For New Sellers: The Emotional Rollercoaster of Buying or Selling a Business

Welcome to M and AOC, the number one podcast in all things related to mergers and acquisitions, brought to you by Morgan and Westfield, a nationwide leader in mergers and acquisitions for small to mid-market companies. We bring you exclusive interviews with industry. Experts in business sales, valuation, private equity, investment banking, and more. It's our mission to provide you with insight and guidance on how to build your company's bottom line and maximize value for eventual sale. Here's your host, Jacob. This is M&A Talk. My name is Jacob Oros, your host and president of Morgan and Westfield, a nationwide M&A firm, and if you'd like to sell your company or if you're even thinking about it, and if you'd like to work with me or set a time to talk with me and perhaps have an assessment of your company performed, you can go to morgan and Westfield.com and you can schedule a free consultation. And you'll work with me directly throughout the process. On the other hand, if you're still thinking about selling, you're not quite ready and you'd like a copy of one of my free books on selling your company, you can send an email to podcast@morgan and Westfield.com, and I'll send you out a free copy of one of my two books. Part of the exit is for companies with 1 to 10 million a year in revenue. And acquired is for companies with 10 to 100 million in revenue, and those books are 3 to 40 or 500 pages each, and they're very comprehensive, and they walk you through the entire sale process from A to Z and again podcast at Morgan Westfield.com. And now on to today's show. Joining us is Drew Bisping. He is the CEO of Blue Sky Restoration. That's, uh, go BlueSky.com. That's BLU with no E, Gobluesky.com. They have done, uh, 14 acquisitions in the last 5 or 6 years. Again, he's the CEO and he's, uh, been the head of those acquisitions. He's also sold the company 3 times at this point to different private equity firms. And we're gonna talk to him about the emotional journey of selling your company and the different, uh, I hate to use this term but the different stages of grief that you might go through, but we're gonna talk about the role. That emotions play in the sales process, whether or not that's a real concern for you, what you can do about it. And not just that, but we're gonna dive into. The emotional journey from both sides of the table, because again, remember, he's been on both sides of the table a seller 3 times and as buyer 14 times and also he had multiple other acquisitions in his previous career. So he's been on both sides of the table many, many times as a principal, and, uh, Drew, welcome to the show. Thank you, thank you very much. Great to be here. So we're gonna talk about grieving and the emotional elements of doing M&A transactions. Before we do though, let's just kind of set the stage here. What's your background in M&A? Well, largely from my time here at Blue Sky, so we we've grown Blue Sky as an organization organically since 2004 and then somewhere around 2017 we for those that don't know what is Blue Sky, by the way. Yeah, sorry, we're a national property restoration general contractor so we fix broken buildings. So if you think of any damage that can occur to an existing structure, we're, we're a bit of the, if you think of a great analogy, we're the emergency room of construction. So when things are all bad and, and we don't know who to call, this is, this is what we're here for. So we're that we're that flexible contractor that can respond immediately. And you've grown since 2004 by acquisition. How many, how many deals have you guys done if that's disclosable? Yeah, sure. So the first growth was very organic, but then in 2017 we started acquisitions. We've done 14 since 2017. 14 since 2017, 14 new partners have joined Blue Sky, the Blue Sky family, if you will. So it's been an interesting few years. Yes. Well, and you are the CEO there, correct? and uh founder as well? No, not not a founder. I joined in 2007 after the two founders started the business and we're starting to grow. I joined when we were just one location, 23 employees, and we've grown a bit since then. We're up to 60 plus location and locations and, and almost 1600 employees, so 1600 employees, wow, that's some good growth, yeah, yeah. How much of that would you attribute to in organic or acquisitions? Probably 50/50 is is really the end result if you got employees or revenue or any locations. The location additions were probably 40 of those locations were were through M&A, but then, you know, a different mix of employees with each one. So in the end about 50/50 on the employees. And how, how much of your time, if you don't mind me asking, do you spend on acquisitions? Because you're the CEO there and a lot of people probably don't realize how important making acquisitions is to a company like you and then it's probably a It comprises a significant percentage of your your responsibilities there. Yeah, so I've been very fortunate. So prior to being CEO, I spent about 2.5 years just focused personally on on M&A and then in doing that, I was able to build a team that that has since running with that piece of it. So the answer is CEO today, I probably spend 10% of my time on that, but I, I get to do that because I spent a couple of years, you know, kind of standing up a really amazing team prior to that. So they're, they're fabulous and they're, they're off running with the Exactly what we're hoping to do for EA. Well, wonderful, and I'm dying to jump in here because I've talking, I've talked a lot about the emotional journey of selling a business on the sell side. But you're seeing this from the buy side, which is. Which to me is very interesting. Why is this important to you on the buy side? Well, gosh, so I, I've actually seen both. So we, we've sold Blue Sky 3 times effectively, so we're on our third private equity partner. What a, what a wonderful journey and crazy journey that is, but then also because we've been acquiring, I've personally been there on the journey with sellers who are selling to us. I've also interacted with many of the businesses who we haven't partnered with, both pre and post closing and to understand. You know what was there, what was their path, but also talking to them after transacting with with other entities. You know, you, you always can try to learn from, learn from good examples, uh, and bad examples out in the marketplace. And so I really have tried to stay connected and, and learn from that end as well. So there's a lot to it. It's, it's definitely a journey. So you've been on both sides of the table, uh, essentially. How many times have you been on the cell side of the table, he said 3. What's it like in a nutshell? If somebody has no idea what it's like to sell a business, and I see you laughing there and kind of getting all warmed up, what's it like? What are they getting themselves into here? Oh, I love, I love to give you the right analogy. Maybe it's like it's like a roller coaster on fire with with a whole bunch of, you know, good and bad. It's just, it's just a crazy ride is is probably the best way to say it quickly. You, you go through all the different dynamics from financial to to team dynamics to what does this mean for future and any any human going through that, it's, it's a roller coaster. Why is it such a roller coaster, you think? I would think for most, it's, it's probably, you know, even if you've done it before, like we've