EP 89: M&A Masterclass: Twitter Spaces Replay

Ed Mysogland  0:34  
This week, I had a first for me, which was to be on Twitter spaces. I'm not really certain exactly what Twitter spaces were, but I was on him. And I had the opportunity to, to be joined or to be invited by Kevin Henderson and Eric pass FICCI of the SMB Law Group. And those guys are setting the world on fire as far as doing great law work for small bit small and midsize business buyers. And so we started down this path of writing for their newsletter. So one of my brethren of the business brokerage industry, Clint Fiore out of Texas, he and I contributed to their m&a masterclass newsletter and it was very well received. So we jumped on Twitter spaces, and we, we were joined by I think when when I last saw the numbers, I think it was like 1000 of our closest friends. And we were talking about how buyers can work with brokers more effectively, and how the mechanics of that all work. So I thought it would be really good even though this podcast is, is really geared towards sellers, it really would might be helpful for business sellers to understand how brokers are working with the buyers that are candidates for their business. So anyway, I hope that you enjoy my conversation, or my participation rather with Clint Fiore, Eric best Vici and Kevin Henderson on Twitter spaces.

Speaker 3  2:15  
Welcome everybody to this live chat. For the m&a masterclass that Kevin business buying masterclass that Kevin and I have been running for the last couple of weeks. This is the first live chat of this nature, we thought it would be fun to, you know, expand on the written portions of the masterclass. And this week, we had a, you know, honestly, a really fun piece that was contributed largely by Ed and Clint with some commentary around the edges from from Kevin and I. And I learned a lot in reading it and had a lot of takeaways about the search process myself, because, you know, being involved in the elements of the business planning process that Kevin and I are on the legal front, you know, we don't see the very front end of the surge very often like buyers do, and really like brokers do. And as everybody on this call probably knows, brokers have a tendency to get a bad rap in the business buying world and in the business buying process, but they are arguably the most important part of your search as a buyer, particularly as a first time buyer, because, you know, as we'll cover this week, when we address proprietary searches or off market searches, you know, those are very difficult. And oftentimes, Kevin and I and other people who have been around business buying in the search fund or search world will tell you, you know, doing it off market search in your first deal is probably not a good decision. They're very difficult to define. They're very difficult to close, you don't have the broker there to grease the wheels and so, enter Mr. Broker, and you guys play a really critical role in helping the buyer find a high quality business because as discussed as the current issue, the masterclass addressed, the vast majority of high quality businesses are typically sold before they ever even hit the market. Most buyers don't even know that they were for sale before they are sold. So having a high quality relationship with a broker, appreciating a broker and understanding their their perspective and their role in the transaction is critical to buying a high quality business. So super fun to have Edie and Clint on the call and as a part of the master class tonight. I won't. I'll do fast introductions. Kevin, feel free to jump in. If you have anything you want to say here at the outset. I'll do quick introductions of Ed and Clint and then And I'll let them introduce themselves. If there are any other brokers on the line or anybody else who wants to contribute tonight or feels like they have something to contribute to this portion of the masterclass, please feel free to jump in. I see some incredible people on the line. Ray Drew, Lisa Forrest. Andrew Hoffman, a lot of incredible people in search are on this call. So feel free to jump in. If you guys want to add something to the conversation but brief introductions, we've got Ed Mysogland. And apologies if I got that wrong, Ed, but Ed is the founder of our sorry, and I'm butchering this already, you're the managing partner of Indiana business advisors, iba renowned business broker with over 30 years of experience. We also have Clint to you're a founder and CEO of Texas based life and business, which is now a national brokerage, Clint and ad are both very highly regarded and well respected in the business buying SMB Twitter worlds. So appreciate having both you guys on the call. And, Clint for those few people who don't know who you are, feel free to give a brief introduction.

Speaker 4  6:08  
So I am a business broker live in Central Texas and CEO of bison business, we are considered ourselves kind of like a new school business brokerage that just does good deals for great people. And, yeah, we're just trying to raise the bar as much as we can on an industry that does suffer from a bad reputation. And we want to be very educational representing great deals and do a good job at it and kind of prove that we're not all worthless losers. But we we do good work. I've got a great team around me. And, and yeah, it's just been a real fun, a fun year and a half kind of getting to know you, Eric, and getting involved with SMB Twitter, and sharing as much knowledge and value as I can. But yeah, I've been doing this about eight years and just kind of obsessed with, you know, how do we make this easier, because it's just, it's tough. I've been a buyer. I know how hard it is to find good deals, to get brokers to call you back to get deals done. It's very difficult. And I think that it's going to be a team effort from this whole industry. People like SMB law group and add another group brokerages out there are going to all be part of the solution of just let's all figure out how to do this better, more efficiently and raise the bar so that we can get more more quality deals done for quality people.

Speaker 3  7:34  
Quickly picking me up right now, man. So let's, let's not keep everybody waiting. Tell us in your own words. I mean, obviously, I rambled on at the very beginning, about the importance of brokers. And you know why as a buyer, you should be nice to brokers, and you should care about brokers, but tell us from your own perspective, the significance of brokers in the business buying transaction?

