Scott Bushkie's Top Tips for Becoming a Successful M&A Advisor

Summary

In this conversation, Jon Stoddard interviews Scott Bushkie, a seasoned expert in mergers and acquisitions, focusing on middle market deals. Scott shares insights from his extensive experience, discussing the dynamics of the M&A landscape, the role of private equity, and the importance of understanding buyer motivations. He emphasizes the current favorable conditions for sellers, the significance of proper valuation, and the collaborative efforts within the Alliance to enhance deal success. The discussion also covers fee structures and the composition of deal teams, providing a comprehensive overview of the M&A process. In this conversation, Jon Stoddard discusses the intricacies of mergers and acquisitions, emphasizing the importance of building a strong deal team, understanding the dynamics of business sales, and preparing for a successful exit. He highlights the common challenges faced by business owners, such as burnout and lack of planning, and stresses the need for proper valuation and financial management. Stoddard also addresses the significance of navigating partner issues and legal considerations in the sale process, as well as the regulatory landscape surrounding M&A transactions.

Takeaways

Scott Bushkie has been involved in over 300 middle market deals.
The M&A market is currently favorable for sellers.
Private equity firms are a major driving force in M&A.
Understanding buyer types is crucial for sellers.
Valuation is key to maximizing sale price.
The Alliance provides valuable resources for M&A professionals.
Fee structures can vary significantly in investment banking.
Collaboration among advisors enhances deal success.
The current market has high multiples due to competition.
Building a strong deal team is essential for successful transactions. Building a strong deal team is crucial for success.
Copywriting plays a significant role in business sales.
Many businesses fail to sell due to lack of planning.
Understanding financials is key to a successful exit.
Burnout among owners can negatively impact sales.
Proper valuation is essential for maximizing sale price.
Addressing partner issues early can prevent complications.
Confidentiality is important during the sale process.
Regulatory requirements vary by state in M&A transactions.
Planning for the future is as important as selling the business.

 Watch the Interview:

Transcript:

Jon Stoddard (00:00.088)
Today, my guest is Scott Buschke from Cornerstone Business Services. Scott has been involved in more than 300 middle market deals and an alliance that he talks about where they've completed over 3,282 deals. So welcome, Scott Buschke. Thank you, John. Glad to be here. Good. So you got to tell me about these middle market deals, these 300 deals, and then we're going to talk about that alliance, what that exactly is.

Tell me a little bit about these 300 deals that you've been working on. Yeah, so I've started in the mergers and acquisition world back in 1998 at the ripe old age of 24 when most people get it at 52. So the old saying of ignorance is bliss definitely fit this scenario. I loved sales, I loved helping people and just kind of fell into this industry by accident. And I worked for another firm for a couple of years and then started up Cornerstone in 2001.

been doing it ever since for the last 20 plus years now. So, but yeah, we worked on the buy side, we worked on the sell side, and most of them are in that low market space. A lot of the clients that we work with are in that two to 50 million enterprise value range. And look all shapes and sizes in different industries. it's been, we've seen deals get done in less than two months, and we've seen deals take over two and a half years. We've had deals that were.

Easy, when I say the word easy is very loosely, you kind of everything flowed well and there's deals that blew up the day before closing. So it's a very interesting time and you know, to be a buyer out there, it's, you we talk about it being a much safer way to buy a company versus starting a company because starting a company, all you have is an idea and you might think it's the best idea in the world, but it might not, might work, it might not work.

You don't know when you're able to take any income out of the business or that first salary where if you buy a company and your structure, right? You know, you've got a company that's got a proven track record. It's got trained employees. It's got revenue coming in. It's got cashflow dropping to the bottom line. And you should be able to take a paycheck day one and then hopefully obviously build the company up from there. But happy to talk about any specific questions that you have.

Jon Stoddard (02:14.84)
So I'm going to come from this as if I have a company, it's doing $10 million top line and maybe let's say 2 million bottom line. It's pretty profitable, really good company, family owned business. it's, can't get anybody to my son's daughters take over. so I got to sell this. so why would you be interested in my company? Why would I, you know, I'm in, I'm in this manufacturing niche. Why are you interested in my company?

Yeah, I would say first it's your cash flow. know, at $2 million in EBITDA, that happens to be, you know, there's different types of buyers out there. There's obviously public companies that we all know about. Then there's private buyers, private companies that are looking to go through acquisition. But then you also have the financial buyers, which are private equity firms and family offices. And those last two categories, private equity has really been the train driving this huge &A marketplace. It's a great time to be a seller right now for most industries.

their break point for a lot of deals is two million in EBITDA. So if you can get to two million EBITDA or above, the market opens up, another layer of market opens up, another layer of buyers opens up. So you're not just going after companies that are already doing manufacturing, you're addressing the 6,000 private equity firms chasing this lower middle market. Correct, yeah. So we had a deal that I did not too long ago and we had 28 different buyers.

on one company doing about four million in EBITDA. And it was the buyers were family offices, private equity firms, ESOPs, private companies. There was no public companies, but it was, yeah, we go after everybody. And it really depends too on what, you as the seller, what are you looking for? You know, if you're looking to, you know, maximize the value, a, know, sell 100 % of the company and get out sooner rather than later.

Well, that's probably a playbook more for a strategic buyer or a company that's ready, you know, looking to grow vertically or horizontally. If you're going, Hey, you know what? I, boy, it's a really good time to sell. I'm not ready to retire yet. I've still got some, some energy, but boy, it'd be nice to take some chips off the table now in this great marketplace. So maybe I'll sell 70 or 80 % of my company and then I'll roll 20 % in the new co for another five years or so. That's a great play for a private equity firm. So, you know, what we'll do is we'll sit down with you as the seller.

