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Hi, Armand Roman here with Axiom Founders Family Office in Scottsdale this morning with Jason Far of Brisl Trail Partners. Jason, good morning. How are you? >> Good morning, Around. You got it right. So, good job. >> I had to rehearse your company name because, uh, I just wanted to make sure I got it right. But, uh, thank you for some time this morning and I’m glad that we can have this conversation. Um, many people don’t know what it is that you do. They don’t know what an investment
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banker is. They don’t know what an intermediary is. And I’ll describe the audience first so that we can make sure we’re clear on who we’re talking with. Here where we live in Arizona, of course, as well as other states, many people have built really great businesses. And now it’s time for them to think about that that exit. You know, what is that exit going to look like for them? So, they’ve typically built a company over say the last 20 years. They have never sold a company before.
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They’re very smart, very intelligent, very hardworking people, and that work ethic has helped them build this company that now is worth a lot of money. But again, since they haven’t exited a business before, they don’t even know where to begin. And I had a conversation about a years ago with Governor Doug Ducey, who is the co-founder of Cold Stone Crearyy, where they had operations in North America, Europe, and Asia. And he told me when when it came time for him to think about that exit, he didn’t
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know what an investment banker was. And I say that because just to show the, you know, the other founders out there who were busy growing their businesses and that that they shouldn’t feel like they they like like they shouldn’t like they should know this. Why would they? They’ve never been in this boat before. So Jason, let’s have a conversation and I’ll ask you to to introduce yourself in a little more detail about what, you know, what is an investment banker? what is it that you do? And and if you could
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just intro yourself, that’d be really helpful right now. >> Yeah, sure, Armando. And you know, I would say even for somebody who sold a business before, you know, maybe you’ve sold a business before, but maybe you didn’t do it the right way. And so I think this could be, you know, hopefully a helpful conversation for them as well. So the quick background on me just you know big picture I’ve spent almost 20 years at this point across roles in investment banking and M&A mergers and
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acquisitions in total I’ve done um you know almost 9 billion of total transaction value. >> Okay. >> And and I would say you know generally transactions range on the small end to five million to over six billion. >> Okay. And I would say half of the deals uh over $500 million of transaction
value and then probably half of them below that. >> Okay. >> Um I started my career in San Francisco what feels like a very long time ago. Um working in investment banking, you know,
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helping companies raise capital, advising on mergers and acquisitions both on the buy side and the sell side. did that for a few years and then I joined a large publicly traded company and basically did the same thing for that company was responsible for you know leading and supporting investments uh acquisitions uh merger transactions you know if we were looking at divesting a business to clarify our our business we would be you know my team and me would lead those transactions as well um and then about five years ago I joined
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a private equitybacked uh home services business. And and that was kind of what opened my eyes and and the opportunity of what we do today, which is investment banking in the lower middle market for, you know, family-owned businesses, closely held businesses who don’t have any institutional backing, meaning they don’t have any private equity investments in them. And we we’re basically their guide and their matchmaker to help them find a buyer and complete a transaction. >> Okay. So that’s my background in a in a
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nutshell. >> Okay. Fantastic. Fantastic. >> And you said, you know, what is investment banking? I mean, I think the easiest way to describe investment banking is, you know, we are a matchmaker. And I think I think dating is a good analogy or or, you know, presents a good analogy, right? >> I also think scaling Mount Everest is a good analogy for what we do. And and I would say, you know, we are we connect companies with sources of capital and we advise them on mergers and acquisitions.
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And our core business is really M&A, mergers and acquisitions. >> Okay. >> Advising sellers and and helping them, you know, find the right buyer for their business and um and help them achieve their their goals. >> Okay. Good. That’s perfect. Thank you. So, when we talk typically with founders and and other business owners, uh we typically meet them right before or right after they’ve gone through that sale. Of course, right before that sale, they’ve got a lot of questions, a lot of
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apprehension. They just don’t know what they don’t know. They want to increase the value of their businesses. We have an event, the Scottsdale Founders Forum. We’ve had over 200 founders come to that event over the last five years. And the event is all about exit for that business owner who’s never gone through exit before. And of those founders who’ve come to our event, we we’ve asked them questions, their number one question always has been, what is my company worth? And the second question
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they have, Jason, is how do I increase that value between now and the time that I sell? Those are their top two questions. And so if you can talk about speak about uh enterprise value, the value of their business, the value drivers for a company, you mentioned home services, that’s a certain strength that you have and maybe keep it in that context. here in Arizona, of course, lots of home services companies and lots of private equity hovering over our state to try to buy those companies and
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not surprisingly sometimes take advantage of them because they just don’t know what they don’t know. >> Yeah. So, I mean, it’s a it’s a good question and I would say, you know, you you know, the way you described it, you know, interacting with with business owners right before they’re thinking about doing a transaction or right after, frankly, that’s too late. You know, our preference would be in a perfect world, if we can start to develop a relationship with a business owner three, five, 10
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years before they’re thinking about doing a transaction, >> you know, we can provide them with a perspective. You know, we can provide a, you know, access to our network to help them, you know, achieve growth in their business to make sure that their margins are buttoned up and to ultimately set them up for, you know, a good transaction down the line. So you can never start too early. And one of my biggest sort of, you know, takeaways the last few years after launching my firm is that more people don’t take advantage
