184 | M&A Insights: Business Sales, Optimal Timeline, Specialization, Transaction Focused Strategies

Today on the show, I'm happy to have Arthur Petropoulos . He's the founder of Hill View Partners. They help you with M&A business sales and capital expertise. Completely in theme with that. You're just telling me, have a story of shoveling snow off the path because Santa Claus couldn't get into the mall. We were doing some financial modeling for a company that owned distressed shopping malls. And one of them happened to be near where we were headquartered. And so we got, we were helping them do that kind of the wind down path and how we were gonna do that. And then he got a call one day and they said, Hey, you gotta go run a mall. I said, what do you mean run a mall? And they're like we're shutting it down. So how hard can it be? You gotta just wind it down. Just, get rid of the contracts, figure it out. I said alright, can you know this is how many hours we're gonna bill? Is that good? And they said, yeah, sure. Go for it. And so he said, okay, we're gonna run the mall. And so initially it was not as eventful, but as part of a broad portfolio of what we were doing when the winter came around, I get a call one morning that we'd, I'd go there. Once a week or so to figure out what was going on and follow the path, make sure everything was happening. I was supposed to, I get a call one morning saying, Santa's very angry. And I said, messing with me. What does this mean? And they said the snowplow who, the ownership company who's not paying on time, decided to call it quits. The Macy's can't open because the back door is. Plowed blocked with snow and Santa's sitting in his car and is very angry that he can't get into that door to go, do his job. And so I drive down there and get out of the car and it's me and one of the guys who were in the facilities there, and he passed away since the rest in peace. He was a good man, and so me and him are standing there saying, All right, what are we supposed to do here? And we had no other choice. But I said, all right, Mike. He said, go get us two shovels. And me and him shoveled a path about, this is definitely not OSHA compliant. It must've been like 20 feet long with it was like a valley of eight feet of snow on each side. And it took us, it must've taken two hours, but we were furiously plowing shoveling snow, and then Santa. Begrudgingly and very in Unan like fashion, walked his way in afterwards without a thank you. But that was the point. I know tying back to some of the thematic elements of the podcast is that was the point where I said I. Was this the best decision, is this really what we're gonna do forever? And I, and I think after a night of a couple pizzas and some warm socks, I said, you know what, this is precisely what we wanted to do is to get into all sorts of good. More idiosyncratic scenarios, figure out good outcomes for our clients. And although we've moved away from the consulting stuff, I said to myself, and I tell everyone the same story. If we weren't gonna, if we weren't gonna quit, then we're not gonna quit now and we're never gonna quit. And so anyways, yes, that is the The Santa Claus story therein. So if somebody is at that stage in their professional life where they're thinking about selling their business, All right. They're in that range in the one 10 million and they've been running it and maybe they're ready to move on to the next thing or maybe it's just they're burned out on this particular business. Sure. What does that look like for them to get that process started? Yeah, so I'd say first off, it's a contemplation of whether it is the right time to sell, because I do think. You tend to, there was this part of the Bible where they're walking around the desert after they, they escape with Moses. And the story is that the whole walk should have taken three weeks, but they kept messing something up and so God would spin 'em in a circle. And that was the idea of why they're in the desert for 40 years. And what you find in business is that oftentimes you'll progress with a business until you hit a point of your deficiency or where you're. You you're lacking something or need to take a risk or take a, do something different. And I think some people will exit the situation to go start something new because they get to go do all the fun stuff again and the exciting stuff, but they'll ultimately hit that same point over and over again. And if it's far enough into the business, that is something sellable. But we always say, Are we contemplating an exit because it's really time to exit or because there's some frustration? So there are situations where people will say, it's not, yeah, I think about this and let's just solve the deficiencies instead of starting to build a building over in other situations. And most of them, there is a reason for an exit, whether it's family, whether it's the end of a career, whether it's a pivot to something entirely different but it's evaluating, I think. You have to isolate where someone is right now or where ownership of a business is. Now you have to isolate where they wanna be and really hash out what does the future look like? Where do you wanna be, what do you wanna be doing? And then I think the process or the service we provide is getting from island A to island B. But whenever someone has these thoughts, we always want to have a chat with them and say, Yeah, I guess I, I used to have this saying that if I wanted to buy something in the morning when I woke up and I had a lot of energy and it was a property, a car, whatever, a watch, I'd say, I'm only gonna buy it if, when I'm most exhausted at the end of the week on a Friday night if I still wanna buy it or if I just wanna go to bed. And so we say that with business too. Sometimes we say, take yourself out of the situation a little bit. If you don't have this level of fatigue, if you're able to rest a bit, would you still wanna do this? And I, many of the times it's still the same answer, but sometimes it's not. And so I think it's, that's the front end contemplation, and it's a little more qualitative than quantitative at that standpoint. But figuring out, do you really wanna do this? And then if so, what does that future state look like? And then backing into how