Jon Stoddard (04:38.645)
And actually we created a workbook that we have a lot of our clients, potential clients go through. And one of them is what's most important to you. And again, there's no right or wrong answers, but the more you can hone in on what's important to you, the better chance someone like us as your evident advisor or investment banker will have of getting you more of what you're looking for and it'll allow you to go up more on your terms. Hey, I got this reputation for private equity firms to sign an LOI.

at one price and then work on moving it down the price out because they start pissing on the couch. They say, there's a dent in that guy right there. So I'm taking it your job is to keep that original price. And even before that is to vet the buyers because you're absolutely right. are some, like any industry, there are really good people and good ethical people, and then there's just sharks. And the problem is for the average owner,

or even average advisor, it's really hard to tell the difference between each of them because they go to their websites, they all look the same, they all talk the same, they all promise the same. It's who actually delivers on that or not. So yeah, when we get into, so last year we averaged nine offers or indications of interest per client. So taking it from nine and narrowing it down to three to five, that's what we're doing. We're looking at, know, we're looking at vetting them of.

What is it? What's their culture? What's their mo? You know, talking to past self. The nice thing about private equity is most of them bought other companies before. So you can track down. Sometimes you can either track them down or they'll give you the owner's names. You can give them a call and say, Hey, you're not going to talk about what the multiple was or things like that. But how did they, did they close on time? Did they do what they said they're going to do? Did they try to retrade the deal at the 11th and a half hour? What did they do after the sale? Did they give you the support that they said they were going to give you?

Are they, know, micro managing you? Are they letting you run the business day to day? So we can really, you know, they've got their tricks and we've got ours to really make sure that we as best as we can get those buyers out that are just looking to, yeah, you know, get you excited and then retrade the deal down the road. And that's why, you know, the scary part is, is that with the record amount of money that's sitting out there right now in the marketplace, I mean, just last year, private equity raised over $900 billion, you know, is it, is it five trillion or one trillion or something?

Jon Stoddard (06:54.893)
They raised $900 billion and spent a trillion last year. Records, I think, on both fronts. You think so. They raised $900 billion. They're going to spend that money in the next probably five years. And there's just so much dry powder out there right now. what they're trying to do is they're trying to spend a bunch of time and money and resources to get to you, the business owner, John, before John comes to Scott, the investment banker.

Because they know if I can get you one on one direct, I'm going to get a much better deal. that's, you know, a of times they'll, they'll get you, they'll get you excited, signing an LOI. And once they got you exclusive, now, now they've got to got you. Cause now they can drag things out. yeah. Hey, I got to do a QV. Yeah. I was supposed to take two, you know, 30 days. We're out 90 days now. It's taking longer than just keep asking for more and having you take your eye off the ball. And they're just waiting for, you know,

for your numbers to just take a little bit or just have some kind of a slip on anything and they go, hey, wait, you know, your trend is going down now. We got to look at this. was going up and now it's going down. So we're still paid the six multiple, but it's not at four million and even down. Now it's at three, five, and you're taking the hit on the, on the. that's by that time they have this exclusive on this LOI and they feel like, my God, I either back out or I just go with the deal and.

And that's talking to the dinner table with the wife. like, take it, not taken. And I just take it. We're tired. Yeah. And that's what happens is they, you know, and again, not all of them, there's some really good, no, I'm not just saying like there's the reputation that's formed around that. But it absolutely is. So that's why when you get that one on one, they control the process, they control the timeframe and they're going to close when they want to close. And yeah, a lot of times they'll want to wear you down and then go, Hey, we can close in a week at.

15 million. Yeah, we're going to give you 20 million. We can close it a week at 14 or we'll just cancel this. We'll split. Yeah. And now you've already as a seller, you and your, your spouse have already thought of maybe plan the trip and you started thinking about where you're to spend the money and everything else and go, man, I'm a week away from this or I got to start back at square one. It's not even square one. It's almost negative one because you've taken your eye off the ball and you're emotionally now excited and now you just are deflated and you got to go back and

Jon Stoddard (09:13.357)
Either find a different buyer or just go back to work it every day, which is tough once you get there. It's curious with a trillion spent, 900 billion raised over the next five years and this herd mentality, fear of missing out and 6,000 people chasing this like small amount of deals. Are they overpaying? Yeah, you know the market will determine the risk, but they are the multiples now are higher than they've been in a long time and even with it's crazy if you would have said hey Scott.

You've got 20 years of experience and there's gonna be this thing called COVID that's gonna shut down the country. You're have supply chain issues, you're gonna have employee shortage, you're gonna have inflation. What do you think the &A market's gonna look like? I'd be like, it's gonna look like 2008, nine. It's gonna be, it's gonna slow down, be less deals, but deal volume's gonna come down and it just hasn't. Again, there's so much money. company has a bunch, they all have strong balance sheets too for the most part, but they can go, hey.

There's too many uncertainties we're going to hold off today with this focus organically for this year. But with private equity, when they raise that capital, they got 10 years to find a company, buy it, grow it, and sell it within that 10 year window. So that's where the numbers, the values are high. And to give you an example, there's a group out there called GF Data, and they've been reporting on lower middle market and middle market companies for, I think since 2003 on a quarterly basis, they have over 200 private equity firms that will send in their deals.

And it's really good data, but they so every year, every course in 2003 and I think it was Q3 and Q4 of 2021 were the highest multiples they've ever seen in their 16, 17 year history. So yeah. So multiples are extremely high. We're trying to get as many. Yeah, that's just too many people chasing the same deals. Yeah. Yeah. I mean, you look at it, you've got more money than you've ever had. You've got more buyers.

