The Secret to Selling Your Business for Maximum Value with Kevin Berson

Welcome to the B2B Growth Blueprint podcast, where we talk with entrepreneurs, founders, and leaders at B2B services, tech, and SaaS companies to learn the systems and processes they've used to create success for their business. And we'll also learn from marketing and sales experts to provide insights to help you grow your business. I'm your host, Mark Osborne. And the podcast is brought to you by Modern Revenue Strategies and their 10x ROI B2B Growth Guarantee. Schedule a free diagnostic call to learn the fastest path to double your B2B revenues in just 90 days. Hello and welcome to another episode of the B2B Growth Blueprint Podcast. I'm your host, Mark Osborne, and today I'm very excited to welcome my guest, Kevin Burson. Now, Kevin is the founder of Knekted Advisors, where he helps lower middle market business owners navigate exits in the $10 to $100 million revenue range and sell for the maximum value they're worth. Kevin and his team run an end-to-end M&A process from valuation and positioning through buyer outreach, competitive auctions, diligence, negotiation, and post-close transition. Knekted has closed deals across industries including IT services, e-commerce, manufacturing, aerospace, and professional services with an 88% close rate, nearly triple the industry average. Before founding Konekted, Kevin spent 18 years at Technicolor and Arthur Andersen. He holds a BA from UCLA and an MBA from the University of Southern California Marshall School of Business— fight on— and multiple M&A and exit planning credentials. He's been recognized by Los Angeles Business Journal as an investment banker Leader of Influence for 4 consecutive years. So, Kevin, welcome to the show.

Hey, Mark, thanks for having me. This will be fun.

Yeah, I've been looking forward to this. So before we start to jump in on some of these topics that we've been chatting about, why don't you give our audience a little bit of a picture of sort of the twists and turns in your career and how it brought you to where you are today?

Yeah, no, this is a fun one. So I started, I graduated UCLA and I had worked in a law firm. I was pre-law. I thought I was going to go down law school path, and I worked in this law firm, and I met these attorneys that were really fantastic attorneys, but not good business people. They really, you know, I got my first taste of M&A there too. They were working on a deal. They were representing Neutrogena. It was a family they represented, and I just saw what happened to the business after they lost Neutrogena. They had too much reliance on Neutrogena as a client, and it really changed their business after that deal, and they were not prepared for that transition. So being there really opened my eyes up to the world of consulting, and I used my experience at the law firm to go get my first job out of UCLA at Arthur Andersen in consulting, where I spent the next 6 years or so. And I really love consulting. It was very Kind of the ideal first job for me out of school. I got to see a bunch of different industries, got to solve a bunch of different business challenges. I was doing really well there, promoted a couple times, and then boom, in 2000, 2002, Enron hits, right? A couple rogue partners in Houston were shredding some documents, and Andersen did not manage that controversy very well and ended up losing their license to audit. And boom, a thousand-year-old— sorry, a hundred-year-old company. Goes under felt like overnight. So I'm trying to figure out what I'm gonna do next, and then I get a call to go over to Technicolor, which at the time was a $5 billion publicly traded company based in Paris. Pretty exciting time to join that company. They had a new CEO that was an investment banker, and he wanted to radically reposition the company by doing M&A. I had a chance to get onto their M&A team. And we did a lot of deals, and I fell in love with mergers and acquisitions. This is my first experience. We did, you know, we spent 6 months studying digital advertising and identified 10 companies that we would potentially buy and went out and ended up buying 3 of those companies. And I got really, got a really good understanding of what it takes to basically convince the board of directors why you should do a deal and the level of specificity That's required, the importance of the narrative, the importance of kind of backing up your narrative with data. So really learned how to tell a pretty good story using data at the time, and I love the job. Fell in love with M&A, but did not love the 90-100 hours I was working a week.

Yeah.

So I went out on my own in 2014 and started Connected, and we've been working in the lower middle market ever since. I find a lot more fulfillment out of working with. Smaller businesses. The deals we're doing at Technicolor were just huge businesses, very corporate. We'd have huge deal teams. I much prefer to work directly with the owners and really get personally involved and make a real difference for them in their lives. And that's what we've done for the past 12 years.

