The Inevitable Exit: On Your Terms or Theirs? ft. Brian T. Franco

As I always say, we don't want to show up to a gunfight with a knife. And if you show up to the negotiating table without some sort of quality of earnings or audited financials, because remember, the buyers and the investors are going to do this on their side. And if we haven't done this work already, we're at the mercy of their results.

Hello and welcome to the Wealthy Entrepreneur Podcast. I'm your host, Bob Gauvreau. It is a pleasure to have you here with me today. Just as a reminder, this is the place where we dissect the elements that contribute to all of entrepreneurial success, from mindset and leadership to profits, revenue, and even mergers and acquisitions. Today I'm joined by Brian Franco. He's the founder and managing partner of Meritage Partners. He's the author of Inevitable Exit, which I look forward to getting my hands on a copy of, and he's the host of the M&A Guy podcast. He and his firm have advised on more than $2 billion in founder liquidity events. Helping entrepreneurs build companies that are not just profitable, but actually valuable, scalable, and attractive to sophisticated buyers. Today we're diving deep into the enterprise value, the founder dependency, and how entrepreneurs can build expandable companies, transferable companies as well. And I'm very excited to have Brian join us today, and it's always fun to talk M&A with great M&A experts. Ryan, welcome to the show. Thanks for joining me today.

Bob, thanks for having me on. And admittedly, I think there's a deal junkie in all of us, right? We all like those M&A transactions and, and that's what we're here to talk about. So looking forward to diving into that conversation.

Absolutely. And, you know, like people talk about growth strategies so often and maybe undervalue the opportunities that are in M&A. So I really, I look forward to diving deep in there. But before we get started, I'd love for you to maybe share a little bit about how you got started in the M&A space when that happened, because I know we're celebrating a little bit of an anniversary period in business, but maybe share your story a little bit so we have some perspective of where you've come from.

Absolutely. So, you know, I, you know, one thing that I like to say and a lot of people don't know about me, but I was a, I was a very young father. I had my first child out of wedlock. I was 16 years old and it really slingshotted me into manhood. I graduated high school early. I was in college at 17 and a half, and I thought I wanted to be a CPA or an attorney. And so I studied both accounting and law and real estate law specifically, and really liked the two of those. And so what I found in my journey is that M&A is a mix of both. And I had the opportunity to start, cut my teeth at a firm when I was 23 years old, fresh out of college and immediately successful. I just understood deal structure and The psychology behind the deal itself. And not long after, I, I decided to start my own firm in, in 2005, but not before. In 2004, when I left the firm I was at, I was 72% of the firm's revenues in 2004.

Wow.

And so you leave in good terms as you can, but 72% of anything is a lot. And, but I left with a vision, and that vision was Meritage Partners. And here we are 21 years later, have been pursuing that vision every single day since. And we have completed over $2.4 billion of exits spanning over hundreds of transactions. 21 of our clients we sold, represented and sold to publicly traded buyers. in the marketplace.

Wow.

And the balance thereof were sold to strategic buyers, which were privately held or private equity backed. And this is in a variety of industries. We're industry agnostic, but we are, we're known as being experts of finding that 1 plus 1 equals 3 or greater equation in the market. And And that's what allows us to be successful for our clients and as a firm.

And, you know, like I said, the M&A space is fascinating to me and particularly in my space. I'm a Canadian CPA, but watching what's happening down south with the CPA firms in the US with private equity and Grant Thornton just making a $5 billion cash acquisition of CBIZ last week, definitely top of mind. So lots of interesting things. And, you know, I really love the business line. Now, I think, you know, you've obviously invested some pretty decent time in here. I believe you've written a book called The Inevitable Exit as well. Can you tell me a little bit about your book?

Yeah, shameless plug. Here it is, Inevitable Exit. We launched it last year. And so, so a couple reasons why I wrote this book for founders and entrepreneurs. One was early in my career, you know, I was banging my head against the wall, watching some deals fall apart at the 11th hour. So I studied those transactions and why they fell apart, but I also studied the majority of our success and why those transactions were successful and why they are still successful today. So I wanted to be able to, you know, distill that down into what 7 value drivers or pillars in the book that I talk about. And, but I wanted this book to speak to everyone, uh, because we are, as the book is titled, we are all inevitably going to exit our companies, including myself, right?