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of that. They should they should have these conversations sooner rather than later, >> right? >> But as you think about valuation, you know, we could we could talk fundamentals. There’s different, you know, methodologies to value a company. You know, there’s uh and you’ve probably talked, you know, with other folks about them, like a discounted cash flow model, >> right? >> You know, there’s there’s public comparables, probably not relevant for most people watching this. There’s
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precedent transactions. Well, if you’re a privately held company and and there’s been a lot of private transactions in your space, you may not have access to good data, you know. So, those are three common valuation methodologies. But what I would say to an owner is and and it sounds cliche, your business is worth what somebody will pay for it. >> Exactly. Right. >> And and the reality is this. Your business is worth different amounts to different people. You know, your your
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business does not have a set amount that it’s worth. And that’s an important distinction I think for people to understand is, you know, the only way to truly understand what your business is worth is to if you have access to an investment banker or an advi an M&A advisor is to run an auction process. >> Yeah. >> Right. And that’s what we do for our clients. And you know, we can talk about it more later if you like, but you know, we we build a market for our clients business. We reach out to buyers that we
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know are credible that have access to capital capital that are capable of doing transactions and we prepare marketing materials on our clients. We get them ready to run a process and we we conduct a confidential auction process. And by doing that, we create competitive tension and ultimately for those buyers that are very serious about acquiring a client, they’re going to put their best foot forward. And that’s where the the differences in valuation are going to show up where if I’m already in the
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space, for example, if I’m an HVAC a private equitybacked HVAC company and you know you’re and we’re representing an HVAC client, well, there’s going to be what’s called synergies for them, right? So, there’s there’s two types of synergies. There’s revenue synergies and there cost synergies. And generally as we think about cost synergies, if there’s an existing company in your space that wants to buy your business, by putting the two businesses together, there may be overlapping administrative
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functions, >> right? You don’t need you don’t need two sets of accountants, two sets of legal staff, you two sets of finance, two sets of compliance, right? >> But also there’s other benefits in procurement, right? We’re bigger now. We have the benefits of scale. We can buy better. And so that’s where those synergy benefits will show up in offers from buyers and that’s where you’ll see a difference in valuation. So, you know, I would say, you know, Armono, you’ve
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got a a wealth management business. >> It’s a it’s a space that’s very popular right now with private equity firms. >> If somebody came in and just reached out to you and said, “Hey, >> uh, you know, love your business. Let’s put an NDA in place, a non-disclosure agreement. Yeah, >> let’s share some information and let’s just say they make you an offer for $20 million >> and you and you’re you’re thinking, well, hell, that’s a lot of money. I
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mean, that’s that’s more money than I ever imagined I ever dreamed of. >> But how do you know that that’s the best value or the best offer you can get for your company, >> right? Right. And I do want to I do want to clarify. I’m glad you brought that up because the you mentioned an auction process and then in your example there’s one offer given to the potential seller, prospective seller, and like you said, yes, my eyeballs might grow like, holy smokes, that’s a lot of money. That’s a
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big fat check. Well, what if the real value is 25 or 30 and I just don’t know it. So in your auction process, I’d like you to speak talk more about what that auction process really means because I think just you know in in intuitively we understand that if I have two people who want to buy the same thing they will compete against each other to drive up the price and then whoever is selling that thing is probably going to get a better deal if not just by the actual money that trades hands but in the terms
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the conditions the whatever. Talk about that auction process please. Yeah. And in and Armando one interesting kind of data point. So within our client coverage and you know we really specialize in home and commercial services >> um and we define that as HVAC plumbing, electrical, garage door roofing, pest control, landscape, fire and safety restoration. Right? Those are some of the key service verticals >> across those types of businesses. Based on the data that we have, 60 to 70% of
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deals that are getting done, 60 to 70% of the companies are being sold >> to a private equitybacked buyer are getting done without using an adviser like us. >> Okay. >> Which means that it’s just the buyer reaching out to the seller, to the owner, and negotiating a transaction to buy their business. >> Yeah. But let me ask you to hold on tight for one second right there because what you just described sounds like a horrible, horrible situation. You’ve got a guy who’s never a person who’s a
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person who’s never sold a company before up against a private equity firm that buys and sells companies for a living. They’ve done this before. They’ve done this before. They know how to negotiate. So it is totally cards stacked in the favor of the private equity group rather than that person who spent his blood, sweat, and his or her blood, sweat, and tears to build the value that they will have one chance to get this sale right because it’s just a one and done. >> Yeah. No, it’s a good call out and and
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and it’s a total mismatch. It’s a total mismatch. You’re you know, look, you’re you’re dealing with Harvard MBAs, Wharton MBAs, Stanford MBAs. Yep. who have done dozens of transactions if not more who are are very capable dealmakers who um who are absolutely at a different level than what you’re at. Like it’s just it’s not fair. And so one of the things that we say >> is we help level the playing field for our clients.Okay? >> Right? We bring a level of
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sophistication and perspective to them that they don’t get if they don’t have that that investment banking advisor and it’s um you know it’s a it’s an unfortunate reality but there’s a mismatch in resources. You know, if I’m a private if I’m a billion-dollar private equity fund, then I have a a restoration platform business, you know, I have access to the best legal advisors, the best accounting advisors, right? I have I have access to all these great resources. And it’s not just
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capital, it’s those those resources as well. >> And then you have, you know, maybe a business in in Phoenix or somewhere else across the US that maybe does 20 25 million a year in revenue. great business, but they don’t have access to the same resources that this company does, the buyer does. >> And so there’s a complete mismatch in in capabilities as they go to the table if they negotiate one-on-one. >> Yeah. Yeah. Just like it sounds like a bit of David and Goliath going on.