That's fantastic. And so, you know, you live in a really interesting space that I'm sure a lot of people are always trying to get at some of that insight between your ears because there's so much activity with private equity moving into this upper middle market of making investments in companies, rolling up companies.

Yeah.

And a lot of folks are always trying to sort of guess, well, what is private equity really looking for and what would make my business attractive to them? Or what would make me as a supplier to private equity as a good partner? Tell us a little bit about what you see there, both in terms of trends that you're seeing in the space, as well as just, you know, some maybe overlooked aspects of that marketplace.

Yeah, sure. So, you know, I've been doing this for 12 years, and I just— every year it seems that private equity is playing a larger and larger role in this ecosystem in the lower-middle market. I think over the past 10 years, they've come downmarket and try and expand the net of what they're looking for. You know, it used to be they were looking for businesses with like $5 million in EBITDA and up, which they still are for platform companies. But I think where they've really done a lot more volume are in add-on transactions, which is if they're already in a space, they'll now start to look at companies with a minimum of $1 million EBITDA that can be an add-on for a platform they're already in. So that's trend number 1. Trend number 2 is they're continuing to raise just insane amounts of money. There's now something like $4 trillion on the sidelines looking to do deals, looking to do acquisitions. And since COVID and since the last 5, 6 years have been pretty murky, they haven't really been able to do the full amount of deal volume. So there's more capital chasing fewer deals in general. And then the other thing happening in this market is, you know, the sellers of these lower middle market companies are not getting any younger. They are getting older.

Yeah.

And, you know, sooner or later will need to transact and get out of these businesses. So private equity in the market that we are in is absolutely thriving. You know, they're looking for add-ons for companies that are already in. And we've kind of seen this firsthand with our deals. We've seen the typical private equity playbook, and I'll give you a couple examples. We did a deal a couple of years ago in the plumbing space. And basically the buyer, they went out, the private equity firm, they bought a platform company that was in commercial plumbing. And this was a company of some size. I think it's, you know, $6-7 million EBITDA that became their platform. And then they wanted to go out and add to that platform and they probably paid I don't know, 8 or 9 times for that platform company. So they're making a pretty big investment to get in the space, and then they're gonna go out and find companies that are, you know, $1 million EBITDA and up, where they can continue to add to this platform. And what they're doing with that is they're trying to get some synergies. They're trying to centralize management, centralize systems, centralize advertising spend. centralized procurement costs, you know, for a plumbing company, all the plumbing plumbers are gonna have the same kind of raw material input costs. So they're looking to get some sourcing savings that, you know, from buying at scale. So they went out and bought our company for, you know, call it 5 times EBITDA, and then they went to sell the entire platform at over 10 times EBITDA within 2 years.

Wow.

So they get in, get the platform, and then make, you know, 5, 6, 7, 8, add-on deals and then sell the whole company at a pretty significant premium to what they paid for the platform. And they're getting all this kind of synergy arbitrage if they're buying our company at 5 and selling the whole platform at double-digit multiples. So that's kind of the typical playbook. We just had a recent success where we did something similar. We sold to private equity in the utility services space. Same type of playbook. The buyer was a private equity firm that had a platform company and they bought our company that we were representing and they intend to go to market with that platform by the end of this year. So it can be pretty quick. It could be a 3 to 5 year life cycle for private equity to kind of get in and build a platform, get add-ons, and then exit.

Wow. So You hit on something that I think is really interesting and especially for, you know, our audience that might be operating a business today and they sort of exits on their mindset, but maybe it's not the only thing that they're thinking about. But you talked about, you know, this idea of being a platform play versus an add-in.

Yeah.

And I've, you know, heard horror stories of businesses that aren't thinking about their eventual exit. And so they're making choices in their business today that if they really sort of understood, I'm probably never gonna be big enough to be the platform. And so then I need to make choices that make me a perfect add-in.

Yeah.

If that's the likely outcome that, that they wanna have. Or alternatively, well, I could make choices that make me a better platform, uh, if that's what really the market's ripe for. Talk to us a little bit about some of those choices, and I've got some examples that I've seen, but I'm sure you've got some great examples too.

