Insights

Richard Parker | An Inside Look at Sell-Side M&A
POSTED 11.17.22 M&A, M&A Masters Podcast

The sell-side of M&A brings unique challenges and opportunities. In this episode, I’m joined by Richard Parker of Roy Street Advisors for an inside look at a sell-side firm.

We’ll also cover:

  • Why the first offer isn’t always the best offer
  • The importance of documentation
  • Reps & warranties from a sell-side perspective
  • M&A trends for 2023
  • And more

 

Mentioned in this episode:

  • http://roystreet.com
  • https://www.linkedin.com/in/richparker1/

Transcript

Patrick Stroth: Hello there, I’m Patrick Stroth trusted authority in executive and transactional liability and president of Rubicon M&A Insurance Services, now a proud member of the Liberty Company Insurance Broker Network. 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 Richard Parker, founder of Roy Street Advisors. Based in Boca Raton, Florida, Roy Street Advisors provides investment banking and sell side advisory services to owners and founders in the lower middle market. And with a lot of flurry and things going on now with owners and founders, Richard, this is an ideal time. Thanks for joining us today.

Richard Parker: Well, it’s my pleasure, I appreciate you having me.

Patrick: Now, before we get into Roy Street Advisors, and what’s happening in the sell side community, let’s start with you. How did you get to this point in your career?

Richard: I often ask that same question to myself. So I grew up in Canada, in Montreal, Canada, and I’ve been living in South Florida for 27 years. During my time there, the last probably five, six years that I was in Canada, I was in my own business. I went into my own business, because I, I was brilliant enough to invest and lose $60,000 in the stock market, my gross annual income at that point was 72. When I say last, I mean I owed the money. And I realized that if I don’t if there’s no way I’m going to be able to pay this back, keep working at a job even though I was making good money going back 25, 28 years at that point all the longer than that, actually 30 plus years.

So I said, the only way I’m going to be able to pay this back is I’ve got to go into my own business. And I ultimately did, I went into the agency manufacturers agent business in 1990. In the consumer products, toys, infant products. And along the way, in the subsequent few years after that, I acquired a couple of smaller businesses to tack on to what I was doing. A couple of them that were really unrelated, but I was really enjoying that process of acquiring a business. And, and thankfully, I was able to recover from my stock market misdeeds.

And I guess I got a bit of a reputation for being able to buy some of these business amongst peers and started doing some consulting free. But helping out friends and family and just others who came across my way just with the acquisition process, because I’d completed about five or six of them. In 1999, 2000, I was looking at an acquisition in South Florida, which for me was large. It was a little over a million dollars. I mean, it’s small, by some of today’s standards, some of the deals that I worked on. But for me, that was a that was a real big potential investment.

And I started, I had a contract in place, an agreement in place, and it was involved in the due diligence, I had an accountant helping me and I was digging into the due diligence myself. Pretty well versed in it, so it’s doing it in tandem with the accountant. And what I uncovered was unbelievable. If you talk about the typical cooking the book syndrome, I mean, this was it. This was like the poster child. And it was a disaster. But it could have been a disaster. But I was able to uncover it before and was able to rescind the contract.

And I walked out of there, and I remember walking out of the office of the business that I was looking at, and I was standing in the parking lot. And I remember thinking to myself, you know, the average person who didn’t have the benefit of years of experience looking at businesses or talk to your accountants, which you typically wouldn’t have at that level of business. But the average person would have bought that business, and it would have turned out to be an absolute nightmare.

And so you know, turning a dream into a nightmare. And so that really got me thinking along the lines of like what’s available for Main Street and a little bit above prospective business buyers. People who want to acquire a business, but they don’t have any expertise. And you know, who’s there to help them and everything along those lines. I was really intrigued with this and this is really the infancy of the Internet about 2001. And the broker who’s involved in the deal is very good guy. I mean, he was misled as well. And so I started doing a lot of research online and in bookstores.