done 3 times, every one of them is a life changing event. It's an event. It's, it's a moment in time where things can and do change. Certainly there's financial impact or there should be, but it's, it's a it's a change moment and No matter what happens, it's, it's gonna be different afterwards, some sometimes good, sometimes not so good, but it's, it's a, it's a finite moment in in everyone's life that I, I would imagine everybody remembers for forever. What do you think is more stressful, being on the buy side or the sell side? What's more emotional? Cell side has got to be more emotional because this is your baby, right? And this is your one deal and you probably haven't done one before. Yeah, yeah, but if you're on the buy side, it's emotional too, right? It should be, you should be you should care about what's going on, at least we do, but yeah, if you're on the sell side, it's, it's your baby or it's whatever you've built. Like again, if we, we've sold 3 times and it's still emotional because you've, you've, you've put all your blood, sweat and tears into this thing and, and now you're, you have that moment of, I don't know, it's kind of a bit of a moment of judgment or evaluation, right? Yeah, here's what you're worth. Here's exactly what you're worth to the dollar. All that hard work. We're going to put a number on it. And if the if the buyers are doing a good job, they're asking tough questions, and that that can be really, really an emotional journey too because offensive, potentially, if they don't do it right, yeah, it can be offensive or you know, you really, I learned a lot each time. I think it's a great jo. I love the questions and And and for every time we've gone through it, you know, we've gotten good good challenging questions that we can answer and good challenging questions that we can't and and then I go, dang it, why, why didn't we do that? We should, we should go work on our business. So it's been a good learning process for me personally, but I definitely have seen others and and I felt this at times myself. You're getting challenged on something that you probably knew was a was an issue or a problem, and now you have to kind of stand and hoping you could sweep it under the rug and you couldn't, right? Well, you know, I don't know, everybody takes a different approach, even the ones that we try to just confront the issues when on the sell side like, hey, here's here's the ugly pieces and we want you to want you to see them all up front, you know, I think if you're you're selling and you you are You know, trying to kind of set, set negatives aside, you're probably not doing either side justice because they come out, they, they, you know, they'll come out either during diligence or they'll come out post closing. So what are the chances they're gonna come out 99.8%. Why is that? Because let's face it, right? So many sellers think, oh man, I, no problem, they're never gonna to ask about this and They're not really going to do that much. What is due diligence? So in other words, they think they can probably sweep it under the rug and then buyers come in. I just, I just did another podcast on a $20 million deal. The buyer spent $1.6 million conducting due diligence. On a $20 million deal. That is not the norm, but it does illustrate an important point here. Why are buyers so meticulous about cutting checks for $10 or 20 million $50 million? I, I think part part is you have to understand the business you're buying and, and, and look in the, in the private equity world for sure. How would you understand every business out there and the nuances and so diligence is so is so crucial to really get those. Those rocks overturned because it's not the, it's not the the the overarching picture of a business that helps you win or lose. It's the little things that you go, oh, I didn't realize that, or I didn't realize there was a customer concentration or a, you know, a methodology of of job costing or a methodology of accounting or there was a, you know, nuance to to to employee base that That we didn't understand. Right, these two employees don't have a non-compete or this contract isn't assignable or the lease expires next year, right? And I think that the hard part is you're trying to learn the industry or learn the business and understand the meaning of those things. So that's why you you dig in hard on diligence, you should, because as we just talked about, whatever that issue is. the business endures, the business is a living thing that I, I mean, obviously that's why you're buying it, so it keeps going, but it comes out in, in reality post closing every time. So you've made what, 17 acquisitions at this point? 1414 in the last like 6 years, was it? Yep, yep. How many businesses do you have to look at to do 14 deals? 0, 200 to 250, we probably talked to you to make that one right. Yeah, so hundreds to get, you know, 10 to 15. How many times have you heard, come on, Drew, just come over to my business and see all this money I'm making, like this, and why are you complicating this so much? You and your expensive attorneys and these long complicated contracts, like, just come over and just see all this money I'm raking in. Probably not as much as in our world, we generally are are dealing with an owner that is their first time, and obviously they're they're they're, they're more going through a, a life change and a transition from the timing thing. Great businesses, great people, but they, I haven't had too many that approaches, approach it with that kind of flair to it. They're more, they're more searching for a good fair option and partner is really the people we've gravitated to at least. We've certainly in our couple 100 of off of businesses we've looked at, we've had a couple of interesting conversations where we get that. You know, somebody that's trying to put on a show. What have you heard? Can you share a story? No names, of course, no company names, but. Can you kind of generalize here and give us a little juicy story? Oh boy. We sat down at one she was in person, which they aren't always at this point, and within 10 minutes the individual talking a lot about himself started to to share all he was, he was almost wanting to brag a little bit about all the lifestyle things that he was running through his business and and kind of how he was. How he was kind of cheating the IRS out of getting his money and running it through the business and, and I'm just, I've got flags going like, you know, crazy, flipping all over the place, but yeah, it was, it was an individual that Didn't really understand the ethics filter that we would be starting the conversation with, and he, he pretty quickly meant to all the things that he's doing that are unethical. And so we exited that conversation as quick as we could. Why is the ethics filter important to you? Not that we're implying that it shouldn't be, but why is it so right? Why is it? So important to you. Business business to me is about trust and and longevity and are we gonna do this, you know, it's a partnership, when we buy partnerships, or we buy a business and To know who we're dealing with and their, their personal ethics is pretty pretty critical so we look for that right on the front end. You, you can, you can get all the lawyers in the world you want, you can figure out all the, you know, beautiful language in a in a purchase agreement or, you know, terms of post closing this or that, but if you're dealing with someone that's unethical by foundation. You just have to, you