Summary

In this conversation, Jon Stoddard interviews Scott Weavil from Sierra Pacific Partners, delving into the intricacies of investment banking and the business selling process. They discuss the importance of building relationships for deal flow, the motivations behind selling a business, the due diligence process, and the emotional aspects of closing deals. Scott shares insights on navigating offers and the challenges faced by sellers, providing a comprehensive overview of the investment banking landscape.

Takeaways

Building relationships is key to finding deal flow.
Understanding seller motivations is crucial in the selling process.
Due diligence can uncover unexpected issues in a business.
Navigating offers requires careful analysis and communication.
Emotional factors play a significant role in closing deals.
The process of selling a business involves multiple stakeholders.
Investment bankers must manage expectations throughout the process.
Clear communication with sellers can prevent misunderstandings.
The importance of thorough financial analysis cannot be overstated.
Post-closing involvement can vary significantly among investment bankers.

Watch the Interview:

Transcript:

Jon Stoddard (00:00.859)
Welcome to Top &A Entrepreneurs. Today my guest is Scott Wiebel from Sierra Pacific Partners out of Tahoe, which I love and skied there many times. Scott, welcome to the show.

Scott Weavil (00:12.619)
John, thanks so much for having me. Glad to be here.

Jon Stoddard (00:14.791)
That's good. So I want to talk about your career, investment banking, brokering, selling businesses. So in total, how many businesses have you been involved with sell?

Scott Weavil (00:29.486)
I it's got to be in the hundreds. It's sort of funny. I started my career doing big transactions in New York. And it was interesting interviewing with the Silicon Valley firms because you would talk to the associates there and they would say, oh, you know, we've done 20 deals in the last year. And I'd be like, oh, man, we've spent one year, year, 18 months on the very same deal. Right. So the volume sort of changes depending on deal size. for sure, over the years, I would say, you know, been involved in

100 or more transactions, anything from minority recaps to full sales been involved, know, when started my career at the bigger law firms, know, public company transactions to representing ETA buyers now and sellers across from sort of lower, lower level PE funds and things like that. So pretty wide swap.

Jon Stoddard (01:16.102)
Yeah. What's funner, this bigger deals or smaller deals?

Scott Weavil (01:20.654)
That's a great question. I think different dynamics. So on the big deals, what's fun is you have almost unlimited resources. Like, you you leave at four o'clock in the morning, you send something down to the 32nd floor, they reformat everything. It looks nice. You get back at 8 a.m. and it's ready to go. Right. You don't have that on smaller deals. So the resources and the expertise you can rely on, you know, is just and the responsiveness is just amazing.

Jon Stoddard (01:43.26)
You do all of your

Scott Weavil (01:49.876)
on smaller deals from both, you you're dealing with clients that typically have general counsels and maybe even internal &A lawyers and things like that. So that's fantastic to deal with on the sell side and then on the buy side, you know, on larger deals, you've got folks that are professional deal makers too. So that's fun. But I would say the smaller deals are also interesting because they tend to be, I think at every level, almost all deals revolve a little bit around trust and personal relationships. But that I think that

that increases as a factor as you go down market because you don't have SEC filings. We don't always have audited financials and things like that. And so you are just relying more and more on the seller's good faith, I think, effort to present you with the business, how it actually is. And so that does sort of put a premium on those interpersonal skills. So they're all different. They're all fun. where we work now is largely in that sort of 10 to $150 million space for the most part.

And I find that to be a good mix. It tends to be deals that are too small for the traditional investment banks, but are also a little bit larger than what most Main Street brokers do on a day-to-day basis.

Jon Stoddard (02:58.779)
Yeah, absolutely. It's not SMB stuff. You're talking about like lower middle market. Okay. Yeah.

Scott Weavil (03:03.414)
Yeah, or lower, lower middle market maybe. But yeah, so somewhere in that space.

Jon Stoddard (03:06.704)
lower, lower minimum market. So how do you find your deal flow as a investment banker? Kind of somebody selling the business. How do you find that deal flow?

Scott Weavil (03:18.07)
Yeah, it's through, you know, what I would say almost any of us that are involved in professional services, how we get deal flow. So a lot of it for us is through referrals, right? Through CPA networks, through financial advisors, certainly through &A and corporate attorneys, particularly the attorneys that do more life cycle work. And what I mean by that is like, it's, if it's a startup, they've had a lawyer that's helped them with capital raising, et cetera, et cetera.

Whereas a lot of times if it's a more mature company, know, a family manufacturing company that's been around 30, 40 years, they may not have a corporate lawyer that they lean on every day. But then in that case, we tend to get referrals from more of the generic type business lawyer. So that's one avenue certainly is referrals and that's probably our best avenue. We certainly do outreach. So we definitely.

Look for look for industries that we like and try to reach out to clients that we think could be a potential clients that could be a good fit. We also do some inbound marketing and sort of like this and everything else we do quite a bit of content marketing. So it's a little bit of everything.

Jon Stoddard (04:21.136)
Yeah. From a, let's say a buyer's, a buyer's perspective and you wanted to increase the centers of influence, like talking to &A attorneys, doing that. What, what do you recommend? Like going to a trade show or, developing a relationship and don't have expectations for any fruit to come from that for, you know, long period of time until, you know, I fill their bucket and they could fill mine. How does that look?

