Join Russell Cohen and myself, Jeremy Wolf, on a journey to the heart of financial finesse in the fast-paced world of private equity-backed M&A transactions. We pledge to uncover the layers behind pristine financial records that are essential when courting private equity buyers—think of it as financial matchmaking where only the cleanest, GAAP-compliant books win hearts. We'll dissect the significance of the trailing 12-month performance and just why every tick and tock of the quality of earnings report can make or break your EBITDA's credibility. For business owners playing the long game, our dialogue serves as a treasure map to the 'X' marking the sweet spot for your post-transaction salary expectations and company valuation.
Sail with us into the strategic waters of exit strategies, where timing and commitment post-sale are more than just mere details—they're the anchors that can secure future fortunes through rollover equity. Our conversation charts the course every savvy business owner should navigate before setting sail on their M&A voyage. With a seasoned advisory team as your crew and an M&A advisor as your captain, we illustrate how to steer clear of the common storms that besiege sellers. For most, this transaction is not just a business deal but the culmination of a lifetime's work, a pivotal moment that demands expert navigation to ensure their legacy—and financial future—is preserved.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:02):
Welcome to the South Florida M&A Advisors podcast,
your trusted M&A team.
Here's your host, Russell Cohen.
Jeremy (00:14):
Hello everyone and welcome back to another episode
of the South Florida M&AAdvisors podcast of your co-host
Jeremy Wolf, joined by yourhost, russell Cohen.
Russell, good to see you again.
Russell (00:24):
All right good morning hey, Jeremy.
Good morning.
Jeremy (00:26):
How are you doing?
Well, man, it's Friday andready for a nice relaxing
weekend.
The wife has taken the sun toDisney.
This weekend, it's just me andmy daughter.
So we're going to do somechilling.
We're going to have some funtogether.
Russell (00:37):
Have a relaxing weekend .
That's good.
Jeremy (00:39):
Yeah, yeah for sure.
So we've been going on thisjourney through the M&A process.
We've talked about a lot ofdifferent topics and I know
today you wanted to focus alittle bit more in depth on how
to be private equity ready, andI would imagine, from where I
sit, that the financialperformance of a business is
(01:01):
probably an instrumental factorin getting yourself ready for
private equity funding.
So, with that in mind, howcrucial is a company's financial
performance when preparing fora private equity backed M&A
transaction?
Russell (01:17):
It's extremely crucial.
You know you're dealing withprofessional buyers.
They do this for a living.
They're buying companies.
That's all they do every day ofthe year.
They're looking at companiesall day and so they're studying
the numbers.
And this is your first journey,you know.
Especially, you know, when youhire an M&A advisor like myself,
(01:39):
I'm doing it on a day to daybasis.
But the business owner this istheir first, first dance in this
arena and overwhelming, veryoverwhelming.
There's not a business ownerthat is private equity ready.
And I say that because theprivate equity group uses gap
accounting, generally acceptedaccounting principles, and the
(02:04):
all these businesses are not gap.
They're not using gapprinciples.
There might be close, but theirbooks are not gap prepared.
Now, in a business trans, in anM&A transaction, they may not
expect you, the private equitygroup may not expect you to be
gap.
You know, using those types ofprinciples, but but they're
(02:27):
looking at it through the lensof how they're going to run the
business.
So, as we look at theirfinancials and we think it's
great, and then we startunpeeling the onion and we start
to realize, as we get a littledeeper and we ask more questions
, you know we find holes in thebooks and you know we have.
(02:49):
We have to solve that problem.
If, obviously, if I'm gettingthere in early, I can bring in
the professionals you know, Icould bring in a fractional CFO,
I can bring in a higher levelaccounting firm to plug the
holes and start preparing forsale.
But if I'm, you know, if theyhaven't done it and I'm there
(03:10):
ready to bring on the company onthe market, then you know we
got a lot of work to do to putit in the right light for the
private equity group.
