00:00:11:29 - 00:00:12:15 Welcome to our

00:00:12:15 - 00:00:15:20 weekly livestream recording of the Amazing Podcast series

00:00:15:20 - 00:00:16:24 devoted to acquisition

00:00:16:24 - 00:00:20:18 entrepreneurs, search funds and holdco builders in the UK and EU,

00:00:20:21 - 00:00:24:03 discussing the topics and challenges that impact SMB succession, M&A

00:00:24:06 - 00:00:26:30 and exploring the highs and lows of searching, acquiring, owning

00:00:26:30 - 00:00:29:30 and operating small and medium sized businesses.

00:00:30:02 - 00:00:33:20 I am joined, as ever by my co-host Gareth Wilkins here at Acquire

00:00:33:20 - 00:00:35:07 and CEO of Biz Crunch.

00:00:35:07 - 00:00:37:20 Let's start off with the news. What's the news this week?

00:00:37:20 - 00:00:42:04 Well, the main news, which probably occupy all the time we have for it is the

00:00:42:07 - 00:00:46:26 the big scandalous, knee jerk, parochial policy

00:00:46:26 - 00:00:51:18 that has come in last Friday in the US

00:00:51:21 - 00:00:54:03 with the

00:00:54:03 - 00:00:57:01 invoking of a policy change by the SBA.

00:00:57:01 - 00:01:01:15 That's in response to or in compliance with an executive order

00:01:01:15 - 00:01:04:32 that came from Trump in his first few days in office.

00:01:05:01 - 00:01:07:25 That is,

00:01:07:28 - 00:01:08:10 I think

00:01:08:10 - 00:01:13:08 the executive order was called protecting American citizens from invasion.

00:01:13:11 - 00:01:15:19 So quite hard hitting,

00:01:15:19 - 00:01:19:18 but this invasion apparently also extends to

00:01:19:21 - 00:01:23:09 foreign overseas beneficiaries of SBA loans.

00:01:23:13 - 00:01:25:07 So they don't want to send money over the borders.

00:01:25:07 - 00:01:29:22 But that's basically meant at the SBA level is that

00:01:29:25 - 00:01:31:21 henceforth no company

00:01:31:21 - 00:01:34:21 that has even 1% of foreign ownership

00:01:34:27 - 00:01:38:27 will qualify for an SBA seven or 504 loan.

00:01:38:30 - 00:01:42:06 So that basically means that leveraged

00:01:42:06 - 00:01:46:03 search fund investing by non-U.S.

00:01:46:06 - 00:01:48:03 investors

00:01:48:03 - 00:01:50:23 is no longer able to avail itself of the SBA.

00:01:50:23 - 00:01:54:15 Yeah, I mean, I didn't know that it was as little as 1%.

00:01:54:15 - 00:01:57:16 I thought maybe, you know, majority ownership or something along those lines.

00:01:57:16 - 00:01:59:17 But it's a it's a blanket ban.

00:01:59:17 - 00:02:00:32 A blanket ban.

00:02:00:32 - 00:02:06:11 The eligibility requirement from this moment forward is 100%

00:02:06:14 - 00:02:07:20 domestic ownership.

00:02:07:20 - 00:02:11:24 So even half a percent seems to no longer qualify,

00:02:11:27 - 00:02:14:27 which is just like believable

00:02:14:33 - 00:02:18:14 because you'd have thought the, you know,

00:02:18:17 - 00:02:21:32 table stakes for a globalized economy is to encourage

00:02:21:32 - 00:02:25:21 foreign direct investment into your progressive market.

00:02:25:21 - 00:02:25:31 Right?

00:02:25:31 - 00:02:29:20 So, yes, surely you want to

00:02:29:23 - 00:02:33:16 alleviate some of the burden on the taxpayer of the country.

00:02:33:19 - 00:02:39:00 Now, you know, such as in the US can't really viably go to overseas

00:02:39:00 - 00:02:43:02 like European based search, find investors and say, hey, come and back us

00:02:43:05 - 00:02:48:21 and then want to use that kind of equity gap piece, maybe the 50 60% that

00:02:48:21 - 00:02:53:02 they might have raised of the deal in a, you know, traditional search fund sense.

00:02:53:02 - 00:02:55:09 They might have raised some of that from overseas

00:02:55:09 - 00:02:59:03 and then want to go and do a leveraged buyout with the SBA.

00:02:59:05 - 00:03:02:04 That is no longer possible if they have any Europeans on the table.

00:03:02:04 - 00:03:03:19 So, yeah.

00:03:03:19 - 00:03:07:14 Do you think that and I you know, this is obviously not great for

00:03:07:20 - 00:03:08:16 for those in the U.S.,

00:03:08:16 - 00:03:12:22 do you think that it might mean that there's more money in EU search funds?

00:03:12:22 - 00:03:14:12 And for EU,

00:03:14:14 - 00:03:15:22 you acquirers?

00:03:15:22 - 00:03:20:20 Well, I mean, I've already had several EU based capital allocators

00:03:20:20 - 00:03:26:08 that like this space reach out to me and say, what we going to do about this?

00:03:26:08 - 00:03:27:11 Like what can be done?

00:03:27:11 - 00:03:31:15 I'm now busily searching for the flow in Europe

00:03:31:15 - 00:03:35:07 and in the UK to allocate to instead because they're quite happy

00:03:35:07 - 00:03:38:11 to take my money and there's nothing to preclude me from receiving the returns

00:03:38:11 - 00:03:42:02 or for those companies being able to avail themselves of government backed funding.

00:03:42:05 - 00:03:47:10 So yeah, I don't think it will be a boon for European and UK,

00:03:47:12 - 00:03:50:26 particularly potentially UK ETF that

00:03:50:29 - 00:03:53:14 you know, so I don't want to touch on the US politics

00:03:53:14 - 00:03:58:03 too much, but it does seem that a lot of policies have kind of galvanized

00:03:58:06 - 00:04:03:06 the EU and European Union and European business as well. So

00:04:03:08 - 00:04:05:05 are again is the US is lost.

00:04:05:05 - 00:04:08:30 But yeah, I mean who would expect short sighted economic policies from that

00:04:08:32 - 00:04:15:14 bankruptcy for casinos or

00:04:15:16 - 00:04:17:08 nice?

00:04:17:08 - 00:04:17:29 Absolutely.

00:04:17:29 - 00:04:21:10 Look, we are witnessing the Manchurian Candidate.

00:04:21:13 - 00:04:22:03 What can I say?

00:04:22:03 - 00:04:27:01 If you want to dismantle a state by proxy, this seems to be how to do it.

00:04:27:04 - 00:04:28:11 So very positive.

00:04:28:11 - 00:04:33:06 So it will be an interesting five years ahead, will probably cause

00:04:33:09 - 00:04:36:32 more business owners to explore an exit.

00:04:37:00 - 00:04:41:18 So there are very obvious might be it might be in busy season.

00:04:41:21 - 00:04:43:19 So yeah, it's a it's interesting.

00:04:43:19 - 00:04:46:28 I think it will be a boon for the UK

00:04:46:28 - 00:04:50:09 search scene, which is burgeoning already, benefits from having lower

00:04:50:09 - 00:04:54:09 multiples of EBITDA versus the US, which is a bit more toppy.

00:04:54:17 - 00:04:57:32 It's got more competition, therefore it drives up valuations here.

00:04:57:32 - 00:05:01:29 There's and there's much, much, much less competition and therefore

00:05:01:32 - 00:05:05:16 it's sort of, you know, a buyer's market in that sense.

00:05:05:18 - 00:05:08:25 So anyway, that's that's the news, the big news this week, I've

00:05:08:26 - 00:05:12:15 obviously used up all of our time quota and we should move on to more.

00:05:12:23 - 00:05:16:08 Well, I would say positive things, but our topic this week,

00:05:16:11 - 00:05:18:18 the top ten SMB M&A deal

00:05:18:18 - 00:05:22:14 killers yet we're keeping it very cheerful this week.

00:05:22:17 - 00:05:27:16 And as we all know, you know, this is a game of deal flow.

00:05:27:16 - 00:05:29:21 Lots of deals that are brought to the table.

00:05:29:21 - 00:05:31:08 Don't go through.

00:05:31:08 - 00:05:34:18 You know, I'm starting to witness it more and more talking to,

00:05:34:21 - 00:05:37:09 you know, this crunch uses that getting through the first cause

00:05:37:09 - 00:05:41:01 we talked about last week and then, you know, stumbling box seem to appear.

00:05:41:01 - 00:05:43:28 So let's talk about what some of those are.