Speaker 4  7:59  
Yeah, I think a lot of the a lot of the best deals are represented by brokers. And I think that, that it's wise to learn how to work with them. And I think that, you know, in general, a lot of the bad rap comes from we're just really busy. And, you know, on, Ed was sharing some stats, I hope he's able to get on and speak but he's very good at this stats side of this. And, you know, from my own firm's experience, when we get a great deal, we often get contacted by 100 to 200 people that will sign an NDA and want to get them and it's it's tough for us to even with the team working together to get back to all 200 people the speed and they want to talk to us when we have a good deal coming to market. So you know, I hope that you know, you won't get disappointed discouraged when you didn't get that call back. But we're going to share some tips tonight on just ways that you can kind of position yourself to be quick to get the best results and to be able to snatch up, you know, the good deals that do come through brokerages as they as they pop up.

Speaker 3  9:11  
And feel free to unmute and introduce yourself.

Ed Mysogland  9:15  
Yeah, head Meister gland I've been I've been doing this has been my only gig for 30 years. In fact, June 6 happened to be my 31st year so somebody's gonna have a new in a long time. We do lots of deals. You know, predominantly, our main street side works predominantly here in Indiana, but we have a, you know, little little boutique and m&a type work that we do nationwide. We're, you know, we're rocking along. It's a it's a good place to be right now. And, you know, it's a lot of fun to see what's what is happening in the space and I was I was grateful for the opportunity to participate. You know, participate in the masterclass and I'm looking forward to visiting tonight. So, so what can I, what can I do? What can I answer?

Speaker 3  10:10  
Well, first of all, in your defense, Kevin is our de facto CTO at our law firm. He, in fact, he both days, he helped me turn my laptop on. And he's, he's struggling to get out of here. So, so don't don't feel too bad about that

Unknown Speaker  10:25  
to be to be very

Speaker 6  10:26  
clear, Eric, I think I will snap. But that's okay.

Speaker 3  10:32  
Yeah, fair enough. Let the record reflect that, probably. But anyways, and feel free to answer the same question that Clint did, which is tell us why business brokers are essential to the business buying transaction? And obviously, it feels like an obvious answer. But tell us from your perspective. No,

Ed Mysogland  10:50  
I actually don't think it's, it's obviously, as it might seem, I was just, I was talking with a PE group earlier today. And, you know, it's important that, you know, the brokerage world is moving from, you know, when I first got into this, it was the broker was the conduit, you know, the tollbooth to the buyers. Now, buyers are just as they can find as many sellers as we can, we just happen to have more transaction, you know, transaction reps on getting it to the finish line. And so I think, you know, brokers are having, I think they're instrumental, so long as they maintain the, you know, that they have the chops in order to get it to, you know, get it from point A to the, to the finish line. Does that make sense? Yeah,

Speaker 6  11:40  
but that totally makes sense. And, to, to follow along, what you and Clint said earlier, you know, one of the things that was most fascinating to me, in the issue that we put together with a lot of your information, was just how many deals actually happen before deals go out to, you know, the, the listing websites, The Best Buy, sells, you know, things like that. And I find myself curious, you know, does that vary by broker and brokerage? Or, you know, how common prevalent is that? I'm curious if you guys like not to hold you to specific numbers, but you know, how many deals on average, are you kind of finding and placing with buyers, directly through your own sort of priority networks of, you know, database of known buyers and things like that, like, help us how help us understand how often this happens, and what it takes for buyers to kind of be part of that process before things end up on this buy, sell or, or, you know, buy and sell a business and are and are seen by, you

Speaker 4  12:52  
know, millions of eyeballs? Click Do

Ed Mysogland  12:56  
you want to take it first?

Speaker 4  12:58  
Sure. You know, I'd love to jump in on that one of,

Ed Mysogland  13:03  
for us. When we did our very first

Speaker 4  13:06  
deal. I was working from a ping pong table, and I had no buyer list or anything like that. And so I was kind of at the mercy of biz buy, sell and these other platforms. And so, you know, my first first listing, I put it out there. And then as you as you go, and you grow as a broker, every time you put a deal out there for sale, I consider that to be kind of like a magnet for my buyer list. And so still to this day, eight years later, every, every listing we get, does typically get to the market. But our insiders hear about it first. So we tell our email list and our Twitter followers and on social media, we kind of reward those folks we have established relationships with by an early sneak peek of the deals and kind of give them first mover advantage. And then we then we roll out to the main marketplaces with like a couple week delay usually, so we get a couple of waves of interest. And so what I look at it like, like I was saying every, every opportunity we put out there is a chance for another 100 or 200 new folks to be magnetized into our firm through these marketplaces. And when we field as many of those inquiries as we can we try to get to know those buyers, try to get them in our CRM on our email list, following us so that they can be kind of that part of the insiders group. And then over time, how that's changed is, you know, at first it was 100% of the buyers were obviously coming from the public marketplaces. But then over time it was about it's been going up to 50%. Now I'd say it's more like 70% of the buyers that closed deals with us this year are going to be people that were already talking to us before that deal had the market there. They're either on our what we used to call our VIP list or the probably a good deal email list or, or they're just people we're connected to on Twitter or Facebook, other places like that we are already talking to you.

