• Alan Clark | Why This Major 2023 Prediction is Wrong
    POSTED 1.18.23 M&A, Podcast

    When your small business owner client is in a room full of MBAs, they can feel out of their depths…

    So how do you keep your client’s emotions in check during a high-stakes sale?

    Alan Clark is here to share his perspective as a sell-side advisor helping clients exit their businesses.
    Alan also reveals why he thinks a common 2023 M&A prediction is wrong—and weighs in on a new sell-side reps & warranties product.
    Read More >

  • A Look Back at 2022 Q1 M&A Activity
    POSTED 6.9.22 M&A

    As we exit the first quarter of 2022, all the buzz is around the slowdown in M&A activity.

    It’s true that deal activity in the beginning of 2022 is a drop from Q4 2021, as well as a drop compared with Q3, Q2, and Q1 of 2021 because there was so much pent-up activity as pandemic closures waned.
    Read More >

  • Gina Cocking | Reps And Warranties Insurance: Why It’s Essential In Today’s Climate
    POSTED 10.19.21 M&A Masters Podcast

    Our guest for this week’s episode of M&A Masters is Gina Cocking, CEO and Managing Director of Colonnade Advisors LLC.

    Colonnade Advisors is a boutique investment banking firm that specializes in merger and acquisition advisory services, providing financial advice to business owners interested in selling their companies, buying competitors, and raising capital. Gina was employee number one at Colonnade, then left to pursue other interests. She returned to Colonnade Advisors as a Managing Director in 2014.

    Despite overlap between our practices, there are a lot of parallels going forward and I think you will greatly benefit from this episode.

    Listen as we talk about:

    • The critical element to managing expectations
    • The truth behind valuation and how to get the best price for your company
    • Gina’s take on the new reps and warranties offerings and what’s coming for 2022 in the industry
    • And much more



    Patrick Stroth: Hello there, I’m Patrick Stroth, trusted authority on executive and transactional liability, and president of Rubicon M&A Insurance Services. Now a proud member of Liberty Company Group of Insurance Brokers. 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 Gina Cocking CEO and managing director of Colonnade Advisors, LLC. 

    Based in Chicago, Colonnade is a boutique investment banking firm that specializes in merger and acquisition advisory services with exceptional strength in serving the clients in the financial services sector. Now while there’s been little overlap between our respective practices up up to date, there are a lot of parallels with what we’re seeing going forward and Gina and I’m very excited because my audience is really going to benefit from your perspective today. So thank you very much for joining.

    Gina Cocking: Oh, thank you for having me. I’m excited to be on.

    Patrick: Now before we get into Colonnade in the financial services sector and all that great stuff. Let’s kind of ease into this. Why don’t we start with you. What brought you to this point in your career?

    Gina: This is my favorite topic. You know, I love being an investment banker. I really, really do. You I get to learn about businesses from best in class entrepreneurs. We at Colonnade, don’t do restructurings, we only work with successful companies. I get to spend my days hanging out with entrepreneurs and leaders of companies that have built organizations that have grown and are now selling for large prices. Like a masterclass every week on how to run a business. So I have loved to be in investment banking. When I started my career out in investment banking and left it for a little while. Hated those years when I was gone and had a chance to come back. 

    I started, I went to University of Chicago undergrad and I joined a firm that is no longer around called Kidder Peabody. It was a bulge bracket investment bank in the 90s that was owned by GE of all places. But at Kidder Peabody, I did mergers and acquisitions, a lot in insurance and, and general industrial companies. I spent a year with Madison Dearborn Partners, a large private equity firm. When I was in business school at the University of Chicago, I spent a summer with JPMorgan in equity capital markets, and then had the chance to come back to JPMorgan after graduation, where I did a lot of mergers and acquisitions out of the Chicago office. 

    I’d left JPMorgan after a few years to join the person who was then the head of the Technology Group at JPMorgan when he founded Colonnade Advisors. So I was employee number one at Colonnade. We initially focused on technology companies and business services companies. I was with colonnade for five, four or five years and had a challenge balancing having a young child at home having a husband who was a partner in his law firm, and just generally handling all the travel that’s in investment banking. So I left investment banking, and I became the CFO of a number of companies. I was the CFO of an equipment finance company, a company that did about we had a portfolio about $35 million. 

    I was the CFO of a private equity backed manufacturing company, and I was the divisional CFO at Discover Financial Services. So Discover the credit card company also had a $29 billion direct to consumer bank that I oversaw finance for. A $5 billion personal loan portfolio at that time. And then also all of non card operations. I oversaw the finance teams for that. And then in 2014, I had the chance to come back to Colonnade which was a thrill of a lifetime. Investment bankers don’t often have the chance to leave the industry and then come back.

    Patrick: Yeah, you can get very stale very quickly.

    Gina: Exactly. Exactly my partners took a risk and brought me back and it was perfect timing because my career and what Collonade had been doing dovetailed together. They had been focusing on financial services and business services during the intervening years and so I brought back my operation experience and financial services and we’ve been growing ever since.

    Patrick: Then at the core of that is the expertise where your role as a CFO, so you can’t bypass that discipline and have that expert not have that expertise. And so you definitely were staying, you know, in the game as somebody. Now with Colonnade now that you transition from technology over into financial services. That is a market that is not for the beginners, okay. You’re going in, particularly in the area that you are because you’re in the ideal spot I mean, everybody would love to be selling, you know, in real estate that prime real estate and the mansions and all that which is where you are. 

    You’re definitely not in the startup phase or the turnaround phase. So you don’t have the right degree journey once you now have all these really ideal targets, okay? And so that’s not with a lack of competition. So talk about Colonnade and how you cut your own niche within financial services, and talk about the type of competition because I mean, I can imagine you’ve got the big gorillas like Goldman, you know, come coming into that area too.

    Gina: Sometimes, sometimes, yes. So we have found at Colonnade, that focus has been the key to our success, and the success that our clients have. We have dialed into a few niches that have really helped us understand the buyers of those companies, and understand the accounting issues that come up in those companies and the operational issues that come up. And I think that really gives us an edge over other investment banks that companies may consider hiring, they just don’t have the same type of experience. So for example, one of the areas that we have done a lot of work in is insurance premium finance. We have done like 27, 28 transactions in insurance premium finance that we’ve actually printed. 

    There are a couple of buy sides ones that didn’t actually end up, our clients didn’t win. But we’re involved in pretty much every insurance premium finance transaction that happens in the industry. So I guess you could say that we’re the national leaders in that practice. We are quite active in the automotive finance and insurance space. So that is a $81 billion dollar at retail industry. So that includes vehicle service contracts, car warranties, tire wheel contracts, all those types of products that consumers can buy at an auto dealership. There’s been a lot of M&A activity in that space. And we’re very active. We do a lot of work with equipment, finance companies. 

    And so small and large equipment finance companies, we work with both balance sheet intensive businesses on the financial services side, and businesses that are asset light. For example, just last week, we sold Open Road Lending to Clarion Capital Partners. Open Road Lending is a direct to consumer auto refinance company. So they placed the paper then on their lending partners books. They do high transaction volume, billions of dollars worth of loans over time, but they aren’t putting those loans on their balance sheet. So those are the types of companies that we’re working with. And what we have found is because we as I said, I’m dialed into these types of companies. 