Yeah, I mean, I think the major difference between the two is if you are going to be the platform, you know, typically there's, you know, roughly $5 million EBITDA becomes the cutoff. But beyond that, it's, you know, do you have the leadership team within your business that is going to be able to kind of, you know, grow and scale? Do you have the leadership team Do you have the processes? Do you have the technology? Do you have the vision? Those are kind of things that the buyer is looking for in a platform. And that, you know, we're betting on this horse. It's a little looser criteria if they're looking at an add-on. The systems become a little bit less important. The processes become a little bit less important. If they're looking at an add-on, they're generally looking to, you know, add a product line, add a geography, adds some kind of capability they don't already have. But it's a much higher threshold for a platform because then the leadership team becomes very central to the decision.

Yeah. Well, and you hit on 2 things there that I've heard said oftentimes, which is sort of the geography play or the sort of, you know, line extension play. And the example that I've heard is, you know, rather than spreading out into multiple geographies where you then become less of a good fit as add-in, really penetrate the geography that you're in because then you become very attractive as a, we could plug that geography with this.

Yeah.

And the same with those, you know, sort of, you know, service lines or sort of fulfillment rather than expanding out into doing, you know, 5 other things poorly, really develop that deep expertise in one particular area because then you become that add-in that's the perfect plugin for those platform plays.

I would agree with that. Yeah.

So one of the things that you and I have talked about and that, you know, we see a lot is, you know, as maybe these business owners get dollar signs in their eyes, as they're seeing private equity come in, you know, to their marketplace and, wow, I never thought that this family business that my dad built and I've been running is now, you know, worth so much or that there's even this interest in acquiring it.

Right.

What are some of the, you know, sort of realities about that that maybe gets lost in the luster as they start to sort of get those dollar signs in their eyes? Talk to us a little bit about some of those real implications there.

No, there's a lot of meat on this bone, a lot to discuss here. So I'd say, first of all, you know, private equity and all kinds of buyers are getting very, very good at getting directly to a seller and coming in with the unsolicited offer. So that's a huge trend we're seeing over the last few years. So then the seller gets this offer and it's this great number and they get excited and they're not sophisticated and they don't maybe have great advisors around them. So they're very suspect to this game plan that these buyers— the buyer's goal is to basically give you an offer and to get you under exclusivity so they can again learn as much as they can about the company, look for reasons to get that number down, and basically change the deal on you. That is a very common buyer tactic. We see it all the time. And a lot of times sellers are just not educated on how deals operate and they get lured in by this headline number. But if you look below the covers, and they get this $20 million offer. Well, maybe it's not— it's certainly not going to be $20 million cash.

No.

There's going to be a huge earnout involved. Typically, there could be a seller note involved. There could be stock in the acquirer's company, which may not be very liquid. So headline valuation is definitely something that buyers lead with, and it takes a little bit of time to really discern if this is a good offer or not. I mean, from my experience in doing this for 12 years, I can tell you that definitively the best way for a seller to get the most value is to run a competitive process. If you have one buyer, you basically have no buyers because there's no competition. There's nothing pushing that buyer to move on your timeline. You, you are playing catch-up the whole time. You are, you are behind the 8-ball. That buyer is running you around. We like to shift the tables, right? When we are the seller, we control the process, we control the timeline, we control the cadence that we're giving out new information, and we have full control. And that is the best way to get multiple offers to make sure that you're getting— you know, the market will dictate. I don't know. I have a good sense of what offers are going to come in at, but I am always surprised what competition can do. I mean, we just closed a deal recently over the last few weeks. We told the sellers to expect $18 to $24 million on the deal. But because we had such incredible competition, we had 10 offers on this deal, we drove the price up to $31 million.

Wow.

That's through competition and really making sure you get the right buyer. If you get one buyer coming out of the blue, is that the right buyer? I don't know. I mean, maybe it is, maybe it isn't. And if it's not, you're going to waste a lot of time and money trying to get that answer. Might as well run a process. We like to go out to 150 to 300 buyers on every deal. And make sure that we are creating a market. The market will decide, but we, to do that, the company needs to be prepared properly. And that's something that we spent a lot of time on as well.

Yeah. Well, and it's that, you know, exit strategy is good business strategy. The same thing of, you know, making a choice to expand into multiple geographies versus not. Well, you know, what's the sort of end goal and how does that fit in there, which is Really one of the keys that why having a good advisor like KinetiD is so important. What are some of the sort of things that companies, other things that they don't think about that once they start to look at it through the lens of, well, what's my eventual endgame, that they start to realize the importance of those choices?

