The Wise Exit

Cashing Out Mergers & Acquisitions (M&A) Podcast | E28 | Greg Lopez

00:00:00:21 - 00:00:09:17
Greg Lopez
“Run your business today like you're going to sell it tomorrow. You never know when the call is going to come or when someone's interested in buying your business and being prepared is essential.”

00:00:10:06 - 00:00:32:03
Todd Sullivan
Welcome to the Cashing Out podcast, where our fellow founders share real stories and offer honest advice around selling their companies to some of the top acquirers in the world. My name is Todd Sullivan, CEO of Exitwise, where we help business owners create the exits they deserve. Today, my guest, Greg Lopez, is a very experienced operator and entrepreneur with a deep financial and accounting background.

00:00:32:12 - 00:00:58:06
Todd Sullivan
Greg’s superpower is clearly his financial expertise. So you'll hear his warnings for CEOs who need to better manage businesses around cash flow instead of the P&L. We discuss how buyers and sellers clash over working capital adjustments, which is one of the most contested issues in M&A transactions. You'll learn how Greg believes that M&A is the ultimate sales process and how being prepared to sell at any time is critical to taking advantage when the right buyer comes knocking.

00:00:58:15 - 00:01:03:03
Todd Sullivan
I hope you enjoyed my conversation with Greg Lopez.

00:01:06:12 - 00:01:29:10
Todd Sullivan
Greg, thank you for agreeing to chat with me today. This is going to be really fun. I know we've had some amazing entrepreneurs on the show and most of them, they have really exciting stories and impactful advice around selling businesses, but I don't think any of them have kind of the experience you have in the role of leading the financial teams in M&A transactions as many times as you have.

00:01:29:11 - 00:01:43:23
Todd Sullivan
And I think really that's where the rubber meets the road in M&A transactions. So getting to hear your story and your advice is really exciting. So much so I didn't even think twice about asking Mark Cuban to come back in another time because this is your time slot. So thank you for being here.

00:01:45:01 - 00:01:48:19
Greg Lopez
Thanks, Todd. Happy to be here. And talk about the experiences of M&A.

00:01:49:12 - 00:02:00:04
Todd Sullivan
Great. All right. So let's do Greg, let's just start from the beginning. I want to hear your story. What kind of kicked off your career and of post-college, what you were interested in and what got you into the M&A world?

00:02:00:20 - 00:02:31:14
Greg Lopez
Yeah, sure. So I graduated in 2009 from the University of Albany. I studied accounting and business operations, so I chose accounting and operations after some talks with guidance counselors and professors and surprisingly did well on the Intro to Accounting type courses and just continue to pursue the path. And I'm really thankful I did go that path and we could talk about the importance of accounting and how it drives everything else.

00:02:32:06 - 00:02:53:01
Todd Sullivan
Absolutely. You know, what a great start, right? I feel like accounting, that is the language of business. And I know a lot of our fellow founders, including me, I really didn't have that background. And you got to learn to speak that background. You don't need to be the accountant, but you need to understand what's going on in the levers that really move business.

00:02:53:13 - 00:03:18:10
Greg Lopez
Yeah, 100%. Yeah. You know the rebuttal. I'm not an accountant. When you're working with smaller businesses, it doesn't really cut it. You have to understand fundamentally how the at least the financial statements are prepared and how they connect. Right. And it will help you not only run your business better, but speak about it at a higher level of sophistication when you're ready to sell or when you're ready to get acquired or whatever the situation is for the next step of your business.

00:03:18:10 - 00:03:40:01
Greg Lopez
Right? So even to get a bank loan, for example, right. So graduate in 2009, still recovering from, you know, the great financial crisis, did an internship at PricewaterhouseCoopers and their tax department didn't really see myself there you know, a longer term called my recruiter back up. And I said, I got I got to get out of here. Do you have any other opportunities that might be a good fit for me?

00:03:41:06 - 00:04:07:17
Greg Lopez
And she said, We got a role at a business called Gawker Media. It's a small at the time, small, you know, blog network of the dream media properties, some that you might know. And they were looking to bring on some supporting finance talent for the comptroller and the accounting department. So I basically jumped right in. And, you know, within my first week doing all different types of roles, I never pictured, you know, I would be doing at a business.

00:04:08:03 - 00:04:36:04
Greg Lopez
At the time, the company was about 75 people doing about $10 or $15 million in revenue, grew. My skill set, had a great mentor and boss there, ended up leaving about two years into my my tenure at Gawker. And I, you know, inherited the department. So the head of finance at Gawker and I built out a team there, and we ended up growing that business to about $50 million in revenue and 350 employees worldwide.

00:04:36:20 - 00:04:38:07
Todd Sullivan
So I'll get So what happens next?

00:04:38:23 - 00:05:07:03
Greg Lopez
So is a very famous lawsuit that occurs. Hulk Hogan, the wrestler, sued us for posting some content that he felt was illicit and violated his privacy. Long story short, he gets a court date and wins a judgment against us. And it was, I think, for over $100 million, which which we didn't have liquid at the time. So had to file bankruptcy, I always like to think of my career as lessons learned and what the biggest lessons learned were.

00:05:07:03 - 00:05:32:00
Greg Lopez
And, you know, the lesson learned at Gawker was even if you have a great growing business, you always got to watch your cash. The story, the narrative, the morale was really high my entire time there is one of the best places I've ever worked, but doesn't always translate to the financial health. And even though everything was going great on the surface and revenue was growing, the cash flow was lagging and we got ourselves into a little bit of a squeeze.

00:05:32:08 - 00:05:46:12
Greg Lopez
And once I brought that to the attention of the team, you know, I was the most important person at the company in every meeting, you know, helping drive decisions a bit more, Right? Yeah, yeah. Come up with solutions, all those good things. But that being said, that's the biggest lesson.

00:05:46:23 - 00:06:05:10
Todd Sullivan
That's great. But that is an interesting spot to be in. Right? So all the heads turn to you. What do we do? Right? You understand the financial implications of everything that's happening. Did you have to kind of figure out bankruptcy? You what that is going to look like as a process to to close shop or not necessarily close shop?

