The Wise Exit

Cashing Out Podcast | Episode 17 | Brian Scanlon

Todd: [00:00:00] 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, c e o of Exit Wise, where we help business owners create the exits they deserve.

Today I have a special guest, M&A expert, and serial entrepreneur, Brian Scanlon. Brian started his career by founding a marketing agency, Social Mediators, a full service digital marketing agency, which he sold in 2014. Brian's exit was not life changing, but he was able to put an entrepreneurial win on the board and much like myself he then decided to focus his attention on helping his fellow founders sell their businesses by entering the world of sell side m and a advisory after helping several business owners orchestrate their exit.

In 2017, Brian saw his next entrepreneurial opportunity on the buy side of M&A and launched Deal Gen Partners, an origination company, [00:01:00] discovering opportunities for private equity funds and strategic acquirers to acquire great companies.

Deal Gen Partners currently manages 2.7 billion in buy side mandates, which gives Brian real insight on how buyers are thinking about M&A in 2023 and. So today Brian will share his full entrepreneurial story and offer his advice to our fellow founders about how to make their companies attractive to buyers right out of the gates.

I hope you enjoyed my conversation with Brian Scanlon.

Todd: Brian thank you so much for being here Uh I really appreciate you taking the time out of what is clearly a busy schedule that you have building latest company which seems to be going off uh to the moon here I know that your insights given all the seats that you've lived in in M&A not only selling a business but helping founders sell a business and then now helping buyers buy businesses Uh your insights for our fellow founders I know is[00:02:00] gonna be gold to them but I always like to say for this particular interview I was really excited that you wanted to take this spot I had no problem bumping Mark Cuban from this spot So thank you for doing this

Brian: Tell. Yeah. Tell him I said hi. Next time you talk to him,

Todd: Will do will do. I I like to start by talking about how I know our guests

Brian: Yeah.

Todd: Right I was looking for A true M&A expert that had lived in these three seats as somebody had sold their own business that helped other people businesses and then either bought businesses themselves or helped others buy businesses And so you know I'm hunting for this kind of unicorn and land on your profile on LinkedIn right And we reach out and you're immediately like yes let's get together And we've already found ways to figure out how to work together

Brian: Yeah.

Todd: [00:03:00] Your entrepreneurial background is awesome. So I definitely wanna tap into that maybe you could take us back right to you're at Babson You've got your undergrad and your MBA at one of the greatest entrepreneurial programs in the world and you've launched a company. Maybe you could you could take us from that to exit.

Todd: from that to to exit

Brian: Absolutely. So my, uh, my junior year in college, my aunt had a boutique PR firm at a, in New York. And, uh, she was, you know, 55, 56 at the time. And one of her clients, this was 2007, one of her clients said, Hey, I think we need to be on this Facebook thing, you know? Uh, I think it's important. So I was the only person she knew at that time that was savvy enough on Facebook, simply because I was 20 years old, you know?

Um, so she said, Hey, if I. Give you a couple bucks a month, will you post on behalf of this company on their Facebook page and create content and manage the audience? Um, the company was called [00:04:00] the Tiffin Company. They sell, uh, steady cams, uh, the big movie theater, you know, movie quality cameras. the scene in Rocky where he's running up the steps, there's actually a guy strapped into a camera running next to him and the image is still, and that's one of their flagship products along with some lenses and filters and things.

So it was, it was kind of a. Industry to be in, um, because it was very visual. So using, you know, all the images and video on Facebook was, was kind of cool. Um, and then a couple months later she said, Hey, I have another client that wants to do this. Do you wanna do it? Sure. And you know, it was, I don't know, 500 bucks a month or something, and.

For me, that was $500 beers at the pub on campus. So I said, sign me up. I'm in, you know, I was, I was the, I was the rich guy. Um, so that turned into, she got a couple clients. I found some ways to get more clients and ran that company for two and a half years. Um, from 2007 through all the way, you know, to 2010, pretty much brought in a partner, um, who was looking to do, you know, do the same when I graduate.[00:05:00]

And we ultimately ended up selling that, essentially that book of business to a what, I guess you'd call a strategic acquirer, um, which was another agency who was just kind of looking to add to their, you know, uh, the, what what we were experts in at that time was lead generation through social media. So trying to get businesses, B2B companies to generate more business through social.

