Summary

Bakari shares his journey of acquiring companies and the challenges he faced along the way. He started by learning about leveraged buyouts (LBOs) and took courses at Columbia and Stanford to gain knowledge in entrepreneurial acquisitions. He spent years searching for companies to buy, facing rejection and setbacks. However, he persevered and built relationships with investors through networking events and online platforms. After four years of searching, he successfully closed his first deal, acquiring an educational technology company with the help of a family office and a bank. Bakari defines himself as an independent sponsor and discusses the three forms of compensation that independent sponsors typically receive. Bakari discusses the fees and compensation structure in independent sponsor deals, including closing fees, management fees, and carry/promote. He also shares his experience in finding investors and negotiating deals, highlighting the importance of building a network and putting out offers regularly. Bakari talks about his role as an independent sponsor and his goal of running a company as CEO. He emphasizes the need for patience in the deal-making process and encourages aspiring buyers to start early and actively engage with investment bankers and business owners.

Takeaways

Acquiring and merging businesses can be a challenging but rewarding journey.
Running a wholesale distribution business comes with its own set of challenges, such as low margins and perishable products.
There is a distinction between business brokers and M&A advisors, with M&A advisors handling more complex transactions.
Clean financials and an organized seller are crucial for a successful deal.
Establishing credibility and building relationships in the industry are key to finding and closing deals. Valuations in the M&A industry are often based on multiples, which can vary depending on the industry and the specific company.
Due diligence is a crucial step in the M&A process, involving a thorough examination of a company's financial records and operations.
Finding buyers for a business can be done through advertising on platforms, networking with professionals, and creating a database of potential buyers.
Analyzing offers involves considering factors beyond just the financial aspects, such as employment agreements, key employees, and family members involved in the business.
Working capital considerations can vary depending on the size of the deal, with smaller deals often excluding working capital and larger deals including it.
A career in M&A can be lucrative, with the potential to earn a six-figure income, but it requires networking, building a pool of prospects, and enduring the ups and downs of the sales cycle.
The M&A industry has expanded its geographic reach due to the shift to virtual meetings and the use of technology, allowing for national and even international transactions.
COVID-19 has impacted the M&A industry by increasing the reliance on virtual meetings and making it easier for clients to participate in the process.

 

 Watch the Interview:

Transcript:

Jon Stoddard (00:02.272)
Welcome to Top M&A Entrepreneurs, the show. How are you?

Denis Mezheritskiy (00:06.102)
I'm doing well. Thanks so much for having me.

Jon Stoddard (00:08.768)
Yeah, so you're in Concord, Massachusetts, the epicenter of kind of American history. Welcome.

Denis Mezheritskiy (00:15.578)
Yeah, I am the American history in the making. Yeah, right, right here in Concord, Mass, right, right here downtown. I'm looking at Colonial Inn, which is a 300 year old hotel, which is the landmark of downtown Concord. It's only 30 minutes away from Boston. And a good day.

Jon Stoddard (00:31.976)
Yeah, it's fantastic. So I brought you on to talk about this journey that you had. And I know that you acquired your parents' business. What kind of business was that?

Denis Mezheritskiy (00:46.534)
So, yeah, I have a, I mean, it's a long story, but my dad operated a trucking company, trucking transportation company. And as I was in college, was really on board helping him out with the growth of the company. And then in my senior year of college, I bought my first company and brought him in into that business. So we kind of merged the companies at that point.

and it was a wholesale distribution business. So it's a little bit, it's not like my dad owned a 20, 30 year old company when I came in and acquired it. I grew the company from scratch together with my dad, side by side, which was fantastic.

Jon Stoddard (01:25.9)
Okay.

What were you, uh, wholesaling, distributing?

Denis Mezheritskiy (01:31.474)
Yeah, so it was a wholesale distribution of produce, fruits and vegetables. Yeah, so we supplied fruits and vegetables to two restaurants. So companies like D'Angelo's and Sabaro's and Uno's, like all the big chains. It was almost a 100-year-old company, a third generation business that we acquired with real estate in Massachusetts. And we serviced in Massachusetts, New Hampshire, and New England markets.

Jon Stoddard (01:35.524)
Produce.

Jon Stoddard (01:57.9)
Yeah.

Denis Mezheritskiy (01:59.478)
It was an interesting business. I mean, I basically acquired it with absolutely zero knowledge, zero understanding of acquisition. I used a broker to acquire the business and that was my first kind of dips into this world of acquisition of actually buying a company that was already established, had a great brand and recognition, had a real estate to go along with it. And that's kind of how I set my journey up in M&A space. And then when...

Jon Stoddard (02:25.748)
Yeah, what kind of revenue and profits was it doing?

Denis Mezheritskiy (02:29.73)
Yeah, so it was about $600,000 revenue business, maybe a little bit more, maybe a little bit more, closer to a million. It was back in 2004, so it was a little bit of time. It also had a pretty good piece of real estate. It had a warehouse that was about, I would say, 25,000 square feet, maybe 20. So a good size business back in the day.

Jon Stoddard (02:40.117)
Yeah, that's a long time ago.

Jon Stoddard (02:55.212)
Yeah. What were the margins on a wholesale distribution business for restaurants and how many turns did you have per month?