Scott Weavil (04:46.138)
Yeah, I mean, yeah, it's a tough game as a buyer, I think, because a lot of particularly in the SMB space, you get contacted by buyers all the time, right? And because of the way the fee structure works, if you're representing the seller, there's a good chance that that buyer just finds another business that a different broker is representing it right. And so that broker won't get paid that the buyer initially reached out to. But I think

In all these relationships, if you come across as serious, if you send a packet, you know, it's got your resume, it's got the industries you're targeting and things like that, something I can save in my folder of buyers. I think that's something that definitely helps you stand out because I will be like, yeah, let me spin through my buyer folder real quick and see, yeah, so and so is interested in solar in the Midwest or, you know, whatever. And I think that that is helpful.

Jon Stoddard (05:39.132)
Yeah. So you're saying if like he's a, uh, treasury wealth manager or a accountant or attorney, like send a professional packet to them, just say, Hey, this is the first time we meet, but I just want to let you know, this is what I'm looking for. If anything ever comes up.

Scott Weavil (05:56.514)
Yeah, for sure. And I definitely try to jump on the phone first, or I would. Some people may just say, no, I get 100 of these a week. I if you're ever on Search Funder, they're saying the same thing from a different direction. They're saying, my goodness, I've got 100 college kids every week applying for internships. What do I do with those? So they're seeing it from a different perspective. I saw that post last week. But I think anything you can do to differentiate yourself.

Jon Stoddard (06:00.209)
Yeah.

Jon Stoddard (06:19.72)
yeah, yeah, I saw that too.

Scott Weavil (06:22.058)
and sort of give somebody something that even if it isn't actionable now, they can sort of file it away. And obviously in that email, the more you can talk about industries and stuff. when they're searching their inbox for those keywords, if they may pop up, know, something like that's good. And I do think it's a numbers game too. think if you seek out some of these folks in, particularly in your geographic area, that's not going to be bombarded with

this stuff constantly, you're definitely more likely to percolate to the top. If you tell the financial advisor that you're only business buyer they've talked to this year, you're going to have a better shot at them remembering you. Now, on the other hand, they may be less likely to have a business that you're interested in. And I think...

Jon Stoddard (07:05.328)
Yeah, and I just like, don't think that's happening today with some of the service based businesses like HVAC in Tucson, Arizona. Those guys get calls weekly or twice weekly from PE firms or somebody.

Scott Weavil (07:10.466)
Yep.

Scott Weavil (07:18.624)
That's right. So you're much more buy side oriented than me, John, but I would say that you're probably telling people what I'm telling them, which is you're going have a very hard time out competing those PE buyers in those super hot industries. I'm not saying it can't be done, but we've definitely sold businesses like that where it's actually very, very hard to get the sellers to even to consider an investment banker because they're like,

The &A process comes to us in our inbox. Five times a week, we have emails, right? And so, we don't really need somebody out generating interest because it's coming down. So I think if you can pick industries that are, I'm not saying everybody wants those industries that tick the boxes of something that people absolutely need. They need AC down there in Tucson. They, you

Jon Stoddard (08:07.484)
all the time.

Scott Weavil (08:08.726)
And it can be recurring revenue if there's services attached and things like that. And that's why folks are looking at those businesses. There's lots of good reasons for it. But if you can find something that's a variant on that that isn't quite as popular, this can be a lot easier.

Jon Stoddard (08:25.446)
Yeah. So when did you start Sierra Pacific partners and how many partners do you have in?

Scott Weavil (08:30.924)
Yeah, for sure. So I started Sierra Pacific Partners three years ago after running an &A process as a lawyer for a client that couldn't find a banker that he clicked with. There were good reasons for that, that he had some criteria on the sale that somebody that was working for a success fee probably wouldn't be too comfortable to get around.

But right now, so we've been doing this for about three years. We do &A advisory and capital raising, mostly sell side &A. That's not to say that we don't do some buy side work and some capital raising work. And then right now on our &A team, it's me, my analyst Vanessa. And then generally speaking, we have about also four brokers who work on our Main Street team that do smaller SMB level transactions. So we sort of got a bifurcated structure.

Jon Stoddard (09:20.118)
what you're saying. Okay. how did you find these people to, work with that? He's like, did you work with them before or did you put an ad out of them? Like, how do I know these are the right people to bring me good deals or say, that's a great deal. That's not a good deal. This is evaluation. That's not the valuation kind

Scott Weavil (09:39.63)
Yeah, for sure. think particularly with what we do in the M &A space, we look for folks that definitely have experience. I'm probably not going to train somebody from the ground up, particularly with M &A. So you want somebody that's got experience doing it. On the buy side, I think you want to be, if you go out and hire somebody to sort of do a mandate or a retained search for you, you want to figure out exactly what you're getting. Like in other words, is it somebody

that's just gonna introduce you to leads, right? That meets your criteria for a fee. Is it somebody that's gonna take on like a Q of E type function and valuation function too? Just what are exactly those services that you're gonna get? And I'm not saying that, you know, we wouldn't do a formal Q of E. That's just not something that we typically do. We typically do, definitely do valuations. So I'm not suggesting that it's any specific package, but you wanna be aware of whatever fee you're getting involved with is included.

Jon Stoddard (10:34.032)
Make sure that's included. Yeah.