And, uh, the company who bought us was, uh, an agency that just wanted. Essentially wanted our revenue and client base. They didn't want us, they didn't need our expertise, they just needed to, to add some money to the kitty. So, um, that sale worked out great and. The guys who helped me sell that were a small two-man m and a advisory shop outta New Jersey.

And, um, when I left they were like, well, what are you gonna do? You know, and I was finishing my mba, uh, I was actually volunteer coaching the, the baseball team at Babson and, uh, said, I don't know, you know, I don't know what to do. So they asked if I would come on and. Help some lead generation for them in [00:06:00] the sense of going out and finding companies that they might be able to represent through a sale the same way they did for us.

Um, and I started doing that. So now I went from selling it to the, you know, sell side advisory world, where I got a, you know, a crash course in investment banking pretty quickly, um, working on selling low to mid-market companies, you know, five to 75 million in revenue. Some tech enabled services, some industrial businesses, um, some staffing companies, some B2B software.

So we got to play in a, in a lot of spaces, uh, through that. And then from there, the inception of deal gen was recognizing that these buyers need to see a lot of opportunity to find the right company to buy. There's a, you know, there's a lot of, of evaluation that has to take place.

You know, some of our clients now see three, 4,000 deals a year to get to 10 or 20, um, or one depending on who the client is. So we kind of stepped back and said, Hey, maybe there's a way to now work for the buyers, [00:07:00] bringing them opportunity cuz we're really good at uncovering that opportunity and they're really good at you know, closing the deal.

So that's kind of the trajectory of selling the business to sell side advisory to now working for, you know, private equity funds. Helping them find the next company that they're gonna acquire?

Todd: it's awesome right You have there's so much in here So maybe let's back up to the actual exit right You're selling to a strategic who uh had had you worked with them before like how did they know your book of business was gonna be your valuable.

Brian: Yeah, so we, we met, at a conference we actually met at, at the consumer electronic show, CES one year. And, they had some guys there. We were, you know, just happened to connect through some, there was some event there that I think was like a, you know, social media gathering. All the social media managers for these companies got together and, uh, we just started talking, realized we were local to each other.

We were doing something they weren't doing. They were doing something we weren't doing. And. I didn't really want any part of what they were doing. Um, [00:08:00] but they saw value in, you know, our lead generation tactics. They were more content management and, you know, content creation at that time. Um, and they were very B2C focused.

So just through some more talks, you know, I said, Hey, I, this isn't something I wanna do for the rest of my life. I kind of fell backwards into it by accident. Um, and they said, well, you know, would you ever think of selling a business? We jumped on it because I knew that that wasn't what I was gonna do forever.

Um, and you know, any dollar at that point was, was a good deal. So, uh, we were young guys, so we just kind of pursued that process and saw if we could, you know, continue working towards a transaction. It was very friendly actually. Um, it wasn't really, you know, we didn't run a tradit. M and a structured process where we went out to market and we accepted bids and we had, you know, a hired investment bank.

Um, we ultimately did hire these advisors, but it was very friendly and, the conversations were, you know, we see value in what you're doing and we don't really think we need you guys around, but [00:09:00] we do want that client base. Um, which was something that, now looking back on it, the clients we had were the true value because they.

They were bigger brands that had opportunity to spend a lot more money. We just weren't offering anything beyond the one or two services we had. So, you know, these strategic, the strategic acquirers said, Hey, if I got my teeth into these customers, I could probably start charging them for a lot more than, you know, they're $10,000 a month turns into a hundred thousand dollars a month in, in fees.
Um, so yeah, that was, that was really the path of it.

