Intermediaries: Match-maker or Quarterback

This episode dives into the world of intermediaries, explaining the differences between business brokers, M&A advisors, and investment bankers. You'll learn how these professionals can help you navigate the complexities of a transaction, from listing a business to tailoring strategies for unique situations. Tune in to discover how choosing the right intermediary can make all the difference in achieving your business goals.

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TRANSCRIPT:

Welcome to Integrated Insights with ICCG. For more than 30 years our team has

partnered with small business owners to prepare for and navigate the business

transaction process. Pull up a chair as we share stories and insights from our

experience on all sides of the M &A table. Alright, I'm here with Dave and Andrew,

and we're going to be talking about intermediaries today. To get started, Dave, can

you give us a high -level description of the three types of intermediaries? Sure.

And this is specifically when you're, let's just say when you're trying to sell your

business. You would have the same type of intermediaries when you're trying to buy a

business, but oftentimes I would say it's more normalized in a sale. And so,

and And again, these are very high level. There's so many different names, and

honestly, it's kind of confusing, and I'm not really sure across the industry,

there's really a consensus as to what the different ones are. The terms you'll hear

most of all are things like business broker, and where you'll hear the term of M &A

advisors. We call ourselves M &A advisors or M &A consultants or an M &A intermediary,

kind of depending on the situation, I think, all those basically mean the same

thing. A business, and then there's the investment banker, which I'll get into in

just a little bit. The, for our practical purposes, when we consider a business

broker, which we really are business brokers, you know, however, a lot of your

business brokers may be falling under some of the national networks of business

brokers, and, you know, they may be selling some of the some of the smaller deals.

Typically, they're 10 % across the board. And oftentimes, we find from a lot of the

attorneys and things we work with that they're basically putting buyers and sellers,

they're listing business as much like an MLS would do in a home, and then they're

putting them together, they're getting in the contract sign, and then they're pushing

it to the attorney, and then they're getting paid at the success fee. I think with

an M &A advisor or consultant and an investment maker, you're gonna find different,

you're gonna find a little bit different services that are there. Let's go to

investment banking first. Investment makers are often associated, number one, with big

financial institutions, where they may be investment banking shops. And oftentimes

they're just doing the same thing an M &A advisor would do it. For like a J .P.

JPMorgan investment services, they may have been taking care of this family's money

for years, right? So they're they're really doing the whole thing And then they're

they're also helping them sell the business as well and advising them all along the

way They also are known for raising money, too. You know, we don't raise money, but

we don't there's so many

Restraints around that we really have chosen not to do that. And so I think when

you get down to what we do, and I would say as an M &A advisor, mergers and

acquisitions advisor, you know, we're really there to kind of help hold that hand.

I was meeting with a potential new seller this past week. And one thing I told

him, he said, I don't even know what I'm doing. I've never done this before. And I

said, we're here to hold your hand from the start, from right where you are right

now, all the way until you've transferred, and then some. then some. I think for

this podcast, that's pretty important. What do we do and what do people like us do?

Then the seller can decide what they're looking for. I'd also like to say that

there are always those one -offs. There are always the exception to the rule of what

the broker is, what an M

I mean, you know, they're they're not all the same. There's there's always some sort

of exception. And so you know, a lot of people will will will will think poorly of

a of a business broker investment banker or even an M &A advisor. I mean, there are

advantages and disadvantages to each and and at the end of the day, they're not all

the same and so it I mean No matter what type of intermediary it is,

any business owner is going to have to do their own due diligence and kind of ask

questions, say, "Hey, are you the right person for me? Are you the right firm to

represent me?" Going off of that, Andrew, I think that one of the things that some

of the questions that a seller could ask is, "Do

Database that's that's effective to use. I mean, that's that's a big deal I mean,

it's great if you want to list a business, but who you're gonna sell it to and

You know, so, you know, we know we have a database of a lot Thousands and then we

have we have access to other databases and other sources. So we're pretty confident