Scott Weavil (10:35.852)
And then I would say on the sell side, you just want someone that has experience and is motivated. Like I know sort of our lead Main Street broker, he sold a business himself. That's how he got involved in this. And he's just really, really committed to helping other owners do the same. We've got younger broker we just brought on that's got a, I think he just graduated with a master's in finance. He's very, very strong on the financial aspects, but he hasn't been around the deal making as much.

right? And so it's just something like that, that he needs a little bit more oversight. He's going to catch on super quick because he's got the more complex, well, arguably the more complex skills, but we've got to get him, we've got to get him there on just seeing how things typically work as the deal goes through its trajectory.

Jon Stoddard (11:04.71)
Yeah, yeah.

Jon Stoddard (11:19.248)
Yeah. So talk to me about the process of like a deal comes to you and the individual wants to sell. Do you focus on a specific industry? Like you're in Silicon Valley, could be technology, but you do Main Street businesses also, right? You do them all, right?

Scott Weavil (11:21.806)
Ha

Scott Weavil (11:36.142)
Yeah, for sure. So I tend to focus more on the $10 million plus range and the Main Street I'll generally refer. have our, no, 10 million plus in purchase price. We've done a couple, we got a couple in the pipeline around that 10 or 11 EBITDA mark, but they're sort of, they're going slow. So we're not active on those just yet, but I'm hoping maybe a little bit later this year.

Jon Stoddard (11:43.868)
10 million EBITDA or 10 million?

Okay.

Scott Weavil (12:00.654)
But yeah, generally what happens when a client reaches out to us is the first thing we do is we get them under NDA. That's for their protection saying, you know, we're not going to use their information or anything like that. And we do evaluation for them because if we're not aligned on price, you know, we're wasting our time. And I don't want to give a seller false hope.

Jon Stoddard (12:19.836)
How is that? I'm going to interrupt you just because I got to ask you about that conversation. Cause that's the biggest conversation. Like if you get past that point where they, I'm happy with that. Not happy with that. Like, tell me how does that conversation go with a guy that's worked on a business for 10 years or 20 years, whatever it is. And it's worth $10 million. Are you looking for specific aspects? Like, are you 75? You want to retire, death, divorce, disinterested?

I'm kind of loading these up because that conversation is the big one. Yeah.

Scott Weavil (12:51.816)
Yeah, and you bring up a good point. mean, the valuation is one thing. So generally, the way I present the valuation is it's not my valuation. It's not Sierra Pacific Partners valuation. It's the market's valuation. I try to depersonalize it, right? We look at comparable transactions and things like that. it's not a personal judgment or anything like that, but it's just where the market puts businesses like yours right now.

Jon Stoddard (13:17.424)
Is that from BVR or somewhere else or what?

Scott Weavil (13:20.354)
Yeah, I mean, it really depends. The problem is we're in a gap in the market where there's not great data. There is fantastic data in the SBA market from, you know, I think we used to use peer comps. We still do a lot for those, which is provided by SBA lenders. And there's a lot of data once you get in the realm of public company trading comps being somewhat applicable, right?

But we're in this universe where it can be hard to find data. if you look at some of the subscription services and things like that, you get very limited data compared to what you would even get for a peer comps. Like if you're doing a peer comp search, you know, and I'm doing, I shouldn't pick on HVAC. We get too many results, but I could probably get 200 results from HVAC within a certain revenue band in the last couple of years, right? Where you move up market.

You may get something. I'm not throwing names at any of the data services because these numbers are hard to get, but you may pay $10,000 a year for a subscription that says in Q2, manufacturing companies between $10 and $25 million in enterprise value sold an average of 5.2x and there were seven transactions. And that's all the information you get. So we have to do a little bit more qualitative work as it moves up market.

Jon Stoddard (14:39.9)
What are you looking for to be comfortable with? More than 10, more than 50 or what?

Scott Weavil (14:45.294)
Yeah, I mean, I would use that in, and they don't also, you know, you have to figure out when it's statistically significant. But I look for that. And then I just what we do for bigger deals is we start calling the PE firms in the space and we say, hey, what are you paying? And what are those? You know, if you're paying whatever 4.7 to 5.7, OK, that's great. And what's the difference between that 5.7 and that 4.7 for you?

And that's one of the ways that we can definitely do that as you call 10 firms. they're pretty happy to talk to you, generally speaking, and they'll sort of give you ideas around what these value drivers are.

Jon Stoddard (15:22.714)
Interesting. So what happens next? You agree to evaluation based upon what the market says. You're already under NDA and then you say, put a piece of documents, go say, let us help you sell your business, right? At this price. And you tell them, set expectations with them, how long you think it's gonna take, right? Yeah.

Scott Weavil (15:29.516)
Yes.

Scott Weavil (15:43.63)
Exactly right. And that process is a little bit different on Main Street versus upmarket, but it's essentially the same. The differences are upmarket, you typically see things like retainers, milestone fees and things like that. we really, there's never, I was in a discussion on LinkedIn about this, there's never any, what I would call accelerated fee, where if I bring you a buyer for $20 million and you don't sell, you owe me my whatever.

or 4%, right? You don't see that up market, whereas down market on Main Street you do, but in the trade up there, you typically don't have any upfront fees at all. But whether you're on Main Street or up market, we're not trying to make our money on retainers, right? Like even up market, I'm using retainers if we generally don't use retainers, SCR partners is a success fee based.

Even my colleagues that use retainers, you're really trying to get to closing. So in either one of those contexts, we're doing what you sort of started this conversation with. like, does this person really want to sell? Right? Because if this is...