Denis Mezheritskiy (03:00.222)
Yeah, boy, that's that. No, man, produce is so perishable. It's such like if you're going into a wholesale distribution, produce is really like on the bottom of that list, because by the time you get the product, it has to be so. Like you, you have, you really have no time to sell it. It has, you have to sell, you have to act quickly on the product and the margins. I mean, you're looking on the best days at 30%.

Jon Stoddard (03:21.953)
Yeah.

Denis Mezheritskiy (03:27.802)
on average it's about 27% margins that you're making on the business. So it's tough and if you have few products that go bad and you got to throw them out, boy here goes your margins. Especially in the ups and downs of the price market escalation. I mean you go from box of lettuce costing you $9 a box to $60 a box in the same season and you go, well that's insane. So it's a tough business.

Jon Stoddard (03:57.044)
Yeah, I have to ask you, I saw a picture of you with John Kastamidis, the billionaire, who had a grocery store in New York called Apple. I mean, I saw that picture of you noticing that like, hey, that's kind of the same business. Yeah, or so.

Denis Mezheritskiy (03:57.608)
And then.

Denis Mezheritskiy (04:01.449)
Yeah.

Yep. Yeah.

Denis Mezheritskiy (04:10.558)
Yeah, he says that his grocery business is the worst margin and the worst business out of the whole portfolio that he owns. He said it was the hardest business to operate. But he started the grocery chain with one store. Like he was stocking shelves. I mean, like there's no bottom-up story than this. I mean, he's worth, I don't know, four plus billion dollars. I mean, he's a significant...

a successful entrepreneur and he started stocking shelves on the grocery store. I think he grew it to a current 50 stores. Obviously he went, but also he went into the, he acquired partnerships. I think the partners were fighting with each other. He stepped in, acquired a partnership and all almost on seller financing. And then, you know, and then he grew from there. It's really how.

Jon Stoddard (04:49.32)
Yeah, it was a number of acquisitions too. Yeah. Hey, you grew it just.

Denis Mezheritskiy (05:09.602)
how it's all developed for him. Really fascinating guy.

Jon Stoddard (05:11.159)
Yeah.

Denis Mezheritskiy (05:16.431)
Did you?

Jon Stoddard (05:16.838)
Hold on one second. I'm gonna take the timestamp here cause the video is stopping occasionally. I can't tell if it's working or not. All right, so timestamp 517, I may have to cut that out. Let me go to, how long did you own that business and what did you grow it to?

Denis Mezheritskiy (05:22.734)
Yeah, you froze a bit as well.

Denis Mezheritskiy (05:35.91)
Yeah, so we bought it I think in 2004. I was a senior, like I graduated in May and July and my birthday I signed documents at the closing table. Like literally you can't make this up. And then oh, 809 came about, oh 2008-9 was, oh man that was a tough year.

Jon Stoddard (05:53.268)
Yeah, for people not old enough, there was another crash in 2008, 2009. Ha ha ha.

Denis Mezheritskiy (05:58.659)
Yeah, I forget. People don't remember economy being in the hole, but 08-09 was a crappy year. And I serviced big corporate clients, you know, like, for example, D'Angelo's big franchise change, and UNO's and round-round, whatever else change there were, but a lot of them were not a business.

Jon Stoddard (06:23.064)
Yikes. Yeah.

Denis Mezheritskiy (06:24.338)
And so in the wholesale distribution business, where you also have a bank, because you're holding receivables and you're working on margins that are so thin that you can't afford a spoilage. And all of a sudden you have bankruptcy notices coming in and mail and saying, Hey, you can't collect, you got to go back in line. It's a, you know, we restructuring our capital stack and you're like, holy moly. I, my receivables are.

outrageous like how am I gonna survive that was a that was I mean oh eight or nine was a really horrific year and I got out of that by actually doing another acquisition so I actually acquired a transportation company are you are you frozen or I think I think I froze I know yeah so I acquired I acquired another transportation company was the second oldest transportation company in the United States it had I think four or five digit

Jon Stoddard (07:09.153)
I'm not, I can hear you fine. Yeah.

Denis Mezheritskiy (07:20.53)
usd ot number like uh

Jon Stoddard (07:23.316)
Second oldest, what is that? When did it start? When was it founded?

Denis Mezheritskiy (07:27.562)
I don't remember when it was formed, but it was second oldest, because it was the second DOT number that was issued in the United States. And that's how I kind of get out of it. I went from strictly being a wholesale distribution, buying somebody else's product, making a small margin to resell. Now I was doing service. I was providing transportation services. And I also went into school systems and more government contracts where

Jon Stoddard (07:35.925)
That's hilarious.

Denis Mezheritskiy (07:56.158)
I knew I was gonna get paid and it might be slow, but I was getting paid. So that really got me out. And I exited, nine years later, I exited and I started doing M&A full-time. I went through three different acquisitions.

Jon Stoddard (07:59.841)
Yeah.

Jon Stoddard (08:13.58)
Did you shut the grocery distribution business down or sell it?

Denis Mezheritskiy (08:16.862)
No, I sold my shares to the partners that were there. You know, initially when I acquired a company, it was my first acquisition. So everything I could have done wrong, I did. Well.

Jon Stoddard (08:21.397)
Yeah.

Jon Stoddard (08:28.488)
You did. Low margin business, lots of turns, perishable products. Ha ha.