Ed Mysogland  15:15  
So just just to be clear

Speaker 6  15:16  
in the follow up on that before we we bounced a bet ad because I'm interested in your thoughts on this too. And but like Clint, just to follow that thread for a second because it if I heard you correctly, even deal that are, you know, eventually going to close with like, the VIP list or whatever you want to call it, right? They're still they're still gonna, during the process and up on the public web websites generally. If I heard that correctly, how are you thinking about or parsing those leads? Or, like, what's the purpose of putting it in the marketplace is it just to kind of make sure you're getting the right pool of buyers. And that just so happens that over time, as you build out these these lists and databases, that happens to be on your VIP list, or help us understand what the strategy is to still list everything on the marketplace is that the majority of these businesses are not actually going to sell through those.

Speaker 4  16:14  
Yeah, eventually, I want to have every buyer on planet Earth and my own proprietary database, right, but right now I don't. And so while I get more is by putting stuff out there, as magnets to bring them in. And so I don't like putting stuff on this buy or buy sell business or other places, it's already locked up under contract with a buyer. So the way I time it is we bring it out to our insider list. And then with a pretty short fuse, usually a week or two. It's not enough time for this to be under contract yet or under loi yet, that will bring it to the will bring it to the major marketplaces. And then a lot of times within another week or two after that, we changed the listing to say under contract when we get a signed LOI. And so you got to be quick, like, you have a big advantage being on the Insider. Having a few, you know, a couple of weeks had started versus people that see it pop up, among them, you know, millions of other people troll on these big websites. So that was one of the big kind of things that I put in and I take Ed said the same thing on your newsletter was just, you know, get involved with the brokers you like that represent the geographies and industries that you like, make sure that you are on their proprietary outreach, or that you're on their deal notification list. So you can get that. I've been doing that since I started. But I've been teaching that to the IV, IV BA and other places. And I think that's becoming a trend is a lot of these brokers will do that one two punch though. They'll release it to their insiders first and then the public second. So you're a little bit behind the eight ball if you see it on this buy most of the time, but that doesn't mean I think the misconception is if it's on biz by then it's it's been passed over or it's junk or like that's not true, like there when we put them out there on biz while they're still available. And they're good. It's just so there's there's still good stuff out there. But you just you want to get on as quickly as possible.

Speaker 3  18:24  
Well, let's get to the heart. Well, first of all, let's back up for a second for those of you who just joined us, m&a masterclass, we're talking this week about brokers and getting your broker's perspective, you've got Clint Fiore, and me so glad to you know, very well known and experienced business brokers that are giving their perspective on this. And I think, guys, let's get to the heart of it. I had dinner recently with Clint with your number two, their dusty block. And one of the interesting things that Dusty was sharing with me was how important maintaining the trust with the seller is for a broker. And I walked away from that conversation with the revelation that almost all of the things that you guys say buyers, do in the search really feed into how can you trust them, so that that that you can maintain the seller's trust in the process? At least that was the dots that I was connecting in? Sometimes I miss connect. So I'd love to hear your guys's perspective, tell the buyers on this call and that are following the master class. How do buyers earn your trust in the process so that they can get those early stage deals, those high quality companies before they hit the market? And we can start with that since you took the last one. Okay, so

Ed Mysogland  19:44  
when when a buyer is coming, coming to us or we're going to get the buyer, the biggest thing is that there is some evidence you know that now say that your deal worthy but that that you have Have you, you have the ability to execute on the deal that you have, you know, that you you have the investable capital, you have you have, you know, the background, you know if it's a SBA deal, do you have the operational background do you have access to, to people that can run the business? Do you have all of the ingredients in order to execute on on the deal, that's, you know, that's the person we're looking at. And as we've accumulated buyers over time, we continue to, to add in to our CRM, what we know about these particular buyers, so we can go to them first and address them because we know them the best. So to earn the trust is, again, it's back to, can you and will you, you know, operate in a manner that a, you know, the seller, you have far many more reps at looking at businesses than the seller has selling businesses. So, so they're outgunned, they, they don't realize it, but until until the seller reaches we call the deal theater, once we get into the into that situation now you're now you're talking to your taken live buyer. And the end, the end the buyer, how that buyer behaves toward that seller will really dictate how what our relationship is going forward, you know, and there needs to be some grace and and some understanding that, you know, you may not get audited financials, and that's okay. You know, we have a deal right now that the buyer is insisting on a on a deal room, and we just got past the NDA, and he wants to do due diligence, and it's just like, it's overwhelming to the, to the seller, but my point is that it now creates a level of mistrust with the, with the seller as well as the broker, we don't want to put the put the client in, in a in a position where, where they're, they feel as though that they're at a disadvantage, even though technically, probably they are that the buyer has a lot of leverage in this equation, just coming into into this environment is, at least initially is first. And as I said in, in the newsletter, you know, you only you start earning the trust of the seller. I mean, we can do valuation work, we can do all kinds of all kinds of pre sale work to establish, you know, domain expertise, but until we earn the trust, when we start defending the person that we're taking the market, if that makes sense. Yeah, it makes sense. And

Speaker 6  22:41  
if I can push on that just a little more. And, you know, one of the things I see with a lot of searchers and buyers, when they're going through the LOI phase is, you know, they don't necessarily have full and adequate access to, for example, example, equity capital, right, we'll close a lot of deals, where buyers are going to inject zero to 2% of the deal price in equity capital with the rest of the equity coming from, you know, a handful of other investors who aren't going to commit to a deal until right there's an LOI and a commitment letter from a lender, etc. So what exactly does that vetting process of a buyer look like? When you say that you want to see that they're qualified, that they have access to the capital, and things like that, when they're not necessarily going to be able to provide you a bank account and brokerage statement that shows a million dollars of, you know, securities or, or liquid cash to be able to complete a deal?