have to feel like you're gonna get burned at some point. And so I personally just don't have time for that. Life is short, right? So if they're willing to cheat the IRS, why would they not be willing to cheat XYZ company, XYZ or me or or the next person or somebody else that I care about, right? And, and so I kind of, I personally just fade away from those individuals off the. Well, let's take a quick break and then when we come back, I'm gonna ask you about some of the biggest mistakes when it comes to being emotionally prepared. This is your host, Jacob, and thank you for listening to the show. If you're interested in selling your business and you'd like to work directly with me, you can go to morgan and Westfield.com and you can schedule a free consultation and like I mentioned, you'll work directly with me throughout the process. And now back to today's show. And welcome back to M&A Talk with Drew Bisping. Drew, what do you think is one of the biggest mistakes when it comes to the emotional journey of selling your company? I think, you know, forming your own mental picture. Before you really have a chance to talk to enough people to understand it accurately or doing it on your own. If, if it's your first time through it, you, you, you gotta have advisors, you gotta have people that that can help you, but that's also a delicate slope because If you, if you're looking to people that have an agenda or some something to gain or or or not truly experienced in what you're going through, there's some pretty bad advice that can come too. So I really the biggest mistake is, is thinking you know everything that you don't and then getting bad advice is, is really a scary thing. How do they make sure they get uh good advice? I would say in this case, you know, it's important to have someone giving you advice that doesn't have any, any sort of tie to what you're doing. Now, you can hire a consultant and that's different, but you also look at their resume. Have they, have they been around M&A deals of appropriate size, type of industry and type of dynamics. And so quite often we'll see a really great business that Has had an attorney, for example, that's been their partner for the last 25 years, and they obviously trust that attorney, but that attorney is not. An M&A attorney and Then they try to advise on on a merge on an acquisition process. They might be the best, you know, contractor or restoration attorney in the world, but They probably don't belong, just like. You know, can't use a hammer to put in a screw, right? But you gotta, you gotta use a screwdriver, but you gotta use the right, the right resource and the right advisor, and I think even in that, in that example, somebody that you've been working with, whether it's accounting or or legal for the last 20 years, they are personally invested, they're personally invested in in the business and they, they might be somewhat biased and so that's where if I, if I could talk to anybody on the front end, I'd say, go, go find a true professional that's Engaged in acquisitions for their profession. What percentage of the acquisitions that you've made, what percentage of the time do you think emotions played an important role on the seller side? 100%. Every time, 100%, that's not an exaggeration, every time, every time. And that's where we, we really think about our process and I've found that the more candid we are on the front end. You know, because the challenge when you meet it, when you beat up a business, you're looking to buy, they're looking to sell, you're both really selling, right? And so there's a delicacy of of. Trying to tell your story about who you are and why we're a good partner on both sides of that, but then also working in. You just gotta be straightforward and candid about some things. For example, we integrate and that's one of the things that When we're talking to a seller, we're very clear about the partnership with Blue Sky. If if that if that's what we end up with, we're going to integrate our businesses. Not everybody does that, and so that's something that we want to make sure is is very clear up front, and there could be a myriad of 100 other things like that, but while you're selling each direction, you have to be candid. What role do you see emotions play here? Because I know the people listening. To the shower thinking, OK, what's going on with the seller that emotions play a role 100% of the time? What do you, what are you seeing? I don't know how you don't care, right? I don't know how how you don't care about your people. I don't know how you care about, you don't care about your, your, your outcome, and because it's so personal because you're probably selling for a financial reason, or you might be selling for a Personal reason we've had sellers that say, hey, I just need to get out of the day to day of the business because it's either not my passion or I have, I have other drives here, you know, one individual who wanted to spend time with family and others said, hey, the the stress is more than I wanna wanna wanna carry anymore and so that's all emotions, right? you have a that brings you the why, right? So if you're a seller and for example, if I'm selling to create a lifestyle change, that's my why, this is it's full of emotions, right? That's You know, that's, that's gonna drive your decisions and your motivation and and all those pieces. How do you see emotions manifest themselves? I say this affectionately, it's a bit of the stages of grieving, which definitely there's. You know, there's shock, and this is different pieces, but there's kind of the shock and awe, and from the seller side, it's probably more of an initial excitement. And then they, they start to, to come to the reality of some of the dynamics. Look, you are selling your business and all the people that have been working with you for X number of years, sometimes are really, sometimes decades, right? They're gonna go to a new employer, um, and all the pieces of your business that you've worked on and built with your heart and soul for many, many years. Because, you know, it's gonna go to a new owner, they might make decisions and redirect some of those things that you've built in your business. And so, it's, it's hard to not, not go through some ups and downs with that, but then Yeah, it's just definitely a cycle. So initial excitement, reality through diligence, sometimes diligence is so tough where where there's super duper frus frustration to levels where people, you know, sometimes we we say this every deal dies twice, but usually in diligence when when there's either a thing or a frustration, and I'd say it's about fifty-fifty, but and then you get towards that that finish line and there there's the stark reality of, hey, I'm gonna sell my business, this is getting really real. That's tough, isn't it? I had a client that called me and he was bawling his eyes out. Because he woke up and he's like this my this chapter in my life, 30 years is closed. And my this sense of identity is gone and there's nothing on my to do list, no emails. Nobody knocking on my door for attention. He's like, well, I have all this time now that I didn't have before, and I don't know what to do with it. What's the antidote there? What's the solution? Oh, that's a great topic because we've seen some people who don't have a plan, right? They, they, they say I, I have, I have a why. I have a reason to sell my business and that that can be pretty clear. But if they haven't thought about it afterwards, we, as, as