Yeah, the glory days when we had bookstores. And really found that there was nothing that would help individual small business buyers and I became very intrigued with that. And I just, there was a lot of courses at that point on internet marketing. I remember it was one course was a monster course written by Corey Rudl, who was killed unfortunately, as a young man. But I thought his course was great related to internet marketing, but I said what maybe I can apply this to business buying. And so I sat down and I had looked at hundreds of deals over the years at that point. And I sat down and I took copious notes.

All these years, great files. I still kept all my files. And every scenario that came up, I wrote down what I did in that scenario, what worked and what didn’t work. And so I had this really good manual, a lot of notes, not necessarily scattered, but it was like this. But really what-if scenarios, and I decided to write a course and I ended up writing a 548 page course. A real take people by the hand. It was called How To Buy A Good Business At A Great Price, and would really take people by the hand through the whole process.

If this happened, do this going through, you know, what type of business you should buy, dealing with business brokers, how to value a business and spreadsheets and worksheets and contracts and what to do due diligence and questions to ask the sellers in negotiating and closing the transaction, financing the deal. And it turned out to be like a blockbuster. And we sold it in about 80 something countries and have written seven or eight versions of it. And that led me to actually get into brokerage because what was happening was most of the buyer, people who were requiring my course, I kept getting inundated with emails and telling me that people are tearing their hair out dealing with business brokers.

And again, this is more mainstream. And so I went to meet with the owner of a business broker down in Florida, Transworld, who was very large business broker, and met their owner Andy Cagnetta. And, and I was under the impression that, you know, my background, I used to sell consumer products for like, $1 apiece, and I used to make a really good living. You know, the low six figures.

Patrick: Volume.

Richard: Yeah. Make it up in volume. And so I thought and I started asking questions. How much does the average business sell for? It was a few $100,000. And what is the average commission? It was like, 10% for business brokers, and in my mind, okay, so the top guys have to be making a million bucks a year. And the guys that are really pathetic, are probably making 300 grand. That’s my mindset going in, like, that’s what I’m thinking. And I asked him, like, how much is the average business broker making? He says 60 grand. I said, okay, I’m going into this business.

Patrick: Oh, wow.

Richard: And that was, that was the genesis for me going into the business, because I said, you know, if you’re selling that $300,000 product, on Main Street businesses and getting 10%, you got to be able to sell a lot. You sell two a year, I mean, doesn’t even make sense. So I went into that. And this was Main Street brokerage very early on this two plus decades ago. But what I learned was mind boggling, right? The amount of businesses that don’t sell. The amount of businesses how long they stay on the market.

The number of deals, for example, that fall apart after a deal has been placed in the due diligence, it’s like 50% of the deals fall apart because of poor books and records. So, and a lot of brokers, there’s a lot of good brokers, but there’s an infinite amount of bad brokers at the lower end. So it got me really, really intrigued. And I realized that everything that they’re doing, the numbers were so crazy, I’ve got to whatever they’re doing, I’m doing the opposite.

Patrick: Okay.

Richard: And I slowly moved up into larger deals, because of recognize very quickly, I was only selling my time, and it takes just as much time to sell a larger deal as a smaller one. And you’re dealing with very unsophisticated people. No disrespect intended, to those individuals. And the other piece of the equation was there was a couple of very early transactions where I was on the buyer side of the deal. The business was, was horrific as we dug in. And I couldn’t bear the thought of ever getting a commission, knowing that someone was going to put their life savings into this. And it was for lack of better terms a shit business, excuse my French.

And so I said, I got a remove, I won’t sleep at night. I mean, knowing that though, I was part of a deal that, that someone pulled the trigger and put their life savings into something like that. So I ended up going into, you know, started doing brokerage and transactional work on larger deals. You know, probably about a million dollars of EBITDA and more outside of Main Street. And did that through to about 2008. And then the market was just collapsed. Especially in that, in that area, which deals just couldn’t get financed. They ended up subsequent that I bought a couple of businesses, built those up, invested my time, spent time in them, built them up, sold them. Added a lot of technology and sold them. Did quite well.

One of them less than the other, but did you know fairly well. And then in 2017, I actually left the brokerage world and I went to the investment side of the business, funded by a very prominent family office. I was partners with the founder’s son, who was a dear friend of mine. And we ran that business for four years. It was some very you know, I mean, it was it was wonderful experience and some of the things were incredibly positive simply because we you know, we didn’t need funding right. We had it. So that was great.

