Speaker 1:
From Carr, Riggs & Ingram, this is It Figures, the CRI podcast, an accounting advisory, and industry-focused podcast for business and organization leaders, entrepreneurs, and anyone who is looking to go beyond the status quo.
Jeff Hawkins:
Hi. Well, thank you everybody for joining us today for the latest episode of CRI’s podcast. Today, what we’re going to do is talk about transaction advisory services. And to be frank, a lot of people don’t really know what that is. And what we’re going to try to accomplish today is put this in layman’s terms, and give some real examples of how this is going to apply to your business, or your clients, whatever’s the most apt situation. So I’ll just do a quick introduction of everybody real quick, and then we’ll kind of jump into it. So again, my name is Jeff Hawkins. I’m a partner out of our CRI Atlanta office, and the lead of our transaction advisory services department. So with that, I’ve been with the firm for 14 years now, which is a little hard to believe, and I’m getting to the point where we’re almost at 200 transactions that we’ve worked on. So with that, Jeff Silver, I’ll turn it over to you for a brief introduction.
Jeff Silver:
Thanks, Jeff. Another Jeff here. The other half of the Jeffs, I guess let’s call it that. Partner here in the Atlanta office as well, I’m a TAS partner, and an insurance services partner. I actually joined CRI as part of a transaction myself. My former firm was acquired by CRI almost, I think eight years ago now at this point. But it’s been a great run being part of the transaction advisory services group, and being part of the growth of the firm, and have learned a lot from Jeff. And as we look to continue to expand this group, I think there’s a lot of good education that we can help provide the firm, and look forward to doing that.
Christian Williams:
Hey, and I’m Christian Williams. So I consider myself a CRI lifer. I started with the firm back in Jacksonville, back in 2016, and I started my career in public funding [inaudible 00:02:14]. I transferred from Jacksonville in 2020 to Atlanta. When I got to Atlanta, started doing a lot of real estate attestation work. Prior to Atlanta, I did a lot of non-profit, manufacturing, construction. And about the summer of 2022 is when I really started to fumble through my first quality of earnings transactions, and work with Jeff Hawkins on the transaction advisory team.
Jeff Hawkins:
Awesome. Well, thanks, guys. I appreciate you being here today, and looking forward to you guys sharing some of your experiences, and insights, and views of maybe what I’d call a crazy world of transaction advisory. It’s something that moves all the time. Politics unfortunately has a large impact on it, and investors’ confidence is really paramount when we’re talking about this.
So I’ll just do a little brief introduction here of what is transaction advisory services so we don’t have to keep talking about that point. But essentially what it is is helping somebody through a transaction, and that can mean one thing, that can mean 100 things. So it’s, again, really using prior deal experience, prior industry experience, working on the sell side or the buy side, and bringing that information and experience to everybody else. So I think it’s really important, but transaction advisory is sort of an accounting term, and specific to accounting. And in my opinion, really, it’s selling your business and buying a business is more about an overall exit process, and that involves a multitude of advisors, not just the accounting team.
Just to kind of give you an idea, we’re a 1/5 slice of that exit team being on the transaction side. But again, we’ll kind of focus this on accounting more so, and what our experience is there. So without further ado, I’ll stop talking, and we’ll get into some of the more interesting points here. So, Silver… And our team calls us by our last name, so we’re kind of used to that.
Christian Williams:
There’s too many Jeffs. [inaudible 00:04:30].
Jeff Hawkins:
Yeah, [inaudible 00:04:32].
Jeff Silver:
We look so much alike too. I know it’s hard to differentiate.
Jeff Hawkins:
There’s no doubt about it. So, Silver, one of the things as since you’ve been an auto partner for so long, what is one of the most eye-opening things that you experienced in coming over and working on transaction advisory?
Jeff Silver:
Well, I think there’s so many things, Jeff. The first thing that I found is how many smart people there are out there that are in this space. I mean, there is no shortage of talent, smart people who know their industries, their niches backwards and forwards, and how it really ups your game. I would encourage you to up your game, and up your education, up your IQ on business, and business strategies, business acumen, professional communication, being prepared for your meetings, the importance of execution, being on the ball. I mean, all of that. Not that that’s not important, anything you do when you’re talking about a project or an engagement for a client, but you have to be ready on the spot.
