Ultimate Exit - Selling to a Strategic Buyer

all right we'll give it another second or two let some stragglers get in and then we'll kick things off also uh before we do begin we want to take a little more of a classroom approach since we do have a rice professor presenting to us today um so i i raise your hand if you are willing and able to to speak now there should be a hand raising tool um and i'm just going to keep tabs with that so throughout the presentation or when we do q a at the end we can call on you and i just don't want to call on you if you aren't in a position where you can but we'd like to make this interactive but let's kick things off so welcome everyone to the exit advisors small business town hall and thank you for joining us today we've got a very important series which is the ultimate exit selling your business to a strategic um and this is one of the kind of the culmination of our entire you know m a preparation and process this is really the ultimate exit as we call it um and and it's it's really the culmination of all of our efforts our process um which you which you may or may not know it's a little bit different than most other you know larger investment banks or consulting groups and we really distinguish ourselves in in three different ways first we're a boutique and not just in the sense that we're small but we take a really hyper focused and tailored approach working with our clients and and we may be working with them years in advance before they you know get to this ultimate exit we like to go in and not just look at the financials and then put them out on the market as a business broker would but we're really going in and identifying the red flags and finding ways to increase the value um especially if it's going to go to a strategic or a private equity backed company that is you know within the strategic space we really like to get all your ducks in a row so that you're going to reap the most value and get the most transparent and seamless transaction um the second is we take obviously with with al and also even gary we take an education based approach um which we're going to do today so again you know raise your hands if you're willing to be called on because we're going to get interactive um you know treat this like a like a little bit of an mba class um but yeah education it's very important like i said we we don't just churn and burn deals we really like to work with our clients um intimately and help educate them on this process uh the third way is you know this is the most unique but we are we're founded by entrepreneurs most notably you know gary and al um who have owned and operated and built from the ground up businesses and have gone through this exact process firsthand um and and really there's no one better to teach this than now and so i'm gonna i'm gonna introduce al now um obviously he's our the managing partner but he's also a graduate professor at rice um and it's i've had the the real distinct pleasure of not only getting to work with al now but having also learned from him while i was at rice um in the mba program there and take it from me he is extremely well regarded in this area um to the tune of having received the the or been honored with the teaching of teaching excellence award to the the past two years actually um so he really understands this and it's not just from an academic perspective he like i said he's owned and operated and built companies from the ground up and he's been on both sides of the table so he hasn't it's not just teaching but it's also coaching businesses and he's lived and breed this from a practical standpoint so i really do mean it when there's no one better to present this type of topic than now um so al i'm gonna i'm gonna hand it over to you and let you kick things off thank you and i really appreciate it and uh if you spoke like that in my classroom you might have got better grades andrew was a great great student and like he says you know i love to teach i love to educate and so what i want to do today is kind of try try to incorporate a classroom component of it some sometimes when you're giving these presentations it's just like you're talking here you know in the abyss so love to get some feedback i'm going to try to encourage some class participation uh some incentives what i'm going to do is i'm going to ask a few questions raise your hand with the little little hand raising icon andrew will call on you and uh got 15 gift certificates to uh common bond our good friend george joseph um if you take a shot and do a decent job answering the question not gonna be perfect but but uh we'll we'll grade about 70 on participation so uh let's have a little fun too so with that said here's the lessons for today uh i want to um we'll really understand the difference between financial value and strategic value i i've already given a couple town halls on financial valuation strategic valuations a little different like andrew said it's kind of the ultimate exit so we'll talk through that we'll talk a little bit about why a strategic buyer will typically pay more than a pure financial buyer we'll talk about how do you capture strategic value how do you target and find strategic acquirers i'm going to walk through a couple uh examples a couple real life examples and then we'll end it with uh with q a so i'm going to start off right here who wants to take a shot at uh what's financial value i see a couple ex students out there too so um i know you learned this but who can tell me what uh what financial value is yeah go ahead and use the the hand raise and we'll call on you and this is for a 15 common bond gift certificate sarah whiteford hey guys um so financial value is going to be the value of the company as a measure of its profitability so generally earnings before income tax depreciation etc um multiplied by the multiplier that the company would put to it all right let's see the answer sarah get it right how about how about the hand clapping clap clap your hands if sarah got it right close enough i'll let andrew be the final judge so financial value like sarah said it's it's the value of a business by uh kind of expected return for the risk of the business a multiple that sarah talked about uh of the cash flow stream and potential future cash flow stream which the business could generate on its own so uh is that close enough andrew you know good job sarah all right first one 15 common bond gift certificate so uh so sarah got it it's really just the financial value so if you're looking at like any other investment if you're going to invest in a stock if you're going to invest in real estate if you invest in a bond um it's expected return for the risk so let's see here here's the averages this is the pepperdine pepperdine puts this out every year we can send you a copy of it it's it's nationwide averages of small business valuations um small business valuations will will look at sde that's sellers discretionary