The Deal-Making Insights That Grow Companies Fast with Brian Franco

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I'm your host, Mark Osborne, and today's guest is Bryan Franco. He's a seasoned expert in mergers and acquisitions. With over 2 decades of experience helping businesses, business owners grow, scale, and sell with confidence. Brian has facilitated billions in transactions across industries ranging from architecture to engineering to healthcare, manufacturing, logistics, wellness, technology, and even professional services. His work focuses on creating generational wealth for entrepreneurs by strategically deploying capital and designing deal structures that are both fair and effective. As managing partner at Meritage Partners, Brian brings a deeply intuitive understanding of company compatibility, enterprise value creation, and the strategic alignment of buyers and sellers. He's also served as a board of advisors, uh, to both companies and nonprofits. And when he's not guiding founders through high-stakes transactions, he's spending time with his family, camping, playing baseball, or sharing insights through his vlog or his podcast. So Brian, welcome to the show.

Mark, thanks for having me and appreciate the time we're going to spend together here. We got a lot of fun stuff to talk about and not only to validate everything that you just shared, but also to share some of those stories because stories really help us remember these sorts of strategies that we put in place. So thanks for having me.

Yeah. So speaking of stories, you've obviously done a lot across your career there. Why don't you tell us your story of how you kind of got started in this industry and how that evolved to where you are today and what you're focused on today?

Well, you know, my CPA friends and my attorney friends, I'll apologize to them in advance. But so I went to school, I thought I was going to be a CPA. And I studied some law classes and courses that just to get my feet wet. I realized that, you know, every attorney was the butt of a good joke and no one invited CPAs to parties. So I kind of had a shift there. But no, but jokes aside, I mean, I came into this industry very young. I was 23 years old and wildly successful at a young age. I just always understood dealmaking and deal structure. I guess you could look back and say that could be for any sort of asset purchase that required capital funding in some capacity. But I gravitated towards businesses. And so what I found early in my career is that I didn't have the gray hair I have today. And I don't even have the experience I have today. But back then I really relied upon my ability to educate our clients or potential clients that were sometimes 3 times my age at that point. And so I did exactly that and I did that by way of just helping them think of their business and look at their business in a way that they never have prior to me. And so I call this the income versus the outcome, right? Because clients are so focused on the income that the business generates that they completely either forget or neglect the concept of the outcome of how to turn that asset that they built for decades into a tool that can create generational wealth. And so I founded Meritage Partners. In 20— sorry, 2005. We just celebrated 20 years a couple months ago. Isn't that awesome? At the firm. Thank you so much. And I've retired 3 senior partners who came along with me in this journey when I was 25, 26 when I started the firm. And it was 3 months before my wife and I were married. And so Melody and I are celebrating 20 years in marriage on August 13th coming up here next month. So it's been a ride, it's been a journey. The reality is back in 2005, it wasn't all that difficult to make money. Everyone was making money, everyone was buying homes, the toys, and we all know what the outcome of that behavior was in 2007 for some, in 2008. For others.

Right.

And so, you know, and I'm not sitting here as like, you know, being an old man saying, oh, I remember those days, you know, it's like, no, but we really can't forget those days because it helps us be wiser and sharper in the things that we do and the decisions that we make today. There's always going to be opportunity. There was even opportunity back then if you were sitting on cash, right? So, but here we are 20 years later, a couple billion dollars of transactions, over 100 transactions completed. 21 of our clients we sold to publicly traded buyers. But the common theme and the common denominator of all of our clients is that we always look for that 1 plus 1 equals 3 or greater equation. So we are always transacting strategic buyers and investors in markets. And that's been a big part of our success and that very important success of our clients.

Wow. So you've obviously got such a diverse background and as you say, you've got those gray hairs and that experience that you can sort of share insight that a lot of people don't have just because they haven't lived through some of the market conditions that you have. And you've talked a little bit about, you know, How you began your career really in educating people who were, you know, sometimes more old, more experienced than you, but maybe didn't have all of the insight that you have. So I'm gonna ask you to share some of that insight with our audience. And as people think about, you know, mergers and acquisitions, you know, they oftentimes have one kind of view of it. Maybe it's, you know, selling into an exit. But I know you have a more diverse sort of mindset and There's different ways to think about it. Tell us a little bit about some of those common misconceptions about M&A.