Denis Mezheritskiy (08:33.642)
I mean, I was sleeping like, you know, you hear Elon Musk sleeping on the manufacturing floor of Tesla, I was sleeping in my office in my produce wholesale business. It was 50 miles away from home as well. So, I mean, it was a very educational period of time for me. So I learned a lot in this space and all my experience really come from, you know, running through walls. I'm not really good at reading books.

Jon Stoddard (09:02.156)
But you're not like, I think we're the same kindred people here because I learned to run in for the walls and making my own mistakes until finally, you know.

Denis Mezheritskiy (09:12.714)
Yeah, now, aha, you get the aha moment. But I think that's what makes me unique and good in what I do. I mean, I really understand the struggle. I can really see the writing on the wall really early on just through conversation. That made me really successful in the M&A space. And I started 10 years ago in April, it was 10 years ago that I started working for the founder of ROI, Gary Weber, who...

founded the company in 1997 and I started working as a broker because I really wanted to learn this the M&A business right I've done through my acquisitions but really what was what else was I not understanding in this business like I wanted to get my own my next business that I was gonna buy I wanted to be more experienced in the way that the businesses are acquired so I joined Gary he was extraordinary a mentor he

I was one of the top producers in his firm, and then he made me partners three years in, and now he's semi-retired, working for me part-time while I own 100% of ROI. I transitioned him out of the business as he's now writing in his camper all across the country, enjoying life, doing M&A work part-time and having a phenomenal time. But that's my journey.

Jon Stoddard (10:31.062)
I'll call.

Jon Stoddard (10:37.44)
You may get, yeah. Is there a distinction between an M&A advisor and a broker in Massachusetts? Cause I've had people tell me there's an M&A advisement. Yeah, it's kind of a gray area. You don't really have a license and stuff.

Denis Mezheritskiy (10:42.718)
Yeah.

Denis Mezheritskiy (10:49.1)
Yeah.

Denis Mezheritskiy (10:52.282)
Yeah, it's a wild west out here. I mean, the way that we defined it is, we look at the business broker is somebody who is more of a main street listing type of agent. So liquor store, convenience stores, pizza joints, something that sells under a million dollars. That's kind of what we're seeing. And then the M&A advisors are really the professionals who

Jon Stoddard (10:55.55)
Yeah.

Denis Mezheritskiy (11:18.39)
can help clients that are a little bit too small for investment banking firms, but a little bit more complicated than an average business broker can handle on the Main Street. There's nothing wrong with either of the sectors, that's just how we separate. And we do both, we have brokers who work on Main Street listings, but the majority of our transactions are M&A space. So really trying to bring those investment banking services to small size companies that might be.

a little bit too complicated, not might be, but they are too complicated and will require a lot more handholding, a lot more analytical work than a typical business broker. So our model here is not to take a listing posted online, wait for somebody to call. We really gotta work our clients, right? We gotta figure out the strategic, yeah, we gotta figure out who are the strategic acquisition targets, what kind of private equity firms will really be looking for this.

Jon Stoddard (11:54.869)
Yeah.

Jon Stoddard (12:05.772)
It's proactive. You're actually reaching out and putting the, yeah.

Denis Mezheritskiy (12:14.126)
Is this a platform company? Like we're really breaking all of this down to figure out what exactly is gonna be the opportunity for our client before. Yeah.

Jon Stoddard (12:22.988)
All right, so I'm gonna ask you some numbers here. So some stats, 10 years, how many deals have you done? Yeah, you can say a hundred percent or percentage, I don't know, of the deals, like a tackle, you know, I get a solo tackle or is it half a tackle?

Denis Mezheritskiy (12:37.69)
Yeah, yeah, so we, I, yep, yep. A lot of the deals now in the past four years, I'm doing together with my team, right? There's only so much that I could do, but my team and I will do a lot more together. So that allows me to do more. When I got started, my deals were $100,000 deals, and I'm not talking about commission, I'm talking about the size of the transactions. So I've accumulated a lot of experience. I'm close to 70 transactions at this point.

Jon Stoddard (13:07.576)
70 transactions. Yeah, cool.

Denis Mezheritskiy (13:08.483)
I mean, we've done a lot. I've done 12 last year. So we've scaling up. Obviously now that I'm getting to a little bit larger transaction sizes, that number falls through, but I have a whole team who picks up on it.

Jon Stoddard (13:24.916)
Yeah. Cool. And what's that? Tell me about these M&A transactions. How are you finding these bigger ones? You know, the 2 million EBITDA up.

Denis Mezheritskiy (13:32.706)
Yep.

Denis Mezheritskiy (13:36.17)
Yeah, it's a lot of work. I mean, really it's being in the industry for a long time, being the reliable trusted partners for a lot of the CPAs that we work with, a lot of the financial advisors that we work with. Really we're getting referred into these transactions and we're really good in first establishing a credible valuation. That's always our step one, really doing a deep analysis of the company and figuring out where the hell are we?

before we move forward and that's how we start working with these clients. So some clients that we're going on the market, we've been working with for years now. Right? And that might not be the right... Yeah, so that's why it's really tough. My industry is extremely hard to just get started in doing business brokers and M&A advising because it takes a while to get that cycle going because it's a very long sale cycle.