Jeremy (03:21):
Yeah, sounds like an intricate process.
What key financial metrics andperformance indicators do
investors typically look for inpotential targets when looking
for places to invest privateequity Right?
Russell (03:37):
so.
So they're basically going tobe looking.
They're gonna look at threeyears, but the what I'm really
commonplace is we're seeingthey're really looking at your,
your trailing 12 months, thecurrent year.
You know, if you could be inbusiness 50 years and if you're
on a declining trend then thenthey're going to look at that,
(03:59):
that calendar year, that mostrecent calendar year in the
trailing 12 months, and that'swhat they're buying and they're
trying to figure out.
You know, is that trailing 12months sustainable?
Was it quick hockey stickgrowth or they're catching a
slipping knife?
So that trailing 12 months isvery pivotal and they're gonna
(04:22):
they're gonna probably studyyour financials right up to the
closing.
30 days prior to closing, yourfinancials need to be clean.
They're going to be making surethat you have the foot on the
on the gas pedal all the waythrough the closing.
So you know these.
You know the companies thatcome in and really order your
books.
It's called a quality ofearnings.
(04:42):
The buyers steps aside, theinvestors steps aside.
They're spending 75 to 100,000for this quality of earnings and
they are working on behalf ofthe buyer.
They're not working for you andthey're not trying to kill the
deal.
They're just trying to make thebuyer aware of of where where
(05:06):
the potential issues are in thebooks.
They're trying to confirm theEBITDA, the earnings of the
company, and a lot of times thebusiness owner owns the property
and we got to make sure we havethe right rent to the
marketplace that could adjustthe EBITDA.
A lot of times the owners arestaying on and they want that
(05:27):
same salary, the high-end salaryand benefits, which then could
negatively affect the EBITDA.
So as a M&A advisor, we have toas much as they're worth.
Private equity group is notgonna pay $400,000, $500,000 a
(05:49):
year for you to run the companyJust because it will negatively
affect it, would negativelyaffect the cash flow.
So setting expectations withthe owner is just as important
in the process.
So, yeah, go ahead.
Jeremy (06:08):
No, I was gonna say so.
I'm trying to think throughthis in my mind.
So the business comes to you,they wanna sell their business
or they wanna raise equity,whatever the case may be,
obviously you need to do anassessment.
That's the first thing youwould do is an assessment of the
business.
How long does that typicallytake for you to conduct an
assessment to determine Causeobviously there's things that
(06:30):
need to be done in many cases tothe business, like you
mentioned, they're not GAP-ready, accounting-wise, you need to
bring in professionals.
Obviously, before you go outand try to raise private equity,
you're gonna wanna get thatbusiness as ready as they could
possibly be.
How long have you seen thatprocess typically take?
Is that something that can takesix months, 12 months to do for
(06:50):
a business, or is it somethingthat can be very quick?
Russell (06:53):
Sometimes the owners are ready.
So a lot of times if theyreally wanna get the true value
of the business, we recommend abusiness appraisal by a
certified appraiser.
That will give you the value ofthe business in this point in
time.
On the flip side, we can givean opinion of value.
I'm not a certified appraiserbut I can tell you in a
(07:16):
roundabout way through ananalysis landing spot.
But when we go to market, a lotof times in these M&A
transactions we don't have aprice.
We go to market, we let themarketplace dictate the price.
I'll give you a perfect example.
I was dealing with a fireproduction company and we
(07:37):
received two offers.
One is six million and thenanother one was nine million.
So we did not have a price onthe business and it was just one
buyer to the other buyer haddifferent values, same EBITDA.
We had a $2 million EBITDA.
One was willing to pay threeand another one was willing to
(08:00):
pay four and a quarter.
So we don't come to market witha price.
And if the owner wants to knowkind of the expectations where
to land, then that's great forthem to know.
But we don't come to marketwith a price.
Jeremy (08:17):
That's very interesting.