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It is. And and sadly Yeah. Sadly, that’s 60 to 70% of deals out there. >> Yeah. And and that’s why private equity firms invest so much resources in sourcing acquisitions or reaching out to owners, getting that dialogue going with an owner before the owner can work with somebody like us because they’re going to pay less, >> right? So yeah, so they they want to find that seller, that potential seller. They don’t want you as part of the picture. They want to go directly to the
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seller, make them an offer that will get accepted where that seller, the owner of that business, never has time to call Jason or never thinks about it because they’re already so far into the process with this prospective buyer. >> Yeah. Exactly. Exactly. Exactly. And there’s, you know, there’s there’s studies out there that say, you know, by anal analyzing hundreds of deals that have been completed, here’s the premium that a seller can get when they use an investment banker,
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right? So, there are studies out there and you know, it’s probably I think what I’ve seen is 15% difference. Now, that’s across hundreds of deals, public and private companies, a variety of industries. And I can say within our industry coverage, you know, it’s probably more depends on the size of the business, but it’s probably a 20 to 50% premium by engaging a firm like us, running a process, comp creating that competitive tension, getting multiple offers, and then ultimately negotiating the best
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transaction. And Jason, what you’re said, what you just said when you said 20 to 50% premium, you’re saying that if that company was going to say sell for say $10 million, 20% is really selling for 12 million and 50% is really selling for 15 million. So rather than get the 10 million that might have been offered on day one when they have that private equity conversation, they might get 12 to 15 million instead because they brought you or someone like you with your expertise on board to help
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that seller navigate this whole process. >> That’s exactly right. That’s exactly right. >> Okay. And and the way I the way I like to articulate it too is you know if if you assume one of the struggles that we oftentimes have is that you know people business owners hear oh I have to pay a fee to an investment banker >> in exchange for them leading our transaction and they you know when you when you calculate what those fees could be on a big dollar amount people hear that and say well that doesn’t sound
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like something I want to do. We hear that all the time and it’s true. >> It’s a it’s and it’s an unfortunate example of tripping over dollars to save pennies. And the way I always like to analogize it to potential clients and clients is let’s just I mean we charge you x% let’s just say it’s 5%. I’m just making up a number. >> Yeah. >> If we get you a a 20% premium that means that for every dollar you give us giving you $4 back. I think that math works.
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Yeah. >> So, if you walked in if you walked into a casino >> and you put a dollar on the table and the and the dealer gave you $4 back, I would take that bet every day of the week. >> Right. >> And but yet, >> right, >> you know, owners sometimes, you know, this is a different world for them. So, it’s hard for them to sometimes see that, >> right? And what I’ve heard, Jason, as well, and and again, these are these are smart people, of course. They’ve they’ve
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negotiated throughout their entire career as they’ve built this company. They negotiate to hire people. They negotiate to get contracts with with their suppliers, managers, clients, etc. So, they’re used to negotiating. And what I’ll hear at times is, “Hey, I’m smart. I can negotiate. I can do this myself. I don’t need Jason in the picture. He’s going to charge me 5%. I can save 5% and just do it myself.” And what they’ll do then is talk with that one pro p prospective buyer. And yes,
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they can do all that process with that one buyer. But as you said with your auction process, you’re not going to one buyer, you’re going to many. And you’re making them compete against each other to get that seller a better end result. Right. >> Yeah. Exactly. Exactly. I think, you know, I would I would say this to an owner who, you know, we meet a lot of owners who are very shrewd business people who are in our industry are very good salespeople. Oftent times they started in sales and so they think, hey,
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I can sell my own company. I’m a I’m a better salesperson than Jason is. Like I can sell something doortodoor far better than he can. >> Y >> but I think the the reality is that selling a business is a completely different animal. It is it is not about sales. And if you come into a potential sale transaction and you try to be salesy, then a buyer is going to see through you a mile away. You know, really selling a business is about understanding the business, understanding the drivers,
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understanding the market, and then understanding what buyers find attractive and then positioning the the business in that lens to make it most attractive to buyers. And that’s how you sell a business, not by talking fast, not by being flashy, not by being salesy. And so it’s a different animal selling a business. And I and it’s, you know, that’s why, you know, enlisting the right help is really, really pretty important. >> Okay. And Jason, that first conversation you have, you know, let’s say that
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someone reaches out to you, they don’t want to sell today, but they’re saying, you know, in the next five years, I want to be able to step out of this company and not sure what it’s going to look like. in that first conversation with you, what what questions do do they typically have that you can help the the listener uh hear and listen to how you would address those questions? >> Yeah, it’s a it’s a good question. I would say Armando, a lot of people don’t even know where to start.
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Okay. >> You know, they it’s it’s so foreign they don’t know what to ask. And so you know typically the things that we’ll cover is um you know why hire an investment banker some of the things that we already talked about what are the benefits you know we’ll talk through what is the what is the process that we actually run and what are what is our value ad in your transaction so that we can maximize the outcome you know we’ll talk about things like you know when
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when they say why hire an investment banker well you know there’s confidentiality when you go and you negotiate directly with the buyer They know now that your business is for sale, right? What if they’re a competitor in your local market, right? There’s there’s a lot less sort of anonymity, right? That, you know, you don’t have the experience uh to to run a sale process, you know, to scale Mount Everest if >> Yeah. >> Nobody scales Mount Everest alone. They hire a Sherpa because a Sherpa can be
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their guide. >> Exactly. you know our our insights in terms of what’s happening in the market you know it’s very common for a buyer a private equitybacked buyer or a buyer more broadly too just to value a business based on upon a multiple of ibida and ibida is earnings before interest taxes depreciation and amortization it’s a financial measure >> right and it’s it’s not cash flow but it’s a proxy for how much cash flow a business generates and so um you Knowing what the market kind of
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perceives businesses from from a multiples point of view, but also knowing that the market is going to distinguish your business based upon the customer segments you you serve, based upon your your revenue mix, you know, do you have recurring revenue? Do you have one-time revenue? Is it reoccurring? You know, do you have um uh you know, frequent touch points with your customer? There there’s a whole bunch of factors that go into evaluation and that those are insights that we can bring our clients based upon what we see in the
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market and and I think you know one of the most important things is you know when you go to sell your business you do get one shot. >> Yeah.
And so you know do you want to take that $20 million offer you got to buy your business from the first guy that came and knocked on your door or do you want to leave no doubt that you got the best outcome for your business? And and I know I’ve talked a lot about money, but it’s not just about money. And sometimes the highest offer is not the best buyer.