    We have pattern recognition. So we know what to watch for with these deals. We know to watch for with these companies. And then sometimes complex accounting issues that come up. We see this a lot in the auto F&I space. Rather than just using gap accounting or even cash accounting. There’s actually another methodology called modified cash accounting. Modified cash is what those types of the auto F&I companies actually trade on. So we are pretty well versed in how to handle modified cash accounting. And so that’s what we bring to our customers or our clients is by focusing on several within financial services, even in several niches. It really lends to our expertise, and we bring a lot to our clients. 

    We also do a lot of work in business services. In business services, often it’s business services that overlap with financial services. So it might be businesses services related to auto dealerships, or business services companies that are in auto dealerships. Or Insurance Services companies, or financial services companies that really aren’t doing anything with consumers, but actually, technology or products into financial services companies. And so we keep our universe kind of corralled into what we look. That means sometimes we turn down deals, but the general industrial deal will frequently turn it down, which can hurt. But it keeps us focused and helps us give a better product to our clients.

    Patrick: Well, I can imagine the more you look at an industry, you focus and drill down, you’re going to find these niches and this entire universe of different classes of businesses within there. Yeah, I think what happens oftentimes where, you know, my experience is, you know, people are, are looking to have the problem solved. And if you could understand the unique problems that are particular to that particular business, okay, right. And you can solve their problem and they trust you to solve their problem, you’re going to be a lot more successful and a lot more effective. 

    And you just cut out the waiting time and the delays. With all the noise with everybody else. You don’t venture in there. I would say to anybody, if you’re in these particular silos, okay, this is where you have to find a specialist like Gina in Colonnade and say, look, we have, we have the types of problems that we know they can solve, they don’t have a learning curve to undergo at our expense. And we’re gonna maximize that. So I think that’s outstanding. One of the dynamics that I want to check with, with you on with investment bankers is that a lot of what we do is in the lower middle market. Sub 100 million dollar transaction value in many cases sub 10 million. 

    In those areas, you know, engaging an investment banker is looked upon as almost a luxury or, you know, it’s optional. Sometimes at the event it you know, at the advice of an aggressive strategic buyer, saying you don’t need, you don’t need that. But it’s optional. When we get to where you are, if you can share with us, you know, your, your, your deal size, your target range, but at at this level, with this sophistication, I mean, you’re mandatory, right. Tell us what the difference is.

    Gina: Sure, you know, our typical deal size, is say, 75 to 125 million, we do larger transactions, we’ve had quite a few that are larger, we do smaller transactions. A threshold, though, is really about 4 million in EBITDA. And the reason for that is is the buyer universe we work with a lot, the PE firms we know well, are generally of that size. So when we’re working with smaller companies, we don’t have the same types of relationships to identify those buyers. So we tend to work with companies of that size. Now, generally, what we find is, you know, in working with a lower middle market versus a larger company. The larger companies usually have leadership teams that have more experience in M&A. They either have gone through it themselves, they’ve gone through a capital raise, or they maybe have bought companies already, they’ve done inorganic activities to get them to where they are. 

    And so we work with them, they’re more prepared for us to walk in. Their books are in better order, their story is tighter. It’s prepared, they have contracts in place where they need to, it’s not as much on the back of the envelope. With earlier stage companies, oftentimes, what we find is, you know, there’s a little more softness into what they do. So they might not have contracts with some of their key partners. They might not have employment agreements in place with their employees, or non disclosure agreements, or non compete agreements with employees. They might do sometimes what we call an electronic shoe box for their financials. You know, they don’t have audited financials, because the CEO says, it’s a waste of money to have audited financials.

    Patrick: We’ve had QuickBooks for 10 years, we’re fine.

    Gina: Exactly. exactly. It is never a waste of money to get an audit. It’s like not going to the dentist. Do you not go to the dentist and let your teeth fall out? Do you run your company without an audit? You don’t know what’s happening. Like, well, I don’t worry about it Gina because I don’t have, I’m not worried about fraud my company. That’s not why you do an audit, you might not have your financials in accordance with gap. If they’re not in accordance with gap, you may not be making as much money as you think. Or you may be making less than you think. And that can impact your value. 

    So what we find in working with some of the smaller companies, is we need to roll up our sleeves a little bit more, and help get them market ready. And that is helping them build a detailed financial model. Helping them go through a sell side quality of earnings, helping them prepare schedules that they will need for the process. Helping review some of their contracts and talking about what they need to have in place. In addition to the coaching of how to go through a process. But really the rolling up our sleeves and getting involved with the companies is where some of our biggest value add is for companies that have never gone through a process like this before. And we kind of bake that into even from our first conversations when we’re reviewing their financials, and helping them think through things and we always talk about when we go in. 

    Whatever is on your income statement. We’re going to talk through with you every item. We’re going to help you figure out what kind of adjustments and add backs you have. You may have personal expenses running through your income statement and that’s okay. You won’t under a new buyer. So let’s adjust the financial statements for those personal, the income statement items. If you’re doing it because for tax reasons, whatever that’s between you and your tax accountant in the IRS. Let’s add it back though for understanding what your true company profitability is. And we’re really good at doing that.

    Patrick: Overall the whole process I mean,  the huge thing is you got to manage expectations and guide them through the process. And kind of be the sounding board. So you play all that bedside manner, in addition for the inexperienced as well as the experienced.

    Gina: That’s right. You know, we just recently lost out we lost out on a deal. A firm didn’t want to hire us because they said our valuation wasn’t high enough. They said you guys are undervalued. Colonnade, you’re undervaluing us. So they went a different route. And they thought they were going to get a lot more for their company. And they went through a process and there was a higher, there was a higher sticker price on the company originally, and then the deal closed, right where we told them it would. And so we do work to manage expectations. We don’t over promise and under deliver. I can’t sleep at night doing that. So we we go out with a valuation, we are pretty honest about what we think the company is worth, because we know we can deliver.

    Patrick: And I think I think the other value add that you bring in this is that you’re helping sellers and you know, owners and founders with this, you got a nice network of reliable buyers where you may know what they’re looking for, you have the relationship, and they trust you and you trust them. Because if they’re just kicking the tires for an exercise, and they’re not going to be there, they’re not on your list. Talk about that real quick on the relationships on that side, because I think that’s something you don’t need tons of buyers, you just need one really good one. It could be two, but you just need one.

    Gina: We are, well I went to the University of Chicago. So I believe in free markets and, and the free market will determine what the price of something is. We can we can do lots of valuation work. And I am I actually won a contest when I was in business school on valuation. But that was like a national competition that U of C participated in. So I’m really good at valuation. But I will tell you, it doesn’t matter. What matters is what somebody is willing to buy your company for. And the best way to determine what the price of your company is, is through a broad market process. 