There’s just a lot of pivoting when it comes to it, and it’s great too, because it really causes you to stretch your brain, stretch your mind, and takes you out of that comfort zone. I mean, one thing we talk about all the time is how important it is to be comfortable being uncomfortable, because that’s where growth is born. And I think in the TAS space, you see that often. That’s what really invigorated me when I first got into it, and really was eye-opening for me too. I think there’s so much that can be learned from every transaction. Every transaction is different, I mean, that’s the awesome part about it.
Jeff Hawkins:
That’s right.
Jeff Silver:
Every business, every buyer, every seller, every investment bank, every PE group, every strategic buyer, they’re all different, they all have a different why. And so we get to understand in each one of their why’s in every single situation we work in, and again, that’s where education comes from. I think you also see that TAS in itself is not linear. I think we’re so accustomed when we do audits… And there’s nothing wrong with us, I do plenty of them still, but audit process is a very linear process. You do your planning, you get your trial balance, you do your substantive testing, you get through all that, and you issue a financial statement. Well, in a TAS project, you start off by, “Okay, we’re going to do a QV.” And all of a sudden, the QV turns into, “Oh my gosh, your revenue recognition on your contracting is completely wrong. So we need to help you build out your job cost schedules, we need to help teach you the appropriate processes to handle budget estimates and gross profit estimates so that we can effectively capture your percentage of completion accurately.”
Once you get all that straight, you do the QV, and then post-closing, you have a working capital negotiation engagement, because that becomes one of the most critical parts about this after you’ve established what the transaction value is going to be in the LOI. And you get through the entire process, like, “Oh my God, now we’ve got arguments on this, this, and this, and we need your help with it.” So there’s just an endless amount of assistance that we can provide. And I’ll try to keep this short too because I know I tend to ramble on, but the last part I say that I do love is, is that the psychology behind it too. There’s a lot of psychology in it, because again, we’re talking about different businesses, different groups, different people. And everybody is different, it needs to be managed a different way, it needs to be… Converse with a different way, it needs a different level of understanding based on their experience. So again, you learn a lot from that is what.
Jeff Hawkins:
Yeah. I mean, one of the things that somebody told me very early on in doing this is, they said, “This would be really easy to do if people weren’t involved.” And really, it speaks to the fact that, a lot of times, the seller is the founder. It’s the owner for 30, 40 years [inaudible 00:08:32]. So it is their baby, and how they interpret that, and how you interpret that, and how much attention you pay to it is significant. So, Christian, I’d ask you the same thing. What was the big… They call it at the NBA, it’s welcome to the NBA moment, that was your transaction advisory moment.
Christian Williams:
Man, I’ll tell you, I had a couple, I think right out of the gate. If I can just summarize all of my thoughts is that our work product really matters, and that’s not to say that… I mean, I still do audits as well, just like Jeff alluded to. But an audit report is needed, is necessary, but in terms of the way our clients place value on that work product versus our QV, it is substantially different. And it brings me a more sense of pride, and want to do the best of my abilities, because I know this work product is not going to get shoved into a file cabinet, or forward directly to the bank for some compliance reason, and then that’s the last time that we see it.
With our… And that’s our flagship product, the Quality of Earnings Report, I mean, we… Like I said, it matters. I’ve helped buyers and sellers maximize value in a lot of different respects. For instance, one of the QVs that we’ve done, I think 2023, there was about $5 million of value that the buyer was overpaying for one-time revenues that they won’t incur. And this is a sophisticated PE firm out of Atlanta that has both equity and debt side of the business, so they are sophisticated, and they missed it. They were almost going to overpay, I think the deal side from 25 million.
After we’ve done our diligence and found that, they end up retrading for about $5 million less, because it was fair. Obviously it does hurt the seller, because the seller wants more money, but at the end of the day, it wouldn’t be fair or appropriate for the PE group to overpay. And that’s something that we found, and in my mind, I’m like, “That’s real value. That’s real dollars and cents.” A lot of times, I compare it to an audit report, where we pour our heart and soul into making sure that the accountants’ work is done, and maybe some of the accountant department people for an audit are appreciative of the adjustments and things that we found, but a lot of times, [inaudible 00:10:59] GAAP only, and they don’t really translate to true dollars and cents in terms of cashflow. But when you’re talking about a $5 million reduction in purchase price, to keep that money in your buyer’s pocket, it’s pretty powerful.