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And particularly if you know if you’re young, you say you’re 35, 40 years old, you know, you built a $50 million business and you know, you’re you’re thinking about doing something with it, but you’re not ready to retire. That’s a great client for us because that’s somebody where they can sell a portion of their business to private equity, do what’s called an equity rollover and basically become a shareholder in a in a bigger group of companies, >> right? And then continue to be a part of
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their business and and building it and growing it if they want to be. And there’s an opportunity for, you know, multiple shots on goal when it comes to wealth creation. And so, you know, those are the kinds of insights and perspective that we can bring clients that really help them to, you know, get the best outcome, not just economically, but make sure we put them with the right buyer that matches their goals that aligns with their the culture of the business that they’ve created and so
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forth. >> Yeah. Let me go back to Jason, what you mentioned. You mentioned IBITA and that’s an acronym of course and and loosely you said that’s a a proxy for cash flow. And I would think of Ibeta kind of roughly as the profit in the business. And that’s not of course what it exactly is. But from the the the business owner who’s never sold before, never heard IBITA, never heard about multiples, what I would like that business owner to think about is think about the profit in your company and the
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value of it. You mentioned multiples as well. Think about the profit in your company times a number like times the number three, times the number four, times the number five. And that becomes the sales price or something like the sales price. Is that about right? >> Yeah. No, that’s you break it down nicely. So that is that is exactly right. It’s an ibida is you know the way we would explain it to an owner in a first call is it’s the earnings that an a buyer would expect to reasonably receive from
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from buying your business. which means that it’s, you know, it’s market-based compensation for you if you’re if you’re still involved with the business, that there’s, you know, not a bunch of family expenses that flow through it. You know, your Lamborghini Urus would not be flowing
through it, right? So, it’s it’s adjusted to reflect what a buyer would actually get when they buy your business. >> Yeah. Yeah. And then what you do is is what buyers will typically look at now
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they’re going to want to see the the revenue and earnings of the business the last few years. You know the farther back you can go the better because it gives you perspective in how the business has performed. But the last few years are going to be the most important. And then as you think about the ebidon number that’s going to be that’s going to drive your valuation. It’s going to be the last 12 months. >> Right? So, as we as we market companies for sale, we’re always looking at a
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rolling last 12 months. And that’s our EBID dot figure. >> Okay. >> And then the multiple is as you as you suggested, it’s just it’s the it’s the multiple in earnings that a business a buyer is willing to pay for the business. And you you the product of the two is simply your your enterprise value. But your enterprise value, not to not to make this overly complex, but that’s not actually how much money you get in a transaction. It’s the enterprise value of the
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business. And then there are, you know, adjustments that happen. If there’s debt on the business or cash on the business, there’s transaction expenses and fees, working capital adjustments. So, it’s a it’s an important number, but for somebody who’s thinking about how much money that they would net at the end of the day, it’s a it may not be representative of what they actually get. >> Yeah. And what that brings me to is making sure that there’s a whole thoughtful planning process before they
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go through this. We will often hear from people who are thinking of selling, they don’t want to talk to the investment banker yet because they don’t want to start that conversation yet. And when we sit with them to understand where they are, what does that net worth look like, including the value of this business? We have to have some kind of a sense of what it’s worth. Is the company worth 10 million, 20 million, 50 million? Because what what the owner really wants to understand is, will I have enough money
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to retire and to live the lifestyle I want once I’m done with this company? Well, for us to answer that question, we have to understand, have a good reasonable basis for, well, what is your company really worth? And then net of taxes, what’s that number going to be? And when you sell, are you going to get half upfront in cash and the other half’s going to be paid to you over five years if the company hits certain numbers on performance once you’re out of the picture? So there’s a lot there
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which kind of brings comes back to your point about hey this is all territory that they’ve never navigated before and going it alone leaves them having to learn new terminology having to learn how the private equity folks are looking at things and having to make all these big decisions that have a lasting impact for the rest of their life and they really shouldn’t go it alone. Yeah, Armono, I think I think that’s a good call out. And you know, our favorite clients are the ones where the
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transaction value is is so enormous that they, you know, it’s it’s a generational wealth, right? And so the minutia matters less. But you know, you can’t you can’t underscore the importance of what you said enough. Um because that is a driver oftent times of people making the decision to sell their business. Particularly if you’re years before retirement, you know, you you want to make sure that you you net enough proceeds and you can reinvest it or do whatever with somebody like you to
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sustain a lifestyle to make sure your family set up. And you know that’s it’s an important thing to understand well before you start the process. And and you know as you get to to retirement age you know you you may run out of time if you know if like say your business is worth $10 million and you’re 67 years old but you but you really want you know to to sell the business for 20 million because that’s what you need to net in order to live the life you want. >> Yeah. Well, if you have that
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conversation with with your advisory team ahead of time, you know, you can talk about, well, how can you get to $20 million? >> Exactly. >> Instead of 10, but if you wait too long, you know, the clock is ticking and, you know, you you can run out of time, >> right? Exactly. So, that gets to that that uh that second question that we get that we’ve heard from our our our participants in our Scott Founders forum. The second question being, how do I increase the value of my company? So
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then if that is their question and say they’ve got five years or so that they can increase that value and as you said the last 12 months of performance those numbers are are the most important then it just makes even makes it even more important that they have a conversation with you or someone like you who can help them understand what what in their industry in their business what increases that value. If they’re a plumber, do they have to have so many people on a routine maintenance contract
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that produces a million dollars of recurring revenue and is that really where they should focus their time or should it be getting new builds or new homes or commercial projects? But all those things really come back into your space where you can help them understand in their particular industry. What can they focus their attention on this next 5 years to really increase that value to get them to the number they want so that exit leaves them with the lifestyle that they want going forward and that
