Exitwise Productions

Wise Up Episode 5_1.txt
English (US)

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Well, I thought this would also be a good opportunity. Before we start, just to do a quick call to open for our new show because everyone's here. And did you guys notice that you're all wearing the same outfit?

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Stand up. The three of you

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you're all wearing. You're literally wearing a stadium out. You're all wearing like a polo collared shirt with a little layer and these little shorts. And then Zoey's uniform. I didn't get the memo.

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Last time I'm wise up on M&A, we locked in the three must have seats your M&A attorney, your dealmaker, and your high quality wealth and tax advisor. In this final episode on who should be on your M&A team. Brian's back to talk about the two bonus seats that can seriously move the needle on your exit. Who else belongs on the boat and when does it make sense to add them?

Find out! In this episode we have more room. We got more room on the yacht. We got more room on the M&A team. So who's joining those three buddies? Who else could come aboard, if you will? Uh, for me, easy choice. It is an outsourced CPA firm with expertise in something called a quality of earnings study. This is a third party, typically duplicate to something you probably have internally.

They are CPAs and they have expertise in qof analysis. What is a qof analysis. Quality of earnings. This is a third party that is looking at your financials the last 3 to 5 years of historical and all of your projections into the future. And basically in a quick summary, they are summarizing their findings and their analysis around the likelihood that your future revenues are going to hold, that the financials that they're seeing in the books are well done, well captured.

There's no Significance issues that they're detecting, and it is a third party that is doing it proactively to kind of put their stamp of approval on a transaction even before it begins. I like that queue of representatives representative at about 20, $25 million and above in a transaction. It is expensive.

It can be 25 to $125,000 to spend, depending on the size of your deal and how complex it is. It is real money, but it is a it is insurance. It is validation. At times, that queue of analysis will bring back real issues that you and your internal team may not have been aware of. And if you're thinking about selling a business for $50 million and that insurance policy costs 50 grand, I promise you it will be worth every penny.

If they come back to you and say, here's three things you need to address before you can go to market. Or more importantly, we got a solid stamp of approval here. Nothing else is done or a couple small tweaks. You are good. That is an insurance policy that is real and appropriate and best practice in my view.

Okay, so I have a question. So our teammate and buddy and valuations expert Ryan likes to talk about Q of E quality of earnings. Is it more though of a service rather than a person on your team? Is it a one time you do the quality of earnings and it takes X amount of time to get that. And then you use that going forward.

Or is that person really on the ship with you for a journey of time? I like to think of them as needing a seat on the boat, and I'm going to try to not make this more complex than it needs to be. I got him scared. I'm scared, I'm scared, I'm scared. I'm scared. Scared. Too scared. Different. Two different shoves done in the transaction.

Oh, yeah. Yeah, yeah, yeah. What I'm talking about is the sell side Cuvee that is typically done before you start the process, right. This is a third party that you trust and that you're trying to, um, to utilize to just build a better pathway to that future. Oftentimes as that third party, they are independent, but they're also on your team they can be leaned into.

Once you go to market to help defend the study that they have done. So they are secondary resource to your internal team. If they're doing sell side shoves, this is not their first rodeo. They have been on this boat before. It is their reputation that's on the line. If they said this business is good and solid and stable and they believe in it, their reputation means that they have to actually stand behind that in a process.

So they may not be somebody that you're actively paying every week, but they are on your team as an outsourced resource to help defend you win. The diligence period starts, and the buyers are trying to poke holes in every little line item. Does that make sense? Gosh, I think so, because they're gonna, in most and most big transactions, the buyer, they're going to hire their own qof resource to go do the exact same study.

And of course, that study is going to be built to poke holes versus defend. Right. Totally. But it's what's the the analogy. Right. If you have you have two parties that are yes, they're fighting different battles, but they're on a, a playing field that they have been on before. They know how to operate, they know how to interact at certain instances.

