Wise Up on M&A by Exitwise | Ep. 3: Who Is the Deal Maker?

Brian Dukes Better, better term. Yep. Dealmaker.

Stephanie Let's call them the dealmaker. So we have seat number 1, the M&A attorney, seat number 2, the dealmaker. And you just said the dealmaker could be one of 3 titles, if you will. What are they? Say it again.

Brian Dukes So they're typically— well, they're used interchangeably, but it's typically a size thing, a size of transaction. A business broker tends to do deals, call it $2 million in enterprise value or below. Oftentimes they have real estate included. So think more Main Street businesses, you know, local businesses, restaurants, maybe very small manufacturing situations that have, you know, just as much value in the real estate as they do in the business themselves. Typically a business broker with a real estate license will take on those transactions. Above that, call it $2 million enterprise to maybe $20 million in enterprise. tends to be called an M&A advisor. Many of the skill sets that you see in brokers are applied in M&A advisors. I like to say that M&A advisors have just seen more deal volume. They've been through more transactions. They understand the nuances of buy and sell, and they typically will bring a more national or even global view of the buyer pool because most M&A advisors aren't selling those very localized businesses. They're looking to sell businesses that are more transferable nationwide or Then you get to the really big transactions where investment bankers are going to take over. We've all heard the big investment banking brands. There's definitely some great boutique bankers as well, but they're handling transactions and each of them have their own thesis. But typically you'll start really looking at investment bankers at maybe $25 million in enterprise value and above. They of course choose, you know, or try to get into, you know, the billion-dollar transactions as quickly as possible. But you have some that are boutique, super qualified, tons of experience that are going to do an awesome job on a $30 or $40 million transaction.

Stephanie Okay. So it seems like the easiest way to break down these different dealmakers, to your point, is kind of the size of the deal. And you're saying regardless of the size of the deal, you should have one of these people, either the broker, the M&A advisor, or the investment banker.

Brian Dukes Yes.

Stephanie And in a nutshell, what are they really doing? doing? Like, what does the job actually look like? And I know it could be complicated. Let's try and keep it, maybe let's try and keep it high level instead of the nitty-gritty of what each of those 3 would do. But just like in a general sense what they're doing, what is their role?

Brian Dukes There, there's, there's a couple chunks of work that are really important when it comes to advising a deal or being a dealmaker in a transaction. The first is organization of your data. You know, you hear about data rooms, which is just a, You know, it's just an online database of your materials, you know, finances, contracts, other details of your business. They do all the organization, all the preparation of the materials that would be sent to the buyers. Second phase is outreach to the buyers and kind of initial negotiation conversations around the business. That's a very—

Stephanie And they find the buyers, right? That's a very interesting part. They find the buyers.

Brian Dukes Many investment bankers and advisors will say, we have this big proprietary database of buyers, which can be true, But most, especially to, in today's world, this is more about categorizing effectively who and what and why buyers are looking to acquire assets. And you don't have to have 1,000 conversations a week to do that. It's more about the competence to be able to find that core group of 20 to 50 real interested acquirers that are are excited about the space. That's, that's what that role is about. And every advisor banker will probably do this slightly different. This is all about outreach to the buyers, initial conversations, and then starting to drive towards the deal-making activities, which is you'll commonly hear IOI or LOI. Those are indications of interest and letters of intention. They're kind of the initial offer to buy your business. I guess a bit of a sidebar, We hear too often business owners that get a signed LOI and they're celebrating, you know, the difficult part is over. And if we're using that analogy of the boat, you know, in the ocean, you're like 10% of the way. So congrats, you're making good progress. You're not home yet. Yeah. We get into that next phase that can be anywhere from 2 to 5 months called due diligence. That's where your banker advisor really should be spending a great deal of time. If they've done their job well, many or most of the materials are already prepared. But this is the phase in which a buyer is going to, they're gonna get into every aspect, every crack, every possible question that they can come up with to better understand the business, to validate the offer that they've initially given you. Unfortunately, many buyers will use that period to, we call it retrade, which means reduce the price on the deal. And the job of your advisor, your dealmaker, is to hold the line again with proper Preparation, it gives them the ammunition to hold the line as aggressively as possible. You get to the end of that 2 to 5 month diligence process and they're working largely with the attorneys on purchase agreement and closing the deal in a, in a good way. So that, that's the high-level chunks of what a dealmaker or advisor would do in a transaction.

Stephanie So we have the M&A attorney, the dealmaker, which is either the broker, the M&A advisor, or the investment banker. And then there's one more spot. That is reserved for sure. Who is it? Oh man, we did it again. Who gets seat number 3 on the M&A boat?