00:05:43:28 - 00:05:48:07 And hopefully anybody listening can be pre armed and pre-prepared

00:05:48:10 - 00:05:49:09 before they

00:05:49:09 - 00:05:52:06 before they go into their deals and hopefully sidestep some of these

00:05:52:06 - 00:05:55:06 potential pitfalls. It is a minefield.

00:05:55:14 - 00:05:59:10 I tell every searcher that I speak to that,

00:05:59:10 - 00:06:02:13 you know, down the road with a business is under head to terms.

00:06:02:13 - 00:06:05:33 I quite of the mantra that it's off until it's on

00:06:06:02 - 00:06:09:00 you know there's lots that could go wrong.

00:06:09:00 - 00:06:12:22 You know, having spent a couple of years in the sort of venture space as well

00:06:12:22 - 00:06:15:08 with the Pre-seed market and knowing that they're sort of like,

00:06:15:08 - 00:06:16:27 you know, 80, 90% death rate.

00:06:16:27 - 00:06:20:26 So pre-seed like the the law of averages tells you that, you know,

00:06:20:26 - 00:06:23:07 this may not come to fruition the way that you'd hoped.

00:06:23:07 - 00:06:24:16 So keep an open mind.

00:06:24:16 - 00:06:27:14 So yeah, I think there's lots of things that, you know

00:06:27:14 - 00:06:31:09 likely to cause a rethink on either side or both sides

00:06:31:12 - 00:06:34:29 cause a deal to, to fall apart, not get over the finish line.

00:06:34:32 - 00:06:36:18 That has been proven out.

00:06:36:18 - 00:06:39:18 We know that there's a very high deal failure rate.

00:06:39:24 - 00:06:43:06 And you know, of our mandate at this crunch

00:06:43:06 - 00:06:45:15 is to try and ultimately help solve that over time.

00:06:45:15 - 00:06:49:26 But yeah, I think we've got we'll easily get to the top ten, I think,

00:06:49:26 - 00:06:52:24 and there's probably more behind that. But what are you seeing from

00:06:52:24 - 00:06:54:26 your conversations you mentioned there recently?

00:06:54:26 - 00:06:57:16 What's what's the big one at the top of your list?

00:06:57:16 - 00:06:58:00 Okay.

00:06:58:00 - 00:06:58:25 I mean, top of the list,

00:06:58:25 - 00:07:01:27 the one that comes up most often is valuation disagreements.

00:07:02:00 - 00:07:03:19 Valuation disagreements come out top.

00:07:03:19 - 00:07:06:09 That is the one that I hear most regularly.

00:07:06:09 - 00:07:08:31 And they come about a number of different ways.

00:07:08:31 - 00:07:12:21 Sometimes a seller will have a number in their heads,

00:07:12:23 - 00:07:15:08 which is slightly optimistic, and they will come to that

00:07:15:08 - 00:07:16:22 conclusion on their own.

00:07:16:22 - 00:07:21:32 Sometimes it can be that they've had an inflated valuation from a from a broker.

00:07:22:00 - 00:07:26:11 That's one I've heard a couple of, you know, perish the thought.

00:07:26:13 - 00:07:29:03 But yes, this is one that comes up time and time again.

00:07:29:03 - 00:07:32:31 And, you know, these aren't small amounts of money,

00:07:33:00 - 00:07:34:21 you know, being brought to the table.

00:07:34:21 - 00:07:37:07 And for the seller, you know, it represents however

00:07:37:07 - 00:07:38:11 many years of hard work.

00:07:38:11 - 00:07:40:24 You know, if we're talking about the silver tsunami

00:07:40:24 - 00:07:44:10 and, you know, baby boomer business sellers, you know, you know,

00:07:44:10 - 00:07:46:11 they may have had this business for 40, 50 years.

00:07:46:11 - 00:07:47:19 And it's been that kind of lifeblood.

00:07:47:19 - 00:07:49:32 And they expect a certain price for it.

00:07:49:32 - 00:07:52:06 And maybe they come to market and it isn't quite worth

00:07:52:06 - 00:07:56:00 what they thought and their dreams of, you know, retiring to the south of France

00:07:56:00 - 00:07:59:27 is slightly dented by a lower valuation than they expected.

00:07:59:30 - 00:08:02:10 But yeah, this seems to be a really big stumbling block.

00:08:02:10 - 00:08:05:22 It's the one that I hate more than any other.

00:08:05:25 - 00:08:08:08 You're you're absolutely right.

00:08:08:08 - 00:08:12:09 I think some sellers potentially confuse earnings

00:08:12:09 - 00:08:16:12 before interest tax, depreciation, amortization with

00:08:16:15 - 00:08:20:20 expectations before I throw the book at it

00:08:20:23 - 00:08:21:08 quite a bit.

00:08:21:08 - 00:08:22:26 But, you know, I mean, it's like the blood, sweat

00:08:22:26 - 00:08:26:23 and years that I've put in to this exercise,

00:08:26:23 - 00:08:30:21 I value it or my multiples of effort, not multiples of profit.

00:08:30:23 - 00:08:34:28 And yeah, that can be a problem sometimes if you've run companies

00:08:34:28 - 00:08:38:04 as as lifestyle businesses, you know, you've had all the money out of it.

00:08:38:04 - 00:08:41:05 You have tried to keep the you've put some things

00:08:41:05 - 00:08:43:29 through the piano that you know,

00:08:43:29 - 00:08:48:08 that minimize your profitability and minimize your tax liability.

00:08:48:11 - 00:08:50:33 Then when it comes time to sell it, you're maybe not going

00:08:50:33 - 00:08:55:07 to get the valuation for that you would like.

00:08:55:10 - 00:08:58:10 And as you mentioned, I mean, Charlie touched on this, Charlie

00:08:58:12 - 00:08:59:25 touched on this, who is a broker.

00:08:59:25 - 00:09:03:06 He's seen some less scrupulous brokers,

00:09:03:09 - 00:09:04:12 you know,

00:09:04:12 - 00:09:07:21 try and win customer listings and listing agreement signatures,

00:09:07:21 - 00:09:10:31 which is their ultimate goal, purely on the basis

00:09:10:31 - 00:09:14:10 of saying that your business is worth six seven, eight times EBITDA

00:09:14:12 - 00:09:17:08 when actually it's really frankly not in the market that we know.

00:09:17:08 - 00:09:21:09 So so yeah, valuation disagreements by are coming from one angle with normally

00:09:21:09 - 00:09:26:17 gravitated and grounded in reality and their expectation for future arbitrage

00:09:26:20 - 00:09:31:14 seller valuing it more viscerally more emotionally than than financially

00:09:31:17 - 00:09:34:09 yet can be a recipe for disaster and normally means the business doesn't

00:09:34:09 - 00:09:37:32 get the deal does get off the ground does it

00:09:38:01 - 00:09:38:20 know?

00:09:38:20 - 00:09:40:02 And I think that

00:09:40:02 - 00:09:43:16 part of the problem is, like you said, there's an emotional attachment.

00:09:43:16 - 00:09:46:11 I think the buyers tend to tend to go into this,

00:09:46:11 - 00:09:49:12 you know, with less emotion, although actually I've seen that so often

00:09:49:12 - 00:09:52:12 not be the case after, you know, many months of searching.

00:09:52:16 - 00:09:54:23 But yeah, absolutely. On the on the part of the sellers.

00:09:54:23 - 00:09:55:19 I mean, that's the big difference

00:09:55:19 - 00:09:59:01 between this and any other big purchase having an item by a property or something

00:09:59:01 - 00:10:02:03 like that, you know kind of what the market is, there's an expectation.

00:10:02:03 - 00:10:04:04 You've spoken to other people that sold their houses.

00:10:04:04 - 00:10:05:33 You know what your neighbor sold his house for,

00:10:05:33 - 00:10:08:10 whereas lots of sellers get to this point in their journey

00:10:08:10 - 00:10:10:23 and they maybe don't know anybody else that's been through this process

00:10:10:23 - 00:10:16:07 and they haven't had any direction on, you know, how to value or even,

00:10:16:13 - 00:10:16:22 you know,

00:10:16:22 - 00:10:18:02 as you said, if they have been putting things through

00:10:18:02 - 00:10:21:12 on the piano and they've been doing it for, you know, tax purposes in a

00:10:21:15 - 00:10:23:12 make sense, they have a having you want to say to them,

00:10:23:12 - 00:10:24:31 hey, maybe don't do that for a couple of years

00:10:24:31 - 00:10:29:02 before you sell better preparation without manipulation,

00:10:29:02 - 00:10:32:04 like a better sense of how the market works,

00:10:32:04 - 00:10:35:29 you know, how businesses are valued, what the process is going to look like.

00:10:35:32 - 00:10:39:11 More preparedness to navigate the M&A process for a seller.