    And that’s going to multiple buyers in finding out who is going to bid for the company and what price. When you talk to just one potential buyer. And it’s like, you know, I know this company, and they’re going to buy me and I’m going to get a great price. Of course, the buyer’s going to say, I’m going to pay you a great price. And we get a great price, you don’t know what the rest of the markets willing to pay. They might be willing to pay you 10 times, the next company might be willing to pay 14 times. 

    So it’s best to do a broad process and talk to as many buyers at the same time, and get everybody to put their best foot forward on what the price of the company is. And that will kind of keep the process moving quickly. Because everybody’s worried about losing out on the deal. And it will uncover what the market really believes the value of your company is. And that’s what investment bankers do. We help uncover the highest value through usually through running a process.

    Patrick: And it also is just aligning interests, is making sure you get from point A to close and you get through that. Now in addition, all these wonderful things that you do in this is a parallel between Colonnade and Rubicon is you’ve been very active with sharing information, sharing content, sharing, you know, educating the community and and just sharing your knowledge base and what you’re seeing out there. And you’re doing it through some excellent white papers. 

    You have just launched and if you could talk about this, in that you’ve just launched what you call a an index on SPACs, called the SPAC Attack Index with your partner, Jeff Guylay. And then in addition, and then finally, it’s a crime if I don’t mention that you’re the host of Middle Market Mergers and Acquisitions podcast, you have a podcast as well. So give me your philosophy with what you’re sharing and the various things you’re out there. We will in the show notes direct every our audience, they will all go and swarm your site. Why don’t you talk about that.

    Gina: Well, first of all, these activities we do are a little bit self serving, because they’re good intellectual exercises. When we write a white paper, it’s hard. It’s painful. It takes a lot of work. But it causes us to come up with a point of view and really think about industries and think about what are the drivers of valuations? What are the drivers of market activity? Who are the buyers, why are companies doing what they’re doing. They are a great exercise for us and our clients benefit from it. And you know, it’s all about having discipline. I could sit there and write a nice, we could all sit there and write a paper for ourselves, but not quite as motivated. 

    But when we do it, we’re publishing it, you know we have more motivation to do that. And so we find that number one, that’s a great side benefit of these papers. Number two, these pieces are really out there to help educate potential buyers. So private equity firms and strategic companies that are maybe thinking about the F&I industry, or they’re really trying to understand what’s happening in the SPAC market. By doing these, we are raising awareness and educating those parties. Like we’ll do white papers on the automotive F&I industry and private equity firms. 

    When thinking about the space, they will Google, they’ll Google auto F&I M&A, and one of our white papers will come up and they’ll find some insights. And then like, wait, now I’m smarter. Now I can go bid on a company that Colonnade or someone else is selling and I have a clue as to what I’m doing. And we use it to educate the buyer universe. So we have better buyers. And to then the buyer universe is usually reaching out to us and saying, you guys obviously know this space, well, we want to see your next deal. And that’s why Colonnade is so good for our clients, because we know who the buyers are, because they’re coming to us.

    Patrick: I think that what we do is the more we educate the community out there, it will to our benefit eventually. If you do it solely as as a you know, as a scheme to drive up clicks or whatever, I think is going to backfire. If you have purity of intent because with your your MBA, or your business school stuff in Chicago, so your ideal capitalist, I am an ideal abundance guy. And I keep thinking, the more we put out there, the more the higher quality is going to be available. And it’s also we start by giving. If we give you something and get this out there, you know, people are going to benefit and it does come around.

    Gina: Now, I would say also, on our podcast, one of the reasons why we do our podcast, it’s a little bit different target market. It’s not the private equity community, because our podcast is on middle market mergers and acquisitions. They know how to do that. It’s really to help companies out there, owners of companies that are thinking about going through a process and how they can think how they prepare. I mean, it’s it’s intimidating. 

    When you sell a company, if you’re an entrepreneur and you’re selling your company, it is one of the biggest decisions you are going to make in your professional career, maybe one of the bigger ones in your life. It’s kind of like going into buy a car. It’s your first time car buyer. It’s a little intimidating. So like, I don’t know anything about cars, and they’re all talking about all the stuff I don’t understand. Same thing in M&A. And so what we hope is that our podcast by going through and deep diving into the tactics, and the techniques and the processes that are used in M&A.

    Patrick: Each step of the way. You’re addressing each step of the process. Yes.

    Gina: Exactly. So then you’re not, you know, when a company is ready to talk to an investment banker or talk to a buyer, they kind of know what’s coming. They’re not thrown for a loop. For example, when somebody says, well, you know, we need to do an escrow they’re gonna be like, wait a minute, wait a minute, I remember from the podcast that reps and warranty insurance is the way to go. I don’t need to tie up my capital and my money for two to three years when escrow works out. We can solve this through reps and warranty insurance and by the way Mr. Buyer you should pay for it. 

    Patrick: You’re walking right right into you know, our area of expertise. You actually have a fantastic episode on reps and warranties that I highly recommend. One of the things you mention about in the mindset there for owners and founders, especially the ones that haven’t experienced you know, an acquisition before. It’s not only just going into buy a car for the first time. It’s buying a car when you’re only 15 and a half. So really don’t know what you don’t know. You have this kind of you know, this is a you know, I consider this not just a life changing, but a potentially generational change opportunity for families. 

    And going in there I mean, you have that whole issue of fear. And you know, the fear of the unknown what’s going on and it’s not your fault is just you know, you don’t know. And and the buyers unfortunately are not going to you know, make you feel any better when they’re talking about indemnification and well we’ve got these it’s just usual standard of business we have, you know, your reps and we need to be able to have a money back guarantee. And you know, that brings in tension which can be you know, released with reps and warranties which essentially takes the indemnity obligation away from the seller goes to an insurance company. 

    Gina: That’s right. 

    Patrick: Buyer suffers a loss. Buyer doesn’t go after the seller, buyer goes right to an insurance company and I’m just good, bad or indifferent. Your mission is almost a standard so I get the impression you trust but you know, don’t take my word for it, folks. You know, Gina, what’s your impression with reps and warranties?

    Gina: You know, I think it’s essential in deals today. Number one, it takes away, as you mentioned, the tension or the potential for conflict. So here’s a scenario, entrepreneur builds a company, and sells the company to a private equity firm, or majority stake to the private equity firm. But that entrepreneur still has 30% equity rollover in the company. And an entrepreneur is continuing to run the business. One year down the road, something comes up, that is, could be an issue that would go against the reps, representations and warranties in the purchase agreement. Okay, that’s really stressful. 

    Now you have a situation where you have the private equity firm, the board and CEO of the company, are in conflict over something that CEO is like I didn’t even have anything to do with that issue. That was one of my employees two years ago. And they’re arguing about that. And how do you get past it? How do you run the business day to day, and still had a good healthy relationship? Reps and warranty insurance, separates that problem and reduces the tension that’s there.

    Patrick: Yeah, I think it’s very elegant. That happens to Silicon Valley quite a bit where you, I mean, the dilemma happens where you’ve got a good sized buyer, there’s a, you know, there’s an escrow, or a withhold of, let’s say, five, five to $10 million, and you’re bringing on this rockstar development team, and they’re looking for their money after 12 months. And then there’s a breach that happens, was out of everybody’s knowledge out of everybody’s control. And the dilemma for the buyer is this. Do we clawback this money that they’re waiting for? Okay, that they’re counting on? Or do we just eat the loss?What do we do? Right? Now there’s rep and warranty insurance in place, all of a sudden that that’s a non issue. 