That's a pretty substantialspread you're talking about.
You said six, you got twooffers, six million and nine
million.
I mean you're talking about ahuge difference there.
So you never come to market, sonever do you have a price on
the business.
That's always kind of let themarket dictate that there's no
exception, the preferred methodis not to come to market the
(08:41):
smaller deals.
Russell (08:42):
when we're dealing from five to 10, you can come to
market with a price, but youdon't have to.
You really don't have to.
We're trying to do a structuredprocess where we're creating a
lot of stir and activity andleverage against each offer and
we're trying to get the highestpossible price.
So if we find a seller who istrying to maximize the price,
(09:07):
then that's fine.
We'll do a structured process,kind of like an auction process.
If we have a seller who isreally is more concerned about
time and wants and not aboutprice they wanna get a good
multiple but time is moreimportant then maybe a price is
better because then the buyerknows the target and the seller
(09:31):
wants the exit quicker.
And that's a good reason why tohave a price on the business,
so the business can move quicker.
Jeremy (09:41):
Can you share any examples I mean, I know you've
done quite a few of these dealsover the years of how either a
strong or perhaps a weakfinancial performance by a
company you've worked with hasultimately influenced the
outcome of the deal?
Russell (09:57):
Oh, no doubt.
If you have a hockey stickgrowth, then the seller is in
the driver's seat becausethey're gonna get a great
multiple.
You're going to have multiplebuyers on the opportunity and
the private equity group will beeager to get through the
(10:19):
process because it's growing andit's obviously a growing
segment.
But if you're in a decliningtrend, like a three-year
declining trend, and you'reselling it based on the trailing
12 months, you know a wholedifferent set of questions will
come out.
And if the current year, if thesales are going down, you know
(10:40):
that is a concern.
So that puts the leverage, thebuyer gets the leverage on the
deal and you have many hurdlesto get through.
Because the question is, youknow, why are the sales dropping
, why are the earnings goingdown and can the private equity
(11:01):
group do something to bring itback to where it was?
So downward trends is a wholedifferent animal and it's not a
whole other ballgame.
Jeremy (11:12):
You might not be dancing in the multiples of private
equity.
No, your multiples are goingdown.
Russell (11:16):
Listen as long as you have the right expectations and
you want to be on the other sideof ownership, you know then
there's still a chance you'llget your deal done.
But you know, if you're goingto be part of the team you're
going to have to be willing tostay on and transfer the
business in orderly fashion.
That's very, very pivotal inthe sale of a larger company.
Jeremy (11:41):
So, on that note, what role does an exit strategy play
in the M&A process and howshould companies or how do you
typically advise companies towork with on developing that
exit strategy?
Russell (11:55):
Well, you know we have to set the right expectations.
If the owner thinks they'regetting out of the business
within 30 days to six months,they are probably not going to
deal with these type ofacquirers, these type of
investors.
So, as an M&A advisor, thefirst thing I said to them
you've got to commit to a yearto two years.
Even a year is probably notenough, but you know certain
(12:18):
circumstances, you can get awaywith it.
But let's say an average of twoyears.
You have to commit to theinvestor, private investor, the
private equity group, thatyou're going to be an employee
or slash consultant of the newcompany, which you know business
(12:38):
owners are the entrepreneurs.
Now, all of a sudden, you knowthey're still running the
company to just don't have therisk associated with it to the
same extent that they had prior.
So as the M&A advisor, I got tosay sorry, you know, I know
you're, you want to get out ofjail and you want to go off and
go on vacation or play golf andstart living your retirement
(13:01):
life.
But you know you got that twoyear window that you're going to
have to, you know, run with theprivate equity group and be
part of their team, and thatalso goes into deal structure.
A lot of times they're notbuying you at 100%.
They're going to have you take10 to 20% roll over equity.
(13:22):
So you get something called thesecond buy of the apple.