I mean, we're way more confident now than we were 10 years ago that we take

something to market We're gonna be able to wrestle it up. You mentioned You

mentioned kind of listing some some in an M &A advisors. They'll list Some won't and

so, you know, you know, most big business brokers They'll list it on a on a big

website or on, you know, their own a kind of national network If you you might say

and so it's you know It you just kind of have to maybe ask hey How do you find

your buyers And how do you vet those buyers when you do find them? We won't that's

for probably a different podcast Yeah, that's true. I will say You know a lot of

people will kind of say a transaction is is is like a marriage, right? When you're

when you're you're trying to find the the person buying your company it's a you're

trying to find a marriage, right and and And so I've heard how a lot of business

brokers. It's not all again But the but they'll be the e -harmony,

right? Where they just kind of say, "Here it is. "Here we're gonna list these two

and try to, "you're gonna do the work to figure it out." Which may not be the bad

thing for the right type of business. - The right type of business. - But, yeah, for

the right type of business. But for, I know for all of our clients,

And so you've got to, you've got to have somebody that's going to consult with you

along the way. Yeah. Because it's still got a business to run, right? It can be

hard to go and sell your business and figuring out the, the relationships on your

own when you got a business to run. That's right. That's exactly right. Yep. So

Dave, going back a little bit, you mentioned that we as advisors, we kind of hold

the hands of the clients walking through the whole process. How does that hand

holding or can you give me some examples of how holding a client's hand, holding a

business owner's hand through the transaction process has enhanced that process. How

do we add value by that handholding? - Well, I think we add value in a couple of

different ways. Number one, we let them run their business.

Hey, just a wonderful, I keep referring back to this meaning I had 'cause it was

just a great example of a person who's just built a great business over a decades

and, you know, they're filled with humility and just good salt to the earth kind of

guys. And they, and he just, you know, one thing he was really determined,

he says, "I just want to be able to run my business well until I leave." He said,

"I've run it well for all these years." And I said, "Well, one thing we're going

to be able to help you do is do that." You know, there's, but I was, I pulled no

punches. I would also say, "Look, when we get into due diligence, we're going to

receive a list of probably 200 different line items and we're going to need help

with this. Who do you trust in your organization to help us? And so, you know,

I think that setting the pace for them and letting them know from the get -go that,

hey, that this isn't an overnight process and to do this process well, it's going

to take time, but we're going to take as much of that load off you as we can,

brings a lot of value to the table. And I think the other thing that brings

monetary value to them is helping them structure the deal. As we've said in previous

podcasts, we'll continue to say, it's not what you get for your business, it's what

you get to take home at the end of the day. That's what's most important. And so

we, especially with Grant My Business Partner having such great tax knowledge as a

tax account, it's just really helpful to be able to do that. And not only that,

When we start dealing with people, if someone's selling a business that's worth $10

,000 ,000 ,000, and they can get a difference between a multiple of three or three

and a half, and we can push a price up to three from three to three and a half,

it is more than paid for our fee. Yeah. So how do we, as M &A advisors at ICCG,

how do we customize our strategies to fit the unique needs of a business. Every

business is different, right? And it's really easy to think that we can just put

something in a box and run.

You know, someone may really, really be needed to get out of the business quickly.

We would call it maybe, and maybe it's because what we call hair on the deal, you

know, it's kind of a lot of, maybe there's some issues there. We ran, we ran into

this a lot at COVID. Let me just talk about COVID for a minute, but this is a

great example. We had to do a lot of shuffling with, you know, we, we divested of

two of our portfolio companies during COVID. It was really interesting to watch that

process work with some of our own companies, because we really had to get creative

with it. We had to, because it was a unique time, right? Every business seems to

maybe have a unique moment in their history, where maybe the sales, the trend wasn't

right or I mean, we're looking at some some businesses right now where that the

trend isn't necessarily going in the the best direction. But it's not a it's not a

horrible direction because we know what we're bisonous deal. We know what our client

can do with those businesses. And so I think that's a that's a unique situation,

right? From a sell side, they're going to looking at it going, wow, this is going

to be a little difficult because of the trend. And we're looking at from a buy

side going well there's some upside there because we know how to not necessarily

turn it around because it doesn't really need turned around just needs to be tweaked

a bit and so every business comes with a unique situation it could be that their

structure is really unique maybe their ownership is really unique and then we have

to kind of structure that sale a little differently again this is where Grant really

comes really comes in handy sometime. Well, he in case he's listening, he always

comes in handy.

He's always valued.