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generational wealth to help their kids, grandkids, their community and all those good things they want to do with the rest of their life. Yeah, you’re I mean you’re spot on and I think those conversations are probably in our first you know conversation with owners probably some of the most valuable insights that we can provide is you know if you’re an HVAC company or a plumbing company or roofing company you know we as we talk about what customer segments do you serve you know where what is your
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revenue mix um you know what what is your management team look like? You know, what are your goals? How how dependent is the business on you? Those are all things that when we once we learn about the the potential client or the business, we can share a lot of insights on, okay, here’s how investors are going to react to that. And so, you know, that’s that’s really powerful ammunition for owners to start thinking about their business more so as an investor would and less so as they may
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think about it more myopically today. >> Yeah. Yeah. >> Um, you know, another thing too is, you know, we’re not we’re not a best practice group. We’re not business coaches, but there are a lot of good best practice groups out there. there’s good business coaching organizations and I think being involved or being well connected andworked with organizations where you have you know maybe similar businesses like-minded people focus on growth um you know where you can kind of share
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what you’re doing and learn give and take is extremely valuable and I think you know that’s something that we would advocate most owners do is get involved get to know people share information and what’s working for others what’s not working and leverage that back in your own business. >> Yeah, that’s like good advice. Go ahead, Jason. >> The other thing, too, is you know what the other perspective that we can bring to clients is, you know, a lot of these family-owned businesses, they can they
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can steal from private equity’s playbook, right? And and you know, we could we can do another session about private equity and what it is and the pros and the cons and there’s good stories, there’s bad stories, right? It’s like it’s like dating, right? There’s it’s it’s complicated, but you know when it comes to um you know when it comes to um when it comes to just you know getting a getting the best outcome I think you know it’s important to uh to understand
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and a perspective to to get. >> Yeah. And let me ask you, Jason, you know, the the the economic times of today, some business some industries are in favor, some businesses are in favor and the multiples can be higher in certain industries because that they’re in favor today because of what people expect say with AI or with uh you know, whatever. But as as I describe that, I’m sure to you certain types of companies come to mind where they’re just more valuable today than they were say five
00:33:47
years ago. >> Yeah. >> And is that in the home services or where where is that value where are you seeing that? Yeah, I would say, you know, across our client coverage, home and commercial services, there’s there’s a lot of common threads or there’s a common denominator that makes them attractive to investors. And generally speaking, you know, our the the clients that we cover are they’re fragmented industries. So there’s, you know, there’s hundreds of thousands of roofing, HVAC, plumbing,
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electrical, you know, garage door contractors across the US. And the level of sophistication because of the fragmentation there’s a bunch of small operators. >> Yeah. >> The level of competition is widely varying. So, so private equity has said and you know this has been going on for u you know decades and when when you think about some of these service verticals like pest control, HVAC have now been going on for you know almost a decade or you know longer in the case of pest control and the opportunity to
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professionalize these businesses and bring uh a different point of view. pull pull multiple companies together to create scale is just there’s a lot of opportunity and so the fragmentation is is one kind of common denominator they’re all essential as well >> okay >> I think co you know back in 2020 when COVID hit you know I was a part of a business back then that was you know majorly impacted by COVID they had to shut down and you know turn off all their revenue streams essentially and
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you know you look at the home services space by contrast people were spending more time in their homes. The government had injected money so there consumers were more flushed with cash. Interest rates were lower. So, you know, it was just a ripe environment for spending on your home, right? And and investing that money in the place that you’re spending a lot of time in. And in the case of HVAC, you know, we’re we’re in Phoenix with with you guys and when it’s 118 or 115 degrees out and your HVAC unit stops
00:36:02
working, you going to you going to wait a couple days to call your, you know, your local HVAC contractor? No, you’re not. Right. >> That can be life-threatening here. >> It’s a it’s a it’s a matter of existence. And so, you know, across a lot, same thing with garage door, right? you say you bump into your garage door and you can’t get it opened. Well, I mean, I can make do maybe a little bit better, but I’ve got to get out of my garage. I’ve got to go to work. I’ve got
00:36:30
to go pick up my kids. I’ve got to take my kids to school. >> And so, there’s, you know, there’s a lot of common threads of essential across the businesses that we cover. >> Okay? >> You know, they’re also, not to not to belabor the point, but they’re also asset light businesses, meaning you don’t have to invest a lot in the manufacturing facility. >> Okay? you know, you don’t have to invest in heavy equipment and machinery. You know, it’s a service-based business and
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the ability to scale these businesses and scale them rapidly is part of why private equity loves these businesses as well. >> Okay. So, I think Go ahead. Go ahead. >> No, the faster they can scale them, the better the returns that they can generate on on the money that they invest. >> Okay. So, I want to touch on you mentioned fragmentation. So, for example, here in in the in the metro Phoenix Valley, we have maybe five five and a half million people and there might be I have no idea maybe a thousand
00:37:24
plumbing companies out there, little mom and pop plumbers who have 10, 15 employees. What you’re what I think you’re saying is that that industry might be ripe because private equity can say, “Hey, let’s come buy up 30 of these plumbing companies, put them all under one brand, get systemization through everything, and now we have a much stronger company, and now we’re a real player in the market.” That’s fragmentation, right? >> Yeah. Yeah. Yeah. I think that’s a
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that’s a good example of of the opportunity that they that they’ve seen. And you know, it’s it’s an opportunity that’s >> well underway in private equity today. >> Okay. And as as the as the as the listener who is is is hearing our conversation now, they’ve got this company, not quite sure what it’s worth. They know they want to say be be out of it maybe in 5 years, give or take. Uh what what have we not touched on up to this point, Jason, that they really need
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to hear? Um, you know, I I think we’ve hit on a lot of good points. You know, I think I think stay connected or be connected, right? And and Armando, I’m a big fan of what you’re doing and this platform that you provide where, you know, you’re connecting, you know, you’re you’re connecting people and and cross-sharing information, which is which is valuable and and I think, you know, you can never start too early. Um, you know, talk to, you know, talk to an investment banker