When they sell, when they sellthe business with the other
companies they bought, you havethe opportunity to be part of
that second sale and sometimes,if it's not everyone, if
everyone does the job correctly,then that second sale could be
(13:43):
bigger than the first.
So that's called the second buyof the apple, where, where you,
you know you keep your 10 to20% roll over equity in and when
they sell the whole package ofall the companies that they
bought, then there's a very goodchance that you'll get a very
nice return.
And that's if everything goesas planned, obviously, sure.
(14:06):
So yeah, a lot of things.
Jeremy (14:09):
Is that standard practice when you're talking
about bringing in private equity, for the owner to stay on for,
like you mentioned, up to twoyears?
Or I'd imagine there arescenarios where they're out
quick because the for whateverreason the previous owner they
want them out, or how does thattypically work when dealing with
these transactions?
I also imagine that there's athreshold, like price you
(14:30):
mentioned 5 to 10 million.
When you're talking aboutlarger scale transactions,
they're probably going to wantthe previous owner on longer
right.
Russell (14:37):
Yeah, yes, I mean so two years.
A lot of times we're dealingwith business owners during that
retirement age.
They're selling between 60 and70.
So the itches, you know, tomove on and that's why they're
trying to be on the other sideof ownership.
But they are keeping a piece oftheir sale in the private
(14:57):
equity group in the new companyand they are expected to stay on
for two years.
That's part you know.
You have to be part of the team, right?
You're now owned by corporate,let's say, and now you're still
the CEO, you're still doingeverything you're doing.
You know less accounting andand you know a lot less
responsibility.
But you're just.
You know you have aprofessional team behind you to
(15:21):
help you grow the business.
And and you know that's whythey're buying you.
They want, they want to grow.
You know if you are doing 10million, they want to see you do
15 to 20 million.
So and they're gonna, they'regonna give you the professional
you know support, you know theadditional capital to jump in
(15:42):
and and and try to grow it inthe marketplace where you might
have hit a wall.
And and you've done, you coulddo what you could only do as a,
as an owner operator in thebusiness.
Now you have the ability toreally take it to the next level
if you desire.
Jeremy (16:00):
Anything else you wanted to add before we wrap this one
up.
Russell (16:05):
You know, listen, you know this is a very tricky
process.
It's a very detailed process.
It doesn't happen quick.
These deals can take six months, plus once you have an LOI.
You have many hands in thecookie jar in your deal, many
different advisors fromaccounting legal.
You know, just on the, just onthe, on the buy side, they have
(16:30):
a huge buy side advisory team.
It's important that you haveyour right advisory team, from
your attorney to your accountant, your CPA to your M&A advisor
to.
You know we help.
You know we bring in fractionalCFOs to help in the quality of
earnings.
So, yeah, so it is.
(16:50):
It's a very tough process.
It's an expensive process.
Unfortunately, when you startbringing in all these different
advisors to get to the, to getto the finish line well worth it
, because this is this is yourlargest chances are.
This is your largest asset onyour personal balance sheet.
So this is vital that we canturn it liquid for you so you
(17:11):
can invest the money.
Jeremy (17:13):
Yeah, I mean, you said it earlier, right You're.
You're run to the mill, generalsmall business owner, even
medium sized business owner,that doesn't have experience
with this whole process.
So it is incredibly importantto have an expert such yourself
that has a team of professionalsthat can go in kind of maximize
the value of your business andmake sure that you're taking
care of moving forward.
Russell (17:32):
So it's a whole different language, yeah, from
if you were selling a smallbusiness compared to your.
When you're doing an M&Atransaction, the buyers are
speaking a different languageand the business owner is kind
of taken back because they'retrying to understand.
You know what does all thismean?
And sometimes sellers, you knowthey they slow down the process
(17:55):
because they're trying to graspthe process and and that's why
it can't take longer to do adeal, because they, you know
they are successful, but they'venever done, never, never sold
their company before.