Jon Stoddard (16:50.813)
I want to ask you that deeper. How do you determine that? I've had other answers like once somebody told me that, like I start asking questions about what they plan to do after, what their dreams are, and they have really have to have a clear picture about what that looks like. What do you do?

Scott Weavil (17:09.934)
That's right. think and first of all, I make mistakes just like anybody else does going to going down this road, right? I obviously we want to suss it out as best we can, but it can be tough. But you ask them what they want to do. And I think you want to hear something that sort of pulling them forward rather than pushing them from behind. it's not it's not retirement, you know, is a good a reason as any. However, some people do want to retire or their spouse wants them to retire.

But deep, deep down, their identity is so caught up in that business that may not be enough of a reason to want to sell. Right. And I also, from where I sit, I don't like an imminent retirement, meaning I just want to throw the keys at the new owner and walk away. It gives me the most flexibility if I can go to market and say, Hey, you know, my CEO, he's happy to do whatever. He'll stay on for three years. He'll leave immediately. He'll, he'll be part of a transition, you know, something in between.

But I think asking those questions about what they're drawn to really, really helps. And frankly, it's working with, I think, a little bit larger businesses where you have at least some separation between ownership and management is also helpful. I mean, if you're dealing in a situation where it's a larger search fund or a search fund that's turned into a smaller PE fund, know, generally speaking, those folks are in the business, maybe not quite as.

quick of a turnover's PE fund, but they're in the business of holding for a little bit and then selling. And so that's the ideal case. But I know for a lot of us, and particularly probably a lot of us, your listeners on the buy side, that's not going to be case. You're talking to the founder or the owner of the family business for many years. So it can be tough. I think asking them what they plan to do, sort of why, what their expectations are around the sale as far as terms and educating them on that.

what they find acceptable and what they wouldn't find acceptable. All those things are helpful because you can say you want to sale, but if you present totally one sided terms, like we're not going to get to a deal.

Jon Stoddard (19:17.21)
Yeah. What's your experience seeing that? Like I've had young people that we have approached to buy their business and you know, and somebody gets in their ear just before closing and say, Hey, you got a great deal. It's pretty hard to reduplicate this. Do it twice. Just wanting to let you know. And then they go, no, we're not going to sell it. Yeah. I mean, how many times do you see that and gone through that? I mean, is it a bigger, you know,

percentage, then to actually go into it's like, I'm done. I'm ready to sell.

Scott Weavil (19:52.49)
What we see on our end with the long-term business owners for the most part is it takes them forever to decide to engage us. You know, it can take months to years. And I don't mean that in a bad way. Obviously, if you've run a business for 30 years, it's a huge decision and you should take your time. But once they make that decision, they are ready to go.

That being said, I've definitely seen in this space folks that want to sell but are always convinced that the next better deal is around the corner. I think that is one reason why exclusivity is so important in those LOIs. Because what happens is you get a seller who's under an LOI without exclusivity or exclusivities expire.

they get a random email from someone saying, you know, what are you for sale for? We can do that all cash at closing in a week, something like that, right? And the seller should be educated because we almost got to closing with buyer one, right? So they should know that that text message is a way, way, way, long way away from closing, but some still pull back. And, you know, I think there's just always gonna be a fraction of sellers that will do that. And you should test

And you should test that. I would say, generally speaking, if you're relying on that seller post-closing, you may have dodged a bullet there. If you've got somebody who is that wishy washy on whether they want to close or not, that may not be somebody you want to hang your financial future on.

Jon Stoddard (21:37.488)
Yeah, yeah. How many of these deals do you have to have going at one time to everybody on your team to make it comfortable?

Scott Weavil (21:46.608)
I think generally speaking, I like to have four or five larger deals at a time. And, you know, I would say there's no correlation necessarily between time to closing and the size of the deal. I've seen tiny deals take forever and I've seen larger deals get done very, very quickly. It does depend on the market. know, diligence has been taken a little bit longer over the last year because I think the buyers know that they can do that. And then I think for generally speaking, the main street transactions,

Those folks tend to focus on around 10. Beyond, you know, whatever, seven to 12, but beyond that number about 10, it's hard to service the clients in a way that makes sense. you know, brokers, they choose that, it's a different business model. Some brokers choose quantity, knowing that some of the businesses are probably, it would take the perfect buyer to see value in that business, where others choose to take fewer listings that they think they're more likely to get to closing.

Jon Stoddard (22:46.781)
So you came upon a price, he's decided to sell, then you go into deep due diligence and collecting the docs to put in a drop box or whatever you call that. And what happens there? Kind of like some things like, my God, he's got some skeletons in his closet. Don't name any businesses, but what's kind of the weirdest thing you've seen like picking out?

stories.

Scott Weavil (23:16.674)
You know, I mean, I haven't seen anything that I've found intentionally fraudulent or deceitful. I think we do try to see, we gather all the financials, we try to establish a pre-LOI VDR, you know, so we can anticipate what people want to see so that we look organized and transparent, which is our goal. But I think things that I've seen are

masking customer concentration issues. Usually when I've seen this done, the seller thinks that they are justified in doing so. like you take, let's say you have a conglomerate that's your customer, right? And you got different portfolio companies or whatever in this conglomerate, right? Are those all separate customers or are they divisions if the decisions are made at the whole co-level, right? My argument there is, hey, let's be transparent.