Jeff Hawkins:
Yeah. And if I don’t mind to share one of my stories, pretty early on in my career doing this, I was working on a really large transaction, and the eye-opening thing for me, it’s kind of close to what Silver said, was just the level of intelligence of all the people in the room. And it became very obvious to me from a very early stage in doing this that I really need to learn from these people.
And for me, what it did was it changed me from thinking along the lines of checklist and completion to why, always asking why. What’s causing this? Again, like you mentioned, Christian, is it repeatable? And really, they tried to push that bias, we caught it, and then when we brought it to them, they said, “Yeah, that’s reasonable.” And you’d be surprised how much that happens in negotiating a deal, I mean, it’s not that different in negotiating a real estate transaction. You’re supposed to divulge everything, but do you every time? It’s a little bit more of a gray area, I would say. So really, we help buyers and sellers. So I kind of want to get both of y’all’s opinions on how you help each one of those. So, Silver, can you tell us how do we help sellers? What’s the real value to them?
Jeff Silver:
So to me, the real value, and I think we’re already touching on it, and a lot of it… There’s going to be a lot of overlap here in what we say, it’s education, it is education. Me and my wife used to be business owners, I’ve been through a transaction, not just with the CPA firm that I worked for was acquired by CRI, but we sold a business. It was a dental practice, we sold it to a private equity group. So I, myself have been through a transaction. And that was before I was doing that, so I didn’t really have the background of what it meant to go through a transaction. I said to myself, “Man, I wish I had more education.” Then I was telling myself, “Wait a minute, I’m a CPA. I see businesses every day, this should be easy. I should know all of this.”
When the reality is, is that when you’re a business owner… And this goes to all of our clients and the business owners out there, there is no doubt in my mind that they’re the best in the world at what they do, most likely they are. You ask them a question about their business or their industry, they don’t even have to think about it, they will tell you on the spot. But if you stop, and you ask them a question, and say, “Tell me what it means to sell your business.” It’s going to go silent. Because the reality is, is that most people out there… Most people, not everybody, most people have never sold their business before. They don’t know what it looks like, they don’t know what it means to go through it, they don’t know what preparation is, they don’t know which people they need to bring to the table.
So education is the key to all this, and that’s where we come in, we provide that education. Now, granted, we’ve got a slew of different people at CRI, CRI M&A advisors who are great at what they do, and from the investment banking side. We’ve got level four advisors who could help. What’s it going to look like once you exit? What do you do? How do you strategize with that? This is all part of our exit strategy team, which I know, Jeff, you’ve touched on as well.
And then you’ve got the estates and trust side. And so I remember 3, 4, 5 months ago, Jeff, I mean, both of us have phone calls with companies that were looking to sell, and we came and talked to each other after it, and we both asked each one of those parties the same question on multiple occasions, “Just out of curiosity, have you planned for the after? What’s going to happen once you sell your business? I mean, we’ve walked you through an entire process here, but what’s going to happen when you sell your business? What are you going to do? Have you done any estate and trust planning?” And it was 9 out of 9 people said, “No. We haven’t even thought about it yet.”
So what happens at the end of the day is, you become that term that we’ve talked about, the solutions quarterback. You start to be able to not only educate them on what it means to sell the business, but what it means to go through the process, and what the after can look like, and help them throughout the entire process. I mean, it’s an exhausting process. Another term we use is deal fatigue. We are agents to protect our clients from basically the stresses of going through a transaction. It’s not full avoidance, there’s no way, but if we educate them, and we strategize with them early enough, before they go to the table, when they get to the table, it’s going to be that much more of a… Call it an effective and more successful process.
Jeff Hawkins:
Yeah. And really, I think you can also add to that, peace of mind, right?
Christian Williams:
Yeah.
Jeff Hawkins:
Confidence, because… I mean, Christian, I’m thinking of one seller in specifically who was in the food distribution space, where she was just over her team the entire time, right?
Christian Williams:
Yeah. Yeah.
Jeff Hawkins:
And it took a multitude of conversations outside of accounting, just the psychology to make sure that she was comfortable-
Christian Williams:
Right.
Jeff Silver:
… that she wasn’t going to get overwhelmed with the process. And Chris, I think you did a great job on that one in reining her in a couple times. And to be fair, the other side was being unreasonable, right?
