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Welcome to The Amazing, the show for acquisition
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entrepreneurs, search funders and holdco builders across the UK and Europe.
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Each week we dive into the real world
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stories, strategies and challenges behind building and buying small businesses.
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Whether you are searching for your first deal
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or owning a group of growing companies,
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this is your space to learn, share and get inspired.
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And I'm joined, as ever by my sagacious co-host, Gareth Wilkins.
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Gareth, welcome back.
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I don't even know what that means.
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Alfie.
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I have to reach for the thesaurus
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in a first time in a few years.
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Yeah.
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I thought I'd give you a new one every week.
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Why not?
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Like, and like, word of the day.
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Toilet paper.
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Yeah.
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Yeah, exactly.
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Yes. We are primed for a very interesting episode today,
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which is a topic that we haven't really gone into much detail on before,
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which is on market versus off market search for S&P M&A.
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This is some of the criticisms from before on both sides,
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the both sides of the aisle.
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So broker led on market listings and propriety of market search.
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I'm going to look
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into, you know, where you can get the best deals,
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the trade off of speed versus value transactions, relationships
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and all the interesting points that a two and four
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broker led or proprietary search.
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Yeah, it's a it's a nuanced difference.
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I mean, the deeper you get into the space, the more you realize that,
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you know, all sources of deal flow are not created equally.
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And you start to be able to kind of navigate
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the good, the bad and the ugly and work out like where your time is
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best spent, where the attrition rates come.
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You know, was like, what kind of landmines do you have to avoid stepping on?
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So hopefully this episode will give listeners
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a bit more of a primer so they can hit the ground running, particularly those
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starting afresh on their M&A journey.
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But I think
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probably important to prefix here, Alfie, by sort of, you know, being really open
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and upfront about the importance of having a blended pipeline.
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Multiple sources coming at you, you know, in parallel, I think
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if you are all in on one concentrated
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channel, you've got a heavy dependency
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and things are just going to take longer and be arguably more disappointing.
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So diversification is key like it is in many walks of this game.
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So we're going to focus on
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a bit about proprietary deal flow
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and you've done some great previous episodes about that, but
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perhaps more readily
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navigating the different types of brokers that are out there in the market
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and where you can find great value,
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a great additional kind of speed and momentum to your searches
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versus where you might get snarled up.
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Yeah, absolutely.
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To go back to your point,
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you said about blended search, I think that's a great point is something
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that came up a couple of times during the year at a symposium.
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I sat on a panel and you know something,
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that Charlie was a friend of the show and a broker.
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And I think one of the audience ask, you know, which one is better than the other?
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We all, everybody on the panel said the same thing.
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You know,
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the whole point is for you to go out there
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and find the right business for you and to acquire it.
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And I think that whichever channel, whichever
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form that takes, is the best way to go.
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And yeah, I definitely encourage anybody listening who's out there
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looking for their first or second or even third business to look everywhere.
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They can leave no stone on their own because the right business for
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you might need some code outreach and does go back to the previous episode
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Gareth mentioned, but it might just be sat on the books of a broker somewhere
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and they might be
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a great and very helpful broker
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and they could help you get that deal over the line.
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So yeah, I would absolutely say to anybody, take a blended approach.
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What matters is acquiring a business indeed.
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And of course there's different strata to this game in terms of deal size
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and the types of players that are getting involved in those deals.
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And I guess one of the privileges that we have sitting
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in this sort of infrastructure space where we are providing these tools
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to different types of acquirers, lower mid-market private equity
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through to self-funded searches and and the whole kind of rainbow in between
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is that we kind of get to see a bit of a bit of trends
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and, you know, sort of understand kind of the different sorts
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of sourcing options available to people
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depending on the type and size of the deals that they're going for.
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So whilst this is absolutely no use to the podcast listeners,
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I thought it might be useful to put a visual up here for our YouTube viewers
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and I guess we can link to this in the show notes as well.
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Alfie I was. About to say for anybody listening, you can't see it.
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I will.
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I liked this in the show notes and you better access it from wherever you
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you listen to your Immunizing podcast from nothing.
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So I mean, I will not dwell on it for too long, but it's a it's a useful
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kind of matrix that really sort of tries to summarize how the market is organized
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by the sort of tiers of types of buyer types of acquirer
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and the kind of deals that they end up getting involved with.
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So from your kind of opportunist that's working there network to largely do
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highly contingent self-financed and services for equity deals
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on kind of lower value and sometimes turnaround style businesses
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where you know, there's a there's a
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there's value to be had, but you've got to really pan for gold there because
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normally they're neglected or
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in some kind of peril that that makes those sort of deals
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practical and feasible for the seller.
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But wouldn't be the immediate value created, the, you know, the larger
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allocators of other people's funds would would be dashing to to acquire.
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So, you know, you've got the opportunities at one end of the scale, right
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the way through to the tier one fund to the other end, which,
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you know, sourcing from the corporate finance and the investment banking type
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of representation intermediaries and of course have done
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a fair trade in taking public companies private.
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So I think I want to sort of double click on here
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was around how the multiples grow with those deal sizes.
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So obviously the the higher the profitability and the
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the larger the company, the more mitigated potentially
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the risks are around the continuity of that business.
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And so the greater multiples that they can attract.
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But also, you know, the closer you get to a publicly
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traded business, the more those public multiples apply.
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And a good
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kind of yardstick, if you like, for a public companies,
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they should be trading at 15 or more times earnings.
