Why Marketing Is A Joke To Private Equity

There's a guy I know. He's a YPO, okay? He has a company, and they do you know let's say thirty million dollars a year, something like that. Okay, and they they do stuff for let's just say they help events, right? I visited his warehouse this past week, forty fifty thousand square feet. I was walking through it, and originally I was talking about I was like man, you know sometimes it's such a pain in the ass having to you know wipe everyone's like solve everyone's problems, right? That's kind of solve everyone's problems, right? And he's like yeah yeah I feel you I feel like you know I really want to hire someone blah blah blah. But then as I was I was walking through his warehouse. There's, you know, when you finish like a big concert or whatever, there's a lot of cables, right? So, you'd expect those cables after a concert to be very dirty and very like, you know, all over the place, right? He has full-time people dedicated just to like cleaning those wires and then folding them up really nicely and then everything's tagged, right? That level of attention to detail, I looked at him, I was like, even if you give someone 10, 20 points of your company, they're not going to care nearly as much as you will about this stuff. He's like, yeah. I was like, how often do you walk the warehouse? He's like, every single day. I still point out things 20 years into this business. I point out the little things, right? And like, that's what it takes to run a great business. And his business really grew in the last 5 years or so. So it was like 15 years of slogging it out. And then last 5 years has been growing and now it can become something pretty significant.

Dude, it's so funny.

But you got to stay involved.

You got to stay involved and you got to pay attention to details. I also agree with you doing deals too close, like doing too Integrating 2 companies that you just bought at the same time is really tough. We try to focus them on different regions with different leaders. So then that way we don't have 2 people, one person trying to work on 2 deals.

Mm-hmm.

It's different people in organization. Like our Southeast Asia deal will get led up by Dan and our deal in July will get led up by Javi who leads up LATAM and Luis who leads up Spain because that company's in both regions. So then that way Dan doesn't have to deal with 2 acquisitions at the same time, plus he has team underneath him to help.

Yeah.

The other thing that I've learned about buying is that companies you really want to buy are these big, fast-growing, sexy companies, but they're too expensive and they're really competitive. And then you got the big companies, but they have some hair on it. And those companies, if you can get them for the right price, it's worth it. But they're still somewhat competitive by private equity is what we're seeing. The deals that we've focused on are small deals that don't really have too much competition because they're too small for private equity or the holding companies for us, right? The big ad agencies, the competitors. And buying one of them doesn't really move the needle, but buying 10, 20 of them really moves the needle. But that's the only way we can make the math work to go against our competition is we go after really good companies that are small, but they're scaling up and they're still growing nicely, but they're too small for a company doing $18 billion a year in revenue to buy.

That's actually a really important perspective because again, you want to do a deal that's big and hairy, right? But you don't want to do like a deal that's high risk and like low return at the end of the day. So what you're doing is like, sure, they might be smaller deals, but you're doing, you're combining a bunch together. So it actually ends up working out.

But it's just a lot of operational work and it's just grinding it out. But that's why the big boys don't want to end up doing that. It's just too much work to buy all these small companies. And it's roughly the same amount of work that you'd do if you just bought one bigger company. Just the multiple that you're paying for the bigger companies is like double.

But I think there's levels to it too, right? Like right now you might be doing these smaller ones, but in a couple of years you'll probably be doing the much bigger ones. So it takes time.

No, I think we'll continually do the small ones.

10 years out?

I think maybe midsize to small ones.

20 years out.

It's probably similar model. Have you seen Accenture? So during COVID Accenture was doing literally an acquisition a week.

No.

Sometimes even more than one a week.

Tell more.

Okay. Accenture has a very unique model with M&A.

Do you want to explain what Accenture is first?

Accenture is a big consulting company, right? Like a McKinsey or a Deloitte. It came out of Arthur Andersen when they had all that accounting scandal with Enron. Accenture part, you know, pretty much got spun off. And when you look at Accenture, they're a $200+ billion company. The last time I checked out their stock, I think they have around 600,000 employees globally. So the deals we're looking at, some of them are actually have Accenture has looked at in the past, and some of them, you know, we're in competition with Accenture as well, and we don't win. Accenture, even though at their size, they're buying really tiny companies. that don't really move the needle, but they're buying so many of them. It's filling in any market voids for geography concentration or that they may lack or skillset that they may lack in those geographies. And then they're just taking their network and saying, oh, you now do this UX/UI service. Here's all our customers that need it in that region. Boom, your business now has exploded.