earnings it's all the earnings that are available to the seller um after he or she has paid all the bills all the operating expenses for the company reinvest in money required money back in the company it's a free cash flow that's available so for businesses that are under 500 000 in sde we see this multiple it's pretty low it's only it's only a couple times uh the cash flow that the owner is going to take out now out of that they have to pay their salary their expenses uh 401ks and stuff as well but um it's only a couple times that number uh 500 to a million it goes it goes up a little bit and a million to two million goes up to about three times as we go up in size we kind of move away from the seller's discretionary earnings and we factor in their salary for the owner of the business or for the manager of the business who runs it and we start talking about ebitda again pretty much free cash flow two to five million dollars uh we get up to about four times 4.5 a few years ago mark was a little hotter it was about five times um as we get to five to fifty million dollars in earnings it goes up from there and again these are pretty much financial valuations it's just uh what's the business based on from a financial evaluation uh anyone want to take a shot at uh let's go we'll go through this honest one more so so we see these averages and then off to the far right of this bell curve we see strategic value and these can be some pretty crazy valuations that we'll talk about who wants to take a shot at strategic value what's the definition of strategic valuation let me take a shot another 15 common bond gift certificate raise your hand con current student khan go ahead kahn hope you get this one andrew can you hear me new con i think his mic's unmuted hey khan go ahead you gotta be unmuted can you hear me yeah okay yeah sorry about that so uh for for strategic value we go above and beyond of the typical uh market multiple because there is strategic value that that additional business generates uh for the for the choir uh and that can be in the way of uh various synergies uh be it um you know connections to the existing line of business uh various um you know complementary business offerings uh procurement synergies um you know all various things that that add additional value to the strategic acquirer that they're willing to pay above and beyond um you know what what the financial value of a small business typically is all right good definition let's see if let's see if khan got it so uh strategic value is my definition strategic value is created when a buyer extracts greater value from the acquisition and can be provided by the profits generated by the business the buyer can generate greater profits than those which the acquired business is able to achieve or could achieve in the future if it was a standalone business andrew what do you think con nail it for sure all right i think he got it so so yeah so uh it's it's the additional value that a business can get um or even even maybe an individual can get by acquiring the business above and beyond the cash flow so we're going to walk through some examples of what that is but it's this additional benefit that this acquirer can get so at the end of the day if you're out hunting and you're targeting for acquirers of the business that's what you want to get you know who can benefit more than just the cash flows that the business is throwing off so um who can give an example of just outside of business what a strategic purchase might be this is kind of a bonus question might be might be a little bit tougher but i use this example who who can maybe throw out there what what could be a strategic at brian hold house brian welcome back another former student you guys hear me yeah that's fine yeah so i'm gonna go with uh hot dog buns hot dog buns on their own they provide some calories pretty bland not worth a whole lot but if i've already got hot dogs you know my strategic value of adding the buns to my meal is worth more than just the caloric or taste value of some plain bread so you might be willing to pay more for those hot dog buns if you had hot dogs and to combine them together right that's a great brand that's a plus a plus effort and you were always an a plus dude i remember uh great great example great great example brian um you know something that you're willing to pay a little bit more for a comp you know because it complements what something you already have uh you know talk about a house in a neighborhood there might be fair market value for a house in a neighborhood but maybe if you're having a baby your parents are in there and grandma and grandpa can be close by you're going to pay more for that house right you pay more for it a little bit more so um let's talk about uh why pay more than fair market value in a business why would you pay more than fair market value so you get a business valuation done the business is worth five million dollars why might you pay more for that business what are just some of the reasons i've got about 10 of them here go ahead josh ritchie all right josh josh's financial planner thanks for having me i i'd venture to guess that there's probably tax advantages in terms of depreciation if you overpay in some situations there could be some tax advantages yeah that's actually not on my list josh but i'll give you credit for that one that's uh it could be there could be some potential tax advantages in an acquiring company acquiring maybe a smaller company right what else what else we have out there james you want to unmute there you go who's on james i'm on okay you hear me yeah the most difficult thing in sales period is earning the first customer earning that first opportunity in if i acquire a company and they already have a strategic strong relationship with a big company call it coca-cola call it exxon call it sap that is worth a mint of money because when you acquire them you instantly become their vendor yeah exactly james that's a great one i mean you're buying a relationship that otherwise not may not be able to get let's say you're a big company trying to get into pepsi or coca-cola or frito-lay uh you know when i sold my printing company we were the an approved printing vendor for anheuser-busch had about five hundred and eyes of bush wholesalers as their clients so they acquire income and got all those relationships certainly worth a premium right certainly worth the premium good one what else we got yeah so so mons uh my thought is this you can generate a higher rate of return uh to justify the premium that you're paying how much how might that be uh it could be through synergies it could be a lot of things that that would create that what's more days yeah yeah so synergies right really really good synergies uh mark what are what might a few of those synergies be yeah it could be um cost of raw materials um it could be as simple as um you know reducing overhead you have duplication in sales the back office