Yeah.

And so the big question is, is it gonna be on your terms or someone else's? And I really focus on how to draft your own terms, how to create your own M&A transaction or exit strategy. Because even those that are listening to us right now, Bob, and they say, ah, I'm never selling the company. My daughter Susie's going to take it over. My son Billy's going to take it over. Or maybe it's the, the, the leadership team is going to, you know, buy the business back, whatever the case may be. That's an internal transaction. And then there's external transactions, which is the work that we do. But in either case, we are all inevitably going to exit. And I can tell you this because I have been at the closing table of the 50-year-old widow that cried on my shoulder, thanking me for our firm's work for selling the husband's company, who died prematurely of a heart attack at age 50. She had to carry the weight of that. She had to deal with the attorneys and the transaction itself. It was a lot. And she was mourning the, the death of her husband. So we're all going to exit, including The man that we sold his business and he doesn't know we sold it to this day because he lives in an Alzheimer's facility. We were engaged by their law firm to sell the company. We successfully sold it to a publicly traded buyer and it's going great. But those case studies really tug on my heartstrings even when I say them. Like, I'm physically and emotionally in those rooms and in those settings when We had led those transactions and it's heavy. It's really heavy, you know, including the 38-year-old that drove his motorcycle home from the office on a Friday and never came back because he ended up being a human vegetable for the rest of his life. And the family was left to pick up the pieces of the business, which was in the oil industry. We successfully closed that transaction, but I'll tell you right now, we could have sold it for at least 30% greater of enterprise value. had there been an exit strategy plan. But more specifically, and I'm not just talking about the succession plan, and I think it's an overused term, right? But there has to be certain elements in the business that allow it to be continuous with or without us as, as business owners. And it's, it's a paradigm shift to get to the place of working on the business versus in the business. And we hear this, but this is what it means, that the outcome of not working on the business versus in the business is you end up one of these case studies that are just, they're painful to talk about. And as I described, but they are real. And so we're all inevitably going to exit. And, and the other reason I wrote the book is a bit of a rainbow for me in my family. My father had a very successful business for about 20 years. And unfortunately, he had a major back injury, which led to 2 different back fusions, which has left him permanently disabled. And, you know, he's mostly in bed, but when he's out of bed, he's in a cane or in a wheelchair. We watched his business deteriorate with his health until he had to close the doors of that company. And I saw my mom firsthand and my sister and my brother, and I went through that. And so I'm like, there has to be something better. There has to be an easier pathway. And so I bring those case studies, I bring my experience as a professional M&A advisor into the book, and I deliver that to entrepreneurs so that they would— Bob, so that they wake up and they realize that the trajectory always on a spreadsheet, everything is always going up, right? Everything's only getting better, right? Absolutely.

Yeah.

But we have to plan. And if anything, optionality is what we're creating.

You know, I think statistics are 70-plus percentage of businesses don't actually sell, right? And there's the idea of let's have a plan. But, you know, if you're not actually planning on how you're going to create the value and how you're going to extract the value out of your business and eventually exit, that you might miss out on opportunities. Do you see this a lot, Brian, when you start talking with prospective clients that you go, you know what, this business isn't saleable as much as you think it might be?

So your stats are right. 75% of companies do not have an exit strategy. 85% of businesses that go to market do not sell. And I'll tell you, it's, it's huge, you know, and internally, you know, we track our stats at our firm and And we sell 85% of the companies that we represent. It's always our client's choice what they want to do, but we receive offers on 100% of our clients that we take to market. And so when you think of sellability, I want to think of this in 2 segments, sellability, and I want to link that to transferability because everything is sellable, right? Right? It just determines what's the driving enterprise value of that company, and is it going to be acceptable to the seller, and is it gonna be acceptable to the buyer? Transferability speaks to more so that how that enterprise value is paid for. So I'll, I'll pick on myself, Bob. You wanna acquire my company and you say, Brian, I'm gonna give you a billion dollars. I said, sure, Bob, let's go.