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And, you know, the waterfall comes down from there
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in terms of what it looks like at the private markets. But
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yes, so hopefully this is a useful kind of primer
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for people looking at this and thinking everything's equal for the first time.
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It also really speaks to last week.
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You talked about the kind of conveyor belt of of these deals
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and kind of picking companies up and putting together
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roll up, so growing the companies and then selling them on and the multiples
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kind of growing.
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And you can really see that here when you look at this sourcing trend shot
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that you put together.
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Again, all this is can't say, but looking at how those multiples grow,
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you know, as the business is growing and and again, they go along that
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conveyor belt we have our kind of opportunities
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our first time as a self-funded search, picking them up at those between
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1 to 4 x multiples growing those and moving them down the line.
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Well, if you're looking at our sort
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of the core of our client base or user base, it is country.
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We've got the the self-funded searches, the independents boxes in the search funds.
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Those are pretty much paying
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between 3 to 6 times earnings depending on the size of business.
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Normally from sort of 1 to 4 million in EBITDA
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at the top end there, obviously nudging up against the lower
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mid-market private equity folks coming down that food chain.
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But well, because the lower mid-market private equity are sort of adjacent,
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they're probably willing, if you put those businesses in good order
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to pay you 6 to 8 x
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the multiple, you know, So ultimately, if you're buying in at three
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and selling out at six, you've made some good money along the way
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whilst also growing the underlying EBIT
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of the company to get above that threshold.
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So, you know, the arbitrage can be significant.
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This is one of the key drivers of that 35%.
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But just
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look also how the deal structure varies.
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You know, you start off
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at the lower end of the food chain where there's quite a high amount of risk
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with a lot of contingency, a lot of deferred and a lot of,
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you know, roll over and basically much more capital
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efficient transactions that hedge against some of the risk.
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And then as you go through more of the sort of professional buyers,
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if we can call them that,
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you'll the higher the value, the more you're typically getting upfront,
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the less that is being left on the table by way of either conditional now
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or even just deferred consideration, unconditional deferred consideration.
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And one of the key drivers for that trend is the professional intermediary advisors
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are advocating on behalf of they're working really hard for these sellers
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to make sure that they don't end up taking deals that are risk free to them.
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So this is where running a competitive process, bringing a lot of qualified
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buyers, you know, managing expectations can really score for the seller
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because it means a lot less of a complex transaction, a lot less risk
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that they might not get the deferred or might not get the
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the conditional earn out and more money upfront front.
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So as you work through these crosses in the boxes of the different
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types of sourcing
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provider, so
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everything from the marketplaces which really only serve
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the kind of the smaller and you could see from the nature of marketplaces out there
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these days, you know, businesses, society, etc., lots of kebab shops
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and hotdog vendors and, you know, down schools and that kind of stuff.
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And that's that's lovely.
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But it's not, you know, the mainstay of the market
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that we're all looking for with, you know, good regular cash flowing asset
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based businesses and the brokers
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and the and the buy side advisors slash corporate
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finance houses, They're typically in that,
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you know, lower mid-market and above.
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And they're professionalizing these transactions on behalf of the seller.
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So anyway I thought useful document to share one thing
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to really take away from it as well is just
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how long this whole bloody process should be taking it.
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Yes, the no illusion.
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Yes, that's something I was about to bring up.
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You can see sort of as you move up the chain, the deal will start
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to actually become quicker.
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But I guess again, that just comes down to, like I said, the professionalization.
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The books are already
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nobody's unawares that this is the the the path that they're on.
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And you know, due diligence is quicker.
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Negotiations are maybe a little bit fast.
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The advisors done some of that, some of that work upfront.
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Yeah.
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Exit readiness this is ultimately where it comes down to is you know
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if you're finding companies off market, you're going to get lower multiples paid.
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Brilliant.
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But it is going to take
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more due diligence, more hand-holding
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and probably make more
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allowances, if you will, for the state of the business,
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because they've not been well prepared by a third party
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to exit so
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often means that you can spend some time cultivating the relationship,
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get under the hoods, do some pre diligence, have a proper
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look at these businesses before you start making offers which which is good.
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What that cultivation of the seller is
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is really vital to give them and you equal comfort.
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But part of that comfort is that they believe that the business
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is going to a good home and that you might be a good, trustworthy,
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well-meaning, competent
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acquirer and vice versa.
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You're looking to make sure there aren't any, you know, skeletons
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hidden under the patio or any kind of big landmines waiting to go off,
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you know, post-acquisition.
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So that pre diligence on both sides is actually a real
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nice byproduct of the off market process.
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But it does take time to build that trust.
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Yeah.
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And that's not just that, though.
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The the upper end of the market.
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This is true when it comes to, you know, the lower and mid-market S&P M&A, that
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if you're going on markets, some of this work will be done upfront for you.
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Sometimes some of that diligence work is there
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and you can get due diligence packs, etcetera.
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And again,
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it makes it a little bit quicker for you and that's the trade off, I suppose.
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But that versus off market
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is there is more legwork to put in, but perhaps a better deal to be done.
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totally.
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And look, if there is a, a comprehensive information memorandum,
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a really well put together data room in readiness,
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you know, the sellers are ready to answer the questions.
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Inevitable due diligence questions.
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Look, that's going to get a deal done quicker,
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even better if it's a well
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structured seller expectation.