00:06:05:10 - 00:06:13:05
Todd Sullivan
Right. You're now going to sell this business off. And and would you call this your first M&A experience going into bankruptcy and finding a buyer?

00:06:13:05 - 00:06:36:02
Greg Lopez
Yeah, I didn't lead the M&A there, but we were talking to the eventual buyer, Univision, before the trial. So there was this idea, hey, you know, if this adverse outcome at the trial is a possibility, maybe we should just sell the business beforehand, right and we were talking to Univision extensively. I was working with their transaction services team, really getting them up to speed on, you know, how the business works.

00:06:36:08 - 00:07:03:19
Greg Lopez
They ended up buying it out of bankruptcy. But prior we were becoming more tight around operating costs. So we did make some cuts to payroll. We did try and explore financing options. We raised some some debt that acted as like a bridge round to infuse the business with more cash. We looked at, you know, factoring receivables to try and speed up collections, all of those, you know, hey, we need cash, figure it out type of scenarios played out.

00:07:04:04 - 00:07:22:16
Greg Lopez
And, you know, the easiest thing to do is, you know, cut people cut costs. It's easy from a you know, in Excel, cutting those those costs, it's hard to execute on. And obviously you have that relationship with the people in the team. So it is difficult in that sense, easy from just, hey, we need to save some money.

00:07:23:09 - 00:07:29:20
Greg Lopez
So that's, you know, up until the the trial we were taking those steps to make sure we can get there.

00:07:30:02 - 00:07:37:09
Todd Sullivan
Got it. And so how many employees end up going over and can you tell me what that transaction really look like?

00:07:37:09 - 00:07:52:22
Greg Lopez
They did an asset purchase out of bankruptcy. They bought all of the properties except for Gawker. So Gawker was the the one that was the problem from the legal standpoint. All the other properties were kind of unrelated. They just fell under the the holding company umbrella.

00:07:53:18 - 00:07:56:21
Todd Sullivan
Got it. And so what happened to you at that point?

00:07:56:21 - 00:08:18:04
Greg Lopez
At that point, I was a bit tired of us being in the news and the you know, you see the people you came up the ranks with starting to head for the exits. And I thought it was time for me to to continue on my my journey so is at Gawker for four and a half years. Got put in touch with a former editor at Gizmodo, which is one of the bigger properties and he started a business called the Wirecutter.

00:08:18:18 - 00:08:40:16
Greg Lopez
And the Wirecutter was essentially a digital version of Consumer Reports, right? So it would review the electronics, household, household goods and say, you can buy it here. And this is the best for most people. That was kind of the tagline, This is the best TV for most people, the best Wi-Fi router for most people, right? So it was always a good quality product recommendation.

00:08:40:16 - 00:08:45:02
Greg Lopez
And it was completely that the revenue channel was completely affiliate.

00:08:45:02 - 00:08:46:09
Todd Sullivan
Yeah. So you joined him?

00:08:46:22 - 00:09:14:22
Greg Lopez
I joined I joined Brian and the team at the Wirecutter. They were about 25 to 30 people at the time doing a little bit under $10 million of revenue profitably. And he bootstrapped the business. So it was always hyper focused on managing a profit margin, which is, you know, incredibly smart thing to do as a founder who's, you know, not from a financial background, but but he knew that he was bootstrapping, he didn't want to raise money from investors, so he had to maintain that profit and snowball the business.

00:09:15:07 - 00:09:39:21
Todd Sullivan
But he had a good sense because of previous experience, right, how these businesses grow, where the points of investment were going to be needed and could manage that. And then he had you on top of that right. To really understand the the all the financial moves. Yeah so it's great I love hearing businesses that can get us kind of some semblance of profitability before they think about hey, growth capital let's you know, really go big.

00:09:39:21 - 00:09:44:17
Todd Sullivan
So it sounds like that was grown very intentionally in a really smart way.

00:09:44:17 - 00:10:06:03
Greg Lopez
Yeah, exactly. There was always, you know, scrutiny about when we're hiring the next writer to cover the next vertical. So it really started with, you know, electronics and home goods. And then it evolved into like gear for babies, outdoor type gear, sports type gear, right? And now it kind of has a whole bunch of different verticals which we’ll segway into who owns it now, The New York Times.

00:10:06:23 - 00:10:13:06
Greg Lopez
So about six or seven months into my role there, they came sniffing around to acquire the business.

00:10:14:08 - 00:10:29:14
Todd Sullivan
Yeah. So talk to me about that. Right. So it's a it's a pretty quick ramp to to $10 million. You're joining in, you're growing the business. Now New York Times is knocking on the door. There must have been a previous relationship there. But can you take me through some of that?

00:10:30:05 - 00:10:53:21
Greg Lopez
Yeah. Brian had relationships with The New York Times. Some of our content was syndicated in their paper and on their website occasionally, but they were mostly focused on news and current events, right? So they didn't have a big, you know, kind of entertainment focus around technology and gadgets. Also, the revenue stream was very attractive. We were working in an affiliate revenue stream, right?

00:10:53:22 - 00:11:09:12
Greg Lopez
The New York Times didn't have that. They had subscriptions. They had advertising. Affiliate was hot to trot then, So they felt that if they could bolt on the Wirecutter property to their audience, they'd be able to blow it up.

00:11:10:09 - 00:11:30:23
Todd Sullivan
Yeah, that's great. I mean, it's very strategic, right? Exactly. It makes makes a lot of sense, you know, You know, the buyer, I think that's been one one of your points in our conversations is really knowing who you sell to. And it sounds like you guys were identifying real strategic fit. But you know, what really triggered, you know, that sale?

00:11:30:23 - 00:11:53:13
Greg Lopez
I think Brian felt it was ready. And as a you know, journalist, he really admired The New York Times, couldn't find a couldn't think of a better home. Right. So when they were seriously interested, it felt like, you know, a dream marriage for him and felt that all of the writers also admired the New York Times and would want to say that they work there as well.

00:11:54:01 - 00:12:01:19
Greg Lopez
So when the opportunity came in, he got more serious and more serious and we ended up getting, you know, an LOI (Letter of Intent) and Term Sheet. It was off to the races.