Patrick: That’s half the battle

Richard: Maybe 80%. And we did that for about three and a half, four years and then unfortunately my dear partner and cherished friend was killed in a car accident and so we wound down the business. Kept the investment part those. The family and I are very, we’re very, very close. And we took care of that piece. And subsequent to that I was really, you know, I was in an awful state mentally. Because this was, you know, he and I were close like brothers.

And so it took a number of months off and decided what was it what, what I really wanted to do, and it wasn’t really sure. I just because I couldn’t even have the mindset to work. And I ultimately decided to get back into the M&A world. I always enjoyed it. I had great deal flow way back. When I say way back, it was only a few years prior. Knew that it would take a much a lot longer prior to that I had hung my license with a brokerage down in South Florida, but I decided to open up my own firm. And that in a very long winded way is how I got here.

Patrick: I mean, first of all, everything you’ve come up with you’ve walked a mile in those shoes on both sides of the table. And you have also, I think you’ve personified the fact that sometimes the best deals are the ones that don’t happen. And so I think that that’s fabulous. Now, let’s talk about Roy Street real quick as we come because you segue into this very nicely. So we got Roy Street. First of all, I mean, you didn’t name it, you know, Parker Capital or anything like that. So I mean, where do we come up with a name. And let’s talk about now what the practice is that you are doing specifically for the lower middle market. And as we do this, also, why don’t you define, because it is relative with a lot of people. Define what you think of as the lower middle market.

Richard: Perfect. So Roy Street is the street in Montreal, where my grandfather had his restaurants. And my grandfather was a beauty. He escaped the Nazis back in the early 1900s. He was like, we used to tell him that he was the toughest old Pollock you could ever imagine. And I can say that without getting in trouble because I’m part Polish. Five foot six 175 pounds and would stand toe to toe and fight everyone and was a street fighter. And the story of how he got over to North America was incredible. He was a real hero to be. And he he lived with us, my family the last few years of his life. And he was just a real character.

They used to call him the mayor of Roy Street, and so named in his honor. So that was a big part, and the other part, I would never use my own name because I remember, as I alluded to earlier, Andy Cagnetta at Transworld, I bring them up again. Very, a long time ago, he we he was talking to me about you know, we were talking about businesses, whatever he’s talking about how many small business owners make the mistake of naming their business after them because when they go to leave and go to sell it, there’s so much goodwill attached to that name, that it probably hurts the deal. So I had that in mind.

But I really wanted to honor my grandfather. So that’s how the name Roy Street came about. As far as the question, I believe the second question was related to the lower market. And, and why I focused on that. First of all, if we define it, there’s no there’s no definition of it. Right? I mean, if you could speak to I’m sure if you have the next 20 people on your on your wonderful podcast, and you ask them to define lower middle market, you’ll have you have 10 different answers.

Patrick: It’s in the eye of the beholder. Yes.

Richard: It’s in the eye of the beholder. So to me, I look at it this way. So for me, the lower market are ones that are too big to be small and too small to be big. And I’ve always defined them. As for me, anyways, a million to 10 million of EBITDA, but 10 is a real stretch. Because once you start getting up there, that’s a an investment banker. So for me, it’s really the sweet spot is is one to $5 million dollars of EBITDA, and like a transaction value rather only, like 25 million would be, you know, on the high side. It might creep up a little bit, especially with somebody, you know, some of the multiples that go to little bananas recently, but lately, but that that, to me, is how I define it.

For me anyways. You know, I truly believe and I think the third question you asked was related to why I’m there, which is it’s very underserved, right? I mean, the expression that I used earlier, too big to be small and too small to be big. You know, it goes above, it’s beyond what typical business brokers will do. It’s not attractive to investment bankers. I think for me, anyways, those are the areas where there’s the biggest opportunity for improvement. I’m dealing with a more sophisticated buyer, more sophisticated seller, they’re the hardest deals to finance, right?