Christian Williams:
Right. Right.
Jeff Silver:
But again, that’s unique about a deal, you never know how [inaudible 00:16:55].
Christian Williams:
Yeah, nah.
Jeff Silver:
And unfortunately, they had a huge accounting firm working on a really small deal, and-
Christian Williams:
It was overkill.
Jeff Hawkins:
… and sometimes that doesn’t work so well. But I’ll give this as an example, everybody will hire a realtor right away to sell their house, but this… Your business is anywhere from 10 to 100 times more valuable. So it’s interesting that it’s not the same expectation, that, “I’m going to sell my business, I’m going to hire an agent.” But Christian, what I wanted to talk to you about a little bit more was, you kind of gave an example of the value we give to a larger buyer, what’s some of the value we would give to maybe a newer buyer, or somebody that’s just acquiring a company for the same time? So again, on the buy side, but what have you seen us be able to really add to people?
Christian Williams:
Yeah. I mean, I’m dealing with that right now, where I’m dealing with a strategic buyer that has never truly acquired another company before. And if it’s been a hand-holding process, there’s just a lot that… Again, the buyer knows the industry, and what to expect out of that industry, but in terms of a deal process and transaction continuum, they need help the whole way in terms of structuring the LOI. Making sure that we understand what the management plan is, is the seller looking to stick around? And if so, that’s great. But if they’re looking to leave day one, do you have the people in place already that can go in and take their day job and their day-to-day responsibilities? If that’s no, then we’ve got to structure some type of employment agreement or some consultative agreement to keep that person on. I’ve seen a lot of… And this one deal in particular, the LOI that was signed is so far away from the actual value-
Jeff Hawkins:
That’s right.
Christian Williams:
… determined to be in the QV, in fact, almost a 50% reduction in valuation. So how do you have that conversation with the seller, that, “Hey, I know we discussed almost a $20 million LOI, but based on the results of the QV, and the deal multiple in this particular industry, you’re really looking at about a $10 million trade.” So how do we go about making the seller happy? Well, maybe we talk about some level of a seller rollover. Maybe they don’t get all of their money their first transaction, but maybe the next transaction once this company grows and grows and grows, and we sell it again in five years, maybe they do get that extra bite at the apple. So an unsophisticated buyer knows nothing about what are normal ways to [inaudible 00:19:51]. And so [inaudible 00:19:53] unleashing our playbook, what we’ve seen dealing with sophisticated buyers and sellers, and just educating them. Again, going back to that word education, educating them on what’s the normal course of business to deal with these seemingly huge issues, but are very normal for someone that does it every day.
Jeff Hawkins:
Yeah, that’s actually a great point there, Christian. I mean, I’m sure this is a sleep interrupting type of situation for the buyer, but it happens on every deal, essentially. I mean, there’s always some kind of meeting in the middle that has to happen, but if you don’t understand the nuance of it, the cadence of it, I mean, that’s a big part of it, right?
Christian Williams:
Right.
Jeff Hawkins:
Is, we work with some habitual buyers that do 15, 20 transactions a year, they have a process.
Christian Williams:
Right.
Jeff Hawkins:
I mean, they stick to it, they have a timeline. I’ve seen buyers schedule weekly calls with the sellers, and they’re going through a PowerPoint timeline every single call-
Christian Williams:
Right.
Jeff Hawkins:
… to say, “This is how we’re going to stick to it. This is how we’re going to achieve both of our goals.” So I think what people don’t understand sometimes is, it’s not as adversarial as it may seem, [inaudible 00:21:09]. Sometimes it can be, 100%, but a lot of times, to get these lower middle markets, smaller middle market deals done, you’ve got to be able to help the other side-
Christian Williams:
Right.
Jeff Hawkins:
… see it as well, and then actually be able to achieve it. There’s the numbers, and the structuring of the purchase agreement. Maybe a deal structure works for me, but it doesn’t work for you, but we’re so far down the road that now you’ve got to make this decision about, “Do I want to kick the deal all together and eat these diligence costs, or do we make the deal happen?” And the deal you’re talking about, Christian, the opposite may be true, is that he sunk so much cost into it, he may not be able to see the forest through the trees anymore of, “Maybe this isn’t the best deal for me to do.” And he’s probably going to do it no matter what, right?