Well, I think the number one overlooked aspect of deals is having quality financials. What does quality financials mean, right? So your financials, when you go to market, you're gonna go to market and you're gonna say, My revenue is whatever it is over the last couple of years, and my EBITDA is this. And that EBITDA number is going to be tested every— is going to be deeply tested. You're going to have teams of professionals, accountants, evaluation experts on the buyer side that are really going to be diligencing that EBITDA number. And you better be sure that your EBITDA number is right because chances are their offer is directly tied to what you're saying your EBITDA is. Most sellers don't know what their EBITDA is. They don't really understand the concept of EBITDA. And there's what's EBITDA that's obvious to them, and then there's other aspects which they don't consider, such as if I'm a business owner and I own my commercial property, am I paying fair market rent on that property?

Right.

If they're not, you know, there's going to be an adjustment favorable or unfavorable? Am I paying my family members fair market salary? Am I paying myself fair market salary for this role? Again, there will be adjustments there. And buyers tend to look at financials on a GAAP basis, generally accepted accounting principles. And that if you're on a GAAP basis, that means you're doing all the proper accruals every month. Is your vacation accrual that you're gonna, you know, when you close, when you sell your business, you're gonna have to pay out your employees on vacation time and bonus. has that been accrued properly? You know, if you're a software subscription business and you're taking, you know, subscription revenue upfront, have you properly— do you have a proper liability for deferred revenue? I mean, these are very common things that are not part of the financials. And that's just kind of the technical aspect of EBITDA. There's also the concept of quality of earnings. What are the quality of these earnings? If you have If you're a consulting firm and you have project-based revenue, that's going to trade at a lower multiple than a company that has a lot of subscription and recurring revenue. Project-based is hard to scale. You never know when projects are going to start, when they're going to stop. You have to go sell new projects every year. Recurring revenues trade at higher multiples for that reason. There's more predictability. Another overlooked Item is customer concentration. So let's say you're making 70% of your revenue and usually at least that percentage of profit to your top 2 or 3 customers. You better believe that a buyer is really gonna diligence that relationship and make sure that they're pretty comfortable with that relationship. Anytime there's— anytime you have more than 25% of sales to one customer, Chances are that's going to manifest itself in a much lower purchase price and not as favorable deal structure. You're probably going to get less cash at closing. So, you know, and buyers are also going to look at what's the quality of this management team? Who's going to be coming with me on this deal? Is your equipment up to snuff? Like, do you have deferred maintenance? Did you not spend on upgrading your systems or your equipment? These are You know, if the buyer is assuming they're gonna have to make these adjustments, then they're gonna just deduct that from your earnings, their adjusted earnings, those type of things. So we really want to make sure when we go to market, we have the business, you know, 3 things really need to be there. The business needs to be performing, and hopefully you're going, you're going, you're going, you're increasing scale and you're going on. I know that's number one. Number 2, the market needs to be ready, and you can tell it, you can tell a story of why your business is going to be strong for the next 5+ years, right? And in the age of AI, business models are getting disrupted. You know, if you're a court reporting service, you know, a couple of years ago doing really well, chances are that's going to be in the crosshairs of AI. So you're going to have a tougher time telling a credible story. And then the third thing is the seller needs to be personally ready. I mean, these businesses are their identities. And a lot of sellers really don't have other things in their life that they're excited about. So we want to see a seller be running to the next chapter of their life as opposed to running away from their current chapter. So the psychology plays a huge role. We want to make sure sellers are emotionally ready to go through this process, which will be a roller coaster of emotion. And then on the other side of this, we want to make sure that they have a purpose that they're going to be moving into.

Yeah, well, it's so funny to, to hear you talk about that. And, you know, in the exit advisory space, there's a lot of emphasis put on, you know, what's the seller going to do in their next chapter. Uh, and then early on, as I, you know, started to hear people talk about it, I was like, what, what do I care, uh, what they're gonna do? But the reason why is the biggest reason why deals fall apart is the seller gets cold feet.

Yeah.

At the end. And without really helping them think through what that deal is or what they're going to do at the end of that deal, you really run a lot of risk of the deal falling apart.