Because they’re not PE size, and they’re very often fall outside SBA deal size. So for me, I like that because I don’t have much competition. They’re real hard deals to get to the finish line. That to me is the joy in all of this, you know. For other people, they find that that’s their heartburn. For me, that’s the joy. And so again, you know, the opportunities to improve those businesses before even take them to market and could really move the needle on valuation, for all those reasons that’s why I like to play in that space, and I’m very rigid. I don’t go lower and I don’t go higher.

Patrick: Well, and I think that’s, that’s ideal for why we’re doing this and why I really wanted to have you on the show and talk about Roy Street advisors for owners and founders out there. And even PE firms that are looking for tuck ins and add ons and so forth, is that, you know, you’ve got these owners and founders and there are a couple of things happening now. First, they want to grow. And they’ve gotten to that inflection point, they just don’t know how to take that next step. And so they need something else. And then there’s the other factor where we have a lot of owners and founders, they don’t have, you know, they now want an exit, and they

don’t have family or staff that want to take over the business.

And so they’ve got to go out. And if they’re left to their own devices, they’re either going to find it, you know, default to an institution, that’s not going to serve them very well, or a strategic, and, you know, strategic may or may not have their interests in heart. And so, you know, left Left to that they don’t have it. That’s why we want to make sure that people know more about organizations like yours with Roy Street, where you’ve identified a couple of great little silos where there are gaps in services for others with financing and everything.

So I think that’s fantastic. One of the things that I want to ask about, you know, what you’re delivering to the lower middle market in a little bit more detail. But one of the very interesting things is, you mentioned something that of the companies that go listed, was at 25% or 50% never get sold. Even if they just go out there, and the owners just ultimately just decide to close their doors. And those that do get lucky enough to get sold, they get sold for far lower than they expected. Talk about that a little bit. You had referred to it just a moment ago.

Richard: The number is actually worse. It’s in the lower market, main street businesses, 75% of the businesses that you see listed publicly for sale don’t get sold. It’s nuts. Now, on the other hand, it also you know, it’s like, it’s a catch 22, you look at that and say, Is that why lower market intermediaries carry a ton of listings in order to mitigate the number that don’t sell? Or is it because they carry so many listings, so many of them don’t sell, right? Like, I don’t know what that answer is, they’re probably there’s probably an answer in both of those scenarios. But the outcome, or the results speak for themselves, which is the majority do not sell.

Now you think about how much time is invested. And it’s very unfortunate for the sellers, you know, when that happens, or the buyers that are looking and wasting their time. And, you know, to me, the single biggest reason is they either shouldn’t be on the market for sale, or they’re, they’ve come to the market too quickly. And what I mean by that is there’s just some businesses that just aren’t going to sell. There’s just not enough of a buyer pool. There’s too many assets that reside between the seller’s ears. They built their business, the business owner has built a business without planning processes, procedures, no second tier management in place, and the time comes to sell a business.

It’s just not attractive, it’s just not gonna transition well to enough, you know, it’s not going to transition well. There’s not enough of a buyer pool. But it really becomes, you know, when I say that, the second part is this too quick to market because there is this listing mentality in my world, right and get the listing, right. I mean, which is, which is a terrible way to do it. Because you should, you know, an intermediary should interview, put the seller through the same amount of underwriting that a seller puts a potential intermediary that they’re going to hire through in order to hire them.

And so too quick to list, I think that’s a problem. I think there’s the the expectations that sellers have, or business owners have may be on their own, or may be misled. Whatever the combination is, the expectations are way out of line, you know, and especially start reading, you know, there’s so much access to information. You start reading, you know, companies trading at 25 times, or 200 times expected earnings, or, and there’s order selling at 10 times earnings. And understand that doesn’t translate down to your privately held business, but that’s what’s been imprinted on their mental hard drive. So the expectations are a big part of it.

The lack of preparation is definitely a big part of it, of taking it to market at the right time. Because if you do it in a good way, you’re going to get more money for it. Right. Not only is it has a better chance for to sell, but you shouldn’t be able to get more money for it. And so, you know, there’s also this idea that your first offer is your best offer. In other words, people put a business on to market as the process goes, sellers get frustrated, or get more motivated, an offer comes in, and then everyone thinks that the first offer is the best offer, which is not the case.