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So the advisors have actually kind of coached them on what they should expect
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and that the business is in a fit shape to be financeable.
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So, you know, it's not overleveraged, it's making good margins.
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You know, it's at a certain level of materiality on it's a bit the,
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you know, the banks and the and the alternative lenders would like to support.
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So, you know, if all of that aligns, you can get a deal done reasonably well.
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And all of that I've mentioned this is part of what a good M&A adviser
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or corporate financier was going to help these companies prepare through.
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But as you say,
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the other end of the spectrum where you're turning over all these rocks
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and looking for these opportunities and cultivating those relationships,
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you're going to have to do some of that work.
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But it will mean that they've not had crazy multiples planted in their head
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and they're not expecting 100% of the money upfront.
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And so you should be able to get some some decent deal structuring.
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And these are that the upside that you will generate over time is going
00:14:41:12 - 00:14:46:03
to be very largely driven by the not overpaying for the deal going in.
00:14:46:03 - 00:14:46:10
Right.
00:14:46:10 - 00:14:52:07
So sure the lower the multiple you pay the the greater the outcome will be for you.
00:14:52:09 - 00:14:52:14
Yeah.
00:14:52:14 - 00:14:56:07
And I suppose that, you know, part of
00:14:56:08 - 00:14:59:08
the draw of the market and the reason that you know
00:14:59:11 - 00:15:01:04
you're going to get that a little bit quicker is
00:15:01:04 - 00:15:03:19
you've got the intent from the seller and you don't have.
00:15:03:19 - 00:15:07:03
And so we spoke about this in the last episode that moving from 0 to 1.
00:15:07:03 - 00:15:11:05
But I do think that it's a good point for us to talk about
00:15:11:07 - 00:15:14:00
the different types of brokers because as you said,
00:15:14:00 - 00:15:15:15
you know, when they've had unrealistic multiples
00:15:15:15 - 00:15:17:18
in their head, we've done buy side breakdowns.
00:15:17:18 - 00:15:22:10
Gareth on this show where, you know, they're looking at five,
00:15:22:13 - 00:15:27:18
six, seven times revenue for a company that that doesn't ready to sell,
00:15:27:19 - 00:15:30:13
you know, and I think that can be a problem
00:15:30:13 - 00:15:35:19
of unrealistic seller valuations are cited in 54% of failed sales.
00:15:36:01 - 00:15:39:09
You know and those unrealistic valuations are coming from somewhere.
00:15:39:10 - 00:15:42:07
And I think it really does speak to the quality
00:15:42:07 - 00:15:46:09
of the market process and the broker that you're going through.
00:15:46:10 - 00:15:49:02
Yep. Again,
00:15:49:02 - 00:15:54:09
with experience, you start to learn who the
00:15:54:11 - 00:15:57:19
who the good brokers are, for want of a better phrase, and
00:15:58:01 - 00:16:00:02
everybody's got their own
00:16:00:02 - 00:16:02:17
kind of way of working and that's to be commended.
00:16:02:17 - 00:16:06:09
But they typically fall in to sort of a few different
00:16:06:10 - 00:16:09:05
divisions or camps.
00:16:09:05 - 00:16:11:18
You could probably divide up the UK
00:16:11:18 - 00:16:16:00
independent broker market into sort of,
00:16:16:01 - 00:16:19:09
you know, I guess three tranches.
00:16:19:11 - 00:16:23:05
at one end you've got your kind of hands off
00:16:23:06 - 00:16:28:14
almost industrialized kind of factory side,
00:16:28:16 - 00:16:30:09
you know, brokers with
00:16:30:09 - 00:16:33:08
hundreds of listings
00:16:33:08 - 00:16:36:08
for which they seem more interested in the listing fee
00:16:36:08 - 00:16:38:07
than actually getting a deal over the line.
00:16:38:07 - 00:16:39:01
Yeah.
00:16:39:01 - 00:16:42:13
To the point that, you know, oftentimes they don't even send a broker per
00:16:42:13 - 00:16:45:13
say to accompany a seller on a call.
00:16:45:14 - 00:16:50:04
They'll leave the seller in and the potential buyer to meet unsupervised,
00:16:50:05 - 00:16:53:14
which sort of speaks volumes a bit about how they expect
00:16:53:14 - 00:16:56:00
those processes to go and where they're putting their emphasis.
00:16:56:00 - 00:16:58:18
So now I'm boggling to me that that happens.
00:16:58:18 - 00:17:01:11
I'm afraid it does every day. Yeah.
00:17:01:11 - 00:17:05:11
And yeah, so so you got those at one end of the spectrum
00:17:05:12 - 00:17:07:15
and on the other end of the spectrum, you've got those very hands
00:17:07:15 - 00:17:13:05
on micromanaging advisors that you know will want to control.
00:17:13:05 - 00:17:17:07
Every single part of the conversation will want to be the, the point of contact.
00:17:17:07 - 00:17:19:00
They won't want to be disintermediated
00:17:19:00 - 00:17:22:15
and have you circumnavigate them to go and talk to the sellers.
00:17:22:16 - 00:17:26:08
But in controlling that, they will be the ones that want to write
00:17:26:11 - 00:17:27:15
the head to terms.
00:17:27:15 - 00:17:33:00
If you get a deal agreed, they'll be the ones that will keep trying to
00:17:33:02 - 00:17:36:18
choose pair on the the the deal structure
00:17:37:00 - 00:17:40:18
so they'll they'll keep on pushing they'll try and decouple it from,
00:17:40:19 - 00:17:44:12
you know, multiples for example get you to have fixed high valuations.