do we get there? So let's say they are in the scenario where it is the right time. Sure sell the business. What do they, is it just having clean financials, making sure everything's automated? What does that look like? Yeah, I think it's We always say it's people, process, product and so I think that was an old Marcus Limonis quote from his the profit show. But it's a good framework to think of. And so we wanna take a deep dive into the totality of the business and understand. What is it that they offer? Product service offering? Why is it proprietary? Why is it special? If you're in the one to 10 million profit range, like you're not competing on the lowest price, you're not competing as a commodity product, so there must be something proprietary about what you do. We wanna figure out what that is. Then we look at the processes and say, How does this machine work? Is there a sales function? Is there execution? Is there administration, operations, client happiness? How does the machine work? And what are the different pulls and pulleys and levers in that process. And then we wanna go a step further and say, who's responsible for all these things? How is decision making delegated is decentralized? How much of it's in the people that would be exiting the company? How much would not? And then once you understand that from, I guess once you can deduct the machine of the business, then you. Can really look deeper at the financials too, 'cause the financials will make a lot more sense. When you see revenue, operating expenses, pretax, profit, reinvestment of capital. You say, okay, that kind of maps to this part of the machine, this maps to that part of the machine. And so once you have your arms around all of that, so that's a, again, a mixture of qualitative and quantitative, then you can sit down and say, okay, based on this we think value, we think structure, we think proper counterparties, but it's getting everyone on the same page of a deep dive kind of understanding of the composition of the business. And I think business owners understand many of the parts, but there's sometimes parts we can shed light on. And there's other parts that we will understand well, but they'll say, look, there's something. Really nuanced about this or there's a proprietary element here and so it's the putting together of the minds that helps us get our arms around everything and figure out how to move forward from there. Has there ever been a situation where you come in and you realize, oh, this is a deficiency, and then like you actually say, if you solve this, you'll be worth a lot more? Yes, there are. Look, everything has a level of diplomacy to it, but but people are more appreciative, what's the expression like open rebuke is better than secret love. I think it was the proverbs. But yeah, so I, I think where you see that oftentimes, to be honest with you, most businesses that we work with have a great product service we're offering. That's why they've been around for as long as they have. They tend to have processes in order. Now, the documentation of those processes, the automation, the How well oiled and greased that machine is. That's one area where we'll say, look, this is a really good process, but it could be automated or it could have more fail safes. And then I think on the people perspective, what you find with the small business sometimes, or small, medium-sized businesses, that sometimes you'll have overlapping responsibilities because they just grew as the business grew. So you'll have a. Sometimes you'll have someone who was the controller, become the C F O, and now they're doing the CFO's job and they're looking at acquisitions and they're dealing with the bank and they're doing strategy, and you say, you know what? You may wanna bring in A C O just to delegate some of that operational strategic stuff a little bit. Allow the financial person to focus more on finance and then back yourself out a little in the sense that if ownership wants to sell and they're the current chief executive officer, you have to make the case that they're going to be. The business isn't gonna fall apart upon their leaving of the stage. And so I think there are, at times, some deficiencies that we're able to point out. I would say, think of it from the positive in the sense of areas for improvement or things that can be further improved to, I think, optimize the terms and structure they're likely to get when they sell or get capital. But where you'll see it it's not oftentimes on the product side of things, but more the documentation, automation of processes or I think some people just carrying too much weight at the company. 'cause and not from a negative. You see some of the hardest working people saying, how does that one person do all these things? But I think by spreading that responsibility out a little bit, you de-risk the business too as you're going out there to talk to people. So this process of engaging and getting the business sold, it could range like up to how long if they need to make these adjustments. Yeah, sure. Most of the adjustments. Our near term things, it tends to be hiring one or two people if they're, if the need be it tends to be, more documentation of processes than just rerouting them or some sort of automation. But that stuff can be implemented in real time as the process is beginning or a month or two beforehand. And so you'll have. The pre-work for a process can be, one month can be three months. There's a lot of situations we come into where someone wants to do a thing and there's really not any pre-work where things are pretty optimized. And so that happens more times than not. And so when we are in the process, we want, and this is where I think it's part of our special sauces, it's a six month process, start to finish. And so historically when a company in the lower or middle market sells itself, you're talking an 18 to 24 month process. Oftentimes because representation, you won't name any of the names, but some of our competitors on a national level, they will basically take all the information about the company, they'll puke it to a 10,000 person database. Then they just wait for the phone to ring. It's like the. M l s listing of the the business world. And we find that to be incredibly inefficient. And so