our approach, we've really tried to partner with with sellers and actually the vast majority of business owners are still part of the blue sky story. I know that's not the case in other other scenarios, but We've actually taken that dynamic and said, hey. Come, come do what you love because as a business owner you have to wear so many hats, some you know some you hate, right? That makes a lot of sense, yeah, and just come here and just do one thing that you love. What are two things that you love and are passionate about it and and be part of the bigger team, bigger family, that's been so, so beneficial to us. I love that that part of our story. But yeah, more, more importantly for anybody else out there, have some sort of plan, right? Yeah, maybe, maybe that's a, a finite hobby that I'm gonna go build a boat or I'm gonna go on a on a trip, and that's gonna be, that's gonna take my first, you know, month or two or something like that. That's at least a transition into what's next, because I have seen other business owners that have sold their business and then they, they get, you know, 60 days post closing and they're so great, I can look at my bank account. That takes about 4 seconds a day and then what do I do, right? And they're searching for that plan of what they want. How many sit by the pool and drink margaritas and go play golf? Jeez, I hope some do, but does that get old after a while for these people in your experience? I think it does pretty quick. I actually talked to 11 individual that that sold, and he said, you know, it's really weird. I get up, I go to the gym and. None of my friends are around because they're all working and great, I tried golfing, but I, I didn't really love he didn't love it that much. Some people love golfing, which is fine, but when he found himself, he's really bored by about noon every day. He missed, he missed the social interaction of his business and what he was doing and so. Actually found himself starting out of business. That is very common. What are your thoughts on that? I see that all the time. I just have a plan, right? You know, I get, if you're, if you're the kind of person that started a business or owned a business, whether you started it or not, like I don't know if you go to 100 miles an hour to zero, right? So. You gotta have something. You need a new passion, don't you? If you're type A, and let's face it, 99% of entrepreneurs are, you have to have something to focus on. You gotta have something or you're going nuts, and that's where I, you know, you could have somebody post closing that's going through that. That emotional stage, right? And they either get back into another business and say, well dang it, I just went back into what I was trying to shop or or they get into unhealthy lifestyle things which we we hope that doesn't happen, but all those are possible unless you're very, very intentional about what's post closing, what is it gonna look like. How many sellers do you see break down during the process? Come close to losing it. Well, I see a lot of sellers that go through some really highly emotional times. Full on breakdowns, I probably see once or twice. Yeah, I've seen maybe some that come very close to the edge, if you will. How often do you see that? And you have to kind of talk them back off the edge. Quite often, I, I would say the majority, majority get to that point at some point, and, and whether the diligence is a trigger from the, you you're challenging everything in my business to the reality of selling to the reality of usually uh for us, we see a lot of, look, our sellers love their employees, they really do they care about them so much and what we see is, is when they come to that reality of change for their employees, we'll see, we'll see some emotions come in, so. Yeah, everybody, everybody goes through that. It's a hard process. That's a good point because on your 3rd deal, was it easier than the first? Emotionally different. How so? Well, with one, I, I hope I get smarter, right? You can go into it with more intentionality and you with the paradigms of your past transactions and understand what worked and what didn't work then. And you're trying to do your very best to do better this time. I think you should do that with most things in life, right? But you still can't. Escape the reality that there's still an event going to occur. There's still change going to occur, no matter what you do. And so the emotions still come and, and it's still scary, right? Did we make the right choice? Did we do the right thing? There's, there's little moves throughout a transaction as it takes place that you could question, you could second guess yourself. I don't know, and so all those emotions do come no matter what you do. Little experience helps get through them easier each time, but still it's, it's real. Now, in due diligence, why is that such a challenge? And is that kind of the point where you see a lot of people start to become very emotional? It is depending on how it's handled. So from the sell side, if the owner themselves. Takes on a lot of the due diligence deliverables. That workload is is a pretty, pretty extensive. But it's also. Oh, It's all the details about your business that, you know, you may not have asked or looked at now you now you've got it in front of you, so you're confronted with the You know, the good and all the bad of your business. So, from the sell side, if, if, if you don't have somebody that's a really good partner to drive the diligence requests, that can be super stressful for the owner. We've seen owners that said, well, look, I don't wanna I don't want to bring more of my people into the fold because I'm nervous about, you know, the, the announcement or nervous about the awareness of this getting out, and so they try to take it all on themselves or of course some version of that and do it behind the scenes and running copies off the printer and people figure it out. It doesn't mean you should just automatically go announce to the whole organization, but you gotta have two or three really trouble. people that can help you through the diligence. Probably what your CFO and a and an assistant or office manager. Usually it's a CFO and controller if you've got them or or some some other, most businesses have that those 22 to 3 key people that both have access to all the data and and already have the trust. Sometimes it's HR because they deal with um employee stuff, but you gotta, you gotta get them involved and there's ways to do that as far as confidentiality, but also give them a, you know, a little bit of bonus for the deal. Usually that you can get them. You know maligned with you pretty quick. But if the owner's trying to do it themselves, it's, it's a disaster wait. I'd say due diligence is difficult because it's very time consuming and it's invasive. It's very invasive, but also what happens that we haven't found a way to control yet. Is there's different parties on on the on the on the buy side, whether there's a banker involved that has the right to ask questions, whether there's the the true buyer themselves or there's other consultants. What happens to the seller is they end up getting, you know, hit with the same question two or three times, even though we try really hard to control that. It still comes out of it and they all typically say, why am I, why am I answering this again? Hardy did. Well, he was asked in a little bit nuanced different ways, so it, it actually intentionally, right, to calibrate the answers? Yeah, to