uh those are some of the examples yeah synergies reduce costs combined expenses all that stuff what about you marco marco my comment was right along those lines where in evaluating the business you see some low-hanging fruit to come in and decrease cost or increase revenues one way or another and so capturing that growth or accounting for that growth that might allow you to put that plan in place to pay a little bit more that might be overlooked good how about some others sarah you want to go again and then i think we had jason as well i can go i think it's i think it's been spoken to but if you can better leverage their assets then they could then it's worth the premium um if not more yeah yeah so better leverage make better use of the assets within the company better leverage them right take taking increased uh utilization production capacity right come on jason let's take uh let's take one more uh sorry the one that i had was access to technologies um either by causing your competition to not be able to access that technology or to uh have something that can streamline and build out the the core business yeah that's a really big one sarah new technology you get access to technology right and if it's patented you get that technology maybe a competitor can't give it right so it could be a huge premium put on that on technol technology or a patent um anyone else is there one more out there and then i'll move on yeah i got one maybe kind of a flip side to what uh was said earlier about acquiring new customers maybe you can take some competitors offline uh and kind of clear some space for yourself in your market great one that's on my list that's a great one you eliminate a competitor right especially in a small market right eliminate a competitor to pay a premium for that so uh great i think let's go uh i'll go through them i think we hit we hit most of them um sometimes a strategic choir will pay more because they don't have to factor as much risk and they understand the business and the industry much better they get their due diligence they understand it better so just that simple fact of being with in the industry in the business as opposed to an outsider coming in so when we talk about how financial value is determined it's risk right it's the expected return that you're going to get for the investment that you make so the riskier it is the lower the value to compensate for that risk but if you understand the business and industry better you're going to have more confidence going into it and can give a higher valuation than just someone from the outside i'm not sure we had you know a really big one in in today's market uh certainly pre covid was just an aqua hire so it's an acquisition to hire and add employees so we had a huge shortage of uh skilled labor in the gulf coast with everything going on so a lot of acquisitions just to add additional labor right a geographic expansion somebody may be just wanting to come into that market and are going to pay a premium for it so we sold our printing company my operation to a national company and they didn't have a footprint in texas in the southwest we became kind of their footprint so that was important eliminate a competitor was mentioned expanding distribution channels right i've got my products i can buy and get distribution into california new york other areas i can sell products and services to new customers so we'll talk about an example of a local company later that when they did the acquisition they were able to sell their products to the acquirers companies uh customers so you've got that i think we mentioned i think mark davis mentioned increased factory facility utilization you can just increase your capacity so when we bought printing companies theoretically our printing company could run 24 7. uh we always try to target having a second shift we could just acquire a company close them down and move them in with us and then we could factor that in and and run uh additional time get higher utilization uh cost efficiencies increased buying power someone said suppliers reduce relative overhead but the number of employees the two companies have consolidated office space facilities certainly increase revenue and profits and company value to the acquiring company so as we saw earlier as companies go up in size they increase in relative value they get higher multiples higher valuations new technologies and just just sometimes just public uh public relations uh the image yeah uh we'll talk about an acquisition later that we worked with here in houston uh it was a big international company choir and just the pr that they got from it from just making that acquisition and the press releases uh was an incredible increase in value so there's a lot of reasons why a company will pay more than fair market value it means more it just means more to them right um so how do how do we do this when we're doing it from a an analytical or a process standpoint so what we do is we look at uh we start we've created this uh kind of valuation pyramid and we start with ebitda start with what's the base earnings that the company's going to generate and again if it's just a financial buyer that's all they're going to really look at how much cash flow am i getting what's my return going to be but then we go up or wrong and we start to look for strategic benefits what are the strategic benefits in the acquiring company do they want new products vertical horizontal integration geographical expansion adding brands i had speakers in my class last two weeks ago from yellow rose whiskey they started it as a class project built it up and they sold to a big international company spanish company and they wanted to have a texas whiskey brand so it meant a lot big premium to them just to have that brand so what are the strategic benefits um what synergies are there cost savings opportunities consolidation reduction uh in workforce uh technologies all these synergies that adds another layer of value and then just plain assets having an established workforce real estate patents equipment adjacency asset utilization and increasing that so these assets can add additional value on top of just the financial value uh cross-selling is a huge one two companies merge now all of a sudden the acquiring company has access to the uh target company the commitment they acquired products and services and distribution and vice versa right so all these opportunities are out there and then there can just be some a list of miscellaneous ones health health care efficiencies some overhead uh reductions just miscellaneous stuff so when when we take a look at you know who the ideal acquirer would be we're trying to capture this and really in turn uh start to look to to quantify it how do we quantify that uh i'm gonna stop sharing there any questions on that anything else that maybe was missed in there uh i'll throw in there um let me let me stop sharing for a second i'm going to show you how one of the