Ed Mysogland  23:46  
Sure. So, so what we tend to do is, number one, do who in the net? Who, who in the network, do we know that knows you? All right, and and who, and chances are, where you're getting your equity, we probably have a pretty good idea of those people too. And, and in situations, on the smaller side, it, we would say, Look, if you have an investor, whoever is going to deploy the capital, bring them because their time's worth more than them writing the check. And we know that now as you get, the challenge that we bump into, is when it's when it's, Hey, I'll know that I can get access to the deal when I find the right deal. But at first I got to, I got to spend the next three months poring over this business. That's that's where the, that's where we bump into the challenge. You know, it's one thing to say, look, we haven't, you know, we have an indication of interest. And, you know, we have other financing sources that we're going to be that we're going to bring in and that's that's perfectly okay. We just need to be in a position to explain that, you know, either A, we're not going to take it off the market. You know, we'll we'll go ahead and look at your indication of interest or we'll add it to the pile But at the end of the day, we're we're going to continue to, until we have some evidence that you have the ability to execute or the your partners or your LPS or whoever is going to participate with you, we're going to have to take some some ancillary steps to ensure that we're, that we're not tying up the business, if you don't have the ability to execute on the deal. Does that make sense? Yeah, I'm,

Speaker 6  25:26  
I'm following. That's super helpful. And, Clint, if you want to build on that, you know, give us some some examples to building these relationships. Like what what what are the? What are the most welcome and kind of appreciated approaches, when buyers are reaching out to you during a search to start establishing that relationship? Is it offering to buy you lunch? Is it you know, get on a phone call? You know, how do you kind of balance here the the timing requirements with the ability to build these relationships and start

Speaker 4  26:02  
building that funnel? Yeah, I mean, you're saying the key word, this, this is relationships, this whole thing is relationships. I think a huge mistake that buyers make especially rookies is they're familiar with, like real estate deals, which are, are usually just, you know, you're looking at facts and figures, there's not a relationship needed, what the seller of a piece of real estate is just the thing, and it's just who can put the biggest number, the fastest on the piece of paper, and, and lock it up, is going to win the deal, you know, kind of kind of this adversarial relationship where, where you don't trust the broker on the other side, you think they're just a salesperson. And, you know, you take everything they say, with a grain of salt, and there's some wisdom there. But with businesses, this is a living breathing thing. It's, it's the sellers, baby, they want to sell to someone they like that you need to like them and trust them, they need to like you and trust you with us. We want to get, we want to get to know you. And then we want to get you to meet the seller, usually either via phone call or a site visit. Before that loi on most of our deals, we want to have that relationship dance a little bit. And dusty is on the call, I see him listening. He's he's uh, he's got one of the best calibrated Bs, Bs detectors in the business. And he's does a lot of the initial buyer screenings. And I think what he would say is like, don't BS us out of the gate. And so if you're the person that doesn't have the big brokerage account to show that you've got it in liquid cash, but don't know come in and act like you do, and don't. So if you're in that situation, you're talking about Kevin, where you're gonna have to raise equity, introduce us to your kind of lead investor, show us that you're serious and aren't gonna play games here with trying to lock up our deal. Like I was saying for an extended period of time where you gotta try to fundraise. Because that just, I mean, when we in that situation, our necks are on the line. Where we don't know you, we don't know if your ability to fundraise is going to come through for us. But the clock's ticking. And the seller, like if you if you don't come through, it's our necks on the line and our reputations on the line with our clients and the sellers. And so we just want to know, kind of out of the gate. And I'm one of the few because I've been so a lot of it's because I've been so so involved with SMB Twitter community and see how active the fundraising scene is that I do believe. If, if you're the right earnest buyer that's got the right skills and resume and knows what you're doing. And the seller is gonna like you and I like you. And you're compliant, you're following the rules, you're playing the game the way we want you to and easy to work with, then I do believe that you'll be able to get your equity. But we need to figure that out quick. And and get that in place. But I still think there's a big crop of brokers out there that view the search community with extreme skepticism and kind of view the typical MBA searcher as a dreamer without the funds and ability to close deals, and that we've got to educate them, but then that community also has to step up their game and, you know, proving that they're, they're committed to the process, and that they're going to be closers. And so I think we've all got to work together here. I hear way too many ello eyes going out from searchers that don't close and I think that we've got to get our ducks in a row better like you've got to as the buyer, and then we've got to vet you as the brokers to make sure you've got your ducks in a row on a ready to Ready and serious, unable to close the deal, even if you're not independently wealthy, where you can just stroke and check and get it done.

