August 29, 2025 • 28 mins
In this episode, the conversation dives into the world of mergers and acquisitions through the lens of patience, process, and precision. The guest shares lessons on why shortcuts backfire, how attention to detail can make or break success, and what it really takes to achieve the best outcome in business transitions. It’s a candid discussion about discipline, resilience, and the mindset required to navigate big changes.
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(00:00):
Woodworking is fun and guitar playingis, of course, one of my.
(00:04):
Passions.Yeah, yeah, it's a passion hobby.
You know, started when I was 12
and that's, in lots of bandsthat, you know, I've been in many, many
when I was younger and teenager in my 20sand all that. But,
you don't have time for it after a while.
Like, life gets in the way.
It does. Right?
You have kids, you have business,you do all that.
(00:27):
So I. I don't play that often anymore.
Okay. Probably once.
If I pick it up once a week, I'm lucky.
I'm kind of, you know, at this point.
For those of you that are just joiningus, we're touched on talks
and we are meetingwith, partner Steve Pappas.
He gave me a.
(00:49):
Who? Yeah, is an woodworking
enthusiastic and has just shared with us,some life lessons.
So, we're going to continue to, to talk
with him and his role at touchstone and,how he works with owners.
Thanks. Thanks, I appreciate it.
You know,one of the things I was thinking of today
as we were going to get togetherwas, you know, what is it
(01:12):
that, you know, that's important to mein working with a client.
And one of the things that's importantis absolutely, kind of brutal honesty.
Honesty is important because,
you don't want to mislead a client with,
kind of giving themwhat they want to hear.
(01:32):
That's, I think, a cardinal rulethat that that I live by.
And I think we live by at touchstone.
So if you have a clientthat that they're either
let's say they're not ready to sellor there's a lot of problems or,
or in many cases where, you know,we would recommend, don't,
you know, just don't do itand wait for, for a year or 2 or 5 years
(01:53):
or maybe whatever the situation isand that that honesty,
I think is a fundamental cornerstoneof what
at least what I've learned and what MikeCammarata, who who founded touchstone,
he taught me, you know, hehe taught me when I joined touchstone
(02:13):
that it's extremely importantto have a high level
of integrity and professionalismwhen it comes to working with clients.
And that goes a long way, even ifit is not in, you know, our best interest.
Oftenit is not in our best interest. Right?
So many timesyou and I have had clients where,
you know, we could have recommended acts,something to do
(02:37):
which would have benefited us,but that's never the right thing to do.
So that's important.
And also another thing too, is in the M&Aworld, there are a lot of,
you know, we'll call itnot so savvy M&A people out there.
I saw a lot of that when I wasin the business brokerage world.
(02:59):
Business brokerage is really kind
of the level below the M&A,where it for love.
Stop just a second.
And let's define our terms a little bit.
Because I don't know that
all of our listeners know the differencebetween business brokerage and M&A.
Business brokerage is smaller,more mainstream.
Main Street, it's all Main Street.
(03:20):
So I did I was a business brokerwhen I first got into this whole industry.
I was a business brokerfirst for ten years.
And and it's completely different.
It's the equivalentto a residential real estate
person versusa commercial real estate person.
That's, that's it's even more than that.
(03:40):
You're dealing with, you know,think about walking down Main Street.
You have restaurants,you have dry cleaners, you have pizzerias,
you have clothing stores,you have you have a hardware store.
All of those types of businesses,they're great businesses.
They're run by an individual typically.
And they the owner takes pride in it.
(04:01):
But but it is only being sold.
Typically the buyer is going to be anindividual, in most cases, 99% of the time
you're not dealing with corporations,you're dealing with an individual buyer
who was essentially buying themselvesa career, buying themselves a job.
That whole world,I did that for ten years.
(04:22):
And it's it'sit's like guerrilla warfare in a way.
You're in the trenches,you realize how hard these people work.
They're survivalists.
They will do whatever it takes toto survive and to make a profit.
The downside, is after
ten years of doing that,you just get tired of,
(04:44):
you know, let's say, to put it mildly,
you know, their accounting practicesaren't the best.
Okay.
Many cases I would walk into,business owner, a liquor store,
for example, or a wine shopor would be, you know, whatever.
It doesn't matter.
And when you talk to themabout their financial records,
(05:04):
many cases,they're like, hey, there's a box.
So there's a shoe box, and there it is.
There's all my receipts in there and that,and that's it.
They meet with their accountantonce a year.
To have a tax return.
Tax return.
That's it. There's no there's many cases.
There's not even QuickBooksor any type of, you know, counting thing.
It's some use sometimes they just usean old fashioned one.
(05:25):
Right. System, which is ledger.
Ledger, which is checks. And
and again,
don't get me wrong, these are wonderfulpeople that have excellent.
They've put their kids through college.
They've done all the right things.
But it's a different world.
Okay.
And, that's different than the we'll call it
the lower middle market M&A,the lower middle market or business.
(05:49):
There's typically with $10 millionor more, 10 to 100 million
more like manufacturing companiesto distributors, B2B services
companies that really have things like,a management team,
they might have a CFO in many cases,or a controller,
a VP of sales.
(06:11):
If the owner smart, they've kind ofpull themselves out of the, you know,
maybe out of the day to day or certainlyout of a sales role in the company.
That's the world that I live in.
We live in that, that touchstone.
That so the two are are, important.
And there are many people
(06:31):
that are business brokersthat do an do a great job.
But, you know, I reached a pointin my life that I got tired of doing that.