ways that we quantify this uh a simple model can you all see this okay yeah you might want to zoom in a little bit okay is it better yeah okay so uh i spent kind of my earlier days first half of my career acquiring commercial printing companies and we would just close up mostly close the doors up consolidate them in to uh our location and what a target what an acquiring company is doing internally they if they're a big company they've got a bunch of financial analysts maybe some consultants and they're going through and they're quantifying all these savings and synergies right some are just strategic a benefit but at the end of the day how's it going to impact the cash flow so long before the days of excel like this literally we took a back of the napkin and said okay if we close down this commercial printing company well we're going to get all their lease expense we're going to get the receptionist we're going to get some office staff we're going to sell off some of the equipment and we would run an analysis and all of a sudden something that maybe was making a hundred thousand dollars to us might be making 250 000 or more so this is what the other side is doing if it's a private equity group if it's a strategic buyer uh even if it's just a financial person coming in they're going to do it and they're going to model out what will it look like under my ownership i'm going to take some equity i might take an sba loan this is what we use in my class and they're going to run and model their returns what does the selling side have to do they have to guess what they're doing and look at the other side and say what does it look like to them if they acquire my company what are they going to eliminate what are they going to add how's it going to impact their cash flow and when we represent a company or seller we are trying to run these same models and coming back and saying okay yeah look we we show five hundred thousand dollars in ibida but to you it's gonna mean more uh and we try to quantify it so it's really not an argument it's more or less just a discussion that's we come up with so this is a this is a model i would be more than happy to send it out to everybody um uh you can play with it this is a summary but underneath all the operating expenses you're going to be running okay what's it going to look like as we make these reductions make these changes right what's that going to do to my gross profit margin what's that going to do my money my net income am i going to have additional managers compensation less managers compensation right and i'm going to get down to what my cash flow is going to be and i can model out for a few years and then model my returns yeah any uh you know mba students that are out there gonna go into financial uh become financial analysts go and invest in banking this is this is a lot of what you're gonna do this is a lot of what the whole whole process is so we'll uh we'll we'll send that out to everybody um and at the end of the day the acquiring company wants to know you know what i'm what am i going to get in return model it so let's go back to powerpoint um so again this is a this is what we we try to do we're when we're looking out there we're advising the client and where these potential synergies are going to be right and a lot of times it's in discussions you know what do you what do you plan to do how are we going to cross-sell you know what jobs are you going to eliminate where are you going to put the new company so you're working through that um you know how do you target these strategic acquirers how do you how do you target them well you start right out who's got the most to gain now who who has the most to gain from acquiring my company in my industry and if you have an investment banker in your industry consultants in your industry sometimes they know it sometimes you as the owner of the company uh the seller of the company is is going to know say hey man i i know this we bang heads all the time with this company uh you know up in dallas and man if they could take me out and they could get houston they'd pay a premium for it um you know who has the most to lose all right if they if somebody else comes in and acquires a company uh who's gonna lose the most right this goes in into the analysis um you know who are the competitors out there and someone mentioned it uh earlier that if you can take a competitor out of the marketplace take a big competitor out not only can you increase market share but quite often you can increase profitability so it in fact impacts the whole company not just the acquisition that you have right so is there a company out there that can vertically integrate right can you become a component in their in their supply chain so potentially a supplier a customer that's out there they can be a strategic acquirer uh horizontal somebody that's close uh uh the example that was given uh by brian on you know on hot dogs and hot dog buns maybe if you're a hot dog company you know can you horizontal integration would be acquiring a hot dog bun company someone that's complimentary so when it was a printing company we acquired some apparel companies because you know if you typically was the same buyer that was buying printing might buy hats shirts mugs pens stuff like that uh geographic expansion is a big one who's a regional player that could really benefit by coming into houston coming into the southwest right so how do you do this you really start the process early early gary and i are both an eo the entrepreneurs organization and there was an eo member several years ago when he started his company he says i know who i'm going to sell this company to and he reached out to the company that was a big fortune 500 company here in houston and he said i want to build this company up and then eventually it's going to be a good acquisition for you he got to he developed a relationship with the m a people and operations in the company and he built his company up just to sell to that target um so you start the process early you know how do you do this yeah you engage hunters who can go out there and hunt and find them for you investment bankers uh consultants there's some incredible research research databases that are out there they cost cost 30 40 000 a year and they keep track of all these acquisitions who's buying whom how much did they pay for it right there's industry research industry data pitch book pitch book i think is 50 000 a year close to that research database and has it's it's just it covers more acquisitions and more industries and i think anything that's out out there so these consultants and investment bankers i have this and have experienced real smart mbas that come out like from from rice texas a m other schools around here and their job is to really research and understand the markets so these hunters can go out there and find these these strategic acquirers that are out there so i've got another question time to time for me to