Todd: I think um it what's important here is getting to know your buyer um before you're entering into this negotiation is really important because you're establishing fit You're really uh you're having open dialogues of know what value you bring to the table not only what your company can do but what your assets can do on the other side of a transaction And so I [00:10:00] like you saying that it
really was uh a pleasant experience is fantastic but it's cuz you created that relationship ahead of time And that's that's just super important to be able to do Bringing in an intermediary is a really thing to do So uh you're you're bringing in an m and a advisor or an investment banker once you have the idea that you wanna sell to these guys I think a lot of founders are gonna think no no no no Why would I ever do that I've got this relationship I'm gonna get it over the goal line I will save money somehow And so I have some reasoning why you would do what you did but maybe you could explain in your words um why make the decision when you have almost buyer in hand a discussion to get purchased. Why do you bring in your transaction advisor?

Brian: Yeah, so I, first of all, I'm a huge proponent of having an advisor like I, I think it's, [00:11:00] this is an incredibly difficult process to do on your own. and you don't know what you don't know when it comes to selling your business. Um, even guys we deal with now that have done it multiple times are still bringing in advisors to help them through it.

You know, one, you have to take your eye off the ball in order to sell your company. Meaning if you're gonna be the one that's focused on selling it, it's hard to run it the same way you run it every day when you're taking management calls and worrying about your books and all. Um, so that's one piece.
And the other was with our transaction, we weren't bringing in bankers to negotiate necessarily. We were bringing them in to say, Hey, we have this offer that we're happy with. Uh, let's not screw it up, but just make sure we're protected and we're doing the right things, you know, and we don't wake up in six months and they say, Hey, that extra payment we owed you, we actually don't owe it to you cuz we didn't check certain boxes.

So, you know, and not that we were worried about them being dishonest in any way, but with any agreement, with any process, you know, you want somebody who's a [00:12:00] little smarter than you looking at it to make sure you're, you're looking at it the right way. Um, but had we decided to go to. I, I, now, I would ho advise myself to engage someone.

Once you're at a point where you know you have some, you know, some value to bring to market, there's things you can do before you engage an advisor. If companies are reaching out to you directly, um, you know, guys like myself now going to founders and saying, have you thought about selling? Here's what we do.

Maybe we can, you know, bring some people to the table. you know, once, once you're ready to go to market, having that guidance is incredibly important for nothing other than not taking your eye off the ball of your business.

Um, as an advisor, I saw. Companies take their eye off the ball and it affects the end purchase price at the end of the day. Cuz you're gonna reconcile those numbers. The valuation I put in today might be different than what the company's numbers are six months from now. And that buyer's not buying six months from now.

You know? [00:13:00] Or they, they're, they're buying, they're buying that end result. Um, so it's, it's important to have that advisor to make sure you're running your company while they're running your process.

Todd: I think it probably is the the number one reason that you wanna bring in you know an intermediary an investment banker We really push industry specific investment but bring them in So you focus on the business Um a lot of times these acquisitions are valued on a projection right Where am I gonna be at the end of the year Where am I gonna be in six months And if you miss that number Right That that is absolutely used against you in the negotiation because they're gonna say well what's wrong And you can't say well it was too hard I had too much work to do Right So bringing that advisor that's really key You know I found it I found it really interesting that you drove to this transaction without bringing in competition because you said like if you were to do it again you understood [00:14:00] your value a little bit more in the market and maybe you would reach out to others uh uh for me two a close Number two is that that intermediary can introduce competition right Somebody that really understands your business and focuses on your industry can create that competition which drives that first buyer to actually transact They stay on the timeline stay true to everything that they say There's no there's no funny business because they know with two phone calls you've got someone else spun up to
Right Um so ju just interesting that you're seeing all of that and then have the the hindsight of you know you could have done it differently but you created a great outcome.

Brian: But also there, like you said, there is an incredible value to industry expertise. That's something that looking back on it, and it wasn't, you know, I, I don't blame the guys we worked with in any, way, but knowing what I know now, Instead of three, we probably could have [00:15:00] got three and a half, four times the company, you know, the, the, the revenue because of the value that our clients had.
And that was just something that we didn't necessarily recognize. And I think the buyers did, you know, which probably is why it was such a friendly transaction. Um, not that they were, they were stealing from us, but they, if you look at it, they probably made out better financially than we did in the long.
Um, and had we had someone that knew the true value, maybe it was a few more dollars added to the end of that, you know, that check possibly.