Christian Williams:
Right. Exactly. Yeah.
Jeff Hawkins:
So that’s where, again, this space is… Yeah, it’s accounting, it’s based about accounting, but so much of the advice is rarely about the actual debits and credits. It actually moves into the sense and the realm of actually operating a business, which… Not to disparage CPAs in general, our profession, but I think business acumen’s something that a lot of CPAs can struggle with. And so, again, to me this is… It’s the translation between the real world and the accounting world. So we’re kind of running out time here, so I want to get a couple more comments from each of you guys. But one of the big things that… We talked about the exit ramp, and having exit team, cross-sellers, and how do these teams interact with each other, and like you said, a solutions quarterback. I mean, Jeff, can you kind of speak to how the interaction of those different parties could work around a seller?
Jeff Silver:
Of course. I mean, just thinking big picture, what does cross-selling of TAS mean to a client? What should it mean to us? It means doing right by our clients. I mean, that’s what the end game here is, is that the reality is, is that transaction for any business owner is inevitable. I mean, unless they go out of business, but we’ve got great clients, so that never happens. But no, the reality is, is that transaction is inevitable. Look, it’s only been, what? Four months since we went through our own transaction. So I think all of us now are adept to the understanding that transactions are ever-present, they’re not going away.
One thing that I’ve learned from doing TAS is, is that as accountants, people shy away from… A lot of times, shy away from the idea of trying to sell somebody on something, trying to sell a service, trying to push this on a client. I think what TAS has taught me overall is, is that we’re not selling a service, what we are is we’re helping our clients.
Again, we’re going back to the understanding, is, our clients don’t know what they don’t know. So we need to be the stewards, we need to be the active steward here, we need to be the solutions quarterback here, and help them understand what this is. And so going into these situations, it’s all about listening directly, and listening to every single word to figure out, “What does my client need?”
It goes back to what we were talking about before, what I was saying before is, is that you’ve got clients that wake up one day and they say they want to sell their business, but they don’t know the first thing of what to do. So when we hear their why, and understand what they’re trying to do, we say, “Hey, you want to sell your business?” If they’ve come to us first, we’re like, “We want to make an introduction here. We’ve got CRM and advisors, the investment bank. Let’s understand what their purpose is. They’re going to help tell the story of your business, they’re going to walk you through what an entire transaction process is going to be like.”
How the QV comes into play as it pertains to looking at your business’ numbers, looking at the historical through the current. And then taking that, they may also project into the future. And then from there, bringing in other strategies like wealth advisory, what is going to happen when you get the biggest check of your life? What are you going to do with that money? What’s going to happen? What should you do with it? How should you plan for your next generation? What does that mean? And that’s, again, where the estates and trust side come in as well.
When you put all these pieces together, basically what you have is, you have your transaction advisories, so you have your army, you have your exit planning army, you’ve got all the important people at the table. The only thing you don’t have from our side would be the attorney, which, by the way, we have plenty of connectivity in the space as we know, we know plenty of transaction attorneys. But when you add all those people together, you can get to a full-scale solution where somebody can see, basically from Alpha to Omega, what the whole thing is going to look like. And to me, that is what you call doing right by our clients. So just everybody needs to keep that in mind. Every business is going to go through a transaction. It’s what we do, what we do now is, from the planning side, to educate our clients is the most important part.
Jeff Hawkins:
Yeah, no doubt. I like what you said there, I mean, the relationships here are everything. And maybe it’s a little less important on the accounting side because it’s a little bit more transactional, but when you’re dealing with the level… Or your wealth manager, or your investment banker, I mean, those are almost like marriages.
But again, the term cross-selling, I used it just to kind of make this point, I think it’s a little misleading. It’s, like you said, to take care of the client, and put the right pieces around them. Yes, it may result in cross-selling, but that’s the way you have to structure a transaction, or the other side’s going to do that, and they’re going to win in that deal, or the deal just doesn’t happen altogether, and that’s maybe the most painful thing that can happen, especially to a smaller company that’s trying to go through a transaction like this.
But I want to throw a couple stats out here that kind of support what you’re saying, Jeff, about why it’s so important to actually have this around you. So really, 50% of the small businesses in the U.S. are owned by people 55 and over, and 70% of those businesses are expected to change hands in the next 10 years. So I mean, that’s a big number. Then when you look at it, only 20 to 30% of the companies that go to market actually close a transaction. So even if you have all of this around you, it can still be difficult. So it’s one of those things where, imagine if you don’t have, imagine if you’ve got nothing trying to do this, basically impossible.