Yeah, that's 100% right. And the seller will, if they're not ready, then yeah, the deal will fall apart. They will sabotage it somehow. The business might fall off in its performance. If they weren't ready, they probably didn't spend, you know, get the right advisors around them, so they won't be able to handle the typical bumps that go along with deals and they're just gonna walk away. And that is a— that's why the typical, you know, only 30% of businesses that go to market actually close.

That's right. Well, and you talked about some other things too that again just sort of highlights how important it is to have that endgame in mind, which you were talking about sort of the quality of earnings. And we oftentimes will look at sort of the, you know, what's the quality of the systems under those earnings, the revenue systems, that are there. And we've seen things that, you know, what are kind of nominal shifts in operating make a big difference on the valuation. From, you know, talking about, you know, companies that have sort of like tentpole revenues, where, you know, you do a big engagement and then it goes away. Taking a slight discount on that engagement, but then structuring it so that it's a subscription rather than a one-time payment. Can get you a whole turn on the valuation.

Yes.

And so instead of selling a deal for $500,000 that you then have to resell in a year, sell it for $400,000, but then on a subscription basis, and you can get a whole other turn on the revenue because now it's so much more stable. And like all these little changes in the way that you run your business today make you so much better prepared for that eventual exit, which is, you know, the benefit of having advisors like you around to give that advice.

Yeah, I mean, you hear a lot of talk about what's the EBITDA multiple. Well, what does a multiple really mean? It's really a level of risk. It's how much risk is on this business. You know, at the lowest end of multiples are going to be, you know, retail which is obviously under threat from a bunch of different models. And professional services firms tend to be lower multiples as well. Why? Because there's personal goodwill involved. And are those relationships going to transfer? There's always— there's just a lot of risk around that. And the highest end multiple is going to be a subscription software business. Maybe software isn't the greatest example over the last few weeks where AI is making a huge dent in software pretty quickly, but A recurring revenue business with just high predictability, those businesses can still trade revenue multiples because they're so predictable. You know, think of like Zoom, you know, we're on a Zoom call right now. I'm not, you know, thinking twice about renewing my Zoom subscription next year.

Well, Kevin, you're obviously an expert in a lot of really interesting topics and we could talk all day, but I got to be mindful of your time. But before I let you go, tell us a little bit about who does KinetiD work with? How do you really help them? Yeah.

So our sweet spot is helping businesses between $10 and $100 million in revenue. You know, these are businesses that are going to sell to a professional buyer. We're not serving the individual buyer market. We're serving professional buyers, which are private equity firms and strategic buyers. And what we do is we like to get involved 1 to 3 years before a potential sale. We will work with the sellers to make their business sellable and sell for maximum proceeds. And we do that by making sure that the narrative is there and we can support the narrative with data. We have all the KPIs that buyers are looking for. We know when we go to market, we're gonna be compared to other companies in the space. So how do our margins compare? How do our customer acquisition costs compare? How does our gross profit compare? How does our operating expenses and where are opportunities for the buyer? So we want to have the right story with the right narrative and really make sure that the business is going to really present very well. And not only that, that the story is going to hold up through due diligence. Now, the worst thing that will happen for everybody is if we get a busted deal. We will have spent months to years preparing this business for sale. And then if the buyer discovers anything that's wrong with our financials, a material difference, they're going to lower their price. Seller is going to be upset and probably walk away. We have a busted deal. So our job is to make sure that the business is going to make a great impression on the market and we're going to be able to command a premium for this business. We're going to be able to target Couple hundred buyers and create a thriving process. So, so we are a boutique shop. There's four of us at the firm. We are looking for two to three deals a year, and we want to get maximum dollar on those deals and really get great exits for our sellers that they're proud of.

That's what you get. What's the best way to connect with you, Kevin?

Yeah, my email is probably the best: kevin@connected.com.

Awesome. Well, Kevin, thank you so much for taking the time to join us today.

Thanks so much, Mark. Really enjoyed the discussion.

All right, talk to you soon. Thank you for joining this episode of the B2B Growth Blueprint podcast. We hope you've gained insights to grow your business. If you enjoyed this discussion, please rate, comment, like on your favorite platform, and share to others who will find it useful. Do you know a CEO, founder, or leader at an early-stage B2B services, tech, or SaaS company who would like to be a guest and share their story, send us a note. Let's schedule a conversation.