00:10:39:14 - 00:10:42:22 Maybe sellers could be more connected in that process and they could,

00:10:42:28 - 00:10:43:06 you know,

00:10:43:06 - 00:10:46:29 understand what the processes are so that when buyer comes along and says,

00:10:46:32 - 00:10:50:02 Hey, you know, I've looked at your figures and actually you're worth X,

00:10:50:03 - 00:10:53:14 maybe they can understand that little bit better, whereas otherwise

00:10:53:14 - 00:10:56:30 that kind of a bit, you know, in the dark up until that point of time.

00:10:56:33 - 00:10:58:24 Yeah, working backwards from the magic number

00:10:58:24 - 00:11:02:13 can be a bit of a recipe for disaster actually working upwards from,

00:11:02:15 - 00:11:08:08 you know, into reality based on earnings and adjusted earnings is is the way.

00:11:08:08 - 00:11:10:02 But yeah so

00:11:10:02 - 00:11:14:09 valuation disagreements completely agree should be number one on the list.

00:11:14:11 - 00:11:15:25 Yeah.

00:11:15:27 - 00:11:16:23 Okay so

00:11:16:23 - 00:11:19:23 what's your what's your next one on the list Gareth.

00:11:19:31 - 00:11:22:13 Well I think this speaks to

00:11:22:13 - 00:11:24:29 a kind of an increase in the sort of Americanization

00:11:24:29 - 00:11:28:33 of small business M&A and the over complexity of deal structures.

00:11:28:33 - 00:11:29:08 Right?

00:11:29:08 - 00:11:32:08 So, you know, trying to raise

00:11:32:10 - 00:11:35:03 finance in the UK, it's costly.

00:11:35:03 - 00:11:39:05 So there is a propensity for bias to want to reduce

00:11:39:05 - 00:11:42:28 the amount of leverage to an affordable amount.

00:11:42:28 - 00:11:48:31 Obviously the the the lenders have their debt service cover ratio benchmarks.

00:11:48:31 - 00:11:52:28 They want to make sure that the acquirers are sticking to.

00:11:52:31 - 00:11:56:26 So, you know, you look to optimize your leverage

00:11:56:29 - 00:12:00:18 and as a consequence, you know deferred consideration is playing an increased

00:12:00:18 - 00:12:02:04 role.

00:12:02:04 - 00:12:05:20 You know, I hear more and more about these like annuity deals where it's

00:12:05:22 - 00:12:08:22 the business is paying out through profits ad infinitum

00:12:08:30 - 00:12:12:08 to get the seller to the number they wanted to get to.

00:12:12:08 - 00:12:15:24 But, you know, a lot of that now comes with conditionality attached.

00:12:15:24 - 00:12:18:30 So like setting the the expectations

00:12:18:30 - 00:12:22:32 for continued growth or continue profitability above a certain threshold.

00:12:23:01 - 00:12:25:24 So like those elements,

00:12:25:24 - 00:12:28:21 you know, it's not and sellers should be under no illusion

00:12:28:21 - 00:12:32:12 there's very little 100% cash upfront deals going on these days.

00:12:32:12 - 00:12:35:22 What deals there are often with a bit of contingency

00:12:35:22 - 00:12:39:01 and are often heavily leveraged and often

00:12:39:01 - 00:12:42:07 not as much upfront as you used to get.

00:12:42:10 - 00:12:45:05 So I think the complexity of some of those,

00:12:45:05 - 00:12:50:16 the alchemy of some of those structures can lose, the seller can disillusion,

00:12:50:16 - 00:12:53:16 the seller can actually be difficult for them to comprehend

00:12:53:22 - 00:12:57:22 and sometimes creates or presents too much risk for the seller.

00:12:57:24 - 00:12:59:20 Like, hang on, you want to own Mr.

00:12:59:20 - 00:13:02:12 Buyer, You want to own 100% of my company going forward.

00:13:02:12 - 00:13:04:31 But you but you'll be ability to pay me out.

00:13:04:31 - 00:13:06:15 The balance of what you owe me

00:13:06:15 - 00:13:10:20 is very much dependent on my ability to continue to grow the business.

00:13:10:20 - 00:13:12:26 Although I don't have any ownership anymore,

00:13:12:26 - 00:13:17:04 I have to kowtow to your way of working and you could, you know,

00:13:17:04 - 00:13:20:04 move the goalposts on me and I might not get my money.

00:13:20:04 - 00:13:23:11 So there is an element of that which breeds suspicion, which breeds

00:13:23:11 - 00:13:26:14 deal failure. Yeah,

00:13:26:16 - 00:13:26:25 Yeah.

00:13:26:25 - 00:13:28:20 And that's entirely understandable.

00:13:28:20 - 00:13:31:01 I mean, I can see both sides of the argument on this.

00:13:31:01 - 00:13:35:12 Obviously, you know, finances is harder to find and expensive in the UK.

00:13:35:12 - 00:13:39:15 And I can understand as a buyer wanting to find smart ways of

00:13:39:20 - 00:13:42:19 still managed to get the acquisition over the line without having to

00:13:42:19 - 00:13:45:23 you know, overleverage or you know, put too much money upfront.

00:13:45:23 - 00:13:46:17 But yeah,

00:13:46:17 - 00:13:49:17 I mean, look, when you when you put it like that from the point of the seller,

00:13:49:25 - 00:13:51:32 it doesn't sound too attractive at all does it.

00:13:51:32 - 00:13:55:10 You know, you've got to you got to have a motivated seller that also has

00:13:55:10 - 00:13:59:11 a good sense of belief in their company and that and a trust in the buyer.

00:13:59:11 - 00:14:02:30 I think those three things need to align on the Venn diagram in order for,

00:14:02:33 - 00:14:06:09 you know, highly contingent deal to get over the line.

00:14:06:12 - 00:14:09:06 And they're happening, you know, they're happening, but

00:14:09:09 - 00:14:11:10 there is a lot of the deals that don't complete.

00:14:11:10 - 00:14:11:23 Often.

00:14:11:23 - 00:14:16:23 It's because the seller loses faith in the structure of the deal

00:14:16:26 - 00:14:20:15 as a worthy number two on the list, which probably brings us actually quite

00:14:20:15 - 00:14:25:22 comfortably to another finance related or funding related reason.

00:14:25:22 - 00:14:28:13 I guess the reason number three.

00:14:28:13 - 00:14:32:33 Yes. Which is lack of adequate finance, lack of adequate funding.

00:14:33:02 - 00:14:36:21 This is one that I have also heard happening fairly regularly

00:14:36:21 - 00:14:39:04 and it's not so much by is coming to the table

00:14:39:04 - 00:14:42:25 without agreements in place and without having figured this stuff out.

00:14:42:25 - 00:14:46:08 It's more changes along the way, you know,

00:14:46:11 - 00:14:49:07 twice lending standards triggered by economic uncertainty.

00:14:49:07 - 00:14:49:31 I think about,

00:14:49:31 - 00:14:50:06 you know,

00:14:50:06 - 00:14:51:10 the situation we've seen in the UK

00:14:51:10 - 00:14:54:10 over the last couple of years with rising interest rates.

00:14:54:10 - 00:14:56:29 You may have got all of your ducks in a row, but by the time

00:14:56:29 - 00:15:00:07 the acquisition process is over, you know, a couple of extra points on

00:15:00:10 - 00:15:02:30 on the interest of your of your loan,

00:15:02:30 - 00:15:06:00 you know, could be massively detrimental to the plan that you've got, especially,

00:15:06:00 - 00:15:07:16 like you said, if you've got these kind of complex

00:15:07:16 - 00:15:12:17 deal structures where it's a very fine balance of paying out, paying the lenders

00:15:12:17 - 00:15:16:21 back and paying out the previous owner and those kind of things. So,

00:15:16:24 - 00:15:19:03 I mean, this is kind of

00:15:19:03 - 00:15:22:32 falls into that, you know, the Walker dive time kills deals thing.

00:15:23:01 - 00:15:24:12 You know, if you've got your ducks in a row,

00:15:24:12 - 00:15:27:24 maybe that the longer it takes, the more chance you've got something like

00:15:27:24 - 00:15:30:21 this happened in the kind of rugby pulling under you. I guess. Yeah.

00:15:30:21 - 00:15:31:13 You definitely want to make sure

00:15:31:13 - 00:15:35:25 you've got your finance lined up, you know, with affordable cost of capital

00:15:35:25 - 00:15:39:25 and you know, you know exactly what you're doing before you go in.

00:15:39:27 - 00:15:44:07 But the the ground can shift underneath you, as you quite rightly suggest,

00:15:44:07 - 00:15:49:14 and as you get deeper into due diligence and the risk quantum of the

00:15:49:17 - 00:15:53:16 of the company, the target company starts to emerge and take shape.