You got a limited quality of limited amount of good quality deals. So, you baby boomers are still hanging on. You've got low interest rates. They're rising, but they're still relatively low. And you got debt available because corporations, you know, know a ton of low market companies that used to work out of a line of credit. And we did as well going, Hey, that's smart. You know, you don't use your own equity. Use a line of credit as you need it. Well, then, you know, then 2008 hit and good companies also had banks calling their notes going, Hey, you know, you got a

Jon Stoddard (11:34.251)
You got your service company. You don't have any assets to back up this line of credit. You got to pay it down and like, wait a second. So now a lot of people are working out of reserves, cash reserves instead of lying. So these banks are going, Hey, we got to, we got to get rid of this money. We got to earn some money here. So they're going to all their good customers going, John, you've got a customer's our bank for 15 years. You're, you're smart business owner. Please go buy something. Go add something on your business. What can we do to get this money? So it's, so you got a lot of money, a lot of debt.

and more buyers and sellers. It's kind of econ 101. The sellers, you know, just. Yeah, that's it. We see what happens there. What is the kind of the balance of the ratio that the companies that you sell to private equity family office versus selling to another manufacturer in the same market? Yeah. Yeah, it's over the last five years, it's grown to be more private equity than than strategic. It used to be maybe 70, 30, you know, a company.

and then 30 % private equity. But the last couple of deals that we've done, we had one done in Atlanta that was, we had three offers. It was in two strategic buyers. It was just a perfect gift for them. They could slide it right in, much bigger, could absorb everything in. What kind of company was that? What kind of did? It was in the construction space. They did, but it was a distribution company. had technology that

what was the of the company, the product that basically it was something you'd add to like a front end loader or a dozer and things like that, some technology, part of like a John Deere dozer. But so they were a value add distributor and we had two offers that came in right around 5 million plus or minus were the two strategic. 5 million was it 60, 70 % down or 5 million total? 5 million purchase price cash at close. Yeah. And

And then we had another and then we had a private group that came in that focused on kind of industrials and things along that line. But they came in at eight and a half million. So I had two two strategic buyers, privately held companies at five, eight and a half million. And they obviously had to buy the company. They enrolled 10 percent in the new co. His number two guy became the CEO and it's going extremely well. They're growing. added they've already added a whole other state territory and and everything else with their with their.

Jon Stoddard (13:56.717)
I mean, that's a pretty big difference between the three offers. Right. And then we had another one that we just did. What was the justification for that? I don't know. Like from 5 million. I mean, you've got these analysts to go, Hey, we think the valuation is 5 million and coms are 5 million. People are selling for 5 million, but then it comes in at 8 million because they could, or they could add that to their pipeline and then make up that money in a short period of time. Yeah. I think

Two things, number one, sometimes these strategic set are bigger going, hey, you know, John, I'm doing 20 million, I'm doing 50 million, you're doing 10. What am I gonna get by buying you? I'm so much smarter than you are. So they go, here's an offer. It's not necessarily a great offer. It's a decent offer, but they don't really, I think sometimes ego gets in the way, they don't offer up a premium or a good price. So they pay our fair price. And then he's private, and he goes, hey, these numbers work.

They saw where they they understood they studied the market. They knew where they how they could grow the business. And so it just wasn't going to be status quo. Just absorb us in and you know, we're kind of just a division of big company. Now they were going to take this as a platform and build upon it and they have they've done very well and it'll be a good return for them for everything they've done. You know so far. We just had another company that we sold a month ago. It was 14 different offers and the 14 different offers. Yeah, 14 different offers.

And this was the art supply business. they supplied art supply. they had a, they had a COVID bump a little bit, you know, with obviously everybody being home and, but it's, it's kept on going and they do, they did a lot of different things. And, I forget what the range was, but it was a pretty, pretty big range. And we thought that- Was it e-commerce or distribution or what was it? Some e-commerce and a lot into different stores and schools and things like, like that as well. okay.

But explain your fee structure, buy side, sell side. How does that work for somebody coming to you? I'm like, Hey, I got this $10 million company, 2 million EBITDA. Yeah. Yeah. So it depends on the size, but yeah, I'll give you an example. So the first thing that we do is what we call our EOV or estimate of value. we're some people will say, Hey, John, what do you, what do think it's worth? 10 million bucks. All right, great. Let's, let's jump in together. Here's my contract, sign it up, pay me $50,000 upfront and let's see what happens. And then, know,

Jon Stoddard (16:18.605)
is but it's not worth 10. You think it's worth 10. Maybe it's really worth seven. And now we spend a year, you know, bringing you offers at five, six and seven. And I'm trying to convince you to do it at seven versus the 10 number that we set up and everybody nobody's happy at the end of the day. So we do just kind of a walk before we run. So we charge $2,900. So less than three grand to do what we call our EOV. It takes about three weeks, two or three weeks. And we get the financials. We'll recast everything. We'll study the industry, study their company and trends. And then we look at other

privately held companies that sold at similar size and scope over the last several years. Do you try to get understanding? And then with this network that the Alliance that we built up, we could also talk to other people that are industry experts or specialists have done work in that space and go, hey, what's really going on in the space today? And so when we bring that together, it really helps them get, you know, baseball analogy. This is a single or double, not, you know, the grand slam that if everything lines up, this is what we could maybe get. if we say, you know, we think it's 10 billion.

Does that match up with your expectations? So one thing that we do is we'll do that estimate of value and then we also recommend that they meet with their CPA to go, okay, who cares if it's 10? know, what are you, John, what are you going to net out of this thing? Yeah. I'm going to net out six. Okay, great. Well, again, you don't know what that's going to do for you. So then we have you meet with your financial advisor or introduce you to one and say, okay, I'm going to net out six. You sit down here. Here's the lifestyle I want to live. Here's the assets I have now. Here's the debt I have now. This is what I want to do.