I mean, there’s people in my world will tell you that over and over again. I don’t subscribe to that. To me, your best offer is your best offer. That’s the best offer, right. And so, you know that for all those reasons and again, you know, the expectations, the preparation, not being ready for market or shouldn’t even go to market, you know, to me are the reasons why those stats are so dismal.

Patrick: Is it as simple as I mean, some of the fixes is just documenting an operational manual, you know, and you know, get the stuff out of here, and get it documented in a way that, okay, anybody can come in and plug and play. I mean, do you see that often, or are there other things out there?

Richard: There’s other things out there. But that’s right at the top of the list, you know. When you think about the criteria it takes to sell, you know, what it really takes to sell a business, being able to transition to a new buyer is fundamental. And so the sellers, as you pointed to so much is in their head, document everything. Because not only that, it is going to make it more sellable. It makes it a better business. Because as you’re documenting these things, you may realize you’re not doing it the right way. Or there’s a better way to do it, or you’re going to ask yourself some questions.

So the lack of the processes and procedures being documented affects both sides of the operations of running the business on an ongoing basis. And the ability to transition. You know, keep in mind in smaller businesses, and I’m not talking about institutional buyers, or PE firms have have bolt ons, individuals mostly or what have you, when they buy a business, and they go in there for the first day. They don’t even know how to turn off the alarm.

Patrick: That’s like, like, it’s like buying the restaurant and not knowing how to turn on the ovens. Yeah.

Richard: 100%. Correct. And so having that in place, and also from a standpoint, you know, for a business owner, if he or she gets hit by a Pepsi truck tomorrow, at least someone can pick up the manual and get somewhere, right. It’s a starting point. So for the reasons of owning it, running it, and potentially selling it, yes, your point is, you know, it’s very well taken. You know, there there’s that is right at the top of the list. Good books and records. Numbers don’t lie. Sellers lie and people lie. But numbers don’t lie. So have good books and records.

And so many deals fall apart because of poor books and records are or add backs that are just insane. Keep them clean, run your business, run your business neat and clean, because it’s all, it’s going to help you run your business. And it’s going to help you sell your business. Having a second tier of management. And that’s, that’s probably the most difficult one, because someone starts a business or buys a smaller business, then they start to run in there, they start, you know, they become thrilled when they take start taking out some meaningful money. And the business keeps growing. And then they keep taking out more meaningful money. And the business grows further, and then they keep taking more meaningful money.

So they keep bumping up their lifestyle, as they have more money as opposed to sticking at a lower amount. Living nicely and investing in the business. And what they generally find is they don’t put a second in command into place. So now even a an individual buyer or an institutional buyer, a PE firm looks at you know, because very often they’re betting on the jockey not on the horse and now they look and say, okay, nevermind, if the horse dies, what happens if the jockey dies, or something happens to the owner who’s in place.

I mean, there’s all there’s a massive level of comfort when there’s a terrific second in command, and an institutional buyer come in, not not a strategic buyer necessarily. But, you know, if a financial buyer comes into place, and they know they got the owner, and the owner wants to stay for X period of time, they’ve rolled over equity, but there’s also a terrific manager in place in

case something happens, or they’re not pleased with the owner.

Patrick: Yep, can happen. Okay, yeah. So this is excellent, excellent stuff. Very, very useful. Now, Richard, give me a quick profile. Who’s your ideal client? Who is Roy Street advisors really looking for to help?

Richard: My number one criteria is someone that I like and trust. So that, to me is really, really important. I need someone, I want to have, my ideal client is realistic. They’re motivated, but not pressured. They’re open, they’re open minded, because what we think the deal may look like, it may not look like that at all. I mean, I’m doing this for three decades, I have a pretty good, I got a pretty good grasp on valuations and reality. But deal terms can, you know, could sometimes move around. And so as a business owner, you know, I always advise him or her, that we have to remain open minded.