Speaker 3  30:09  
Could you you teed up my next question perfectly, you mentioned searchers being viewed as, quote unquote, dreamers, by much of the brokerage community. And I always kind of flippantly joke about searchers being viewed as I call them diet private equity, right? Because they all look exactly the same, you know, you go to the website, they're all they've got a beautiful mountain scape with, like a pond and seagulls. And it's like, you're in, really, I think, trying quite hard to look like private equity. And I always kind of wonder aloud if, if that's the best approach to get brokers to take you seriously. versus

Ed Mysogland  30:52  
saying, Hey, I'm

Speaker 3  30:52  
just a guy that's trying to buy a business, right? I'm not a searcher. I'm just a guy by business, you know, tails all this time. Tell us what your perspective is on searcher branding? And what is the best way to present yourself? You know, before that relationship is established, you know, if somebody sends you an inquiry, you Google their name, obviously, like everybody does everything, to figure out who the person is, what are the best things that could conceivably come up in that Google Search to help the searcher

Ed Mysogland  31:23  
be taken seriously? Yeah, I

Speaker 4  31:26  
think, I think it's not good to try to look like private equity. When you don't have that history. I would, I would rather see you just be honest. And say I'm a, I'm a guy trying to buy business, I'm a gal trying to buy business. And here's a little bit about my background. And here's why I'm serious. And here's how I've kind of got my, everything, I've got my capital piece figured out, I've gotten the right experience, and I'm ready to move quickly and get one done. That sounds better to me than when we look at your website of you know, rolling out capital, or whatever it is, and you don't have a portfolio, you don't have any history. Like that's, that's where the rubber meets the road. If you're real private equity, you know, you've got a bunch of logos on there, you've got a bunch of other companies you've bought, you've got references and a track record. And if you're a searcher, you don't. And so I would really just, you know, we sell businesses to individuals all the time, and just just be that, and that's fine. But definitely, like don't don't throw off the BS flags, trying to pretend your private equity when you're not.

Unknown Speaker  32:48  
You know, I think

Speaker 3  32:50  
I want to switch gears for just a second because there was a recent conversation on Twitter that was a little controversial about personal guarantees. And there was one story in particular, Clint, that kind of rubbed you the wrong way a searcher who, you know, late in the game, became, you know, aware of the personal guarantee, and decided to walk away from a deal. And I had a conversation with, with with Dusty about this, and I said, rather naively, that what's the big deal, you know, you guys can easily take that business back to market but for a buyer, you know, it's you know, it's their whole life and personal guarantee, and yada yada, if they don't feel comfortable, they should have closed and dusty and I don't want to put words in his mouth on the call if he wants to chime in, educated me on the fact that once that trust is gone with the seller, if something like that happens, that entire business sale may not occur. So I am curious, your guys's thoughts maybe on that situation specifically, but just kind of talking about your perspective on the relationship that you guys have with the sellers and what you see in dealing with the sellers because we know what we see in dealing with sellers and you know, oftentimes very challenging to get documents and due diligence and very challenging to get them to, to agree on things. And so tell tell us what that's like and how we can better approach sellers given that there is typically a demographical divide between the buyers and the sellers right now.

Speaker 4  34:24  
Yeah, what, what really rubbed me the wrong way about that particular situation was those guys knew absolutely about the personal guarantee from the beginning like he was, he was better than that, you know, like, I feel like he was fully educated and knew exactly what he was getting into. But then, way late in the game decided he didn't actually have the stomach for it and bowed out and I respect that he was very honest about that. But it's absolutely brutal. It's absolutely devastating to the broker. It's absolutely devastating to the seller and sometimes we only get one shot at it and they could really ruin like you can ruin people's lives if you get them deep in a deal, and then walk and leave them at the altar, and sellers can do I mean, I was I was sharing a story this weekend about sellers do that to buyers and buyers can do that to sellers. And so it can go both ways. But we need to be able to trust each other here. And, and so I don't know where I was going with that or what was the question?

Speaker 3  35:26  
The question was how we can approach sellers more intelligently given that there's demographic, you know, maintain, you know, you are either trust or earning their trust, like, what are some best practices there? Yeah, so

Speaker 4  35:37  
just just keep a keep a good communication going. Like I get really scared when it gets quiet. So this is a collaborative effort. Where I where I like to do this is once the loi, a detailed loi is in place, we're no longer negotiate. We're no longer negotiating. We're now working together as a team, buyer, seller broker, attorneys, hopefully, you know, like we're all working together towards a common goal. At that point, we're not trying to constantly retrain and move the deal around once. Once we've got the LOI dusty just helped me close a deal last week when that we were talking about that. It was October, under loi in May closing, it was a absolute marathon. We it took three banks to finally get one to do it. And the last one that did it was horrendous. But we we did finally close it. And the role of the broker there is I 100% believe if we industy weren't involved with the seller, there's zero chance those buyers would own the two businesses, they just bought the role of buyers that we talked about that bought the plumbing and HVAC, ah, fat companies, they were searchers, MBA searchers, their first two acquisitions were for our firm. And we had to kind of go to the well, so many times talk to the seller off the ledge. And you know, the bankers were saying one thing, and the buyers were relaying what the banker would say. And then the bankers were straight up missing deadlines lying to us and blowing it and it makes the buyers looked bad. Because they were they were really, you know, moving in good faith, but they just have bad banks. And so we had to kind of get that deal on track. I don't I don't think if we were there being that third party validation, to tell the seller Look, Mr. Seller, we talk these buyers are still talking to us every day. They're texting us, they're calling us, they're not dodging our calls, I see the effort that they're making. I believe they're acting in good faith, I believe the problem is the bank and not the buyers. And we're able to kind of vouch for you and stick our neck, like we're able to speak for your behalf as a buyer. And so this is what's what people don't understand about business brokers, like me, and Ed is when we're doing our job, half the time. By the end of the deal, the seller starts saying things like,

