[00:00:00] Lucas: Good Afternoon! Welcome to the “Building and Growing Podcast”. Today we're going to be discussing the M&A Deal Platform and its advisory - Precision M&A with Sach Vara and James Ruthven. Welcome both! Thank you very much for joining! I’ll give you an opportunity to introduce yourselves.
[00:00:22] Lucas: Sach, would you like to begin?
[00:00:23] Sach: Happy to do so! Pleased to be here! Thanks for the opportunity! My background is Corporate Finance and M&A Advisory. I've been doing that for almost 15 years now, but specifically doing advisory services to small mid-cap businesses in the UK.
[00:00:44] Sach: So, it's buying and selling of companies as well as the growth of all thosecCompanies.
[00:00:49] Lucas: Fantastic! Thanks, Sach, and James?
[00:00:53] James: Yeah. Hi! Good to meet you! So, my background is Product and Technology, basically 20+ years doing Digital Transformation for enterprises and small organizations.
[00:01:05] Lucas: Fantastic! Excellent! And so would you be able to talk us through the history of the Platform?
[00:01:13] Sach: Sure! Happy to do so! I guess, it almost starts off with the Precision M&A Business, which is now the advisory arm of the Platform. So, Precision M&A, that's a business that has been existing for 20 odd years, started by the Chairman of this business; now, which is Neil Ackroyd, which I'm sure you'll speak to in due time. It's his business, he grew it through the recession. We were also three time award-winning through that recession and post-recession. That's the typical kind of boutique that we see in the UK and specifically London as well.
[00:02:00] Sach: Off the back of that, I decided to do a bit more professional development through my MBA. And that's where I met my colleague, James. We had started talking about the quirks of the Corporate Finance Market and M&A in particular though for mid-market. We just started talking about the issues and what we can do better. So out of that was the kind of brain child, if you like, of what has now become M&A Deal Platform. So, I guess over to James to have a bit of a background on that stuff.
[00:02:37] James: Yeah, as Sach said, we were on a MBA course, looking at M&A and really just the complexity and how M&A was being dealt with, kind of to me showed that there's a real possibility to change it to improve the process and, to simplify it ultimately and make it more effective for the end users, which in this case is the people selling and buying companies.
[00:03:06] Lucas: Okay. Fantastic! Well, look I love the fact that, you both met during the MBA course, and Sach, in terms of the reference earlier to how Precision M&A grew during the last recession; given the current difficult economic climate, I'm sure that there’s something we'll be able to discuss together later on today.
[00:03:29] Lucas: Perhaps to begin with, would you be able to discuss the steps that a company would need to take when they're thinking about an exit?
[00:03:43] Sach: Yeah, that's a good question! So, I guess there's multiple steps that even need to happen before the sales process even begins and I think it's a bit of a shameless plug now, but we're recently developed through the platform, a kind of questionnaire that helps unearth effectively the steps that you need to go through, before you've even made the decision to sell the business, which is quite simply named “Can I sell?” “Should I sell?” questionnaire. So, it looks at both kind of axis of that and effectively assesses those I guess variables or reasons of why you should sell and if you're ready to sell. So, we ask all these questions, we qualify it, we quantify it and at the end of that there's a bit of a discrete “yes” or “no” answer that says yes, you can sell or no, you shouldn't sell, but here's what you can do. So, we look at it kind of should I sell perspective much more from a psychological perspective, which is quite different in the way that this market tends to operate in the way that we assess people, as effectively these are people, these are owner managers. You have to be able to effectively manage them and work with them. So there's a bit of an assessment that goes on before we even embark on the journey of selling the business. So, we need to be aligned in that sense.
[00:05:12] Lucas: And what would that assessment typically involve?
[00:05:15] Sach: Sure. So, I mean, ultimately it tries to get you to or tries to understand the reasons in terms of “should I sell?” Tries to get you or us to understand the reasons of, is the owner manager ready to sell? There's four reasons why an owner manager should sell. One is retirement: they've grown the business, they're 60 years old and now I think great, I've done my part in the world and I just want to move on with my life. That's fantastic. The second reason is, a change in circumstance. This tends to be a bit more negative. Maybe there's an illness that's occurred in the family and the priorities have shifted. So, they're no longer are able to focus on the business; which I suppose they love doing, but ultimately now they can't run it like they should. So, they think, now I need someone. The third reason is actually the business has grown to a point where it has kind of out-scaled the expertise of the business owner. It is better off being in the hands of another business basically, or another ownership structure. So, it's just not been fun for that owner anymore. And I've heard this a lot in my time as well, where the owner just said: Look, I'm now sitting in all sorts of committees and forums and HR meetings, and all.
[00:06:34] Sach: I don't want to do this. I just want to go out and sell in the market. Or I just want to talk to my sales people and say, look, this is how you should be doing it. I don't want to have these committees and compliance conversations. So that's quite normal as well. And the fourth reason is ultimately cash. But, that's never a good reason just to sell for cash and we can probably get to that point, once we talk about the steps and the process. Because having changes in valuations throughout the process can happen. And if you're stuck on a number that you want to achieve before you even embark on the process, then in fact, you're just not ready to sell! You can go through so many months of effort. Yes, at the beginning of a process, someone might tell you, your business is worth 10 million. But then there's a price shift that happens through due diligence, which might actually be a worthy price shift. And then the Owner Manager might just think, well, it's not the price I expected, so I'm going to leave it. I've seen this before as well. We might come on to this, it's kind of cash-free, debt-free element of an offer, which effectively means, the offer would need to pay off the debt. So, let's just say the cash-free, debt-free offer is £10 million, there's £5 million a debt in the business; then you actually need to pay off that debt. So, the valuation comes down by the price of £5 million, because you're paying off the debt. So, on face value on the piece of paper, you got £10 million! That hits the owner manager's mind of saying, great, that's what my business is worth. And, but no, you go through the process.
[00:08:30] Lucas: They got only £5 million.
[00:08:17] Sach: Exactly. So that has happened only once and that was when I was a kind of junior in my time and it's never made that mistake again. Because it is a hell of, it's just a waste of time and effort.
[00:08:30] Lucas: Absolutely. And I think it's really good for people to realize even a couple of years prior to wanting to exit, that could impact it. And they don't want half of the amount they're able to sell the business for going towards paying off the debt. So James, do you want to elaborate a bit more about the platform's role in, an owner taking the steps to sell their business?