Jon Stoddard (14:14.42)
Yeah, they're kind of repeat buyers. Yeah.

Jon Stoddard (14:30.433)
Yeah.

Yeah. What is it for a 2 million EBITDA and up company? What's the normal sales cycle for?

Denis Mezheritskiy (14:41.178)
Well, our average is eight months from the time that we list to the time that we sell. Last month I had us closing, it took me six months. At the beginning, at the end of last year, I closed a company that took me four and a half years. So, and I mean, again, there was a lot going on in four and a half years. We went through COVID, we had all kinds of things going on. There was a lawsuit in the company. We've had, you know, history.

Jon Stoddard (14:43.762)
8 months.

Jon Stoddard (14:57.128)
Oh wow. Yeah. Sick.

Denis Mezheritskiy (15:10.166)
but we stuck through and got it closed, no matter what.

Jon Stoddard (15:13.3)
Yeah. So let's talk about kind of like the biggest deal. What was your biggest deal?

Denis Mezheritskiy (15:18.774)
Right now we're about 22-23 million dollars. Now that's about, we work with companies that are annual within a million to four million dollars in EBITDA. So 25-28 million dollars, that's kind of where we tap off. That goes into more of an investment banking realm behind that. So our sweet spot is like a five million, six million, four million dollar transaction, that's our sweet spot.

Jon Stoddard (15:22.612)
Yeah, that was the biggest deal. That was the EBITDA or is that top line? That's EBITDA.

Denis Mezheritskiy (15:46.966)
But we've done deals all the way up to 20 plus.

Jon Stoddard (15:47.384)
Right.

Yeah. And tell me about like one of the best deals that you did. Like what were the characteristics of a good deal? It's that short time, the documents were clean. You know, it's a great valuation. What is that?

Denis Mezheritskiy (16:07.006)
Yeah, I mean, I like this business because every transaction is unique, right? So, everything is unique. What makes a good deal is very clean financials and very organized seller, right? Those are like the top priority. When you have a...

Jon Stoddard (16:22.381)
Yeah.

Jon Stoddard (16:26.944)
And if it doesn't have organized financials, what do you, I mean, do you assign a forensic accountant to it and say, clean it up?

Denis Mezheritskiy (16:29.563)
Well...

Denis Mezheritskiy (16:33.054)
Yeah, we have to, right? So obviously we can't spend our sellers money, we can always advise them, but we would absolutely refer somebody that, you know, interim CFO or a booking firm or financial, anything that could really straighten up. Sometimes the reason our sales cycles are long is because when we get into the point of a conversation where, hey, what are my exit options? Well,

your exit options right now suck because all these things are not done. So we gotta take a break. We'll let you fix. Well, yeah, I mean, you gotta be honest because I don't wanna waste my time. We're a commission based. And I wanna be honest. I mean, this is where we are. If you're not ready and this is where, this is where your company's valued right now. Just had this conversation recently. This is what the value of your company now. I understand that's not what you're looking for, but this is why.

Jon Stoddard (17:08.722)
Is that what you actually said? Yeah.

Denis Mezheritskiy (17:31.642)
And here are the things that, and here are the advisors and people that you need to bring in to really develop a company to value that you want. And financials, having the clarity on financials is a must. I just had a close, I just had a close and we sold a company of 27% over valuation, right? Extremely well organized seller.

Jon Stoddard (17:44.352)
Yeah. Well, what's the ho- Go ahead.

Jon Stoddard (17:55.265)
Yeah.

Denis Mezheritskiy (17:59.774)
extremely well organized financials, not extremely big company, but really well organized seller that helped bring multiple offers on the table and went into an auction but really it got to a buyer who was ready to take this company on to the next level. He or she they don't need to be worrying about restructuring. You know nobody wants to buy a fixer upper not

Jon Stoddard (18:11.476)
And it went into an auction. What? Yeah.

Denis Mezheritskiy (18:28.626)
Or at least me, I don't want to be dealing with a fixed wrapper. I want a good company that creates great value, great cash flow on a repeated basis. That's kind of the target here. And he was able to demonstrate that.

Jon Stoddard (18:38.36)
Yeah.

Yeah. And that's, that's kind of the opposite of that. Is there worse deals? Do you take on clients like that?

Denis Mezheritskiy (18:47.786)
Well, I mean, you know, I do, unfortunately, sometimes I do take on, and you know, they become problematic at times. It takes a lot longer to sell those and, you know, it takes a lot longer to finance them as well from a buyer perspective. It limits some of the prospecting buyers that we're able to bring to the table. Obviously, that's different groups are looking for different size companies.

Jon Stoddard (18:54.916)
Hehehehehehe

Jon Stoddard (19:07.331)
Yeah.

Denis Mezheritskiy (19:16.286)
So it absolutely makes it makes a difference. But we are we do take on we would love to first give options But when we're taking on a client that is less properly structured our valuation is properly adjusted

Denis Mezheritskiy (19:34.042)
Right.

Jon Stoddard (19:34.892)
Yeah, what is the hardest part of that? Is it the valuation with the owner? I mean, because everybody owners thinks that their business is worth more than it is. I haven't seen anybody go, hey, it's only worth one X even. Cool. Ha ha ha.