Unknown Speaker  38:21  
are you working for me? Are

Speaker 4  38:22  
you working for this buyer? Like I've had that happen a lot. And I'm like, Look, man, like, I'm working for you. You're the one that hired me, Mister seller, but this buyer is having major issues with their banks with their capital raise, but they're working hard, they're a good person, I believe, like, there's still a good chance that they can get this done. So just hang in there. Let's give it another few weeks. And whereas if they didn't have the experience steady hands, to kind of hold that together. It's just like relational equity, constantly being tapped to keep the seller from, you know, talking them off the ledge, over and over and over again. And when a real issue does arise, we find a compromise. We say, Hey, we've seen this problem before. Here's the way we think we get solid, but solve it. But you're just constantly triangulating dipping into that relational equity, solving problems and kind of keeping the deal back on track when it tries to derail and I don't know how people that don't have that buffer, that third party helping them that don't have a lot of deal reps. Kind of. I understand why so many deals fall apart is because you don't have somebody in there. Just being the advocate for the deal. That knows how to, you know unstick those problems because every deal tries to die multiple times. And if you don't have if you're just the buyer without an intermediary. The second, third or fourth time to think gets off the track. The seller is going to start being like man, you're just you just don't know what you're doing. And we're not going to sell to you by you know, and It's not going to close. But if we're in there, you know, greasing the wheels and helping get that done, then, you know, by the end of the deal, we're usually best friends with the buyers. And and they'll come to us years later when they want to sell and. And that's that's what we go for is we were truly functioning as intermediaries, unlike real estate where it's kind of one side versus the other side. We're kind of in the middle hearing both sides out. And so one of the best ways to work with brokers is to get them to be your advocate to the seller, make friends with them, communicate over, communicate with them, and earn that trust level, because they'll go to bat for you. And they'll say, reveal multiple times before the end.

Ed Mysogland  40:43  
Yeah, and

Speaker 6  40:44  
I think it'd be helpful to hear your perspective on this as well. Maybe just to wrap up here, and then we'll, we'll see if we have a few questions. Because I think it's a great, a great point, right. And it's common and easy for buyers to look at brokers, as sort of an advocate for the other side that's, you know, kind of a gatekeeper. And really an obstacle, I think, was the word Clint used, right, an obstacle to find their way around to the seller, like, what did you pick up on that, from your perspective, and talk us through the best way that that buyers can be working with the sellers, you know, in a collaborative manner to get to get a deal done?

Ed Mysogland  41:28  
Yep. So first things first is that, you know, I tell we preface to all of our clients that, you know, if the deal doesn't fall apart, at least two times, before we get to closing, we have earned our fee. And, and it and it really, it tends to be true, that, you know, everybody's pushing, you know, they, they're coming from different angles and different motivations. And it's an emotionally charged event life event. And so we bump into that a lot. And so, how do buyers work with brokers to facilitate, you know, to help

Unknown Speaker  42:08  
to help that along?

Ed Mysogland  42:09  
I mean, the first thing is organization, I mean, I've seen, like Chris Mullin has that has checklist that he that he offers, and you'll be able to, as a buyer say, you know, here's my roadmap, to getting this deal done. Okay, how am I? How am I gonna get from, you've given me the sim, I have 100 questions for you, I'm going to talk to talk to you about them. And then I'm going to give you this indication of interest, all right. And from there, we're going to then systematically figure out whether or not this deal works for us. And I'm not going to spend a lot of time I'm not gonna spend months on I'm gonna spend days on it. And I don't want to waste your time. But here, here are the, you know, the, the deal killers for us. And that sim, as, as great as it's been prepared. It's, it just doesn't tell us everything, but it tells us enough. And let's, let's now have this conversation, we'll jump on Zoom or any other platform to have that conversation. And then so now the, the seller now has the is beginning to, to feel how the buyer is looking at their business. Because this is remember, as an appraiser or broker, I'm sitting here poking holes and saying, you know, this is where the buyer is going to start poking holes in, in this beautiful baby of yours. And then once we start moving into real life buyer with buyers, you really start to see that, you know, there's the chinks in the armor and so, so the seller, the seller, now starts understanding the, perhaps the value penalty that the buyer is going to give to the seller because of the shortcomings of the business. But to tie it up, I mean, the biggest thing is, regardless of your access to capital, regardless of who you are, when you when you come to buy a business, it's it's a different animal. It's just It just is. And so when you come prepared with understanding that you're probably dealing with a first time seller, and they're scared to sell the business. And if you're a first time buyer, you're they're probably you're probably equally as scared to buy the business. And no one wants to make a mistake. But but just flippantly going about it on both sides is is the recipe for disaster. So as spending time with the seller, where they understand your motivation of why you're getting into business, who you know who's going to run the business, why you're looking at them what you plan to do with the business. All those things are our factors. are intangible factors that will take will likely take your deal further than just saying, you know, here I'm gonna offer, you know, $5 million. And, and, you know, we've got a $2 million earnout and I need you to a five year non compete, you know that just that doesn't that doesn't resonate tends not to resonate with the seller, especially these days that the answer okay boy

Speaker 3  45:29  
I think you nailed that. And I'll just make this joke at the end the buyers care that normal sellers cared perfectly normal if your lawyer is scared, you probably you probably need a new lawyer. But so, guys, we've got about 11 minutes left in the hour. Let's open the floor up if anybody has any specific questions or there's any brokers or anybody in the audience that feels like they've got something of value to add, please feel free to ping us to add you as a speaker. And I think Clint said he was gonna he was gonna sing us a song while we wait for speakers to step up. Here's a right Clint we're gonna sing

Unknown Speaker  46:12  
when you call a man, whatever.