And know, what's that we call it the lifestyle number. What's that lifestyle number or what's that wealth gap? And if it's anything less than six, hey, great, you can do what you want to do. But seven, well, then you got to decide, do I want to lower my lifestyle or do I want to go back and work on the business for a little bit and build more value? So that's kind of our process. then that's just so that's you stand alone. We do that. And if that makes sense, then we're again, we're most investment banks that have the closing ratios of around 90 percent that we do will charge 40 to 150 thousand upfront.

We charge five grand upfront and then five grand a month or six months right now. And then credit that credit that back against the success fee. And if it's a $10 million deal, it will probably somewhere around 5 % or plus or minus. And what we're a little bit different too is that a lot of groups will start and again, no right or wrong, just different philosophies and go, all right, it's $10 million deal. I'm going to charge you 10 % of the first 2 million, then 8 % and the next two and then six, you know, four and down to two.

Jon Stoddard (18:44.063)
So they're making their highest percentage on the first dollar. like to say, Hey, if it markets five, maybe we're at four or four point five or four point eight five. And then after 10, if we hit, once we hit 10 million, everything above that, now that's at six and half percent. So we make our highest percentage on the backside. So if we do hit that home run or grand slam, then we both share, you know, a little bit more in that. So a bigger pool of information to go on this lead Alliance. Tell me about this Alliance because.

What is it? What kind of value does it create from it? Yeah, so I've been involved in &A associations since I started 24 years ago. So there's the International Business Broker Association, which is about 2,500 members, and they focus on more Main Street related companies, kind of zero to 2 million. And then they've been around for a long time, and then they built out of that came a sister brand called the &A Source. And that's more of that lower in the market, kind of the

where IBGA stops at two million, they kind of go two to 50 million enterprise value. So those are the two groups. I've been the chair of both of those groups and been on their boards and things like that for a lot of years. And one thing that I always saw was that, you you go to these conferences for two and a half days or five days and then be like, man, those were the best two and a half days of my life. You know, we all, take some classes, we learn to listen to some instructors, but then it's a lot of it's around the bar, around the dinner table.

Hey John, how do you do this? Or hey Scott, what you know? How did you handle this scenario? You know, and you it's all the best practice shared for people all over the world. And I said, boy, we should we should try to capture that more, but it wasn't the model of association like hey, we we do two conferences a year or one conference a year and this is that's what we do and we've got some other things. So I said, wouldn't it be great if we could kind of capture that secret sauce and do it on a more consistent basis, but not only with just.

Anybody that's just willing to write a check to your part of association. Let's try to get the best of the best together. So we looked around and said, you know, the lower the market is 250 enterprise value. It's the most underserved marketplace out there because you've got a ton of business brokers and commercial real estate working with the business with those mainstream businesses. And then the bigger investment banks come in at, know, they don't get out of bed for a million dollar fee or more. So that's where, you know, that that's where that space is. It's usually a lot of I think over 50 percent are one person shows or one person shops.

Jon Stoddard (21:01.997)
And I said, what if we could find the best investment, bring them together and create some scale to serve these low in the market clients. So that's what we set out to do is it started in 2018. We're up to 28 member firms over 80 individual, 80 of the advisors within the within the 28 firms. And the whole goal is to provide our clients with with more tools and resources so we can set up a very buying a tool, a resource at retail. We can buy it at wholesale or get one better pricing for it. So we have

more tools and resources for all of our members than they would have individually. Like what resources? Like deal materials or something or what? Research tools like GF data or pitch book or DB Hoover's, know, be able to do research on who are the best buyers for our seller clients or industry reports, IBIS world and things along that line. Okay. Okay. You know, put together better books to understand industries better or be able to search and bring.

all the buyers to the table, know, not miss a segment. Private equity info, there's a lot of them out there. So tools, it's to bring together from a geographic standpoint, you know, if we want to do cross border deals, or if we think there's a buyer from Wisconsin, know, a buyer should come from California. We've got people in like 27 different states with offices, because some have multiple states. have people in Canada, and we got people overseas. We just brought some out of Brazil. So we can do, as we continue to build this out, we'll have

of easier to do cross-border deals. But then the biggest two also are you get access to industry experts. So if John, you come to me and say, you know, I've got this niche manufacturing company. I want you to sell that. been referred to you. How many have you done? Well, yeah, I've done a few over the years, but I've got my partner in, you know, Pennsylvania that's done 30 of them. You know, I'll bring him in at some level. so you're going to get me and all of my team. You're going to get industry experts.

So you get better chance at success. do you split the commission on that? Does he come in kind of like a real estate, like three and three or something? No, it's different. It's proprietary how we split it up. it's what the client, the client's not going to pay more. The client knows that I pay one fee to Coral Salt Business Services and I get access to this whole alliance. And the biggest thing that we do then is every single month share best practices. So the principles get together and talk about best practices.

Jon Stoddard (23:23.085)
The advisors get together, the &A advisors get together, there aren't the owners that talk. The admin people, you so you might be an executive assistant, you might be their director of operations, but they have no one to talk to about what they do or how they run their office. So they get together and the evaluation people also get together. So it's just this great collaboration of people that all want to learn from each other and share. Yeah, we all get better together. So our theme is that, you know, we're all better together than we are.

individually and that's a deal flow. say, Hey, I'm going to try to get as much attention and, you know, around this deal I just signed up and they say, man, I got this great relationship with his family office. Yeah. Yeah, exactly. So what we'll do is everybody sends their deals to Nick Olson, our managing director here in green Bay. And, so everybody sends their deals in the neck and then Nick puts together, one email that goes out.

to have a blast goes out to everybody in our network going, hey, here are the new buy side mandates, sell side engagements. If know of anybody, give one of your partners a call. So it's a great way to just get more eyeballs on things, share, and get access to those industry experts. the reason I set it up is it's all better because we can bring more value to our clients. Because we've lost some deals where it was a $35 million transaction. They end up going with a large regional

CPA firm and like well we went with them because they're larger. Well they have 400 employees but only five of them worked in &A. You know they just had a big company or they talked about all the deals they did you know between all the different offices so that's where we can aggregate our stats as well. Say hey we've done over 3,000 deals as a group. You know we've sat at your shoes. We've all owned companies as well. In fact we have over a thousand hours or thousand years of business ownership experience. We've got over 1,200 years of &A experience between the groups.