Denis Mezheritskiy (19:41.754)
yeah it is yeah well and then you get the other spectrum well i looked up on google and it says five times revenue like well i don't know uh i don't know

Jon Stoddard (19:53.553)
Yeah.

Jon Stoddard (19:56.84)
And sorry to make a joke on your point, but 1XE, but it was a grocery store distribution business. Ha ha ha.

Denis Mezheritskiy (20:03.53)
Yeah, yeah. Great. I mean, you've firstly, I have to explain what the EBITDA is because you run a report, a P&L report, you don't have a, Cookbooks doesn't give you EBITDA. You got to break it down. And especially when you have a rent or property that is owned by the by the owners, not you starting adjusting everything and, you know, different things happen when you start diving into the numbers. But you know, that's

That's the nature of the game. I mean, there's options always there. I always tell sellers that when you're looking at the multiple, because everybody knows, what's the my multiple? What's my multiple? What's my, what's my multiple?

Jon Stoddard (20:42.892)
What's the multiple? It's not discount cash flow analysis. It's the multiple. It's the comps. Yeah.

Denis Mezheritskiy (20:48.898)
What's my multiple? I always tell them that multiple is a range. There's a low and then there's the high. It depends where are you on that range of the values. It could be either or. Unfortunately. Or fortunately for them.

Jon Stoddard (21:00.641)
Yeah.

Jon Stoddard (21:04.94)
Yeah. So what, do you take a look at these companies when you say M&A advisor, you become an M&A advisor goes, well, uh, you're not going to get the price you would like to get, but if you do these five things, we can do it, you know, we can get you there and sell two to three years. Is that what you do also?

Denis Mezheritskiy (21:24.31)
Yeah, so I don't do exit planning. I don't have the temper for it. And I try not to concentrate on it as well. I like to refer people who are good at these things. I'm really great in the transaction side. So if we have a conversation with a prospect that the client doesn't have good financial record, or sometimes they can't pull up a balance sheet. Well, I'm an LLC. Okay.

Where's the balance sheet? Well, you know, we haven't reconciled our books ever. Well, let me give you some context who you need to talk to so they can do that because you are unsellable at this point. And I mean, when I started, it was hard for me to tell the truth. Now it's like, it's fly off my tongue. Like, no problem.

Jon Stoddard (22:02.17)
Ever?

Jon Stoddard (22:21.064)
Yeah. What, uh, do you have a background in the language of business accounting or did you just learn it over the years?

Denis Mezheritskiy (22:28.522)
Well, I graduated as a finance bachelor of finance. So I have, I have, and I really didn't understand how the balance sheet of PLN has really worked until I bought my first company and then like, and then everything clicked, everything clicked. And when I started counting my money.

Jon Stoddard (22:34.481)
Oh, there you go. Yeah.

Jon Stoddard (22:42.668)
Hahahaha

Jon Stoddard (22:46.284)
I gotta turn these assets into cashflow a lot of times. Yeah.

Denis Mezheritskiy (22:52.187)
Yeah, yeah, it all clicked. So yeah, I know people say that, you know, college is not the best option, but I think business school gives a lot of great credible information. And I think it helped me. I mean, I don't think I know it helped me along the way to be a lot more knowledgeable for sure.

Jon Stoddard (23:12.852)
Yeah. What about the weirdest deal? What's kind of the weirdest deal that you've done?

Denis Mezheritskiy (23:19.366)
Oh, boy. I mean, the weirdest deal. I mean, I've sold a fertilizer manufacturing company. That was an interesting business. It was literally a fertilizer manufacturing company in multiple states. So we had to deal with the state environmental commission and it was extensive.

And what's interesting is I learned how the farming actually works because they would sell fertilizers to farm. And what interesting was that the farmers don't pay on time ever, no one. Like typically they don't just, they're not able to pay with interns because they're waiting to harvest the seeds and then they get paid. So there's always...

Jon Stoddard (24:04.956)
Oh my god, the cash flow with the farmers, it's just debt, cash flow, you know, debt, cash flow. It's crazy. Yeah.

Denis Mezheritskiy (24:07.782)
Yeah, yeah, yeah. Yeah. So, so this fertilizer company, they charge them an interest to carry their, uh, their receivables and that was a big line item in their income statement of, of interest earned. And that was, that was the most interesting, the most interesting part of the business. It was, it was really complicated. We sold it to a publicly traded company, which didn't make things easy as well. But.

I also saw

Jon Stoddard (24:39.849)
So how do you find the fit? If you found, I mean, is it just a kind of legwork if I had an HVAC company doing 4 million in EBITDA, so claimed I'm just gonna go find private equity companies that are buying HVAC companies?

Denis Mezheritskiy (24:59.918)
Sorry, you froze for a second, John. Apologies.

Jon Stoddard (25:03.692)
Yeah, let me write.

Jon Stoddard (25:08.408)
and finding buyers how do you find the buyers

Denis Mezheritskiy (25:11.93)
So there's three different ways that we use to find buyers. Obviously, we'll advertise on all the big platforms, depending on the size of the company, big databases. But the majority of our buyers come from the research, right? So we'll figure out...

Jon Stoddard (25:27.316)
What do you mean platforms? You talking about like data axle and things like that or what? Or axle, excuse me, axial.