And so that's why it's vital tohave the right team of advisors
to you know, do it astraightforward, honest, high
(18:17):
integrity and and guide themthrough this, as I call it a
maze of of a, of a, you know,m&a transaction.
Jeremy (18:26):
Yeah, indeed, all right, russell.
Always a pleasure.
Thanks for the insights.
Thank you, yeah, and thanks foreveryone for tuning in and we
will catch you all next time.
Everyone, take care and have awonderful day.
Speaker 1 (18:42):
Thanks for listening to the South Florida M&A
advisors podcast.
For more information, visitSouth Florida MAcom or contact
954-646-7651.
Welcome to the South Florida M&A Advisors podcast,
your trusted M&A team.
Here's your host, Russell Cohen.
Jeremy (00:14):
Hello everyone and welcome back to another episode
of the South Florida M&AAdvisors podcast of your co-host
Jeremy Wolf, joined by yourhost, russell Cohen.
Russell, good to see you again.
Russell (00:24):
All right good morning hey, Jeremy.
Good morning.
Jeremy (00:26):
How are you doing?
Well, man, it's Friday andready for a nice relaxing
weekend.
The wife has taken the sun toDisney.
This weekend, it's just me andmy daughter.
So we're going to do somechilling.
We're going to have some funtogether.
Russell (00:37):
Have a relaxing weekend .
That's good.
Jeremy (00:39):
Yeah, yeah for sure.
So we've been going on thisjourney through the M&A process.
We've talked about a lot ofdifferent topics and I know
today you wanted to focus alittle bit more in depth on how
to be private equity ready, andI would imagine, from where I
sit, that the financialperformance of a business is
(01:01):
probably an instrumental factorin getting yourself ready for
private equity funding.
So, with that in mind, howcrucial is a company's financial
performance when preparing fora private equity backed M&A
transaction?
Russell (01:17):
It's extremely crucial.
You know you're dealing withprofessional buyers.
They do this for a living.
They're buying companies.
That's all they do every day ofthe year.
They're looking at companiesall day and so they're studying
the numbers.
And this is your first journey,you know.
Especially, you know, when youhire an M&A advisor like myself,
(01:39):
I'm doing it on a day to daybasis.
But the business owner this istheir first, first dance in this
arena and overwhelming, veryoverwhelming.
There's not a business ownerthat is private equity ready.
And I say that because theprivate equity group uses gap
accounting, generally acceptedaccounting principles, and the
(02:04):
all these businesses are not gap.
They're not using gapprinciples.
There might be close, but theirbooks are not gap prepared.
Now, in a business trans, in anM&A transaction, they may not
expect you, the private equitygroup may not expect you to be
gap.
You know, using those types ofprinciples, but but they're
(02:27):
looking at it through the lensof how they're going to run the
business.
So, as we look at theirfinancials and we think it's
great, and then we startunpeeling the onion and we start
to realize, as we get a littledeeper and we ask more questions
, you know we find holes in thebooks and you know we have.
(02:49):
We have to solve that problem.
If, obviously, if I'm gettingthere in early, I can bring in
the professionals you know, Icould bring in a fractional CFO,
I can bring in a higher levelaccounting firm to plug the
holes and start preparing forsale.
But if I'm, you know, if theyhaven't done it and I'm there
(03:10):
ready to bring on the company onthe market, then you know we
got a lot of work to do to putit in the right light for the
private equity group.
Jeremy (03:21):
Yeah, sounds like an intricate process.
What key financial metrics andperformance indicators do
investors typically look for inpotential targets when looking
for places to invest privateequity Right?
Russell (03:37):
so.
So they're basically going tobe looking.
They're gonna look at threeyears, but the what I'm really
commonplace is we're seeingthey're really looking at your,
your trailing 12 months, thecurrent year.
You know, if you could be inbusiness 50 years and if you're
on a declining trend then thenthey're going to look at that,
(03:59):
that calendar year, that mostrecent calendar year in the
trailing 12 months, and that'swhat they're buying and they're
trying to figure out.