    Hey, you’re putting the claim and it’s all taken care of. So we find that. I would say that the biggest development that’s happening in the reps and warranties market now as this has been a product with the province of deals with transaction values of a 15 million legitimate and up. You can go lower, but the diligence requirements are such that it’s usually more favorable at the $50 million threshold and up. However, there is a new program out there is a sell side policy, which will insure owners and founders of companies with enterprise values of 500,000 to 10 million. 

    And a policy will cover to the entire enterprise value. It is a newly launched program out there, we’re very excited about it. We think about it, while this is too small for a Colonnade type client it is not too small for add ons. And there are a lot of in particularly in technology here in Silicon Valley, there are a lot of seven $8 million add ons that are brought on every day that have they don’t have access to the benefits of reps and warranties. So we always want to highlight that.

    Gina: That’s a really good product. And we work a lot with companies that are doing add on acquisitions especially, we see this a lot in the automotive F&I space, where they’re buying agencies and those agencies are smaller transactions. And you don’t want to involve you know, they’re too small, historically, for reps and warranty insurance. But you don’t want to tell the guy I’m buying your agency for $8 million. And by the way, we’re going to put $2 million into escrow. I mean, that’s horrible. So you’re just kind of setting up a rough situation. So that policy solves a lot of problems.

    Patrick: Absolutely. So what’s what I’m very proud of with with a dynamic insurance market that we have is there are needs that are coming up and in the market is rising to meet those needs. So I’m excited to see how this goes forward. And and Gina as we’re looking forward, okay, we’re, you know, latter part of 2021. I blinked and this year just went through. You know, what do you see for, you know, forget 2021. What do you see for 2022? I mean, macro or just with Colonnade?

    Gina: Sure, well, let’s look at the the macro side, you know, we are in a low interest rate environment, we are in an inflationary environment. And we are in an environment that we have a very large private equity overhang through the pandemic, we even in May, June of last year, private equity firms were raising new funds. There’s a lot of assets allocated to the alternative asset class, the private equity asset class. And so there’s a lot of funds to be deployed. So there are buyers for companies. There are more buyers probably and there are good companies to bought. And that’s driving up valuations.

    Patrick: It’s a seller’s market. Yes.

    Gina: It’s a seller’s market. And I don’t think that is going to going to abate in in 2022, maybe even to 2023. I usually don’t look beyond 18 months, but I still think it’s going to continue to be a strong M&A market. And there are companies that have come through the pandemic now. We’ve been through the worst of the pandemic, and we’re seeing either they did well through the pandemic or their recovering coming through the pandemic. So 2022 is the year that they’re going to sell, we kind of will say, you know, let’s not, let’s not focus too much on what happened in 2020, or first part of 2021. But things are back to normal, they’re going to sell in 2022. 

    So I think there’s M&A activity is still going to be high. There’s still going to be a lot of interest in it. I do think it’s a tough environment for businesses to operate. You know, wages are going up, and wages are going up because of inflation. And because people want more money for doing their jobs, and the I’ve never was not a big fan of higher minimum wages. I am a big fan of people getting paid more, because they demand it. If nobody’s going to work for $10 an hour, then you need to pay a lot more. And so that is impacting companies. 

    And so when wages go up, either margins shrink, or that gets passed on to the end customers. And so it gets passed on to the end customer, things are getting more expensive as a result. And there that might cause some dislocations in the economies and there and some industries will be hurt more than others. We see this and in travel and leisure and entertainment, and in retail restaurants. Other parts of the US economy are doing really well. People are figuring out ways, other ways to deploy their capital. I think financial services products is one of them.

    Patrick: I think that there’s just going to be new platforms for buying selling for financing things, just the way people pay for things is changing. And so we’re going to be a lot of force changes. There’s going to be I think, I’ll go out on a limb and say not only will things not slow down, I think if there is a slowdown, it’ll just be a slowing in the pace, but we will not see M&A fall off the cliff. There are many demographic issues, there are too many technology change issues that are going. There are all these forces that are coming out. I think the other thing that is a wonderful, wonderful outcome. And nobody thought about this is how many people stopped work the pandemic. 

    And when they’re returning to the workforce, they are not returning as employees, they’re looking to buy and start their own companies. And I mean, as basic as landscaping and car washes, could then go and then we got roll ups with that. And you know, and a lot of other things. So I think, you know, I would say the American spirit for innovation is not limited to Silicon Valley. It’s everywhere. And I think it’s gonna be a lot of fun and they’re great firms like yours out there with Colonnade that are holding the hand for those for those pros that you know they made it from, you know, A to AA, and you’re getting them to jump AAA into the majors. So I think it’s great, and I can’t thank you enough for this. Gina, how can our audience members find you?

    Gina: Sure. The easiest way is to go to our website for Colonnade Advisors, which is c o l a I am on LinkedIn as is my partner Jeff Guylay. So Gina Gina Cocking on LinkedIn, Jeff Guylay, LinkedIn. Colonnade Advisors on LinkedIn. And that’s where you’ll see a lot of our content and so we we we post regularly and we post about things that we think matter to companies in the financial services industry, young companies and to buyers at companies and so we try to be pretty informative with what we put out there.

    Patrick: And I one plug for your podcast I will tell you this just fun little fact with podcasters okay. There are over 1 million podcast series on Apple iTunes, okay, and people think barrier to entry there are too many, okay. Your average podcast series doesn’t go past four episodes. You are well past that as you’re already on, on the upper half, upper half. So congratulations. Gina thank you again.

    Gina: Thank you, Patrick. It’s good to speak with you.

  • Jordan Tate | The Biggest Driver in Successful Private Equity Partnerships
    POSTED 7.27.21 M&A Masters Podcast

    On this week’s episode of M&A Masters, we speak with Jordan Tate, Managing Partner at Montage Partners. Montage Partners, based in Arizona, is a people-first private equity firm. For 17 years they have invested in established companies across North America, helping them reach transformative growth.

    Jordan tells us about his path to Montage Partners, the interesting meaning behind their company name, and how it reflects both who they are and the companies they seek to invest in, as well as:

    • Key strategies for selecting investments
    • The biggest driver in successful partnerships
    • Which questions you should ask to assure a deal is a cultural fit
    • And more



    Patrick Stroth: Hello there, I’m Patrick Stroth, trusted authority in executive and transactional liability, and president of Rubicon M&A Insurance Services. 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 Jordan Tate, managing partner of Montage Partners. Montage Partners is an Arizona based private equity firm founded in 2004. They manage $70 million in capital and invest in established successful companies across North America. Jordan is great to have you here. Welcome to the show. 

    Jordan Tate: Thanks, Patrick. Good to speak with you again. 

    Patrick: Now, we don’t see a lot of private equity activity here in Arizona. So you really caught our attention. Before we get into Montage Partners, let’s let’s start with you. How did you get to this point in your career, and then maybe trace, you know how you landed in Arizona?