And that's just going to continue to build. it's, it's, it's, yeah, they're all individually owned and they all have their own name and their company and run their companies the way they do, but they're all powered by the course on international Alliance. just, it allows them to be better, which ultimately gives more value. Let me ask you about who's on the deal team. Like, you know, I got that $10 million companies, 2 million e-bills. Who's on the deal team that, that, that's working on this. Yeah. So we bring them about four to five people together each time. So we've got our valuation person.

Jon Stoddard (25:41.323)
that's going to start with the destiny value and dive into the numbers and really make sure that we're seeing out the marketplace matches up with your expectations. Then you're to have the lead advisor, whoever that is, one of the investment bankers who's going to be responsible for running the deal, setting expectations, communicating. When we put together the book where again, a lot of folks will have someone fill out a 20, 30, 40 page questionnaire and then just data entry it in to create the book. We have a copywriter.

She has her master's in journalism from our kit university. She's been with me for 20 years. So of those three, 400 deals, she's written every single one of them. Copywriting can make you millions. Yeah. So she, so she's amazing because what we found is that people aren't, I suppose, not very good at writing off the story. They're really good at sharing the story and telling their story. So we sit down for a half a day and we could pull so much information out of those sellers as they tell their story and their growth opportunities and why they went. it's, we've got the copywriter, we've got the &A advisor.

We've got the evaluation person. We've got a second typically have a second &A advisor either myself or someone else is a backup. And then we have analysts that will do a lot of the research on the buy side of who are the right targets and right buyers. And then we have a director of client engagement and development that will oversee the whole deal. So there's four or five, six people that are touching that deal at some point in time of getting all the information, dropping in the.

did the due diligence data room, virtual data rooms and things along that line. So if I sign you up and you're the guy that found me $10 million economy, 2 million, but do I talk to you or are handing me off to somebody junior, somebody else? Yeah, no, it depends. I mean, we've got guys that have 30 years experience. Yeah. So it would be what we look at as who's the best chance for success. So if you're manufacturing.

we've got a couple of guys that really focus more on manufacturing than other guys have and have really good success. If you're construction, we've got one guy that's got 40 years of construction experience. So it's not exactly junior, right? No, no, we really try to match up. First start with industry expertise, who's worked in that space before. Then we look at geographic area, you know, because you've got people here in Wisconsin, you've got people in Iowa, Colorado, North Dakota, you know, so where is it located? And then we look at who's

Jon Stoddard (27:58.797)
who's placeful because a lot of groups will take on five, 10 companies at per person. And I hear to say, in my opinion, you can't handle more than four or five companies at one time if you really want to do a good job, even with having that team around you, just because you need to be on. And so we bring a team, you we hit it hard and move through the process. We want to control the process. So a lot of our deals are getting done in five to seven months versus the national average of 12 months or 11, 12 months. Yeah. What do you mean at any one time? that?

Anyone like four to five clients per kind of like per month or per year? No per at one given time So if i'm working on three clients, you know, you could be just signing on today I could have another one that i've been marketing with I could have another one that i've been due diligence with But so at any given time i'm only working with three to five clients at one time Yeah, well, I agree with that I do coaching clients for people trying to buy a business and I just say, you know I can only do two or three at a time

Right, because otherwise you just bring yourself out too thin. You don't care how good your process is. You don't have the time to do it. You're not going to take care of your client. Yeah. Tell me about the broken deals because like not every bank executes on a hundred percent of their transactions. Like how do why do deals fall apart? You know, shortcomings, misaligned message, whatever it is, poor targeting. What does that look like? Yeah. A lot of times the most common reason is the the business owner is checked out. They're burnt out.

and they come to us and they're burnt out, but you don't see the results of that yet. But again, it takes five, six, seven, eight, nine months to sell a company. So during that process, they become more more checked out. And all of the numbers start to do this, but they still want the number back here of where it used to be. we try to get to, that's why we try to educate more. And I got put together a book and a workbook series that they can go through and. was that on Amazon?

It is, yeah. It's a strong, you know, the book in the workbook, sell your business on your terms. But it's one that we're trying to get to people early and early so they plan because the reason businesses don't sell are two biggest reasons. Number one, they don't plan soon enough. Number two, they don't have a team around them that knows what they're doing as specialists. So I would say they're burnt out and their numbers start to decline. We just took one to market right now. We're having some...

Jon Stoddard (30:15.981)
That was one, we've got a company that's doing 50 million in sales, but they were doing 35 million in sales and about 3 million in EBITDA. Now they're doing 55 million in sales, but they're only doing 3.5 million EBITDA. they're in the construction side of things. So 85 % of their business was new construction and their margins, they got squeezed with all this inflation where they bid a job that was going to happen in six months or nine months. And the widget costs a dollar when they bid it and now it's twice as much.

So their EBITDA margin used to be 12%, now it's five. So no one's gonna touch it because they got a 70 million dollar backlog. They're going, are you gonna keep losing money or when is this thing gonna turn around? So we're probably just gonna, we actually hit the pause button and we're actually looking, now he's found a couple opportunities that he could buy because there's other companies that are smaller than him in the construction world, in the same space, in the chemical contractor space that are getting squeezed. So he thinks, we think we could switch over to the buy side, help them.

vertically integrated a little bit, geographically expanded a couple of horizontal acquisitions and then go back in a year or two and he'll get a much better, much better offer and have a much broader audience. How do you value a company? There's a number of different methods, but I'm just curious about that story on Atlanta. You had a couple offers from 5 million and then you got one for 8 million. What kind of valuation did you put on the company? What did you tell them it was worth? Yeah, we saw it right around 5 million. So for most businesses,

Other than the ones that reoccurring, if you have reoccurring revenue, then you look at a multiple of revenue. Most don't, are EBITDA driven or cashflow driven. So we're looking at that, what is that normalized EBITDA after you put a salary in there, a reasonable salary in there for yourself and rent and add back any personal expenses at one time cost and add that to your EBITDA number. And then it's a multiple. It used to be in normal times, the open market, a lot of them were three to five.

