Summary

In this conversation, Jon Stoddard interviews John Taylor, an expert in mergers and acquisitions (M&A) and investment advisory. They discuss the intricacies of the M&A process, focusing on the seller's perspective, the importance of maintaining relationships, and strategies for maximizing business value. John shares insights on navigating the buyer landscape, particularly in the context of the supply chain industry, and emphasizes the significance of quality financial reporting in successful transactions.

Takeaways

John Taylor emphasizes the importance of maximizing business value through strategic acquisitions.
The M&A process often involves a long-term relationship with sellers, as businesses are typically sold every 20 years.
Investment advisory plays a crucial role in helping businesses prepare for sale and maximize their multiples.
Quality of earnings reports are essential for accurately reflecting a company's profitability to potential buyers.
The landscape of buyers is predominantly financial, with private equity firms being a significant player.
Staying in front of potential sellers is key to successful M&A transactions.
The supply chain industry is currently experiencing significant trends and challenges that impact M&A opportunities.
Trucking and logistics are critical components of the economy, with increasing demand for qualified drivers.
Investment bankers require specific securities licenses to operate in the M&A space.
Networking and referrals are vital for finding potential buyers and sellers in the M&A market.

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Transcript:

Jon Stoddard (00:00.13)
Welcome to the top &A entrepreneurs. Today I have a guest is John Taylor. I came across John Taylor probably two, three years ago. He had a book out called, well, he has a book out, go to LinkedIn. It's got a fantastic title, Maximize Your Multiple. And this is really important because every investor says, hey, you buy a company at one X multiple, but if I grow to even add some software, add some Maria Curia and Robin Hood, I'm gonna maximize my multiple. So welcome, John. Thank you. Good to be here.

Yeah, so John works for a company called BGSA Holdings right now, and they do a lot of acquisitions or getting a company's investment advisory for supply chain. How did you, let's go all the way back and how you got involved in &A? Sure. So I graduated from the Wharton School in Philadelphia, University of Pennsylvania as an undergrad. I mean, so started off working

merger and acquisition advisory with mostly tech companies in kind of the late 90s is when I graduated and got kind of got my feet wet doing &A deals, doing some capital raise type work. mostly with middle market type businesses, right? So, I mean, there's lots of ways to define middle market businesses, but typically kind of under say a hundred million dollars in sales is where

you know, kind of most people look at middle market. Have you ever thought about buying one yourself? You're so involved in the acquisition process. I have, yes. I mean, or even just investing in some of the transactions that we work on, maybe, you know, just rolling some equity into a deal. Yeah. Yeah, I mean, I have, I mean, you know, I have invested in some small transactions in the past, but I mean, it's something I'd like to do more in the future for sure. Yeah. Do you?

I got a question for you. Do you work on the seller side with a seller mandate or a private equity institutional or strategic target mandate? Say, hey, these guys will say, here's my menu, here's what I want, go get it. Or you say, develop a relationship with the seller and let me know when you're Typically we're working with the seller. So yeah, 90 plus, I mean, we have worked on some buy side work in the past, but we like working on the sell side.

Jon Stoddard (02:23.98)
So we're always trying to develop relationships with business owners and CEOs and people that might be looking to do a deal in the future. yeah, we're mostly working with the seller. How do you reach out to them and stay top of mind awareness that John Taylor, BGSA is the company we want to sign with? Yeah, no, it's a great question and something that, you know, we're, you know, we're always trying to think of better ways to do that. Right. So I think it's mostly about

just staying in front of people over a long period of time because, know, typically, I mean, if you look at privately held businesses, you know, on average, they might get sold every say, you know, 20 plus years, right? Because, you know, typical trajectory is somebody, you know, starts off their career in a corporation, usually a large corporation, they might go off and start a company mid-career and they're usually...