stop talking and um throw this out there and i'll save some uh time for questions and answers at the end but there's if there's anything over this just raise your hand and we can take them out but uh you know why would facebook pay 19 billion dollars for whatsapp when they had no profits and considered a great success why did they do it i'll throw that out there another 15 common bond gift certificate and no harm for guessing there's khan again yeah i think it was covered very early on uh customers the value of that customer list especially if uh if facebook knows or thinks that that customer base is significantly different than what they currently possess and it just adds a huge range of customers they can do a lot with those customers yep that's what i would bet on con that's a good bet you got one of them you got a 15 gift certificate but there are a couple other reasons as well what were some of the other reasons marco one of my thoughts is facebook has a chat feature but perhaps it's not to the level they want it to be and so whatsup has perfected that in terms of communicating and opening that avenue especially internationally so trying to improve a product they already own or have so technology part of it was a technology it's another reason what what's probably the reason why i became and those those are all reasons why they did and they all added if you think about the pyramid that we talked about they all added that additional value to get up to 19 million dollars there's one really big reason why they what i did it as well those are all part of it brian uh diversification maybe facebook you know plans on spending this kind of money on other technologies that are slightly adjacent to itself so if facebook you know just like the instagram acquisition if facebook sees the chat being most popular but people have a negative connotation of facebook and they already acquired the next best latest and greatest thing um you know it's an easy revenue model to move over uh from their current users to say whatsapp if whatsapp becomes their next uh you know prime product yeah yeah that could be a really big reason right i mean people were moving over to whatsapp and and they didn't like facebook right they cut that off um which i think that's that's along the lines of probably why they consider to be uh you know a success a big success any any others out there okay well let's take a look at it so why would they pay 19 billion so con exactly right 450 million customers right the cost per customer is 42 per customer facebook's lifetime value per customer is about 135 so immediate accretion right there right in addition they got access to customers in remote areas you know facebook you know mark zuckerberg from day one had this vision in his head of facebook being worldwide and that's one of the reasons why he turned down a lot of offers real early on crazy valuations but uh so whatsapp gave them the opportunity to access these customers in in remote areas uh along the lines of brian said extremely active customers over 70 percent use the product daily every day i think facebook was um at this time it was 2013 2014 was probably in 50 60 daily usage wasn't quite as high as it is today uh one of the really big things they eliminated an incredibly fast growing competitor incredible they were growing at an incredible rate of adding adding customers and there was a potential that someone like google uh google is actually trying to buy facebook doubled google's offer i believe is what it what it was close to that and they wanted to keep the company out of the hands of any competitors that could really threaten facebook and threaten their world dominance right um and they did they did so you know you can never tell what would have happened had they not done it but it could have it could have been different right um they could have morphed into more of a facebook type uh and they did get some great technology as well so if you look at that this is an example of the strategic pyramid where they just added all these layers on to come up with a justification for what seems to be a pretty crazy evaluation but in hindsight maybe it was a bargain because it was strategic right makes sense uh let's talk about um uh this this is a this is a valuation per user back at the time so facebook was valued at about 126 um dollars per user whatsapp was 42 dollars per user i guess theoretically i don't think they could have acquired whatsapp and then sold facebook at their evaluation per customer but certainly somewhere above that so they probably got you know pretty close to uh and again that's probably you know joint users and everything on there when you back it down but but um certainly if you look at this value per customer and i'm not sure what facebook's cost per customer acquisition was back then but um you know so in hindsight it looks like it could have been a pretty good bargain for them even though you say why would someone acquire a company for 19 billion with no profits right that's strategic uh let me talk about a local houston company change the name slightly just because it's a small small uh small world small community but um casey and i worked on this project uh about five years ago it was a local houston company they had a financial value maybe 25 million dollars top end they had a go oil and gas product uh very small sales and [Music] victim [Music] there was still competition out there but they had a uh a patented product the owners were it was growing and they were reinvesting a lot of capital back into the business they had very limited liquidity so they came to they were looking at a valid evaluating growth and potential exit options the target acquirer became a big 8 billion plus european publicly traded company they had an international sales force they had 150 global distribution centers they were selling mostly a commodity item mostly commodity item they had very limited tech products and they were getting a lot of we did a lot of research casey did a lot of research and we found out uh the ceo is getting a lot of pressure to kind of move from a commodity uh to some type of more technology so it came from the board the ceo had a vision to make acquisitions and and how did we find that out you know we went and it's publicly traded so we we looked at their uh their previous quarterly uh conference calls investor conference calls what was on the website was on their press releases it was pretty easy to say that hey this would be a really a great a great target so uh got together uh and this is what we uh we put together this is a summary of it but we looked at the ebitda you know what was the earnings um and again probably just the earnings it probably only want to justify maybe a 25 million dollar evaluation uh but you know the the strategic benefit for them was that it was a sexy new tech product that they could offer to their global sales force right and the global sales force could now sell it