Denis Mezheritskiy (25:32.506)
Yeah, yeah, the actual, Biz by Sell works great on some industries, businessforsale.com, they're all kind of, we're everywhere and we post on these sites. But strategically, really, we, the core of our search process for finding the right buyer is understanding who would be the best buyer for this particular seller, right? So we're trying to understand who would really overpay or pay the top.

top value for the company? Is this company, is my client, the seller, good enough that it could be a platform? Is this a good add-on? Would we get value more for cross-selling different services, right? So we try to really establish a profile of what would be the ideal buyer, and then we go out and we create a database of companies that we feel would be great. So I'll give you an example. If we're working with an HVAC company, yes, absolutely other HVAC company would be a great.

Acquisition target, but hey, what are the private equity firms that are currently owning HVAC companies in this space? Is this a good platform company? Are we able to find a PE firm that would establish themselves as a platform company with this? It's all gonna depend. Is this a better company to sell to a plumbing, to electrical? Are they able to cross sell different services? Is there a specific niche that they perform in their industry that others could do? Like for example, I have electrical safety

company that really looking forward to buying electrical service companies because they need boots on the ground. Like we're trying to really figure out what would be the best match either to cross sell services or setting this up as a platform and then we really establish a list of our prospects, establish a list of our targets and we go all at them. We also have, yeah, it's not.

Jon Stoddard (27:22.168)
Did you write an algorithm for that or kind of like spit it out? Yeah. Like, Hey, yeah.

Denis Mezheritskiy (27:29.186)
There's no algorithm for it. We have databases that we use to find private equity firms specific to the industry. We have databases that we find companies in the industries that are in geographic area that we wanna target with the revenue number. So we have different buckets that we go out to finding these. Finding the prospects is not a problem. It's really the experience of identifying who should we be targeting.

That's the legwork that's talking to the business owner and the seller on really figuring out what are the kinds of services they do? What kind of services do they outsource? What kind of services are they the best fit for in their strategic growth?

Jon Stoddard (28:15.328)
And what number should that be? Like how many people should you have as cast in a wide net, 500 or?

Denis Mezheritskiy (28:23.802)
I mean, 500 is a lot because we do a lot of hand battle. Like we pick up the calls, we're sending out emails. We try to start with the 100, 150 list of prospects and we do also have a list of 7,000 buyers in our database because our database is all automated, everything we do. We have a big database from all these years of being in the business.

Jon Stoddard (28:46.229)
Yeah.

Denis Mezheritskiy (28:50.974)
of companies that will be a good fit. And that's usually our first step.

Jon Stoddard (28:54.844)
Yeah. I want to ask you a lot about, and this is confusing because I've done some consulting with a guy that does a little bit of any advisement in the digital world. This is about looking at offers, really analyzing these offers to where it's good, not only disqualifying some of these ones, but like the ones that don't have any backing or commitment from a financier.

Denis Mezheritskiy (29:04.952)
Yeah.

Jon Stoddard (29:25.613)
to what does the payout look like upfront, over time kind of thing.

Denis Mezheritskiy (29:35.426)
Sorry John, you're cutting out. I don't think it's my internet.

Jon Stoddard (29:38.268)
Yeah, it cut out again. I'm not sure how well this is gonna come across. If we record this and it comes out like, catchy. Did you hear any of that?

Denis Mezheritskiy (29:50.974)
Now, let me switch to another Wi-Fi network here in the office. Can you hold on a second, I'll switch.

Jon Stoddard (29:58.499)
Yeah.

Denis Mezheritskiy (30:07.466)
All right, is this better? I mean, I hope the whole thing is better. So you were asking a question on how do you assess the offer?

Jon Stoddard (30:09.556)
Yeah, I don't know. We'll see how it does. Yeah.

Jon Stoddard (30:16.672)
Yeah, it's about offers, right? I've done a little consulting for somebody that in an M&A world for digital companies and we look at that, we look at the offers, whether they have financing back to them and like commitment from some kind of investment bank or lender to what does the payout look like is upfront over time and which is actually a better offer, right? It could be a lower upfront, but a bigger payout over time.

How do you put your like, hey seller, this is the best offer for you.

Denis Mezheritskiy (30:52.85)
Yep, it's a great question. That's why again, this is an interesting industry. No offer is the same, there's always different caveats and it's always good to talk about and break those offers down. In my experience, money is usually not the first thing on the seller's agenda, right? Usually I'm working with clients who are 30 plus, 20 plus years running the business. That's a legacy business for them.

There's a lot more than money. Obviously money is top, top three, but there's other things that goes into it, right? Does the seller have to be employed? If so, what's the transition time gonna look like? What is that employment gonna look like? What about the key employees? What about the family members if they're in the business? Like there's so many different things that goes into the offer that obviously needs to be negotiated and worked out, but you absolutely have to look through it.

The what I like to do when you have multiple people and I'm like giving away all my secrets, John here. But what I like to do.

Jon Stoddard (31:57.54)
That's what this podcast is about.

Denis Mezheritskiy (32:00.93)
I can't believe it. I can't believe I fall for this. I fell for this thing. But what I like to do is I like to, cause you get, sometimes you get offers that are completely left field. Like you could spend time negotiating a deal and then you get an offering like, wow. Like I just spent two months of going back and forth on exactly what. So what I like to do is I really run this very good structure.

of offer. And what I like to do is I like to ask the buyers, the prospective buyers, not to get crazy with a letter of intent, but really send me a non-binding indication of interest over email. That's how I like to do it. That gives me a lot of flavor and what is there to come. So when I get a non-binding indication of interest over email and I tell them, hey, you'll just write non-binding in the subject line.