building up that business over say 20, 30 years and then they're looking to sell it around the time they might want to retire. So when they're kind of, you know, maybe late fifties, sixties, you know, it's, funny. I run into business owners all the time that are, you know, kind of well into their sixties and seventies in some cases, and they're still not, you know, like, Hey, you interested in considering a sale in your future? And they're like, Hey, I'm, you know, I'm not even thinking about it, which is kind of a funny this to meet people that, you know, are kind of at an age where you'd assume they'd want to.

retire, but I think a lot of these people, as a typical entrepreneur, they like what they're doing, they're motivated by it, they don't necessarily wanna retire, right? mean, they can kind of set whatever schedule they want, cause they're the owner. but- What's the button that they get into? I gotta figure out this, is it, it's easy to say, hey, I wanna work with that. One seller goes like, well, look, I'm the entrepreneur type, right? Serial entrepreneur.

I want to sell that and then get the highest multiple. And then there's the guy like you just mentioned, the 60 year old guy like, well, I'm not even thinking about it. And then it's six months later, three months later, some life changing event, cancer diagnosis or kidneys to go to college or wife just says, I'm tired. I'd like you home. Let's go travel. Yeah. Right. Yeah. Yeah. Yeah. There's all those things, which is why keeping in touch with people is, the way to do it. Right. So I think that

Jon Stoddard (04:41.454)
Yeah, if there's, I mean, there's certain industries where we've done more transaction work than others. So getting to know the industry, going to the trade shows that that industry might host, you know, across the country, publishing research on, on particular industries or, know, a lot of it just, you know, sending people emails and, know, calling them every say like, you know, checking in with people, right? Yeah. So, so it's, it's all those things getting referrals. I mean, developing.

referral sources with attorneys and accountants. So yeah, I mean, I think that there's, you know, there's all different ways to find people, but I think it's all about, to stay in front of people and, know, eventually someone's going to do something. So is this very similar to like a real estate agent? They want to book the listing and say you get them under some kind of contract and you have them for what, six months or a year to find a buyer?

Yeah, that's right. That's right. Yes. mean, typically, you're looking to sign a contract and, you know, kind of represent the seller in the deal and help them get the best terms overall and, you know, negotiate and find it, you know, negotiate a deal to the end. And so, yeah, I mean, typically you're looking at six to 12 months to get a deal done. mean, typically, yeah, you're looking at closer to nine to 12 months. I mean, really to get a deal close from start to finish because there's, you know, there's a couple months of preliminary work.

The marketing takes a couple months and then, you know, and then even once you get a deal signed, I mean, you're looking at 90 plus days of diligence. So, you know, yeah, you're talking about many months, you know, close to a year really to get a deal done. How does like somebody want to, like, it wants to come in your role and say, I love what you're doing there. How do you get paid if it's just based upon kind of, you know, transaction? I got to find a buyer, I got to sell her, or is it like real estate where

Dude, it's 100 % commission. I mean, typically we charge a monthly retainer. So we cover some expenses, right? mean, most of our compensation comes as a success fee at the end, similar to a realtor, right? there is a lot of work. mean, it's not like in real estate, a realtor is just going to stick your house on multiple lists. mean, obviously, they'll take some pictures. I don't want to minimize what they do, right? Because they do spend money to.

Jon Stoddard (07:06.606)
hire a photographer, position your home. But I mean, really it's, there's a lot more investment that goes into selling a larger business because it's a very kind of proactive, that there's no like, you know, comparable multiple list service in the &A world. I mean, there are some sites that where you list like smaller businesses, but typically it's a very exclusive type process where each buyer is qualified beforehand. You have to develop.

you know, very comprehensive marketing materials that have a lot of specific details that have to be included to answer all the questions a buyer is going to have. So, you know, it's a, there's a lot more time and investment that goes into it than, you know, marketing a house, right? So that's why we, you know, ask for, you know, some type of retaining, you know, usually, I mean, our retainers aren't big. They might be five to 10 grand a month for six months or something like that. But yeah, most of our compensation comes in the form of a success fee at the end.