00:17:44:12 - 00:17:48:00
They'll they'll try to
00:17:48:02 - 00:17:48:16
really stack
00:17:48:16 - 00:17:52:10
the deck in favor of the seller and that's their job.
00:17:52:12 - 00:17:57:10
But often that is like the straw that breaks the camel's back, you know,
00:17:57:11 - 00:18:01:10
you don't want to keep getting squeezed until the deal no longer makes sense.
00:18:01:12 - 00:18:05:03
And some some broker, some representatives get a little bit over
00:18:05:03 - 00:18:08:00
their ski on that one deal. So there is this.
00:18:08:00 - 00:18:10:05
Go ahead deal. Fatigue is a real thing.
00:18:10:05 - 00:18:12:15
You know, I speak to people all the time. They've been through that process.
00:18:12:15 - 00:18:16:04
And it's so it draws the life out of it for them.
00:18:16:04 - 00:18:20:14
And yeah, if a deal takes too long, people walk away.
00:18:20:15 - 00:18:22:07
It kills it for both parties.
00:18:22:07 - 00:18:24:04
You know, there are
00:18:24:04 - 00:18:26:19
there are intermediaries and professional advisers
00:18:26:19 - 00:18:29:11
throughout the transaction, you know, from the beginning to the end.
00:18:29:11 - 00:18:33:19
And you will the lawyers in and you know, they've got the best intentions,
00:18:33:19 - 00:18:38:07
but they will add time, complexity and cost to the transaction.
00:18:38:09 - 00:18:41:15
And that's after having navigated the time and complexity and costs
00:18:41:17 - 00:18:45:02
that the brokers have created for you.
00:18:45:02 - 00:18:48:18
So you've really got to have some thick skin,
00:18:48:19 - 00:18:52:16
some tenacity, some persistence,
00:18:52:18 - 00:18:56:15
but also not get deal fever and get worked over
00:18:56:15 - 00:19:00:03
by some of this opportunism that takes place amongst
00:19:00:05 - 00:19:03:11
these micromanaging intermediaries to really,
00:19:03:12 - 00:19:06:18
you know, under the veil of best serving their client,
00:19:06:19 - 00:19:10:03
obviously pushing their consideration of what they can get out of it,
00:19:10:04 - 00:19:13:03
is that their fees are normally contingent on on success.
00:19:13:03 - 00:19:14:02
Right.
00:19:14:02 - 00:19:16:19
So so, yes, it's just a deal.
00:19:16:19 - 00:19:19:12
Fatigue comes often from
00:19:19:14 - 00:19:21:01
those kind of places.
00:19:21:01 - 00:19:23:15
And so many deals get walked
00:19:23:15 - 00:19:27:13
away from by one or both of the parties
00:19:27:15 - 00:19:28:07
because of that.
00:19:28:07 - 00:19:33:09
So need to be very cautious and set some ground rules going in.
00:19:33:09 - 00:19:36:13
And as I've said on previous episodes, you know, manage expectations
00:19:36:13 - 00:19:40:02
around the target completion dates and what is material
00:19:40:02 - 00:19:44:04
and keep the line of communication going with the sellers
00:19:44:06 - 00:19:47:15
so that you can pick the phone up and say, should we try and shortcut this?
00:19:47:15 - 00:19:52:02
You know, can we can we keep this sensible and been always possible
00:19:52:04 - 00:19:55:07
to my to that point somewhere in the middle of those two extremes
00:19:55:07 - 00:19:58:17
of the hands, often the hands on the kind of light touch,
00:19:58:19 - 00:20:05:07
more pragmatic, more biased for action, more biased for outcome
00:20:05:09 - 00:20:05:19
amongst them.
00:20:05:19 - 00:20:08:19
And there is a good number of those too, typically independent,
00:20:09:03 - 00:20:12:00
the typically experienced
00:20:12:00 - 00:20:15:00
but grounded down to earth
00:20:15:00 - 00:20:19:05
and know exactly when to add value
00:20:19:05 - 00:20:22:09
and when to step out of the way and let you know the nature.
00:20:22:09 - 00:20:24:09
Take its course, want a better price, you know.
00:20:24:09 - 00:20:27:13
So those are the ones that I think, you know,
00:20:27:18 - 00:20:31:06
the market's got huge respect for and really add value.
00:20:31:08 - 00:20:35:00
They do individually small numbers of deals a year but
00:20:35:00 - 00:20:39:00
but really care about those deals that they do individually
00:20:39:02 - 00:20:42:00
and understand the businesses that they're representing
00:20:42:00 - 00:20:45:07
and will will keep momentum around a deal
00:20:45:07 - 00:20:48:13
wherever they can because they want it to complete.
00:20:48:15 - 00:20:51:04
And it will have managed expectations well on both sides.
00:20:51:04 - 00:20:55:07
And I think that's a recipe for success that we see often.
00:20:55:09 - 00:20:58:15
And it's the other extremes that tend to be where
00:20:58:15 - 00:21:01:17
there is a wake of a lot of dead bodies, if you will.
00:21:01:19 - 00:21:03:15
The deals.
00:21:03:17 - 00:21:04:17
Yeah, deals, not bodies.
00:21:04:17 - 00:21:07:13
Hopefully there was a on that that felt wrong.