But cash too, by the way. Right outta my pocket.

But play it, play along with, play along with me here. You, you tell me, Brian, no, I'm gonna pay, I'll, I'll, I'll buy your business for a billion, but I'm only gonna pay you a dollar a day. Those terms are terrible, right? Those terms are, I mean, they're good for you, but they'd be terrible for me. And that's what is really overlooked in exit planning or succession planning, because a lot of times it's just snapshots of valuations. That's one dimension. The other dimension is how is that valuation going to be paid for? And so it's really dictated by what underwriters or what investors underwrite to, and that's risk. And risk lives everywhere in a business. And so our job initially with our clients is to identify the risk, the transferability risk, and eliminate it, if not dilute it, So that when we do go to market, investors are underwriting the transaction and we're enabling them and we're empowering them to want to pay all cash. And we're enabling and empowering them to want to pay a higher enterprise value. Because the one thing that I've learned, and it doesn't matter what economic cycle we're in, there's always, always more committed capital in the market than there are good opportunities. And that should be alarming to all of us because as founders and entrepreneurs, every day we're focused on building income, building income to generate profits so that we could live the lifestyle we desire, right? And we're willing to sacrifice a lot. I've seen folks sacrifice marriages. I've seen folks sacrifice relationships with their children in pursuit of this. But they always mostly overlook the outcome because they're so focused on the income. And the outcome is that they built a valuable asset, their business, and they have no idea how to transfer that asset. They have no idea what it's worth. And so the work that we do upfront empowers our clients to not only know what EBITDA is, what networking capital is, what purchase price allocations are, and I could go on and on, but it helps them to show up to that negotiating table and represent themselves in a way that is going to be attractive to those investors in the market. Because a lot of times, and mostly prospective clients that we meet, they have always come to us because someone in the last 5 years has handed them an unsolicited offer to acquire their company. And most of them didn't pursue the transaction or offer, or if they did and it fell apart and they were discouraged by that process. But I always remind clients, the good thing is you're wanted in the marketplace. So that's, that's been validated. Now we just have to figure out how to get what you want, and that's how we win.

Which is maybe sometimes a challenge. And when you talk about transferability risk, this is what I see as the largest transferability risk with my clients and those that I work with is the dependency on the owner and the owner getting out of the way with being so tied to operations that there's really the transferability is almost not possible because without them, the business won't succeed. What do you see when it comes to owner dependency? Is that a common theme that you see? And what are maybe a few of the ways that you can see business owners being able to support getting out of the way?

So yes, all the time. And the wise advice that I have is to fire yourself. Just up and fire yourself, right? You probably have more than one job, right? It's, you're wearing multiple hats more than likely. But most operators of companies, let's say generating revenue up to $5 million, are in that owner dependency bucket. There are certainly, you know, companies that have scaled beyond that but still have that owner dependency bucket. And so how do you dilute or eliminate that? Well, I wasn't joking. We will parachute in a fractional CEO to a client that we're preparing to take to market. This is months ahead. And we say, you need to fire the owner immediately and you need to, you need to take all of their roles and responsibilities and allocate it to a leadership team, which is sometimes there and is sometimes not. But when you do that, You eliminate all of the decision-making, all of the estimating, all of the, all of the proposals and all the things that owners want their hands on. And you eliminate the need of that the company has on them to perform. And so when you do that, you are creating continuity in your leadership team. And so that continuity, the hard part is, as entrepreneurs, is we never want to hand off anything because no one's ever going to do it as good as us. Right? Nobody. And so what, you know, and I went through this too. I gotta drink my own Kool-Aid here, Bob, because at one point I was like that as well. But I have learned that when you give certain tasks to various people on your team, they become experts at those tasks, and often they are better than I ever was at performing those tasks. Absolutely.

Yeah.

But, but you have to start somewhere, and the best place to start there is with written processes. Standardize your SOPs. You need SOPs. And once that's documented, that could be reflected upon. And there's so much technology we could use to implement this now, but you don't need to be hovering over these folks that you're bringing into your company to lead on these tasks or these jobs or these roles. And so that alone is the best thing that I can suggest to a business owner is fire yourself and replace yourself, usually with more than one person. It's usually at least 2 to 3. But when you do that, it allows you to work on the business while your, your team is working in the business. And it allows you to position yourself when that offer, unsolicited offer comes, or you consciously decide to go to market, you position the company to be ready for that transition and that transferability.