    Jordan: Sure. So a little bit of background, I’m 40 years old, I started my career as an investment banking analyst at Merrill Lynch, working on mergers and acquisitions, primarily with consumer and industrial companies, and what now seems like a lifetime ago. And then in 2004, I moved back home to Arizona to co found Montage Partners. And it’s been a fun 17 year journey. Over that time, we’ve now invested in 17 companies, having successfully exited our investments in eight of those companies. So we’re active investors in nine companies today, and have a ton of fun working with our partners and still view ourselves, in spite of the 17 year history, as being in the early innings of building, the leading lower middle market private equity firm in the US.

    Patrick: Excellent. Now when we turn to Montage Partners, I credit you guys a private equity, that you’re not boring, you’re a little more creative in the way you name your company, as opposed to law firms and insurance firms, that name them after the owners and the founders. But what’s the story at how you came up with the name and tell us about Montage Partners.

    Jordan: Yeah, thanks for asking not a question that we get all that often. But you’re right, we intentionally didn’t name the firm after any one individual. That is a reflection of our culture. So we’re very team oriented. And collaborative. The firm’s not about any one individual, it’s certainly not about me. And so the name montage comes from the fact that a montage is a picture of pictures with each of those individual pictures, being self sufficient, and unique and standing on its own. And that’s a reflection of how we think about the companies that we invest in. 

    So each of those companies is unique, self sufficient, successful in its own right. And together, those companies comprise the overall picture of what forms our firm Montage Partners. And then maybe the last thing I’ll share is on the partner side, that was intentional as well. So we look for a true win win relationships where it really is a partnership with the leadership teams that were backing and or the founders if it’s a majority recap situation. And while the founders cashing out significant liquidity may stay involved and continue to be an owner, what we’re looking for, are those true partners with people that we like and trust. And so that’s reflective of the name as well.

    Patrick: And the the size area that you’re looking at for your investments, I would consider that the lower middle market, correct.

    Jordan: That’s right. So in terms of size, we’re investing in established successful companies with one to 5 million of EBITDA. So no startups, no distressed situations. You mentioned across the US, we focus on four industry verticals. So business services, consumer products and services, industrials and technology. So one to 5 million of EBITDA, no startups, those four industry verticals. And then in terms of the catalyst for the transaction, there’s really three situations that capture all 17 companies we’ve invested in today. And those three are founder liquidity event. So whether that’s a founder seeking a full sale of the company, or a founder seeking a majority recap, where the founder may want to continue in the CEO role and or continue to be involved from an ownership perspective or a board perspective. That would be scenario one, and that’s very core to who we are. The second one is the management buyout. 

    So backing leadership teams with capital to buy their business from a larger organization. And there’s two examples there would be Equity Methods and Metal FX, both of which were actively investors in today, Equity Methods was prior to our transaction, a wholly owned subsidiary of Bank of America. And Metal FX was majority owned by a publicly traded utility called a VISTA Corporation. And both of those cases, we provided the capital to back the leadership teams of those companies to buy their business. So that’s number two. And then lastly, the third scenario is backing operators or independent sponsors, who have a thesis within a particular industry and or have identified a particular company and need an equity partner to support them.

    Patrick: I’m just curious real quick with with the independent sponsors your your third point there, have you seen that activity grow?

    Jordan: Absolutely. So definitely a trend, we think back over the past 17 years, there’s a growing universe of independent sponsors, for sure. And I think from if I put myself in a founder’s seat who’s seeking liquidity, I think that’s both a good thing and a bad thing, I think it’s a good thing because it provides another option. And there’s very high quality people out there in the independent sponsor universe. And then maybe on the on the challenging side, or something to look out for as a founder is not everyone’s created equally, right. And it’s difficult. When you’re getting to know somebody who doesn’t have a track record, they don’t have a portfolio of companies where they’ve been through the transaction process many times. 

    And if this is the first time they’re going through a transaction, there’s a lot of getting to know one another. And so there’s some work that goes in on the founder side to get to know the people involved, make sure that everyone understands the source of capital, and that the person sort of can successfully navigate the transaction process so that a founder who’s built a successful company, over 20, 30 years, is going to have a relatively smooth positive experience with highly emotional once in a lifetime opportunity. So growing universe, and lots of variety in terms of the folks that are competing within that space. But certainly for us, we’re very interested in doing more deals where we’re providing equity, to independent sponsors to help them close transactions.

    Patrick: I think is fantastic. It’s a nice matchup with the pooled resources, like you said, if you’ve got an independent sponsor, you’re just looking at that individuals, the owner or founder of an organization with a track record, like you have, you know, backing them up all sudden, it gives a lot more credibility to the the opportunity for success.

    Jordan: Absolutely great. So there’s a good compliment there, particularly when that independent sponsor plans to step in and take an operational role in the business. So sometimes, if I’m a founder, I’ve built a successful company, I don’t have necessarily a successor internally. But I’m seeking liquidity. I need both a capital provider to provide the liquidity but I also need a solution in terms of who’s going to step into that leadership role. And in a scenario where there’s an independent sponsor involved, who plans to step into that leadership role. And there’s good rapport between the founder and that individual. And then we can step in with the capital. So solving for the capital that’s going to provide liquidity as well as support growth initiatives, also speak to the track record, and then bring the shared services resources from our team. That’s a good combination, and it sort of rounds out the solution for the the founder who’s got a lot at stake.

    Patrick: You haven’t done this yesterday. So I mean, the number of private equity firms, you know, when when Montage Partners started was a lot smaller than that universe now. And I’m just curious as you’ve got this long track record, how are you having gone up market for bigger and bigger deals? Explain explain your preferences, staying in the lower middle market?

    Jordan: Yeah. So you’re right, we have stuck to our lane, there’s not much that’s changed with respect to our investment strategy, or size, or the qualities that we look for in companies or people that we’re going to invest in, over the past 17 years. So we haven’t drifted up market that’s been intentional. One of the reasons is, we have a lot of fun doing what we’re doing. So we like this category. It’s large, there’s a lot to do. And we love the founder transition story. We think where a founder is willing to invest the time to get to know the people and where the founder knows what market is in terms of purchase price or multiple. 

    And so there’s confidence going into the transaction that they’re going to be paid that price, regardless of who the buyer is. And once that box is checked, that they’re getting the liquidity they’re looking for, they’re getting a full fair purchase price for the business, then other things matter a lot. So for founders who really care about the integrity of the people Who’s going to be involved? Who’s going to represent the company on the board from that private equity firm? What’s the post close plan? And what resources can that private equity firm bring to bear? What’s the track record of that firm, and we’re the founder can jump on reference calls from other folks who had sat in their seat before. Hugely important, hugely powerful. And we like this this size, and the dynamic changes as you go up market, it gets a little less personal.