[00:09:04] James: Yeah. Sure. It's very similar to a lot of, what we see now, is “web platforms”. You are probably experiencing it on Amazon or eBay, it's that kind of easy interface, collecting the information that you need to provide rather than doing it via calls and swapping files.
[00:09:25] James: So, it really helps kind of speed up and simplify that process. It's almost a guide rail in some ways taking the owners through that kind of the number of steps, the marketing preparation.
[00:09:39] Sach: And the transparency of it as well, right.
[00:09:43] James: Exactly. Yes. It's all clearly there and you can also discuss it with the advisors, ourselves.
[00:09:48] Lucas: Is it, would you say it's self-serve?
[00:09:53] James: It is self-serving some ways, but I think in, with anything which is slightly complex, you do need that go to point, which is ourselves. If you have a question, you need some support, we're there to help with it.
[00:10:08] James: But, it's as self-service as you can get but with a blanket to kind of help you, if you need it.
[00:10:13] Sach: I would suggest that, it helps me as an advisor from a workflow perspective, it kind of keeps my costs down as a business owner. Because I'm no longer needed to spend, how many I need to on a team of analysts, I can just look into the platform and deliver the documents that I need to do through platform.
[00:10:34] Sach: And it's completely, like I said, it's completely transparent. I can see it, the Owner Managers can see it, and we can all just track it all together. It just makes the process so much more efficient and effective actually.
[00:10:47] Lucas: I guess at the moment if, I were to want to sell my business, I'd go through the initial sort of steps in terms of understanding the reasons why I would want to sell, and then gain access to the platform, and enter different types of financial data, in order to provide you and the team with the information that you'd need, in order to assess evaluation. So, what would happen next?
[00:11:24] Sach: There is a kind of set request for information, it's all pretty standard. We tend to go a little bit over, I guess the call of duty, when it comes to the request for information, but that only helps, especially when it comes to due diligence to get everything upfront as much as possible, and see things coming as early as possible and can solve these things as early as possible. All this information comes in, we digest it and we turn it into effectively “a sales document” or what's called an “information memorandum”. So that's the sales package. It's normally something like 20 odd pages. So, from everything condensed down into something that really sells the business and puts it on its best feet. And I guess that's the strength of the advisors as well. When the advisor can look at it from an outside perspective, whereas the owner manager is, it's kind of seeing it from almost tunnel vision, they've been in it for so long! They're not able to take a step back and look at it holistically and think. Actually, this is where the business has value in the market. And that's valuable even if the advisers come in and do that. Especially, when they've been selling companies as a day job and they know what works and what doesn't work and how to position these things.
[00:12:50] Lucas: And I suppose a question for James, because we met at the Digital Accountancy Show and accountants are very much say trusted advisors of business owners. And sometimes they are also the gatekeepers of a lot of pieces of documentation or data. So how do you work with partners like accountants or lawyers, in order to help your end client sell their business?
[00:13:26] James: Yeah. That's a great question. Multiple ways! We have a range of partnerships from a very simple, we do most of the CF work, and they kind of introduce us to the clients and work together. All the way through to building a full CF practice for a firm. So, we do have that whole range. It's a journey, we like to think with the accountants, which we take them along, hopefully, 2-3 years later they will have a full CF practice of their own, but if that's not their ambition and if they just want to do some basic CF, we're there as well.
[00:14:07] Lucas: Fantastic! So earlier on we mentioned, sorry, you mentioned, that there were four main reasons that a business owner would like to sell. Currently, we're in a difficult economic period. There's very high inflation. How do you see the reasons for wanting to sell change during a difficult economic environment, such as now, compared to more of a boom period, which is what we have arguably experienced over the past decade?
[00:14:50] Sach: I mean, I know fundamental reasons for selling don't change. You're either going to be those three reasons and you are already mentally, you are out of the business. You're not adding value anymore, regardless of boom, more recession. The cash thing is still not a reason to sell regardless of boom or recession. It just means you're more likely to potentially get something, more-higher value, purely on the basis that business, in boom times businesses are investing in everything, anything. They might see a business as a strategic fit for their own company. So, there might be a wider pool of potential purchasers and the process might be more competitive in that sense.
[00:15:33] Sach: But, that's probably less, the converse is true. In a recession time there'll be less pools of potential purchase. I mean, you still want to sell regardless of where you're at. And you should sell regardless of where you're at. Or at least you should run a process and see what is the market saying because even if the market as a whole is in recession, you as a business might be in a defensible position as a business, or you might even just own the market niche. In that case, it's always going to be valuable.
[00:16:06] Lucas: Yes. Okay. I understand. And are you able to provide some details about, who your typical client would be? Are there any particular say financial thresholds?
[00:16:20] Sach: Sure. Certainly, on the precision end, we tend to look at businesses that are £1 million plus earnings before interest and taxes (EBIT) and the reason being is fundamentally these businesses are saleable. As soon as you go a little bit lower than that, the pools of buyers are lesser. It just becomes far more difficult to find a buyer who wants to buy a business that is turning over a million pounds or £50,000 profit. It's much more difficult to find those buyers. I mean, they do exist, but they tend to be in local markets. I guess that's again where the platform can come in and help. Because instead of it being just local markets, the advent of technologies, as we can see with Uber taxis are local markets, but with Uber, it's now international markets. So, it's a similar kind of principle that it opens up local buyers to, sorry, local sellers to a wider pool of buyers. And that's a process that we're still kind of building. But the principle is that, maybe James will touch on it as well, and probably I have treading on his toes! But we're testing it right now with a number of different clients and it's all backed by the Precision M&A element of actually having an advisor.
[00:17:43] Lucas: So, in terms of that marketplace analogy you mentioned about Uber; James, do you mind talking about where you source, I suppose both the companies that want to sell and the buyers from.
[00:18:00] James: Sure. I mean, there's quite a few channels we use. We find valuation is a real key, “call-to-action”, interest point. Everyone always, business owners would want to know the value of their company. And we've built a great little App for that on our website.
[00:18:23] James: And some supporting articles and the questionnaire that actually mentioned that kind of help with that kind of initial, how much is my company worth? What do I want to do? Am I ready to sell? Et cetera. And we find that's a great kind of conversation to have for both ourselves and our partners.
[00:18:43] Lucas: Fantastic! So, they come to the website, they're able to fill in their financial data in the valuation calculator and then the conversation flows naturally from there.