00:12:02:16 - 00:12:10:07
Todd Sullivan
Okay. So when you say off to the races, what does that mean and how does your role really change when when you go off to the races?

00:12:10:07 - 00:12:20:13
Greg Lopez
Right. So my job was to really manage the process. We did hire a banker after we already got the term sheet and Letter of Intent (LOI). So more of an advisory role.

00:12:20:18 - 00:12:21:02
Todd Sullivan
Yeah.

00:12:21:20 - 00:12:48:10
Greg Lopez
And I'm a fan of doing that because I do think there needs to be a buffer between, you know, the target and the buyer. Yeah, it just maintains the relationship a bit better. If I'm the one to have a hard sticking point. It's worse in my opinion for it to come from me than it is from the banker or the advisor to to say, you know, the Wirecutter says they can't accept those terms.

00:12:48:10 - 00:12:51:21
Greg Lopez
You know, here are some other options we can maybe work through.

00:12:52:12 - 00:13:11:20
Todd Sullivan
So great. I think let me stop there because I think it's a that's a really important kind of teaching moment in that, you know, we talk to a lot of founders who will have inbound interest and say, you know, I really want to sell to these guys and is it worth bringing in an investment banker and you know what I often tend to say to them is similar to what you just said.

00:13:11:20 - 00:13:34:17
Todd Sullivan
It's like there's a good cop, bad cop element to this negotiation and you don't want to have to have all of those really difficult conversations. You don't want to offend people, you don't want to be offended. You want to end up over on the other side on the best possible terms, and your investment banker can really help elevate you personally and professionally to the other side and then negotiate on your behalf.

00:13:35:03 - 00:14:01:09
Todd Sullivan
And so it always comes back to, well, why do I want to pay this person? Is it really worth what I pay in? It's not only the difficult conversations, but it really is that the best investment banker, one that understand your industry really, really well with three phone calls, can introduce competition into that sale process. And that group that's given you that inbound interest are giving you and IOI (Indication of Interest) does not want that to happen.

00:14:01:09 - 00:14:30:06
Todd Sullivan
So they start behaving a little bit better and you get the things that you really need from a terms perspective and I'd say the last thing that I would love people to understand is that if you bring an investment banker in, in a process where you have inbound interest, you can really structure. And this is the one of the things that we do for our founders is we help them structure the fee agreement to be far less expensive than if they were to actually sell to a buyer that the investment banker brought to the table.

00:14:30:15 - 00:14:44:21
Todd Sullivan
So it really it is the best piece of advice. I'm glad you said you're in favor of it because I know founders we are counting pennies and we want to save everywhere we can. But financially it just makes a ton of sense to have that kind of advisor on your side.

00:14:45:10 - 00:15:18:18
Greg Lopez
100%, even if you're dead set on selling to a buyer, you know they're the right party bringing someone in and it doesn't have to be an investment bank at that point. But even a CFO advisor, someone who could act as the buffer incredibly important for maintaining relations and incredibly important for that good cop bad, cop scenario. Right. You know, and just touching back on your what is off to the races me and so at Gawker, I overlapped with an individual who came in as COO and one of his pieces of advice he had some prior exits was run your business today, like you're going to sell it tomorrow at all times.

00:15:18:23 - 00:15:43:22
Greg Lopez
And what does that mean? Well, that means get your stuff in order. Make sure you have very clean documentation. Make sure you have very clean organization. Make sure you're managing your financials. Because if someone comes knocking and they're really interested in buying your business, they want to understand and potentially move faster than you want to. And having all that information to hand over shows really well.

00:15:44:03 - 00:16:02:21
Greg Lopez
If you tell them, Hey, I need 30 days, I don't have the time I need, right? Those opportunities come and go. When buyers are active in the market, they're ready to make deals, you know, and you never know when that calls coming or when someone's interested in your industry or when someone gets a referral. So doing the best you can and I understand everyone has full time jobs.

00:16:03:23 - 00:16:25:14
Greg Lopez
CEOs and founders are focused on growing their business, but there should be some level of organization around just the basics your corporate documentations, your employment agreements, your sales contracts, your financials, those items handing them over quickly. At least buy you time, show really well, and can continue the conversation.

00:16:25:14 - 00:16:56:18
Todd Sullivan
Greg, I think that you can't underestimate that. And I think there's certainly kind of the HR components of having your employment agreements in place and some very basics, but going a level deeper and really understanding, kind of having a financial package that's ready to share under a nondisclosure really helps, right? Because buyers don't want to buy problems. They want to buy future cash flows with very few red flags and not having your business organized well certainly can hurt you.

00:16:56:18 - 00:17:19:01
Todd Sullivan
And like you just suggested, I can you can miss out entirely on an opportunity. I often think that the CEOs are not in the position at least in the early stage, to keep that that kind of good housekeeping regiment. And so somebody on your side of the house really kind of pays for himself in in spades by having that package ready to go when it's appropriate to share.

00:17:19:12 - 00:17:27:23
Todd Sullivan
So when do you think, well, how big does a company need to be to have a very professional kind of finance role, you know, in-house?

00:17:28:17 - 00:17:46:12
Greg Lopez
I'd say somewhere between the $5 and $10 million revenue mark. And it all depends on the industry, right. And the size when you have, you know, two dozen employees and you're doing that type of revenue probably makes sense just to have somebody. You don't have to be a CFO but have somebody who really owns the finances.

00:17:47:01 - 00:18:11:15
Todd Sullivan
Well, I don't want to jump necessarily to this, but, you know, it plays very well into what you've decided to do most recently in your career. The company that you started. Right, having that outsourced CFO role. You know, and I'm starting to recognize more and more the value of that for early stage companies to be really kind of buttoned up there - to be able to report to investors their boards, make real decisions from financial truth.

00:18:12:01 - 00:18:26:23
Todd Sullivan
And in the case that you're approached by an acquirer. Right. You got your ducks in a row. So I definitely want to I want to get to that. But so you help Wirecutter, right? You sell to The New York Times, you've got a banker, you're your VP of Finance at that point.