00:15:53:19 - 00:15:56:25 Actually, the interest rate that you thought you were going to get on the debt

00:15:56:26 - 00:15:59:20 to leverage the acquisition

00:15:59:23 - 00:16:03:12 increases and becomes less serviceable.

00:16:03:15 - 00:16:06:28 And then you have to start shopping around looking for alternative creative

00:16:06:28 - 00:16:09:01 ways of financing. The leverage part with you.

00:16:09:01 - 00:16:13:26 And that can cause you to go back to the drawing board at time, at cost

00:16:13:29 - 00:16:15:32 and make it maybe not viable.

00:16:15:32 - 00:16:18:13 You know, business that

00:16:18:13 - 00:16:20:18 might have purported to be doing one and a half million.

00:16:20:18 - 00:16:24:32 But when you really get under the, you know, under the hood and do the vet

00:16:25:00 - 00:16:26:22 the deep dive quality of earnings

00:16:26:22 - 00:16:30:17 type analysis, you might find it's only doing half of that.

00:16:30:19 - 00:16:35:19 And that isn't sufficient to justify the debt service cover ratio they need.

00:16:35:22 - 00:16:40:08 It also maybe creates a higher risk reduce maybe you look under the hood and maybe

00:16:40:08 - 00:16:43:20 the credit rating might be impaired or likely to be impaired.

00:16:43:23 - 00:16:47:25 And at that point then you're not going to get know prime interest rates.

00:16:47:25 - 00:16:52:08 You're going to get slightly more risk managed interest rates,

00:16:52:08 - 00:16:53:33 which might not be affordable for you as the buyer.

00:16:53:33 - 00:16:57:02 So, yeah, it's it's it's

00:16:57:02 - 00:17:00:02 a moving feast sometimes I think in those cases where,

00:17:00:03 - 00:17:01:30 you know, isn't necessarily something that you found

00:17:01:30 - 00:17:04:03 within the company that you're looking to acquire.

00:17:04:03 - 00:17:07:13 But, you know, maybe market forces change or you know, interest rates,

00:17:07:13 - 00:17:08:23 whatever that might be.

00:17:08:23 - 00:17:09:21 We go back to that previous

00:17:09:21 - 00:17:13:28 point of the seller needing trust in the buyer not getting cold feet.

00:17:13:28 - 00:17:17:19 And I think if you are, you know, approaching

00:17:17:22 - 00:17:19:28 completion for this and then suddenly you find out

00:17:19:28 - 00:17:22:28 that your buyer is having to scramble around to find finances from elsewhere,

00:17:23:02 - 00:17:26:33 that's going to be a scary moment for any for any seller.

00:17:26:33 - 00:17:29:13 You know, you kind of you've got one foot out of the door in your mind.

00:17:29:13 - 00:17:30:30 You're ready to sell, you're ready to move on.

00:17:30:30 - 00:17:32:27 You've overcome all these trust hurdles.

00:17:32:27 - 00:17:34:28 And now suddenly they don't have the money that they said they did.

00:17:34:28 - 00:17:37:27 And you've emotionally committed to the to the transaction.

00:17:37:27 - 00:17:38:08 Yeah.

00:17:38:08 - 00:17:41:12 Sunk cost fallacy all the time and effort you put into it that, you know,

00:17:41:12 - 00:17:43:20 you really want to see it through to the end and you should

00:17:43:20 - 00:17:45:08 and you should be able to get what's right.

00:17:45:08 - 00:17:49:13 Because if, if, if nothing internally to the company has shifted and you know,

00:17:49:15 - 00:17:52:14 there hasn't been a massive change in the,

00:17:52:14 - 00:17:55:13 the quality of the company's earnings,

00:17:55:13 - 00:17:57:21 but but yeah if if the scenario around

00:17:57:21 - 00:18:01:16 you has shifted and it stymies your buyer then can be a problem.

00:18:01:19 - 00:18:06:03 Once again a point is kind of segway this nicely onto the onto the next.

00:18:06:06 - 00:18:08:31 It's almost like we intended that.

00:18:09:00 - 00:18:09:12 I wish I

00:18:09:12 - 00:18:13:05 could say we did, but but yeah, I mean logically number four should

00:18:13:05 - 00:18:17:12 therefore be having to revalue the company based on the quality of earnings report.

00:18:17:12 - 00:18:18:14 Right. Yeah.

00:18:18:14 - 00:18:21:31 At least restructure the deal a bit

00:18:21:31 - 00:18:25:10 but put more likely probably revalue the company

00:18:25:13 - 00:18:28:26 and yeah, look

00:18:28:29 - 00:18:30:07 at backs are interesting.

00:18:30:07 - 00:18:34:22 Adjusted EBITDA is a science in and of itself or maybe more of an art

00:18:34:25 - 00:18:35:25 of itself.

00:18:35:25 - 00:18:39:22 And when you peel that away and really get to the nitty gritty

00:18:39:22 - 00:18:42:28 of how cash generation of a company is

00:18:42:28 - 00:18:46:08 and how legitimate some of those

00:18:46:11 - 00:18:48:02 line items are,

00:18:48:02 - 00:18:50:21 a quality of earnings report, which I would recommend to anybody,

00:18:50:21 - 00:18:54:22 you know, making a serious acquisition, I recommend getting under the hood,

00:18:54:30 - 00:18:56:01 having a proper accounting

00:18:56:01 - 00:18:57:12 look at the zero

00:18:57:12 - 00:19:00:23 or the QuickBooks or the Sage or whatever, and really get into the numbers.

00:19:00:26 - 00:19:04:03 When you do that, oftentimes the

00:19:04:06 - 00:19:05:06 the the

00:19:05:06 - 00:19:08:06 EBITDA that was presented is nowhere near the truth.

00:19:08:10 - 00:19:10:32 And so you have to have that difficult conversation with the seller.

00:19:10:32 - 00:19:13:12 And at that point, maybe the number of desc falls below

00:19:13:12 - 00:19:17:00 the material kind of threshold that they want and they walk away.

00:19:17:02 - 00:19:19:24 So, I mean, how common is this

00:19:19:24 - 00:19:21:10 some of the, you know, been through this process

00:19:21:10 - 00:19:24:18 a number of times is is this a problem that you come up against?

00:19:24:20 - 00:19:29:00 it's is there's a reason why it's number four.

00:19:29:02 - 00:19:30:23 It happens a lot, right?

00:19:30:23 - 00:19:31:09 Yeah.

00:19:31:09 - 00:19:34:10 You're in this push and pull between navigating

00:19:34:10 - 00:19:37:10 previous tax mitigating mitigating accounts

00:19:37:11 - 00:19:40:26 and then having the alchemy of, of advisors having,

00:19:40:26 - 00:19:44:22 you know, created an EBIDTA that's, that's got some effects in it and

00:19:44:22 - 00:19:46:23 various different, you know,

00:19:46:26 - 00:19:49:25 extraordinary costs sucked out and all that sort of stuff.

00:19:49:25 - 00:19:53:03 And then you've got to prove it and then you've got to get into the

00:19:53:05 - 00:19:58:16 into the sort of detail of, you know, whether there is customer concentration,

00:19:58:16 - 00:20:02:15 whether the debtor days are in the account receivable,

00:20:02:15 - 00:20:05:15 days are as

00:20:05:20 - 00:20:08:32 efficient and viable as you maybe thought they were,

00:20:09:01 - 00:20:12:01 whether really the gross margins that were purported in the

00:20:12:08 - 00:20:13:30 in the in the information memorandum

00:20:13:30 - 00:20:16:28 are actually real and viable when you get under the hood.

00:20:16:28 - 00:20:19:16 But they're properly accounting for things

00:20:19:16 - 00:20:22:33 in the cost of sales or even in the overheads.

00:20:23:01 - 00:20:25:20 So, you know, you really start to study margins and go,

00:20:25:20 - 00:20:27:08 yeah, I think you might be lying to yourself here.

00:20:27:08 - 00:20:30:04 Mr. Seller For convenient reasons.

00:20:30:04 - 00:20:33:12 Then you have to have that frank conversation and probably

00:20:33:15 - 00:20:35:30 that's the go no go moment for the seller. Well, I'm not going to get well.

00:20:35:30 - 00:20:38:25 I thought I was, but do I still want to sell it?

00:20:38:28 - 00:20:41:07 I think that this is

00:20:41:07 - 00:20:45:04 yet another situation in which some

00:20:45:07 - 00:20:46:33 some portion of sort of exit readiness

00:20:46:33 - 00:20:51:01 on behalf of the seller would be a wise thing to do.