[00:18:56] James: Exactly.
[00:19:00] Lucas: Fantastic! So, I suppose for people who are thinking about selling their business, what would the process be?
[00:19:07] Lucas: Let's say, with the traditional broker or advisor compared to you. So, I suppose, I'm thinking what really are the pain points that you guys and the team are solving?
[00:19:24] Sach: Sure. Sorry.
[00:19:26] James: No you go first. Yeah.
[00:19:36] Sach: So, I mean, certainly from a Precision M&A, we are very much different to the brokers that exist in the market and the way that we position ourselves, especially through the Platform, is that we have the kind of top end M&A investment banks that exist in the world. The multi-market, blue chips that exist and it's basically taking that sort of process into the small mid-cap space. We're able to more effectively do that and make it more cost effective, not only to us, but to the client through the platform. So, James actually, before in terms of, I think I did as well, like with the IM and transparency and certainly research as well, but I think it's a lot easier to say, how do we differ; and certainly on pain points compared to brokers than it is to the IBs of the world, because the IBs are fantastic at what they do quite frankly, but
[00:20:37] Lucas: they're very, I suppose, expensive and out of reach for many businesses.
[00:20:41] Sach:. Exactly right and it's also when you mentioned it before, in terms of, what happens in a recession, so certainly in a recession, those kind of bigger players tend to come down into the smaller mid-market. Because the bigger business are moving, they're not buying or selling anymore. So, then they say, well, we use our brand to touch onto those guys, which does affect us, kind of smaller end advisors better or for worse, certainly for worse anyways and they do tend to charge extortionate fees and especially, purchase fees on the back of it. And I've seen that more recently as well, which is actually quite disheartening, but it happens and I don't really blame owner managers for going with the more well-known brand. Why would you not go with the more well-known brand that's internationally exposed. But yeah, the problem is that they will not only charge crazy amounts for an upfront and on a success. They would also wheel out an expert in their sector as they can do that, they'll see them on the pitch and they'll never see that person again. And then once they've converted that client, they've got a junior who's fresh out of university working on this small deal. Because it's kind of low value to these big companies, they're not interested in it. So, it's good training for them.
[00:22:07] Sach: But with us compared to them, certainly those clients will only ever get the experts, the partners who are actually working on their deals. Never a junior. So that's how we differ from the big guys, for sure. The smaller end brokers, the way that we differ is that we actually do end-to-end. We come up against brokers who are much more volume based, very good at selling, unbelievably good at selling and that's something I wish I was good at. I guess that's why we're here as well, right! So, but they're so good at selling and I've been doing it for so long. They're volume-based businesses, they will make their money on the upfront fees. And maybe one or two of them will sell. And that's where they get a nice bonus. But ultimately their business model is taking as much upfront fees as possible. We don't do that. We can own. We have a small number of deals that we'll take on, and we're very much expecting to have the success fees and that's when we make our money.
[00:23:14] Lucas: You have essentially aligned your business model with the success of an owner exiting.
[00:23:23] Sach: Yes, exactly. And again, that's how we differ to brokers. I mean, they're very good at putting people together in a room. In Russia, in a pitch, not too long ago, where these business advisors/brokers, they put them in a room with a buyer. And then very quickly their value tailed off. It was up to the owner managers to win over the buyer and run the process from then on! You just think, that’s insane! So we do end-to-end - we will not only put them in a room together, we'll actually manage the presentation for them, set them up so that they can be on the best front foot and then make sure they get the offers from everyone that they see. Then we have a competitive process and the best offer goes through and then we go into due diligence and with the one buyer, and exclusivity and due diligence, sorry, with that one buyer, and protect the price as much as we can. As possible, I mean, there's very different reasons why it will change upwards and downwards. But, we might come onto that in terms of mechanics is quite boring, so I'm not sure you should.
[00:24:41] Lucas: I've got more of a platform question for James, again, focused on traditional brokers versus the platform. So how would traditional brokers collect, let's say the financial data, relative
[00:25:00] Lucas: to how business owners are able to use the platform to provide that data.
[00:25:06] James: Yeah, that's good question. Obviously, it varies from broker to broker, but my experience or our experience is it's quite manual. It's moving documents around, uploading them to a file share, et cetera. No structure! And going back to what such was saying it really what our Platform adds is this standardization of process,
[00:25:30] James: makes it much simpler for the owner manager to know what to do, what the process is, what the next steps are and ultimately we've made the investment in the technology to build a platform which allows us to apply it to more customers.
[00:25:46] Lucas: Okay. Excellent! So, if I'm summarizing, I suppose those key takeaways;
[00:25:52] Lucas: in terms of the investment bank side of things, first of all, you are, you're cheaper than them; you're more cost effective, and
[00:26:00] Lucas: the clients or the business owners who are exiting are going to have experienced partners working with them the whole time. When it comes to more of a traditional broker, they are collecting documents in a much more manual way from the business owners,
[00:26:19] Lucas: and they're also charging fees upfront. So, the traditional brokers are charging upfront fees whereas, if a business owner uses the platform, then the fee is success based which ultimately aligns with the goals of the business.
[00:26:42] Sach: Exactly. Yeah. Sorry. Excuse me.
[00:26:44] Lucas: Fantastic! Let's say that there are businesses out there who might be thinking, I'm 55 now, at 60, I'd like to retire. What key takeaways or key pieces of advice would you give to those businesses? And we might start with James first on this one.
[00:27:12] James: Yeah, sure. As such mentioned, we have a great questionnaire. I think it's really make sure, should I sell, can I sell; that's a good question to answer. Work with us to maybe get an idea around valuation. Is it what you expect? Or do you maybe need to do some more work around that and grow or scale the business to make that valuation what you want? And also have the company ready; I think that's important. So that's the kind of paper work, preparation work, and we can definitely help in that area.
[00:27:46] Lucas: Yeah and Sach do you want to dive into that as well?
[00:27:51] Sach: Sure. Yeah. I mean, I'll touch on the valuation side as well. I mean there are many different ways of doing valuations. And you'll get a range of different answers. And that includes man down department, who tells your business is worth £10 million. So anyone can tell you what a business is worth! I can do my homework and tell you what a business is worth, but it doesn't matter. What matters is the process that you run and making sure that you only talk to strategic buyers. Making sure that, okay, this business actually has a value to the people you're speaking to as the advisor. And then you can unearth the market value of the business because ultimately, it's only worth what someone's going to pay you for it.