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now, right? You you have nothing to lose. You have everything to gain. And start to build those relationships because when when a when a buyer reaches out to you and you know, you happen to respond to that phone call or that email on a random Monday and and it starts to pick up momentum, if you don’t have relationships established, you’re going to be scrambling to find those. Right. >> Right. you’re going to be, you know, scrambling to find an investment bank or hopefully you’re going to be, you know,
00:39:23
trying to find legal counsel to advise you on the transaction, right? >> Exactly. >> You’re going to reach out to your accountant and say, “Hey, you know, walk me through the tax consequences of this structure that I’ve never heard of before and and what does that mean to me from a a net dollars and cents point of view?” >> Yeah. >> So, develop those relationships and, you know, talk to multiple people. Don’t just talk to us. talk to talk to other groups and get a sense for how they’re
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different, right? And find the group that that is the best match for you and um and generally, you know, I’ve spent most of my career as an investor and so I’ve, you know, I’ve talked with all the major investment banks over my career and and you just you can pull in different points of view, different perspectives and I would say, you know, definitely take advantage of that now and don’t wait. >> Good. Thank you, Jason. You mentioned earlier a non-disclosure agreement and
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you mentioned that also in terms of anonymity. The uh the uh company out there, the business owner who is is their phone keeps ringing and say their competitor across the street keeps calling them. Hey, I want to buy you. I want to buy you. I want to buy you. And as you said that Monday morning, they call again and now the guy woke up feeling well maybe maybe I should listen. Maybe I should begin a conversation. What is the purpose of the NDA, the non-disclosure agreement? Why why does that business owner need to
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understand what that’s all about? >> Yeah. So, it’s a so one disclaimer, not legal advice. >> Right. Right. >> But the the NDA is just to protect the information that you share >> to keep it confidential. and yeah to keep it confidential to not disclose it to anybody outside your organization that doesn’t need to know about the information for purposes of evaluating a possible transaction. So the NDA, you know, as you think through the the the transaction process,
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right, it usually starts with like an initial phone call or an email and and you talk about the business and you know the size, the the the customers you serve and so forth. And then the next step would typically be putting an NDA in place that protects the information that you share with the buyer. >> Yeah. >> For only the purposes of evaluating it in the context of a transaction. Now, one thing we like to do too is when we run a process, we’ll typically put an, you know, we’ll have legal counsel draft
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it up, but they’ll put a non-solicitation in the NDA as well, so that, you know, when we do start to share sensitive information about our client and the business and maybe some of the people who are key to the business, that that there’s a non-solicitation that helps protect those people who are uh brought to the forefront of a of a potential transaction. And so that that’s a it seems like a minor rubber stamp at point in an M&A transaction, but it’s an important moment and you want to make
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sure that that you do protect yourself, your business and your people, you know, when you when you start engaging in a discussion with the with the buyer. >> Yeah. And Jason, when you say non-solicitation agreement, that means that they’re not going to try to poach your people and hire them away from you. >> Exactly. Exactly. >> Yeah. And you also mentioned anonymity or that that potential seller who is thinking they might want to sell. You know what I’ll hear at times too is well
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if the offer is good enough then yes I want to sell. So they’re not really sure. >> And so they might begin a conversation and but they still want to remain anonymous. They don’t want the they don’t want their employees to know they’re selling. They don’t want their customers to know they’re selling. They don’t want anybody else to know they’re they’re potentially selling. So they do want to remain anonymous. And you mentioned when you go through your auction process, that’s one key element
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that they get by working with you because you will take their information. Yes, you’ll package it up. You’ll go to potential buyers, but talk about how when you give that information out, how are you protecting the anonymity of that prospective seller? >> Yeah. So we, you know, what as part of our process, one of the things we do is we prepare what’s called a teaser. And the teaser is it’s a very simple one or twopage document that kind of highlights the business without disclosing who the
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business is. >> And so we can use that teaser and share it with a universe of buyers to flesh out who’s interested in the opportunity and who’s not. Those people who are interested then kind of step forward and then we’ll sign a non-disclosure agreement, an NDA, and put in those non-solicitation provisions and only after they sign the NDA do they do we disclose who the client is. >> Yeah. Yeah. >> So they don’t know who you’re on that first teaser as you called it. The
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people look at the numbers, maybe the size of the market, the type of business that it is. is they might understand something about the revenues or profits or IBITA and then they decide that yeah you know I I might want to know more about this company and that’s when they go to that next step with you sign the non-disclosure agreement the non-solicitation agreement then they can know exactly who the company is that’s potentially for sale >> yeah exactly so what we’ll typically do
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is after so we’ll send out a teaser for those people who are interested they’ll sign the NDA in and non-solicitation and then after they sign the NDA they will circulate what we call the the SIP or the SIM. It’s the confidential information presentation or memorandum. >> Okay? >> And that’s the it’s the perspectus if you if you will of the opportunity and it really contains you know all the information about the business, the financials, the team, the market, the
00:45:22
customers concentration suppliers that they utilize it. It’s really the full package of the business, you know, it’s it’s the growth strategy levers that they can pull to continue to grow the business. Real estate, it’s literally everything about the business, right? And it’s not just facts. A lot of it is facts, but it’s positioned, right? We’re we’re positioning it in in a way that buyers will understand and and it will appeal to them. and and that document is basically the four the four corners
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of the information that a buyer will get in order to prepare an offer to or a proposal to acquire or invest in a business. So, it’s a very it’s a very important document and it’s it’s something that is um absolutely critical in running a a transaction. >> Okay. Yeah. Thank you for walking through that process. It’s helpful just to have you walking through step by step that sequence of events so that that business owner, that founder can see themselves either walking through that
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now or not. Uh but I I and I also like what you said that it’s never too early to have a conversation with you. It’s not going to cost them a dime. And who knows what they’ll learn from that conversation with you that might help them decide that yes, it is time that that they go to market or maybe they don’t want to go at all and they just want to hand it off to their adult son or daughter or just whatever. You know, they’re in the driver’s seat that that’s their that’s their baby that they grew