Well, that's jumped up to four to six. You know, it's moved up, you know, kind of the rising tide lifts all boats. What is six after what in the middle, lower middle market? Again, it depends on the industry, the size and everything else. But, you know, we just did the distribution company that had three point three million. But we sold it for seven point five times that that three point three. So it's around a twenty four million dollar number. What was the top line revenue on that? I think around twenty million, twenty million.

Jon Stoddard (32:40.429)
Somewhere in that range. So good margins. We were thinking it was around a $17 million number is what we saw out there for other companies. We ended up getting 40 % more because just they had so many buyers. Yeah, had 14, multiple offers. That's our goal. So our average used to be two to four. When we put the other, we went to more of a team approach two years ago and we jumped up to six. Last year was nine offers per client and we're running somewhere in that same range. So that's our goal is to not just bring a buyer to the table. We always say,

You know, one buyer is no buyer. You're never going to know truly what your business is worth until you package it upright, talk to all the right buyers, don't put a nasty price out there and then create this, you know, create this structure process of all the kind of herding all the cats, getting them all to put offers in at one time. And that's what our, short 360 process that we've developed over the years does. many of these companies that you gauge with are just one, like a single manufacturing company, they just have one source of revenue or some are actually holding companies?

Most of them are, you know, husband, wife or family business, first time seller. And this has been their primary income for the last two, three decades. Are you seeing more of the holding company kind of situations? Not too much. In the lower mill market, know, a lot of, like I said, a lot of our clients in that two to $50 million range, we've, we've just, you know, maybe it's the referral sources that we have or, or, you know, cause a lot of our clients come through the CPA or the financial advisors. So they're used typically to work with more of the privately held company with, you know, one.

you know, one business, maybe two business units. Yeah. When you say CPA to financial advisor, mean, are you, that's where you're doing your lead sourcing. You're reaching out to them saying, that's where a lot of our clients come from the CPA who doesn't do and A and go, Hey, I've got this client. They want to sell. We don't know what to do. Can you help us come in and do that? So they'll do all the prep work. They'll do all the tax work. We'll come in and do the valuation and then, and then run our.

I'm just curious, are they crossing any legal, ethical lines when they mention a client that's one of their clients that's looking to sell? No, it's with the approval of the client. The client comes to them and hey, I want to sell, who do you know? And then they'll recommend us in. But a lot of our clients come through financial advisors because obviously they're managing their money. yeah, I'm managing John the business owner's money. I've got $500,000 with them right now. But he's got a business worth $20 million. Someday John's going to sell.

Jon Stoddard (35:02.349)
And that's going to be my big windfall because if I manage, you know, if I get 10 million on that, then it's, you know, at 1 % assets on our management. behooves them to find the best price. So, wealth managers are a good source of deal flow too. Yeah. Yeah. Because that's, that's how they, a lot of them build their businesses. They'll wait for that business owner to sell and then they'll get a check for 10 million that they can invest versus trying to find an individual at a half million dollars every pop. You know, it's 20 individuals versus just finding one client to take care of. Yeah.

Back to that construction company example where you kind of pull the market. Do you also help and advise somebody engages to use like, hey, look, pull the market. Let's go build it. Obviously you do this called finish strong. What does the finish strong do? What are you telling them to do? Go acquire more companies or what? Yeah, no, it's more just to clean up the business and help them figure out where they're going. So it's first of all, just understanding when do they want to get out? Yeah, most of them.

Most business owners just wake up one day and go, you know what? It's not fun anymore. I'm burnt out. I'm tired or I had a health issue or my spouse had a health issue. Time to get out. Well, they've done zero planning and it's their largest asset. And you know, if you do no planning, you just want to go to market. It'd be like, you know, trying to sell your house. You have them on the lawn in a month. The place is a mess. stinks. There's food sitting all over and you're going to, you're going to try to sell your house. You know, that's what, that's what some people try to do. So we try to help them.

Get the company ready. it might be, you know, clean up their financials. You're looking at getting reviewed or audited statements the last two or three years versus just, you know, company financials are compiled. It's working down their working capital. Most companies have are bloated with their working capital. How much, you know, inventory and receivables they have, your mind is payable. So that's if they can work that down, that's money that goes into their pocket. It's building up their management team. You know, so many times the owner, you know, is the business.

And that's something that we try to really talk about is that just because John, the owners make it $2 million doesn't mean that's going to transfer into value because if everybody calls John and John's the mastermind and John has everything in his head and John is always with the clients and John does all the bidding. John's not replaceable. And they get a bunch of worker bees. When John goes away, there's nothing left. Unless John wants to stay for five years. And if John's going stay for five years, John's probably just going to keep the company and bring in all the profits.

Jon Stoddard (37:23.245)
So, you know, is the company truly transferable? So this goes through, you know, like a lot of books talk about value enhancement. We definitely hit on that, but it's more of a holistic approach of like we talked about going back to that what we call the three legged stool is what is the realistic value? What's your net number? What's your lifestyle number? And knowing what those numbers are because so many people just wake up and go, well, I hope this will work. You know, I hope I have a good, you retirement, but they have no idea what they're going to get for the value, what they need, what the tax numbers are.