Then the most shocking number of all, one year after the deal, you know how many business owners are happy with their proceeds? 5%. So it goes back to estate and trust, it goes back to tax, it goes back to networking capital. All those things are impacting your take home and your net. And again, not to go into any of those topics in any significant detail, but I mean, you can lose 10 to 20% of the deal value really quickly in areas that you did not expect. And we’ve seen it happen over, and over, and over to people. So I’ll just kind of stress that again, is why this planning is so important. Whether we’re talking to CPA firm partners and their clients, or talking about investment bankers, private equity and their client on the outside world.
So to kind of take us home off the transition off that, Christian, can you talk about a little bit who we work with on the external world? I mean, I kind of named some of those, but again, a lot of who we work with is going to be our own existing clients. But again, when a PE or investment bank hires us, kind of talk through what those situations might look like.
Christian Williams:
Yeah, yeah, of course. I mean, our client base, external to our sales within the firm, you’re going to have your investment banks, you have your private equity groups, family offices, and then you have your strategics. And so I kind of like to break out, like, your financial buyers, that’s going to be your family offices and your PE, they’re going to be backed by some type of private capital. Then you have your strategics that may be an entity that’s already operated in the space, and they’re going through some type of inorganic growth strategy, they want to grow in scale, size, or whatever, so they’re going to buy companies of like size.
Similar to CRI, we are basically strategic, or we were historically. We were going, “We’re a public accounting firm.” That we’re buying other public accounting firms, and just kind of testing them in. With our PEs and family office, our financial buyers, the big thing there, your PE funds are going to have some type of capital raise, and they’re going to generate a fund vehicle, where they’re going to have high-net-worth individuals, university endowment to raise that capital, and they’re going to deploy it based on some type of operating agreement that they’ve signed with those limited partners. And generally speaking, they’re going to have a fund for 10 years, and around year 5 or 7, they’re going to do what’s called harvest that fund, where anything they’ve bought in the first 3 to 4 years, they’re now selling and offloading.
The difference between a PE and a family office is, instead of having a ton of high-net-worth individuals, and college endowments and pension funds that you’re using to deploy capital, you generally have a family, think of a Rockefeller family office, or you have multiple families that kind of join together. I tend to think of family offices as flexible capital, where they don’t have that 10-year mandate where they need to harvest that asset and [inaudible 00:31:30].
A lot of family offices that I’ve worked with do a lot of management buyouts, whereas your PE is going to do an LBO, called a leverage buyout, where they’re going to bring that equity capital, it may be 40 to 50% of the deal value with debt. Whereas family office may deploy 100% of capital and equity capital, depending on [inaudible 00:31:54].
And then lastly, we’re going to have the investment bankers. So the investment bankers are going to be the individuals that work alongside the sellers. Everyone I started talked about are going to be buyers, the investment bankers are going to be sellers, and they’re going to take our sells to market. They’re going to create some type of CIM, a confidential investment memorandum that’s going to tell the high points of the business, management teams, growth areas, areas of opportunity, anything that’s going to tease a potential buyer into wanting to be interested in this business. They’re going to create, after that, an auction process. And that’s advantageous to our sellers, you have more buyers bidding against each other. We all know bidding wars equals to higher value. And so that’s what our investment bankers do. And generally speaking… And get engaged by an investment banker, we’re going to be on the sell side doing the sell side QV. Whenever we’re getting engaged by any type of financial or strategic buyer, we’re likely going to be on the buy side doing the buy side QV, and likely some type of tax diligence as well.
Jeff Hawkins:
Gotcha. Yeah, no, I think that’s actually a really good breakdown. And one of the things I find that people are most surprised about in this space, I think is that college endowment and pension money comes into it, and it’s actually a really large portion of what drives some of these individual funds. We also work with a few guys that are… We call them independent sponsors, where they kind of operate like PE, but they don’t have the fund behind them. So on each deal, they basically have to go source financing. And that can be good, that can be bad, I would say. I mean, those people may be a little bit more flexible, would you say, Christian?
Christian Williams:
Yeah.