    Patrick: Yeah, well, I think that when owners and founders, they get to an inflection point, and they’re looking for an exit, or they’re looking for, you know, that next step, because they are either, you know, and they’re, they’re too too big for being small, but they’re too small to be enterprise. And, you know, they’re at that point, they have to make some kind of change. And if they don’t know any better, a lot of these owners and founders just default to an institution or to have some brand name out there, or they fall over to a strategic that may not have their their interests, you know, at heart. And that’s why it’s very important that we highlight organizations like montage partners, because you offer a way out that is a real positive. And the more choice they have, particularly for these people who have, you know, taken started with nothing, and then develop, you know, build great value is great to know that there’s organizations like yours out there that can get them to that next chapter.

    Jordan: As you know very well, if there’s a great strategic buyer, that is a great fit for the particular company, that could be a good option for the founder, if that’s not the case, or they’re concerned about competitive sensitivity with sharing information during a diligence process, or there’s not a great cultural fit with the organization that they’ve built. And that potential acquire, and or the founder cares deeply about that leadership team. And the folks that are going to carry the torch after they start to step out of a day to day role. aligning with a private equity firm can solve for all of those things. 

    Because if you’re doing your homework, getting to know the people at that private equity firm, and you’re partnering with high integrity, high quality people, and you can do those reference calls, the culture at your company is not going to change, there shouldn’t be renewed energy, but the fundamental culture is not going to change. Now you’ve got stronger balance sheet capital to support growth initiatives, potentially help upgrading finance and accounting infrastructure, help standing up pull based marketing initiatives. Help recruiting to round out the leadership team, if that’s helpful. And then uniquely one differentiator for a founder and choosing private equity as a path towards liquidity versus a strategic buyer is the ability to roll equity, if they’re interested in maintaining a stake in the business. 

    So for a lot of founders, you built a business 20, 25, 30 years of sacrifice, blood, sweat, and tears, and you want to take substantial cash out of the business. But at a certain threshold, once you’ve met some certain dollar amounts of liquidity, it’s oftentimes very appealing to maintain a stake in the company through that next phase of growth over the next 5, 6, 7 years. And that usually that opportunity doesn’t exist most often with a strategic buyer. But with the right private equity firm, that opportunity to maintain a stake in the business and accomplish the upfront liquidity objective is sometimes very attractive.

    Patrick: Yeah, one and also that rollover, that can happen, you could end up that rollover ends up being worth more than the original liquidity event as possible, as possible. Yeah. So that I mean, what a great way, you’ve just, you’ve just gone through just all the types of things that you bring to bear. When you come into the company, you’re showing them how to scale, bring in new talent, improve processes, probably get economies of scale, in terms of costs, and so forth. The four areas that you like to invest where you have business services, consumer products, light manufacturing, and technology. Give us on each one of those buckets. Could you give us a brief profile on your ideal target note in those fields, other than other than just size?

    Jordan: Sure. So maybe what I’ll do to try to be succinct and in the interest of time is this talk about the common threads that that we would look for that apply across all four of those verticals. So even though we’re investing in companies that might compete in very different industries, there are kind of fundamental common threads that we’re looking for. And so those include things like customer retention. So we’ll go back in time and we’ll review spend patterns and understand when customers were lost. What happened there? When new customers were won? How did that happen? How sticky are those relationships, so both on dollar revenue retention, and then the retention of the relationship that’s really important, regardless of which of those four verticals, we’re looking at. 

    Margin stability. So there certainly has to be an actionable growth opportunity, we’re not the right fit. But we’re also not chasing sort of the shiny object, the next new thing, we’re looking for companies that have a fundamental value proposition, they have high revenue retention, sticky customer relationships, ability to generate consistent a consistent margin profile. So that means when say for a manufacturing company material prices, right now are going up across the board, the ability for that company, on balance to pass through those price increases to their customer shows up in gross margins, right, and it says a lot about the value add of that company and the relationships they have with the customer base. So those things are important things like competitive position within the industry. 

    But then at the end of the day, past all those quantitative metrics, ultimately, the biggest driver of our decisions to wire funds that close are the people we want to work with people we like and trust. High integrity is high integrity, whether we’re talking about a manufacturing company, a consumer products company, a professional services company, or a software company. So at the end of the day, there are quantitative metrics that we look for. And they’re common threads across those four verticals. But ultimately, it’s it’s the the integrity and the personal fit the culture of the company and the enjoyment working together that should be there for both sides. Otherwise, it’s probably not the right solution.

    Patrick: Well, you touch on one area, on that key thing with the integrity that I consistently see with everybody I speak with, and that’s you cannot eliminate the human element in mergers and acquisitions. Okay, there, there is not, you know, the news where Amazon buys Whole Foods. It’s not Company A, Company B. It is a group of people choosing to partner with another group of people. And if everything works, you know, one plus one equals six. And so that’s something that resonates for everybody I’ve spoken with it, that’s the determining, determining factor is the people.

    Jordan: 100% agree. And I think the best outcomes are those where both parties spend sufficient time, which doesn’t mean a transaction needs to drag on for months on end, but spend sufficient time getting to know one another, beyond walking through the line items on an income statement, but really getting to know one another, getting to know one another’s goals, and confirming that if it’s a founder that’s seeking a full exit, I’ve poured a lot of cases my entire life into building this company. Are these the stewards of my business that I’m going to be proud to hand the keys over to? Or if if somebody who’s doing a majority recap and is going to stay involved? 

    Do I like these people? Do I enjoy working with these people? Am I gonna have fun at board meetings, it’s just gonna be a fun process over the coming years, or am I just looking for liquidity at close, and I’m going to dread every conversation with my new partner post close. In those situations, we’re typically not going to be interested. So we really do want there to be a good two way fit. And that sets up a win win partnership. And the most attractive opportunities for us are those where the seller is spending as much time being selective, doing reverse due diligence during those reference calls getting to know us, and vice versa. And we confirm that there’s just great alignment, and it’s going to be a fun partnership post close.

    Patrick: One of the things that struck me, you’d mentioned through the process as your research, I would just think as your owner and founder, in most cases, your attention all your focus is on your company and getting out there just day to day, getting sales done serving customers, things like that. But then you get through go through the diligence process. And you’ve got the opportunity where somebody else is looking at your numbers and looking at him with a different perspective. And I’m just curious, when you’re talking about customer retention and things like that. I imagine if I were going through that process, I would probably have an epiphany or two about my firm, and by somebody else coming in as a partner with me, say, hey, here’s some areas for you of opportunity. Did you know this and they could be right in front of me, but I didn’t see him. I’m just curious. Have you experienced that with your investments where you just created these aha moments with with your targets and all of a sudden they were just really excited because oh, I didn’t even see this. We can do this tomorrow.

    Jordan: Absolutely, it does happen. So there are situations during the due diligence process, when that post goes plan is starting to be formulated, and everyone’s collaborating on for the areas of focus and where the investment is going to go post close. And it’s fairly common for. So we’ll do playback sessions where we’ll take our analysis, we’ve cut up the data, and we’ll play back our conclusions. Hey, here’s what we think we’re seeing in the information. Here’s our conclusions we’re drawing, tell us where we’re right, tell us where we’re off. And that’s part of our process of getting educated on the business during due diligence. But I think as a byproduct of that, what you’re describing absolutely plays out where the founders saying, well, intuitively, I knew that, but I’ve never seen it sort of quantified. I’ve never seen it presented that way. And that then leads to additional ideas. And it’s a fun collaborative process.