You know, you hit it right on the head. I think a lot of us think of M&A or we think it's synonymous with an exit, and there certainly is at some capacity. But the question is, you know, do you want to exit in whole, in part, Or, you know, we could, in part could be a minority or majority sale of your company. And it really depends on circumstance, right? We have case studies and we have clients that just reached an age and a place in life where they didn't have the health. You know, some clients, you know, we've sold businesses for, and I probably, we don't know why, Frank, but close to Others like, you know, had worked with the law firm because the owner lives in an Alzheimer's home and he didn't know he owned a business, let alone that he just sold his business. Okay. And the proceeds were used to sustain his life in an Alzheimer's facility. And these stories, you know, hit home, you know, they pull on the heartstrings for sure, but You know, and even when I hear them, it's like, well, that's never gonna happen to me.

Sure.

I mean, we just don't, but we don't know. We just don't know. And so, but even if that is not enough motivation for an individual to say, hey, I need to do something about, you know, my exit plan or my strategy, the reality is I'm gonna teach you, and as I did at an early stage of how do you use M&A as a growth tool? How do you grow your business? Right? People, everyone wants a 10x their business, right?

Right.

But how do you do that? And so when you look at some of the case studies of, I'll use some big names, right? You look at visionaries like Elon Musk who went from a startup. Now he's, you know, building, you know, spacecrafts and pursuing space exploration. But it all started when he sold Zip2. He sold Zip2 and he made, personally netted $22 million from that transaction. And then, you know, it goes on and on. We all know the PayPal story, the Tesla story and how PayPal sold to eBay for, you know, $1.5 billion in '02. At that point, Elon Musk had his $22 million That went to $165 million. And we can all track that story where he is today. But if Elon Musk did not know what M&A was or how to leverage M&A opportunities, he would not be where he is today.

Yeah.

Just bottom line, he could not have got to where he is without some sort of M&A strategy or some sort of merger or acquisition of the companies that he owned. And so this is the income versus the outcome, right? We all love the income because it provides that lifestyle, but the outcome, if planned appropriately, can create generations of lifestyles through generational wealth. And so we spend a lot of time with our clients up front educating them on how do you do that and how do you know when you're ready for it? And I remind clients, It's not a date on a calendar that they're looking for. It's typically a dollar amount in their bank account. So if we can help them collapse time and get them there sooner, then the calendar doesn't become as relevant other than from planning perspective, right?

Yeah.

But the execution side really is where are you at today? Where do you intend to be? Because everything in between becomes the gap that we have to fill. And so One thing I'll tell you that I did not share with you earlier is in my intro is the amount of transactions that had failed early in my career, right? For whatever reason, they died, you know, a quarter of the way through, half the way through. They, some deals died at the closing table, right? And it was always Because of something. It wasn't people woke up on the wrong side of the bed. It wasn't an emotional driver. It was a logical driver. So something that was either discovered or, you know, came about and was disclosed about the business that killed the transaction. So what we did is we carefully studied those clients and we came up with 10 core value drivers.

Okay.

When you look at it, yes, some aspects of those 10 core value drivers are financial or based on financials, and there's non-financial aspects of the company that also measure. And so if you are imagining back, you know, Elon Musk, right? He had a team. He had a team that would guide him and lead him through what was possible. with mergers and acquisitions. And so that's what we do with our clients because this is not, we're not in an industry, you know, we're in a unique industry, right? And I can't think of very many industries where the sooner your client leaves you, the happier they are with you, right? And so, you know, we cherish that time. It's what we've learned is that We can't help them if we're already in a process. We can only help them and be effective with them if we're planning and preparing and showing them the playbook on how do you use your business, arguably the largest asset that you own or that your shareholders and stakeholders own, and how do you turn that into generational wealth? And I'll leave you with this. Private equity firms, family offices, independent sponsors, these are just 3 flavors of capital that are out there.