[00:28:35] Sach: So yes, we can do the theory and it's a great entry point into having those discussions. But ultimately it's part of the process and the process that we run, matters. It matters significantly. So that's thing on valuations, the other kind of advice and tips I'd give to someone who's considering selling is kind of having that succession plan for sure. So, we'd need to have, or at least set up the business to have a second tier of management; it's usually important. Because we've seen this before as well, when a buyer comes in and buys a business where the culture of this business is driven and owned by the owner manager. As soon as owner manager steps away, not only there's the culture and the team, if you like, who the motivation of a team, we're largely geared towards supporting the owner manager. So, if he goes then what's that going to be like, and that has been problematic before.
[00:29:39] Sach: So having secondary management, having them own the culture, and also the operational functions of the business is hugely important. So, getting that right, I'd say is probably one of the most key things you can do, when it comes to setting up to seller business.
[00:29:56] Lucas: Okay. So, that’s succession planning and business continuity as you said. We mentioned that they should go through the process in order to understand, where their current valuation is at and then what steps they would need to take in order to hit their target valuation, have that succession plan and business continuity plan there. But let's dive into one point you made about sourcing the buyers and what actually goes into the valuation and the multiples. What should business owners be thinking about, if they've got two years before they want to exit.
[00:30:45] Sach: Sure. So, I guess it's kind of, we need, we definitely need to have a better word for this, what I'm about to say; and I'm almost, shouldn't probably say it, but it used to be called grooming. So, I guess what we should call it now is maybe strategic growth planning. It's a bit more of a mouthful, but probably politically correct these days! So, I'll call it that. So in that period, that's what you're effectively trying to do. And you can do this in two ways. I mean, you've made a decision to sell at that point. Fine. We can go to market and test the market.
[00:31:22] Sach: So we can say, look we'll have completely confidential conversations with all the buyers that we think could be of interest. We'll have a conversation with the owner manager and say, who do you think as well? Because it's kind of, we're a team at this point. So, we'll have a look at the immediate markets. So, the competitor's suppliers, we'll have a look at adjacent markets and say, okay, where can we potentially cross sell, Customers or cross purchase. Then we'll have a look at international markets as well. So, there's so many different pools of potential purchases and then where they overlap is where we're going to get the most strategic value. Competitors tend to be the most active when it comes to these things, but it's also the least valuable way of selling a business as well. So, in terms of the bell curve of valuations and multiples assessments, let's say the middle or the bell curve is something like five times but really, we want to be finding a business that will pay kind of nine times for it! Which is much more on the other end, but you need to roll your sleeves up, to find that buyer. So that's just doing the grinding work of picking up the phone and calling them or reaching out to them on LinkedIn and having the conversation saying, what are you interested in buying? Does it match with the client business? Yes or No? If it doesn't, which is the assumption here that everyone that we've called, would be hundreds of these businesses that we've called, not none of them matches will have a conversation with the client and say, look, this is where your business is. This is where these acquirers are actually wanting to buy and will have a strategic value. So, this informs that strategic growth planning and that's what we would implement over the next few years so that the business now looks like what they want to be acquiring as a strategic purchase.
[00:33:18] Lucas: The point you made about a competitor buying at say a lower multiple relative to a different buyer. What type of buyers do you see offering, let's say the highest multiples?
[00:33:35] Sach: Yeah, so I can point to a really good example on this one. It was, I mean, a number of years ago now but we looked at the competitors for this food and drink business and well, we had a whole load of potential purchases, as I mentioned, but everyone who was offering in this space, direct competitors were something like two to three times it was, terrible offers. Then we came across these handful of businesses where I had looked at all the annual reports, I'd reviewed them. I thought, okay, it's interesting from a few years ago, they'd exited this space. Exactly, this space that this business was doing. And I thought that is interesting. Why have they done that? Is it because, it's strategically unimportant or do they actually want to do something in this space? They just couldn't crack it. So picked up the phone, had a conversation with the actual, it was the CEO, actually that the actual head guy of this business, international business, you've got no chance in hell of usually getting through to them. But, like I say, you roll up your sleeves and you do the hard work and you have the conversations with them. And it turned out that this is something they really wanted to get into, but they could just never crack. This international business, they operate everywhere and this is a small little business that operates in UK and in just England.
[00:35:01] Sach: So, this was a business that now suddenly was strategically of massive importance to this international buyer. Active in loads of different spaces, not just what this niche business was doing, but this niche business sold into the bigger company at something like 9-10 times, way more than two times of what the competitors were offering. But they were basing on a cash flow valuation on a multiple space of kind of 2-3 times. So, on a cash flow basis that's what, I mean, it turned out to something like 9-10 times, but over the five-year period forecasting forwards, this product was enabling to be sold all over the world. So that means their profit of this business goes through the roof. So, it was just so much more powerful as a kind of best ownership principal to be sold into that than it is a competitor. That's what I'd say about that you need to find, where are the overlaps, is it an adjacent business, can it sell or cross sell? And is it international? Then you'd get much more chance of getting strategic multiples.
[00:36:06] Lucas: That's fantastic because I suppose it's an international business which is failed before in the space, and so they're looking for quality. And then they're prepared to pay more because then they're able to cross penetrate multiple different markets with that acquisition. So very, very insightful and something that I hope founders will pay attention to when they think about finding the right buyer with the best multiple. Sach and James, thank you so much for joining me today! I just want to check if there are any other points that you'd like to cover before we round up?
[00:36:50] James: Yeah, sure. We've got some really interesting stuff happening on a platform in kind of integration with Xero and Sage and QuickBooks, to kind of speed up that data entry. And also, some more advanced modelling particularly for accountants who might have their own forecast in methodology or the processes, we can integrate that into the platform. So that's quite exciting.
[00:37:16] Sach: Absolutely.
[00:37:18] Lucas: Excellent! All right. Well look, thank you both for joining us today! And I think key takeaways, at least that I've received as a business owner that I hope the audience will agree with; if you're planning to exit then plan in advance, understand what your current multiple is, start some business continuity and succession planning, so that the business is able to continue to thrive after you leave. And the final, I suppose, key point would be around finding the right buyer. So, understanding which buyer would really benefit from your business because buying or being bought out by a competitor, won't give you the optimal multiple.