Absolutely. One of my favorite ways to document standard operating procedures is through Loom. Loom just being, for anyone who's listening, an online platform that allows you to record videos and it actually transcribes them as well. So you can record a video, you can share screen, it transcribes it, It also gives you notifications when people are watching it, and it allows you to also track comments and have a discussion in sort of the bottom end of a Loom video. Fantastic opportunity. And you know what? You record it once, it's done, it's documented, and it's not like it's an extra process for you. You're just doing the job that you're doing anyway and just documenting it while you do it. So Hopefully a little shortcut for everybody there, right there.

Yeah, exactly.

So Brian, question for you, and this one is always fascinating. So like we support a lot of people through the M&A process. We're not brokers, but we have our hand in it. And I've definitely done a few with the intent to do a few more as well. What do you see that separates businesses that attract premium buyers or premium values versus those that don't? What is it that people can prepare themselves for with a good plan to try and attract those good buyers, those good premiums versus just showing up and expecting they're going to arrive? And let's maybe exclude owner dependency as part of that conversation.

I was going to say that we did not rehearse this because this is going to sound self-serving, but because you're, you know, the work that you do, but the reality is it's investors are looking for predictable revenue stream. So you've created a machine, your company, and if that machine, you could stick a dollar in one side and $8 come out of the other side, great. Machine's working, right? But how do you prove that? Because the burden of proof is on your side of the table, is on the side, our side of the table. Let's say you and I are representing a client on the sell side. So we need financial hygiene. We need financial clarity, which comes in the form of accrual-based accounting. 3-statement models closed monthly, not once a year, right? Not once a quarter, closed monthly, especially if we're on the market. We don't need an audit, but if we could have a quality of earnings, that would be powerful. Because I always say we don't want to show up to a gunfight with a knife. And if you show up to the negotiating table without some sort of quality of earnings or audited financials, Because remember, the buyers and the investors are going to do this on their side. And if we haven't done this work already, we're at the mercy of their results. And that is what deteriorates valuations. Because when there's ambiguity or the lack of clarity in financial reporting, we submit a report and then 2 weeks later we go, oh, just kidding, trash that report.

Here's a new one.

What you do is you really create questions in the investor's mind. And so when the investors are looking at your company in all aspects, HR, operational, sales, training, financial, all aspects, and they begin to see a pattern of inconsistency or inaccuracy in the financial statements, I assure you they're going to think the same is happening and occurring every anywhere else in your business. So if you cannot show up with clear financials, clearly articulating the past of the business, because a lot of times I always tell people, you know, a bookkeeper is a good historian, right? They're writing down what has happened. A CPA is there and a good CFO is there to help you not only tell you where you've been, but where you are and also where you're going. That's the big differentiator. So bookkeepers, they're great, but they don't help your enterprise value. They do not help you when you're positioned in a due diligence process and the burden is on you to produce reports, whether it be revenue recognition, whether it be we're trying to determine net working capital, Which, by the way, is 11th-hour deal killer for a lot of people because they don't understand what it is.

Yeah.

So I can tell you right now, if you're going to go on the M&A battlefield, you want a strong M&A advisor and you want a strong CPA that's advising you through the preparation, which includes the tax planning, because there's a variety of different tax treatments depending on how the transaction is structured. So that's the answer. It has nothing to do with owner dependency. It has everything to do with financial clarity and hygiene.

Like you said, not rehearsed, but thank you for that. That's, uh, we offer all of those services for everyone who's listening. That works really great for me, Brian. So I appreciate it.

Yeah. I, I thought you would. I thought you would.