Mm-hmm.

And they have a very interesting approach. They don't do tons of big earnouts. They pay you a large chunk upfront. They do a little bit on earnout because you need to incentivize and keep people there. And they do a lot of knowledge transfer between the people that are running these businesses and their team. And that's been their M&A playbook. But it works well. When you have 600,000 people and if only 5% or 10% of your employees are A players, at that level with 600,000, you have enough A players where you can give—

That's a lot of A players.

Yeah, you can give new tuck-ins to a lot of people.

30,000 to 60,000 A players is a lot.

It's a lot.

Yeah.

Even if it was, you know, 10,000 at scale, that's still a lot.

So, well, I think— so what's the— how much— here's a question. So how much time are you spending right now percentage-wise on M&A per week?

50-60%.

50-60%. What was it like a year ago?

5%.

Yeah, exactly. It takes a lot of time. But and then maybe it'd be helpful if you tell people What, how, in what way are you— you're definitely not sourcing deals, but you're probably coming up with deals on the terms and pricing.

No, I don't even do that. So we have a guy named Carlos Sesta who heads up M&A for us. He headed up M&A for Americas for Dentsu Aegis, which is one of our competitors. I think they're like a— I don't know what size they are, maybe $9 to $11 billion a year in revenue dollars. So they're bigger than us, of course. He headed up M&A for North America and South America. So he's been doing this for a long time.

Luis Carlos?

Uh-huh. And before— after that, he went to a company called Presidio where he tucked in a lot of services and SaaS companies for some cloud company, I think. I think they were cloud-related. I don't know how much he did in M&A there. If I had to guess, somewhere between a half a billion and $1.5 billion of companies that he bought. And then he came over to us. Now, Carlos has a team that helps him with sourcing and outreaching. And we also pay for some software that helps us with that as well. We reach out to a lot of people. I think we reach out to close to 50-ish companies a day. So somewhere around there.

Wow.

We may miss the weekends. I don't know if they actually email people on the weekends, but at least for 5 days a week, they're reaching out to You know, 250 people a week minimum or companies a week. Pretty good response rate. Call it 30-ish percent response rate.

That's high.

Yeah, some people respond that we're not interested in selling, but I think they, our team, the last number I got from a few days ago was around 18% say that they're interested in having a conversation.

Is your message just like, hey, I want to buy your stuff?

I don't know what the message is. I should actually ask on that because I can probably find it too.

Wait, so 50%, what are you doing?

So the team starts, does the initial calls. Once they do it, I start meeting up with the founders, the ones I like, get to know them. Sometimes I'll fly down to them or they'll fly to me, get to know their business, get to know their process. What are they doing for their customers? We of course sign whatever documentation, NDAs, et cetera, that they need.

Yeah.

And really get to understand the people that I could be potentially working with and their team and what makes them unique and special, how they're winning business, how they're marketing, how they're getting RFPs in, what separates them from their competition, what happened with the deals that they won. How they make the clients happy. What's feedback from the client? Like actually getting it firsthand. The deals they lost, why they lose it. Like one of the companies I met in Brazil, they were breaking down their customers and they're like, I'd be like, all right, what are some deals you lost? So then they break down a company and I was like, okay, why'd you lose that company? And funny enough, we were talking to them, we haven't closed them yet, but we were talking to them for a different service than what they were pitching. And they were like, they thought we were too small. But they loved us, and I was like, cool. Because if you combine them with us, we're already larger in scale. They won't have a size issue with us. You know, my CM, my my managing director or head of LATAM knows them quite well, and they won't have a size issue with us, especially because we're global and they're a global company. So we would win those kind of deals. So then you start looking for all the things that they're struggling with. that you could potentially repair, it helps you start calculating how much more money you can make from the deal. And then you also start looking at all the things that they're doing really good that in your company, even it may be a hard pill to swallow, what are you doing that you're not world-class at? Or even if you think you're world-class at, who's doing it better than you and what can they bring to the table and how can they, in your words, level up your team, right? So there's a transfer.

Yeah, yeah, yeah.

Yeah, there's transfer. So looking at things like that, also their existing customers. Okay, what services are you selling them? Do we think we can sell them our services? Do we think we can cross-sell them on multiple countries?

Right.