We've seen the two parties actually know each other and have worked with each other before. Hopefully that's a positive experience. It's a much more streamlined. They can go face off in the corner, do their thing, come back with, here's the two things, or three things or four things that need to be addressed.

Once that are addressed, we're good. That is a really helpful process, but it it can feel confusing. We get the question all the time. Like, well, I thought QV was a buyer expense, not a seller expense. And again, both can be true. You can choose to not do a queue of sell side process, right. It just means that you're going to be on defense.

Right. That's exactly what I was thinking. It's like an offense defense thing. That's what I was thinking in my head. Wow. We're gonna have to do a whole thing on QAV, and this was supposed to be a four hour conversation, right? That's what we were. That's what we were planning on. Okay, well, you know, if you were going to invite me into this thing, I know all of you.

It's not actually, it's not all of you. It's this freaking subject matter that's so layered and it can just get broken down. But that's why we're doing this, right? Like, there's a lot to hash out. I think we're delusional if we think we can very easily lay out like we want to the ABCs of M&A, but we're going to try and we're going to have those conversations.

We don't have too much time left. But I want to ask you a few last questions. Aside from Q of if there was like a celebrity, someone, some Disney character, a super person. Some rando who's not part of these other people in your head who could help on your M&A team, who would you put on the boat? Yeah, I guess, you know, to we we have a perspective of this within XYZ.

Obviously, we call them excellent founders. I think more generically, each of those seats on the boat play a very, very specific role. And each of them, if they have deep experience, should have a perspective of, you know, more than just their area of expertise. I think I know you love sports analogies.

It's, you know, having multiple skills makes for a better team, right? If you can back if you can be a backstop for each other beyond just your the one thing that you're great at, it makes for a great team. But sometimes it is helpful to add someone to your team that actually knows with deep expertise and experience about this industry, and not just because it helps tell the story, but it's because they know the buyers even better than the M&A advisor or banker does.

We're hugely supportive of industry specific bankers and advisors, but even in that case, they don't always know the ins and outs of what's actually happening. And so to have a founder that has been through it before, they have the empathy and experience to know what it feels like to build and exit a business to the things that they wish they would have known before they started or before they ended.

And then more importantly, they personally know five to 15 to 30 potential acquirers. They're hiding under rocks that know this space really, really well and would love an opportunity to acquire asset like that is can sometimes feel like an optional seat on the boat, but is so important if you can find that skill set.

Yeah, it sounds pretty obvious. Good thing that we have a solution for that if anyone's trying to add an experienced, seasoned exit founder, someone who built and sold their own company in your industry and you want to add them to your M&A team, good thing we have a big roster of them on our website. Booyah.

But the last thing, Brian, for real, because you have so much experience selling companies and you've kind of seen I feel like you've just seen so many different scenarios. I wonder if there's some kind of scenario or team that sticks out to you, whether for the good or for the bad, when it comes to the assembling of that M&A team, like whether this worked amazingly and here's why.

And these were the people on the team, or this did not work out because this person was not on the boat. Do people like the boat thing? Let us know in the comments. Or are you so sick of us talking about it? So sorry. Yeah, please if you have seasick play and stuff. Um, you know, I don't think that I've ever been involved in a process that works perfectly.

Which sounds weird to to say, but the reality is, selling a business is really, really, really effing hard. Really hard. And if anybody tells you that it's easy, then they've just either they're either trying to sell you a bill of goods and getting a big upfront payment, or they just don't know any better and they've not actually done it themselves.

So there's very rarely a like a perfect team, a perfect experience. Everything goes exactly to plan. There isn't a skeleton found or an issue that's raised. I think the two things that I try to,

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I guess everything I've said to this point is based on my own personal experience running my own deal, but that's the point. And and being part of a lot of transactions at this point, and the reason that I speak so passionately about those individual seats is I've seen those seats put deals at significant risk when they're not done properly.