calibrate, but also from different points of view. Somebody might say, well, what are your, what's your, what are your margins in your business? And another person might say, what's the, what's the margin for this specific piece of business? And I, I thought I already shared that. Well, we're trying to get the full picture, right? And so. There there's a point of frustration that that is really real that happens for the seller. How much time do you spend conducting due diligence? If you had to guess like man hours, what kind of number would you throw at that? Is it more like 10 or more like 300? More like 300+ ++. It depends. If you, if you, if you're sell side and you hire a QV have the transaction, then it it lightens it up a little bit, then you just have to provide the stuff for them to do the QVV so it really just spreads it out. Yeah, it's, it's hundreds of hours for sure. And I'll have a link to an article on the QVV if you're not familiar. We've also done a couple of uh podcasts on that. One of my favorite guests that Bill Woram I will include a podcast to his shows as well as episodes. Uh, let's take a quick break and then when we come back, let me pick your brain in the Q and QV from a buyer's perspective. So, we'll take a quick break and we'll be right back. This is Jacob, your host, and thanks for listening to the show. If you'd like a free copy of one of my books on selling a business, you can send an email to podcast@morganoWestfield.com. And we're giving away two books. Uh, the first is The Art of the Exit The Complete Guide to Selling Your Business. It's written for businesses with 1 to 10 million per year in revenue, and the second book is Acquired The Art of Selling a Business with 10 to 100 million in revenue. And again, if you'd like a free copy of either of those books, you can send an email to podcast@morgan Westfield.com. And now back to today's show. And welcome back to M&A Talk with Drew Bisping. Drew, let's talk about that Q of E. The quality of earnings is a kind of like a financial due diligence on the sell side. You would pay for that. Maybe it's gonna cost you 1020, 300. Have a team of accountants come in that specialize in performing due diligence for companies that are about to be acquired and they will put together a nice pretty long report. And almost every buyer's gonna do that. So Drew, what are your thoughts on how much value you see in the QV? Uh, pretty good value, it's crucial in the process. If, if you use it as a guiding, a guiding kind of post there, it's really, really helpful. If it becomes an absolute hinge point in in your overall transaction, especially the economic economics of it, then that's probably not healthy for the QOV because typically you you might value a business based on Assume even better earnings and then QVV comes out with some variants of that, you know, there, there can be uh there can be a negative place there, but the QV is a great tool. It's a necessary tool, but it is just that it's a piece of the pie in my view. I think that the economics of the transaction should be supported by that, but not completely hinge on it. How strongly would you suggest that the seller. Get a QOE before they go to market. How much value are they creating there and how much are they potentially reducing their risk by? It depends on the sophistication of the business, and sometimes that's hard to look in the mirror and and truly be honest about that. If you have a business that has personal things that are that are tied to the business and things like that, that might be considered adbacks or non non non continuing expenses, if you will, a QVV can be pretty crucial from the sell side to just get those established ahead of time. Because when you start a process, you start with some directional discussions of revenue, even margins, all those pieces, and if, and if for some reason the QV significantly shifts that. Then, then that can kind of thwart any a lot, it can create a lot of wasted time if you don't really understand what your business really is before going into the selling process. Well, let me ask you kind of an odd question. Let me catch you off guard here maybe. Of all the acquisitions that you've made. Who do you think was the most emotionally prepared and how do you think they did it? We had one of the acquisitions that we did that there were 3 partners involved, and I got to give credit to the CEO as the lead partner in that story. One partner was was already really exited from the business, other partner was very active, but they had a clear why. They, they were, they were working through the transition of that partnership and so they were very emotionally prepared for what it was. I think that individual came at it with very clear understanding of What he, what he really wanted to accomplish for his employees. I think he came in with a very clear understanding of what he wanted to accomplish economically from the transaction and um He really navigated those pieces well to make sure that I, I think he was pretty balanced in his outcome from, from day one. Do you know his secret? Do you know what he did? Or can you kind of take a wild guess here what you think might have led to that emotional preparedness? I think he thought through it. I think he's really, really a brilliant guy, but also he just was very calculated and I think he was very matter of fact about the realities of of what it was. And when Pickey was influenced by any romantic stories, he did some good. Interviewing of of potential suitors, if you will, and so went at it with a very calculated approach. That's a really good point and I think something that could be very easily missed because sometimes you, there's some things you you you do in life, say it's a Say you're gonna go on a trip to uh not the safest definite des destination. Say you're really adventurous or you want to go on some really wild adventure, jump in a submarine and go down 10,000 or however many, right, that one. There's some people that just fly blind and they just dive into it, like when you pack a bag and you just said, we'll figure it out. And there's others that do the quote unquote appropriate amount of research. And they're prepared and you can spot somebody when they're prepared. They know where you should exchange currency, what the exchange rate is. They know some of the common scams in that area. They've done all that research. They've brought maybe 10 or 20 different items that you can't find in that certain specific location. So just like you said, there's no better word for it, but they're prepared and they're emotionally prepared. Maybe they've accepted some of the things that could potentially happen. Maybe they could get a disease or theft or whatever that maybe so they slide an air tag in their, in their backpack in case their backpack gets stolen. And so not only are they prepared from like a document or a non-emotional standpoint, but also they're emotionally prepared and they've considered. What expectations they should set. And they've decided to deliberately set realistic expectations, as opposed to flying blind and listening to what their buddies at the country club had to say about XYZ. What are your thoughts on that? I think you can be prepared and still be adventurous, right? I think that's, that's probably what I'd say first, but yeah, where do you get advice? Oh my gosh, so much bad advice out there, but I don't, I don't know how you'd go through a transaction to sell your business without talking to somebody