You know, is that trailing 12months sustainable?
Was it quick hockey stickgrowth or they're catching a
slipping knife?
So that trailing 12 months isvery pivotal and they're gonna
(04:22):
they're gonna probably studyyour financials right up to the
closing.
30 days prior to closing, yourfinancials need to be clean.
They're going to be making surethat you have the foot on the
on the gas pedal all the waythrough the closing.
So you know these.
You know the companies thatcome in and really order your
books.
It's called a quality ofearnings.
(04:42):
The buyers steps aside, theinvestors steps aside.
They're spending 75 to 100,000for this quality of earnings and
they are working on behalf ofthe buyer.
They're not working for you andthey're not trying to kill the
deal.
They're just trying to make thebuyer aware of of where where
(05:06):
the potential issues are in thebooks.
They're trying to confirm theEBITDA, the earnings of the
company, and a lot of times thebusiness owner owns the property
and we got to make sure we havethe right rent to the
marketplace that could adjustthe EBITDA.
A lot of times the owners arestaying on and they want that
(05:27):
same salary, the high-end salaryand benefits, which then could
negatively affect the EBITDA.
So as a M&A advisor, we have toas much as they're worth.
Private equity group is notgonna pay $400,000, $500,000 a
(05:49):
year for you to run the companyJust because it will negatively
affect it, would negativelyaffect the cash flow.
So setting expectations withthe owner is just as important
in the process.
So, yeah, go ahead.
Jeremy (06:08):
No, I was gonna say so.
I'm trying to think throughthis in my mind.
So the business comes to you,they wanna sell their business
or they wanna raise equity,whatever the case may be,
obviously you need to do anassessment.
That's the first thing youwould do is an assessment of the
business.
How long does that typicallytake for you to conduct an
assessment to determine Causeobviously there's things that
(06:30):
need to be done in many cases tothe business, like you
mentioned, they're not GAP-ready, accounting-wise, you need to
bring in professionals.
Obviously, before you go outand try to raise private equity,
you're gonna wanna get thatbusiness as ready as they could
possibly be.
How long have you seen thatprocess typically take?
Is that something that can takesix months, 12 months to do for
(06:50):
a business, or is it somethingthat can be very quick?
Russell (06:53):
Sometimes the owners are ready.
So a lot of times if theyreally wanna get the true value
of the business, we recommend abusiness appraisal by a
certified appraiser.
That will give you the value ofthe business in this point in
time.
On the flip side, we can givean opinion of value.
I'm not a certified appraiserbut I can tell you in a
(07:16):
roundabout way through ananalysis landing spot.
But when we go to market, a lotof times in these M&A
transactions we don't have aprice.
We go to market, we let themarketplace dictate the price.
I'll give you a perfect example.
I was dealing with a fireproduction company and we
(07:37):
received two offers.
One is six million and thenanother one was nine million.
So we did not have a price onthe business and it was just one
buyer to the other buyer haddifferent values, same EBITDA.
We had a $2 million EBITDA.
One was willing to pay threeand another one was willing to
(08:00):
pay four and a quarter.
So we don't come to market witha price.
And if the owner wants to knowkind of the expectations where
to land, then that's great forthem to know.
But we don't come to marketwith a price.
Jeremy (08:17):
That's very interesting.
That's a pretty substantialspread you're talking about.
You said six, you got twooffers, six million and nine
million.
I mean you're talking about ahuge difference there.
So you never come to market, sonever do you have a price on
the business.
That's always kind of let themarket dictate that there's no
exception, the preferred methodis not to come to market the
(08:41):
smaller deals.
Russell (08:42):
when we're dealing from five to 10, you can come to
market with a price, but youdon't have to.
You really don't have to.
We're trying to do a structuredprocess where we're creating a
lot of stir and activity andleverage against each offer and
we're trying to get the highestpossible price.