00:21:07:13 - 00:21:09:18
Do you think then this there's a sort of Goldilocks
00:21:09:18 - 00:21:13:06
zone between those two extremes of sort of volume
00:21:13:06 - 00:21:17:05
because you've got the big corporates sort of factory farms, you know,
00:21:17:07 - 00:21:21:14
listings sites more than broker sites really.
00:21:21:17 - 00:21:24:11
And they've got huge volume and lots of these companies don't move.
00:21:24:11 - 00:21:27:15
You see the same companies on this month in, month out
00:21:27:17 - 00:21:30:02
and then you know those a micromanaging
00:21:30:02 - 00:21:33:06
probably have very few to go through because they are so deeply involved in it.
00:21:33:07 - 00:21:36:03
Do you think there's that there's kind of the light touch in the middle?
00:21:36:03 - 00:21:37:01
They have a
00:21:37:01 - 00:21:37:12
you know,
00:21:37:12 - 00:21:39:13
there's a quicker pace of deals going through those,
00:21:39:13 - 00:21:41:18
but not so much volume that they obviously don't
00:21:41:18 - 00:21:44:14
have as much time to put cell phones or care into them.
00:21:44:14 - 00:21:47:12
Yes, I think there is that volume.
00:21:47:12 - 00:21:50:00
There's also a correlation of fees, I'd imagine, as well.
00:21:50:00 - 00:21:54:19
You know, those kind of the bottom end of the corporate finance type
00:21:55:02 - 00:21:57:19
operations that are representing deals
00:21:57:19 - 00:22:00:18
that required minimum of sophistication.
00:22:00:18 - 00:22:05:07
But still in that lower market, they are doing a small number of deals,
00:22:05:07 - 00:22:08:07
but at a high margin, a high success fee.
00:22:08:08 - 00:22:11:09
And it's very much worth their while to sit all over it
00:22:11:09 - 00:22:15:11
and, you know, watch it like a hawk and manage every element of it.
00:22:15:13 - 00:22:18:04
To that end, they probably only have a couple of deals
00:22:18:04 - 00:22:22:05
on their particular desk at any given time that they're managing.
00:22:22:07 - 00:22:25:07
Whereas as you say, the ones in that Goldilocks zone, that
00:22:25:07 - 00:22:29:02
that sweet spot have got a few, but they've charged a fair price
00:22:29:02 - 00:22:33:02
to get that far and they got a fair fee on success,
00:22:33:02 - 00:22:37:12
but enough to motivate them, but not enough for them to just,
00:22:37:13 - 00:22:40:11
you know, go all in on one deal.
00:22:40:11 - 00:22:42:12
Yeah. Yeah.
00:22:42:12 - 00:22:45:03
I think that makes sense that maybe that's something to look at.
00:22:45:03 - 00:22:46:18
If you are exploring brokers
00:22:46:18 - 00:22:48:03
and that is something that you're looking to
00:22:48:03 - 00:22:51:08
and you don't really know where to look, that might be a good jump off point.
00:22:51:10 - 00:22:55:16
Yeah, well I mean look, brokers and listing sites, etc., they're
00:22:55:16 - 00:22:59:10
they're a necessary part, as I've said earlier in this in this episode.
00:22:59:12 - 00:23:04:09
But what is fascinating is reading sort of different reports
00:23:04:11 - 00:23:08:00
that, you know, buyers are increasingly becoming frustrated
00:23:08:00 - 00:23:13:11
by sort of low level of listed sellers that are actually out there.
00:23:13:11 - 00:23:16:01
And, you know, you have to kiss an awful lot of frogs.
00:23:16:01 - 00:23:18:10
We said this last time around,
00:23:18:12 - 00:23:23:05
but there's a lot of lipsticks on pigs.
00:23:23:07 - 00:23:27:13
I'm not going to go far around the animal kingdom with this, but
00:23:27:15 - 00:23:30:07
there's a lot of dressing up goes on.
00:23:30:07 - 00:23:32:16
And, you know, unpicking
00:23:32:16 - 00:23:36:09
that is a time consuming exercise in and of itself.
00:23:36:10 - 00:23:39:18
So being able to get straight to the heart of the matter
00:23:39:18 - 00:23:43:15
and do your own diligence and make your own kind of informed
00:23:43:15 - 00:23:48:05
assessment of whether what the condition of a business is
00:23:48:07 - 00:23:49:10
is afforded to you by the off
00:23:49:10 - 00:23:53:04
market search process is really valuable.
00:23:53:06 - 00:23:55:19
You know, you yes, you
00:23:55:19 - 00:23:59:17
with a broker and with a listing site, you can get to conversations sooner,
00:23:59:19 - 00:24:03:16
but the negotiations can be much more protracted
00:24:03:16 - 00:24:09:06
and the navigating the bullshit can be more complicated,
00:24:09:08 - 00:24:14:05
whereas it might take longer to get to a sensible, you know,
00:24:14:06 - 00:24:17:11
deal structuring conversation with a seller off market
00:24:17:11 - 00:24:19:08
from all that relationship cultivation.
00:24:19:08 - 00:24:22:01
But when you do, you can have much more of a frank
00:24:22:01 - 00:24:26:19
and maybe almost open, a transparent type of conversation.
00:24:27:01 - 00:24:30:04
Yes, You can't polish a said but you can roll it in greater
00:24:30:04 - 00:24:32:00
so you want to get there before the gates that goes on.