00:18:27:08 - 00:18:45:02
Greg Lopez
The VP of finance, leading a small team of, you know, some folks in the operations side, in the accounting side, we're dealing with the Corp team and the CFO at the New York Times. You know, and again, going back to the idea of every role I've had at any company I'd like to take away a big, big lesson from.

00:18:45:18 - 00:19:05:13
Greg Lopez
Right. So so the lesson from this one is actually a really high touch topic. It's the idea of working capital and what that means. And yeah, before I go into that, given that we were an asset light business, meaning we didn't have machinery, we didn't have real estate, you know, digital media property, there wasn't much attention paid to this concept of working capital.

00:19:06:08 - 00:19:33:23
Greg Lopez
And as we're getting to the finish line, you know, we have a sticker price, we have some terms of employment for our employees. We understand kind of what next steps are in integration. You know, the corporate development team drops some comments on, you know, working capital and what that means and what they're expecting. And it kind of did not align with, you know, Brian, who was majority shareholder at the time, you know, what his expectations were.

00:19:34:06 - 00:20:00:05
Greg Lopez
Sure. And it was a bit of a learning moment for everybody. And honestly, you almost put the deal at risk. But we had a great outside advisor, CPA, who is a close contact of Brian, who is also the CPA for the business and myself kind of I triangulate, did a way to push forward and push back on some of the demands from the New York Times team, but ended up in a spot where everyone was comfortable.

00:20:00:05 - 00:20:03:00
Greg Lopez
At the end of the day, maybe.

00:20:03:00 - 00:20:16:04
Todd Sullivan
Can you take a second just to explain working capital? Right? It's really what's on the balance sheet and we're talking about receivables, payables, inventory. Can you talk about that from the perspective of the Wirecutter?

00:20:16:18 - 00:20:38:04
Greg Lopez
Yeah, sure. So the analogy that I like is, you know, you're buying a car, right? The car is what you're buying and the gas in the tanks, the working capital. Right. A car that has a full tank of gas can be much more valuable to you than a car that has an empty tank, not from a dollars and cents perspective from where you're going, Right.

00:20:38:05 - 00:20:59:16
Greg Lopez
How to get from A to B, Right. Any business transaction, the buyer is buying future cash flows. That's what they're ultimately buying and valuing and that’s what they want out of the deal. And that can come in the form of if it's IP. Well, there's some expectation that that software, that IP you're building will generate cash or generate value later down the road right.

00:20:59:16 - 00:21:23:07
Greg Lopez
What working capital is, is it's it's the assets that are needed to continue generating those cash flows. So let's take it even one step further. What it typically is, is your accounts receivable. So what your customers owe you, what inventory you have, if you have inventory less, what you owe your your vendors and your suppliers. Right. That's kind of your networking capital.

00:21:24:00 - 00:21:47:18
Greg Lopez
Most transactions are done on a cash free and debt free basis. So that just means the seller keeps the cash and they pay off their debtors. Those are financing choices that the previous owner made. It's up to the new buyer to decide how they want to finance the business, debt, equity, whatever they want to do. But the working capital is what keeps the level of sales moving.

00:21:47:18 - 00:22:05:08
Greg Lopez
It's what keeps the engine running. It's what keeps the business moving forward. So you can't come into a situation where you get an offer to sell and you go, I'm going to call my customers and try and get them to pay me quicker. I'm going to take all my inventory out of my warehouse and sell it and then expect the buyer to pay the same price.

00:22:05:12 - 00:22:05:20
Todd Sullivan
Yeah.

00:22:06:21 - 00:22:39:17
Greg Lopez
So you have to make sure that this discussion is had early. And typically what will be in an LOI is some term around normalized networking capital peg and what they say, you know, normalize is usually not ever normal and it's never really defined. So you just kind of look at it, you brush over it and you say, okay, cool, you know, but think about a seasonal business that does really well during the holidays, they will have more inventory closer to the holidays on their balance sheet than they will in March.

00:22:41:02 - 00:23:06:10
Greg Lopez
Right. So understanding what that peg is factoring in seasonality all is a process. And you take the peg, you know, the traditional way to do it is take a balance sheet, blow it out 24 months, do that calculation at a very high level. You know, inventory plus AR minus accounts payable and then see kind of where you are at at the target date of the transaction.

00:23:06:10 - 00:23:21:02
Greg Lopez
Mm hmm. Now, there's a whole bunch of other nuance we can get into. And I think, you know, I shared a great link for some content, a YouTube video that explains this in much more detail. I think it's super helpful and consumable and that that would help the audience.

00:23:21:10 - 00:23:39:03
Todd Sullivan
That's great. I'll put that in the show notes. Yeah. The reason I asked you to explain and thank you for doing it is that, you know, in every transaction, I think this is the one that comes up every time is very hotly contested. The buyer sees it one way. The seller sees it, you know, in a way that's more advantageous to them.

00:23:39:11 - 00:23:59:04
Todd Sullivan
And then, you know, you agree almost that you're kicking the can down the road post-transaction for a true-up right. And people can get surprised if they don't really understand what this is. And it's relatively simple, but there's constant disagreement. So it's a favorite. Everyone to get wise about this subject before deciding to sell your business.

00:23:59:13 - 00:24:14:11
Greg Lopez
Right. And you don't always have to, you know, know exactly how it's going. You just have to bring it up and talk through kind of the mechanisms and what the buyer's looking for and what the seller is comfortable with, making sure they understand the concept so that you avoid those situations down the road.

00:24:14:17 - 00:24:39:02
Todd Sullivan
Yup. You agree on how it's calculated, correct? Right. And then you know that you're going to do this at a particular point in time and everybody agrees how that calculation is going to be made. Okay. So thank you. I think that that's a great learning from that transaction. But, you know, you didn't stop there. You've got Gawker, then you've got Wirecutter and now you're what do you you're moving out more into even more into start up land.