Todd: Yeah But you know um you you bring up something that just is right down your your lane today if we could go to a founder and say we have a buyer that is very interested in your company and the certainty of close is very high Taking 80 cents on the dollar to get that transaction done makes a lot of sense in a lot of cases right Fighting for every last dollar spending six or seven months in a process that could Um we [00:16:00] don't see failures but we know that the industry sees failures Um you know the the there's risk there and it may be worth talking to a very interested buyer that is the perfect fit and somebody that is in the position to find that is somebody like you today right When you're calling a founder you're not just saying Hey will you sell to anyone You're saying would you sell to this specific buyer that has this specific need that you fill

Brian: Absolutely.

Todd: you could maybe you could talk a little bit about that Cause I think
for founders to at least consider

Just cause someone has money to buy your company doesn't mean they're the right buyer for your company, right? Like money that, that's a prerequisite. Everybody has money that are trying to buy companies. But for example, we work with, a group right now who is, they're the most active acquirer in the world of flat or declining B2B software.

Brian: So they're looking for the things that are a little bit broken that they can fix. And naturally those companies are not gonna get, you know, the 10 x [00:17:00] valuations that everybody wants. , but what they do in, in, in knowing that, hey, we're not gonna overpay for you, but what we will do is we're gonna close this deal for a hundred percent cash in 45 days.

So now most of the people who get intrigued to sell to, to this group are people that have been through the process before. , right? Because they know, all right, 45 days is probably gonna turn into 60 or 90, cuz it's usually longer than you think. And a hundred percent cash is a hell of a lot better than, you know, money down the road.

So tho, you know, having been through the ringer a little bit allows you to say, sure, I'll pull the trigger on this one because the structure of the deal fits. Better than the overall valuation. So, you know, the other thing an advisor can do is get you to structure things a little bit more in your favor.

Um, you know, than, than the average bear. Just thinking, Hey, I just, you're gonna pay me three times and you're gonna give that to me all at close, right? It's like, no, you're not gonna get that all in clothes. You know, [00:18:00] we're gonna spread this thing out. We got an earn out or whatever. It's.
Todd: I think Yeah. You bring up a really good point because having that investment banker m And a advisor the structure negotiate that structure that is to your benefit is a little bit different than having an m and a attorney who's going to ink that negotiated term in your favor very clearly Right because I was gonna ask you the question you know, what kind of attorneys did you use Because it seemed like you were inking a deal that you had essentially negotiated those investment bankers they, really do have the little tweaks in the negotiation to make sure you're maximizing your value whether it's today or or tomorrow And the and the attorneys really that are there to ink that and protect
Brian: Yeah And you know they they also give you the guidance to like selling your house, right? Maybe there's a couple concessions here that we give the buyer cuz they're really not that big of a deal. You know, if we [00:19:00] gotta do the, you know, Oh, there's right on in the basement or whatever it is. We'll fix it.

It's a couple hundred bucks instead of them taking 10 grand off the purchase price, you know, um, so an advisor can, can be, you know, be part of it in, in that sense. But I, I tend to shy away from letting the attorneys negotiate. Um, I, I'm not really a believer in that. I, I think they're, you know, not that they're in the business prevention department, but they can find something wrong with.

Letter in an agreement if they wanted to, cuz that's their job and they're really good at it. And eventually there usually comes a point where the seller has to tell the advisor or the attorney, hey. We're done negotiating with this. You know, like we, if I, I wanna get this deal closed now, this is what we want to do.

And sometimes the seller has to step up and make that call because you're advisor's incentivized to get the most value. They're trying to negotiate the highest. Your m and a attorney's probably charging you hourly, not that anybody has bad incentives through this, but you [00:20:00] do have to look out for yourself at some point in the transaction and put your foot down and say, Hey, we're cool with this pur purchase price.