00:20:51:04 - 00:20:55:18 You know, I think if more sellers had a certain amount of prep work

00:20:55:18 - 00:20:58:01 that they knew to go through and I'm not talking about a couple of months

00:20:58:01 - 00:21:02:22 before for sale, I'm talking, you know, in the years leading up to it

00:21:02:25 - 00:21:05:26 and there was some kind of curriculum that they could follow.

00:21:05:26 - 00:21:07:19 And I know that there were lots of people that offer these kind of things.

00:21:07:19 - 00:21:08:06 But, you know,

00:21:08:06 - 00:21:11:00 I think these are all things that could be sorted well in advance,

00:21:11:00 - 00:21:13:13 especially if it is something that's so common,

00:21:13:13 - 00:21:17:11 a curriculum in tandem with some proper kind of shoulder to shoulder advice.

00:21:17:11 - 00:21:22:04 I assume the really good M&A advisers get into the trenches with that, with the

00:21:22:12 - 00:21:23:25 the company, with the seller. Right.

00:21:23:25 - 00:21:24:29 So if it's sell side

00:21:24:29 - 00:21:28:20 advisory, they'll get into the trenches, they'll pull out all the ledgers.

00:21:28:20 - 00:21:33:33 They'll they'll, you know, really look and scrutinize the panels specifically

00:21:34:02 - 00:21:35:17 and they'll know,

00:21:35:17 - 00:21:38:01 you know, come up with something and then explain it to the seller.

00:21:38:01 - 00:21:40:17 They'll know, you know, they'll say this won't stand scrutiny

00:21:40:17 - 00:21:43:05 and this is what we can say. This is what we really should.

00:21:43:05 - 00:21:46:08 And when the due diligence comes, this is what's going to get, you know,

00:21:46:11 - 00:21:47:11 chipped away at.

00:21:47:11 - 00:21:49:04 So, I mean, I think if the

00:21:49:04 - 00:21:52:10 there is no substitute for having good people in your camp

00:21:52:10 - 00:21:56:05 that understand how to navigate this and know what you can and can't do.

00:21:56:08 - 00:21:58:11 But yes,

00:21:58:11 - 00:22:00:07 there are

00:22:00:07 - 00:22:03:05 lots of deals that come to market where that work hasn't been done.

00:22:03:05 - 00:22:05:28 An internal audit like that hasn't been done.

00:22:05:28 - 00:22:09:18 And yeah, that's that's where the surprises come from.

00:22:09:20 - 00:22:11:20 The skeletons in the closet, as it were.

00:22:11:20 - 00:22:13:23 Indeed. There is no way to hide really a due diligence.

00:22:13:23 - 00:22:16:04 There shouldn't be any way anywhere to hide.

00:22:16:04 - 00:22:17:30 No, hopefully not.

00:22:17:30 - 00:22:18:06 Okay.

00:22:18:06 - 00:22:21:02 Well, you know, this this leads us onto our next point,

00:22:21:02 - 00:22:23:28 which is retraining by the buyer.

00:22:23:28 - 00:22:25:27 Yeah, we've touched on this already.

00:22:25:27 - 00:22:26:25 It doesn't it?

00:22:26:25 - 00:22:29:08 I guess we've touched on it when in relation to justification,

00:22:29:08 - 00:22:30:22 like when it's having to be retracted

00:22:30:22 - 00:22:33:27 because the numbers aren't what they purported to be but you do

00:22:33:27 - 00:22:38:29 get a lot of retraining where it's just for shizzle, for spork,

00:22:38:32 - 00:22:41:13 you know, let me see if I can just pair this a little bit down

00:22:41:13 - 00:22:46:05 because the seller has emotionally attached. Yes.

00:22:46:08 - 00:22:46:20 Yeah.

00:22:46:20 - 00:22:49:33 And I think that that's probably where these deals are most likely to fall apart.

00:22:49:33 - 00:22:51:21 I think a reasonable seller

00:22:51:21 - 00:22:54:07 for all the emotional attachment and all of the kind of,

00:22:54:07 - 00:22:56:27 you know, blood, sweat and tears that they put into a business.

00:22:56:27 - 00:22:59:27 I think if you do, you know, unearth a skeleton in a closet

00:22:59:27 - 00:23:02:04 and you say, hey, I'm going to have to retry it.

00:23:02:04 - 00:23:03:31 I'm going to bring the price down here.

00:23:03:31 - 00:23:04:26 They would understand.

00:23:04:26 - 00:23:09:16 But I do think that quite obviously, if you are a ways down the line

00:23:09:16 - 00:23:10:12 and then suddenly

00:23:10:12 - 00:23:15:09 because you think they're so invested, you can agree yourself a better price.

00:23:15:12 - 00:23:17:01 That's not exactly great business practice.

00:23:17:01 - 00:23:20:17 I mean, if it comes off for you, I suppose it could be prudent acquiring,

00:23:20:17 - 00:23:23:17 but there's no wonder why

00:23:23:17 - 00:23:26:11 this is going to be a big deal collapse for any seller.

00:23:26:11 - 00:23:28:01 It could be so acrimonious as well.

00:23:28:01 - 00:23:29:27 Like it feels like it feels personal.

00:23:29:27 - 00:23:33:03 It feels like you have been you have been taken advantage of, right.

00:23:33:04 - 00:23:40:02 Like it feels like the the sophisticated capital allocator has taken advantage

00:23:40:02 - 00:23:44:32 of the naivete of an ambitious seller or an emotionally attached.

00:23:45:01 - 00:23:49:00 And so you will you will find sellers taking that very personally.

00:23:49:03 - 00:23:49:14 Yeah.

00:23:49:14 - 00:23:52:03 And I think

00:23:52:03 - 00:23:53:23 I was just going to say understandably so.

00:23:53:23 - 00:23:56:28 I mean, from the buyer's point of view, it's really, I think, a personal thing.

00:23:56:28 - 00:23:57:17 It's just business.

00:23:57:17 - 00:23:59:33 But I can totally see why you would take it personally.

00:23:59:33 - 00:24:01:27 Well, buyers are going to squeeze it to the pipsqueak, right?

00:24:01:27 - 00:24:04:26 They're going to see exactly how little capital they have to come up

00:24:04:26 - 00:24:08:27 with, how much they can make, contingent, how how testable,

00:24:08:28 - 00:24:13:03 how elastic the valuation is, how how elastic, the appetite, the salaries.

00:24:13:03 - 00:24:14:25 They're going to take it to test some things.

00:24:14:25 - 00:24:19:02 But, you know, I think after a certain time

00:24:19:04 - 00:24:22:04 there's sort of, you know, his good conduct

00:24:22:04 - 00:24:25:03 and yeah, do you want to kill at the 11th hour

00:24:25:03 - 00:24:28:22 because you want to take 20% or 10% off the asking price?

00:24:28:25 - 00:24:28:33 Yeah.

00:24:28:33 - 00:24:31:14 I think there's also probably a certain amount of rather

00:24:31:14 - 00:24:33:23 than just fascism's, as you so eloquently put it,

00:24:33:23 - 00:24:36:22 I think there may also be at times at which,

00:24:36:22 - 00:24:40:24 you know, problems do arise during due diligence and buyers

00:24:40:24 - 00:24:44:31 may kind of overstates the damage that that would do to the price.

00:24:44:31 - 00:24:47:23 And you know, small thing pops up.

00:24:47:23 - 00:24:48:23 You know, maybe the

00:24:48:23 - 00:24:51:21 the quality of earnings report reveals a couple of things

00:24:51:21 - 00:24:55:22 on quite as expected and buyer says now is a chance for me to

00:24:55:25 - 00:24:58:20 like you said squeeze in so that squeezing to the pipsqueak you feel a great quote

00:24:58:20 - 00:25:00:31 this week. I have to say

00:25:01:00 - 00:25:02:24 it, but they're my best 30 minutes.

00:25:02:24 - 00:25:06:30 So yeah, I think I think rerating happens sometimes justified, sometimes not.

00:25:06:30 - 00:25:09:19 Where it's not, there's a right place, right time.

00:25:09:19 - 00:25:11:32 And the closer you get to s.p.a,

00:25:11:32 - 00:25:15:11 you know, the more you're really testing and making a decision whether you want

00:25:15:11 - 00:25:18:29 to throw away all that hard work and cost that you've earned that far.

00:25:19:04 - 00:25:22:16 Because that kind of could take it personally and say, Well, screw you, Jack.

00:25:22:19 - 00:25:25:01 Yeah, yeah.

00:25:25:01 - 00:25:26:33 Okay, Gareth, what's yours? What's what's number?

00:25:26:33 - 00:25:31:06 So, so we see some deals failing due to regulatory and legal hurdles.