00:24:39:13 - 00:25:13:09
Greg Lopez
Yeah. So I took some time and I did a little bit of consulting here and there and ended up taking a full time role at a company called Futurism. And Futurism was a media business. It's still it still is around today, just under different ownership, Futurism become focused on future science and technology trends that are affecting humanity and the angle with futurism was it was going to use the data from the readers so understand what readers were really engaging with from a content perspective, and then create physical products.

00:25:13:09 - 00:25:36:18
Greg Lopez
So this is really, you know, when ecommerce became super accessible to everybody, you know, Shopify was, you know, really getting its footing in the space. And Instagram and Facebook ads were driving huge amounts of traffic to ecommerce businesses, right? So this is like 2016, 2017, like really e-commerce is really, you know, popping up everywhere. Everyone wants to be an e-commerce business.

00:25:37:01 - 00:26:09:07
Greg Lopez
Sure. So it felt comfortable for me to come from the media world, you know, Futurism was another media business, traditional media model. I'd also have, you know, exposure to an e-commerce arm as well. So we ended up launching the first and probably our biggest success was a product called Gravity. So futurism was the media business. Gravity was a creation out of the data mining for futurism and Gravity was a sleep wellness brand with a hero product being a weighted blanket.

00:26:09:07 - 00:26:27:04
Greg Lopez
As silly as that sounds, if you ever go to the dentist and they put in the x-ray cover on you, it kind of feels a little nice. Like that's the the sensation. And there's actually a lot of science around why having some kind of weight creates certain feelings of, you know, lower anxiety and lower stress.

00:26:27:14 - 00:26:51:18
Greg Lopez
That's great. So we launched Gravity on Kickstarter. Did $5 million in 30 days and sales, and then we had our first our first real success. We had Futurism, which was a media business staffed around 40 folks. And then we had this, you know, experimental arm of ecommerce playing around with different ideas, you know, trying this like MVP (minimum viable product) approach.

00:26:51:18 - 00:27:19:08
Greg Lopez
That's why we launched on Kickstarter and just invested to all bunch of inventory. You want to see if there was demand first for the products that we're creating. So we had a business, right? We had we had some success. Futurism, being the traditional digital media model, had a sizable audience, about 10 million readers a month. But the media model was shifting so much that it was really hard to monetize traditional way and you need to be much higher readership to get some of the bigger brand deals.

00:27:19:13 - 00:27:42:17
Greg Lopez
And we just were caught in this gray area, so it's expensive to run. We're paying a ton of people and Gravity was growing with a very lean team and it was profitable essentially since day one. So after, you know, doing the juggling act for a couple of years, we decided Futurism was not was not a viable strategy going forward unless we raised additional outside capital.

00:27:43:16 - 00:27:51:20
Greg Lopez
So we decided to to sell that property to someone who could really monetize it to the best of its ability.

00:27:51:20 - 00:28:14:20
Todd Sullivan
That's great. So we get that that question quite a bit. It's kind of like “Series A or M&A”, right? Do we raise capital or do we sell the business? And there are a lot of things that go into that decision and I'm sure you're a big part of and of laying out what valuations would look like, how much how much would be needed to invest in the company, what kind of dilution everybody would take.

00:28:14:20 - 00:28:20:09
Todd Sullivan
And you guys came to the conclusion that selling Futurism to Singularity University, right?

00:28:20:18 - 00:28:21:20
Greg Lopez
Correct. Yeah.

00:28:22:07 - 00:28:31:12
Todd Sullivan
In in that particular sale. How did that happen? Was it an existing customer or, you know, was it did you bring in bankers for it? How did you get that integrated?

00:28:32:08 - 00:28:51:05
Greg Lopez
So many media businesses were consolidating at the time. Some of the smaller properties, they were trying to find homes in bigger properties. We took an opposite approach. We knew that the valuations are really depressed when it was media eating up other media. So we tried to say, Hey, we have this audience, who could we go to that can monetize it better?

00:28:51:05 - 00:29:18:16
Greg Lopez
And Singularity University at the time was running events. They're running digital education classes. They had a whole bunch of different revenue channels outside of media, totally separate. There was a previous relationship. One of our board members knew some of their board members and we essentially bundled up the story that this property Futurism could be a great top of funnel for you to execute on your strategy and buy top of funnel.

00:29:18:16 - 00:29:48:19
Greg Lopez
I mean, just a wide sea of people who are interested in technology and science. And the core target customer for Singularity University is someone who's really interested in the future of technology and science to learn more, to explore more, to attend events that cover those topics. So we got a premium valuation by pursuing natural versus just going to some kind of media roll up that was only focused on media businesses.

00:29:49:04 - 00:30:12:03
Todd Sullivan
You know, what I love about that, Greg, is that it just it reminds me of the transactions that we get to witness, right? The founders come to us, we build their M&A (Mergers & Acquisitions) dream team with an investment banker that's right in their industry and knows their buyers. And that investment banker is able to tell the story right a little bit differently to each buyer.

00:30:12:03 - 00:30:34:01
Todd Sullivan
This is why this property is of so much value to you. And essentially you got that company Futurism positioned as, hey, this is a new marketing channel for you and we can model what this revenue is going to look like for you downstream as opposed to saying here are a bunch of eyeballs and monetize it the same way that every other property is.

00:30:34:01 - 00:30:52:21
Todd Sullivan
And by the way, that is a declining business. And so we take a lot of time in when we look at a business and, you know, we're doing one right now and is it advanced manufacturing or is it medical device? And we bring the best bankers from those two segments. And it could be software, call it like Enterprise SaaS?

00:30:53:00 - 00:31:14:04
Todd Sullivan
It could have an element of all of those three. And when you bring in bankers from all of those sectors, the best ones and you pit them against each other, you end up getting an idea just like you just described. Right. And that creates just a far better outcome for everyone. And I'm sure Singularity University is like we could never replicate a marketing channel like this.

00:31:14:04 - 00:31:22:10
Todd Sullivan
We have to own this business. So that makes so much sense to me. Yeah, hopefully that is the way it actually happened. Yeah, but yeah. Yeah.