Unknown Speaker  46:18  
I want some Bon Jovi. DragCon.

Unknown Speaker  46:22  
That's all good. Yeah, we've

Speaker 3  46:23  
got we got to request your beard. All right, let's add selecto SB. You're you're connecting, feel free to ask your questions. Connect there.

Ed Mysogland  46:38  
Hi, can you hear me? Yep, we got you. Hello.

Unknown Speaker  46:44  
Yep, we got you.

Speaker 7  46:46  
So I'm curious what kind of trends you guys are seeing in the market? Given one, you know, the renormalization of interest rates? How does that affect prices? How does that affect your financing wonders? As well, as you know, I've seen an explosion of these kinds of searcher accounts on Twitter. And it seems like there's a huge, huge up swelling in this concept of kind of buying a business. And so, you know, I'd be curious how you're seeing those two trends intersect and

Ed Mysogland  47:18  
what that's doing to deal economics.

Speaker 4  47:21  
I haven't seen much change, to be honest, like and the levels that I play, I think Ed's a little bit more upmarket of me. But um, most of our deals are seven figure deals that are, you know, two to 4x EBIT our Ste. And the, the interest rate hikes just don't think the model, and there's a swelling of interest, I'd say buyers are getting more and more and more abundant, and more and more competitive. And I think that's kind of counteracting this small, smallish impact on interest rates. On our deals, I feel like commercial real estate is much more interest rate sensitive than small business deals. And so for me, deals are getting done. There's no shortage of shortage of interest. And buyers, there's no shortage of bankers willing to do deals. And we're just if anything, like, down payments might be increasing a bit, just because people are getting a little bit shy at times about Max, Max leverage at least current interest rates, but values haven't been as impacted as I think the middle market has.

Ed Mysogland  48:42  
Yeah. And to to add to that, so about a month ago, I spoke with an event with Live Oak and Lisa, you may have the you may have the slide deck that John Randall use. He's the sales manager, the national sales manager and director, the long and the short of it was that the borrowing power is down by about 20%. Naturally, you have to assume that when the markets go down, there's going to be eventually it's going to trickle into into our world, which isn't necessarily a, you know, it, it is what it is. The cost of capital is what it is the prop the problem that I see happening is that the sellers are anchoring to 21 and early 22 valuations, because because that's where the market data is coming. Yeah. And, you know, so, so for me, I don't I don't see it as a I haven't seen activity change what I have seen is like, you know, assuming the idle loan as a lower cost of capital. I've seen some some buyers trying to do that. So I mean, you got three and a half 30 year money, you know, that's not a bad, bad way to bridge the gap on some of these funds, some of this financing. So, anyway, I think what where I'm heading with it is we're not seeing, we're not seeing a slowdown, in fact, we're probably seeing a little bit more of a pickup multiples multiples remain fairly constant, the earnings are, are trending a little bit down. But, you know, generally speaking the bar so the the, the borrowing capacity coupled with the earnings margins being a little off is what's leading to the lower the lower valuation, at least from what I'm seeing.

Speaker 3  50:47  
Yet, from the buyers perspective, from Kevin, feel free to, you know, have your own unique perspective on this, but you know, and it may be unique to SMB longer, but we've been very busy. And we have, we'll see transactions to where a high quality business will go for sale, we'll have two or three buyers reach out to us to try to engage us to represent them to acquire that one business. So it's, it's really busy, really hot. And to Ed's point, you know, these deals are now requiring more equity. They just are because they're not penciling out the same way they were when interest rates were at 6%. And now, you know, if you're now assuming north of 10%, in your model, but what's interesting is the deals are getting funded. And there being a lot of them, the good ones are being oversubscribed, the buyers that I've worked with several buyers the last few weeks that are having kind of their pick of the litter of investors to have to make tough decisions about who's going to be on the cap table. So there's tons of people trying to come into the space to to inject inject equity into small business, given the issues in real estate and crypto and venture capital wherever else we're getting calls for people all the time saying, How do I deploy capital to the space? It may be unique to us be interesting to know if Ray or Lisa or you know, the other people on the call have a different perspective or seeing some sort of of slowdown, but I haven't spoken to anybody who is is is seeing that. Okay, so we have five minutes left in the hour, if we have any additional questions, happy to feel those maybe wants to chime in now to speak. Otherwise, we can wrap up in less cleaner air Kevin have any last word here?

Ed Mysogland  52:30  
It all pontificate while you guys are hoping for another

Unknown Speaker  52:34  
question, or have at it, let's do it.

Ed Mysogland  52:36  
So a couple places that I think searchers should start to consider spending some time is in the ESOP communities. We've seen an influx of Aesop's that are being reversed out. That, you know, a couple of years ago it made, you know, somebody tried to jam an ESOP into into a situation that probably wasn't a good candidate for an ESOP. And now they're, they're beginning to unwind it and the folks that I've talked to across the country, those are

Speaker 3  53:09  
really quickly just for context for the listeners. employee stock ownership plan where a company will sell to its employees tax free. So what at his suggestion was that companies were bought out? I think he's suggesting as companies were bought out by their employees, and now those employees are realizing that wasn't a good decision. We'd like to step back. Is that correct? Correct. Yeah.