Go get the thing. And let's not, let's not, you know, kill the deal.

Todd: Brian you make a fantastic point Um you need to control a founder your advisors whether it's the investment banker or the m and a attorney see we when we bring m and a attorneys in they be they're industry specific as well right And it's a little bit broader right So great software guys might not have to be payroll right But but they really understand how to get software deals done And I think the value that they bring to our founders is in this contract here is your risk And and if you can accept this risk we should give in on this point because we wanna win this point over here where you know risk is a little higher Um and that that's the conversation that you want to have that m and a attorney should be describing your options to you and and protecting you the best [00:21:00] they can but you control those decisions Great point I wasn't expecting to be able to to cover this Let's maybe let's let's jump right Um I I one question I think is really important is you know first time entrepreneur I'm assuming maybe you had some smaller things going before college but first real company and you put a win on the board right And and you and I have talked right this isn't your grand slam home run but you built something a value strategic buyer buys it and you're on to kind of your your next thing Can you just describe to me an entrepreneur valuable it is to put that win on the board

Brian: Yeah, I mean, incredibly valuable. and I've had a lot of losses since. You know, I, I mean, a to a ton of stuff we swing and miss all the time. Um, I think we have our grand slam right now, I think, in what we're doing. But you know, after selling a business, you got a couple bucks, you think you're Mark Cuban, [00:22:00] right?

And you realize you're not, my college baseball coach used to say it all the time. Winning is hard, you know, and like, you gotta appreciate wins because no matter what it is, it's hard to win. It's very hard to win. And, uh, it was cool, you know, it was really cool. And I was very naive at that time.
I think. how nice of a win that really was. Um, looking back again, you know, you're like, huh, man, maybe if I held onto it for two years, I, I wouldn't have to be working right now. But that's a different story. Um, but yeah, getting a win early is important in, in anything you do, you know, I mean, even, it's January 2nd now.

People are starting their diets. If you, if you, you're off the wagon already, you know, it's hard to keep track for 2023. You gotta get those ear early wins. Uh, but yeah, it, it was incredibly important. But it also showed. You know, going from that to starting to advise people, gone through that was an incredible, you know, I had a lot of knowledge at a pretty young age about that process, and that was kind of neat.

You know, that's something that stuck with me and allowed me to be a little versatile through [00:23:00] sitting in all these positions in the deal cycle, you know, as you, as you were alluding to,

Todd: I you know uh that's what I saw immediately in our first conversation Right Uh just a very similar background I built and sold four companies and you gain a little bit more insight knowledge through that tho those experiences and to be able to give that back to your founders to make them Not make similar mistakes or give a little piece of advice that increases the value of a company Maybe it's delay selling the company for six months and do these three things because this is what buyers are really looking for today And I and and that's more important today than ever where
growth was everything in 2021 and profitability shifted as as being super valuable in 2022 And I'd love to get your insight on on 2023 in a minute here But Yeah. I mean I saw that commonality So you shift over and now you're doing transaction after transaction helping [00:24:00] uh identify the founders guide them into the right hands of of intermediaries And you guys have successes One of the things I think you had said to me that was incredibly insightful is that you see on the sell side right Which is founders selling their businesses intermediaries selling businesses they're working on a few deals and that deal is just so critically important where the buyers you've said Can be looking at 3000 4,000 opportunities And so to just have that insight as a founder that that you are the needle in the haystack right So buyers really have to go through a whole bunch of opportunities before finding you and and sometimes founders feel like they're not getting the time right This is everything to them but the buyer is seeing so much Maybe you could talk a little bit about that I think you have unique perspective on what what that is really all

Brian: Yeah And you know, the, like the way I I describe it is I, I have an athletic [00:25:00] background, right? So if you, you know, you ever went through a, a college recruiting process, right? You're the, you're the best guy on your high school team. . But then you go out to these events and there's 200 college coaches watching 2000 other high schoolers, and you look around and you're like, whoa.
There's kids from California that are pretty good. There's kids from Texas that are six five and you know, built like a a, a house. And you start to see like, all right, these guys have a lot of options. And just cause you're the prettiest girl at your dance doesn't necessarily mean, you know, you're the bell of the ball for everybody, right.