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from nothing and they can do with it what they want, but they really have to understand the different options available to them so they can make an informed decision for themselves and their family. Yeah, absolutely. Armando, I would I would also add too, I mean, going to sell a business is a lot of work. It is a it’s a it’s a full-time job. And, you know, as we talked about the the teaser, we talked about the SIP or the SIM, we talked about the NDA, all of these things need information from
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the business, right? Financials, spreadsheets, word documents, PowerPoint presentations. It’s a lot of information and and we call it preliminary due diligence. So, we do preliminary due diligence on our clients and we use that information to create these documents >> that we then run the process with. And it’s a lot of work. And and one thing I really like to do is if even if you’re not interested in selling for three or five years, I’ll I’ll send you our preliminary we call it a preliminary IRL
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information request list. Let me s let me send you that so you can see what we’re going to be asking for. And it it is a it’s a colonoscopy. It is a a tremendous amount of work. It is, you know, it is it is it’s a lot. And and I think that’s important for business owners to know is it’s a lot of information to pull. It’s a lot of work. It’s a distraction for your team. And even even when we’re involved, right, it’s it’s going to be a lot of work for you. we’re going to take a lot of the
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burden off because we’re going to do all the work, but you’ve got to get us the information. >> Yeah, it it does emphasize though just what you said, you know, earlier that that uh they don’t want to get lured in by a phone call, by a conversation, and before they know it, they’re actually in the process of selling. Now, I spoke with an insurance company owner, a couple, it was probably almost two years ago now, where they had no intention to sell, but they got this phone call and
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and they said, “Oh, yeah. Well, yeah, well, we might entertain it.” They ended up giving financials. Before they knew it, they were on Zoom calls. They were interviewing prospective buyers of their company. They selected one and they were in the process. But I could tell from the woman, it was a couple that owned this this insurance agency. She really did not want to sell and they were so far down the process that she didn’t know how to back out and husband was okay with selling at that
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price but it was not her first choice but she just got lured into it. better that they see your information request that you know and and they understand what it will take and they make an informed decision when they’re ready to do that than to end up where they don’t really want to do this but they kind of feel like they have to finish the process. >> Yeah, absolutely. And and I think one one of the key takeaways too is when we send that to owners, they may say, “I don’t have this information. I I don’t
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track those KPIs. I don’t know where my leads are coming from. I I don’t know where my marketing dollars are going. And so it gives them a sense for here’s how an investor is going to look at it. So if we start if if we send that to you today and you don’t want to sell for 3 to five years, maybe you start looking at your business in a different light. Maybe you start tracking different data and using that to make business decisions. That’s that’s one key takeaway. The other thing
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is when you when you go through the process of of populating our information request list, it’s a lot of work, right? It’s a it’s a ton of work. And if if you do that for a single buyer, right, a single buyer is going to have maybe a similar information request list that they’re going to send you and you’re going to go through this brain damage and you’re going to pull all this information. You’re going to do, you know, loss runs for insurance the last five years. You’re going to pull up
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everything for this buyer, right? And then what if that buyer backs out? Now you’ve you’ve done you’ve done all this work for nothing. >> Yeah. >> Right. And so, you know, you you you have one shot on goal with that buyer and all of that work is going into it. So, one of the things that we would, you know, advise owners is that’s why you work with a group like us because you’re going to pull all that information depending on if if you’re an HVAC business, we’re going to go out to 50 or
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60 buyers, right? Okay. That’s a lot of shots on goal, right? Your probability of getting a deal closed is going to be much higher, >> right?
In addition to getting a better evaluation and, you know, being able to find and choose the right buyer for your business. >> And so, that’s something really important to think about because, you know, when you run an M&A process as an owner, it’s exhausting. It is a it’s an emotional roller coaster. It’s draining.
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I sometimes joke that we’re almost as much therapists as we are investment bankers, particularly with family-owned businesses or closely held. It’s an emotional process and it it can be very draining. And so, you want to make sure if you’re going to go through all that work that you’re going to set yourself up for the best possible outcome. And and one thing that we do too with our clients that we just you know a takeaway is there’s a virtual data rooms and and we you know I would strongly advocate if
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you know as you’re selling a company we always create a virtual data room for our clients that basically houses all of their diligence information >> and and the beautiful thing about doing that is we can create one data room and we can invite 50 100 buyers if if it makes sense versus just emailing your information to a single buyer. you you’re you’re getting no ability to leverage the work that you’ve done. So just food for thought on that topic. >> And and that data room, just to make
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sure that point is clear, it’s bas basically a big storage cabinet where you’re putting all the corporate minutes, the tax returns, like you said, the insurance claims. You’re putting all that stuff into one cabinet, a virtual cabinet, a cloud-based cabinet. And then you, as he said, you as the as the M&A advisor can invite prospective buyers to look at that data and then you can control it. You know what they’ve looked at, when they’ve looked at it, who checked out that particular piece of
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data. So you can really keep your eyes on that entire process. Correct. >> Exactly. Exactly. Armando, you nailed it. So it gives you a lot of insight in in terms of who’s really interested. you know, if we invite a if we invite, you know, 30, 40 groups to a process and, you know, they let’s just assume they all sign an NDA and we give them access to the data room. We give them that SIP or that SIM. We know who’s going through the data and so we can kind of tell who’s really interested and who’s not,
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who’s spending the time, who’s committing the resources, and who’s really giving it a look in earnest versus who’s just kind of signing an NDA and kicking tires, right? you can you can really distill those insights. And the other thing that we can do too is we can we can protect information, right? So we can turn off, you know, if there’s a local competitor, for example, right? And and we have, let’s just say you’re a roofing company in Phoenix, one of our favorite verticals, and if you use
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subcontractors in Phoenix, do you want your competitors to know what subcontractors you use and and the terms of your agreement with those subs? No. Right? That’s competitively sensitive information. >> Right >> now, that may be important information for somebody who’s not in the market, but I don’t want a local competitor to see that information. And so, that’s that’s something that we can do, too, is we can control who sees what within the the box of the the virtual data room and