00:31:22:12 - 00:31:39:03
Greg Lopez
Pretty close to it, right? Like the, the value of your asset or your business might appear differently to different buyers. And it's kind of like the analogy, the bottle of water at Costco is, you know, $0.25 when you buy the whole pack as you go to the CVS, it's $1.50. You go to the airport, it's $5, right?

00:31:39:03 - 00:32:01:06
Greg Lopez
Depending on where the match of supply and demand is and who's buying and who's selling. Right. The needs are different. So just reframing your mindset when you have your business and it doesn't apply for everybody. But if there's an opportunity to think about a different path or a different buyer to get that premium valuation or a different valuation, that might be more attractive to you, it's a good opportunity to pursue.

00:32:01:09 - 00:32:03:17
Greg Lopez
And that's exactly what we we executed on there.

00:32:03:22 - 00:32:26:11
Todd Sullivan
Okay, so you've separated away from Futurism through the sale, but you've kept the Gravity blanket. And I remember that was actually one of the one of the first times that we met was when you were doing that. And yeah, it was kind of, I don't know, honored that you would call me with all of that experience of like, hey, you know, let's, let's talk about this business and where it's going to go.

00:32:26:22 - 00:32:30:10
Todd Sullivan
So, yeah, tell us where where did that go eventually.

00:32:30:10 - 00:32:56:03
Greg Lopez
Yeah. So, we're running it for a little over three and a half years. The original investors in Futurism, is they were not necessarily investing in this kind of e-commerce endeavor. It was an opportunistic business line we pursued. It wasn't part of the original pitch. So, you know, they invested in a media business that was focused on science and technology, kind of aligning with some of their passions.

00:32:56:16 - 00:33:14:21
Greg Lopez
And now they're left with a sleep wellness ecommerce brand that, you know, they don't really understand the industry. They don't really care too much. It doesn't really speak to them. We were getting a little burned out running the business, to be honest with you. It was a highly seasonal business. So about 70% of our sales came in the second half of the year, most of that around the holiday.

00:33:15:04 - 00:33:34:00
Greg Lopez
So every year it was, you know, we'd brush up against holiday and we'd hold our breath to make sure the sales were coming through to hit our annual goals and hit the profitability and sell through the inventory we stocked. So after one too many of those cycles, we decided, Hey, this is a good time to potentially put the business up for sale, right?

00:33:34:02 - 00:33:56:13
Greg Lopez
We feel like we've grown it, now it needs potentially a bigger home and we don't want to go out and raise raise money to try and pursue some kind of really wide wholesale strategy or develop a whole new product line. We just weren't interested in continuing that path and felt under under a different ownership. It could it could really flourish.

00:33:56:18 - 00:34:17:12
Todd Sullivan
So yeah, we've developed a bit of an expertise around selling consumer brands. And again, we're really just assembling the best investment bankers and team around that banker. But that has been a really great category because it's not just e-commerce, it's consumer brand, right? And so you kind of have these kind of two very valuable things, depending on how big the brand is.

00:34:17:12 - 00:34:30:18
Todd Sullivan
And my sense is, you guys were part of kind of creating this category. So did you have real kind of brand recognition in that market that was of real value or really was this going to be some multiple of EBITA or sales?

00:34:31:09 - 00:34:48:23
Greg Lopez
There was definitely brand recognition, but it was each year getting eaten away at and that was also one of the motivations selling right. Once you have an innovative product, give it 6 to 12 months, even sooner now maybe three months, you'll start seeing knock-offs on Amazon. Yeah, absolutely. And you can offer it at a much lower clip.

00:34:49:22 - 00:34:59:08
Todd Sullivan
So you guys are a little burned out. You've got competition, right? Some headwinds and you say, okay, we're going to go to market. Did you seek out an investment banker? Like how did you go go to market?

00:34:59:08 - 00:35:25:19
Greg Lopez
We started dipping our toes in the water with some strategics that we knew and held relationships with. So we did big programs with Purple. We had a relationship with Casper. We had some other relations with some of the more traditional players and tested the waters there. No one was particularly interested given that they were just dealing with their own business growth and they had their own eye on their own balls that they were focused on.

00:35:25:19 - 00:35:44:12
Greg Lopez
So what we did is decide to bring on a banker. So we spoke to a handful of bankers, and this is where I think, you know, Exitwise really can help founders streamline that process a bit more because you get a whole bunch of, you know, hey, do you know a banker? Do you know a banker? You get a whole bunch of people connecting you and you don't really know.

00:35:44:12 - 00:36:00:02
Greg Lopez
And a lot bankers are really just salespeople, so they're trying to convince you that they're the right partner and they throw numbers at you and, you know, being the prudent operators that Mike and myself were when we heard bankers say, you're going to, you know, we could sell this for $100 million, we were like, there is no, no way.

00:36:00:16 - 00:36:24:04
Greg Lopez
It's not going to happen. So we just know that you're blowing smoke right? So we ended up I don't even remember how I got the referral, ended up working with a firm Consensus Advisors. They're based out of Boston and and Patrick, who is the bankers is based out of New York and we met him at a coffee shop and they have really great experience in the consumer space and he told it how it is, right.

00:36:24:06 - 00:36:50:05
Greg Lopez
He gave us a range that he felt comfortable with. Right? Because the first question you're going to ask is the seller how much you think we can get, right? And then you're either going to be disappointed or you're going to be static or you're going to be skeptical, I guess. And he gave us something that was, you know, right down the middle of where we felt this business was actually worth. Engaged with him, started putting all the materials together, going to market.

00:36:50:18 - 00:37:02:04
Greg Lopez
And a week later, COVID hits. Yeah. And everyone shutting everything down. No one wants to do deals. No one's answering emails. Kind of put us in a little bit of a holding pattern.

00:37:02:04 - 00:37:32:13
Todd Sullivan
Okay. So yeah, and shout out to Consensus, right? That is a great group. I think that you have been through multiple M&A experiences now, so you know the value of getting the right banker kind of on your team and certainly we have experience with them. They're fantastic. So yeah, great that you made the right choice. I think a lot of founders, you know, if they've got a hot company, they're getting they're getting cold called by bankers and they don't even know how to interview these and they just end up wasting their time and they're getting the same from private equity.