When you say investment advisory, do you, let's say, take an example, a company, 60 year old guy comes up, it's time to sell, I've got a $7 million company, 1 million EBITDA, which is pretty good, but he would get better if he did these few things, like just go acquire a couple of companies. Do you also help them maximize their multiple on that? Well, we do, yeah. I mean, in some instances, if there's some kind of, you know,

no brainer type things that they could do to help better position the company. know, cause we've had clients where we were in early conversations with them and they lost a very large customer that was a big chunk of their sales or, you know, they had a large return from one of their customers or they, you know, they ran into some type of financial or customer issue, which would make it very difficult to market the business, right? And we'll often say, Hey, look,

what we need to do is really focus on the business, focus on turning it around, focus on continuing to grow it. And then you'll be in a much better position to get a deal done. Because we try to be upfront with people and say, hey, look, given your current circumstances, this is where we think that the market would pay for it. So if you're not happy with that, you're better off just waiting and turning things around and working on the business before taking it to market. Yeah, I got to ask you about the top of your funnel. I mean, is this still

Jon Stoddard (09:27.15)
Kind of correct what you're talking about on page 43. I took all these notes on here. 514 buyers contacted, 98 NDAs, indications of interest, six presentations, two letters of intent. Yeah, I'd say that's kind of an ideal type process. mean, typically, you know, lot of those are going to be financial buyers, right? I mean, you know, oftentimes it's hard to find more than say like, you know, 50 to 100 qualified strategic buyers and

in most industries. So, you know, the majority of your buyers list is going to be financial guys, private equity firms, you know, because there's lots of those folks out there. I mean, there's been a real proliferation in private equity groups in the last 10 years. trillion ready to go to work? Yeah, or something like that. Yeah, yeah, it's a ton of money, right? I mean, there's a lot of money out there and people looking to invest in the privately held businesses that have good growth potential and

profitability and so forth. yeah, it's, yeah, but I'd say that's very typical. I mean, we like to go to a large group of buyers, get as many bids as we can and present the owner or seller of the business with as many options as possible. I used to work for Intuit. And so, you know, that's a lot of small businesses, but it was larger. Now, a lot of these guys just don't have their financials in order. What do you guys do for that? Do you bring an accountant in or a CPA in and kind of clean them up too also?

No, good question. So oftentimes we recommend having a quality of earnings report done for the business. quality of earnings reports, can get them from major regional type of accounting firms offer quality of earnings reports. I typically you're looking at 30, 40, 50 grand to have that done. that they'll basically take the financial statements and it's almost like a mini audit, right? Where they'll go in and say, these are the potential add backs to the business.

they'll look at the accruals on the balance sheet and just make sure that the financials really reflect the true profitability of the company. So yeah, I mean, we do recommend that we look at financials ourselves. We ask a lot of questions about the P &L, the balance sheet to make sure that all the questions that a potential buyer is gonna ask so that we know upfront what any potential issues might be. Do these guys sign, when they sign a document and they pay,

Jon Stoddard (11:52.588)
you to help them sell or is it, right? You said the five to 10K. I'm just curious about this. Yeah. Yeah. And are these companies that they are looking for mostly private or some of them publicly traded? Like, you know, the kind of crap that was going on with the OTC markets with the PCOAB, the 211C, 15C? Yeah, I would say, I mean, most buyers we talk to are, you know, private equity firms are, they're looking to own

I mean, there are some private equity firms that take public companies private. mean, you know, I mean, we've done a little bit of that work in the past, or at least I have with, you know, with other, you know, in other careers I've worked in the past. But I mean, right now we're mostly focused on, you know, yeah, working with privately held businesses that are looking to have a buyer that's gonna hold that company privately as well, whether it's private equity or strategic. I guess there could be some publicly traded,

strategic buyers, right? So yeah, I you could sell a private company to a public company. Yeah, I used to do some capital raises in the OTC market. it just with the 15C211 that came on, it just, there's so much crap in the OTC market. That's how scared I was about that. Most of them just go, hey, you know what? Say 20,000 a year, you're paying to OTC markets, just go private. Makes sense, right? Yeah. Right. Yeah. You don't have any trading volume and your share price is crappy. So