00:25:31:09 - 00:25:34:18 So where like regulated businesses

00:25:34:18 - 00:25:39:24 have issues around change of ownership that they sought the license

00:25:39:26 - 00:25:43:00 that they are afforded, the permissions that they have granted by a regulatory

00:25:43:00 - 00:25:48:02 body actually requires the acquirer to have the same

00:25:48:05 - 00:25:48:33 qualifications.

00:25:48:33 - 00:25:51:33 Prudential rules and accreditations as the seller had,

00:25:52:03 - 00:25:52:30 and that

00:25:52:30 - 00:25:55:33 maybe that hasn't been researched properly or they thought they could retain them

00:25:55:33 - 00:25:57:07 by retaining the seller.

00:25:57:07 - 00:25:59:16 And then the seller says, well, actually, you know, I don't

00:25:59:16 - 00:26:02:15 I don't want to still carry that liability if I don't get the upside.

00:26:02:15 - 00:26:07:24 So, you know, you're going to have to go and become a FCA registered manager

00:26:07:24 - 00:26:10:24 or something if you want to buy this, this fintech.

00:26:10:27 - 00:26:14:16 So so there are some scenarios like that, you know, working with somebody

00:26:14:16 - 00:26:19:14 at the moment who is looking at doing a roll up of regional law firms, okay.

00:26:19:17 - 00:26:21:05 And he's not he's not a lawyer.

00:26:21:05 - 00:26:24:33 And so he's had to think through very carefully about how using

00:26:24:33 - 00:26:28:07 the alternative business structure, Abz approach,

00:26:28:10 - 00:26:30:32 he can become a regulated,

00:26:30:32 - 00:26:35:13 you know, become known to the FSA,

00:26:35:16 - 00:26:37:05 the regulator of that

00:26:37:05 - 00:26:41:06 of that field in order for him to be able to pull the trigger on his acquisition.

00:26:41:06 - 00:26:44:10 So, I mean, that won't kill the deal by any means, but it adds time

00:26:44:10 - 00:26:47:19 and adds complexity to the deal and costs

00:26:47:22 - 00:26:50:30 and yeah, feasibly so so you get regulatory legal hurdles.

00:26:50:30 - 00:26:52:27 Can you have to think them through well ahead.

00:26:52:27 - 00:26:54:02 You have to know what you're getting into.

00:26:54:02 - 00:26:57:30 If they come up as a surprise, sometimes they're not costed, sometimes they can add

00:26:57:33 - 00:27:01:10 some some real time to the deal

00:27:01:10 - 00:27:04:26 and as well come on to with item seven.

00:27:04:26 - 00:27:06:22 Reason seven.

00:27:06:22 - 00:27:10:12 Yes. You know, protracted legal processes.

00:27:10:15 - 00:27:12:28 So this is the correct point for my work, as I will quote,

00:27:12:28 - 00:27:18:13 which is time kills deals. But it's the deal fatigue thing, right? So

00:27:18:16 - 00:27:18:29 it is

00:27:18:29 - 00:27:23:27 tends to happen, from what I understand at the stage, which, you know,

00:27:23:28 - 00:27:27:17 lawyers start to get involved with with documents and

00:27:27:19 - 00:27:31:12 they call it the blood bath of red ink gets traded from one side to the other.

00:27:31:12 - 00:27:34:24 And, you know, disputes over intellectual property rights or contract

00:27:34:24 - 00:27:39:15 clauses or whatever it might be, which is drag on and on and on.

00:27:39:15 - 00:27:42:15 And we're kind of playing this sort of contract tennis for

00:27:42:15 - 00:27:45:24 from from one side to the other until the point at which,

00:27:45:26 - 00:27:49:13 you know, relationships are strained and and one side caves it.

00:27:49:14 - 00:27:52:18 You have to look at it from the lawyer's perspective

00:27:52:18 - 00:27:54:24 that they're trying to do the best for their clients.

00:27:54:24 - 00:27:56:07 Yes, of course. Yes.

00:27:56:07 - 00:27:59:28 But there is a there's a materiality threshold where you're really getting down

00:27:59:28 - 00:28:03:03 to just arguing small points, and it's costing

00:28:03:03 - 00:28:06:21 you more in legal fees as the buyer or seller to negotiate those points,

00:28:06:21 - 00:28:10:29 then it is going to save you or make you once those points are agreed.

00:28:11:03 - 00:28:13:24 So I think you have to call it at some point and say,

00:28:13:24 - 00:28:16:00 come on, let's be reasonable, let's get this deal done.

00:28:16:00 - 00:28:19:17 I think if there is a desire or momentum amongst both parties,

00:28:19:17 - 00:28:23:11 then the lawyers will, you know, work at the speed that you need them to

00:28:23:19 - 00:28:27:13 and you can set the rules around, Look, this is the bits I care about.

00:28:27:13 - 00:28:30:16 These are the battles I want to win.

00:28:30:18 - 00:28:30:30 If you

00:28:30:30 - 00:28:33:30 give a lawyer an open ended checkbook,

00:28:34:05 - 00:28:37:04 they will they will write as many checks as they can from it.

00:28:37:04 - 00:28:38:30 And I'm not saying that that's a criminal thing.

00:28:38:30 - 00:28:41:01 I'm just saying that they they will do

00:28:41:01 - 00:28:42:32 they will continue to provide billable hours. Right.

00:28:42:32 - 00:28:44:01 In your best interest.

00:28:44:01 - 00:28:47:04 So they think that a lawyer's job is to protect you at all costs

00:28:47:04 - 00:28:52:04 and to protect you from any potential pitfalls that might that might pop up.

00:28:52:04 - 00:28:54:14 But this isn't the kind of process where that can be done.

00:28:54:14 - 00:28:58:01 You know, there is going to be some risk to both parties in a process like this.

00:28:58:01 - 00:29:00:19 And I think lawyers can get cold feet at that

00:29:00:19 - 00:29:02:11 because that's not what they're trying to do.

00:29:02:11 - 00:29:04:13 The trying to protect their client from all risk.

00:29:04:13 - 00:29:05:20 But like you said, I think it's about

00:29:05:20 - 00:29:07:07 briefing your lawyer on that and saying, you know,

00:29:07:07 - 00:29:08:19 this is what is acceptable to me.

00:29:08:19 - 00:29:12:15 This could also be about agreeing, could also be about agreeing a fixed fee.

00:29:12:17 - 00:29:13:21 If you if you are

00:29:13:21 - 00:29:16:29 agreeing a fixed fee with your law firm and there are some out there that will act

00:29:16:32 - 00:29:20:00 for a fixed fee on a sort of a low complexity,

00:29:20:00 - 00:29:23:06 a modest valuation deal,

00:29:23:08 - 00:29:25:06 they'll you know, it's not in their interest

00:29:25:06 - 00:29:28:24 to keep throwing billable hours at it because they start to subsidize the deal.

00:29:28:24 - 00:29:32:25 So do you think if you think it's prudent

00:29:32:25 - 00:29:36:18 to instruct the firm that have experience in this particular field, then.

00:29:36:26 - 00:29:38:00 goodness, yes, absolutely.

00:29:38:00 - 00:29:42:06 Don't don't go off to a probate lawyer and ask them to do an M&A spy for you.

00:29:42:09 - 00:29:44:10 That could be fraught with risk.

00:29:44:10 - 00:29:48:07 So don't use the experts, but try and use experts that are realistic.

00:29:48:07 - 00:29:51:33 That will work at your pace, that you'll understand how deep you do

00:29:51:33 - 00:29:52:32 or don't want to go.

00:29:52:32 - 00:29:55:26 And if possible, that they'll set you a fixed fee.

00:29:55:26 - 00:29:57:09 Okay.

00:29:57:12 - 00:29:58:32 Well, some good advice now.

00:29:58:32 - 00:30:01:09 Okay. Gareth, what's yours? What's your number eight?

00:30:01:09 - 00:30:05:26 Well, coming in at number eight is shifts in market and economic conditions.

00:30:05:26 - 00:30:07:17 So we've seen quite a lot of market

00:30:07:17 - 00:30:10:14 and economic volatility over the last few years.

00:30:10:14 - 00:30:13:25 The amount of deals that are going into COVID, for example,

00:30:13:28 - 00:30:16:25 and went on hiatus for a period because yeah, you know,

00:30:16:25 - 00:30:20:32 the the bottom fell out of the world for a few months.

00:30:21:01 - 00:30:23:03 Yeah, there was

00:30:23:03 - 00:30:27:04 significant seismic headwinds that come out.