through 150 distribution centers and move from commodity to tech there were synergies around accounting finance marketing and hr certainly with a bigger company uh coming in there uh they got some good assets they got an established workforce they got a production facility here in houston right experienced team of key management personnel uh and the real benefit came from the opportunity to cross-sell each other's products right so now down here to their customers i think uh jim wheaton mentioned um it gave the big company access to some well-known names uh here in houston that they had these incredible relationships with i mean they hunted with them they fished with them they went to ball games with them and they had this relationship that this big international company couldn't get right it would take years to develop it but with the acquisition they got it immediately they got those handshakes they got those relationships uh and with that they could cross-sell each other's products so it wasn't just a one-way street it was a two-way street you know there were some other miscellaneous uh benefits from it health care efficiencies financing synergy some overhead reductions um you know and one big big thing that they got was just this pr bump a pr bump and when we went through it it was it was 100 confidential we couldn't leak this out to anybody all the information going back and forth went through secured sources and everything just could it just couldn't get out uh but we knew there'd probably be some type of pr bump because that was the strategic objectives of the board and the ceo to go out and acquire some of these you know more tech based companies so here's the results uh it resulted in a 50 million dollar plus valuation to the seller and in a lot of our discussions we said there might be more benefit that i'm saying it was a bigger acquisition than a smaller one it might not have ticked on the radar screen at all the acquiring company stock went up 80 cents a share right when it was announced and it resulted in over 150 million increase in market cap that came out of this um so it was again uh did they pay over market value yeah absolutely probably way more than double what market value was but at the end of the day it turned out to be a win-win all the way around for them because it was strategic it was well it was well thought out so um here's my concluding thoughts i know we have some questions coming in but um again strategic buyers will typically pay more because of these increased synergies and everything that we talked about um it's really important to start identifying and developing relationships with strategic potential strategic buyers well ahead and really it's to understand what they want what's important to them right uh do they have a direct you know salesforce is it based on the internet uh you know what what's important to them uh and you can start to do this work ahead of time it's really important again to understand who has the most to gain and the most to lose sometimes again buying a competitor in a small marketplace makes a big big difference but you know who has the most to gain the most to lose a lot of people always say you know what i don't want my competitor knowing that i'm selling it's true right so obviously it's it's proceed with caution you know and how do you do this and how do you work with with competitors there's certainly process strategies around this and and how you do this and you can work with advisors and consultants who can help with this and they can also help uh capture and quantify what your strategic value uh would be right in a lot of the processes that you know what i went through and again you know you start the hunt for potential uh strategic choirs early you know and you know got to get out there and and hunt for them and find them so i think uh we'll uh we'll stop there uh and i'll open it up to questions i know andrew we had a few questions come up uh yeah everyone for the participation as well i think it makes it more interesting yeah feel free raise your hand if you want to ask it or throw it in the q a in the meantime we had some come through and then i wanted to touch on one thing um it's what we've seen a lot of too uh which we didn't really discuss here it's it's private equity backed strategic buyers so um especially with smaller businesses um or medium-sized businesses what we've seen it's you have a strategic coming to the table but they're backed by private equity and there's just a size value or size premium that they'll be willing to pay because they're doing a roll-up or a bolt-on acquisition and so they might try to find a lot of similar companies and they'd be willing to pay a higher multiple because you've heard the one plus one equals three um it it could be coming from a private equity company which would be technically a financial buyer but when it's really going to be bolted on or rolled into a strategic you kind of have a hybrid of the two um so anyways rambling something else on that point too if you're looking to acquire a company not every company can be sold to a strategic acquirer right they're not positioned right they're not set up right they're not big enough they don't offer enough strategic benefits so there's still a lot of companies out there that are going to sell to just a purely a financial buyer an owner operator that's out there yeah um so one of the the questions that was submitted from uh sofia hopefully i'm pronouncing your name correctly but it was how do you go about finding a strategic barrier and getting in front of them um and i'll just say real quick that's that's one of the things that we kind of pride ourselves on we have a lot of proprietary research tools we can look at you know who's making transactions and acquisitions in that space you know who's very active there because private transaction data is extremely hard to come by it's also about you know our network um how what else how do you think finding the right buyer other than just some research yeah you know so it's a lot about what i teach in my class and everything so there's no textbook it's sometimes it's who can think out of the box the most just like brian said you know if i got a hot dog company out there you know what what others can benefit uh and sometimes it's a pretty you see it's a pretty crazy uh you know you know match that you can find uh one is to look at you know private equity companies and see what kind of companies do they are they backing right and is there a way to vertically integrate horizontally integrate take out a competitor it's research it's work at the end of the day it's getting out there and thinking thinking outside the box talking to others in the industry right that are out there we worked when i sold my printing operation we worked with an investment banker that we found that was specialized in our industry and he was the one that said hey we know this company out of chicago and they got