Just go private. Right. Yeah. Why did you guys focus on supply chain? You've got the supply chain index. Is that a huge trend, industry that it's got a lot of different niches? It is. mean, it's obviously it's been in the news a lot lately, right? I mean, there's been a lot of issues around supply chain breakdowns. I mean, it's not necessarily the company's fault. I mean, some of the issues lie.

at the different manufacturing or raw material sources, but yeah, supply chain, trucking businesses that are trying to get products to market, either to retail or manufacturers, moving around raw materials and goods. So yeah, I mean, it's an important aspect of the economy. It's a big part of the economy, but something that maybe doesn't get a whole lot of attention. Yeah, Amazon's charged with 5 % and Walmart's paying their drivers $105,000. That's right. Yeah, yeah.

Jon Stoddard (14:16.494)
what a trucker can earn these days has gone up significantly, just because of some of the constraints. It's hard to find qualified drivers, right? People that wanna do it. There's all this news about how all these trucking is gonna get automated, right? You're gonna have robots driving trucks. And so it's not an industry that necessarily seems like a good career prospect. But look, mean, obviously truckers are very important part of the economy. mean, it's how...

know, most products get to market and get to retail shops these days. So, you know, they're critical part of the infrastructure and they're, you lot of them are making very good money these days. What kind of niches in that industry are you looking for to say, hey, I'm kind of looking for, you know, software technology that manages drivers and independent drivers or something like that? Yeah, all of the above. mean, it's, yeah, it's an industry that, you know, we've done a bunch of deals in the past.

You know, so yeah, I technology, certainly even, and then even more traditional trucking, truck brokerage, know, asset light type people that don't own the vehicles themselves, you know, maybe they're brokering those types of services or people that own the equipment that's actually moving it around, you know, so yeah, as well as the technology. And, you know, there's lots of segments. There's the trucking aspect, you've got,

ships that move ocean freight, you've got air freight, right? So there's lots of different segments. Yeah. Do you, what kind of licenses do you have to have to be an investment banker sitting where you're sitting? Sure. So, so we have securities licenses. So series 63, series 79. mean, those are, those are the main, you know, state, you know, used to be the series seven, but I guess the 79 has been become.

kind of replace the seven for investment bankers and &A advisors. You know, I'm really curious. I do a lot of work on LinkedIn and a lot of companies come to me saying, hey, I got this company doing this and great. I need to find a home for it. Do you guys pay bird dogs or commission or set that up or what? Yeah, I mean, we've worked with people that are looking to, you if they have potential buyers, I mean, we've worked with them in the past and, you know, show, give them

Jon Stoddard (16:34.606)
show them kind of different deals that we know are in market or, you know, lines that we're working with. are you allowed to see the SEC or FINRA say no, you can't pay for ducks or? Yeah, I mean, typically, if someone's out hunting for deals for a buyer, typically, the buyer pays them a fee to do that, right? Typically, they they are on a contingent basis with a with a buyer, so they'll get some, some small percentage of the deal.

But yeah, I mean, we'll, you know, we'll sometimes share deal flow with those folks if they know some good qualified buyers that perhaps we haven't connected with. So yeah, I mean, those, those, those people can be very valuable. Yeah, this is, I mean, great conversation. We're already 30 minutes into it. I just want to appreciate your time. And if you guys happen to get, on Amazon and get this book, Max Advice Your Multiple, this is everything you're talking about is just acquiring companies that help you increase your multiple to get a bigger payday. Yeah.

John Taylor, I really appreciate the time here on Top &A Entrepreneurs. Sure, thank you. Thanks so much. All right, take care.