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to really make sure that we protect our clients as they’re out in market looking for a buyer. >> Oh, fantastic. Hey, Jason, what about a time frame? Let’s say that that that business owner is thinking they might want to sell and let’s say they’ve got a pretty good operation. It’s efficient. They document things. They’ve got procedures. They’ve got good people, good management teams, and they’re they’re pretty darn close to where you would like to see them before you take
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them through that whole auction process. Maybe not they’re not there 100%. They need a little bit of work ahead of time, but what is a typical time frame when they have that first conversation with you and they say, “Yeah, I’m ready. Let let let’s let’s start this process. When it comes time for them to be done with that sales process, how much time typically passes? >> Yeah. So, we typically will guide and it all depends on seller readiness. Most most organizations are not ready. It’s
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just they’re not um they’re not looking at their business the way an investor will today. >> Okay. So inst you know seller readiness is is a big driver but we generally will guide anywhere from four to eight months is typically how long it will take and there’s there’s a the part of the process where we’re doing preliminary diligence we’re gathering information on the business we’re preparing marketing materials you know we’re reaching out to buyers we’re putting process in we’re
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putting NDAs in pro in in place you know we’re sharing the sip or the sim you know or it depends on the size of the business. We may ask for an indication of interest or we may just ask for an LOI, a letter of intent. It kind of depends. There’s a little bit of science and art in the process. Um, but typically we like to make sure we go slow and are methodical up to the point where we get offers and then we like to take time with our clients to make sure that we evaluate those offers that we
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spend time with the buyers that we understand them, their organizations, their plans to integrate the business, you know, the value that they see in the opportunity. So, we like to go slow up to that point or or be really thoughtful and then as soon as we sign an LOI, a transaction will typically close 45 to a bookend would be say 45 to 90 days. >> Okay, >> after signing a letter, a non-binding letter of intent, >> okay, which we can talk about what that is, but typically 45 to 90 days and we would
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generally target, you know, something within 60 days. So within two months of signing a non-binding LOI, your transaction should be closed. The wires should be, you know, affected and and the transaction should be done. >> Okay. And and you said that most people are not ready. They’re just not they don’t have their their business in the condition where they’re really ready to go to market. What are some of the common things you see that they’re not ready with? Is it financials? Is it
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their management team? what is what is missing that they’re not ready with? >> Yeah, in the context of this, it’s really it’s financials, it’s data, it’s, you know, you mentioned, you know, board meeting minutes, um, you know, corporate documents, it’s insurance records, it’s run losses, it’s vendor data, contracts, it’s just it’s all of that, right? And so if you’re a wellorganized business and you have great documentation and and great files, that’s going to help accelerate the
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process. Um, so that’s that’s probably the biggest the biggest uh choke point is just getting that information. You know, oftent times owners are reaching out to their insurance broker, their insurance company trying to get information. you know, they’re reaching out to their their C their CRM provider saying, “Hey, how do I access, you know, how how do I get a list of my route customers from my pest control business or or whatever the case may be?” There’s sometimes fetching and it just takes
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time. Right now, you’re dependent on somebody else responding to you, producing the information. So, that’s probably the biggest choke point.
Okay, good. Well, Jason, thank you so much for this conversation. We talked about a lot of great things that that first-time seller really needs to understand and uh and know before they before they begin to walk down that path or maybe accept someone’s offer over the phone or sign a letter of in letter of interest, letter of intent with somebody
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that that that somewhat commits them to at least walking down that path with them. So again, thank you so much for this conversation. If somebody has questions for you, they’d like to reach you. What is the best way for them to reach out to you? Is it a phone? Is it an email? What would you prefer? >> Yeah, I mean all all of the above. I think probably the best way would be you can visit the website. It’s http://www.bristleconetrail.com. My uh there’s an email that we’ll forward through that way.
00:59:41
Okay. >> My personal email is is Jason. Brislonetrail.com. Um shoot me an email. Pretty responsive. And you know, like I said, happy to have a conversation with with really with anybody. I mean, there’s we have a pretty specific criteria of clientele that we work with, but I always say to to to anybody really, you know, whether we can help you formally or informally. Formally meaning we, you know, sign an engagement letter with you, run your transaction. informally just spend time together
01:00:15
chatting, sharing insights, making connections with people who could be useful to you. You know, generally happy to chat with with anybody whether we can help them formally or informally. >> Okay. And if if you don’t mind, you mentioned you’ve got criteria that people that you’re looking for, companies that you’re looking for. Can you touch on just the high points of what you what you are looking for for folks who’d like who you might want to talk with? >> Yeah, it’s it’s a good question. I
01:00:40
probably should have included in my my intro. So it’s on the website too and generally how we think about our client criteria and now it’s not a hard and fast rule. We will make exceptions for this on a kind of a case byase basis but you know generally you know our ideal client is the client that we can help the most. >> Okay. >> And and I would kind of put those parameters and generally I’d say 10 10 to 15 million of annual revenue. >> Okay. up to north of 100 million of
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annual revenue which translates into at least a million of of IBIDA. And the way we define our client coverage is it’s it’s home and commercial services. So it’s HVAC businesses, plumbing, electrical, garage door, roofing, landscape, pest control, restoration, fire and safety, kind of all the essential services of of home and commercial businesses. >> Okay. And we cover clients across the US. As I mentioned, we’re based in Phoenix, but we will work with, you know, any kind of business and owner that fits
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that criteria across the US. And and our aim is to do three to five transactions per year and to do an aggregate of 100 million of of transaction value. >> Okay, >> that’s our model. So, that’s kind of our our client focus. If you know, like I said before, if there’s somebody that doesn’t fit into that mold perfectly, you know, we we look at things on a case-byase basis, but that’s the that’s the general business that we can be very helpful to. >> Okay, fantastic. Jason, thanks so much
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for the conversation. I think uh we we’ll end it there and again, thank you for your time and your expertise this morning. >> You bet, Armando. Thanks for having me.
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