Ed Mysogland  53:30  
So we, I mean, we've got three on the boards right now. And, and I suspect that there are a lot more just like them, because it really made, you know, everybody was capital was was cheap. And a lot of owners were looking at, you know, that is their exit vehicle. Every every business owner, that actions ever many business owners that we talked to ESOP is the is their first option. Well, it doesn't work that way. And so my point is, as you're, as you're looking for, for sources of deals, I wouldn't exclude them on on your shortlist, or talking to the ESOP. The ESOP appraisal firms and the community. You know, those are, to me, those are some really good fertile brown areas. So just just just a thought on on where you might be missing some opportunity. Yeah, no, that's super

Speaker 6  54:33  
great information. Ed. We got just a couple of minutes left. Andrew from search fund coalition. For those that don't know, Andrew Hoffman requested to speak. Andrew, go ahead. You have a question, and we'll wrap up with your question. Great. Thanks, Kevin, and Eric, for putting this together. Hi, can I add Thanks for lending your expertise to us in the community. So, as Eric and Kevin mentioned are on the search warrant coalition, we also look to help first time acquirers level up and find success within their acquisitions. So one of the things that I was really curious about, as this is a buyers Master's class is, you know, kind of the, the dance that needs to be done from a buyer's perspective, with incomplete information, submitting and IOI. And then a lot of the things that come up in terms of the buyers uncovering stuff during during diligence. So if you're supposed to be submitting an IOI, and then you don't feel comfortable that being part of your process right away, like how do you navigate that right, as a buyer, and communicate that? Is it just part of the process, that that you need to be able to look to do? Or is there something in particular, that you would like to

Unknown Speaker  55:55  
or thought he

Speaker 4  55:58  
could jump on that real quick? You know, I think the IOI and submit, the brokers have put a lot of pressure to send an IOI immediately are concentrated more in the middle market. In, in the kind of premium mainstream, very low rental market where I play, we typically don't do iOS, we simply do ello eyes. And we typically do that after you meet the seller. And it is more relationship driven, and less of a auction, you know, type of vibe. And so what I would say is, you get move quickly, read the theme, read the sim thoroughly get to the seller as quickly as you can, with the broker, establish that rapport as quickly as possible. And the LOI is basically the handshake of all the major points of the deal that says, if everything is, as you said and presented, then this is the price in terms that I would like to close this deal on. And then as quickly as possible behind that sink of the before you just drop, like a 60 point diligence request. Think of like the three things that you're most worried about. That if you figure out, like what are the real deal breakers, you're concerned about that you don't know real clear answers on yet, try to get them in front of the LOI if you can, but if you can't just dig into those real quick and try to like, get if there's a fight that needs to be had, or just try to get it as quickly as possible identified as to what the issues are, and then solve those and then use the remainder of your due diligence time on the finer points, that aren't the ones you're most concerned about as deal breakers. So you enter into it in good faith saying, based on everything you said, I've asked all the big questions. This is this is the terms of the deal that I'm comfortable with. And then you just got think of your deal breakers do that first. And then do the big list. Right behind the potential deal breakers are most concerned about and get after it.

Ed Mysogland  58:16  
And, and I would add that, you know, it's incumbent upon the broker and who's representing that seller to coach that seller and, and I know, Clint does it and I know, everybody that is doing lots of deals does it and it's, you know, what, we're going to, we're going to take this we're going to get real buyers, and they're gonna have real questions. And if you're, if you're BS in them, it's gonna, it's gonna, it's, we're gonna find out. So if your financial statements are misstated, if the cash flow is often and you know, this $50,000 credit card expense, if it's bullshit, it's not going to work. And I'm just telling you, right now, let's cover this before we take it to market because nothing Nothing is worse than losing the buyer competence when you when you start dealing with them. So I think to me, it's, that's as much the brokers ball as it is the sellers fault that they're not coached on, you know, you got it, you got to know what, what you're dealing with, and, and that there's a real possibility of retraining as a result of, you know, whether it's a mistake or not, if it isn't, what you see it is, it's likely going to be retreated. So that those are the you know, that's what you're faced with. So, understand that when you're going to the market and any right I think yeah, I think that's probably a PART part responsibility on the broker, but certainly the seller needs to understand, you know, there's there's reliance on what they, you know, what they're putting out there. So

Speaker 6  1:00:00  
Now super helpful, guys. I really appreciate the input. Thanks for the couple of questions. We're up against the hour. I think we'll wrap up there, Eric, any any final parting words?

Speaker 3  1:00:12  
No, just I want to thank Ed and Clint for doing this. And just again, a plug for the business by masterclasses the link in the comments. If you haven't already, go read and you're interested in this topic, go read issue four, which covers this in depth and is written by Clint and Ed respectively. They're, you know, they're, they're, they're brilliant based on their experience in this sector, and really appreciate them taking the time to do this. And I really feel like everybody who has read this, even myself will be a better business buyer for it. So thank you, Ed. Thank you, Clint. Thank you, Kevin, for for getting out tonight. And look forward to that. Thank you.