Why did you lose your deals? What was the feedback? Do you have anything written? Like just really diving in, getting to know the founders, eating, you know, meals with them or breaking bread.

You're spending like 5, 6 hours for these, right? It's not just a 1-hour thing.

No, no. And then you do it multiple times with them and then they meet with your team and then you have them do pitches. Hey, show me how you pitch a customer. What's your sales process?

And they're grilling you too at the same time.

Uh-huh.

Yeah.

And we expect them to ask us questions.

If they don't, there's something wrong.

Not as— sometimes they're shy, but we actually force them to ask them like, what else do you want to know?

Yeah.

And we tell them, don't hold back.

Is it just you going to these? It's not just you, right?

Is it Mike? Uh, at the beginning he just had a baby, so it's me going.

Oh, he did?

Yeah. He just had a baby. So it's me going or some of our other executives within that region. So like I'll go with other people. So in Brazil it was me and 3 other people from our team. Now, the next meeting, they also talked to some of our M&A people here in the States, like Carlos, who funny enough speaks Portuguese. But now we're going to have some of our people meet them at their office in the next 30 to 45 days.

Boy or girl for Mike? Boy.

Okay, I'm texting him. And we don't, like, we don't just rush into a deal being like, oh cool, we like your financials, we like your churn, let's talk numbers and send you. We want to make sure that they want to stick with the company. Like, I'll ask them. Why do you want to stay here? Why not just take the money and leave?

Yeah. All right, everyone, quick message from the Agency Owners Association. So this is the peer group for agency owners that Neil and I both put together. This is for people that are doing 6 figures, 7 figures, 8 figures, even 9 figures as well. And we're all here to help you grow your agency faster. In this group, we share leads, we share learnings with each other. It's a community where people can ask questions, their most burning questions personally, professionally. We'll share templates, reports, things like that. We're constantly adding more value to the group. I will tell you that the price is continuing to increase. The good news is that there's no long-term commitment, so you can just learn more by going to marketingschool.io/agency. Once again, that's marketingschool.io/agency to learn more. And we hope to see you inside. That's the big thing on our personality test with Neil and I. Neil's super deliberative. I'm like in the middle on it. Neil's also very detail-oriented. I'm 6% on it. So the way you got to do these is you got to date slowly. That's what it is at the end of the day.

It really is dating. And I try to get to know everyone and meet them up before You know, spent a lot of your time dating this year. I spent tons of time dating all these companies. And what I found is when I do that over time, I've met some founders that have great businesses. I just know we're not a fit. Doesn't mean they're bad or I'm bad. We're just not a fit. So you move on.

It's just like Warren Buffett, right? You have to craft your deal box and decide when to swing. The cool thing is you can decide to not swing for a very long time and just swing on the core few. You know what? The guy, the book that you're reading right now, the guy only did 18 deals out of like 2,000 that they looked at. That's a pretty, pretty low rate.

And he's had a lot of losses too. They weren't all wins. Interesting enough, if you guys haven't read that book, Eric turned me onto it. It's How to Make a Few Billion Bucks. I think that's what it's called.

How to Make a Few Billion Dollars.

Or dollars. Yeah. The guy, you know, before I bought the book, I did look him up and he is on the Forbes list. I think he's worth like $4+ billion. So I was like, good for him. And then I was like, all right, at least I'm, you know, hearing how to do M&A from someone who's actually done it.

Yeah.

And has made money from it. Not them saying they're rich because there's so many of those people online, but actually publicly traded companies in their market cap.

He seems like a very humble guy. I've seen some of his interviews.

He seems very humble and really nice.

Yeah.

Um, but yeah, no, you know, that's how I look at M&A. But I think you got it right. It really is like dating. And the big thing that we really do is We don't rush into deals. We also don't try to close them really fast.

That was, by the way, guys, that's exactly what I did three years ago.

So yeah, because once you're in the LOI phase and you know you're going to close in three to six months, the great thing is is you can ask them every month: How is the business progressing? What are some wins? What are some losses? How can we help? Like I'll give you a great example in our LATAM division. You know. We started getting inundated with inquiries and the company we are acquiring that'll close in July, we asked them, hey, do you guys have any extra bandwidth? And it's not that we really needed tons of help. We just wanted to work together with them a little bit.

Oh, you want to test drive the relationship a little bit.

Uh-huh. And then you're seeing some of the work and you're like, oh, this is great. These people are great. They're here to help.