    Patrick: I just think that hits the ground running where and outside of M&A they’re the people say, well, somebody’s got a big liquidity event. So they’re probably just going to kick back now and stay, you know, run out their time. But I think this is just invigorates management, saying here are these new options, we never realized, and they’re right at our fingertips.

    Jordan: They can go both ways. Yeah, depending on the founder’s objective there, we have certainly invested in companies where the founder was very transparent that my goal is 100% liquidity. And I want to step away from the business as soon as possible. And depending on the composition of the leadership team that’s there, we can come up with a plan, whether it’s immediately at close or over some transition period for the founder to do that. But there are a lot of other cases where the founders objective is to take out a significant amount of liquidity. 

    But they are energized about the future, they do want to help scale the company to the next level, they want to partner to support the company with capital, but they also want a partner who’s going to be value add and roll up their sleeves and help execute on that roadmap. And both situations are fine. But certainly that situation where the founder is checking the box on the liquidity objective, but is re energized in the business about taking it through its next phase of growth. Those are really fun situations. And that’s part of why we love doing what we’re doing.

    Patrick: I can imagine, you probably have a case or two where owner was going to check out after 24 months and things are going so much funny, just you know, I’m gonna stick around a little longer. 

    Jordan: That can happen. 

    Patrick: Okay, great. With with deals down the lower middle market, you’re dealing with owners and founders, and I mentioned the human element in mergers and acquisitions. And one of the things that comes up is, is fear. And it happens to there’s a lot of stress and a lot of drama, in mergers and acquisitions, because you get a lot of money at stake. And also this is, you know, a once in a lifetime or generational event for these owners and founders. And there’s a conflict there and is created not because there’s anything bad, it’s just you have one experienced party, which is the buyer who’s going through these events many times. And then the seller where this is their first this is their first time and it’s with their own money it’s their own, you know, business online. 

    So there’s a lot of tension to make sure that things go smoothly. And just things start coming up that probably the the owner founder didn’t expect. And that creates stress and you go through the diligence process. And then you get to this area called the indemnification conversation where what the with the buyer says is look, you know, we’re making a bet on this, we just need to protect ourselves. You know, if if something goes wrong post closing that we didn’t know about, we need some way to get remedy we need some way to just you know, limit our exposure on this this is market this happens everywhere. It also we need to go through this process. 

    But what the seller hears is okay after I told you everything I know, I cooperated in diligence. And now you’re telling me that even though I told you everything I know, I can be on the hook for something I didn’t know about? Why should I pay for something you missed? So you can get attention in their what’s been nice as the development in the insurance industry of what’s called rep and warranty insurance. And it’s an insurance policy, it literally steps in the shoes of the seller that says okay, based on the buyer’s diligence of the seller reps, if any of those reps end up, you know not being accurate and that inaccuracy costs the buyer buyer instead of going to the seller to pull back escrow funds or get remedy come to the insurance company, the insurance company will come in there and pay your loss. 

    Buyers like this because they get certainty of collection if there is a breach without you know, much, much waiting time. Sellers love it because they get a clean exit. They don’t have to worry about a clawback. They don’t have to worry about a large escrow the insurance policy covers most of the action escrow or if not, you know, there’s not gonna be a further clawback beyond that. And so it’s been a nice, elegant solution that removes the tension and removes the conflict, particularly when you want to start transitioning into integration, you know, post closing, and so forth. So it doesn’t step in in that way. And so it’s been nice. 

    The news is, in the last year, this product rep and warranty insurance is available for deals as low as $15 million in transaction value. It was usually reserved for nine figure deals. And the more that parties are aware of the availability of this, the more active they can get it and engage in the perception now pre COVID was only for the big guys it’ss not for our lower middle market. Not the case. And this is right, right in your area, Jordan. I’m not sure you know, good, bad or indifferent. I mean, don’t listen to me, good, bad or indifferent. What experience have you had with rep and warranty?

    Jordan: That well, you summarized it well. And we can empathize with being on both sides of the table. Because we as a seller, we’ve been in that seat before. And certainly as a buyer, that’s what we do every day. So fully appreciate the value that reps and warranties policy brings to the seller in particular, but both parties in terms of smoothing the way to not wrangling too much within the reps and warranties section of the purchase agreement, which is where absent of reps and warranties policy, the majority of the time is often spent negotiating specific wording within that reps and warranties section. 

    So going back, so we’ve been investing 17 years now, going back 10 1215 years ago, the introduction of reps and warranties coverage was really suited towards transactions that were significantly upmarket, from where we’re investing. And so more recently, like you mentioned, it’s become more common. And it’s also become more common in our internal dialogue. So we have not purchased a policy yet. But it’s, it’s becoming increasingly common for that to be part of the discussion. And I suspect as reps and warranties policies become more widely available for the size of transactions that we’re investing in, which generally are in the five to $30 million enterprise value transactions. It’s only a matter of time before we’ll introduce that, as a solution.

    Patrick: Jordan, as we’re going through, we’re recording this right about midpoint of 2021. And I it’s safe to say we’re probably at the beginning of the end of the pandemic, and there’s activity going on and everything. From your perspective, what do you see either M&A in general or Montage Partners in particular on, you know, what are your thoughts on trends going into end of year 2021?

    Jordan: Yeah, interesting. So a couple things. One, high valuations is a very widely covered topic right now. So it’s a good time to sell if you’re a founder. But I’m not going to focus on that one. Because I think that’s pretty, pretty widely covered out there in the media, the potential likelihood of a capital gains increase is also pretty widely covered and expected. So many more, two more interesting trends that I’ll comment on are one you touched on earlier, which is the growing universe of independent sponsors. So like we talked about, that creates another option for a founder seeking liquidity, but it also creates some homework in the sense that you got to be careful. There are folks within that universe who aren’t as experienced as others who compete in that universe. 

    So you got to get to know the people and understand the source of funds. And that takes time to invest. And then the other interesting trend is, I would say, over the past 17 years, since the inception of our firm, within the lower middle market, sellers have become more sophisticated. And what I mean by that is looking beyond price. So when when a seller truly has a good sense for what’s market, how the transaction process works, whether that’s because they’ve done their own homework independently, or whether that’s because they have a great M&A attorney or an investment banker involved, somebody who’s giving him good advice. They know where companies like there’s trade on a multiple basis, they know where purchase price should be. 

    And so as long as they’re checking that box and accomplishing their liquidity goal and getting a full fair purchase price, becoming more sophisticated about that next layer of getting to know the people like we talked about earlier, so we see founders increasingly spending more time getting to know us as buyers, which is great. Doing reference calls asking for introductions to other founders who have entrusted us with their baby that they’ve built. And devoting a lot of time to talking about the post close plan, evaluating things like is there a good cultural fit so even though as a investor, we’re different from a strategic buyer that’s going to come in and integrate the company. 