And I really wanted to elevate into,you know, larger transactions
and deal with companiesthat really had a legitimate
accounting department and a legitimate,you know, accounting firm
(06:52):
that would do financial statementsfor them and all the normal things.
And that was kind ofa breath of fresh air.
Okay. Is that what attracted you to M&A?
Yeah, that's what attracted mefrom being in a main street
to, I'll say, the M&A world.
Prior to that, just so people know and,you know, I've told you this before,
(07:14):
but I came from the tech industry,so I went, you know,
you know, I don't I'mnot the M&A advisor, M&A person that.
Has you're not a finance. Pro.
I'm not a yeah,I don't have the MBA. Right. Okay.
I didn't go to Harvard.
Yale, and with a finance, majorthen then get the MBA.
(07:34):
I want a completely different track.
I went to a technical high school,
the same technical high school that trainsplumbers, electricians and all that.
And I took electronics at the time.
And then I went off to to,to get an electrical engineering degree.
Once I did that, went into the computerindustry, the computer industry back then.
(07:54):
This is in the 80s. This is
this is mainframe stuff.
This is not PCs.
The PC wasn't evenin, you know, invented yet.
It wasn't even been introducedtill early in, in the 80s by IBM.
And so I was a technician,I installed systems, I troubleshoot
with them,and I was in the whole industry for,
(08:16):
you know, God, probably 25 years.
Eventually I just got tired of itand I wanted something different.
I knew someone that was a business brokerand I said, what is that about?
Like, what do you do?
I don't even know it even existed.Like, do you?
Yeah. Do people do that?
And he said, yeah,this is how it works and blah, blah blah.
So I so I just quitmy job and I jumped in with both feet.
(08:40):
And I was with this one individualas partnership with him
for a couple of years.And I went on my own.
But it is what's
really rewarding
in the whole M&A world to me
is we actually change people's lives.
I believe we we do theirthey are ready for the next phase.
(09:02):
And that's very satisfying to me.
You know, as a salesperson in the computerindustry.
Yeah.
You know, you sell software,you sell hardware.
You know, you're not changing anyone'slife.
This is this is satisfying.
Okay.
So helping with the exit isis your favorite part.
It is okay.
It's my favorite partbecause you have someone who is
(09:27):
taken over from a companythat was maybe built by,
started by their grandfather,and then their father took over.
And now they are, now they are working
hard, to keep it going, to grow. It.
And then they reach a point in their lifewhere they have to make a decision.
Usually it's because of age.
(09:47):
They're reaching a point wherenow they either transfer
the company to their their kids
and in most in many cases,there's the kids don't want the business.
And that's becominga popular kind of common theme.
Now, a lot of the clients that come to us,come to me,
you know, the conversation is my kids are,you know, great.
We love them, but they're doctors.
(10:08):
Their lawyers are doing other things.
They don't want dad's aerospace,
you know, precisionmarry manufacturing company.
So it's a it's a bitter pillto swallow for them.
It's emotional.
But at the same timewe can do something for them to,
(10:29):
you know, kind of give them the valuethey deserve
for building their businessand continuing that legacy for many years.
And, and Ithat makes me feel really good.
Yeah. We do.We definitely do build legacy.
You know, the companies growto a certain level that they're at now.
(10:50):
And the ideal exit is onethat lets that company continue to grow.
So that the, the founder and I mean,we've got one that's three generations.
Yeah. You know, that's yeah.
That's and it's highly emotional,I mean, and rightfully so.
And, and you know, a lot of lot of peopleask me, you know, oh,
(11:12):
you know, is the owner just interestedin, you know, the highest price
or they get the most money and,you know, maybe in some cases, yes.
But I say the majority of the timethat's not the case.
I am surprised about the number of times
that the client,when faced with all the offers,
picks the second highest.
Yeah. Yeah.So because they liked them better. Yeah.
(11:34):
Like better they,
they felt more comfortableturning their business over to them.
Yeah.
They thought they'd be betterto protect their employees.
Yeah.Because their employees are their family.
And and we hear that often. Right.
So the employer.
These are my these are my
this is my family, myyou know, whether it's my management team
and then all the other employeesthat are in, in on the shop floor
(11:57):
or whateverthey want to take care of them.
And that's an important thing.
They don't want in many cases,not all cases, but in many cases,
they don't want the buyer to comein, you know, like I'll mention, you know,
private equity, for example,we sell, you know, quite a few businesses
to private equity.
But as long as it's negotiated upfront, and they know the requirements
(12:19):
of our client,the seller, the owner, you know,
they don't want to violate the,
you know, the, the,the wants of, of our, of the owner.
They don't want to violate the factthat the culture of the business is a
certain way,and that matching that culture
is a big part of what in the old might.
(12:41):
Be the hardest part of diligence.
It is, right?
How do you make surethe culture of one company
fits into the culture of the other?
And a lot has to do with calling,you know, even calling and talking
to previous acquisitionsthat that a PR firm, for example, or,
you know, a strategic company,you know, if they're in a growth mode,
they're buying three or 4or 5 companies a year and they're growing.
(13:03):
And one of the thingsthat it's important for, you know, the
the founder or the business ownersthat's looking to exit
is to have conversationswith people that they are that
that the buyerhas already acquired in the past.
How did it go? How did you feel?
Did they, you know, screw you in any way?
Did they take care of you?
Did they take care of your people?
(13:25):
Those are really important things.
So it is multifaceted.
Is is, as you said,it is not the highest price.
I've had many management meetingswhere, you know, we're down to the top
4 or 5, potential buyers,
and we set the meetings upso they can meet the owner and, and so on.
(13:48):
And, and we encourage them.
It's a two way street.