Yeah.

Their whole thesis is based upon what I just described, growth through acquisition. Of course, there'll be inorganic growth, but those that employ an M&A playbook like private equity groups, They outpace privately held companies that had no M&A strategy by 130%.

Wow.

And so that's something we're taking.

Well, and it sounds like that it's not really one size fits all. It's not just the, a certain sort of way of using M&A. And in fact, based on some assessments of the company and where they are on their maturity curve or how they're scoring against certain value drivers, There might be different approaches that would work better to achieve some of those objectives faster. Is that right?

Yeah, absolutely. I mean, you would be surprised. We have a client in California today. She, I sold her, our firm sold her husband's business 5 years ago and he retired and he's traveled the world. Every other month they're in Europe or Italy. And so they came to us again and they said, hey, we don't want her to deal with payroll while we're in Italy or traveling. You know, he wants to travel. So he is like, Meritage, please sell her business. So we look at the company and we say, well, we'd love to and we will, but it's not ready. And here are the reasons why. And so once we unpacked the reasons why, The business wasn't ready, even though the owner was ready for a transaction. Your business was not ready to be transacted. And so what we'll do is we, in that case, we pinpointed that situation and we're able to give them actionable advice on what they need to do to correct those aspects in their business. We often drive was we parachuted a fractional CEO into the company. The fractional CEO's job was to fire the owner, right? So—

Work them out of there.

Parachuted in, took all the jobs that the owner had and fired her from each and every one of those. The results were staggering because within 3 months they doubled the way their business is measured is by appointment. They doubled their appointments, thus doubling their revenue.

Wow.

In a 90-day period because all we did is we took out those areas of friction in the business that allowed the business to grow at the pace that it wanted to and at the pace that their customers and clients wanted to, right? So when you could take those areas of friction out of the company, and sometimes it's It's us. Sometimes in my own business, it's me, right? And that's the hardest thing to understand until you have experienced it, right? So the beauty of using these M&A strategies for business growth, I mean, in the case study I just shared with you, there was $0 injected into the business.

Wow.

It was just process.

Correct.

Wow.

Well, and it's so oftentimes we see that, you know, just that lack of process is one of the things that holds companies back from lots of different angles and, and really limits their options. Because if you don't have process, there's only a few options that you can follow. Whereas if you've got the process, you could bring in capital to pour gas on the fire or bring in people to have more hands to turn the cranks or Lots of other things. But if it all lives between your ears, well, there's really only one thing you can do, which is keep running it yourself.

That's right. That's exactly right. And that's, it's a bad place to be because you are at that stage, you're stuck, right?

That's right.

And as business owners and operators, talked to thousands of them, they never intended to be there, right? And so in some transactions where Recent case study of a deal we sold, companies we sold in February. The business owner went from running everything the day to day. And we always told him, I said, look, what's going to happen when you transact with this larger strategic buyer? It's a national platform backed by government. You're going to, you're not just selling 80% of your business. He kept 20%. You're not just selling 80% of your business, you're selling the things you no longer want to do in your business. And you're going to be able to go back to the very things that you were able to inject into the business from time, talent, and expertise. Right?

Right.

And that's what he was most passionate about. He was mostly passionate about developing the sales staff and changing the outcome of their livelihoods, more wives and their kids. And he had, he was very connected to this. And when you learn about him, you'll understand why. But that was what he was able to go back to. So he was able to sell those things he never wanted to do again in business, like insurance renewals, workman's comp renewals, lease renewals, like all of the nuanced items that a business owner will need to And I understand you've built a number of sort of assessment tools that you use to help companies sort of evaluate which of these, you know, myriad strategic options they should use. Yeah, like you're, like we were talking earlier, those, those 10 core value drivers really help us simulate how the market's going to perceive and receive the opportunity When your company comes to market, right? And so when we look at those 10 things and just, I'll throw a couple out just as teasers, but we'd be happy to speak with anyone. I mean, we host live events in person and virtual where we run these assessments with our prospective clients.