00:30:27:04 - 00:30:29:26 You can put deals on pause

00:30:29:26 - 00:30:33:00 and you know, I see this in corp dev as well where corporations are down

00:30:33:00 - 00:30:36:00 the road with the transaction and then they have a, you know, a

00:30:36:06 - 00:30:37:01 big impairment

00:30:37:01 - 00:30:40:22 of their share price, for example, if they're a publicly traded corporation

00:30:40:25 - 00:30:44:01 and then they have to just sort of say, look, we're going to put this on ice,

00:30:44:01 - 00:30:46:25 we'll come back to it in next amount of time.

00:30:46:25 - 00:30:50:21 So yeah, sometimes you think you're merrily going along, you know,

00:30:50:21 - 00:30:53:27 in a direction that's going to complete, like to the end of the tunnel.

00:30:53:27 - 00:30:55:16 We're going to get this done in eight weeks

00:30:55:16 - 00:30:59:19 and then crickets because they've had to down tools.

00:30:59:22 - 00:31:02:12 Well, I mean look at the the news that we started this podcast with.

00:31:02:12 - 00:31:04:25 I mean how many deals you think that's affected?

00:31:04:25 - 00:31:08:27 I know a lot of deals seem to have gone back to

00:31:08:30 - 00:31:10:02 review back into

00:31:10:02 - 00:31:13:32 review with SBA lenders in order to make sure that they can qualify.

00:31:13:32 - 00:31:16:21 And there's now a burden of proof on the applicant

00:31:16:21 - 00:31:19:28 to fill out some stuff on a on a digital platform

00:31:19:31 - 00:31:23:20 to kind of attest to the fact that they are 100% US owned.

00:31:23:23 - 00:31:26:23 So that will add time and cost and potentially

00:31:26:23 - 00:31:29:23 lose a few along the way.

00:31:29:24 - 00:31:31:30 So we don't need to dwell too much on that point.

00:31:31:30 - 00:31:35:11 But yeah, shifts happen.

00:31:35:14 - 00:31:36:28 My thanks.

00:31:36:28 - 00:31:39:01 Inadequate advisory and legal support.

00:31:39:01 - 00:31:41:24 Tell us all about that Alfie. Number nine. Yes.

00:31:41:24 - 00:31:45:22 So on the on the flip side, 2.7, I think that some people go

00:31:45:22 - 00:31:48:28 into this process kind of under armed with with advisors

00:31:48:28 - 00:31:52:12 and are not prepared to have the legal support that they need.

00:31:52:15 - 00:31:55:06 And I think that,

00:31:55:06 - 00:32:00:21 look, you are always going to need to consult an expert on any process

00:32:00:21 - 00:32:01:00 like this.

00:32:01:00 - 00:32:03:22 I think that this is something that's potentially going to happen more

00:32:03:22 - 00:32:06:23 and more as we start to see more acquirers come to the market

00:32:06:23 - 00:32:08:32 from nontraditional sources. Shall we say.

00:32:08:32 - 00:32:12:20 So people that have been through, you know, courses and masterminds

00:32:12:20 - 00:32:15:28 and groups and self self-taught is happening a lot more.

00:32:15:28 - 00:32:19:26 And I think that I very much applaud that DIY approach.

00:32:19:29 - 00:32:22:27 And I do think there is a lot of the work that you can take on yourself.

00:32:22:27 - 00:32:26:03 But I think once you get into, you know, contract negotiations

00:32:26:03 - 00:32:29:12 and the actual acquisition process, I think if you go in

00:32:29:15 - 00:32:31:27 without the right counsel, I think that, number one,

00:32:31:27 - 00:32:35:01 you can find yourself in deep water pretty quickly.

00:32:35:03 - 00:32:35:20 And I think

00:32:35:20 - 00:32:39:10 that, you know, when disputes arise,

00:32:39:13 - 00:32:41:30 it's going to take so much longer for you to reply and you may have to

00:32:41:30 - 00:32:44:22 then go back to the drawing board and try and find those advisors

00:32:44:22 - 00:32:47:23 whilst in the midst of a deal which is going to slow things down.

00:32:47:23 - 00:32:52:02 I also think again, if we go back to, you know, Seller trust, I think that

00:32:52:05 - 00:32:55:25 at the point at which they realized that perhaps you aren't quite as well-armed

00:32:55:25 - 00:32:57:16 with a team of good advisors, you should be,

00:32:57:16 - 00:33:00:19 that could actually put them off at that point in time to see that happen.

00:33:00:19 - 00:33:02:32 Yeah. Does this guy really know what he's doing?

00:33:02:32 - 00:33:05:11 I think I've heard on more than one occasion,

00:33:05:11 - 00:33:09:11 but first time acquirers should definitely, you know, if you

00:33:09:11 - 00:33:13:18 if you want to go far, go together That is that was not what we say.

00:33:13:25 - 00:33:16:12 If you want to go fast, go alone. Want to go far, go together.

00:33:16:12 - 00:33:20:08 I think, you know, first time acquirers, it's a beautiful space,

00:33:20:08 - 00:33:21:26 this acquisition, nontraditional space.

00:33:21:26 - 00:33:25:19 There is a fantastic community attached to it internationally.

00:33:25:25 - 00:33:28:32 And the sense of collaboration is just inspiring, right?

00:33:28:32 - 00:33:32:09 So there's always somebody that can got your back

00:33:32:09 - 00:33:33:22 that has had this experience,

00:33:33:22 - 00:33:36:12 that has faced this challenge and can help you overcome it.

00:33:36:12 - 00:33:40:02 So I do think if you're going to do this for your first time, do it with somebody,

00:33:40:02 - 00:33:45:05 get advice, get a coach, get a mentor, get good help

00:33:45:08 - 00:33:45:25 from a seller's

00:33:45:25 - 00:33:48:25 perspective, that's less well served.

00:33:48:30 - 00:33:51:24 But, you know, there's there's not enough exit tiers

00:33:51:24 - 00:33:55:18 out there that go and help other sellers to achieve the same end.

00:33:55:19 - 00:33:57:28 And maybe that's something that needs to be solved there.

00:33:57:28 - 00:34:00:24 And I know Rachel, the grafter is doing a great job.

00:34:00:24 - 00:34:02:33 There must be a team of judges.

00:34:02:33 - 00:34:03:25 Yeah.

00:34:03:25 - 00:34:07:28 Who, you know, coaches for that, you know, Sherpas for that exact mission.

00:34:07:28 - 00:34:08:17 And that's fab.

00:34:08:17 - 00:34:11:08 You know, for me, I've done this.

00:34:11:08 - 00:34:12:21 That's indispensable.

00:34:12:21 - 00:34:15:33 So yeah, I think that's as well

00:34:15:33 - 00:34:18:33 served in the M&A space for the sell side.

00:34:19:07 - 00:34:23:06 There are good M&A advisors that, you know, will do that with you

00:34:23:06 - 00:34:26:18 and obviously you should look for them and engage them

00:34:26:21 - 00:34:27:25 as you see fit.

00:34:27:25 - 00:34:30:01 But the buyers are a little bit spoiled because communities

00:34:30:01 - 00:34:33:23 and professional services are abound on the buy side.

00:34:33:25 - 00:34:36:21 Why do we think that there is a kind of dearth of

00:34:36:21 - 00:34:40:02 of seller advisors and seller Sherpas, which I think is fantastic.

00:34:40:02 - 00:34:41:29 So I'm like, you know. Rachel Right, right.

00:34:41:29 - 00:34:45:25 So the graph is doing a great job, but yeah, I can't think of too many more

00:34:45:27 - 00:34:48:33 that are out there. Why do you think that is?

00:34:49:02 - 00:34:50:28 I, I think

00:34:50:28 - 00:34:53:07 probably the volume of transactions

00:34:53:07 - 00:34:56:29 until now hasn't really been

00:34:56:32 - 00:34:58:18 sufficiently substantial. Right.

00:34:58:18 - 00:35:03:02 We're talking less than 2000 a year S&P M&A succession transactions.

00:35:03:02 - 00:35:08:08 It's like, you know, is that sufficient for for an ecosystem to pop up around it?

00:35:08:14 - 00:35:13:13 I think also the fragmentation and the disparate like widespread,

00:35:13:16 - 00:35:16:19 you know, distribution of sellers like there there aren't

00:35:16:19 - 00:35:20:11 unless you're in a trade body or an industry association or whatever,

00:35:20:11 - 00:35:24:33 you probably aren't speaking to people that have necessarily been down this road.

00:35:25:02 - 00:35:26:26 So like finding somebody

00:35:26:26 - 00:35:30:27 who is like, you know, who's going through the same challenge is tough.

00:35:30:30 - 00:35:33:04 Whereas, you know, all buyers potentially

00:35:33:04 - 00:35:36:14 start from the same position, not all sellers do.

00:35:36:14 - 00:35:41:32 And then finding a common, you know, ally is tough.