So they have to the, you know, the, the,the buyer is going to come in and say,
hey, here's
all the great things we could do for youand for your people, and here's why.
We're a perfect fit.
And then they
then the owners will get a chanceto ask questions to the potential choir.
And I've had situations where we've walkedout of that meeting and they've said.
(14:10):
No, not selling to.
Them, never selling to them.
I don't care what they offeror not doing it.
And that proves me, you knowsomething to me that proves there's
some integrity with, you know, withour client, it's not just about the money.
And they just, you know,they want to feel that these people not,
you know, are going to be taken care of.
So that's a that's a big part ofI think the process.
(14:31):
Yeah.
The only time I've seen an owner picka buyer based on dollar
amount on like singly,was one of the hardest to get closed.
Yeah.
Because the they were only motivatedby the dollars and cents.
Yeah.
And every negotiationwas more and more painful.
Yeah.
And you know and Iand I think us in our process
(14:56):
in my in on process,it's really important for a client
to understandall the different steps along the way.
And it's first of all, it's never easy.
Okay?
It's you know,that's a fact that I'll tell everybody
it's never easyat the end of the whole process,
they're usually going to say,hey, I'd love that. Let's do it again.
They're neveryou know. They're never saying. That.
(15:16):
They're never saying.
They're going to say, thank God it's over.You know, say thank God it's over.
Especially when you get to the point ofLoi and then you have to get to a closing.
And there's all that due diligenceand all the things that are now,
you know, the buyer wants to see,you know, triplicate of everything
under a microscope.
But if we've done our job properlyand if the buyer, I mean,
(15:38):
the seller is, is operating a legitwell oiled machine, you know, it's
there's a lot to it, but usually
you don't really hopefully uncoverany surprises.
You know, that's that's,you know, the thing that can hurt a deal
at the end is if we didn't disclosesomething or the seller client
didn't disclose something, that's that'susually a the kiss of death in a deal.
(16:01):
Yeah, yeah.
We, we say between us go ugly early.
Or ugly early.
Ugly early.
So if there's a problem and you know itand the business operates fine
with it, yeah.
You have to.
Be open and honest right at the beginning,because.
And plus you eliminate all the peoplethat just can't stomach
that they're out ofthey're already self out of the deal.
(16:24):
Right. Right. Okay. Self-selected out.
So you don't have to worry.
And you've kind of you've,you've you've gone
and solvethat one hurdle right out of the gate.
And then from that point on nowyou're dealing with,
you know, we'll call it more seriousbuyers because, you know,
they already know the situation,whatever it is, you know, like, gee,
(16:45):
you know,maybe our customer concentration is X or,
you know, one example,another good example that I've learned
is some, you know, precisionmanufacturing companies for, for example,
they willthey also let's say one of their clients
or customers might be in the firearmbusiness, for example.
(17:05):
Okay.
And, and and there's a lot of PE firmsthat are like dead set against that.
They will never.
And this part, it's in their bylawsthat all their investors will say,
I raised money.
They've raised. Moneyon not supporting certain things.
Certain things. And that's fine.That's they were that's their fund.
Well, I get to decide it. Right.But you have to.
But the point is you said upfront, right.
(17:27):
Why bother getting down the path of weekslater or months
later saying, oh, by the way,this and now you've wasted all that time.
You want to go ugly early.These are things.
Or if they've had financial hiccupsin the past.
You know, people will overlook it.
But it it limit like it just shapeswho your right buyer is.
(17:48):
That's right.
The other thing that always astonished meis you can put out the same company
with the same numbers,and you get feedback that clashes.
Clashes so widely.
So, you know, two small,two big wrong industry.
Right. Love the industry,hate the product. Right.
Like that.
Everybody'scoming from their own perspective.
(18:09):
And that and that that ties into,you know, the three market place
principles that my Cammarata taught mewhen when I first joined touchstone,
you know, dozen years ago now,you know, basically rule number one,
each acquire,each potential buyer will offer
and she value completely differentfor the same identical business, right.
(18:33):
Same financials, just like you said,same financials, same
product line, same employee,same services.
Some will see value there.
Some walk okay.
And if and if they do make offerseventually
they'll be all over the place becausethe beauty is in the eye of the beholder.
Right. So that's how that was.
(18:54):
Principle number two,the one with the most opportunity
will typically be your best buyer.
And that seems, common sense.
But it's important to understandthere are ones
that see opportunitybeyond the dollars and cents.
For example,they might need the technology.
They might need the, employees, the people.
(19:15):
They might need the geographic location.
These are things that not.They might want the customer.
They want just just the customer's right.
Because maybe they make products
that they can cross-sellinto this whole whole other market.
Okay.
And then the third principle that'sreally, I believe, you know, critical
in the way we bring a business to market
is that you'll never get the highest offer
(19:38):
from an acquirerunless they know that there's competition.
That's that's a fundamental difference.
And that's what the difference is doing.
Let's say Main Streetand the M&A Main Street.
You typically put a price tag right.
So I have it right I have a restaurantI'm asking you know $800,000
whether it's a list price,you know ask and an asking price.
(20:01):
And then you get offers from there.
In in our world, the fact thatwe don't put a price is really critical.
And the fact that we put buyersin competition with one another,
that's so critical and a lot of businessowners go, why do you do that? Why?
Why not just ask?
Because if you ask, well, just userandom numbers.
You asked $10 million.
(20:23):
Now you've set the high watermark.
No one's ever going to go up.
And say they could have come in at ten,510 or.
1111. We've been surprised, right?I've been surprised.
We've had situations
where the value range might be 9 to 10and we get $14 million offers.
