outreach on their behalf and get them in front of the right sort of buyers and investors is quite valuable.

    The other thing we can do is we can help them in positioning their company appropriately to each buyer group. You know, strategics will look for different things than what a private equity might look for. Even in private equity, there are some private equity firms that will look for profits and there’s some private equity firms that will look for growth. We know what the hot buttons are, what the buyers are looking for, and what are the valuation drivers for your company and sector.

    And having this kind of knowledge, we can help position your company appropriately to get the top valuation for your company. The other thing we do is we also entrepreneurs like our clients, we started our own firm, we’ve been at bigger firms. And we work with a client every step of the way. There’s a lot of twist and turn that comes during the process and we help you think through this. Think of us as a client, friend during the process. We are working hand in hand with them for six to nine months.

    And then, you know, where we add additional value is we help them negotiate in terms of the deal. You know, founders and the CEOs have worked so hard to build this business and in some ways, they are emotionally tied to the deal. Having an outsider who has kind of done this many times before can be very helpful. We can advise the founders what is market, what’s not market. We can push for things the founders and CEOs find awkward asking their potential future buyer and bosses about.

    They also know they will end up working for the buyer slash private equity firm for two to five years. And negotiations can sometimes be very strenuous and emotional. And you want to preserve your relationship with your future boss. So having a banker kind of manage that for you helps preserve your relationship but at the same time, you know, get your deals done which you may not have been comfortable asking for.

    And last but not the least, you know, you only know what your value for company is by talking to many buyers. I’ve done many transactions in my career. And I’ve seen for the same company different buyers value completely differently and pay value differently. So the only way you know you’re getting a fair value is by doing a proper market check and making sure you’re getting the best value for the company you and your team and investors have built.

    Patrick: Yeah, and I want to emphasize two of the points you made there is that this is very emotional for the buyer and to have the buyer and the seller, excuse me, but for the target company is unbelievably emotional and can distract them from their jobs. So, which is to run and grow their company, not to sell it.

    And so that avoids a distraction. And having that intermediary between the two parties is helpful for filtering out communications, getting, you know, discussions going and getting the process moving without taking things personally, because that, as you know, is part of the process. And the other thing I’d emphasize is there are very few, there are some but they’re very few first-time buyers.

    There are a lot of first-time sellers that haven’t been through this and so they don’t necessarily know what to expect. So to rely on somebody that can walk them through the process, as you said, step by step, be the sounding board is all the difference in the world. So give me some examples of, you know, the types of services and the case studies and what you did for these middle-market companies that set you apart. Just highlight how you do things because there are I’m sure listeners out there wondering whether or not this is a fit for them.

    What Sets Allied Advisers Apart From The Rest?

    Gaurav: Yeah, so I’ll give you two examples. And the interesting thing about m&a processes is no two processes are the same. They have some common themes, but they have variations. So in one case, one of my clients had received an offer from a former company and the company actually was the investor into this, into my client as well. So they had interest in acquiring the technology they had built. When this prospective client came to me, what we did is we did a look at the landscape of other potential buyers who could have interest in this company. And we quickly reached out to another set of buyers.

    Luckily for us, the technology was well received and there was a need for this technology in the marketplace. We actually got another bidder who wanted to buy this company and offered 70% higher than the initial offer, which came from the first buyer. And as a result of that, we were able to improve the initial offer from the buyer from where they started twice over the course of the process and sold the company 70% increase to the initial offer.

    So if you look back, the fees they paid for us was tiny compared to the increase in value they got for the company. And I think the lesson learned here for us was that, you know, companies if they really generally want a technology, they’re willing to pay more. The first offer is not the last offer, but you need to read competition for the buyer to sharpen their pencils. So, that was an example where, you know, the buyer had an inbound interest and we were able to use that to start a process and get additional value through presence of another bidder.

    And then, there was another company, which was a SaaS software company recently sold, it was bootstrapped. The owner and his wife had run this for several years. And the company had grown nicely, it was profitable, but all their eggs were in that basket in that, you know, they had essentially invested all the life savings into growing their company and building their company, but they had preserved essentially all that equity. In this case, they reached out to us and wanted to get some liquidity.

    And they were not even aware of, you know, the types of folks who will have interest in their company. We reached out to a whole bunch of strategic as well as private equity buyers and got multiple offers from both categories of buyers. There are benefits of going with strategics. There are also benefits of going with private equity firms. And then, you know, given they had multiple offers and multiple options, the owner was able to make a wise decision. And we sold that company at a pretty nice healthy premium of 10 x multiple of the trailing revenue. So that’s another example where the client was extremely thrilled about.

    Patrick: When we talked a while back on this second scenario, you mentioned that you were probably reached out to some 100 potential buyers or interested parties on this.

    Gaurav: Yep. That’s right.

    Patrick: I mean, who has Yeah, who has time to do that and keep all those relationships going and all those lines of communication open? You can’t possibly do that and run your company effectively. So

    Gaurav: Yeah, exactly.

    Patrick: I would also say, and this is not to say, we don’t mean to inject any kind of politics whatsoever into this. But it was interesting in your first example where the first offer don’t jump at that first offer. Not long ago, I was checking out the book, The Art of the Deal. And many of Donald Trump’s real estate successes came because he bought properties very, very low, artificially low because why? Because the properties didn’t go on the market. He managed to have relationships with the building owners and came in to step in and offer deals on the buildings without it going to market.