I don't want this to be turned into the LOI. I just wanna make sure that we can meet halfway so we don't spend a hundred different times going back and forth with our attorneys. Let's just figure out where we stand. So I asked the non-binding indication of interest that can really signify as if we have a buyer that makes sense for us to move forward or we don't. And that's how I get started with my offers. And then obviously when I get back to the buyer and tell him, hey, this will work, this is not gonna work.

This is what we're looking to see in the offer. If you can move this forward into the LOI, I think we can make this work. So by the time I actually get the LOI, it's already better than if I, it's better than beginning models when if I was just be asking for a lot of intents. So I'm really trying to get the buyer to negotiate a little bit with themselves, but really to come to a term where we can actually make an agreement. But a lot of things will need to be negotiated.

Like I said, what's gonna be the employment agreement? What about the working capital? That's a big question, always a big question, right? Especially like I have a company right now I'm representing, the receivables is a lot higher than the current liability. So what is there, what's gonna be the working capital? Is it gonna be excluded? Is it gonna be included? How's the purchase prices broken down? Do we have financing? Is it all cash upfront like?

Jon Stoddard (34:14.432)
Yeah, what kind of business is it?

Denis Mezheritskiy (34:19.73)
I really try to get it all down on the LOI. I'm not trying to negotiate the whole world, but we need to know all the top, top figures. And we go forward with the recommendation, obviously with what the seller and my client wishes, but my recommendation is always what's the likelihood and probability of this actually succeeding in the short-term time? And what is it gonna be that payout at the end? And how does it work for the seller? Because taxes is also a big question.

right? Sometimes if you save on taxes, that could be a big deal for the business owner. So there's a lot of things that go into it, but you should negotiate all upfront.

Jon Stoddard (34:47.38)
Yeah, huge. Yeah.

Jon Stoddard (34:58.264)
Let me ask you about that working capital again, because, and you've sold small businesses, you were small businesses. It's like very common to PC a seller always wants the working capital. You move up the ladder in revenue, working capital comes with the business because it's a lifeblood. Why do they do that? Why do they, like, what, I know they do it, really can't change the behavior. What do you say about it?

Denis Mezheritskiy (35:03.2)
Yep.

Denis Mezheritskiy (35:22.43)
Well, in our, it also depends what kind of business it is. In our experience, working capital on a small size deal just not included as part of the transactions, there's just not enough money in the deal to include the working capital in the business. And you have private equity firms that come, and you see this now, where you have a lot of private equity that ultimately reducing.

their requirements, they started at $3 million EBITDA and slowly they're crawling back down to levels that are a little bit more sub-tive and they come in with their offers, working capital is included and by the way, we'll figure it out later. Oh, hold on, what do you mean later? Like we gotta talk about this. What numbers are gonna look like? So on the small size deals, working capital typically are not included, but again, it's all subject to negotiation.

on a larger deal so you know you got to get that working capital in. You can't, you just can't do that without it. But also the multiples, also the, yeah also the multiples are higher. You know once as the EBITDA level goes up so do the multiples. And that accounts for some of that working capital to be in there. And again it all depends on deals. But you know I worked around it and I've made transactions where in you know yes working

Jon Stoddard (36:25.216)
Yeah, like a cash crunch, day one. Right.

Denis Mezheritskiy (36:47.898)
let's include first two, 300,000 of accounts receivables as part of the purchase price so that you can finance this as an acquisition of one. And then first two, 300,000 of accounts receivables, you are able to use it as a working capital moving forward, we'll roll that into the loan, right? So there's ways of mitigating through it.

Jon Stoddard (37:12.2)
Yeah. And when do you see that accounts receivable between, you know, an aging report, if you see something that where it's turning faster, but the receivables are old and go, it's out 90 days, we're turning every 30 days. That's kind of a problem, right? Like you're going to write that off probably.

Denis Mezheritskiy (37:27.927)
Yep.

Oh yeah. Right, right, so typically in the small size transactions, receivable stays with the seller, right? And I'm talking about smaller size transactions on the front. And then, okay, right.

Jon Stoddard (37:44.716)
Yeah, million dollars and below businesses, you know, it's kind of smaller.

Denis Mezheritskiy (37:48.686)
Right, the receivable stays with the seller, and obviously that's concerning when you have 90 plus days in receivable. So what exactly is going on? And you typically see that when you have a lot of customer concentration or manufacturing, especially now, I'm dealing with some manufacturing company that for some reason that receivable number just keep on rising. And that's a big question, because if it's a large enough number, well, from what year receivables is this from?

Denis Mezheritskiy (38:20.6)
How much hurt does it unleashes on the financials for previous years? Should you remove that from the numbers? Should you like, what's the 90 plus? Plus is what, right? So you got to get good with the numbers.

Jon Stoddard (38:32.544)
Yeah, I looked at a medical manufacturing business, husband, wife team. They were the revenue look at, but their receivables was a year to two years out. Like they were afraid to call to collect money.