Well, and it is back to those three thingsthat that create value.
They either wanted the location,
(20:46):
they wanted the customers,they wanted the industry.
It added the opportunityand value to them.
Yeah.
Or they looked at our numbers and said,
I see 100 ways to cut costs, right?
A synergistic buyer well will reducethose expenses in many cases.
They might have already have a CFOmight already have, you know, accounting
(21:07):
department, all those things are waysthat they could trim and
and and make the EBITDA make the profitmuch, you know, much higher.
And then also knowing there's competitorsbecause you know.
What he likes to lose.No one no one likes to.
Now, once they've committed to wanting it,
then the fact that they have a competitoror two that they know is kind of
(21:31):
in the market, you know, they're goingto want to sharpen their pencil.
And that makes a big difference.
I think definitely, definitely.
I want to touch on exit advantage.
Exit advantageis something that touchstone does.
That's a little unique. Yeah.
So tell us about exit advantage.
So exit advantage is a programthat we've developed.
And it came about because
(21:54):
many of the clients coming to uswere coming to us.
Kind of at thewhen they're ready to, to sell.
So, so a typical,you know, call with an owner
might be, hey,I've owned this business for 25 years.
I'm now 68 years old or I'm 70.
I want to sell.
And I'd like to get started immediately.
And I want to closeby the end of the year.
(22:14):
That's a very common conversation.
Our typical process is 9 to 12 months,from soup to nuts to do everything.
And that's if everything goes right.
And and what I have noticed
is that if they only had come to us a yearbefore or two years or three years,
there are many things that they couldhave done that were not complicated,
(22:37):
but they could have doneto improve the value of their business.
And they didn't do that.
So Exit Advantage is developedand designed specifically
for business owners that aren't ready now.
They do not want to sell now,
but they have an intention to sell,we'll say, the next 2 to 5 years.
Now it could be longer,could be ten years.
(22:57):
But it doesn't matter.
But they're not ready today.
So my my concept or our concept is use
this valuable timeto prepare your business for an exit.
Because to maximize the value,there are many things that you can do.
There are there are, you know,we analyze over ten different
(23:18):
functional areas of the company,not only financials.
What's operational managementteams report financial reporting,
you know, products and service.You name it.
There's it's there's there's an assessmentthat's done in all key areas.
And the reason is to identify areasof weakness that need improving okay.
(23:39):
And if those areas could be identifiedyou know let's say five years early,
there's a valuabletime that that shouldn't be wasted
to improve that company.
Because in the end,
even if you never sell,you have a better company, right?
Right.What's the there's no downside, right?
(23:59):
And the thing is, you have to have,you know, an ownership who feels
and recognizes that there are thingsthat they can improve in their business.
A lot of othersdon't want to think about that.
Their their nose is on the grindstone,and they're just trying to do the best
they can.
But if we could come in from the outsideand taking a perspective
(24:20):
from an acquirer's perspective,because we know,
we know what acquirers look for, right?
We deal with themevery day, hundreds of them.
And if they could prepare their business,then at the end when they do decide
if they decide to sell
and when they decide,they have a much more valuable company.
And that's the basics.
We won't have to go ugly early.
(24:41):
We we don't have that right.We we fix the ugliness. Right?
So if they have a customer concentrationthat needs to be resolved,
or if they have financial, booksthat are just messed up,
they need someone,an outside professional, to help.
There are many times that we're going to,you know, we're going to see what we get
(25:02):
at the end.
And, you know, if they don't doexit advantage, they come to us.
It pretty pretty much is what it is,right?
You just you're looking at you'relooking at last 12 months.
You're looking at.
And there's very little in the rear viewthat you can do.
You can't fix you just itemsyou very little.
You could do some changing in the future.
But since you're going to marketin, you know, the next 90 days or so,
(25:24):
there'sno time to prove any of the improvements.
Where have you came five years before?
And we said, you know, you could doyou should do this, this, this and this.
Those are really important things to do.
On the priority list.
Now, you're not going to goyou're not going to everything
you need to takethe top areas, the. Ones that fix.
You really right, that need help.
(25:46):
And and if you can get those doneat the end of the cycle
when you've done them and it's now 3or 4 years later, boy, you have
you've added millions, in many casesmillions to the value of your business,
where beforeyou just leave that on the table, right?
It just it just a fact.
So very few companiesthat are in the M&A world
(26:09):
that I know do this and I just, you know,we're officially launching it shortly.
We have a new website coming outhopefully with next 30 days.
So it's going to be, I think,a very popular program for our clients.
Absolutely, absolutely.
So we have one last signature question.
Okay.
You've had several careers, soyou've probably thought about this before.
(26:31):
If you weren't doing M&A right now,what career would you be doing instead.
What career? Okay.
So that's athat's an interesting question.
I mentioned my hobbies.
You know, hobbies are fun.
You know,would I be a musician playing in a band?
You know, there's a highlikelihood of that happening.
Or the woodworking piece of it.
(26:53):
Would I be in, owning a millworking company, or would I be involved
with that, that, you know,that's that's a possibility.
But here's the problem with that.
Hobbies are great.
But when you turn them into a career,it becomes a job,
a real right, because all of a sudden it'snot the luxury,
you know, the amount of time
I spend building a table,I'd have to charge $20,000 for that table.
(27:15):
And in order in order for them to work.
Very expensive, very expensive too.
So, you know, all of a suddenyou have to turn a hobby into a business
and you know,and then that changes the dynamics.
But if I absolutely wasn't doing this,you would probably want to be one of those
two things.
Excellent.
Well, thank you for your time today.