So if we find a seller who istrying to maximize the price,
(09:07):
then that's fine.
We'll do a structured process,kind of like an auction process.
If we have a seller who isreally is more concerned about
time and wants and not aboutprice they wanna get a good
multiple but time is moreimportant then maybe a price is
better because then the buyerknows the target and the seller
(09:31):
wants the exit quicker.
And that's a good reason why tohave a price on the business,
so the business can move quicker.
Jeremy (09:41):
Can you share any examples I mean, I know you've
done quite a few of these dealsover the years of how either a
strong or perhaps a weakfinancial performance by a
company you've worked with hasultimately influenced the
outcome of the deal?
Russell (09:57):
Oh, no doubt.
If you have a hockey stickgrowth, then the seller is in
the driver's seat becausethey're gonna get a great
multiple.
You're going to have multiplebuyers on the opportunity and
the private equity group will beeager to get through the
(10:19):
process because it's growing andit's obviously a growing
segment.
But if you're in a decliningtrend, like a three-year
declining trend, and you'reselling it based on the trailing
12 months, you know a wholedifferent set of questions will
come out.
And if the current year, if thesales are going down, you know
(10:40):
that is a concern.
So that puts the leverage, thebuyer gets the leverage on the
deal and you have many hurdlesto get through.
Because the question is, youknow, why are the sales dropping
, why are the earnings goingdown and can the private equity
(11:01):
group do something to bring itback to where it was?
So downward trends is a wholedifferent animal and it's not a
whole other ballgame.
Jeremy (11:12):
You might not be dancing in the multiples of private
equity.
No, your multiples are goingdown.
Russell (11:16):
Listen as long as you have the right expectations and
you want to be on the other sideof ownership, you know then
there's still a chance you'llget your deal done.
But you know, if you're goingto be part of the team you're
going to have to be willing tostay on and transfer the
business in orderly fashion.
That's very, very pivotal inthe sale of a larger company.
Jeremy (11:41):
So, on that note, what role does an exit strategy play
in the M&A process and howshould companies or how do you
typically advise companies towork with on developing that
exit strategy?
Russell (11:55):
Well, you know we have to set the right expectations.
If the owner thinks they'regetting out of the business
within 30 days to six months,they are probably not going to
deal with these type ofacquirers, these type of
investors.
So, as an M&A advisor, thefirst thing I said to them
you've got to commit to a yearto two years.
Even a year is probably notenough, but you know certain
(12:18):
circumstances, you can get awaywith it.
But let's say an average of twoyears.
You have to commit to theinvestor, private investor, the
private equity group, thatyou're going to be an employee
or slash consultant of the newcompany, which you know business
(12:38):
owners are the entrepreneurs.
Now, all of a sudden, you knowthey're still running the
company to just don't have therisk associated with it to the
same extent that they had prior.
So as the M&A advisor, I got tosay sorry, you know, I know
you're, you want to get out ofjail and you want to go off and
go on vacation or play golf andstart living your retirement
(13:01):
life.
But you know you got that twoyear window that you're going to
have to, you know, run with theprivate equity group and be
part of their team, and thatalso goes into deal structure.
A lot of times they're notbuying you at 100%.
They're going to have you take10 to 20% roll over equity.
(13:22):
So you get something called thesecond buy of the apple.
When they sell, when they sellthe business with the other
companies they bought, you havethe opportunity to be part of
that second sale and sometimes,if it's not everyone, if
everyone does the job correctly,then that second sale could be
(13:43):
bigger than the first.
So that's called the second buyof the apple, where, where you,
you know you keep your 10 to20% roll over equity in and when
they sell the whole package ofall the companies that they
bought, then there's a very goodchance that you'll get a very
nice return.
And that's if everything goesas planned, obviously, sure.
(14:06):
So yeah, a lot of things.
Jeremy (14:09):
Is that standard practice when you're talking
about bringing in private equity, for the owner to stay on for,
like you mentioned, up to twoyears?