They make way too much money of taxes on the table. So we go through all these steps. And then we look at it too, because most people, again, are going away from something. It's not fun. I'm tired and burnt out. Even a successful company, you know, these are not bad companies. These are all successful companies that we work with. We don't do turnarounds. But they don't know where they're going. So it's like, know, I want to get away from this, but I spent zero time reflecting on where I want to go. So all of sudden they get to that, I'm ready to sign on the dotted line. And they go, holy cow.

Do I really want to do this? This is my baby. Do I really want to get my kid up for adoption or was I just having a bad day? And some will pull back and blow the deal up and others will do it and then be miserable. So we want to help them understand, you what's still on that bucket list? What do you want to be remembered for? You know, where's your life now when you look at it from a life wheel, you know, hey, this is great, but my kids don't talk to me, you know, or I'm, you know, my second divorce and I'm overweight or, know, what's important to you in life? What are your goals?

And that's what you focus on. Do you try to persuade them to come back to the table or you just still drive home the fact like, well, what do you want to do? Where do you want to go with this? Like, yeah, so yeah. So in the workbook, this is something that we want them to fill this out before they ever think about going to market. This is something they can all contemplate with and we go through it with them. It helps them build out who's on their deal team and, you know, and everything else. So there's just a lot of different things that we go to. You know, another one is big that we mentioned earlier is

you know, what's important to you? Everybody talks about value and that's the tip of the iceberg. What about protecting the employees? What about the culture? What about you want to leave in three months or you want to stick around for five years? You know, so we look at all these other things. So then we have a fill out a one through 10 questionnaire of, know, hey, these are, you know, these are all important items of what's the most important for you. And it was funny. had the first time I had somebody fill it out. I said, you know, put a one by the most important, a two by the second most important and so on. He sent it back. I had eight ones and two twos. I go, Burk.

Jon Stoddard (39:48.781)
That's not what you need a one or two three. You didn't read the instructions very well, Bert. I know, but that's and that's what it is. People think it's easy, but sometimes it's not that easy to figure out if I had to choose. Do I care about my name being on the sign after the sale or do I care about, you know, the legacy or, you what or is it about me being out in six months? I'm tired or place a rating on that. That's kind of hard. That is hard. Yes. Yeah. So that's we try to do is help them.

And really a lot of times this is given the CPAs and financial advisors will buy the set and they give it to their clients to go through and they can kind of walk them through it a little bit and we coach them through if they have any questions. But it just gives them a good idea and then we do the essence of value for them to help them understand that base level. Because most business owners, think, you know, there's studies out there that less than 15 % of business owners have had a true valuation down in the last two to three years.

Yeah, think about that. know, it's you know, whatever your house is worth the cottage, the cars, the boats, but your biggest asset that's worth 80 90 % of your overall network. You're just guessing. Yeah, people usually don't guess right. They usually guess high and it's usually usually guess high. Yeah, that's it. Yeah, let me ask you about if a business like I got a $10 million business, 2 million EBITDA and I'm using it as my personal bank account legally.

Like how do you get that into shape with a, the seller? Maybe I'm taking, it's really profitable. I'm taking, you know, a million dollars out or two million. Yep. No, we, we, we see that all the time. I've had, I've had both, every boats planes. I've had everything but a train that I've seen in a company. But so what we'll do is two things. One is what we'll do is we'll recast those numbers back. So we'll say, okay, it's gotta be on paper. You gotta be able to track it in your P and L.

What are those personal expenses, the country club, the cars, whatever else it is. And we'll make those adjustments for the buyer to review and with footnotes and everything else. But ideally, do that all your life for 30 years. But the last two to three years, don't do that. And yeah, you're going to take a tax hit. paying 30 % or whatever you're going to pay in taxes, for every dollar that can easily drop to the bottom line, you're going to get a four, five, six, seven, eight times multiple on that dollar.

Jon Stoddard (42:07.073)
The idea would be the last year or two or three before you go to sell is you stop treating this your own personal bank account and just let everything drop to the bottom line. Pay the extra taxes, but you're going to get a better value. What we end up doing typically is making those adjustments and then it's up to the buyer that they are going to, we try to make this credible as possible so they can buy into them. And most times they will buy into them, not, you know, not always. And sometimes there's, there's money that they leave on the table. Sounds like you got to get to them pretty early if you're telling them like, you know,

You got a three year window start dropping this to the bottom line. Put that back into the cashflow to drop to the bottom line. Yeah. Yeah. Three to five years. mean, sooner the better 10 years, but you know, three to five years would be the ideal. I can tell you if I 80, 90 % of time it's Hey, I talked to my ex, you know, about selling my business last month or last week or yesterday. They gave me your name. I want to sit down and talk to you. You know, what's the next step and they're to go. Yeah, that's a good question. Let me ask you about that. You know, there's

Top 10 reasons why people sell their company and you talked about three of them. They're just tired and want to get off the merry-go-round. there any that create a big bigger mess like partner problems or divorce something that you just like, hey, now let's not touch this because it's just too going to be too messy. Yeah. mean, if you've got partner issues or there's a lawsuit in play, you know, nobody wants to put, you know, buy something out where there's a lawsuit hanging out there, especially between two partners or, you know, especially if they're both needed.

in the business, know, if you got a partner that's disgruntled, but they're absentee, they're kind of, maybe they, bank the thing to start and you're, you're going to partner with the person who's running it. And you just want to get the absentee angry or out that could work. if you've got partner issues that are both in the business, you're to have cultural issues. You're going to have it. You don't know what's Pandora's box is going to be. It's just going make it harder to sell. if they're 30 % over. Yeah. Yeah. Right. Yeah. So you want to clean that up. You know, we always say, you know, go early early.