It's been great to catch up.
Thank you. Thank you. Deb was wonderful.
(27:37):
Joe Rogan did call me,but I decided to come here instead.
Some.
Baby, baby.
Woodworking is fun and guitar playingis, of course, one of my.
(00:04):
Passions.Yeah, yeah, it's a passion hobby.
You know, started when I was 12
and that's, in lots of bandsthat, you know, I've been in many, many
when I was younger and teenager in my 20sand all that. But,
you don't have time for it after a while.
Like, life gets in the way.
It does. Right?
You have kids, you have business,you do all that.
(00:27):
So I. I don't play that often anymore.
Okay. Probably once.
If I pick it up once a week, I'm lucky.
I'm kind of, you know, at this point.
For those of you that are just joiningus, we're touched on talks
and we are meetingwith, partner Steve Pappas.
He gave me a.
(00:49):
Who? Yeah, is an woodworking
enthusiastic and has just shared with us,some life lessons.
So, we're going to continue to, to talk
with him and his role at touchstone and,how he works with owners.
Thanks. Thanks, I appreciate it.
You know,one of the things I was thinking of today
as we were going to get togetherwas, you know, what is it
(01:12):
that, you know, that's important to mein working with a client.
And one of the things that's importantis absolutely, kind of brutal honesty.
Honesty is important because,
you don't want to mislead a client with,
kind of giving themwhat they want to hear.
(01:32):
That's, I think, a cardinal rulethat that that I live by.
And I think we live by at touchstone.
So if you have a clientthat that they're either
let's say they're not ready to sellor there's a lot of problems or,
or in many cases where, you know,we would recommend, don't,
you know, just don't do itand wait for, for a year or 2 or 5 years
(01:53):
or maybe whatever the situation isand that that honesty,
I think is a fundamental cornerstoneof what
at least what I've learned and what MikeCammarata, who who founded touchstone,
he taught me, you know, hehe taught me when I joined touchstone
(02:13):
that it's extremely importantto have a high level
of integrity and professionalismwhen it comes to working with clients.
And that goes a long way, even ifit is not in, you know, our best interest.
Oftenit is not in our best interest. Right?
So many timesyou and I have had clients where,
you know, we could have recommended acts,something to do
(02:37):
which would have benefited us,but that's never the right thing to do.
So that's important.
And also another thing too, is in the M&Aworld, there are a lot of,
you know, we'll call itnot so savvy M&A people out there.
I saw a lot of that when I wasin the business brokerage world.
(02:59):
Business brokerage is really kind
of the level below the M&A,where it for love.
Stop just a second.
And let's define our terms a little bit.
Because I don't know that
all of our listeners know the differencebetween business brokerage and M&A.
Business brokerage is smaller,more mainstream.
Main Street, it's all Main Street.
(03:20):
So I did I was a business brokerwhen I first got into this whole industry.
I was a business brokerfirst for ten years.
And and it's completely different.
It's the equivalentto a residential real estate
person versusa commercial real estate person.
That's, that's it's even more than that.
(03:40):
You're dealing with, you know,think about walking down Main Street.
You have restaurants,you have dry cleaners, you have pizzerias,
you have clothing stores,you have you have a hardware store.
All of those types of businesses,they're great businesses.
They're run by an individual typically.
And they the owner takes pride in it.
(04:01):
But but it is only being sold.
Typically the buyer is going to be anindividual, in most cases, 99% of the time
you're not dealing with corporations,you're dealing with an individual buyer
who was essentially buying themselvesa career, buying themselves a job.
That whole world,I did that for ten years.
(04:22):
And it's it'sit's like guerrilla warfare in a way.
You're in the trenches,you realize how hard these people work.
They're survivalists.
They will do whatever it takes toto survive and to make a profit.
The downside, is after
ten years of doing that,you just get tired of,
(04:44):
you know, let's say, to put it mildly,
you know, their accounting practicesaren't the best.
Okay.
Many cases I would walk into,business owner, a liquor store,
for example, or a wine shopor would be, you know, whatever.
It doesn't matter.
And when you talk to themabout their financial records,
(05:04):
many cases,they're like, hey, there's a box.
So there's a shoe box, and there it is.
There's all my receipts in there and that,and that's it.
They meet with their accountantonce a year.
To have a tax return.
Tax return.
That's it. There's no there's many cases.
There's not even QuickBooksor any type of, you know, counting thing.
It's some use sometimes they just usean old fashioned one.
(05:25):
Right. System, which is ledger.
Ledger, which is checks. And
and again,
don't get me wrong, these are wonderfulpeople that have excellent.
They've put their kids through college.
They've done all the right things.
But it's a different world.
Okay.
And, that's different than the we'll call it
the lower middle market M&A,the lower middle market or business.
(05:49):
There's typically with $10 millionor more, 10 to 100 million
more like manufacturing companiesto distributors, B2B services
companies that really have things like,a management team,
they might have a CFO in many cases,or a controller,
a VP of sales.
(06:11):
If the owner smart, they've kind ofpull themselves out of the, you know,
maybe out of the day to day or certainlyout of a sales role in the company.
That's the world that I live in.
We live in that, that touchstone.
That so the two are are, important.
And there are many people
(06:31):
that are business brokersthat do an do a great job.
But, you know, I reached a pointin my life that I got tired of doing that.
And I really wanted to elevate into,you know, larger transactions
and deal with companiesthat really had a legitimate
accounting department and a legitimate,you know, accounting firm
(06:52):
that would do financial statementsfor them and all the normal things.
And that was kind ofa breath of fresh air.
Okay. Is that what attracted you to M&A?