00:24:32:00 - 00:24:36:11
Know you want to pick the Glaeser off yourself like got
00:24:36:12 - 00:24:38:02
my girls.
00:24:38:02 - 00:24:38:09
Yeah.
00:24:38:09 - 00:24:42:04
Okay well this is a a very visceral mental
00:24:42:04 - 00:24:45:04
image to work with.
00:24:45:05 - 00:24:47:05
But I mean, you're absolutely right.
00:24:47:05 - 00:24:47:16
That is the case.
00:24:47:16 - 00:24:51:01
It's, you know, do you want to put the mileage in and,
00:24:51:01 - 00:24:53:06
you know, get there before, like you said,
00:24:53:06 - 00:24:56:13
there's been any sort of bullshit applied and nobody's had a chance
00:24:56:15 - 00:25:00:10
to get in between and build the deal on on terms that suit both of you.
00:25:00:10 - 00:25:03:05
And there is a lot more work to be done.
00:25:03:05 - 00:25:04:11
Okay. You know, we work with off
00:25:04:11 - 00:25:07:14
market searchers all the time and it is a long process.
00:25:07:14 - 00:25:09:07
It does take time.
00:25:09:07 - 00:25:12:15
And and it's just maybe it speaks to the type of search you are to
00:25:12:15 - 00:25:14:02
which you go down.
00:25:14:02 - 00:25:15:18
You know, whether you do kind of look for both.
00:25:15:18 - 00:25:19:10
And it's whether the right kind of company pops up in an on market search,
00:25:19:11 - 00:25:22:05
whether you are adamant that you want to, you know,
00:25:22:05 - 00:25:26:06
find a sort of hidden gem and go down off market only
00:25:26:08 - 00:25:27:06
or whether, you know,
00:25:27:06 - 00:25:29:18
and there are some searches out there and it's not surprising to them at all
00:25:29:18 - 00:25:31:16
that that probably wouldn't want to do the off
00:25:31:16 - 00:25:35:19
market process and aren't suited to it and and are best off
00:25:36:01 - 00:25:40:09
navigating the the best that sometimes comes with a no market deal
00:25:40:11 - 00:25:43:16
but just getting the deal done a bit quicker and maybe going through,
00:25:43:16 - 00:25:45:00
you know, a year or two of the off
00:25:45:00 - 00:25:48:19
market thing would never happen for them and it's best they just complete.
00:25:48:19 - 00:25:54:05
However, they can't. Yes,
00:25:54:06 - 00:25:56:14
I think when you when you've been in the market
00:25:56:14 - 00:26:01:12
six months looking for opportunities, you realize just how concentrated
00:26:01:12 - 00:26:05:07
those opportunities are and how competed those opportunities are.
00:26:05:08 - 00:26:08:01
You know, when you when you find a good
00:26:08:03 - 00:26:08:08
lower
00:26:08:08 - 00:26:12:10
mid-market deal that is suitable for kind of traditional search funds,
00:26:12:10 - 00:26:16:17
independent sponsors, that hasn't got a lot of hair on it,
00:26:16:19 - 00:26:21:00
the you actually survives the financial and commercial due diligence
00:26:21:01 - 00:26:24:19
and is fundable and is available at a sensible multiple.
00:26:24:19 - 00:26:26:09
Like,
00:26:26:09 - 00:26:29:05
you know there's there's a small number of them
00:26:29:05 - 00:26:32:05
at any given time it's quite concentrated
00:26:32:08 - 00:26:36:04
and you know, there's not a week goes by now that I don't speak to a few searchers
00:26:36:04 - 00:26:40:01
that are all asking about often the same New Deal
00:26:40:01 - 00:26:42:00
that's come onto the market this week.
00:26:42:00 - 00:26:44:02
Really. That's interesting.
00:26:44:02 - 00:26:47:02
Yes, it's interesting one to navigate
00:26:47:04 - 00:26:50:11
and I try and be as supportive
00:26:50:11 - 00:26:54:03
to each as I can without betraying any confidence, obviously.
00:26:54:05 - 00:26:56:12
But yeah, you know, we've had
00:26:56:12 - 00:27:01:01
several examples of where searches have been going for the same deal
00:27:01:02 - 00:27:07:07
and sometimes that's, you know,
00:27:07:08 - 00:27:10:02
time for the brokers are up their hands.
00:27:10:02 - 00:27:12:06
I'll say what happens in that situation?
00:27:12:06 - 00:27:15:03
Does it become a sort of a bit of a bidding war at times?
00:27:15:03 - 00:27:19:08
I mean, if the micro-managing broker has anything to do with it.
00:27:19:08 - 00:27:23:00
Yes. And, you know, they're doing their job.
00:27:23:02 - 00:27:26:02
But but, yes, there is an element of running
00:27:26:02 - 00:27:29:05
that competitive process to try and push them all up as far as possible
00:27:29:09 - 00:27:34:06
and bring the deal structure as front loaded as they can.
00:27:34:07 - 00:27:37:07
That is not to the searchers benefit
00:27:37:11 - 00:27:41:04
and often leads again to deals, kind of tapping out
00:27:41:04 - 00:27:45:03
because actually what was agreed at heads just doesn't survive due diligence
00:27:45:04 - 00:27:49:16
because everybody got a bit feverish about it.
00:27:49:17 - 00:27:53:13
So, yeah, it does have exactly that effect, I'm afraid.