If you want to do that, let's say, let's call it customer A division one, customer A division two. And if your pitch is that these divisions operate autonomously and maybe they don't even like each other, then let's make that pitch, right? But let's be honest about it because that's not something I want to sort of peel the tape off the names of those customers later and have to disclose because then we look like we were trying to hide something, right? So that's...

Jon Stoddard (24:38.64)
Yeah, because one critical points could say they can make a decision to move all their business. Yeah.

Scott Weavil (24:43.766)
Yeah, exactly. the yeah, I mean, the fears are real, right? Everything my seller believes may be true. They may operate autonomously and even immaculately against each other. That holding company may get a new CEO and decide that's the whole wrong approach that you've got portfolio companies that hate each other. Right. And then all of a sudden you aggregate, you you concentrate the decision making up top. So for sure, that's a real fear. Something that

comes up with surprising regularity is tax audits in the middle of the process. So you start the process, everything's looking great, and then you get that dreaded letter in the mail from the IRS, right? And so that's again, something that I'm always disclosed. Usually it's pretty easy to get information surrounding that. Most of the time when that happens, it's been at least when it's happened to me, it's been a relatively minor audit. So sort of limited in scope and things like that. But that's another thing that's come up.

issues with just, I think bad financials and I don't mean any kind of, nefarious stuff here, but like, think I saw some financials recently that had rent in 2024, I believe was like 130,000 more than the year before. And so obviously, you know, that raised questions in my mind. It got sent to the buyer before I had a chance to look at it.

But the answer was our seller terminate, that was his lease termination payment for a facility down in Southern California. So it was a non-recurring expense that wouldn't come back. But you start having stuff like that and it makes your buyer wonder, well, wait a minute, what else in there, honest mistake or not, am I not aware of? Exactly. And generalized skepticism. And that's one of the things I talk about. We talk about this multiple range. Part of the multiple ranges

Jon Stoddard (26:32.538)
Yeah, it just raises skepticism.

Scott Weavil (26:42.168)
how much confidence do we have in these historical financials? The more risk there is in the financials, the lower you go down that range. And so one of the things that I push for, all my clients don't take me up on it, but I love to get sell side QAVs. And I'm not saying that the sell side QAV is a replacement for the buy side, not at all, but it lets us get a head start on where we think we may come in as far as adjusted EBITDA and things like that.

Jon Stoddard (27:06.94)
Yeah, just an off shoot question. What are you asking these guys to spend on a Southside Q of A? What was that like? 1575? What? Yeah.

Scott Weavil (27:08.994)
Let's do

Scott Weavil (27:15.374)
It is for sure all over the map and it depends on how deep we want to go. But like, I think for recently we had a construction company that was doing, theoretically doing about 11 million in EBITDA. And we got quotes of QVs anywhere from about 25,000 to about 60. And that's from sort of specialized lower middle market.

Jon Stoddard (27:23.003)
Yeah.

Scott Weavil (27:44.978)
and even SMB QAV providers, I'm sure you know who most of these folks probably are. Now for sure, if you want to call a big four accounting firm, that price is going to quintuple or something like that, but it just depends on the scope. And sometimes it's also helpful just moving down the line if you don't want to go that route is at least let's hopefully be converted to GAP and then.

get reviewed financials. We don't even have to go all the way to audit, but maybe we'll just do reviewed financials and that's another solution.

Jon Stoddard (28:15.868)
Let me ask you about the financials. So you get the financials, maybe they balance, they look good. And then you check them against the tax documents. There's always going to be other deductions and then your income that your taxable income. They don't always match. They don't always look good. And then you check your, do you actually go in and have your due diligence go in and check your deposits on the bank accounts also?

and just verify all three. Yeah, but somebody would. Yeah.

Scott Weavil (28:45.754)
We wouldn't do that. But for sure. Yeah, you usually on the QE side they for sure do that They actually check the bank. They reconcile the bank versus QuickBooks

Jon Stoddard (28:56.817)
And how long do you wait for that process to go through? like, hey, you got a clean bill of health. Or three weeks later, it's like, eh, we have some issues here.

Scott Weavil (29:05.824)
Yeah, I mean, it's interesting. There's I think sellers aren't aware of what they take forever to make this decision to sell. And then they're typically ready to go. Right. Like we've made that decision. Let's move forward. want to be a that. Yeah. No. As soon as I sign that engagement letter, we're going to be on the market tomorrow. Right. And I'm like, no, no, we've got we've got diligence. We got to set up marketing materials and things like that. And some of that.

Jon Stoddard (29:16.582)
They think everything's gonna happen dominoes like it.

Jon Stoddard (29:23.558)
Hahaha!

Scott Weavil (29:30.26)
A lot of that time, there is time it takes for us to go through it, but a lot of it is we're just waiting on that information from the seller. And I would rather wait on that information upfront so we can produce it near instantly to buyers later than sort of come, know, half cock, try to try to move along. And that definitely frustrates some sellers like, bring me a buyer and then we'll figure this out. And I have to say, hey, that's, you know, learn the hard way. That's not the way to approach this. But for sure, I.

Jon Stoddard (29:55.901)
Yeah. And do you have some kind of agreement that lasts for how long with them, like a two year agreement or one year agreement to make sure that, Hey, let's set our expectations about the timing and everything.