Yeah, that's what attracted mefrom being in a main street
to, I'll say, the M&A world.
Prior to that, just so people know and,you know, I've told you this before,
(07:14):
but I came from the tech industry,so I went, you know,
you know, I don't I'mnot the M&A advisor, M&A person that.
Has you're not a finance. Pro.
I'm not a yeah,I don't have the MBA. Right. Okay.
I didn't go to Harvard.
Yale, and with a finance, majorthen then get the MBA.
(07:34):
I want a completely different track.
I went to a technical high school,
the same technical high school that trainsplumbers, electricians and all that.
And I took electronics at the time.
And then I went off to to,to get an electrical engineering degree.
Once I did that, went into the computerindustry, the computer industry back then.
(07:54):
This is in the 80s. This is
this is mainframe stuff.
This is not PCs.
The PC wasn't evenin, you know, invented yet.
It wasn't even been introducedtill early in, in the 80s by IBM.
And so I was a technician,I installed systems, I troubleshoot
with them,and I was in the whole industry for,
(08:16):
you know, God, probably 25 years.
Eventually I just got tired of itand I wanted something different.
I knew someone that was a business brokerand I said, what is that about?
Like, what do you do?
I don't even know it even existed.Like, do you?
Yeah. Do people do that?
And he said, yeah,this is how it works and blah, blah blah.
So I so I just quitmy job and I jumped in with both feet.
(08:40):
And I was with this one individualas partnership with him
for a couple of years.And I went on my own.
But it is what's
really rewarding
in the whole M&A world to me
is we actually change people's lives.
I believe we we do theirthey are ready for the next phase.
(09:02):
And that's very satisfying to me.
You know, as a salesperson in the computerindustry.
Yeah.
You know, you sell software,you sell hardware.
You know, you're not changing anyone'slife.
This is this is satisfying.
Okay.
So helping with the exit isis your favorite part.
It is okay.
It's my favorite partbecause you have someone who is
(09:27):
taken over from a companythat was maybe built by,
started by their grandfather,and then their father took over.
And now they are, now they are working
hard, to keep it going, to grow. It.
And then they reach a point in their lifewhere they have to make a decision.
Usually it's because of age.
(09:47):
They're reaching a point wherenow they either transfer
the company to their their kids
and in most in many cases,there's the kids don't want the business.
And that's becominga popular kind of common theme.
Now, a lot of the clients that come to us,come to me,
you know, the conversation is my kids are,you know, great.
We love them, but they're doctors.
(10:08):
Their lawyers are doing other things.
They don't want dad's aerospace,
you know, precisionmarry manufacturing company.
So it's a it's a bitter pillto swallow for them.
It's emotional.
But at the same timewe can do something for them to,
(10:29):
you know, kind of give them the valuethey deserve
for building their businessand continuing that legacy for many years.
And, and Ithat makes me feel really good.
Yeah. We do.We definitely do build legacy.
You know, the companies growto a certain level that they're at now.
(10:50):
And the ideal exit is onethat lets that company continue to grow.
So that the, the founder and I mean,we've got one that's three generations.
Yeah. You know, that's yeah.
That's and it's highly emotional,I mean, and rightfully so.
And, and you know, a lot of lot of peopleask me, you know, oh,
(11:12):
you know, is the owner just interestedin, you know, the highest price
or they get the most money and,you know, maybe in some cases, yes.
But I say the majority of the timethat's not the case.
I am surprised about the number of times
that the client,when faced with all the offers,
picks the second highest.
Yeah. Yeah.So because they liked them better. Yeah.
(11:34):
Like better they,
they felt more comfortableturning their business over to them.
Yeah.
They thought they'd be betterto protect their employees.
Yeah.Because their employees are their family.
And and we hear that often. Right.
So the employer.
These are my these are my
this is my family, myyou know, whether it's my management team
and then all the other employeesthat are in, in on the shop floor
(11:57):
or whateverthey want to take care of them.
And that's an important thing.
They don't want in many cases,not all cases, but in many cases,
they don't want the buyer to comein, you know, like I'll mention, you know,
private equity, for example,we sell, you know, quite a few businesses
to private equity.
But as long as it's negotiated upfront, and they know the requirements
(12:19):
of our client,the seller, the owner, you know,
they don't want to violate the,
you know, the, the,the wants of, of our, of the owner.
They don't want to violate the factthat the culture of the business is a
certain way,and that matching that culture
is a big part of what in the old might.
(12:41):
Be the hardest part of diligence.
It is, right?
How do you make surethe culture of one company
fits into the culture of the other?
And a lot has to do with calling,you know, even calling and talking
to previous acquisitionsthat that a PR firm, for example, or,
you know, a strategic company,you know, if they're in a growth mode,
they're buying three or 4or 5 companies a year and they're growing.
(13:03):
And one of the thingsthat it's important for, you know, the
the founder or the business ownersthat's looking to exit
is to have conversationswith people that they are that
that the buyerhas already acquired in the past.
How did it go? How did you feel?
Did they, you know, screw you in any way?
Did they take care of you?
Did they take care of your people?
(13:25):
Those are really important things.
So it is multifaceted.
Is is, as you said,it is not the highest price.
I've had many management meetingswhere, you know, we're down to the top
4 or 5, potential buyers,
and we set the meetings upso they can meet the owner and, and so on.
(13:48):
And, and we encourage them.
It's a two way street.
So they have to the, you know, the, the,the buyer is going to come in and say,
hey, here's
all the great things we could do for youand for your people, and here's why.
We're a perfect fit.
And then they
then the owners will get a chanceto ask questions to the potential choir.