else. That has reasonable alignment, that has sold their business and what they go through. Um, I don't know how you'd go through that without thinking about the financial impact, but also the The emotional journey that it is, and then. The, the impact to your people. I, I've never met anybody that's made it through at least with us, a transaction that that hasn't had a pretty strong focus on the people and what happens post transaction. I'm sure there's people out there that don't care, but that's not, you know, who we've partnered with at all. And so somebody that's preparing should think about financial journey, their people, and then kind of the, the longer story and certainly we talked earlier about What am I gonna do afterwards? That's, that's a lot of the preparedness pieces for sure. Now, let's go back to the due diligence for a moment there. What role Do you think preparation Plays there In other words, if they do prepare, how much help do you think that that's gonna, gonna provide them or should they just wait until they get the LOI and then the due diligence checklist and then they can go run around and try to gather all the documents that you need? You know, I, I think pre preparing for that would be, if you think about the concept of I'm gonna tell the story of my business through data. And every business has different sophistication of data, but. If they, if they were trying to prepare and said, look, how, how would I tell the story of my business with the data that I have? That's enough prep to to catch, OK, well, it looks like. I don't have a sales report from You know, last year, or I don't have, I don't have this gathered, and you might actually find some low hanging fruit in that prep, and that might bring up a good point. The last 3 to 5 years are in play in diligence, and quite often we find that As a business has grown and finally been ready to to go to market to sell, they've got good data for the last 12 months. About 24, 36, 48 months prior, we're looking for. We're looking for trends in history, right? And quite often those data points are the hardest to get a report from 4 years ago, and those are the bigger frustration points, right? Yeah, a bank that closed down and you don't have it in your files and the bank merged with some other bank and it's a different login. Now how often do you encounter that stuff? I see it rolling your eyes all the time or rightfully they they changed systems or they changed methodology, job numbering, classification things and so. Look, just anybody doing diligence is gonna ask for at least the last 3 years or probably more and so know that that's coming. That's, that's a good prop. Can that hold up the deal? Sure, yeah, if you, if you can't reasonably represent historical performance or, or at least talk through it or or have some points, you're just gonna get more questions about that. A business, at least, at least from our, our experience, certainly is the picture of what it is today. But part of evaluation is is absolutely trending in history and all those pieces, so you gotta have that data. What's your experience been when you're negotiating the letter of intent with the seller? What's your experience been with that in terms of the the role that emotions play in the typical sentiment that most sellers might share at that stage? Well, there's there's a lot to that. So if you're if you're in a situation where there's multiple suitors and and And the seller is just saying, give me a number, give me a number, then that's probably not right for us and so we kind of don't like to play that. We would prefer to get to a letter of intent. That Within 95% or 99% represents the terms of at the closing, which means we're not looking for any big, big swings one way or the other. So, we prefer to have really healthy discussions ahead of that. And the letter of intent becomes a, you know, confirmation of our agreement. But if you're in a different situation where there's a, you know, a banker led process or, or maybe that the seller has just got multiple people are talking to, letter of intent can be that, you know, so obviously it's the, hey, we're willing to step up here and here's what we're willing to willing to pay, it's got to be in there. So you just have to navigate that. We would prefer to have it mostly baked before the letter goes. Have what before the letter goes? The terms, you know, the, the terms of of what's gonna be in the letter. So there shouldn't be any surprises when the letter hits a seller in archives. Oh really? So you discussed the terms. Absolutely. You lay them out, kind of sketch them out on a piece of paper or whatever before you even give them the actual letter of intent. Right, cause you could, you could get into a back and forth for months on letter of intent negotiation where you could probably just sit down for a bit and talk through it and say here's what we're looking, here's what we're willing to do, here's what we would be willing to pay. And allow there to be kind of verbal negotiation without that. Everybody wants to handle it differently, but we prefer to just, let's hash it out and, and once the letter is, is being sent, there shouldn't be any surprises. Now, as a M&A practitioner, myself, advisor, I would say that that's fairly uncommon. but certainly it's seems like a good strategy to to the listeners, certainly it's a stylistic choice and obviously that works very well for Drew, and Drew. As hopefully you've discovered by now is very transparent and appears to have very strong ethics and he takes a, a very, I think that's worth discussing because your approach comes across. It is very forthright and transparent. I see you nodding your head. What are your thoughts on that? Life is short, right? And, and I'd rather just be straightforward and call it what it is, and if that works for both sides, then wonderful, let's let's go do business, but look, it's a partnership. I, I don't know how you, at least in our world, we, we don't ever fully like, you know, say see you later to an owner, it's a partnership, right? And and whether it's a partnership in in continued business and and working together daily, or it's a partnership in our commitment to how we treat their people and and their their brand and their reputation post close. I just, I, I know what you just described, which is what feels like a bit of a bait and switch. Nobody feels good after that. And I think if you're trying to win ethically, if you're, if you're a buyer and you're trying to win by by shifting terms from an LOI to the closing, I don't know, a bit a little bit of shame on you, right? That's at least my position on it. Yeah, that does not lead to a fruitful long term trusting relationship. No, then it runs to just about money and And this is too big a deal to be just about dollars and and. You know, how do you feel 10 years later, you know, oh I, I got one over on that seller, right, that's really, I mean, that's not us, that's not me, but also if you're the seller, I mean, you don't want to be partnering with people that, uh, we'll have I got you. Now, one of the things that I we try to be very upfront about is, you know, the, the, the final terms in, in the financials, there's always a negotiation at the end as far as networking capital. Networking capital is this is this. Really mathematical cut and dry thing, but it ends up coming through it with clarity at the very. You know, December of the hour, and so there's always this perceived negotiation around that. So we try to