Yeah. Yeah. Yeah. No, that's perfect. And, and I'll take that maybe, and maybe just add my 2 cents to it as well. You know, when you're going through these transactions, like these are depending on who the investor is, who the buyer is, you know, there's a level of sophistication. So if you're dealing with some of the public company acquirers that Brian's talking about, like you're going to need every single thing that he talked about. And if it's a smaller, like strategic buyer, the more prepared you can be with the information in advance, the more confidence you give to the strategic buyer that They're not going to have any skeletons in the closet as well, right? If you decide to sell your business and you don't even have your bookkeeping up to date, that's a problem. You know, buyers are going to run away if you don't have some level of assurance in your financial statements. There's just going to be doubt cast upon what you're reporting upon. So like, let's proactively address that. Let's Let's get the reporting that you need, the forecasts that you need to tell the story in a confident way. And this really makes Brian's job easier as well because, you know, the broker doesn't want to lose these opportunities because of the lack of confidence that you transfer to a potential buyer either, right? So if you're looking, you know what, even if you're not looking to sell, if you're not looking to sell, how can you even have confidence in your own business? if you don't have some level of financial clarity in your life. So thank you, Brian, for the opportunity to rant there for a moment. But, you know, it truly is the foundation of a strong business. You know, whether it's a transition or not, you need good numbers.

You're spot on. And you're absolutely right in bringing that up. Let's just call this a capital event. You have to be ready for a capital event. And that capital event, to your point, Bob, could be A sale of the business in whole or in part. It could be accessing debt for growth or buying that building that you, you can now occupy, you know, but you still need clean and clear financials for those sort of capital events. And, and that's the work obviously you do on the preparation side. And we are grateful. I wouldn't say it makes our job easier, but it gives us the tools that we need. to leverage the highest enterprise value with the most favorable deal terms.

I think— Exactly. And I'm glad you said that.

Yeah. But all that to say, I mean, the more tools we have in the toolbox, the better we are at our job and the work that we do.

Absolutely.

Yeah.

So if we're thinking of buyers, and I'm assuming the majority of buyers that you're working with, or sellers, sorry, $5 million plus, would that be fair?

Revenue-wise, it's really interesting. It depends on the industry, right? Like every good advisor would say, it depends, right? But if you're in the software space and you have, you know, monthly recurring revenue or annual recurring revenue, the critical mass point is $3 million of top-line revenue because it's recurring. And those valuations could go for 2 to 3 to 4 times your revenue. I mean, impressive. But it's predictable. That's why those valuations are so high. And in a typical company, whether it be B2B, B2C, manufacturing, professional services, healthcare, whatever the case may be, you know, typically $5 million up to, you know, a quarter billion of revenue and everything in between. It just— we have to understand what the strategy is and we typically create the strategy. Such as, are you going to be a platform investment? Is your business gonna be that first business that the investor acquires to then scale, or are you gonna be an add-on to an existing platform that's scaling? And so depending on, you know, which route we take is ultimately dictated by the expectations of the client, which we pay close attention to, including the shareholders on the cap table.

Makes sense. And if you were to reflect on anyone who's in that market space right now who's thinking, you know what, I should probably be thinking about how I get myself ready because I don't have a plan. And I've now realized that I really should because you never know what's going to happen based on some of your stories to kick this off. But also to say, you know what, I don't know about you, Brian, maybe the little side note here. There's days where I'm going, I absolutely love this. I'm going to do this for the next 20 years. I'm going to grow and scale my business. And then there's other days where you have You know, a key employee decide, you know what, I'm going to depart and go somewhere else. Or you have a customer where there was a misunderstanding and it's a challenge. Like some days I'm going, get me out of here too. You know, and I think that's the natural progression for an entrepreneur around their journey. So ultimately, guys, let's just be ready because you don't want to be in a spot where you have, you know, a stacked number of those days that happen together. And you want to be like, get me out of here. You don't want a fire sale, right? So if we're thinking, Brian, about what it is that people should be thinking of, what are their next steps in preparing their business to be ready? What would you suggest would be the top few items?