00:27:53:14 - 00:27:56:18
And often,
00:27:57:00 - 00:28:00:10
well, sometimes without justification.
00:28:00:12 - 00:28:01:11
It's super interesting.
00:28:01:11 - 00:28:02:14
I know I've obviously our
00:28:02:14 - 00:28:06:18
our show, you know, is is more heavily geared towards searches.
00:28:06:18 - 00:28:09:03
But this is good if you are a seller and you are listening,
00:28:09:03 - 00:28:12:06
it just does show the benefit of a solid exit readiness
00:28:12:06 - 00:28:14:09
because if you have got everything in order
00:28:14:09 - 00:28:17:04
and you are an attractive business and you go out to market
00:28:17:04 - 00:28:21:02
and there are dearth of good opportunities out there for searches,
00:28:21:03 - 00:28:24:02
you might be the subject of a bidding war.
00:28:24:02 - 00:28:26:08
Yeah, it's the seller's dream, right?
00:28:26:08 - 00:28:30:06
But it has to be grounded in reality of what multiples are really paid
00:28:30:06 - 00:28:35:12
for these businesses at these different sizes and the premiums.
00:28:35:17 - 00:28:38:05
If there is a premium at the heads of terms,
00:28:38:05 - 00:28:41:15
it might unravel by the time you get to the s.p.a, you know,
00:28:41:15 - 00:28:45:06
there's lots of retraining that goes on in these competitive processes.
00:28:45:06 - 00:28:48:18
You know, some some buyers know that they need to, you know,
00:28:48:19 - 00:28:52:17
overdo it to stand out, but then undo it
00:28:52:17 - 00:28:58:13
when they have got the exclusivity period and they can start to unpick
00:28:58:15 - 00:29:00:03
the valuation.
00:29:00:03 - 00:29:02:11
So, you know, the market forces will deter
00:29:02:11 - 00:29:05:11
or will determine.
00:29:05:14 - 00:29:06:01
Yeah.
00:29:06:01 - 00:29:07:14
And I suppose it's
00:29:07:14 - 00:29:11:06
and that's a tough one for a seller to take because I suppose, you know,
00:29:11:08 - 00:29:12:00
they've maybe started
00:29:12:00 - 00:29:15:08
counting that money in their heads already and if you start so
00:29:15:09 - 00:29:19:06
backpedalling on that as and for justified reasons potentially as
00:29:19:06 - 00:29:23:02
you know the due diligence goes on that's going to make that deal falling apart.
00:29:23:02 - 00:29:25:05
Will the more likely I imagine.
00:29:25:05 - 00:29:27:01
I'm afraid so, yeah.
00:29:27:01 - 00:29:30:01
But common sense has to prevail
00:29:30:05 - 00:29:32:09
and so that the experienced brokers know
00:29:32:09 - 00:29:36:18
that they know what the business is likely to get a deal over line at,
00:29:36:19 - 00:29:41:09
and they don't create a toppy kind of bidding war
00:29:41:11 - 00:29:44:08
to zealously because
00:29:44:08 - 00:29:46:17
they'll have a higher risk of deal failure.
00:29:46:17 - 00:29:47:05
Okay.
00:29:47:05 - 00:29:50:18
So we have covered sourcing trends by buyer types.
00:29:51:03 - 00:29:52:17
We've looked at speed versus value.
00:29:52:17 - 00:29:56:11
We've looked to transact versus relationship and the two types of brokers
00:29:56:11 - 00:29:57:03
that are out there.
00:29:57:03 - 00:30:02:10
Is there anything else that you think that an acquirer so navigating this on an off
00:30:02:10 - 00:30:07:11
market comparison really needs to know before they decide to jump feet first?
00:30:07:11 - 00:30:09:04
And so either.
00:30:09:06 - 00:30:11:02
I think I'll just go back to my original point.
00:30:11:02 - 00:30:14:16
You need to not be all in on one channel.
00:30:14:18 - 00:30:17:16
You need to cultivate the relationships with the good brokers,
00:30:17:16 - 00:30:21:11
those kind of Goldilocks zone buyers for action
00:30:21:12 - 00:30:25:16
like touch brokers that can bring you good deal opportunities.
00:30:25:17 - 00:30:30:11
But you know, you're not you're not entirely dependent on them.
00:30:30:11 - 00:30:33:05
So you have to have a kind of panel of them.
00:30:33:05 - 00:30:36:06
If you will, that you can that you can go to.
00:30:36:11 - 00:30:41:16
I think by side advisors are quite useful at a certain level of the market
00:30:41:18 - 00:30:45:16
where almost like in the American realtor sense, where you've got,
00:30:45:16 - 00:30:49:09
you know, someone advocating and going out and finding the opportunities
00:30:49:09 - 00:30:53:07
and triaging those opportunities before you have to spend your time on them,
00:30:53:09 - 00:30:54:18
they can be really useful.
00:30:54:18 - 00:30:57:13
But you know, at a at a certain level
00:30:57:13 - 00:31:00:07
and I see an increasing number of those entering the market and I think
00:31:00:07 - 00:31:02:06
there's real value there.
00:31:02:08 - 00:31:05:03
But do all of that in parallel
00:31:05:03 - 00:31:09:03
with the off market funnel and an off market process.