So if there's an issue with the business, HR or margin or a customer just left or a good employee just left, we always put that right in the sim or in the book upfront because everybody's like, I don't want people to know that right away. Maybe we'll tell them later or hopefully they won't find it. Well, number one, they are going to find it. There's so much diligence done on these companies because they are paying these premiums. You buy or will find whatever you're trying to hide. And if you do that,

Jon Stoddard (44:27.853)
it can blow the whole deal because also now you're building all this credibility and this rapport together with a buyer and seller. And all of a sudden they flipped up the cards and go, hey, you didn't tell me about that. well, yeah, I was gonna tell you about that, but when? Later, you know, it's like, do I really wanna, especially if you're rolling equity with a private equity firm, do I want this person owning 20 % of my company or still running the company? So, and that's where the retrates come in a lot of times, or they just.

You know, the deal will just blow up because. What about divorce? Is that an opportunity or is that something you know, any uncertainty is bad. You know, anytime there's uncertainty, you know, so it's, Hey, do you just want to get through the divorce first and then go to market and, and, or at least you have that worked out that if, you know, the husband or wife owns any shares, you who's not in the business, have they agreed in writing that they'll sell and they're not going to hold things up at a certain value or a bob or.

You know, you don't want, you know, the worst is when you have someone not in the business or, know, you see it that they don't write up their, their buy-sell agreements, right. And you've got somebody who's got a 2 % ownership that all of a sudden now is, and maybe that's the manager. And we've seen this, we did a deal value a year and a half ago where there was two owners, but absentee now, cause they had built the company up and they took their two top managers and gave them both two and a half percent. So the two owners went from

50-50 to 47.5 and a half and then two and a half for each of them. They can give it to for free as a thank you for running the business, even though they're still paying them well. And the business is doing great. But at the end of the day, all of a sudden they felt that they now were owners, that they could control the business because the two other majority owners were absentee. And hey, we want to do this. Well, we don't think you should do that. Well, if you don't want to do that, then we're going to leave and you're out of here and you're screwed. So all of a sudden now the dog was wagging the tail. So you really got to be careful.

in the sale process, they were they were trying to hold up the deal and they have voting rights. They have voting rights. Yeah. And, you know, so was just it was a it was one of these things that the yeah, we're all friends at all work itself out. We don't need to put all the stuff in writing and money changes everything. Tell me that it bites you. Yeah. So they were trying to buy them out. The partner was trying to that one main partner and the other two small people were trying to buy out the other partner for like

Jon Stoddard (46:47.373)
It started like, I don't know, a six, $7 million valuation total. Then they went up to like nine and we thought we could get 13 and a half. And then the other majority of partners like, Hey, if you get 13 and a half, we're in. Well, they had a, this was during COVID. So they had a COVID bump. they did really well. We ended up getting 25 million for the company. Holy crap. So yeah, yeah. So everybody was happy after, after that point, but

But they almost blew the deal up. There was one buyer that was a good buyer that they after they met the two managing owners Said I can't work with these people. I'm pulling my offer off the table, you know So you want to make sure that these people especially if they're owners you're all on the same page You know who controls you know when you get to that sale that they can't hold you back or or that they're you know, yeah, yeah, that's They're excited and they're gonna help with the sale versus

because they don't know what this new owner is going to bring and they're worried about change and things like that. So having the ownership team on board and the management team, you know, again, you want to keep things confidential, but at some point in time, in many cases, you have to tell at least your top couple of management people because the buyers are going to want to meet them at some point anyways. But if they can show well and they're excited for the sale, because usually when the new buyer comes with new opportunities and now they're selling the company versus the owner who just wants to cash out.

That will definitely help in bringing more people, getting more people excited. Cause now these people are going to stay, there are proven commodity and they're excited about the future. want to back, you people back people more than they back up a product or a service. Yeah. I'm almost on the hour. Cause that went by fast. Couple of questions. Last questions. This is where you're sitting require a license to do it. Does a security license best? Yeah. So it's, it's, it's a great area. it's, there's not a perfect fit for.

mergers and acquisitions. in I think like 17 or 18 states, you have to have your real estate license to sell a business, even if you're not selling real estate, which again doesn't fit or make sense, but that's, you know, Wisconsin, you have to have a real estate license to sell a business. And then also if a business is deemed to securities, which, you know, if there's a seller note or if it's a stock deal or bought by a public company.

Jon Stoddard (48:57.741)
then technically you should have your FINRA Series 79 license or- Versus an asset purchase as a stock purchase, yeah. Yeah, exactly. Yeah, so I have my FINRA licensee, my 62 and 63, was before the 79 came out and grandfathered in. And then we have our real estate brokers license here. But in some states, you don't need any license at all. Or most people, probably 95 % of people do not have their FINRA Series licenses because there's a no action letter that was out there for a long time.

There's a lot we're trying to pass a law and try to lobby Congress and for 10 years now, try to get a law that specifically holds us accountable for what we do, you because it's the security stuff is for someone that's taking money and managing money. We don't touch anybody's money. And then the real estate is for real estate. So we're when I do continue education, learning about lead paint on houses, you know, which has nothing to do with what we do and selling the company. So that's hopefully something that.

We'll get resolved. There's some bills that have gotten close, but nothing's passed yet. All right. So last thing. Well, what are those two books again? And do they come together on Amazon? They don't. They don't let you bundle. it's a core finish strong, the workbook and then it finished strong. So it was not your terms. All right. Scott Bushki, thanks for being a guest on top &A entrepreneurs. And if you like this content, make sure you subscribe below. That's good. Thanks, John. All right. Thanks, Scott.

Jon Stoddard (50:29.133)
Thanks for watching this video. Make sure you're a subscriber by clicking on this button right here down below. And if you want to watch more serial acquirer interviews, click on this button right here. If you're ready to buy your first business, get my course at dealflowsystem.net right here. Take care. Cheers, John.