    Had the buildings gone out to market, he said he probably would have still been able to afford it, but he would have had to pay many, many millions more. So definitely in this market, whether you’re aware of your value or not, it’s always best to get, you know, more than one prospective buyer at the table, even just for a look, whether it’s a fit or not. And Gaurav, tell me what’s your ideal client? Give us a profile of that. And then with that in mind, given the time frame on when they should reach out and engage you.

    Who is the Ideal Client for Allied Advisers?

    Gaurav: Yeah. So our ideal client is ideally a company which is, you know, a SaaS software company or an internet company which is, you know, growing nicely in a large market. You know, I think for us, we are excited to work with middle-market founders who are creating businesses from nothing and, you know, getting revenue traction, customer traction.

    For us, we encourage founders and investors to get to know us early on. It helps us build relationship with you. It helps us advise you on market dynamics. And also when is the right time to exit. Is it better to exit when you are extra revenue or whether you need to improve your margins or your services? This allows us to take on more of an advisory role versus a transaction role. And also, we can kind of work with you hand in hand to find out the best way to maximize exit value for the company.

    So what we encourage is, you know, get to know us early on. There’ve been many times where we’ve gotten to know client three, four years ahead of them formally engaging us. We can keep you updated on market insights and address questions as they come up. And then, you know, as you mentioned, Patrick, anytime you have a bond with the company, you know, you should definitely check and make sure that they are, who else could be interested in your company.

    I think anytime you get additional offers, you want to do yourself a benefit in the exit value. And then there could be situations where, you know, we get to meet founders, investors that have grown a company to a certain level and they feel that they either need to get some liquidity, to cash in some of the savings, or they need some capital for growth where it could be better suited to be in the hands of a larger buyer. So those are some scenarios where, you know, a foreign investor can approach us, engage us and in front of you happy to meet with folks and give them my point of view.

    Patrick: So it helps for people even if they’re not planning on some imminent transaction or some imminent exit, is to maybe reach out and call you, get to know you a little bit, just some conversations, get some ideas, and then just have that dialogue on and off again periodically throughout the future. And then when some situations arise, you’re prepared with to have some intelligent conversation. You don’t have to start the relationship from square one.

    You could also tell whether or not I, Gaurav, you’re nice enough guy, whether, you know, there’s a connection there. And having a conversation here or there, always starts, takes 10, 15 minutes. And I think it’s a first step and it’s an easy step before there’s all this pressure on you where you have to do something now because you’ve got some need for capital or you got an unsolicited offer just landed on your desk and, you know, you don’t know what to do. Gaurav, how can our listeners find you?

    Gaurav: Yeah, it’s quite easy to find us. You are welcome to go to our website. It’s Allied ALLIED Advisers, ADVISERS. On there you can see the Contact Us button. You can fill out the form and one of us will get in touch with you. You can find us on LinkedIn. And we look forward to hearing from you and developing a relationship with you.

    Patrick: Yeah, if you go to LinkedIn it’s Gaurav GAURAV BHASIN, that’s the easiest way for some of us who are not as good at spelling on these things for LinkedIn. That’s how they can find you. And I would recommend, you just, it never hurts having a conversation. You never want to, you know, start talking to an attorney when you’re receiving a lawsuit. It’s always nice if you could meet a couple of attorneys, get some ideas just on what’s out there with the landscape, show interest in what they’re doing.

    And you’ll know whether or not there’s connections. You never know when you might need it. And if you’re an owner, founder of particularly a technology company, there’s definitely going to be the need. You may not think it’s now but down the road there’s going to come a time for a potential exit and you could do nothing more than help your situation with Gaurav on your side. Gaurav, thank you very much. It’s a pleasure speaking with you. We’ll talk again.

    Gaurav: Thanks for taking the time, Patrick. Really appreciate it.

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

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

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

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

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

    Listen now…

    Mentioned in this episode:

    Transcript

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

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

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

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

    How Codie Got to This Point In Her Career

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

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

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

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

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

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

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

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

    What Makes Entourage Effect Different From Other Firms?

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

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

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

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

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

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

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

    What Is the Entourage Effect?

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

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

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

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

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

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

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

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

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

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

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

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

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

    Patrick: Yeah, that’s not getting reported.

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

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

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

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

    Cannabis Is a Diverse Commodity

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

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

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

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

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

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

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

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

    What Entourage Effect is Targeting Now

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

    Patrick: You do the same.

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

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

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

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

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

    Listen now…

    Mentioned in this episode:

    Transcript

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

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

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

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

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

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

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

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

    Viv and Tash Taking Instagram By Storm

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

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

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

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

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

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

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

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

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

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

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

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

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

    Building Trust and Sustainable Relationships on Instagram

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

    Viv and Tash’s Ideal Client Profile

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

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

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

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

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

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

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

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

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

    What Ace The Gram Can Do for Your Business

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

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

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

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

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

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

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

    Tash: Yeah, yes.

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

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

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

    There’s No Silver Bullet Growth Hack 

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

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

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

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

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

    Viv: It was a reference to cards.

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

    Viv: King queen ace.

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

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

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

    Patrick: Man, I know that’s colorful.

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

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

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

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

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

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

    Viv: It’s all the places

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

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

    Tash: Thanks so much for having us, Patrick.

    Viv: Thanks Patrick.

  • 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:

    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. 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 jordan@5149.Labs.com. 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