00:31:09:03 - 00:31:11:18
You know, set up your automations
00:31:11:18 - 00:31:16:01
and look for all of the little seller intent signals about
00:31:16:01 - 00:31:19:06
whether they're reading your copy and whether they've visiting your website
00:31:19:07 - 00:31:21:03
and do everything that you can
00:31:21:03 - 00:31:23:07
to chase them down and have a sensible conversation.
00:31:23:07 - 00:31:24:14
Don't be disheartened
00:31:24:14 - 00:31:28:16
if the timing isn't right for them because you've hit them out of the blue,
00:31:28:17 - 00:31:33:09
but you know how you then manage that keeping in touch process
00:31:33:11 - 00:31:36:07
and that sort of cultivation
00:31:36:07 - 00:31:39:05
is is vital to actually get a deal done eventually.
00:31:39:05 - 00:31:41:18
But don't underestimate that
00:31:41:18 - 00:31:46:01
whilst in this day and age you should be able to get to conversations
00:31:46:01 - 00:31:51:12
within a few months, getting over the line to a deal is still a year long process.
00:31:51:13 - 00:31:52:03
Absolutely.
00:31:52:03 - 00:31:56:05
And that goes back to your initial point about having multiple channels, is
00:31:56:07 - 00:32:00:04
these searches that I see that are most successful are the ones that often
00:32:00:04 - 00:32:04:08
have the best deal flow and you have to kind of keep that going.
00:32:04:10 - 00:32:07:12
I've worked with people before that have got two heads of terms
00:32:07:12 - 00:32:10:12
and stop doing all other types of searches and then the deal falls apart
00:32:10:12 - 00:32:13:03
and they're back to square one and they have to start searching
00:32:13:03 - 00:32:15:18
and sending out emails and talking to brokers all over again.
00:32:15:18 - 00:32:17:03
And they set them back.
00:32:17:03 - 00:32:19:01
So set themselves back, you know, three, six months.
00:32:19:01 - 00:32:23:19
So yeah, I think having multiple channels and keeping those channels going
00:32:24:01 - 00:32:27:03
because yeah, you never know how to with deals going to take to get over the line.
00:32:27:04 - 00:32:29:02
There's lots of reasons why deals fall apart.
00:32:29:02 - 00:32:31:19
And I think, yeah, like I said, it's about tenacity
00:32:31:19 - 00:32:34:04
and you combine that sassy with good deal flow
00:32:34:04 - 00:32:37:16
and you'll be one of those sellers that does get over the line
00:32:37:17 - 00:32:40:10
and does generate some returns.
00:32:40:10 - 00:32:41:03
Exactly that.
00:32:41:03 - 00:32:42:16
So a good mix of
00:32:42:16 - 00:32:46:15
off market proprietary deal flow and on market verified opportunities,
00:32:46:15 - 00:32:52:06
if you can come up with those two, you'll you you'll have plenty of options.
00:32:52:08 - 00:32:53:17
Excellent.
00:32:53:17 - 00:32:57:02
Well, I think that's all we've got time for this week.
00:32:57:04 - 00:32:58:18
But thank you, everybody for listening.
00:32:58:18 - 00:33:04:01
And please leave us any comments on links in YouTube wherever you get your or
00:33:04:02 - 00:33:08:11
your podcast from, if there's anything that you'd like us to cover in the future.
00:33:08:11 - 00:33:11:10
If you've got any questions for us about on or off market deal flow,
00:33:11:10 - 00:33:14:14
we are, as we said in our last episode, about to launch sell
00:33:14:15 - 00:33:18:09
verified listings on this front so you can look at any
00:33:18:12 - 00:33:23:08
engaged opportunities while you are doing your off market search.
00:33:23:08 - 00:33:25:15
And again, like we said, we advocate for a blended approach
00:33:25:15 - 00:33:29:00
and that's one of the reasons why we put that on platform for you.
00:33:29:01 - 00:33:31:06
And I. So keep your eyes peeled for that. Sure.
00:33:31:06 - 00:33:34:12
Insistent biz contributor. You'll see that very soon.
00:33:34:13 - 00:33:35:04
And we are
00:33:35:04 - 00:33:38:11
also very soon to launch the biscuits VTR
00:33:38:13 - 00:33:42:05
and and if you want a sneak peek of that, then please send us a message.
00:33:42:05 - 00:33:45:04
I'd be happy to give you a quick tour.
00:33:45:04 - 00:33:46:09
Great stuff.
00:33:46:09 - 00:33:47:14
Exciting times.
00:33:47:14 - 00:33:50:06
Yes, very exciting times.
00:33:50:06 - 00:33:50:17
Yeah.
00:33:50:17 - 00:33:53:11
It's all it's all to help
00:33:53:11 - 00:33:56:08
the search community in the UK get more deals over the line.
00:33:56:08 - 00:33:58:18
That's what we're enthused about and that's what we're building for every day.
00:33:58:18 - 00:34:02:06
And that's why we do this podcast and, you know, the events and the meetups
00:34:02:06 - 00:34:05:14
and the incubators and everything we do is all driving in that direction.
00:34:05:14 - 00:34:09:02
So every time we release a new feature that helps people get that done,
00:34:09:04 - 00:34:11:09
I'm ecstatic.
00:34:11:09 - 00:34:12:18
Likewise.
00:34:12:18 - 00:34:14:09
All right.
00:34:14:09 - 00:34:15:03
Until next time.
00:34:15:03 - 00:34:17:15
And folks, keep on crunching. Keep on crunching.
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