kind of west coast east coast midwest they don't have anything in the southwest and i think they're gonna really have an interest and they did we really didn't hadn't had they were head and shoulders uh uh you know ahead of anyone else that ever came in there just for the fact i pro i might not have known that right but you've got to do your homework you got to do your research and you work you work with others that know and they do this you know a lot yeah one question that just came through it might actually have been while i was uh chiming in on this but can you please provide an example or a private equity buyer can be a strategic um which is exactly what i was just saying you have a strategic in the space they have some port codes that fall into line with existing operations um and they you know they want to bolt it on and grow it so one of the best fits is actually that if there's a a buyer in the industry and they're backed by uh private equity group then the private equity group is giving the company the capital to go out there and do these things that we talk about right and the good some of the good news for that is when they come in there they really want to they have a vested interest to grow the business to really grow it and do it do what they can uh you know again might have to proceed with caution a little bit and what do they know then are they known to come in there and cut staff 50 um you know are they known to be in there and start to micromanage so you've got to so they're going to be there's there's good and bad there's good private equity groups and maybe i don't want to say bad they just have different strategies but their strategy may be to really reduce cost um and cut expenses right but you got to know that and then we had one from ray and ray lindsey and i i don't think he's on anymore but it's relevant so i'll go ahead and ask it um what is the estimated impact on tev which i'm guessing is total enterprise value with an all-cash buyer you know allowing for a little bit of escrow yeah that's a good question and andrew and i wrote a white paper on it pre pre-covid was market was a little hot it was crazy uh we had a good tailwind a lot of capital out there and everything and it was really a seller's market uh post coved you know there's just it's an additional risk so when you talk about all the risks that go into your financial valuation covet is just now another risk so if you're looking to buy a restaurant uh in 2019 they had two and a half million dollars in revenue what's it going to be this year but what's it going to be next year so if you can come in there certainly cash in in a market like this is going to get a discount right i mean someone's going to discount and say yeah i get all all cash and get out of it i'll take a discount what that number is you know we don't know and certainly it's going to impact different industries different ways uh companies that are coming out of covid and don't show the impacts of covid said hey look we've kind of weathered this risk so it's not really a risk that's going to go into significantly decreased value um unless maybe something prolonged or returned to it could but um certainly as we come out of this that cash will be king and and i think by sellers are had a wake-up call uh entrepreneurs say next year is not always going to be as good as this year even though it might have been for the last six years and it's a wake-up call so if you take a look at that there's going to be certainly an impact to it yeah and then um al can can you actually let me share my screen real quick john had a another question about um just what the current market's looking like and i wanted to reiterate your point about the white paper and i was going to show everyone where they can go download it um and axial's middle market review is going to actually be publishing this on thursday i believe but we have it on our website i think your co-host you should be able to do it let's see oh yeah i'm sure nervous no we're good so if you go to our website resources on the resources page drop down here um we this this whole paper is about creating favorable transaction structures right now and what it's going to look like um and it really is interesting because um to john's question you know what is it looking like i'll give you a very quick example we had a client um just like i was mentioning earlier a private equity backed but strategic buyer um was was interested kovit came they had to kind of back away um immediately after we had a actual strategic buyer um come back to the table at a higher valuation the the the former uh private equity backed company had a all-cash offer which is great but the strategic thing came in um which hopefully we're going to have closed pretty soon with a higher offer but we're going to have you know an earn out a little bit of a seller's note and so this this paper kind of explains all the different intricacies into how we're what we're seeing and how you can make you know really good transactions still happen um you know once we get through the headwinds of this so anyways so that covers john's question anyone else any you know raise your hand throw it in the q a let's see we got gerardo there we go let me unmute your mic go for gerardo i'm done i'm looking to buy a business and it has nothing to do with what you're talking about but it does it and i'm just looking at finding businesses that don't necessarily are going through brokers because i see that a lot of the valuations and a lot of the ads are basically just wrong and i want to see what your feeling is of uh of how to tap into the you know family-owned businesses between five and ten million dollars in revenues without having to go to the bro through brokers yeah we certainly i teach the class on enterprise acquisition and there's a formal process for that i'd be more than happy to send you uh some of the pdf chapters from it but you know it's real really important if anyone's on the buy side out there is you just have to spread your cast your net as wide as possible right and that means par you know talking to cpas like gary cooper who who has clients come up financial planners like josh uh even bankers and and then as you start to narrow it down if you say okay i want to go and acquire you know five to 50 million dollars is a really broad range and as you start to eliminate and i'm not going to do restaurants i'm not going to do service based i want a niche manufacturing company you start to generate lists right if you narrow it down to industries and then you have to start the network within those industries and get the name out there and known i would not uh downplay you know intermediaries though uh they have to be on your radar screen um and and what you can do and what we always encourage our students to do is just be at top of mind so when a deal comes in a lot of the deals don't even make it out to the market right you get a really good niche manufacturing