00:37:33:00 - 00:37:53:23
Todd Sullivan
And so, you know, I appreciate what you said because we we really love taking that effort off of the founder’s shoulders. Right. Let us talk to buyers. Let us talk to bankers. We know how to interview them. We know how to surround you with the right talent to just lower risk of failed transactions and absolutely maximize your outcome. And yeah, I'm glad you ended up with Consensus.

00:37:54:19 - 00:38:05:11
Todd Sullivan
Okay, so but. But you paused because of COVID, right? And really nobody's fault because of that. So what happens? How do you how do you pick it back up? How do you keep the business alive and pick that back up?

00:38:05:11 - 00:38:30:12
Greg Lopez
Yeah. So that was March of 2019. So we continued operating and then markets started opening back up towards Q3, Q4. So we had a couple of conversations. They weren't super serious because it was still this, you know, COVID pause time. We had some conversations with folks and ultimately kept those relationships intact. Patrick was great at bridging the gap over consensus.

00:38:30:12 - 00:39:00:05
Greg Lopez
And then we decided we want to get the price that we want. Valuations are feeling a little bit of, you know, they're feeling a little bit depressed because of the uncertainty due to COVID still pretty new at the time, but we know kind of what our number is. So we reengaged with, you know, two or three of the folks that were interested and ultimately ended up going with with one group into exclusivity and felt that they would be a good home as a holding company.

00:39:00:05 - 00:39:32:02
Greg Lopez
They owned a bunch of other brands and continue down the path to to close. But it took quite a bit of time. It was, you know, four or five months being in that process. And my job as CFO at that time, I leaned back in full time because it was just an intense process. So I said, Hey, in order to keep the business moving along, to keep Mike, the CEO out of the weeds and to keep the team focused, I'm going to step back in and just help manage this process with the bankers.

00:39:32:15 - 00:39:56:03
Greg Lopez
So, that's what we did. And it took, you know, four or five months to get to the finish line. But ultimately, you know, we stuck to the number that we wanted. We wouldn't concede because even though we were burned out and we felt the pressure of competition, it was still a really good business fundamentally. And if we had to run it again for another year, we would of if we weren't going to get the price that we wanted.

00:39:56:08 - 00:40:12:15
Greg Lopez
So even though there were know few hard negotiations to whittle it down, we stood strong. And you know, that's just classic. If you have leverage, use it. And our leverage was we'll run the business for another year and we'll go to market in potentially a less volatile time.

00:40:14:05 - 00:40:34:15
Todd Sullivan
Let me ask you, so I mean, you got so many lessons in this, right? You have got kind of a crash course in M&A, and I'm really thankful that you've sharing it with all of us. It's it's this idea of knowing your value and and sticking to it, holding to that value because, you know, you have options. How did you come to that value?

00:40:34:15 - 00:40:58:06
Todd Sullivan
Because a lot of what we do at Exitwise is we're bridging that gap of emotion, unrealistic emotion to finance that is actually going to occur. And we're building tools that we share with founders of how to really understand your value. How did you guys come to a number and you're coming from a finance background, so I know you have that edge, but how did you know what your company was worth?

00:40:58:06 - 00:41:02:10
Todd Sullivan
And it sounds like Consensus was on your side with that sticking to that number.

00:41:03:03 - 00:41:22:15
Greg Lopez
Yeah, so it's a little bit more of an art than a science. So first and foremost, you got to make sure the stakeholders are comfortable with a number and if they're being unrealistic, explain to them why. Thankfully, everyone on our side was was being realistic. The easiest way is to look at comparable companies, right? Understand what recent transactions have occurred.

00:41:22:15 - 00:41:43:20
Greg Lopez
But when you're in a smaller market and that information is nonpublic, it creates a little bit of yeah, there's a little it's a gray area. You don't get the exact information. But but, you know, consensus has resources and have a network they can bank. Most bankers do. So people talk on the street and they know what what businesses are going for.

00:41:43:20 - 00:42:19:04
Greg Lopez
So they know a range that that seems fair and then also thinking about it, right, when you're looking at how businesses in this market are bought and sold. Right. Like a discounted cash flow is not necessarily super useful. You're looking at a EBITA multiple or an adjusted EBITA are multiple. And when a buyer, especially if they're, you know, more of an institutional type, like a private equity firm or some kind of roll up, they're looking to basically hold the business for 5 to 7 years and they're kind of expecting to flip the business at a similar multiple of what they're buying it for.

00:42:20:03 - 00:42:38:03
Greg Lopez
So all that being said, we just triangulated a bunch of data and felt that, you know, we're being fair in our price. We know what our EBITDA is, we know what the multiple of EBITDA is. We know how long probably you're expecting to hold this business. Right. And what cash flows you're to generate out of it. And we want to be paid for that number today.

00:42:38:22 - 00:42:39:08
Greg Lopez
Right?

00:42:39:08 - 00:43:12:20
Todd Sullivan
That's a really sophisticated way and great way to look at it. You know how the buyer is going to benefit from this purchase. What are they willing to pay, understanding their ROI profile, how long they're going to keep that business, what their expectations are, is really critical. I think at the beginning what you said that hits really home for me is that your investment banker, if they truly are industry specific and you ask five of them what this business is worth, they're all doing that comparative analysis.

00:43:12:20 - 00:43:39:20
Todd Sullivan
What businesses have traded that they have inside information on, Right? Because they're the ones selling those businesses so they know what buyers are paying. And what we love to do is when we get that opinion from five bankers for a founder, we might have outliers, but you start to see, you know, where valuation settles. And and to us that is an indication that you're getting information like directly from the source that is nonpublic.

00:43:40:13 - 00:43:53:18
Todd Sullivan
So we feel like when we settle in on valuation and try to align founders and bankers with what this outcome is going to look like, we're coming at it from a real advantage in the market because of the network that we've built.

00:43:54:06 - 00:44:17:13
Greg Lopez
One of the comment I want to make is just you can sense the fatigue when the deal gets drawn out and there is almost this pressure to just, you know, get the deal done, but sticking it out again, if you have the leverage in order to do so, is always the right move and a deal will get done eventually if you're focused on getting a deal done.