[00:38:12] Sach: Exactly. Yeah. Summed up really nicely!
[00:38:15] Lucas: Fantastic. All right. Thank you again, guys!
[00:00:22] Lucas: Sach, would you like to begin?
[00:00:23] Sach: Happy to do so! Pleased to be here! Thanks for the opportunity! My background is Corporate Finance and M&A Advisory. I've been doing that for almost 15 years now, but specifically doing advisory services to small mid-cap businesses in the UK.
[00:00:44] Sach: So, it's buying and selling of companies as well as the growth of all thosecCompanies.
[00:00:49] Lucas: Fantastic! Thanks, Sach, and James?
[00:00:53] James: Yeah. Hi! Good to meet you! So, my background is Product and Technology, basically 20+ years doing Digital Transformation for enterprises and small organizations.
[00:01:05] Lucas: Fantastic! Excellent! And so would you be able to talk us through the history of the Platform?
[00:01:13] Sach: Sure! Happy to do so! I guess, it almost starts off with the Precision M&A Business, which is now the advisory arm of the Platform. So, Precision M&A, that's a business that has been existing for 20 odd years, started by the Chairman of this business; now, which is Neil Ackroyd, which I'm sure you'll speak to in due time. It's his business, he grew it through the recession. We were also three time award-winning through that recession and post-recession. That's the typical kind of boutique that we see in the UK and specifically London as well.
[00:02:00] Sach: Off the back of that, I decided to do a bit more professional development through my MBA. And that's where I met my colleague, James. We had started talking about the quirks of the Corporate Finance Market and M&A in particular though for mid-market. We just started talking about the issues and what we can do better. So out of that was the kind of brain child, if you like, of what has now become M&A Deal Platform. So, I guess over to James to have a bit of a background on that stuff.
[00:02:37] James: Yeah, as Sach said, we were on a MBA course, looking at M&A and really just the complexity and how M&A was being dealt with, kind of to me showed that there's a real possibility to change it to improve the process and, to simplify it ultimately and make it more effective for the end users, which in this case is the people selling and buying companies.
[00:03:06] Lucas: Okay. Fantastic! Well, look I love the fact that, you both met during the MBA course, and Sach, in terms of the reference earlier to how Precision M&A grew during the last recession; given the current difficult economic climate, I'm sure that there’s something we'll be able to discuss together later on today.
[00:03:29] Lucas: Perhaps to begin with, would you be able to discuss the steps that a company would need to take when they're thinking about an exit?
[00:03:43] Sach: Yeah, that's a good question! So, I guess there's multiple steps that even need to happen before the sales process even begins and I think it's a bit of a shameless plug now, but we're recently developed through the platform, a kind of questionnaire that helps unearth effectively the steps that you need to go through, before you've even made the decision to sell the business, which is quite simply named “Can I sell?” “Should I sell?” questionnaire. So, it looks at both kind of axis of that and effectively assesses those I guess variables or reasons of why you should sell and if you're ready to sell. So, we ask all these questions, we qualify it, we quantify it and at the end of that there's a bit of a discrete “yes” or “no” answer that says yes, you can sell or no, you shouldn't sell, but here's what you can do. So, we look at it kind of should I sell perspective much more from a psychological perspective, which is quite different in the way that this market tends to operate in the way that we assess people, as effectively these are people, these are owner managers. You have to be able to effectively manage them and work with them. So there's a bit of an assessment that goes on before we even embark on the journey of selling the business. So, we need to be aligned in that sense.
[00:05:12] Lucas: And what would that assessment typically involve?
[00:05:15] Sach: Sure. So, I mean, ultimately it tries to get you to or tries to understand the reasons in terms of “should I sell?” Tries to get you or us to understand the reasons of, is the owner manager ready to sell? There's four reasons why an owner manager should sell. One is retirement: they've grown the business, they're 60 years old and now I think great, I've done my part in the world and I just want to move on with my life. That's fantastic. The second reason is, a change in circumstance. This tends to be a bit more negative. Maybe there's an illness that's occurred in the family and the priorities have shifted. So, they're no longer are able to focus on the business; which I suppose they love doing, but ultimately now they can't run it like they should. So, they think, now I need someone. The third reason is actually the business has grown to a point where it has kind of out-scaled the expertise of the business owner. It is better off being in the hands of another business basically, or another ownership structure. So, it's just not been fun for that owner anymore. And I've heard this a lot in my time as well, where the owner just said: Look, I'm now sitting in all sorts of committees and forums and HR meetings, and all.
[00:06:34] Sach: I don't want to do this. I just want to go out and sell in the market. Or I just want to talk to my sales people and say, look, this is how you should be doing it. I don't want to have these committees and compliance conversations. So that's quite normal as well. And the fourth reason is ultimately cash. But, that's never a good reason just to sell for cash and we can probably get to that point, once we talk about the steps and the process. Because having changes in valuations throughout the process can happen. And if you're stuck on a number that you want to achieve before you even embark on the process, then in fact, you're just not ready to sell! You can go through so many months of effort. Yes, at the beginning of a process, someone might tell you, your business is worth 10 million. But then there's a price shift that happens through due diligence, which might actually be a worthy price shift. And then the Owner Manager might just think, well, it's not the price I expected, so I'm going to leave it. I've seen this before as well. We might come on to this, it's kind of cash-free, debt-free element of an offer, which effectively means, the offer would need to pay off the debt. So, let's just say the cash-free, debt-free offer is £10 million, there's £5 million a debt in the business; then you actually need to pay off that debt. So, the valuation comes down by the price of £5 million, because you're paying off the debt. So, on face value on the piece of paper, you got £10 million! That hits the owner manager's mind of saying, great, that's what my business is worth. And, but no, you go through the process.
[00:08:30] Lucas: They got only £5 million.
[00:08:17] Sach: Exactly. So that has happened only once and that was when I was a kind of junior in my time and it's never made that mistake again. Because it is a hell of, it's just a waste of time and effort.
[00:08:30] Lucas: Absolutely. And I think it's really good for people to realize even a couple of years prior to wanting to exit, that could impact it. And they don't want half of the amount they're able to sell the business for going towards paying off the debt. So James, do you want to elaborate a bit more about the platform's role in, an owner taking the steps to sell their business?
[00:09:04] James: Yeah. Sure. It's very similar to a lot of, what we see now, is “web platforms”. You are probably experiencing it on Amazon or eBay, it's that kind of easy interface, collecting the information that you need to provide rather than doing it via calls and swapping files.