So I, I think just understanding. , these buyers, their job is to find a better opportunity than the one they're currently evaluating, right? Like if I'm Nick Saban at Alabama, yeah, I have the best quarterback in the country. Well, I need to go find the next best quarterback in the country for what he leaves, right?
So all of these companies, these PE funds, are looking for the best opportunity they can find, and they don't have to pull the trigger. You know, I think one [00:26:00] common misconception is, oh, well they have dry powder sitting around. They gotta. They don't, they have to protect it. They don't have to waste it, you know, so they're trying to protect that money by investing it in a, in a smart way and having to spend it is such a misconception of the private equity world.

You know, these guys aren't hurting for their next meal. They don't have to spend that money, you know, they have to spend it smart in a smart way.

Todd: Yeah. that's interesting By the way we you know we love our sports analogies here and I think um you know it applies very much to founders raising capital too right They think they
special in that investor which is essentially a buyer right You're looking at so many different opportunities and how do I spend my dollars really really wisely Yes the pockets are full of cash uh and like you said we don't have to spend it in venture and in private equity right There is a time
Brian: Yeah. Yeah. But but you know they they gotta be patient They can't make mistakes So a [00:27:00] awesome point Um so let's see So then you know, after helping you see the opportunity of these private equity firms strategic buyers they're just weeding through opportunities and so many of them are not the right ones And you see the opportunity to build Hey I'm gonna go back in entrepreneurship build a company that addresses that problem So maybe you can tell us a

Brian: Yeah So you know to stick with the, like the sports analogy, we are, we're a scouting department.

Todd: Yep

Brian: But we're not doing it for one team. We're doing it for the entire major league baseball roster of teams. You know? So when you said before, you know, you as a sell side advisor, you only have so much capacity to work on so many deals, but with what?

With what we're doing now. We're, we're averaging almost three looks for every deal we generate. Meaning if we find a company, there's a, you know, very good chance that we're gonna be able to show that deal to three of our [00:28:00] clients. And we have exclusivity in certain criteria, so we have a pecking order. If the deal comes in and it fits this box, this client sees it first.

But once they pass, Then we can show it to another client. Once they pass on it, we can show it to another client. And just because they passed doesn't make it a bad deal. It just, you know how it is. I mean, people are, you want to create that process. So in, in what we're doing now, we're able to work on hundreds of deals at a time because we're originating the opportunity and we're matching it up to the fund.

We're not the bankers running the process. We stay very involved and, and we, you know, kind of call it deal liaison. Work is, is what we do, but we're not advisors. And the thing that I've really, you know, enjoyed about it the most is we sit in an interesting position because the buyer is paying us. We're in line with the seller to get the most money for that company because we make the most money, right?
But at the end of the day, the [00:29:00] buyer's, our client, but it allows us to have a relationship with a seller. That's one of alignment and not. I'm trying to hammer you on valuation and, and pay the least amount of money. So we, we tend to add a lot of value through the process. Um, and yeah, at the end of the day, we just said, we're really good at drumming up these opportunities.

And these PE guys, every time you show them something, they say, well, what else do you have? Well, we have, you know, 80 more things to show you now. So it, it just gives us more chances to get a hit.

Todd: let me let me ask you because I think that founders right you know we are running businesses we're heads down we're working so hard and we get these calls from investment banks and private equity firms and deal originators really good companies get a lot of those calls right And

Brian: Yeah.

Todd: it's it's very hard to who to listen to who not to listen to if a buyer is calling or a deal originator is calling they're calling for a reason [00:30:00] They're not just trying to find out who's for sale They have a client that is looking for something that is very similar to you maybe you could just your advice on you know what should you be looking for in that conversation that makes you say ah I really gotta listen to this

Brian: Yeah. just because somebody's approaching you to buy what you have doesn't mean they're trying to get it for a steal.