we want to do the research. We want to reach out proactively to the companies, and by virtue of doing that, you really shrink the duration of the exercise down from that 18 to 24 to six months. Six months on our part offers within a hundred days after that. It's confirmatory diligence. I know it sounds it sounds too cookie cutter, but we've done it so many times that we've just hammered out every step of this thing pretty precisely. And we've been able to stick to these schedules, in, in the vast majority of our engagements. Yeah. It should be that way if you do enough of the transactions. I agree. Better is how it should be. Yeah. Which kind goes back to, why you focus on the thing so that you can make everything as paint by numbers as possible. I don't think. The best businesses I've seen in my experience have not been the ones that require geniuses but the ones that make genius outcomes doable by less than genius people, which I consider myself and so I'm saying is I. That's how we try to even do our own processes is that you want to segment every step in such a way that there's no acts of brilliance we wanna have acts of brilliance, but that should optimize the result. If I tell a client the only way I can sell this for a good price is if I can jump over a building, they're gonna say, I don't have a whole lot of confidence in that. But if the process is going to work anyways, and then we're able to put even that much more effort into it, the results go from good to, I think elite. So what has the business evolved to today? Yeah, so we do two things now. We help companies sell themselves. We help companies secure capital. The consulting was always stuff ancillary to that. So if a company said, Hey, I need to prepare for years before selling, or I need to run some analysis now, we will do consulting as it pertains to a specific transaction. So if someone says, I wanna sell my company within three months and I need to get some things in order, that'll still be part of it. But I think just the pure consulting that does not have a transaction component to it that we've shied away from. And so we've stuck and not because we didn't like it, but I think I. One, you get pulled into some quirky situations, but two I do think building a business, you have to take a slightly different approach if you're building a transactional focused business versus if you're building a consulting firm. And I think we wanted to build a transactional focused business. And by virtue of doing that, we did hit that fork in the road where we said, we gotta pick one of these paths and really double and triple down on it. So that's what we do. I think client-wise it's really, we always wanted to focus on what we thought was the most underserved swath of the economy, which is privately held businesses typically generating a million to $10 million in pre-tax profit a year, often owned by entrepreneurs, families, smaller groups of investors, and where there's not often times, or most of the time, either a private equity presence or some sort of institutional capital. And so businesses that have been founded and run and. Owned by the people that are the executives. And it's a fascinating space to be in. I love it. I've always loved being in that space. It's where I've always had my career and that's generally what we do. And I think the community that we serve. So when you started focusing on that versus the consulting, did that, did your business start growing faster? Yeah, I think anytime the business will evolve until it hits a constraint point of some sort, and the constraint point can either be a deficiency in the thing that you do or a deficiency in the allocation of bandwidth, if you will. And so I think it's hard enough in this world to be a master of. A thing. And so I think when you try to be a master of two things, you'll always just limit how good you can be at it. So yeah, I think because at that point too, everything's very congruent. Where it's the marketing materials, the processes by which you execute the work for the clients, there's just less. Things that you do, less, different things that you do? I think so. So from our perspective, we said that will allow us to best serve our client most importantly, and best focus on that. And at the same time, when we think of our own business as growing enterprise value, I think it's, it has to make sense that you do a certain amount of things, you do them very well, you do it repeated, I think with the consulting stuff was a little too varied to have any kind of critical mass. And so it didn't have the. From our perspective, unless we really wanted to double and tip triple down on the consulting side, it wasn't getting the compounding effect that you want in business if we just sell companies and find people capital, then every engagement is selling a company. Then they, when their company is sold, they tell their friends who have companies that they wanna sell, and so it compounds if the consulting work was. We helped a company, clean up financial statements for a distressed unit of their business. Unless you wanted to go sell that very slice of service, it was not gonna compound for just broad consulting. So anyway, that's, that was the experience. And I think yet to answer your question, we had seen a lot of growth by virtue of that kind of focus, I think. If our listeners wanted to reach out for your services or learn more about your company, how could they do sure. So I check out our website, hillview ps.com and reach out to me on LinkedIn's kind of the preferred platform for guys like me who wear tweed suits. And we with Arthur Petropoulos, the Hill View Partners on LinkedIn. We also have a YouTube channel that we just, we put out videos twice a week on LinkedIn and we will port those over to YouTube. But I'd say LinkedIn's the main way and the website. And feel free to reach out. We've got a great team and we're. And super responsive both to clients and to anyone who just wants to kinda have a chat about what their business may be worth or what capital might look like. Thank you Arthur for coming on the show, and thank you everybody for listening to another episode of Failing to Success. Make sure to smash that subscribe button. I'm your host, Chad Kaleky, and we'll see you next time.