00:44:17:21 - 00:44:40:18
Greg Lopez
But you got to make sure it's the right one. And even though we had good advisors, you could still feel there was this like, let's just get it done type of motivation that's common. So it's really just managing the process with the professionals, right? And setting your expectations accordingly, right? If you have to walk away. Know when that when that time is.

00:44:41:14 - 00:45:07:20
Todd Sullivan
Some of that pressure, you know, from deal fatigue from a buyer, it is it is true that they could move on because in the time that it's taken you to get to where you are today, they've probably looked at 100 other opportunities and they're trying to decide where do we deploy our team and effort. And if something comes by that looks really, really attractive, you know, they could say, hey, you know what, if we're not going to if we can't settle this, we have to move on.

00:45:08:04 - 00:45:28:07
Todd Sullivan
And the ones to know if that is real or not are the industry specific investment bankers who know exactly what's going on in their industry. So, you know, it is our model and we can't believe that it isn't done this way every single time. But the insight that those people have, you just if you choose there, if you get the right team, you will get the right advice.

00:45:28:19 - 00:45:47:16
Todd Sullivan
So I want to jump last to you know, you you went off and started your own business, right? An advisory firm, a fractional CFO advisory firm. And, you know, after some success, you ended up selling that and selling it to a really good friend of mine who built something very similar, Aaron Spool. So, yeah, can you give me that?

00:45:47:16 - 00:45:52:10
Todd Sullivan
Give me the, the lowdown on building that business and what made you decide to sell that.

00:45:53:13 - 00:46:10:22
Greg Lopez
Yeah, So it wasn't a more, it wasn't a traditional, you know, M&A type sale. I've known Aaron for years and it just goes to show you there's many different ways to cut the pie, right? So we agreed on some kind of revenue share. I bring my clients over, I get a revenue share. So there was no big M&A closing date or anything like that.

00:46:10:22 - 00:46:32:13
Greg Lopez
It was more informal. But, you know, the upside for me, upside for him. And after we sold Gravity, I did a bit of consulting and I just found I really like working, you know, small business owners and CEOs and understanding their pain points and helping, you know, both finance and accounting to to alleviate and, you know, educate them on their own business a lot of the times.

00:46:32:19 - 00:46:55:02
Greg Lopez
Right. Identify pain points, identify trends. I tell everybody now, especially in this environment, we're in a show, not tell environment. So if you're out trying to raise money, you're out trying to sell your business, right? You better show you can get to the results that you want because people aren't buying empty promises anymore. Right? The cycle has shifted, so you got to show it.

00:46:55:07 - 00:47:17:14
Greg Lopez
So it's managing your bottom line that's managing your growth effectively, not having, you know, thousand percent increases of revenue, things like that. And that really goes a long way in building credibility in the market and for your own business. So absolutely, I decided to just do that full time. I saw the need for finance professionals leaning into those businesses, but not everyone needs know.

00:47:17:16 - 00:47:39:09
Greg Lopez
We talked about a full time person managing that side of house, but many CEOs would like an advisor or would like someone to do, you know, a health check on what's going on and help understand a little bit more under the hood because they're just not focusing as much there. And then Aaron called and said he was hiring out the team and building it out.

00:47:39:09 - 00:47:45:21
Greg Lopez
And, you know, there's an opportunity if I want to interview for it. And we we made it work out. So, I mean, that's.

00:47:45:21 - 00:47:46:04
Todd Sullivan
Great.

00:47:46:14 - 00:47:50:14
Greg Lopez
Firm called the Vendors Advisory Group and I'll drop the the link for you as well.

00:47:51:01 - 00:48:12:07
Todd Sullivan
Awesome. Yeah. And full disclosure, right now, we, we use that firm right when we, we run across a lot of entrepreneurs that need to be buttoned up before they go to market. And I mean we have a great relationship and we bring a ton of value to founders that way. So, you know, it's just serendipitous that you're on this team too, and joined today.

00:48:12:22 - 00:48:24:20
Todd Sullivan
So, yeah, I like to kind of finish here with is there is there any other advice? Have you given so many pieces along the way? Any other advice you would give to kind of fellow founders of businesses when they're considering them?

00:48:24:20 - 00:48:43:09
Greg Lopez
And I want the audience to take away three things. First and foremost, like we said earlier, you know, run your business today like you're going to sell it tomorrow. You never know when the call is going to come or when someone's interested in buying your business and being prepared is essential. Number two, you know, the M&A process is the ultimate sale.

00:48:44:06 - 00:49:14:03
Greg Lopez
So again, presenting, well, understanding your business, having things organized, crafting that narrative, super important to getting that premium valuation. And then number three, you know, know your worth and they're all kind of interrelated, right? Know what your business is worth. Everyone deep down inside has that number that they know they walk away from the business for, but trust the advisors to make sure that you're aligned with what the market is telling, you know, sellers so that you can, you know, reassess and get yourself the best deal at the right time.

00:49:15:22 - 00:49:23:15
Todd Sullivan
That's great. And just one last question. Is there one person out there that you would like to thank who's really contributed to your personal and professional success?

00:49:25:01 - 00:49:42:11
Greg Lopez
I just I can't say enough great things about just my time spent with with Mike Grillo over at Gravity. And he's a good friend of mine today. And, you know, that relationship that we developed really is the epitome of what a CEO, CFO relationship should be. And working with him has been nothing short of Fantastic.

00:49:43:06 - 00:49:45:19
Todd Sullivan
That's great. Greg, thanks again for doing this. I appreciate.

00:49:45:19 - 00:49:49:14
Greg Lopez
It. Todd. Thanks for having me on. Real pleasure. Talk to you soon.

00:49:50:15 - 00:50:14:13
Todd Sullivan
Thanks again for listening to the Cashing Out podcast. For more founder exit stories, please subscribe to the Cashing Out podcast on Apple, iTunes, Spotify, or wherever you listen to your favorite podcasts. And please remember Exitwise.com and the Cashing Out podcast are for entertainment purposes only. This should not be relied upon as the basis for investment decisions.