[00:09:25] James: So, it really helps kind of speed up and simplify that process. It's almost a guide rail in some ways taking the owners through that kind of the number of steps, the marketing preparation.
[00:09:39] Sach: And the transparency of it as well, right.
[00:09:43] James: Exactly. Yes. It's all clearly there and you can also discuss it with the advisors, ourselves.
[00:09:48] Lucas: Is it, would you say it's self-serve?
[00:09:53] James: It is self-serving some ways, but I think in, with anything which is slightly complex, you do need that go to point, which is ourselves. If you have a question, you need some support, we're there to help with it.
[00:10:08] James: But, it's as self-service as you can get but with a blanket to kind of help you, if you need it.
[00:10:13] Sach: I would suggest that, it helps me as an advisor from a workflow perspective, it kind of keeps my costs down as a business owner. Because I'm no longer needed to spend, how many I need to on a team of analysts, I can just look into the platform and deliver the documents that I need to do through platform.
[00:10:34] Sach: And it's completely, like I said, it's completely transparent. I can see it, the Owner Managers can see it, and we can all just track it all together. It just makes the process so much more efficient and effective actually.
[00:10:47] Lucas: I guess at the moment if, I were to want to sell my business, I'd go through the initial sort of steps in terms of understanding the reasons why I would want to sell, and then gain access to the platform, and enter different types of financial data, in order to provide you and the team with the information that you'd need, in order to assess evaluation. So, what would happen next?
[00:11:24] Sach: There is a kind of set request for information, it's all pretty standard. We tend to go a little bit over, I guess the call of duty, when it comes to the request for information, but that only helps, especially when it comes to due diligence to get everything upfront as much as possible, and see things coming as early as possible and can solve these things as early as possible. All this information comes in, we digest it and we turn it into effectively “a sales document” or what's called an “information memorandum”. So that's the sales package. It's normally something like 20 odd pages. So, from everything condensed down into something that really sells the business and puts it on its best feet. And I guess that's the strength of the advisors as well. When the advisor can look at it from an outside perspective, whereas the owner manager is, it's kind of seeing it from almost tunnel vision, they've been in it for so long! They're not able to take a step back and look at it holistically and think. Actually, this is where the business has value in the market. And that's valuable even if the advisers come in and do that. Especially, when they've been selling companies as a day job and they know what works and what doesn't work and how to position these things.
[00:12:50] Lucas: And I suppose a question for James, because we met at the Digital Accountancy Show and accountants are very much say trusted advisors of business owners. And sometimes they are also the gatekeepers of a lot of pieces of documentation or data. So how do you work with partners like accountants or lawyers, in order to help your end client sell their business?
[00:13:26] James: Yeah. That's a great question. Multiple ways! We have a range of partnerships from a very simple, we do most of the CF work, and they kind of introduce us to the clients and work together. All the way through to building a full CF practice for a firm. So, we do have that whole range. It's a journey, we like to think with the accountants, which we take them along, hopefully, 2-3 years later they will have a full CF practice of their own, but if that's not their ambition and if they just want to do some basic CF, we're there as well.
[00:14:07] Lucas: Fantastic! So earlier on we mentioned, sorry, you mentioned, that there were four main reasons that a business owner would like to sell. Currently, we're in a difficult economic period. There's very high inflation. How do you see the reasons for wanting to sell change during a difficult economic environment, such as now, compared to more of a boom period, which is what we have arguably experienced over the past decade?
[00:14:50] Sach: I mean, I know fundamental reasons for selling don't change. You're either going to be those three reasons and you are already mentally, you are out of the business. You're not adding value anymore, regardless of boom, more recession. The cash thing is still not a reason to sell regardless of boom or recession. It just means you're more likely to potentially get something, more-higher value, purely on the basis that business, in boom times businesses are investing in everything, anything. They might see a business as a strategic fit for their own company. So, there might be a wider pool of potential purchasers and the process might be more competitive in that sense.
[00:15:33] Sach: But, that's probably less, the converse is true. In a recession time there'll be less pools of potential purchase. I mean, you still want to sell regardless of where you're at. And you should sell regardless of where you're at. Or at least you should run a process and see what is the market saying because even if the market as a whole is in recession, you as a business might be in a defensible position as a business, or you might even just own the market niche. In that case, it's always going to be valuable.
[00:16:06] Lucas: Yes. Okay. I understand. And are you able to provide some details about, who your typical client would be? Are there any particular say financial thresholds?
[00:16:20] Sach: Sure. Certainly, on the precision end, we tend to look at businesses that are £1 million plus earnings before interest and taxes (EBIT) and the reason being is fundamentally these businesses are saleable. As soon as you go a little bit lower than that, the pools of buyers are lesser. It just becomes far more difficult to find a buyer who wants to buy a business that is turning over a million pounds or £50,000 profit. It's much more difficult to find those buyers. I mean, they do exist, but they tend to be in local markets. I guess that's again where the platform can come in and help. Because instead of it being just local markets, the advent of technologies, as we can see with Uber taxis are local markets, but with Uber, it's now international markets. So, it's a similar kind of principle that it opens up local buyers to, sorry, local sellers to a wider pool of buyers. And that's a process that we're still kind of building. But the principle is that, maybe James will touch on it as well, and probably I have treading on his toes! But we're testing it right now with a number of different clients and it's all backed by the Precision M&A element of actually having an advisor.
[00:17:43] Lucas: So, in terms of that marketplace analogy you mentioned about Uber; James, do you mind talking about where you source, I suppose both the companies that want to sell and the buyers from.
[00:18:00] James: Sure. I mean, there's quite a few channels we use. We find valuation is a real key, “call-to-action”, interest point. Everyone always, business owners would want to know the value of their company. And we've built a great little App for that on our website.
[00:18:23] James: And some supporting articles and the questionnaire that actually mentioned that kind of help with that kind of initial, how much is my company worth? What do I want to do? Am I ready to sell? Et cetera. And we find that's a great kind of conversation to have for both ourselves and our partners.
[00:18:43] Lucas: Fantastic! So, they come to the website, they're able to fill in their financial data in the valuation calculator and then the conversation flows naturally from there.
[00:18:56] James: Exactly.
[00:19:00] Lucas: Fantastic! So, I suppose for people who are thinking about selling their business, what would the process be?