be very upfront, um, about networking capital and dynamic of that and quite often for our sellers, you know, I can see them googling networking capital when we're talking about it. I've got an article, uh, I've got a 25 page article I just wrote on it, and we'll include that in the show notes as well, and that's a, a very, very thorough article that'll walk you through exactly how that works, right? But as you talked about one of the emotional, you know, spikes, it's always No matter what we do, networking capital becomes that emotional spike because it's at the finish line, it's the last dollars to be kind of determined, and, and for our world at least, it becomes something. So we try to be very upfront, say, do understand networking capital as a seller before you get in before you sign the ALI, make sure that you know how that that plays into it. Talk to your advisors and and that's just one example of, you know, thinking about how to take it from LOI to finish line. Let's talk about that, yeah, let's take another break and then when we come back, we'll talk about the last 10 yards and we'll be right back. This is Jacob, your host, and thanks again for listening to the show. If you're enjoying this show, you can do me a very big favor by leaving a review, and leaving a review would be very helpful because it will allow us to increase the listenership and exposure of the show and get more interesting and educational guest on the show for you, the listener. And thank you again. To the listeners, it wouldn't be possible without your support, and I've received many, many countless emails from you thanking us for the show, for many internships and CFOs and private equity partners, and I really appreciate that input. And if you'd like to share your feedback with me personally, you can send an email to podcast@morgan and Westfield.com. And now back to today's show. And welcome back to M&A Talk with Drew Bisping, the last 10 yards. What's it like? Vicious, wonderful, scary, all those things come into play. Uh, you know, that's when in the last week, usually or the last two weeks, we're down to 3 or 4 final terms. Key, key things, whether it's in the purchase agreement, anything economic in in in nature that may have, may have needed to be clarified. And so that last bit is highly emotional. Usually both sides are. A little tired, there's something called deal fatigue that's very, very real. The longer I'm in this diligence period, the, the just the more tired I get as a seller and a buyer, and so you end up in the last 10 yards, last two weeks, negotiating over 1 or 2 or 5 things that Look, both sides could probably give and just move on if it was. 60 days before, but because it's the last 3 to 5 things, sometimes people dig in. You know, there are negotiating points as you build the, the, the terms of the purchase agreement, and, and sometimes those can be really minor and sometimes those could become major. So that the last bit is, you know, that's tough. It's a tough time. What can you generalize about what some of those. Sensitive topics or negotiating points typically are. Networking capital is always one of them. Sometimes there's a reps warranties, uh. Sometimes there's indemnification pieces, the cap and the basket, yeah, those are sensitive pieces where it's dollars, it's real dollars and usually what I, what I see the seller doing is they're they're looking at what dollars am I taking home on closing day, what's going into escrow and and. Look, Eros are there for a reason, and, but there does end up sometimes being a level of mistrust about will I get that money back. And, and again, the terms around that can be, can be sensitive, uh, from our world again, our approach, and once you get every escrow dollar back is just there for the what if, and I think escrow should be used for that in that spirit, you know, if, if either side is trying to gain from an escrow sort of set up, then then that that's not how it should be. So, but those are the last pieces to negotiate and Hopefully there's no surprises, but sometimes there can be, right? Last last couple of weeks there can be, you know, the finalization of some diligence pieces, sometimes a legal issue comes up that nobody knew about, and then we have to talk about indemnification around that. It's always. It's hard to walk away too. What about sunk costs? If you're in in a $100,000 in legal fees, it's, we're gonna walk away from that. It's really, it's really tough. And what about you on the buy side? What's, what's it like too? Is that and is that why these parties dig in? Yeah, it, I don't know that it is. I think I find it more kind of People digging in on principle and the economics, but I, I, I personally would rather pay for a wedding that I don't attend than trying to pay for a divorce, I guess is the best, the best analogy I've got. So it's cheaper, even though you got sunk costs to, to say this is not the right deal. Then to get post closing, end up in a legal argument of over something, right? That's the worst case scenario, you just, you're better off, you know, fighting the fights on on the front end than bumping them later, so. Yeah, some costs are real, but I think you I think you take that risk on from the buy and the sell side, and you still have to have clarity of should we do this transaction or not. You have a recent issue where you parties dug in? The advisors, attorneys, and financial professionals that you bring in can be the greatest thing and then they can be the Achilles heel of of of a transaction. What I would say is we've seen time and time again where something is, you know, the, the attorneys will say, hey, can we just talk directly and work out some of these terms? And, and in spirit, that sounds great and probably is the healthiest path for a lot of, a lot of things, but then I've also seen where. Suddenly that process gets locked up somewhere and those individuals are, they think they're negotiating or whatever, and if if you're the seller or the buyer and you see weeks going by with what what feels like not much action, that's a time to grab grab hold of the reins and either get your advisors redirected or what we've done several times is say, hey, stop, let's go back to the spirit of who agreed to do, you know, this partnership, and that's where from. From me to the seller or from one of my people to the seller directly will say, hey, here's a list of the debated topics. Can we talk about how really how really important this is and make sure and what I'm saying by that is bring bring the true relationship back to the people that respect people that matter here, right? Which is the seller and sometimes uh there's a time to let the professionals go do that from the attorney or the whatever side. But there's also very much a time to bring it back to. The two people that matter or two entities that matter and get it sorted out. Would you maybe do that and say like an escrow issue? Say it's a legal issue that the attorneys are working on and they stall and say you want to take over. Would you then perhaps get all the parties together, the buyer, the seller, yourself is the buyer and say, look, let's talk about the goal here and the objective and let's see if we can come up with a solution ourselves. Yeah, but typically it's never one issue that's in play and what I, what I found is that They might be locked up. The attorneys might be locked up on one particular issue, but it's influenced by the next 2 or 3 points of potential negotiation. And so if it