    We have our own culture at our firm, and the founder who is concerned about making sure that there’s a good cultural fit among the people who are going to be on the board representing that private equity firm at their company, that that meshes well with the culture of the people who are at their company that they care deeply about, in most cases. That’s time well spent. And we’re seeing that become increasingly common. So beyond high valuations, the potential for increasing capital gains. The two things that come to mind there that are maybe more interesting are sophistication of sellers and the time spent evaluating the people who are involved, and then also the growing universe of independent sponsors.

    Patrick: That’s real interesting. This is the first time I’ve heard that with, you know, the sophistication, the education of sellers. And I think that’s probably their sophistication of their knowledge base growth is leading to more successful mergers now.

    Jordan: I think that’s right, I think there’s better information out there, it’s more easily accessed. And therefore, relative to 15 years ago, if I’m a founder who’s built a successful company in my industry, but I’ve never been through an M&A transaction before, I can learn much faster today than I think was easy to do 15 years ago, because of the prevalence of information that’s out there.

    Patrick: And also news gets out within the M&A community, if you’re an organization is making acquisitions, and they and you’re, you’re not as good at integrating post closing, that word gets around, people learn about that. And so sellers aren’t necessarily looking at the top number on on the LOI. They’re they’re looking deeper, which that’s very, very encouraging.

    Jordan: Absolutely, you hit the nail on the head, I mean, one of those areas to be cautious for as a seller is sure you get that indication of interest, you get the indicative terms, you get the LOI. And headline, enterprise value says this, you’re comparing one against another. Look at the structure, and then also get to know the people involved. And back to that integrity point. And the track record point. Does the firm you’re talking to have a history of retracing or changing purchase price or really grinding later during the purchase agreement. And some firms do and some firms don’t. 

    And some firms like we pride ourselves on taking a long term relationship oriented approach where we can serve up reference calls with anyone we’ve bought a business from before, because we pride ourselves on doing what we said we’re going to do treating people well. And 5, 6, 7 years post closing, we want to have a positive relationship with that founder. Because we take very seriously the fact that it is an emotional once in a lifetime event. And we take our stewardship of that company very seriously. Not everyone does. And so spending the time to investigate that I think will it’ll end up paying off in the long term because of the importance of the event and ultimately be worthwhile and make for a smoother transaction and a better partnership post flows for everybody.

    Patrick: Well, that’s no surprise that Montage Partners has been doing this for 17 years. Very, very clear. Jordan, you’ve got a great story. Montage Partners has a great story. How can our audience members find you?

    Jordan: Sure. So it’d be firstly on our website, which is So that’s www.m o n t a g e p a r t n e r s dot com. There’s a contact form there. We have team bios there so it’s easy to find contact details for anyone on our team and reach out directly. You can also find us on social media. So LinkedIn, Twitter, Facebook, and reach out that way as well.

    Patrick: Well, Jordan Tate of Montage Partners in Arizona is our first private equity firm in Arizona that we’ve met. Real pleasure having you Jordan, and I wish you all the success as we go forward.

    Jordan: Thanks, Patrick. Appreciate you having me on, and good to speak again.

  • 5 Predictions for M&A in 2019
    POSTED 2.13.19 M&A

    There’s been a lot of talk lately that M&A activity will trend downward in the coming year because of…

    • The trade war with China
    • Global economy slowdown
    • Rising interest rates
    • Trade tensions

    These factors do have an impact on the economy, but I think the impact on M&A specifically has been vastly overstated. It’s not hard to see why, when you consider those issues popped up in the last 60 days of 2018. It was overwhelming bad news in a short timeframe. It made people nervous.

    But, when you look at current real market factors, the same ones that made 2018 a banner year for M&A, you’ll see that the same conditions are projected for 2019.

    In the first nine months of 2018 alone, there were $1.3 trillion worth of deals for American companies. If you look at the worldwide figure – it’s $3.3 trillion.

    This is the most in the four decades that records of M&A transactions have been kept.

    There may not be a mad frenzy of buyers, because they have so many options for acquisitions. But especially for transactions in the $50 million to $300 million range, it’s going to be a good year.

    1. Plenty of “Dry Powder”

    Corporate America and private equity firms have plenty of cash on hand, popularly known as dry powder, and they’re spending it to increase their market share, obtain valuable intellectual property, and more. As of June 2018, there was more than $1.8 trillion in capital waiting in the wings, which is a record.

    Investors are also driving this trend, as when they give money to a PE firm, they expect them to buy something. Investing in other companies is a more efficient – and profitable – use of the money than sitting on it. That’s the attitude. And with so many attractive acquisition targets (see #4 and #5 on this list), who can blame them.

    2. Historically Low Interest Rates

    It’s true that interest rates have gone up. The Fed raised its benchmark rate to 2.5% in December 2018 and has announced plans to go to 3% in 2019. This is up from a low of 0.25% in 2008, at the kickoff of the Great Recession. It’s gradually gone up since then, starting with a hike to 0.5% in December 2015.

    But, when you look to the past, you’ll see that current interest rates are actually quite low in comparison. In 2007, the rate hovered around 5%. It was at nearly 10% in 1989. And in the late 1970s, early 1980s, rates were all over place, ranging from 8% to over 20%.

    Today’s interest rates are tame by comparison.

    3. A Buyer-Friendly Market

    The M&A market has been very seller-friendly based on macro issues, including the use of auctions rather than negotiated sales and an increase in private buyers. But this year things are going to even out, and may even tip to a more buyer-friendly market.

    It’s all that dry powder. Buyers have all this cash and are getting more favorable valuations for target companies. Something that was valued at five times earnings is, in this climate, valued at four times earnings.

    Another factor here is that Boomer business owners are ready to retire and looking for an exit. They’re ready to sell now. And Buyers know it.

    4. Companies Built for Acquisition

    More than ever, companies today are being created and carefully built for acquisition, not an IPO. I’m not talking about the headline-garnering acquisitions like Disney buying Lucasfilm for $4 billion back in 2012.

    The real heroes are those companies that get sold in the $50 million range. These deals just don’t get the press, even though they’re often very beneficial to investors and Sellers.

    Imagine two scenarios. In the first, you’re an investor in Uber, which is planning to go public later this year. Consider your return on investment with a small piece of the Uber pie and compare it to having a 40% stake in a small tech firm that gets bought for $50 million.

    In one recent case, a tech company was sold for $80 million. Husband and wife owned it 100%. They would have never gone IPO. But, by building a solid company, they were able to be acquired for a tidy sum. And with the proceeds, they were able to give $1 million to each of their 15 employees.

    5. More Solid Companies

    In the current market, more companies are simply well managed and well run, with professional and effective leadership. Management is given the resources it needs to be successful. And good ideas are supported.

    The days of the Dotcom era where companies were slapped together, investor money was thrown around freely, and “management” was a dirty word are long gone.

    This means there are plenty of solid companies with good financials and management teams out there, ripe for acquisition. And often management stays on in the transition.

    Looking Ahead

    All these factors provide a rich environment for M&A that is strong and sustainable. And there are more that I believe are contributing to an ongoing M&A boom.

    To get the full list, just get this free download:

    The 13 Factors Contributing to the M&A Boom