[00:19:07] Lucas: Let's say, with the traditional broker or advisor compared to you. So, I suppose, I'm thinking what really are the pain points that you guys and the team are solving?
[00:19:24] Sach: Sure. Sorry.
[00:19:26] James: No you go first. Yeah.
[00:19:36] Sach: So, I mean, certainly from a Precision M&A, we are very much different to the brokers that exist in the market and the way that we position ourselves, especially through the Platform, is that we have the kind of top end M&A investment banks that exist in the world. The multi-market, blue chips that exist and it's basically taking that sort of process into the small mid-cap space. We're able to more effectively do that and make it more cost effective, not only to us, but to the client through the platform. So, James actually, before in terms of, I think I did as well, like with the IM and transparency and certainly research as well, but I think it's a lot easier to say, how do we differ; and certainly on pain points compared to brokers than it is to the IBs of the world, because the IBs are fantastic at what they do quite frankly, but
[00:20:37] Lucas: they're very, I suppose, expensive and out of reach for many businesses.
[00:20:41] Sach:. Exactly right and it's also when you mentioned it before, in terms of, what happens in a recession, so certainly in a recession, those kind of bigger players tend to come down into the smaller mid-market. Because the bigger business are moving, they're not buying or selling anymore. So, then they say, well, we use our brand to touch onto those guys, which does affect us, kind of smaller end advisors better or for worse, certainly for worse anyways and they do tend to charge extortionate fees and especially, purchase fees on the back of it. And I've seen that more recently as well, which is actually quite disheartening, but it happens and I don't really blame owner managers for going with the more well-known brand. Why would you not go with the more well-known brand that's internationally exposed. But yeah, the problem is that they will not only charge crazy amounts for an upfront and on a success. They would also wheel out an expert in their sector as they can do that, they'll see them on the pitch and they'll never see that person again. And then once they've converted that client, they've got a junior who's fresh out of university working on this small deal. Because it's kind of low value to these big companies, they're not interested in it. So, it's good training for them.
[00:22:07] Sach: But with us compared to them, certainly those clients will only ever get the experts, the partners who are actually working on their deals. Never a junior. So that's how we differ from the big guys, for sure. The smaller end brokers, the way that we differ is that we actually do end-to-end. We come up against brokers who are much more volume based, very good at selling, unbelievably good at selling and that's something I wish I was good at. I guess that's why we're here as well, right! So, but they're so good at selling and I've been doing it for so long. They're volume-based businesses, they will make their money on the upfront fees. And maybe one or two of them will sell. And that's where they get a nice bonus. But ultimately their business model is taking as much upfront fees as possible. We don't do that. We can own. We have a small number of deals that we'll take on, and we're very much expecting to have the success fees and that's when we make our money.
[00:23:14] Lucas: You have essentially aligned your business model with the success of an owner exiting.
[00:23:23] Sach: Yes, exactly. And again, that's how we differ to brokers. I mean, they're very good at putting people together in a room. In Russia, in a pitch, not too long ago, where these business advisors/brokers, they put them in a room with a buyer. And then very quickly their value tailed off. It was up to the owner managers to win over the buyer and run the process from then on! You just think, that’s insane! So we do end-to-end - we will not only put them in a room together, we'll actually manage the presentation for them, set them up so that they can be on the best front foot and then make sure they get the offers from everyone that they see. Then we have a competitive process and the best offer goes through and then we go into due diligence and with the one buyer, and exclusivity and due diligence, sorry, with that one buyer, and protect the price as much as we can. As possible, I mean, there's very different reasons why it will change upwards and downwards. But, we might come onto that in terms of mechanics is quite boring, so I'm not sure you should.
[00:24:41] Lucas: I've got more of a platform question for James, again, focused on traditional brokers versus the platform. So how would traditional brokers collect, let's say the financial data, relative
[00:25:00] Lucas: to how business owners are able to use the platform to provide that data.
[00:25:06] James: Yeah, that's good question. Obviously, it varies from broker to broker, but my experience or our experience is it's quite manual. It's moving documents around, uploading them to a file share, et cetera. No structure! And going back to what such was saying it really what our Platform adds is this standardization of process,
[00:25:30] James: makes it much simpler for the owner manager to know what to do, what the process is, what the next steps are and ultimately we've made the investment in the technology to build a platform which allows us to apply it to more customers.
[00:25:46] Lucas: Okay. Excellent! So, if I'm summarizing, I suppose those key takeaways;
[00:25:52] Lucas: in terms of the investment bank side of things, first of all, you are, you're cheaper than them; you're more cost effective, and
[00:26:00] Lucas: the clients or the business owners who are exiting are going to have experienced partners working with them the whole time. When it comes to more of a traditional broker, they are collecting documents in a much more manual way from the business owners,
[00:26:19] Lucas: and they're also charging fees upfront. So, the traditional brokers are charging upfront fees whereas, if a business owner uses the platform, then the fee is success based which ultimately aligns with the goals of the business.
[00:26:42] Sach: Exactly. Yeah. Sorry. Excuse me.
[00:26:44] Lucas: Fantastic! Let's say that there are businesses out there who might be thinking, I'm 55 now, at 60, I'd like to retire. What key takeaways or key pieces of advice would you give to those businesses? And we might start with James first on this one.
[00:27:12] James: Yeah, sure. As such mentioned, we have a great questionnaire. I think it's really make sure, should I sell, can I sell; that's a good question to answer. Work with us to maybe get an idea around valuation. Is it what you expect? Or do you maybe need to do some more work around that and grow or scale the business to make that valuation what you want? And also have the company ready; I think that's important. So that's the kind of paper work, preparation work, and we can definitely help in that area.
[00:27:46] Lucas: Yeah and Sach do you want to dive into that as well?
[00:27:51] Sach: Sure. Yeah. I mean, I'll touch on the valuation side as well. I mean there are many different ways of doing valuations. And you'll get a range of different answers. And that includes man down department, who tells your business is worth £10 million. So anyone can tell you what a business is worth! I can do my homework and tell you what a business is worth, but it doesn't matter. What matters is the process that you run and making sure that you only talk to strategic buyers. Making sure that, okay, this business actually has a value to the people you're speaking to as the advisor. And then you can unearth the market value of the business because ultimately, it's only worth what someone's going to pay you for it.