Todd: The private equity funds and the strategic acquirers, if they don't structure the deal in a way that incentivizes the seller.

Brian: It's not gonna be a fruitful outcome, you know, so you, you know, maybe they want you to stick around for two years. If you're not getting rewarded the way you should be, well that deal's not gonna succeed. So when someone reaches out, it's not an automatic, Hey, I need to have my guard up here and not give out too much information and not tell, you know, I need to figure out way more about them.
There's certain things you probably don't want to come out with day, you know, day one on a call, just cuz you don't need it out [00:31:00] in the. , but being upfront about your numbers, them being upfront about, you know, here's why we're interested in your company. Maybe it's just, Hey, I saw an article about you guys and if the numbers check out, you probably fit what we're looking for.

They might not know that much to start, but you've done something to generate that attention. Um, I, I think that initial conversation should be one of, why did you call me? Why did you reach out? You know, and if they can't answer the why, Maybe, maybe it is just an honest, I hit you with a cold email. Now I'm trying to learn more about you.

You know, uh, that's how we got introduced and hey, it worked out. You know, so things can start that way. Sometimes it doesn't always have to be, Hey, I'm calling you cuz I know, I know you know your child's middle name and, and exactly how many employees you have and all this. I might just wanna learn about your opportunity because there's something that indicates you might be a good fit.
So those first conversations, the more open they are with. The easier it is to [00:32:00] get to a yes or no. The more guarded a conversation is, the more you're gonna, you know, you're gonna drag it along, honestly.

Todd: I really like the question why right Because you're gonna be able to answer look we've got a client that is looking for Y and Z and if you are close to X Y and Z we should have a more serious conversation I think that's a great way to get to the meat of it

Brian: Yeah. Yeah.

I guess what I was excited about for this conversation as I said at the beginning is that you have the lens of the seller the intermediary and the buyer at least the buyer's agent And I for me I'm guessing that you have specific advice for founders who are thinking Exiting um that maybe you could share
Brian: Yeah. I, I think, you know, so I forget who said it to me, but someone said to me one time, you know, the private equity funds and the acquirers often forget that the guy sitting on the other side of the table, Is not a full-time m [00:33:00] and a professional, they're a c e o, they're an entrepreneur, right? So they, they take that for granted sometimes, and there's some frustrations from buyers to sellers, the way sellers run a process.

But then you step back and go, these guys, I never done it before, do you? Don't go to school and learn how to sell your company. It's impossible, you know? So as a seller, realizing that there's a ton of competition out there and you can get crossed off a list very quickly for just not having your stuff together, so to speak.

You know? So I don't think you can ever start too early preparing yourself for a sale, and that doesn't mean building a data room and having audited financials and all that. It just means having your stuff together, you know? So when a buyer says, Hey, What did the 2018 revenue look like? You don't have to give, get back to him in six months because you need to go out back and audit your books and figure things out and move money around and do all that.

Just having your stuff together [00:34:00] in a sense of, hey, here's, here's the summary of where the company was three years ago and where it is today. Typically, a buyer's gonna ask for your last three years financials, have that stuff ready to go, Just have a simple cap table ready. You know, understand the pecking order of your employees and which ones are gonna be vital through the sale. You know, do I need to keep all these people? Um, so just starting to do some housekeeping items, which are things you can do before you do engage in investment bank.

You can do them on your own, or you go out and you start talking to an investment banker and say, , you know, what do you think I should do here? Should I start putting these together? Um, it's also a good way to, in interview, so to speak, some investment bankers. You know, that's why I, I think what you do is so valuable because most people make one investment banking call, and then they sign up with that group because a friend of them told them, and, and you're really finding the best solution instead of the only solution you.