company comes in million and a half dollars in an earnings a 65 70 year old owner looking to retire that's a hot commodity and a lot of the intermediaries are just going to pick the phone up and start contacting those that they know can move quick are well financed our serious buyers aren't going to waste time and they'll move pretty quickly with them so um you need to have them as a part of your process but certainly not the whole process and in in outreach you know linkedin and linkedin scraping is really a big thing uh and if you can you can go through linkedin and you can target specific types of companies you can target business owners that are went to rice or went to a m or went to texas and reach out there with them um directly networking and everything but it's um it's it's a process right you've got to really be out there rubbing out elbows and and working hard networking to get out there so set up a lot of funnels a lot of different funnels deal flow coming in and someone was asking what's a good source to find historic ebitda multiples 2019 to 2020 revenue 5 to 20 million that's the tricky thing um there are sites pitch book uh yeah pepperdine uh if casey's available he might even know more than i do but some of the brokerage sites like this buy sell might offer that we talked about it a few weeks ago and of course i'm drawing a blank now but the ultimate answer is that it's really hard to come by that um you have to have access to private transaction data um which means it has to be submitted by you know the the seller yeah i want to really throw something on there and i really want to say this this is my pet peeve this is my one bellwether i guess you'd call it it's an average is just an average and businesses every business is unique every business is different um i'll pull this back up here uh can you see this uh every every bit every if you if you do get average they're just averages which means half are above and half are below and businesses in the same industry can have a wide range of valuation based on they have customer concentration as the owner involved how long have they been in business for um you know what's their profit margins compared to others in the industry and everything so uh you you can get some of that it's average but it's really important to understand the process of business valuation and what type of businesses deserve kind of an above average and one or below and just and always to remember that average is just a middle point it's nothing more nothing else well i know we're over by a minute but let's see this last one um brent was asking how exit advisors as the the sell side representation advises our clients whether to sell to a strategic versus a financial buyer aside from the purchase price yeah i could take that andrew i know you can add two too you know it's best fit so it's really understanding what the seller's needs are some really care about the legacy of the business and some don't they still look i don't care i want the most amount of money and and that's it right uh some will say i never sell to that jerk down the road who's been a competitor for for 10 years and said well if we gave you 50 more would you still think he's a jerk um some might say yes to some some might say no but you know a lot of that is really just an up front up front and sitting down and understanding it um maybe there's a connotation of a private equity group that wants to kind of cut costs and cut staff and says i'm not going to cut cut cut staff cut cost right i want someone that knows this business is going to step in there so um we really sit down and try to get a clear understanding of the of the selling gear i'm not sure if your android want to add anything in there yeah i mean i think i think some private equity groups also in some cases could have deeper pockets in a strategic um you know they might have lps or a fund where they can make more acquisitions than a strategically you know the strategic has x amount of bandwidth they might only do one or two transactions a year some cases they might do 10 but um you know i think with private equity there's really no shortage in some cases of access to capital at least right now um and and so they might be able to accelerate growth that's not always the case that's just an example of how it could could be yep all right well i guess you know since we're a few minutes over we'll go ahead and wrap it up um but al thanks thanks for your presentation today and thank you everyone for joining us um you know feel free to reach out to us if you have more questions or want to talk online or offline we'd love to answer them and and you know talk to you one on one any any closing remarks out no a plus for everybody good good good job good input um like like andy said just reach out anytime you know a lot of it we just encourage education and understanding you know the process and learning and there's a lot of materials out there a lot a lot of information and let us know what you want to hear too because you know we've got a plethora of of topics and knowledge between mainly al and gary and some of our other business partners but i'll make a plug for gary's i can't wait to hear gary's on the potential impacts of the new political regimes uh either way and it's going to come back yes it's going to change so i can't wait for that one gary on who is that the 27th yeah we're going to talk about the different uh platform for each candidate what their taxes will look like and how that could potentially affect the economy uh mergers and acquisitions and other aspects of business yeah and then right indeed next week is going to talk may want to talk about that a little bit so uh andrew do you have do you have the information uh on what the topic is next wednesday yeah actually i think you've got it on the powerpoint side maybe you can pull that back up one more time for everyone it'll be really interesting it kind of ties into what al did today but dives into the covet aspects of it yeah impact of covet on mna and that i would encourage you to go read our white paper too that i showed you because that would be a really good segue into this and there's some other sources that we reference in the paper um i think that'd be a really good prerequisite if you will and steve kesten is an amazing attorney amazing m a attorney and and uh he was actually a part of the deal that i used as an example but he was uh he was amazing amazing attorney great speaker spread the word about these topics and uh you know tell your neighbor tell your friends tell your business associates i believe there's some very rich information that can be conveyed here uh you know have your lunch and listen in it's uh it's an easy it's really easy yeah yeah and next next week someone can get a common bond lunch and listen in right yeah there you go thank you all right well thank you everyone and i guess class dismissed class dismissed thanks thanks andrew thank you