Jeff Hawkins:
In a fund-generated buying process. But again, understanding who your potential buyers could be is significant, it’s important. I mean, there’s some majority deals, there’s some minority, we see 100% sometimes, I mean, we’ve seen ESOPs happen. I mean, there’s multiple different ways to exit, and I think that’s, again, what maybe surprises people, is just the multitude of different options that’s out there.
And so as we wrap up, I think I’d probably just leave that comment with the audience of, if you have any questions around this space, that anybody on this team is more than happy to consult free of charge, and see what your situation is, and try to guide you. I mean, we’ve even guided people to not use us before. If the transaction was too small, “Hey, this probably doesn’t make sense, and I’m not sure your investors would be okay spending this level of diligence cost for this transaction.” So to go back to one of the things Silver said earlier, is, whatever the client needs is what we’re going to do.
Christian Williams:
Right.
Jeff Hawkins:
And so again, I would just encourage anybody to reach out with questions. And before we sign off, Silver, Christian, you guys have any other wrap up comments you want to deliver?
Jeff Silver:
I think one other thing I wanted to mention just specifically here is, we’ve talked about transaction advisories, or least buyer and seller scenarios. I think what I’ve come to see myself over the last year or so is, is that transaction advisory actually doesn’t actually have to entail a buy or sell situation. It could be where a bank is looking to do financing, or provide additional financing, and it may be like a non-attest client, they don’t get an auditor review, they’ll say, “Well, we don’t need to have that, we can do this whole situation using a quality of earning study.”
So I think it’s important to keep that in mind, that the power of a QV can go beyond a buy… Call it a buy or sell transaction. It can be a useful tool for financing aspects. If you’re talking about growth capital where you’re not going to bring in a PE group, or you’re not going to bring in an outside group to provide, call it equity capital, it could just be some generic financing. And I, more recently, I guess even the last six months, I helped a gaming company not only find the financing, but as part of that, the financing group wanted us to do the QV as part of that, and so we did that. So what that ended up helping them with is not just get the financing, but also get an open line of additional financing to make more acquisitions, and we’ll do quality of earning studies on all of those as well, not to mention the audit and tax work, which is also important to understand.
Christian Williams:
Yeah. I think I want to just jump in, I know most of this podcast, I talked about buyers and the buyers’ perspective, and I do work with a lot of buyers, but one thing I will say, and just full disclosure, my heart has always in it for the sellers. I’m always wanting that founder that’s been operating this business for the last 20 years, it’s been his life, his passion project, I’m always looking out for those guys. And so I want to kind of take pause and just say we’ve got to get these sellers some help.
I know we’ve talked about it a lot, about how they may know their industry in and out. And that is true, I’ve worked with a lot of very intelligent sellers that do know everything about their business, but they know nothing about a transaction. It is very different, and it does not translate from being a great business owner to someone being able to sell your business. That does not translate, and I’ve seen it time and time again.
So I just wanted to be clear that if your seller says that they’ve got it, they don’t, and we’ve got to bring the right people in. Jeff Silver alluded to this earlier that they’re only going to do this transaction likely once. Most of our founder-run companies are only going to have one huge liquidity bid in their lifetime, and that’s going to be it. Think about [inaudible 00:37:50], if you get that wrong, that vacation sipping pina colada on the beach doesn’t happen if you get it wrong.
So then just a second ago, Jeff Hawkins started talking about there’s a lot of different ways to transact, there’s ESOPs, and there’s management buyouts, and there’s leverage buyout, there’s all these different options, that’s where working with the sophisticated [inaudible 00:38:15] advisors to help you make decisions on, “Well, what’s the best exit plan?” Because all of those decisions in terms of how you exit, it could affect your employees. So if that’s important to you, you may want to consider an ESOP route, or you may want to consider some type of management buyout as opposed to a leverage buyout, or a strategic acquisition. So all these things mean something, make sure you have yourself surrounded with the appropriate deal team so that this can be a successful transaction, and you’re not a part of that 5% that don’t like the proceeds.
Jeff Hawkins:
The 5% is just such a scary number, right?
Christian Williams:
Yeah. Yeah. Yeah.
Jeff Hawkins:
That’s such a scary number. All right, well, thank you, guys. I really appreciate you joining, and sharing your viewpoints, and some of your experiences. And until next time.
Speaker 1:
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