So we've created a few tools for, for your listeners. You know, we start with baselining the valuation and the transferability of the company. We created a a tool called applebytes.ai. That's the domain. And so we're able to measure and determine the valuation range of your company, and we're able to assess the transferability of the business. We score it A, B, C, D, or F, right? We all want to be A students. If you're not an A student, we'll teach you how to get there. And then, so that's applebytes.ai is a great place to start. We've also created by demand this Empire Builder system and community where we do monthly webinar calls and we'll do annual events in person where we slowly unpack the concepts from not only my book, but also as related to the current market conditions and, and your respective business and industry. And we'll guide you and we'll lead you, and it could be a do-it-yourself model or we could do it with you, but that's a setting for us to really get together with other business owners because they, as they say, it's lonely on top, right? So these are other business owners collecting, talking about the same subject and learning about the same subject of mergers and acquisitions and potential exits. empire-builder.com is where you could join. We do every quarter, we open up that room for free for people to come and experience. And then those that are ready to exit now, we encourage you to visit us at meritage-partners.com and my team's happy to book a discovery call with you and learn more about your business story and your expectations. And we'll apply a playbook that has been proven to work. And, you know, we have 2.4 billion reasons how and why it worked. So we look forward to speaking to them.

Nothing like working with truly experienced people who know how to get the job done. Truthfully, it's an investment that anyone who's listening to, regardless of, of where it is, if you get the right person with the right expertise, maybe $2 billion in exits to demonstrate that expertise, it's invaluable along the way. Brian, you've got a podcast as well, The M&A Guy. Tell me a little bit about your The M&A Guy podcast.

So before it was The M&A Guy, it was called Private Capital Market Mastery. And I intended to teach people about the private capital markets because that's what we're talking about. Publicly traded brokers, I mean, those, we all kind of have a good sense and understanding what that is. But when it comes to entrepreneurs, we wanted to teach them, but we've quickly realized, all right, this is a mouthful and an earful. We have, so we distilled it down to The M&A Guy. I started the podcast 3 years ago, and we— I have guests on like yourself and other professionals talking in and around tax codes and tax strategies and wealth strategies and exit strategies and so on and so forth, because there's wealth creation and wealth preservation, as you know. And, you know, we, we try and include all those topics on the podcast. So last year, 2025, we are Plugging weekly episodes and we hit top 20% on Spotify organically, which was cool. And, but we are just showing up every single week with new episodes, having conversations like this that really help provoke thought in individuals and help give them actionable advice on what they could do. Because, you know, to really, to invest a half hour with even you and I, if we're not giving people Actionable advice and quick wins, they're not going to engage. And we want people to engage because it's going to give them better options. And if anything, the theme of what you and I've been talking about is optionality. It's inevitable. It's going to happen, right? The exit's going to happen, but you don't know when. Because, you know, some, like if you were a day-to-day employee, you're going to have a date on the calendar as to what is your retirement date. But for entrepreneurs, it's typically what's that dollar amount in the bank account? And how do I get there faster? So time really means nothing. It's the urgency, it's the speed in which you get to that intended destination. And, and all the tools I shared with you and your audience help you get to that intended destination faster, with less heartache and less brain damage. Absolutely.

Brian Franco, the founder and CEO of Meritage Partners, the author of The Inevitable Exit and the host of the M&A Guy podcast. Brian, it has been fantastic to have you here. I'm, I certainly look forward to many more conversations, that's for sure.

Likewise, Bob. Likewise, it was a pleasure. Thanks for having me on. And I'll certainly be in touch with you.

Yeah, no, that sounds great. For everyone else, thank you for joining the Wealthy Entrepreneur Podcast. I'm your host, Bob Gauvreau. Always a pleasure to have you here with us. Just a reminder that this is We're here to essentially empower entrepreneurs with the financial confidence so that they can make positive change in the world. Clarity, as we talked about earlier, with your finances, but ultimately the power of good decision-making, because entrepreneurs are truly the most powerful community in the world. If there's any questions, comments that you have from today, drop them in the show notes. We're going to put all Brian's links in there as well. So grab the information that he shared. With us. But also, you know what, there's been a lot of really good insights that Brian has shared during our conversation today. If you feel like there's someone who would benefit from this, please grab the link below, give it a share. Let's get that information out here. Ultimately, what we're here to do is help empower those entrepreneurs to continue to be more and more successful. Give us a follow to make sure that you get access to the next podcast that's released. But once again, thanks for joining us today and have a great rest of your day.