That doesn’t mean taking a bad deal, it’s just open minded to the deal. You may think that you want to sell and ride off into the sunset, but in order to get the deal done, you might have to stay for a year or two. You know, whatever that case may be, be open minded. For me, it’s a good business. I don’t sell distressed businesses, because it’s nothing but stress. That’s the part of distress that resonates with me. So I want a good business that’s going to, that can transition well to kind of transition well to a new owner as to the point that you mentioned and we talked about just before.

I like business where there’s a large buyer pool so I’m not you know, I don’t want to highly specialized but there’s a very limited buyer pool, because if you if it’s not there, it’s not there, right? I mean, the deal needs to be never gets to the finish, right? Of course, we have to have good books and records, and it’s got to be priced right. Now some of the businesses we don’t price, but the seller knows from me very clearly here’s, I will give you probably within a very good slim margin of error, what this enterprise value is going to be.

And it’s not because I’m smart, I’m just old and doing it long enough. So a pretty good idea. And I’m also very, very, very grounded related to multiples. You know, some of these, someone recently, their business is making two and a half million dollars, you know, wonderful business, it met all the criteria that we just talked about, except one thing. He told me, he said, for $30 million, I’m out the door.

Patrick: Of course!

Richard: So what I told him was I said, if you’re willing to go out the door for 10 to 12 and a half million, then we can do some work together. But if not, I said, I’m gonna give you a list of everybody in my business locally. And you can call them because anybody who tells you that they can sell it for that kind of money is, you know, smoking crack.

Patrick: Well, yeah, absolutely. Now in the lower middle market, I don’t know how much experience you’ve had. But you know, the insurance industry has come in with the larger deals with a product called reps and warranties, insurance. They’ve since come down with something else. To set the table real quick, Richard, good, bad or indifferent? What experience have you had with reps and warranties, insurance?

Richard: My experience has been terrible, because I can’t get it. So I’ve looked at it on a number of transactions. But I can’t get anybody to return a phone call if I’m not doing a $50 million deal. And so, you know, in my I get these inquiries all the time from LinkedIn, someone wants to connect to me. These financial planners. And I always have always made it a point my whole career, if anybody wants to talk with me, even if they’re selling me something, whatever the case may be, I owe them the right of my time. I’m not a big fancy guy, but I always feel no matter who it is, I will always set up a phone call with somebody.

And so I have these financial planners, because they would like an in to my clients, right? For tax planning, or what have you. And I, I’ve asked, like, conservatively, and this goes over the last few years, conservatively, I’ve asked 25 of them if they do reps and warranty insurance, or know someone who does rep and warranty insurance on my size deals. And I haven’t gotten a single affirmative yet. So when, you know, when we started initially speaking and got the parameters of the deals that you do. I mean, for me, that’s priceless. But I’ve seen it where you know, the smaller deals, again, where I play a million to $5 million of EBITDA, we have a contract and they see the contract from the from buy-side attorneys.

It’s amazing how many sellers like will almost gloss over or not realize the impact of reps and warranties when they first look at the contract until their lawyer or my sell says you need to pay attention to this. Right? The purchase price is very straightforward, the deal’s terms. That’s binary, right, that stuff up there. But you need to pay attention to this, this is not just the case of saying, you know, you’re going to, quote unquote, guarantee the things that you’ve told them. Right. I mean, it goes way beyond that.

So along with the education, once they understand that, and certainly affordable. And if you’re if you’re getting 500, you know, $5 million of coverage and costing you 75,000. Your pocketing 5 million, and you know, your rear end is covered. I mean, it’s really brilliant. I would suspect that there’s, you know, probably a terrific opportunity for you as well. Mch lower end, right as far as the business. A million, two, three, 5 million that are at enterprise value.

Because both sides of the equation plus the parties that are typically involved and advisor, they’re clueless with this, right. So I think it’s a, it sounds like a terrific product. And I believe it’s probably a great opportunity. So, we’ll end up doing business. You and I besides our wonderful conversation, we’ll do some business together. I got one for you right after this call.