Scott Weavil (30:06.86)
Yeah, so typically I think most folks in the Main Street space will do a year, right? And that's what they quote is they say something like in the SMB space, the median's maybe eight months to sell with the caveat that like 80 % of businesses never sell, right? Typically, upmarket, I'll do six month agreements and then it extends for 30 days. And usually part of that is

The larger businesses are often more, or we can almost wrap our arms around them a little bit more easily because they have better financials. have, you know, CFO, somebody in place that can get those to us quickly. So we can do some of what we need to do to get it out to market almost more quickly.

Jon Stoddard (30:48.113)
Yeah. So you, let's say you get Clarence and you put this nice package of SIM together. When do you sit down with the seller and say, we're going to open this to this market or we're going to go target specific potential buyers that are doing rollups or private equity firms? What does that conversation look like and the extent of

Scott Weavil (30:50.03)
Peace.

Scott Weavil (31:10.998)
Yeah, mean, some of it depends on size, right? The bigger the deal gets, our buyer pool is getting smaller. And so we would typically do more targeted outreach there. If it's say something a little bit more approachable, you know, in that maybe 10 to $20 million range, we're probably going to do both is going to be the answers. We're probably going to market it on sites, know, Axie, and maybe even BizBiz and things like that and target folks. So that's a pretty common approach.

But some of it depends on the seller's competitive sensitivities. And so for some of them, you know, there's, there's certain businesses where you don't have to provide the name, but if you provide three key, I mean, I'm running a process now for a client and health tech client, they're, they're venture backed, they're pretty early, but they have their only product.

Jon Stoddard (31:51.836)
They'll know it. The competitor knows it. Yeah.

Scott Weavil (32:03.534)
So I have to send these very vague emails basically saying, hey, we've got this cool thing, would you like to sign an NDA? And I get these emails back like, Scott, I don't even know what this is. And I'm like, well, there's a reason you don't know what it is, because if I tell you what it is, you know who the company is, right? So it's a little bit of a balance there, but there's definitely owners that are overly paranoid. I think it's fair, but I would much rather have an owner that is more concerned with confidentiality.

Jon Stoddard (32:10.182)
Hahaha!

Scott Weavil (32:33.006)
the one that's cavalier about it. Because I think one of the things we see in this business is most of the leaks actually originate with the owner. You give us your main line and you've got somebody calling from Sierra Pacific Partners. We try to avoid that. Your receptionist looks up who Sierra Pacific Partners is. Boom, there you go. We're not 100 % certain what you're doing, but it gives somebody an idea. Same thing, you do these factory tours on Saturday. The security guard, whatever.

let's send the guys in support coats. And what you don't realize is that security guards is buddies with everybody who works on your floor. And so by Monday morning, you get told this parade. The craziest one I heard of, actually I was involved in, was my owner ran into his son who did not know that he was selling at a gas station next to his manufacturing facility. And the son was like, dad, what are you doing here on the weekend? And sort of figured it out.

And that was an interesting one that involved then putting the son under NDA. And it was sort of a unique family circumstance because I don't think the son saw the business as his birthright necessarily, but I think he saw that he had a pretty 50-50 shot at ending up being the owner. So you see all kinds of things like that. So I do think confidentiality is for sure a concern and that'll definitely impact the size of that target list.

Jon Stoddard (33:55.453)
Yeah. And how many people do you hope to get this package to, make sure that you get the numbers working for you? Like 500, 600, or is it like a hundred?

Scott Weavil (34:08.665)
Yeah, I think most of the outreach that we do is probably 50 to 100. And I'll say we do iterate that list, right? So like we may come up with 50 to 100 who we view as A players or A candidates. And if that doesn't materialize, then sort of at the end of working that list, we'll iterate to the next 50 or 100. 200, we just worked a list for about 200.

Jon Stoddard (34:16.293)
huh.

Scott Weavil (34:35.438)
That's a relatively large list. But for sure, you can definitely, I know folks that go up to six, 700. So you sort of do what you have to do to get the business out there with the caveat that we don't want to sell, we don't want to be providing confidential information to folks that we think aren't in a position to close. For instance, with this health tech business that we have.

We had a purchase price in mind, and so we sort of knew we were looking to sell to serious C and public company startups. And we knew, for instance, that if we're looking for a $30 million purchase price and you've only raised $14 million, you are probably not our buyer, even if it may be a great fit, because theoretically, we're actually bigger than you are.

Jon Stoddard (35:20.86)
Yeah. Let me ask you a sidebar. Where do you get your mandate for these companies you look for? Because I know of a investment banker that just basically has 50 PE companies that buy MSPs ITs. He says, hey, here's my menu, go find it. And then he goes out to that. Or which way do you work? Or both?

Scott Weavil (35:29.176)
Thanks.

Scott Weavil (35:42.412)
Yeah, so generally speaking, we're working Southside and we do have some industries that we focus on. So we do have pre-built buyer lists. They're usually, there's typically, I would say a slight adjustment, right? Like a buyer list for a certain health tech product isn't the buyer list for another health tech product. Now, maybe there's going to be some overlap, but it's not total, but that's typically how we work. And then when we talk to those companies,

We also learn more about what they're looking for and sort of add that to our database for in the future. So there is some energy, certainly some synergy there in coming back to the same players. And for sure, you know, from prior processes who sort of plays fair, right? Like if we want our bids due on one day, who actually gives us bids on that date? If we choose to go forward with them into an LOI round,

and they tell us something in the bid round and then the structure is totally different in the LOI round. Maybe that's not who I'm really going to prioritize the next time we go.