We love you, Green. Let him play in the sandbox for once in a while. Now, this is

where that that knowledge comes in really handy as to how did, you know, how do

these different situations work?

You know the size of a business sometimes can be a you know, we typically like to

see business that we we typically I Would say our wheelhouse is kind of in that

five to 70 million you know sales price business because There are some unique

things about those businesses which are a little different than maybe you get down

to a million dollar business Or 200 ,000 our business is really, you know, that

that's not really our wheelhouse. We're probably not going to take some of those.

Got anything to add to that, Andrew? Yeah, you know, even within that, a $5 million

company is, it's got to be a different strategy than a $50 million company,

right? I mean, those are two different buyer networks. There, I mean,

there's, there, there are, there, there are things in there that are details in the

deal, working capital, I mean, everything is so different. And so we have to kind

of really tailor it to the company and the type of company it actually is.

And so, you know, industry -wise, size -wise, I mean, everything really comes into

play here. And I mean, look at the end of the day, it is about, for us,

it's about our client's goal, right? And so, if,

you know, what's important to them, we need to emphasize. And so,

we, what we emphasize is going to be a little bit, a little bit different each

deal. Every deal is different. Yeah. And so, Andrew, go into some specifics But

let's tell our listeners a little bit about what are learnings around the

manufacturing industry and how some of the unique aspects of that, what we know to

look for because of those learnings. Yeah. I mean, look, we've done a deal where

it's a landscape company and even amongst those,

they're different, right? Is it purely maintenance or is there some construction? And

so what about the, you know, equipment? And, you know, you kind of have to talk

about what, what even, even those, the goals of each,

of each client is probably a little different too. And so, you know, hey, I've got

employees in this business, but the other one doesn't, you know, and, and so I want

to make sure my employees are well taken care of where he, where the other one who

doesn't have the employees for the labor, there are different ways to kind of take

care of people. And maybe there's a little bit more importance on something else.

And so you mentioned manufacturing, same thing. A machining company is going to be

very different than a landscape company, right? And so it's a-- A manufacturing

Manufacturing company is gonna be different than the next manufacturing company down

the road. Yeah. Yeah, absolutely They come in all shapes and sizes They have

contracts and working on contracts or is it onesie twosies? You know all ages and

different brands of equipment all of that. Yeah, and and even even within that I

mean, there are there are True manufacturing companies that they'll take raw material

and they'll make something and then there are those, they call themselves

manufacturing companies or they'll call themselves machining companies that are truly

machining where they take a product from their customer,

from their client and they'll modify it, they'll machine it and then they'll send it

back and so there's less raw materials, less inventory

have or you know a different type of inventory and so things will change and we've

got to take different approaches. You kind of have to figure all that out and I

will say not all intermediaries do that. And so I mean it is,

you kind of have to ask the intermediary how do you deal with this and what's your

experience with my type of company. company. We had a guy who's a machining company.

He asked me, "Hey, how many machining deals have you done?" And he asked me,

"Yeah, which is great. I love that. He's doing due diligence on me and how do you

deal

That that is is slow paying me, right? He's not paying him as as as quickly as as

they should And so, you know, how do you how do you tell that story to buyers?

You know? What kind of challenges have you come up against with this type of

company? Those are questions that you got to ask and they're different every time

Yeah, one of the things that I've been super impressed is being the newest member

of the ICCG team is is just our ability to learn an industry. And I think while

it is important experience, I think one of the points that we've made on this

episode is just the fact that every business is different, right? And sure,

you may be able to experience someone that sold 20 businesses in your industry, but

your business is still different than those 20 other. So if they're not constantly

learning, I mean, With what I've seen from ICCG,

if I was selling a business, I would say, hey, what's the newest industry that

you've served? What's the newest industry that you've jumped into and what were some

of your learnings in diving into that industry? 'Cause I think it's a huge value to

join with an advisor that is constantly learning and is able to learn enough,

right? So on that note a little bit, obviously there's a ton of information that we

have to request and that we have to have access to as well as give it as...

owners are listening to this or those who are business owners that are listening to

this will agree that there are several questions that are always asked. They were

asked in the meeting I had a couple days ago. They were asked last week and

they're always asked how do we keep this under the wraps and that differs a little

bit because sometimes it's well known that they may be retiring or they may be you

know nearing the you know nearing the end of their time and people are starting to

ask them and they've They've already talked to some key employees, but their

competition doesn't know. That's really, really important, right? How do you keep

that? So we would start with letting them know that he wanted to know our process.