[00:28:35] Sach: So yes, we can do the theory and it's a great entry point into having those discussions. But ultimately it's part of the process and the process that we run, matters. It matters significantly. So that's thing on valuations, the other kind of advice and tips I'd give to someone who's considering selling is kind of having that succession plan for sure. So, we'd need to have, or at least set up the business to have a second tier of management; it's usually important. Because we've seen this before as well, when a buyer comes in and buys a business where the culture of this business is driven and owned by the owner manager. As soon as owner manager steps away, not only there's the culture and the team, if you like, who the motivation of a team, we're largely geared towards supporting the owner manager. So, if he goes then what's that going to be like, and that has been problematic before.
[00:29:39] Sach: So having secondary management, having them own the culture, and also the operational functions of the business is hugely important. So, getting that right, I'd say is probably one of the most key things you can do, when it comes to setting up to seller business.
[00:29:56] Lucas: Okay. So, that’s succession planning and business continuity as you said. We mentioned that they should go through the process in order to understand, where their current valuation is at and then what steps they would need to take in order to hit their target valuation, have that succession plan and business continuity plan there. But let's dive into one point you made about sourcing the buyers and what actually goes into the valuation and the multiples. What should business owners be thinking about, if they've got two years before they want to exit.
[00:30:45] Sach: Sure. So, I guess it's kind of, we need, we definitely need to have a better word for this, what I'm about to say; and I'm almost, shouldn't probably say it, but it used to be called grooming. So, I guess what we should call it now is maybe strategic growth planning. It's a bit more of a mouthful, but probably politically correct these days! So, I'll call it that. So in that period, that's what you're effectively trying to do. And you can do this in two ways. I mean, you've made a decision to sell at that point. Fine. We can go to market and test the market.
[00:31:22] Sach: So we can say, look we'll have completely confidential conversations with all the buyers that we think could be of interest. We'll have a conversation with the owner manager and say, who do you think as well? Because it's kind of, we're a team at this point. So, we'll have a look at the immediate markets. So, the competitor's suppliers, we'll have a look at adjacent markets and say, okay, where can we potentially cross sell, Customers or cross purchase. Then we'll have a look at international markets as well. So, there's so many different pools of potential purchases and then where they overlap is where we're going to get the most strategic value. Competitors tend to be the most active when it comes to these things, but it's also the least valuable way of selling a business as well. So, in terms of the bell curve of valuations and multiples assessments, let's say the middle or the bell curve is something like five times but really, we want to be finding a business that will pay kind of nine times for it! Which is much more on the other end, but you need to roll your sleeves up, to find that buyer. So that's just doing the grinding work of picking up the phone and calling them or reaching out to them on LinkedIn and having the conversation saying, what are you interested in buying? Does it match with the client business? Yes or No? If it doesn't, which is the assumption here that everyone that we've called, would be hundreds of these businesses that we've called, not none of them matches will have a conversation with the client and say, look, this is where your business is. This is where these acquirers are actually wanting to buy and will have a strategic value. So, this informs that strategic growth planning and that's what we would implement over the next few years so that the business now looks like what they want to be acquiring as a strategic purchase.
[00:33:18] Lucas: The point you made about a competitor buying at say a lower multiple relative to a different buyer. What type of buyers do you see offering, let's say the highest multiples?
[00:33:35] Sach: Yeah, so I can point to a really good example on this one. It was, I mean, a number of years ago now but we looked at the competitors for this food and drink business and well, we had a whole load of potential purchases, as I mentioned, but everyone who was offering in this space, direct competitors were something like two to three times it was, terrible offers. Then we came across these handful of businesses where I had looked at all the annual reports, I'd reviewed them. I thought, okay, it's interesting from a few years ago, they'd exited this space. Exactly, this space that this business was doing. And I thought that is interesting. Why have they done that? Is it because, it's strategically unimportant or do they actually want to do something in this space? They just couldn't crack it. So picked up the phone, had a conversation with the actual, it was the CEO, actually that the actual head guy of this business, international business, you've got no chance in hell of usually getting through to them. But, like I say, you roll up your sleeves and you do the hard work and you have the conversations with them. And it turned out that this is something they really wanted to get into, but they could just never crack. This international business, they operate everywhere and this is a small little business that operates in UK and in just England.
[00:35:01] Sach: So, this was a business that now suddenly was strategically of massive importance to this international buyer. Active in loads of different spaces, not just what this niche business was doing, but this niche business sold into the bigger company at something like 9-10 times, way more than two times of what the competitors were offering. But they were basing on a cash flow valuation on a multiple space of kind of 2-3 times. So, on a cash flow basis that's what, I mean, it turned out to something like 9-10 times, but over the five-year period forecasting forwards, this product was enabling to be sold all over the world. So that means their profit of this business goes through the roof. So, it was just so much more powerful as a kind of best ownership principal to be sold into that than it is a competitor. That's what I'd say about that you need to find, where are the overlaps, is it an adjacent business, can it sell or cross sell? And is it international? Then you'd get much more chance of getting strategic multiples.
[00:36:06] Lucas: That's fantastic because I suppose it's an international business which is failed before in the space, and so they're looking for quality. And then they're prepared to pay more because then they're able to cross penetrate multiple different markets with that acquisition. So very, very insightful and something that I hope founders will pay attention to when they think about finding the right buyer with the best multiple. Sach and James, thank you so much for joining me today! I just want to check if there are any other points that you'd like to cover before we round up?
[00:36:50] James: Yeah, sure. We've got some really interesting stuff happening on a platform in kind of integration with Xero and Sage and QuickBooks, to kind of speed up that data entry. And also, some more advanced modelling particularly for accountants who might have their own forecast in methodology or the processes, we can integrate that into the platform. So that's quite exciting.
[00:37:16] Sach: Absolutely.
[00:37:18] Lucas: Excellent! All right. Well look, thank you both for joining us today! And I think key takeaways, at least that I've received as a business owner that I hope the audience will agree with; if you're planning to exit then plan in advance, understand what your current multiple is, start some business continuity and succession planning, so that the business is able to continue to thrive after you leave. And the final, I suppose, key point would be around finding the right buyer. So, understanding which buyer would really benefit from your business because buying or being bought out by a competitor, won't give you the optimal multiple.
[00:38:12] Sach: Exactly. Yeah. Summed up really nicely!
[00:38:15] Lucas: Fantastic. All right. Thank you again, guys!