Jon Stoddard (36:45.531)
Yeah. When you look at new sellers, somebody that's never kind of, you've gone through the process with what are you looking for in them to make sure they get it? Like, you know, proof of funds, of course, but what else?

Scott Weavil (37:01.772)
Yeah, I think proof of funds, a willingness to give us their background and listen, you know, whatever, we've got forms and stuff too. I don't care what form it comes in, but I just I'm not trying to talk to somebody particularly into your confidential information with someone that can't close. So we want to know they're serious about the business. It is an art, though, because, you know, down market and up market buyer.

Buyers and sellers are in the same situation. And what I mean by that is I don't want to give you information if you can't buy the business, right? On the other hand, you don't want to write me out your life story and give me your Social Security numbers if a two second peek at the financials is going to show this is a pass for you, right? So it's creating it's sort of creating that right amount of friction. I think we don't want we want enough friction so that we know the buyer is serious.

Jon Stoddard (37:49.5)
Right, right.

Scott Weavil (37:58.062)
We don't want so much friction that we turn away our ultimate buyer. I'm totally fine with turning away the tire kicker, right? That's just trying to figure out, you know, what we do in our markets. So maybe they just open up a shop next door. that's fine, if they don't make it through the process, but it is that I'll say up market, the, the proof of funds thing tends to be not a concern. You can just look and say, Hey, this PE funds acquired, you know, eight different add-ons in the space in the last year. I think we're good to go that they would be a serious buyer. So that's a little easier.

Jon Stoddard (38:24.828)
Yeah. Yeah. What are you looking for in types of communication to, you know, I liked it. For instance, I like to say, Hey, man, just make sure you say pass or pass or pursue the business pretty quick. So, you know, so you're not wasting time. I mean, is that a standard rule or what else do you like to say?

Scott Weavil (38:43.564)
Yeah, I mean, we actually have a chart, you know, as you would expect when we do these reach outs and track it and I buy people I'm like, hey, you know, if this is the past, you know, just just let us know our feelings aren't going to be hurt. But I want to I want to X you off my list. And then we do have something that I call it a presumptive past. You know, if you've been if you've talked to somebody for a while or even sent them an NDA and even agreed on an NDA and you send them eight follow up emails like at some point, you don't need to chase them forever because you know,

They don't have the interest to get to a closing, right? But for sure, yeah, no, you're not gonna get to, if you have to email the CEO eight times about the NDA, they're legal.

Jon Stoddard (39:16.316)
They're just not into you.

Jon Stoddard (39:24.895)
you know, I just got back on vacation. I'll take a look at it. How about, yeah.

Scott Weavil (39:28.878)
Exactly. And legal's already approved it and you've had a stock decide, you know, that kind of thing. They're just not that interested, right? But it is. mean, we do keep stats of all that and we track reply rates, right? And I consider, you know, for response rates and no as a reply, right? So that shows we're at least getting through to people. But I for sure thank them, you know, whenever we get that quick pass, I'm like, hey, thanks so much for the quick response.

Jon Stoddard (39:52.465)
And you got your indications of interest, you get your LOIs. What do you normally see? How many LOIs do you normally see on the projects you

Scott Weavil (39:57.518)
Okay.

This is all highly variable, right? Like there will be processes where there's no need to have a different IOI versus LOI stage, right? There's not enough buyers to make it worthwhile, right? If you get a lot of interest for sure, maybe if you get 10, 12 IOIs, absolutely, let's boil those down and maybe try to get four or five LOIs we can take a look at. Something like that would be great, but I mean, don't, you you see deals done all the time where there was always only one buyer.

Jon Stoddard (40:09.446)
Okay.

Scott Weavil (40:29.262)
Or maybe two, right? So it's not always that perfect textbook process where, and as I alluded to before, in those bid process letters, you can set those deadlines, but your buyers don't always comply with those deadlines. And you just have to make a judgment call like, well, if they're really serious, but it just took them another day, I don't wanna exclude our potential closing partner by that. Or you have to make a decision, they've been sitting on this for months.

Jon Stoddard (40:31.131)
Yeah.

Scott Weavil (40:58.284)
they could have gotten it in.

Jon Stoddard (40:59.591)
Yeah. What's the conversation you have with a seller if you only get one buyer? Cause that, you know, your best alternative, it's not there. They could not sell, but if it's a little bit lower, right on, you know, higher is ideal, but what if it's a little bit lower? It's not ideal what the seller wants. Just say, hang on, tank tight.

Scott Weavil (41:20.654)
Yeah, I mean, I think you just got to cancel them through it and it depends on their life goals, right? I mean, some people do actually really want to sell. And so you just talk them through it and we try to see what we can do on the terms. know, the more money we can keep in their pocket and the more money we can get upfront, the better. The terms can be super important, as important as the purchase price, or they can decide to sit on it. I mean, I think one thing is that most of us

who are paying on success fees. We like to get to closings. All of the deal makers like to get to closings just because that's really what we're here for. But most of the folks that sit where I sit, we're not in the business of forcing sellers to end up with partners that they're not too interested in for sure. Even on Main Street, I think very few brokers I know would be like, yeah, I know you hate that buyer, but he's ready to go. You me my commission.

Jon Stoddard (42:15.196)
Yeah.