And I've had situations where we've walkedout of that meeting and they've said.
(14:10):
No, not selling to.
Them, never selling to them.
I don't care what they offeror not doing it.
And that proves me, you knowsomething to me that proves there's
some integrity with, you know, withour client, it's not just about the money.
And they just, you know,they want to feel that these people not,
you know, are going to be taken care of.
So that's a that's a big part ofI think the process.
(14:31):
Yeah.
The only time I've seen an owner picka buyer based on dollar
amount on like singly,was one of the hardest to get closed.
Yeah.
Because the they were only motivatedby the dollars and cents.
Yeah.
And every negotiationwas more and more painful.
Yeah.
And you know and Iand I think us in our process
(14:56):
in my in on process,it's really important for a client
to understandall the different steps along the way.
And it's first of all, it's never easy.
Okay?
It's you know,that's a fact that I'll tell everybody
it's never easyat the end of the whole process,
they're usually going to say,hey, I'd love that. Let's do it again.
They're neveryou know. They're never saying. That.
(15:16):
They're never saying.
They're going to say, thank God it's over.You know, say thank God it's over.
Especially when you get to the point ofLoi and then you have to get to a closing.
And there's all that due diligenceand all the things that are now,
you know, the buyer wants to see,you know, triplicate of everything
under a microscope.
But if we've done our job properlyand if the buyer, I mean,
(15:38):
the seller is, is operating a legitwell oiled machine, you know, it's
there's a lot to it, but usually
you don't really hopefully uncoverany surprises.
You know, that's that's,you know, the thing that can hurt a deal
at the end is if we didn't disclosesomething or the seller client
didn't disclose something, that's that'susually a the kiss of death in a deal.
(16:01):
Yeah, yeah.
We, we say between us go ugly early.
Or ugly early.
Ugly early.
So if there's a problem and you know itand the business operates fine
with it, yeah.
You have to.
Be open and honest right at the beginning,because.
And plus you eliminate all the peoplethat just can't stomach
that they're out ofthey're already self out of the deal.
(16:24):
Right. Right. Okay. Self-selected out.
So you don't have to worry.
And you've kind of you've,you've you've gone
and solvethat one hurdle right out of the gate.
And then from that point on nowyou're dealing with,
you know, we'll call it more seriousbuyers because, you know,
they already know the situation,whatever it is, you know, like, gee,
(16:45):
you know,maybe our customer concentration is X or,
you know, one example,another good example that I've learned
is some, you know, precisionmanufacturing companies for, for example,
they willthey also let's say one of their clients
or customers might be in the firearmbusiness, for example.
(17:05):
Okay.
And, and and there's a lot of PE firmsthat are like dead set against that.
They will never.
And this part, it's in their bylawsthat all their investors will say,
I raised money.
They've raised. Moneyon not supporting certain things.
Certain things. And that's fine.That's they were that's their fund.
Well, I get to decide it. Right.But you have to.
But the point is you said upfront, right.
(17:27):
Why bother getting down the path of weekslater or months
later saying, oh, by the way,this and now you've wasted all that time.
You want to go ugly early.These are things.
Or if they've had financial hiccupsin the past.
You know, people will overlook it.
But it it limit like it just shapeswho your right buyer is.
(17:48):
That's right.
The other thing that always astonished meis you can put out the same company
with the same numbers,and you get feedback that clashes.
Clashes so widely.
So, you know, two small,two big wrong industry.
Right. Love the industry,hate the product. Right.
Like that.
Everybody'scoming from their own perspective.
(18:09):
And that and that that ties into,you know, the three market place
principles that my Cammarata taught mewhen when I first joined touchstone,
you know, dozen years ago now,you know, basically rule number one,
each acquire,each potential buyer will offer
and she value completely differentfor the same identical business, right.
(18:33):
Same financials, just like you said,same financials, same
product line, same employee,same services.
Some will see value there.
Some walk okay.
And if and if they do make offerseventually
they'll be all over the place becausethe beauty is in the eye of the beholder.
Right. So that's how that was.
(18:54):
Principle number two,the one with the most opportunity
will typically be your best buyer.
And that seems, common sense.
But it's important to understandthere are ones
that see opportunitybeyond the dollars and cents.
For example,they might need the technology.
They might need the, employees, the people.
(19:15):
They might need the geographic location.
These are things that not.They might want the customer.
They want just just the customer's right.
Because maybe they make products
that they can cross-sellinto this whole whole other market.
Okay.
And then the third principle that'sreally, I believe, you know, critical
in the way we bring a business to market
is that you'll never get the highest offer
(19:38):
from an acquirerunless they know that there's competition.
That's that's a fundamental difference.
And that's what the difference is doing.
Let's say Main Streetand the M&A Main Street.
You typically put a price tag right.
So I have it right I have a restaurantI'm asking you know $800,000
whether it's a list price,you know ask and an asking price.
(20:01):
And then you get offers from there.
In in our world, the fact thatwe don't put a price is really critical.
And the fact that we put buyersin competition with one another,
that's so critical and a lot of businessowners go, why do you do that? Why?
Why not just ask?
Because if you ask, well, just userandom numbers.
You asked $10 million.
(20:23):
Now you've set the high watermark.
No one's ever going to go up.
And say they could have come in at ten,510 or.
1111. We've been surprised, right?I've been surprised.
We've had situations
where the value range might be 9 to 10and we get $14 million offers.
Well, and it is back to those three thingsthat that create value.
They either wanted the location,
(20:46):
they wanted the customers,they wanted the industry.
It added the opportunityand value to them.