When does someone find out who my, what the name of my business is? I took him

through how we give out a teaser that doesn't even necessarily name the state. It

might name regionally where you are. And then when we, if But I said then we would

vet the buyer and he was going, "That's great to hear." And I said, "Yeah, we ask

a lot of hard questions." And then when they get to,

if we actually do send out something, sometimes we're sending out a confidential

information memorandum or a SIM as we call it, they would even have the name of

the business sanitized. That's not really often, but sometimes we would because we

would need to. And then if they ever get to to where, you know, they've submitted

a indication of interest or an IOI and they're one of the ones that we accept or

that the seller accepts, we go into that management meeting and they start making

introductions. We may make sure in some cases that there's actually, there would be

a non -circumvent obviously, a part of the NDA, but make sure that there's a non

solicitation because one thing someone doesn't want, if it's one part of their

competition that's coming in, what they don't want is for someone to come in and

start poaching their employees. And it would a great way to do that. And we've seen

that happen and they weren't, not when we were doing a deal, but with other deals,

and they weren't protected. And so you have to, there are some ways to do it, and

you gotta have a sharp attorney that's weren't willing to be a bulldog if they do

break the covenants. Let's just face it, not everybody has the scruples that

everybody else does, the morals that they're operating off of and you know at the

end of the day people are people right and so all you can do is protect yourself

the best you can and if that doesn't work you have to take whatever means you have

to take to make sure that that they go forth and then go from there yeah three of

the most important things and there are several others but three of the most

important uh um relationships that you have to to uh To protect our our employees

customers and competitors, right? Those are kind of the the people that you don't

want to find out, right? And so that's information that you want to that that you

want to protect We don't give out employee

Information I mean I mean it's it's close to closing is when we give out employee

information It has to be disclosed. It has to be disclosed. It has to be disclosed.

It has to be disclosed. But at the end of the, I mean, we'll give an org chart,

but we don't, we can't just give that out willy -nilly, right? And I mean, and I

know a lot of people will argue over the customer list, but we don't,

we sanitize that and it's not, it's not going to be disclosed,

at least for us, most of the time, until after an offer has been accepted.

Yeah, if you're an investor or buyer watching this or listening to us, I think one

thing that's important that we've learned about buyers through the years is get to

know, get to know the person you're buying the business, get to know them

personally, care about them personally, care about personally more than you care about

their customer list Because they know that if all you really care about is is just

their business. You don't care about them Most most people getting it for the lowest

possible number. Yeah. Yeah, that's so true Yeah, and don't try to fool them because

they know they talk about talking about deal killers, right?

Dave I know earlier when you were talking about the three types of Intermediaries of

intermediaries. You mentioned that investment bankers, a lot of times business owners

have already been working with them, right? So they may have engaged them a long

time ago. What does that look like for the other two types? For us as advisors, as

well as for brokers, when should a business owner engage those other two types?

Well, they may not have been dealing with them yet. They may have been dealing with

the financial advisory part of that large banking system.

And then when they get to sell, they would be then handed over to the investment

banking group. I've always thought that probably that word investment bankers needs to

be used on your 100 million plus deals. It seems a little bit more appropriate.

Or they're heavily involved in a lot of the financing of a buyer when they're

buying the business, or they're heavily involved in raising some of the capital

that's going to be involved as well, too, and where we may set people up with

that. And I know people who do exactly what we do, and they call themselves

investment bankers. That's cool. That's great. I just always makes me a little bit,

you know, I'm just a little nervous calling ourselves bankers just because we don't

lend money.

We do deals. You know, we're transaction advisors, right? So I just feel like it

suits us a little bit better. Yeah, there's, there's, we can't,

we can't sell a minority share of a company. And so there's,

you know, it's, we can't raise capital. Those are things that you have to be an

investment banker to do. All right, well, Andrew, Dave, thanks for talking with me

today that's all we got for this week.

And that wraps up another episode of Integrated Insights with ICCG. Be sure to

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