Patrick: Yeah, completely appreciate that. Now Richard, what do you see going forward? I mean, I always ask my guests, you know, trends and everything. We’re getting near the end of the year. So we’re already into 2023. For the smaller, you know, owners and founders, smaller companies, I don’t know if the big macro headwinds are going to hit them necessarily as much as the larger publicly traded companies. But what do you see either for your practice or for M&A in general in the coming year?

Richard: Well, you know, I wish I knew exactly because then I’d probably buy lotto tickets as well. However, the smaller market, the lower market usually lags the larger market a little bit in time, but it gets slapped right in the face worse. And the reason being is all the stakeholders, you generally have businesses that start to perform poorly during tough times, you have individuals or strategic buyers in the lower market that their businesses might be performed poorly. Financing costs increase exponentially, and their confidence level, especially if it’s individuals acquiring a business because the biggest thing with an individual buying a business, you know, for a few million dollars, no matter how much money they have it their confidence gets them to the finish line.

Whether they believe that the business can transition well and continue to do well, at least or at least, do the same thing post acquisition. So once that confidence is gone, I mean, it’s very, very difficult on the lower market. I think when you get into a little higher and again, you know my deals, let’s say, towards that $5 million mark. I think what’s happening now, in some ways I, I hope the carnage what everybody’s the naysayers are predicting is minimal investment on it on everybody, of course. But if in fact, that becomes reality, I think there’s some terrific potential alongside it.

Because, you know, in the deal, you know, the institutional investors are going to put less debt on the business, so more equity in the business, I think that’s really, really good. I think the multiples are going to come down. You know, multiples are always related to deal flow. And if some businesses start doing poorly, deal flow is going to get even worse, but it should bring

down the multiples of the markets where I operate that have gotten crazy for no reason.

And I think, so I think on the higher end, middle market, higher markets, I think multiples may, may hold a little bit, because you have all these, you know, PE firms with gobs of money that has to be deployed, right. So that will keep some of the multiples, but their deal structure will change. For me personally, I love it when there’s blood in the streets. Because I think the businesses that my clients, the ones who have good businesses, when there’s blood in the street, those businesses look even better.

Patrick: Yeah, they become a premium. Yeah.

Richard: The light shines on them. Right. And so for me, you know, I, there’s a little bit of navigating, but you know, I can’t predict exactly what’s happening. But if everything that seems to be, what we know is in place already with, you know, higher interest, and some of the macro economic symptoms that could happen. I, you know, where I think it’s gonna go because I’ve seen it before. For me, I actually think there’s going to be some terrific opportunities.

Patrick: I completely agree. I think that that’s going to happen too. And also, just time hasn’t stopped. And we’ve got a lot of these owners and founders that aren’t getting any younger. And so there’s going to be movement and transition that is inescapable in the next couple of years.

Richard: And the other thing to consider is, you know, you always come out of it, right? So it’s just a matter of how long it lasts. If you do your homework and and, you know, do some stress testing about fast economic cycles, and everything seems to, well not seem to. Everything repeats itself. There’s just, you just have to dig a little deeper and there’s going to be some I again, I just think there’s going to be some terrific opportunity, some carnage, of course, but from where I operate, I’m feeling pretty good.

Patrick: I completely agree because we’re operating in the same in the same way. I just keep reminding myself I heard a very wise person say look, everything ends. You know, losing streaks, hard times, challenges, they always end. So do winning streaks. And so you know, you prepare for either one and I think we get through, but this is fantastic. Richard Parker from Roy Street Advisors, how can our audience members find you?

Richard: It’s easy by email. It’s RP, as in Richard Parker, @roystreet.com. Again rp@roystreet.com. And I’ll give you my cell number anybody’s happy to, you know, feel free. Anybody give me a call directly. It’s 561-308-1650. 561-308-1650.

Patrick: And the website is?

Richard: Roystreet.com.

Patrick: Okay, and spell out the street.

Richard: roystreet.com, yep.

Patrick: Fantastic. Well, Richard Parker, it has been a pleasure. We’re gonna be talking again.

Richard: Thanks again. I really appreciate your time and great questions, this is a terrific conversation. I enjoyed this. Thanks for having me.

Patrick: I had a great time. Thanks.

Richard Parker | An Inside Look at Sell-Side M&A