Denis Mezheritskiy (38:48.094)
Yeah, that's crazy. That's crazy and unfortunately that's hurts the bottom line. I see the opposite side, you know, you see payables and liabilities out of control and I have presented the valuation two weeks ago to a prospective seller with a negative valuation.

Jon Stoddard (38:52.29)
Yeah.

Jon Stoddard (38:57.699)
Oh my god.

Denis Mezheritskiy (39:15.618)
because we provide them the value of enterprise value for the company. We also provide them with their seller proceeds and their seller proceeds was negative. They had way too much debt on the company. So the question like, what are we working away with? Well, you're going to have to pay.

Jon Stoddard (39:25.377)
Yikes.

Jon Stoddard (39:33.316)
Sounds like a great time not to sell.

Denis Mezheritskiy (39:36.05)
Yeah. And again, they, they borrowed, they borrowed a lot of money from EIDL. They bought the real estate that they shouldn't buy. Um, they've done a lot of things without really getting advice. And I think they were trying to get this company ready for the sale. Uh, but they, it's, they moved.

Jon Stoddard (39:56.02)
It didn't help. Whatever they were doing, wrong advice. Let me kind of move it over to the industry itself. What could somebody in the M&A industry, like an associate or an owner of the business, like both of them, what could they make in this business? I mean, let me kind of, the first question is, I know that the commissions for transactions on SMBs is from 10 to 15%.

Denis Mezheritskiy (39:59.531)
Yeah, because.

Denis Mezheritskiy (40:13.88)
uh... look at business

Denis Mezheritskiy (40:25.323)
Yes.

Jon Stoddard (40:25.888)
Does it, what is it for MNA is like 5% or smaller gets moves up. Lehman's yeah.

Denis Mezheritskiy (40:30.086)
Yeah, so we are on the Lehman scale. So we're 10%, yeah, so we're 10% in the first million and it drops down. So if we're doing the $20 million transaction, our percentage is like 2.5, 2.6 on it, but that's not typical. Our typical transaction size, we make seven to 8% of commission on the transaction. So everybody, most people that are on my team that are,

Jon Stoddard (40:53.4)
Gotcha. Yeah. And so what would like an associate that came and said, Hey, I don't.

Denis Mezheritskiy (41:02.434)
So good.

Jon Stoddard (41:05.54)
Oh, what would an associate come in and say, hey, I love, I don't, I don't, I don't want to be owned. I don't want an owner to business anymore because I'm not going to manage employees anymore, but I love to buy and sell businesses. We'll get somebody come in and do.

Denis Mezheritskiy (41:18.558)
Yeah, so you can easily, I shouldn't say easily because this is a lot of hard work. And if you have time, right? Because it's a big sales cycle, long sales cycle. So if you are able to withstand 12 months, 12 to 18 months to build up your pool of prospects that you're working with, you can be making six figure income. You can be making 150 to $200,000 doing this. It's a lot of ups and downs.

in this business, you could have transactions at the beginning of the year and not have a lot of transactions towards the end of the year, so you gotta be good with money but really you have to spend 12 to 18 months in the period of time gathering and getting leads and tractions, you gotta be networking, you gotta be networking with CPAs, you gotta be networking with financial planners, you gotta be joining the groups, you gotta be doing marketing for yourself and establishing yourself as

as someone who is experienced in this space. Obviously the folks that I work with, they are able to bring me in a lot of the transaction. I have a lot of experience and I help them along the way to close these transactions and help them move along in their specter. The smaller the deals, the more complicated they get, believe it or not. Like a $100,000 deal could be more complex than a $2 million transaction.

Jon Stoddard (42:42.756)
Oh, they're just so much more messier. I mean, it's because they, they're the shoebox kind of deal like, well, how do I verify that revenue? I mean, it's gonna be kind of a waste of time to try to put this out to the market. And we don't know if you're making what you say you're making. I don't know. Yeah.

Denis Mezheritskiy (42:45.438)
It's just so much. You gotta be creative.

Denis Mezheritskiy (43:00.23)
Right, right, right. The best brokers and M&A advisors are, in my experience, are the ones who actually owned the company and sold the company, and now they're in a point where like, I understand how this game works, I wanna do this. We have few of these folks in ROI that are hitting it off the board.

Jon Stoddard (43:19.297)
Yeah.

Jon Stoddard (43:26.084)
Do you just sell in Boston or is it United States wide?

Denis Mezheritskiy (43:29.934)
So we're nationally, COVID really helped us spread out. We used to meet in the office conference room for sales meetings, now we're on Zoom. And it's also made it easier for our clients to get on Zoom. It used to be a problem, it used to be all face to face. Now a lot of our conversations are like, I do meetings on Zoom every single day. And that made it easier.

So yeah, we do a lot of it. I have a transaction in California that we do I have a broker who is relocated from Maine in Washington State On the west coast we keep we have a buy side representation now in Georgia Working on a south southern portion of the state So but obviously New England is a is a bread and butter for us and this is where a lot of our business come from

Jon Stoddard (44:23.298)
Yeah.

Jon Stoddard (44:27.116)
Beautiful. Dennis, thank you so much for spending some time with me today.

Denis Mezheritskiy (44:31.314)
No, I appreciate the invite. I had fun. With a little bit of choppy.

Jon Stoddard (44:35.82)
Yeah, almost on the hour. So let me stop it here.