Yeah.
Or they looked at our numbers and said,
I see 100 ways to cut costs, right?
A synergistic buyer well will reducethose expenses in many cases.
They might have already have a CFOmight already have, you know, accounting
(21:07):
department, all those things are waysthat they could trim and
and and make the EBITDA make the profitmuch, you know, much higher.
And then also knowing there's competitorsbecause you know.
What he likes to lose.No one no one likes to.
Now, once they've committed to wanting it,
then the fact that they have a competitoror two that they know is kind of
(21:31):
in the market, you know, they're goingto want to sharpen their pencil.
And that makes a big difference.
I think definitely, definitely.
I want to touch on exit advantage.
Exit advantageis something that touchstone does.
That's a little unique. Yeah.
So tell us about exit advantage.
So exit advantage is a programthat we've developed.
And it came about because
(21:54):
many of the clients coming to uswere coming to us.
Kind of at thewhen they're ready to, to sell.
So, so a typical,you know, call with an owner
might be, hey,I've owned this business for 25 years.
I'm now 68 years old or I'm 70.
I want to sell.
And I'd like to get started immediately.
And I want to closeby the end of the year.
(22:14):
That's a very common conversation.
Our typical process is 9 to 12 months,from soup to nuts to do everything.
And that's if everything goes right.
And and what I have noticed
is that if they only had come to us a yearbefore or two years or three years,
there are many things that they couldhave done that were not complicated,
(22:37):
but they could have doneto improve the value of their business.
And they didn't do that.
So Exit Advantage is developedand designed specifically
for business owners that aren't ready now.
They do not want to sell now,
but they have an intention to sell,we'll say, the next 2 to 5 years.
Now it could be longer,could be ten years.
(22:57):
But it doesn't matter.
But they're not ready today.
So my my concept or our concept is use
this valuable timeto prepare your business for an exit.
Because to maximize the value,there are many things that you can do.
There are there are, you know,we analyze over ten different
(23:18):
functional areas of the company,not only financials.
What's operational managementteams report financial reporting,
you know, products and service.You name it.
There's it's there's there's an assessmentthat's done in all key areas.
And the reason is to identify areasof weakness that need improving okay.
(23:39):
And if those areas could be identifiedyou know let's say five years early,
there's a valuabletime that that shouldn't be wasted
to improve that company.
Because in the end,
even if you never sell,you have a better company, right?
Right.What's the there's no downside, right?
(23:59):
And the thing is, you have to have,you know, an ownership who feels
and recognizes that there are thingsthat they can improve in their business.
A lot of othersdon't want to think about that.
Their their nose is on the grindstone,and they're just trying to do the best
they can.
But if we could come in from the outsideand taking a perspective
(24:20):
from an acquirer's perspective,because we know,
we know what acquirers look for, right?
We deal with themevery day, hundreds of them.
And if they could prepare their business,then at the end when they do decide
if they decide to sell
and when they decide,they have a much more valuable company.
And that's the basics.
We won't have to go ugly early.
(24:41):
We we don't have that right.We we fix the ugliness. Right?
So if they have a customer concentrationthat needs to be resolved,
or if they have financial, booksthat are just messed up,
they need someone,an outside professional, to help.
There are many times that we're going to,you know, we're going to see what we get
(25:02):
at the end.
And, you know, if they don't doexit advantage, they come to us.
It pretty pretty much is what it is,right?
You just you're looking at you'relooking at last 12 months.
You're looking at.
And there's very little in the rear viewthat you can do.
You can't fix you just itemsyou very little.
You could do some changing in the future.
But since you're going to marketin, you know, the next 90 days or so,
(25:24):
there'sno time to prove any of the improvements.
Where have you came five years before?
And we said, you know, you could doyou should do this, this, this and this.
Those are really important things to do.
On the priority list.
Now, you're not going to goyou're not going to everything
you need to takethe top areas, the. Ones that fix.
You really right, that need help.
(25:46):
And and if you can get those doneat the end of the cycle
when you've done them and it's now 3or 4 years later, boy, you have
you've added millions, in many casesmillions to the value of your business,
where beforeyou just leave that on the table, right?
It just it just a fact.
So very few companiesthat are in the M&A world
(26:09):
that I know do this and I just, you know,we're officially launching it shortly.
We have a new website coming outhopefully with next 30 days.
So it's going to be, I think,a very popular program for our clients.
Absolutely, absolutely.
So we have one last signature question.
Okay.
You've had several careers, soyou've probably thought about this before.
(26:31):
If you weren't doing M&A right now,what career would you be doing instead.
What career? Okay.
So that's athat's an interesting question.
I mentioned my hobbies.
You know, hobbies are fun.
You know,would I be a musician playing in a band?
You know, there's a highlikelihood of that happening.
Or the woodworking piece of it.
(26:53):
Would I be in, owning a millworking company, or would I be involved
with that, that, you know,that's that's a possibility.
But here's the problem with that.
Hobbies are great.
But when you turn them into a career,it becomes a job,
a real right, because all of a sudden it'snot the luxury,
you know, the amount of time
I spend building a table,I'd have to charge $20,000 for that table.
(27:15):
And in order in order for them to work.
Very expensive, very expensive too.
So, you know, all of a suddenyou have to turn a hobby into a business
and you know,and then that changes the dynamics.
But if I absolutely wasn't doing this,you would probably want to be one of those
two things.
Excellent.
Well, thank you for your time today.
It's been great to catch up.
Thank you. Thank you. Deb was wonderful.
(27:37):
Joe Rogan did call me,but I decided to come here instead.
Some.
Baby, baby.
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