Uh-huh.

A couple of them are, you know, quality of revenue because not all revenue is valued the same.

That's right.

If I'm a contractor and I'm building, you know, 10 houses a year, but sometimes it's 12, sometimes it's 6 houses a year, it is, it's, there's a cyclical nature to my revenue stream, right? And there's obviously external influences on, you know, if I'm building 6 homes or 12, right? But that's all considered project work. So it's not predictable revenue. It's just not. You cannot predict that. Now let's think of, on the contrary, let's think of a business that has predictable revenue streams. Well, we all love software. We all use software, right? We pay for software, not once. We pay for software every month, per month, per user, per software tool revenue used. And so this becomes a predictable revenue stream. Look at QuickBooks, right? Yeah. Every small business owner uses QuickBooks and they pay between, you know, $30 to, yeah, $100 a month, whatever it may be. But those investors behind that product, they love it because it's predictable revenue streams. So punchline there is one of our measurements of the 10 core value drivers is Is revenue, the quality of revenue, predictability of revenue. Now, it doesn't mean that if you're a contractor, you can't have recurring revenue or predictable revenue. It just depends on what type of contracting you're in. And we've seen massive roll-ups in HVAC companies. And HVAC companies have 2 parts to it. They have recurring monthly maintenance that they charge a fee for.

Right.

Whether the economy is up or down, refrigerators have to be cold, food has to be frozen, facilities have to be air conditioned no matter what. But then they have their project side, which is replacements and things like that, which typically derives from the monthly maintenance work that they're doing. And so we saw over the last 10 years massive roll-ups in this track. So Doesn't mean just because I use the contracting example, you can't have access to quality revenue. It's just you have to know where to look and why you should look, and that's where you're—

That's right. Well, and not only that, but there are different things that go into that quality. Although the recurring revenue might seem challenging for businesses that work off projects, there are other ways to improve that quality of revenue by Diversifying their client concentration so that they're not so dependent on just one or two clients, or by increasing the lifetime value of customers, even if they do wind up having to come back more frequently. That, like, there are lots of ways to improve that quality of earnings. It's not just, well, I'm in the wrong business. I can't, there's nothing I can do about it. I'm in a project business, but there are actually ways to make significant improvements.

There are. And to your point, you know, quality of revenue I talked about and concentration of revenue certainly can be an issue.

Yeah.

You know, typically as an example, investors don't like a company that has one client or customer that equates to more than 30% of their revenue.

That's right.

Yeah. Because that's risky. That's why. Yeah. But we do look at those Both financial and non-financial aspects, such as you know is there key person issues? Is there it could be a key sales rep. We've sold over quarter billion dollars in clinical laboratories, and what we saw in that industry is that their their their reps, their sales reps controlled a lot of the business. So they had to make sure that those people were either had ownership or they're very tight. you know, connected very tight to your business in the case of business result, but we can solve for all of that.

Yeah.

Well, and, and you talked earlier about, you know, sort of this improvement of process and, you know, just now you were, you were talking about some of those other kind of non-quantitative aspects of the value of the business. And, and I think it's, it's so interesting when companies take the time to engage with a strategic advisor like yourself, Before it's, well, I gotta sell the business right away because of disease, death, you know, divorce, whatever it might be. When they take the time, there's so many other levers. I was reading an article the other day that was saying that, you know, of the like Fortune 500, something like 80% of their, you know, market capitalization, their value comes from intangibles. And although it's not quite that high when companies are looking to sell You know, in sort of the mid-market space, there's a lot of opportunity to improve that intangible capital to maximize the multiple that they're getting on that revenue or EBITDA, whatever it might be. But when companies don't take the time to improve that intangible capital, then they're ultimately just stuck with a very simple valuation based on that revenue or EBITDA.