Scott Weavil (42:16.59)
But it is just a counseling thing and for sure, you know, we love the drive competition. I like there to be more than one buyer. That's absolutely the goal, but it doesn't always work out that way.

Jon Stoddard (42:26.394)
Yeah. So let's say if it's, get three LOIs and they're pretty similar as far as price and what, what he wants for equity. How do you, what's the opinion that you give them? Because you're, you know, you're the seller may have met them a couple of times and ask them questions, but you're going to say, Hey, I like this offer better because what's the analysis that you offer?

Scott Weavil (42:52.748)
Yeah, I we'll obviously do financial analysis on, you know, whatever any kind of contingent payments will net present value and stuff like that. We'll come up with the financial analysis, but assuming all that's relatively similar, I think it comes down to who you think is going to be the best steward of the business. And that has totally different, totally different dimensions depending on what you want. Right. So if you're taking rollover and you're going to be the CEO, that's going to be a very close relationship. Right. So that's

That's one thing. you're stepping out, but your main interest is your employee's security going forward, you look at folks track record with that. Are they typically all about synergies? Are they gonna take out your whole office? Maybe that's justified if they're taking out the whole admin function of your business. But if that's the MO, that's probably not the partner you want if you have other opportunities. And I would say,

One huge differentiating factor in the lower middle market space is that price, while a key threshold factor, doesn't tend to be the determining factor. In other words, yes, on that LOI and IOI, you need that price to get in the mix, right? Yep. Yeah. But, you know, a buyer is probably not going to, you know, depend on the scale. You're not going to

Jon Stoddard (44:07.036)
You get in the door. You gotta ante up like any poker room. Yeah. Yeah.

Scott Weavil (44:16.878)
choose if you think somebody is going to totally, somebody's buying your business to shut it, just to get rid of competition. Most sellers are not going to take that buyer for 1 % higher purchase price when all their employees are going to get fired. Similarly, small business owners are very, very interested in the customer service and reputation of whoever's buying them. And I've definitely had clients say, hey,

They look like a good buyer on paper, we hear all that they're always accused of various deceptive practices and things like that. So that's definitely something that buyers. Yeah.

Jon Stoddard (44:55.365)
That's kind of word of mouth. You don't know anything about it unless you're doing some, you know, Intel. Yeah.

Scott Weavil (45:00.578)
Yeah, or, you know, I had this conversation last night. We fired some, some salespeople because we thought they were being overly aggressive and deceptive and company Y picked them up five years ago and they've kept them the whole time. And so, you know, you just hear, you hear things like that. And some of, a lot of that you'll lean on, you know, you're straight up going to tell your owner cause you don't participate in that industry every day. That kind of those kind of, that kind of information is super valuable. And you also.

Jon Stoddard (45:26.864)
Yeah, yeah. What?

Scott Weavil (45:29.391)
You can talk to prior acquisitions if they'll let you. Now they're going cherry pick 100%. Don't kid yourself that they're not going to pick their biggest fans, but that also tells you something, that they can't even give you a list of three people.

Jon Stoddard (45:35.481)
No, sure, sure,

Jon Stoddard (45:41.66)
Yeah. So what are some of the things that nobody tells you about closing on the deal, the emotional roller coasters and the perspective you have to have as a investment banker broker? Yeah.

Scott Weavil (45:45.742)
If.

Scott Weavil (45:57.346)
that there's always going to be, you know, mean, everybody says this, but there's always going to be tiny little issues that pop up, right? my God, we closing got delayed. We didn't hire for our busy season. Now we need to lease some of your employees to get us through our busy season. And then there are going to be a risk of issues surrounding that. That stuff, I mean, that's a specific instance, but that stuff comes up all the time. So you just, I have to mentally prepare my sellers that, Hey, very rarely do we just

in a linear way, just get to closing and no bumps in the road, right? Those bumps can be big, they can be small, but there tend to be bumps. Closings do tend to get delayed. You know, have goofball stuff happen where somebody on the buy side doesn't realize ACH routing number is different than a wire routing number. So we really try to drill down on that and make sure, you know, the actual mechanics and things like that are happening. You know, definitely in the SMB space,

You see lots of people that think they can do December 31st and January 1 closings. And those are very, very hard to do when there's virtual vacation, either at escrow or at your bank. So yeah. So I mean, that's for sure. You know, January 1 midnight effective date is fantastic for accounting purposes, but just in some places in the market, that's not going to be.

Jon Stoddard (47:06.716)
Yeah, that's what I've heard. Yeah.

Jon Stoddard (47:17.404)
Yeah. What happens after closing with you? mean, how much are you involved? Are you're totally out? And have you seen somebody like buy and go, Hey man, that didn't work out. Like.

Jon Stoddard (48:27.248)
You mean that the stuff they put in the Sims that what the broker says you should be doing? Like, well, why aren't you doing those yourself right now? Like, yeah.

Jon Stoddard (49:20.764)
Yeah. When your analysis of that, because somebody's buying a company and go, Hey, this is a great little product. can cross sell this. that like, I don't know if that's going to work or not. Right. Do we know like you can go to Amazon and go, Hey, they're selling 50 million of this one product, but they also buy this. So this is a good indication. But if somebody goes, we're going to buy your company to cross sell it to our list.

Jon Stoddard (50:29.02)
Well, Scott, thank you for a really good overview picture of the investment banking process and the sell side. I appreciate that. Yeah. Cool. And thanks for being on the show.

All right, I'm going to stop and.