just go, this is where deal fatigue is real, if it's going on for days, it's probably not a big deal if it goes on for multiple weeks and then you gotta stop it and say, let's get in the room, let's identify the issues on each side, let's talk through what we can, and I think everybody has a duty to have the spirit of give and take. If if one side or the other says I gotta win on everything, and we've seen, we've seen some people take that approach, then Then at some point it's just gonna be really tough to get this done, right? I think that if we're directly where we, where we talked about in the LI we're getting down to final terms. There might be really important things one way or the other, but everybody's got to be willing to give and take, otherwise, either A it ends and it's not healthy, or B, it never gets stopped. That's a really good point. It brings up a good point, and I think this is something that I've always implicitly done. I've never explicitly Stated it or documented it, but I always assign based on my experience, my judgment, my kind of pattern recognition abilities or skills, if you want to even call it that. Kind of like a And I, I assess a buyer based on how cooperative and transparent I think they are at the outset. And I tell the client that, look, I think a 1 to 10 or, you know, it's this is a 3 or this is a 7. If we're weighing two buyers, if I talked to you, I'd say, look, I like this guy, he's really transparent. He's very straightforward, he's forthright. Whatever he says, it's probably what we're gonna get. And this other buyer, I don't know, this could be a slippery slope. What are your thoughts in terms of ease with the particular buyer that you commit to? I, you know, it's probably obvious, but the, the more straightfor in M&A because there's so much complication to it, the more straightforward individuals you can work with, the better. Uh, the, the challenge is that slippery slope buyer usually has a higher number on the front end, and you're weighing, OK, what's my finish line look like? I like the bigger number because it seems cooler and better outcome, but can I actually finish there? And so, So important one because you make once you get into making a choice, I would bet every time on the straightforward, this seems like the one that I'm gonna actually be able to close with then the bigger number that seems great, but You know, I got, I got somebody who's trying to be sharp on the other end. That is a really good point because just purely based on the buyer that you select. I would say there's a delta there of like, 35, 10 times in terms of how emotionally difficult that process is gonna be. I've had some very straightforward buyers where like if I had to sign a random quantitative number to how difficult that deal is, maybe that's a 10 from 1 to 100, and then this other buyers up 150, like they were a pain in the butt. And I, it's amazing what a difference that buyer can make. And I think that perhaps this is one of the most important points other than being prepared is be very selective about who you choose to commit to. What do you think about that? I got a great example. We lost an opportunity on, on a transaction, a really, really great business, just a, just an incredible leader. We had great connection from a personality standpoint and a culture standpoint. I want to say it was about a $15 million purchase in somewhere in the high teens as far as enterprise value and, and somebody else bid a million dollars more than us. And through the different dynamics, I watched that, that seller choose the other one. And uh what a roller coaster he went through as I talked to him after the transaction. So I think your, your evaluation of the, you know, 10 in difficulty or 150 on difficulty is 100% correct. If not an underestimate, probably. Oh I got that buyer that that seems difficult but has the better number will only get exponentially more difficult and Frustrating as the process goes. So it's always a tough decision as a seller is do I like the numbers do I like the, you know, likelihood of clothes, right? Well, let me ask you this, when you sign the LOI. What yard line are you out here? How many yards left do you have to go? Cause I ask a lot of guests this question because a lot of sellers think we're on the 10 yard line right now. We got 10 yards left to go. Once I see you left and once we sign this LOI like this is almost it. So of course I'm going to go for an extra a million bucks. We are so close. How many yards left do you have to go when you're signing the LOI? We're probably on the 60 yard line, I guess I would say, and I know that people throw out LOIs when they're on the 20 or the 15. And and they've got a long, long way to go to get there, we're just, we want to be closer, but I, I also, I think it's appropriate to say there's a ton of work to get to that true closing, right? And, and it's often an underestimate. I think that the spirit of it should be the, the macro picture of the economics, total enterprise value, fundamental terms that are in the LOI should be really protected. But yeah, there's, there's. 112 nuanced things within the purchase agreement and and the things that probably just couldn't possibly be contemplated in the in the LOI until we did some diligence. Yeah, there's there's a bunch of things to be negotiated and deter determined and figured out. It's a journey. Well, you've been a wealth of wisdom and congratulations on what you've done there with Blue Sky. That's phenomenal that you've gone from 30 employees to 1600, because what is it, like 50X or whatever that works out to, and you, you're doing a phenomenal job and hats off to you as well in terms of your transparency. That's really refreshing to see in the industry. You don't see that. Very often, and I would encourage you to, on a personal note, to really, and perhaps we can actually invite you back with some of your sellers as guests to talk about that experience. And perhaps that's something you can share with some of your future potential sellers because I think that's the best way to share that message, if you will, but don't listen to me, just listen to what some of these past companies that we've acquired have had to say. I think that would be a beautiful message to hear and it would be very refreshing and hats off to you and thank you again for joining us on the show, and that is Drew B Bisping, he's the CEO of Blue Sky Restoration Contractors. Their website is Go BlueSky. Dot com. That's B sky.com. We'll have his contact information in the show notes and if you own a restoration company that you'd like to sell, certainly reach out to Drew. And by the way, what's your target acquisition criteria in case anybody might be listening to the show that might be a good fit? We're operating within the restoration space, really our target acquisition isn't necessarily size, it's more culture is do we have an employee focused culture that that is serving the restoration community. If those boxes are checked, it's probably a good potential partner for us. Well, wonderful, thanks again for joining us on the show. Uh, hopefully you'll join us, uh, in the future on M&A Talk and thanks again. Thank you very much. M and A Talk is brought to you by Morgan and Westfield, a nationwide leader in mergers and acquisitions for small to mid-market companies. If you've enjoyed this show, don't forget to subscribe and leave a review. Learn more at Morgan and Westfield.com. 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