Yeah, I was trying not to get too nerdy on you, but you triggered it. Here I go. No, but you're exactly right, right? Because there's multiple methodologies that could be utilized to determine the value of the company.

That's right.

And the issue that I see, you know, we have a client today that came to us and they said, hey, we have a certified valuation. Okay, great. Let's see it.

Certified by them.

Yeah.

And it was, you know, based on the methodology that they used, the inputs that they collected, the output and the result was spot on. It was right. However, right? However, the market's perception of the opportunity could be that's overvalued.

Yeah.

But guess what? The market could also say that's undervalued, and because it really comes down to circumstance. And in 2006, we had this Australian buyer group that acquired one of our companies here in the States. Fast forward, that we got the deal done. It was it was. It was 4 times the value that anyone else was offering.

Wow.

And we didn't understand why, but now we, today we do because they took that as an entry point into the US markets. They grew that business dramatically and sold it to a publicly traded company, Verit US. That's why they did it. Yeah.

Yeah.

So that's one aspect, but the other aspect of valuations, you know, because Mark, I could say, hey Mark, love you, love your business. I want to give you a— I value you at $1 billion. Correct? Sound good? Would you sell for that $1 billion? And likely you'd say, sure. Yeah.

Right?

Okay, Mark, my team has gone through all the financial analysis. We looked at your business, we conducted our due diligence. It's still $1 billion. Don't worry. But we could only afford to pay you $100,000 a year. How's that sound? And you're just going to flip the table over and you can tell me, yeah, you'll have some choice words for me, right? But the reality is that's the point. The point is valuation is one dimension or one aspect of dealmaking, but deal terms are equally as important.

Yeah.

And of course it was an exaggerated example that I gave to you. Paying you $100,000 a year for a billion-dollar valuation, right? But, you know, it's just, it's an exaggeration. But the point is still stands out. What exists.

Yeah.

That's right. That's right. That's exactly right. But if I could show you, hey Mark, I think your business is worth $10 million. We'll give you $8 million a day. Why don't you roll 20% equity, with us on a go-forward basis. By the way, here's our strategy, here's our plan, here's the committed capital that we're going to deploy into this strategy. And likely in 5 to 7 years, that 20% that you're going to roll forward is also equal to $10 million.

That's right.

Right? And that's where we went. And that's the strategy that we employed to get our clients to that intended destination. Faster, safer. Because remember, when you're using committed capital, right, in the private capital markets, it's less stress on you, your family. And I don't know about you, but I certainly think differently when it's not my own money that I'm investing.

That's right.

And it's not that I'm— it's not about carelessness. It's about I could be more creative and I could be more effective in returning Investors' dollars, including my own, when I'm in that state of mind.

Yeah, that's right. Well, Brian, you're obviously a huge wealth of knowledge on this, and I could pick your brain all day, and I'm sure our audience would learn a lot, but I got to be mindful of your time. But before I let you go, for our audience that's, you know, listening to this and saying, that really makes a lot of sense, and maybe I do want to start getting, you know, start thinking about this and getting some of these strategies in place now, what's the best way for them to connect with Easiest way is meritage.partners.

That is a website. It's that suffix is like a .com, but meritage.partners. We list out all of our events that we have. Some of them are industry specific. But most importantly, we're going to leave you guys with a link to book a discovery call with us and we can help place you in the right events. Based on your industry and based on the size of your listeners. And looking forward to and happy to speak with them about more of what we talked about today.

So that link that'll be in the show notes will take people actually to a call where they can just learn what's the best event for them to engage with you. You're not going to put the screws to them and give them the hard sell when they show up on that call. You're just going to help them find the right educational event, right?

Just like when, back when I was 26 years old, I didn't earn clients by forcing them to do anything. We earn clients by educating them and teach them what's possible. And that's exactly what we're going to do on this call.

Awesome. Well, Brian, thank you so much for taking the time to join us today. I really enjoyed our conversation.

Likewise, Mark. Thanks for having me. Happy to come back at any point in time again, but really enjoyed the time. Thank you so much.

Talk to you soon.

All right, all the best.

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