I've seen deals almost die several times. I mean, one right now in which the attorney is just slow to respond and the buyer is getting really pissed off and every day the stress level goes up. I've seen attorneys that are charging exorbitant fees and putting ten people on phone calls for no reason, simply to to crank up their billing rates.

That is not helping the process. And in fact, all they're doing is slowing it down. I've seen and they've gotten phone calls a week before a transaction ends. This was a pretty complicated international deal. Founder based in Europe. Business here in the states acquirer also oversees obviously complicated tax double taxation and various countries.

ET cetera etc.. They had their tax plan in place. They called a week before the transaction closed and said I just heard from my tax team and they can't coach or definitively define what I should do and create everything that needs to be created to support this transaction. Can you help? Not good. No. Called in a lot of favors to my friends at University of Michigan go blue to support those pieces.

That tends to be my backstop, to be honest. What else? I've seen M&A advisors run for the hills. When something goes, when something goes sideways like that, you know it becomes a math game. And hey, this is really, really hard. This isn't going as easily as possible. I've got a bigger deal with a bigger fee.

I'm just going to go work on that one. So now I'm scared. Now I'm scared to build my M&A team. Are we really on the same team? Do we all have the same goals and interests? The people I bring on my team because now I'm scared to build my team. How do I make sure I'm getting good people who are aligned with what I'm trying to do?

It is the same as asking, how do I know who to hire when I'm building a company? It's a lot of work to build those teams and to pick the right resources. When you're building an M&A team, it's not easy to let hire slowly and fire quickly. It's not the same analogy, but it's it's the same skill set. You have to understand history.

You have to detect expertise. You have to do the hard work to understand who's good and who's bad. Yes. Lean into trusted friends and colleagues that have gone through things before. To help build the right team but don't blindly trust. This is the biggest transaction. Potentially, you'll ever, ever go through, the biggest financial windfall you'll ever be faced with.

Take your time. Work with people that come from personal referrals, that have done the thing before and understand what you're going through that listen, you're a business owner. Trust your gut. You know people, you you understand, you know who's going to be there with you for the tough times. You know, just build your boat with with people that you can trust that are going to be there with you.

That's that's my best advice and of course, self-serving wise, like, that's what we do. That's what our business is, is based on. We build super efficient M&A teams. But we're not the only answer for for founders that are out there. But, you know, without sounding too self-serving. Just do your research.

Trust your gut. Make sure you talk to more people, and you probably feel like you need to, to ensure you're building the highest quality team that you can. It's good, it's good. I appreciate the realness. We're keeping it real here. That's the point, right? There's no easy answer for any of this. It's not black and white.

It doesn't all fit perfectly in buckets. The best thing I think people can do is arm themselves with knowledge, resources, people who've been there, done that, who they can learn from, get their recommendations from. Like you said when I did Todd's episode, we started off by me going, give me an M, do it, do it, give me an M,

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give me an A.

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What does that spell, Ma? Oh, that's what he said to you guys are literally the worst. Hate you all

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MMA. All right Brian, thank you so much for this episode of. Well, we'll see if we still call it this, but wise up on M&A and we're killing it and hopefully people learn something. Talk to us. Feedback, comments. Don't sign off yet because we need to make sure this uploads, but let us know if you have questions or a topic that you want us to address on upcoming episodes, and subscribe wherever you're listening.

And that's a wrap on this episode of Wise Up on M&A. We broke it down into a bunch of segments. Hopefully you liked that. If you didn't, let me know. We want your feedback. We hope you're walking away with a clear picture of who belongs on your M&A team. How you can upgrade to a yacht. Hint, hint work with exit wise, we're really building the series out.

We want to hear from you. We want to help. Tell us what confuses you. What topics do you want to learn more about when it comes to M&A and cracking the exit code, if you will? Write us in the comments. Reach out to us on LinkedIn at com. We are here when we want to answer the questions that matter to you. Subscribe where you're listening and make sure to check out the website again@exit.com to see how we can support you on your exit journey.

Peace out.