00:35:42:01 - 00:35:42:09 Yeah.

00:35:42:09 - 00:35:46:18 And you know this has been a point, it's kind of persisted throughout this is that

00:35:46:21 - 00:35:49:25 as much as you know buyers need to go into this with,

00:35:49:29 - 00:35:52:30 with preparation and with mentors and with the right team around them.

00:35:53:04 - 00:35:55:12 I do think especially from the buyers I've spoken to,

00:35:55:12 - 00:35:56:30 that they are very motivated to do this

00:35:56:30 - 00:35:59:07 and they are going out there and educating themselves

00:35:59:07 - 00:36:02:07 and they are part of groups and they are finding support and they are learning.

00:36:02:14 - 00:36:05:16 And actually, you know, for most of the points that we've covered

00:36:05:16 - 00:36:10:06 here, I think some, you know, steps towards better

00:36:10:07 - 00:36:16:21 seller preparation is really solve so many of these problems.

00:36:16:24 - 00:36:18:24 100% agree with you.

00:36:18:24 - 00:36:21:24 But is it fail to plan plan to fail?

00:36:21:24 - 00:36:24:03 Who failed to fail to prepare? Prepared to fail.

00:36:24:03 - 00:36:24:33 Very good. Right.

00:36:24:33 - 00:36:28:30 So, you know, I think the axiom definitely applies here.

00:36:28:33 - 00:36:31:00 That's the last one, Alfie.

00:36:31:00 - 00:36:32:21 Number ten, mate.

00:36:32:21 - 00:36:34:06 This is this is. This is it.

00:36:34:06 - 00:36:35:32 We've managed to get all the way through our list,

00:36:35:32 - 00:36:38:03 and I do think there are many more behind this.

00:36:38:03 - 00:36:43:23 But we should probably mention that somewhere along your journey as a seller

00:36:43:26 - 00:36:47:17 and as a buyer, you're going to actually work out in a deal

00:36:47:25 - 00:36:51:32 whether you feel you could work with this person, whether you feel that

00:36:52:01 - 00:36:55:28 the work force and the values of the companies

00:36:55:31 - 00:36:57:13 are going to gel,

00:36:57:13 - 00:36:59:30 particularly if you're looking to do this as a tuck in or a bolt on

00:36:59:30 - 00:37:02:30 or you're acquiring another company into a group,

00:37:02:32 - 00:37:05:00 you want to make sure it's harmonious, right? And that there are

00:37:05:00 - 00:37:08:26 these cultural and management alignments rather than mismatches.

00:37:08:33 - 00:37:12:16 And so we put top at number ten

00:37:12:18 - 00:37:13:31 reason as being

00:37:13:31 - 00:37:18:04 mismatch in cultural and culture and management.

00:37:18:07 - 00:37:20:32 So yeah, I think that's something that only becomes apparent

00:37:20:32 - 00:37:24:16 the further down the due diligence you get and the more of the stakeholders

00:37:24:16 - 00:37:28:16 that you meet and the more you hear kind of viscerally from from each side,

00:37:28:24 - 00:37:33:27 all these people that we feel we could work with longer term like post deal.

00:37:33:30 - 00:37:35:18 And sometimes people walk away because they're like,

00:37:35:18 - 00:37:37:24 I don't see our businesses fitting together

00:37:37:24 - 00:37:40:09 regardless of all the financial and the deal structuring.

00:37:40:09 - 00:37:42:12 But I just don't think this is going home for my business

00:37:42:12 - 00:37:45:23 or I don't think they'll make a good addition to my business.

00:37:45:25 - 00:37:47:08 Well, and also, you know, going back to the point

00:37:47:08 - 00:37:50:23 you made earlier about the more modern types of deal structuring and,

00:37:50:23 - 00:37:55:08 you know, annuities or goals such, there is an expectation

00:37:55:08 - 00:37:59:19 for seller and buyer to work together beyond completion.

00:37:59:19 - 00:38:03:03 They are much more and that's something that needs to be considered.

00:38:03:03 - 00:38:05:12 You know, like you said, if these people don't gel,

00:38:05:12 - 00:38:06:16 do you feel like you can work with them,

00:38:06:16 - 00:38:09:23 especially if you are the person who built this business?

00:38:09:25 - 00:38:13:15 Can you kowtow to to their demands and work in their way

00:38:13:22 - 00:38:17:17 after the ink is think he's dried on the paper?

00:38:17:20 - 00:38:18:13 Yeah, and that's the thing.

00:38:18:13 - 00:38:19:29 You have to be able to envisage

00:38:19:29 - 00:38:24:04 that your workforce will be happy in that in that new

00:38:24:07 - 00:38:27:30 and those new conditions when you are no longer calling the shots for the company.

00:38:27:30 - 00:38:29:07 And that's very difficult to tell.

00:38:29:07 - 00:38:30:02 Going in,

00:38:30:02 - 00:38:33:21 it becomes slightly more apparent the more you interact with the other party,

00:38:33:23 - 00:38:37:06 the further along that sort of process you get and the more trust

00:38:37:14 - 00:38:39:06 you either build or they build.

00:38:39:06 - 00:38:42:10 So but I mean, we actually tackle this in a our e-book.

00:38:42:12 - 00:38:44:21 So yes, maybe you might want to mention that

00:38:44:21 - 00:38:47:33 because I know you and your team have been hard at work there. Yes.

00:38:47:33 - 00:38:51:27 So publishing very soon is is our book

00:38:51:30 - 00:38:55:24 base of Cultural Cohesion Strategies for Integration post acquisition.

00:38:55:24 - 00:38:58:01 And we cover a range of topics in here.

00:38:58:01 - 00:39:02:03 So best practices for integrating teams, communities, communication strategies,

00:39:02:05 - 00:39:05:25 leadership alignment, employee retention, change management.

00:39:05:28 - 00:39:09:06 There is absolutely everything in here that you should need to know

00:39:09:09 - 00:39:11:29 to manage that, that process.

00:39:11:29 - 00:39:15:04 And also, you know, talking about this, you know,

00:39:15:07 - 00:39:19:04 the cultural cohesion with the buyer and seller,

00:39:19:04 - 00:39:21:00 we did touch on this last week in last week's episode.

00:39:21:00 - 00:39:24:00 So if you didn't listen to that, go back and listen to it because, you know,

00:39:24:03 - 00:39:25:22 working out whether you are the right people

00:39:25:22 - 00:39:28:30 to work together begins in that very first call.

00:39:28:32 - 00:39:29:21 Yeah, true.

00:39:29:21 - 00:39:30:21 It does.

00:39:30:21 - 00:39:32:23 And as I say, it's done. So seven veils.

00:39:32:23 - 00:39:35:17 So you don't necessarily get the true inside picture at that point.

00:39:35:17 - 00:39:39:06 But it is you know, if you if your heckles are up and you think, my goodness,

00:39:39:09 - 00:39:42:32 we know we're never going to gel with these two cultures together, then

00:39:43:01 - 00:39:45:12 yeah, maybe it's a rip curl moment.

00:39:45:12 - 00:39:46:05 Yeah.

00:39:46:05 - 00:39:49:26 And yes, the e-book will be available on all major platforms

00:39:49:26 - 00:39:53:06 and it will be provided free of charge to all community members.

00:39:53:06 - 00:39:55:26 So those of you listening in the community,

00:39:55:26 - 00:39:58:32 you'll get that delivered to you and everybody else.

00:39:58:32 - 00:40:04:13 Keep your eyes out for the socials publishing date should be early April.

00:40:04:16 - 00:40:06:16 Amazing also. Well, many managed it.

00:40:06:16 - 00:40:08:19 We got ten and we did it.

00:40:08:19 - 00:40:10:33 We've only slightly inviting the AMA time.

00:40:10:33 - 00:40:16:09 So a slightly longer episode this week folks, but I hope you found it super useful.

00:40:16:12 - 00:40:17:00 Next week.

00:40:17:00 - 00:40:21:27 We've got a guest we're starting off in a series of interviewing,

00:40:21:27 - 00:40:26:03 emerging and experienced searches, self-funded or traditional.

00:40:26:05 - 00:40:28:09 And so yeah, very delighted.

00:40:28:09 - 00:40:31:25 We won't disclose the name yet, but will see it in the build up

00:40:31:28 - 00:40:35:25 that we have an emerging searcher in the UK saying who's coming to tell us

00:40:35:25 - 00:40:39:13 about their journey and their ambitions and their progress.

00:40:39:13 - 00:40:42:09 So yeah, tune in next week for that one.

00:40:42:09 - 00:40:46:14 Meanwhile, have a great week and keep on crunching.

00:40:46:17 - 00:40:47:14 Keep on crunching guys.