Or I'd imagine there arescenarios where they're out
quick because the for whateverreason the previous owner they
want them out, or how does thattypically work when dealing with
these transactions?
I also imagine that there's athreshold, like price you
(14:30):
mentioned 5 to 10 million.
When you're talking aboutlarger scale transactions,
they're probably going to wantthe previous owner on longer
right.
Russell (14:37):
Yeah, yes, I mean so two years.
A lot of times we're dealingwith business owners during that
retirement age.
They're selling between 60 and70.
So the itches, you know, tomove on and that's why they're
trying to be on the other sideof ownership.
But they are keeping a piece oftheir sale in the private
(14:57):
equity group in the new companyand they are expected to stay on
for two years.
That's part you know.
You have to be part of the team, right?
You're now owned by corporate,let's say, and now you're still
the CEO, you're still doingeverything you're doing.
You know less accounting andand you know a lot less
responsibility.
But you're just.
You know you have aprofessional team behind you to
(15:21):
help you grow the business.
And and you know that's whythey're buying you.
They want, they want to grow.
You know if you are doing 10million, they want to see you do
15 to 20 million.
So and they're gonna, they'regonna give you the professional
you know support, you know theadditional capital to jump in
(15:42):
and and and try to grow it inthe marketplace where you might
have hit a wall.
And and you've done, you coulddo what you could only do as a,
as an owner operator in thebusiness.
Now you have the ability toreally take it to the next level
if you desire.
Jeremy (16:00):
Anything else you wanted to add before we wrap this one
up.
Russell (16:05):
You know, listen, you know this is a very tricky
process.
It's a very detailed process.
It doesn't happen quick.
These deals can take six months, plus once you have an LOI.
You have many hands in thecookie jar in your deal, many
different advisors fromaccounting legal.
You know, just on the, just onthe, on the buy side, they have
(16:30):
a huge buy side advisory team.
It's important that you haveyour right advisory team, from
your attorney to your accountant, your CPA to your M&A advisor
to.
You know we help.
You know we bring in fractionalCFOs to help in the quality of
earnings.
So, yeah, so it is.
(16:50):
It's a very tough process.
It's an expensive process.
Unfortunately, when you startbringing in all these different
advisors to get to the, to getto the finish line well worth it
, because this is this is yourlargest chances are.
This is your largest asset onyour personal balance sheet.
So this is vital that we canturn it liquid for you so you
(17:11):
can invest the money.
Jeremy (17:13):
Yeah, I mean, you said it earlier, right You're.
You're run to the mill, generalsmall business owner, even
medium sized business owner,that doesn't have experience
with this whole process.
So it is incredibly importantto have an expert such yourself
that has a team of professionalsthat can go in kind of maximize
the value of your business andmake sure that you're taking
care of moving forward.
Russell (17:32):
So it's a whole different language, yeah, from
if you were selling a smallbusiness compared to your.
When you're doing an M&Atransaction, the buyers are
speaking a different languageand the business owner is kind
of taken back because they'retrying to understand.
You know what does all thismean?
And sometimes sellers, you knowthey they slow down the process
(17:55):
because they're trying to graspthe process and and that's why
it can't take longer to do adeal, because they, you know
they are successful, but they'venever done, never, never sold
their company before.
And so that's why it's vital tohave the right team of advisors
to you know, do it astraightforward, honest, high
(18:17):
integrity and and guide themthrough this, as I call it a
maze of of a, of a, you know,m&a transaction.
Jeremy (18:26):
Yeah, indeed, all right, russell.
Always a pleasure.
Thanks for the insights.
Thank you, yeah, and thanks foreveryone for tuning in and we
will catch you all next time.
Everyone, take care and have awonderful day.
Speaker 1 (18:42):
Thanks for listening to the South Florida M&A
advisors podcast.
For more information, visitSouth Florida MAcom or contact
954-646-7651.
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