Todd: Yeah I I appreciate you saying that I think uh one of our investment bankers Right.
and [00:35:00] we have them all over the world that are very specific to an industry and one of them said to me last month they said finally finally somebody is telling the world that investment banking is not a local service it's an industry expertise. Right. And just like you said it's not one phone call to the guy on Main Street that you can go have a coffee with Right That is it is a really critical um element to getting something done Um So you know maybe you could leave us with you are in seeing private equity you're seeing buyers They're coming to you saying Hey this is what we're looking for What do you think about 2023 There's a lot of money out there. Right.

How are they thinking of spending What are what should our founders really understand about m and a coming up this year And and even

Brian: Yeah, I, I mean we, even through 2022, you know, valuations were lower. The borderline company [00:36:00] didn't necessarily get the benefit of the doubt on evaluation or even on a, on a sale at all. Um, but there is no slowdown of the amount of ac of acquiring that these funds want to do. They're, they want to buy, they want to go out and deploy capital.

So if you want to get a deal done, you can get a deal done and, you know, regardless of the, the, the way the market is. Um, but I, I think it's gonna. Probably the first quarter to start seeing those valuations rise again. Um, our second half of, or actually last quarter of 22, speaking to a lot of, uh, advisors and bankers.

It seemed like a lot of people were kind of holding on until January to get stuff going and enter the market. Um, but I think from our perspective, the key points that our buyers are looking for, regardless of like the, the vertical that they. Recurring revenue is, is the, is the thing right now, if you are [00:37:00] strictly a project-based revenue model, your buyer pool is smaller.

It doesn't mean it's, it evaporates some com, some verticals. That's the only way you can make money is, you know, project-based essentially, but recurring revenue. Asset light companies are very, you know, very nice right now. So something that doesn't own 9,000 trucks to do a logistics company, you know, um, those are important.

And things with things with a clean cap table are, are also something that, you know, over the last six months people started just saying, I don't know if I want to deal with. A hairy situation on a cap table if we're not coming in for a hundred percent. And I think, you know, venture money got thrown around so loosely years back that we're kind of seeing the other side of that cycle now.

Um, but I, I do think that we're, we're not seeing a slowdown from our side, from the buy side. They want more, more, more, more deals.

Todd: Yep

Brian: So I don't know when that turning point [00:38:00] is gonna be in 23 or really what the indicator is gonna be, where valuations start to rise. But we're super optimistic. Um, the buyers are licking their chops.

They're ready to go. And, you know, we, we have buyers that are looking, as I said, everything from flat and declining companies all the way up to, you know, we wanna write the check for the next unicorn. So everybody's ready to, ready to roll. I think it's gonna be a fun year for.

Todd: That's great to hear I think with 2022 we saw deals getting done with companies that had focused on profitability and they really rose to the top They're just

Brian: Yeah.

Todd: and so more capital went towards those businesses creating competition and elevated values where well kept values from dropping let's put it that way where deals that were like we're high growth and we lose money every month But boy our future is really really bright They struggled to get deals done

Brian: Yeah.

Todd: to echo what you said about timing cuz I think it's really important for founders to understand [00:39:00] when we just we just went through this holiday season and so a lot of the investment bankers and the buyers right Bankers representing companies and buyers trying to close transactions Everybody's using December to just get stuff done by the end of the year So they're taking on Deals and the deals that they took on in say September October November they may not present them to the market in December Knowing that people you know their minds are occupied with getting things done that are on their table And so you know we see that our pipeline is filled with January Everybody's going to market you know in January and great great opportunities So the understanding the timing from a founder's perspective I think uh is important listen this was awesome Thank you
Brian: you. This is great.

Todd: all I really appreciate it I think uh I hope people who listen can really appreciate that you're viewing this from So many different lenses which is which is really rare right It's not you don't [00:40:00] have to take advice from the guy that sold TTAs company for a billion dollars

Brian: That's great.

Todd: time right You if you have somebody that sees uh sees it from every position on the field right That's a person that really understands the game

Brian: Yeah.

Todd: thank you for uh for doing

Brian: No thank you. This was awesome. I appreciate it.

Todd: 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, exit wise.com and the cashing Out podcast are for entertainment purposes only.

This should not be relied upon as the basis for investment decisions.