Hopefully. Yes.

The one in Southeast Asia, some of our team members came from that company. So they already knew, you know, all about that company and how good they were. And we're like, oh cool, this is great. So we look at a lot of those kinds of things as it de-risks the deal. Because the worst thing is like, I'm making up a number, but let's say you spend $10 million on a deal. It's great if that deal doubles, you're cheering and you're rooting and everyone's happy. But when that deal goes to zero, you just lost $10 million.

Yep.

That sucks. So you just want to make sure that You're not blowing your money.

It's risk management.

Yes.

Yeah.

You want to minimize the downside as much as possible.

Yep. Dude, by the way, 18 deals divided by 2,000 is 0.009.

Dude, you know, in his book, he talks about how he has one of his friends who was like an ex-CIA person. They go and they analyze, like, he looks at like facial patterns to see if there's anything wrong. It's really cool stuff. And one of the deals, his friend pulls him aside. He's like, there's something off with this person. I wouldn't do a deal. And he's like, all right, you said enough. I'm going to back away. And the guy rarely ever said that. He backed away. In the future, they got, uh, that company got caught for like some financial fraud or they're doing some funny stuff with their books. I forgot exactly what it was, but they're doing some funny stuff. He's like, yeah, it was great. I backed away. My, you know, my gut said, listen to this guy that you trust. He's saying that there's something off and you shouldn't trust him. And he did it. Dude.

We have a mutual friend. He hires people. This is now an organization of ex-FBI and CIA people, and they will go hardcore on background checking and everything. They'll find everything out you want about any executive hire or any CEO you're looking to do a deal with. I can send it to you afterwards.

I know him?

Or her? You know him. We'll talk about it after.

Yeah. I don't know who you're talking about, but yeah, you can tell me after. I think, I think that's really smart when you're spending $10, $20, $30, or even $5 or $1 million on a deal. It all adds up. If you can just cut your risk by spending extra $10 grand, why wouldn't you?

Well, there's a little detour, everyone. We, we, we, I hope this was helpful. This, I think, you know, by the way, in the agency owners group, we had a 7-figure meeting this morning, right? It was all 7-figure. Um, we have like a 6-figure group, a 7-figure group. Eventually we'll have like an 8-figure group. Right. But, um, We were just talking a lot about M&A, right? Topics like this. And so I think it doesn't matter if you're an agency or not. I think it's, even if you have like products, it's worth it to think about this stuff. And we don't get to talk about this often. So we'll swap back over to marketing in a second, but hopefully this gets you to think a little differently.

Yeah, no, it's, I think there's many different ways to grow. You just got to figure out what works for you.

All right, so I wanted to take a second to tell you about Leveling Up Founders. This is an event/mastermind for people doing 7, 8, 9 figures. These are founders that are doing that amount. And we've been doing this event for a couple of years now. We've had amazing speakers, but more than anything, it's about the people. What I mean by that is like-minded people want to hang out with like-minded people, and this is the best spot to connect with people of a certain caliber. And we vet every single person that comes through. So if people are— even though they make a lot of money, but their character, we don't really align with that, we're not necessarily going to let them in. We did this event in Beverly Hills and it's happening in the beginning of August. All you have to do to learn more about it is just go to levelingup.com/founders. Again, it's levelingup.com/founders if you want to hang out with amazing people. Neil, my podcast co-host, is going to be there. I'm going to be there. People like Syed Balkhi, he will be there as well. And again, it's going to be a great time. levelingup.com/founders to learn more and we'll see you inside. You and I have talked on the phone about this, um, but The phrase here is why marketing is a joke to private equity.

Dude, it's funny. Um, I know someone who had their company funded. They did really well. They went public and then a private equity shop ended up buying them out for billions of dollars. All right. The stock wasn't performing as well. The private equity company added leverage, sold it to another Fortune probably 100 company. And after they added leverage and stuff, if you look at how much cash they put in, not what they bought the company for and what they sold it, but how much cash they actually put in and the cash they got back for their portion, because the debt just gets paid back with debt, you know, you're paying that back out plus whatever interest you paid. No joke, they made almost 6 times their money.

Mm-hmm.

And it's funny because a lot of people talk about— and this is one of the biggest private equity shops out there. They manage some of the most amount of money. And when I say one of the biggest, it's top 10. And they don't do tons of marketing. And people will look at them and it's like, oh, they suck at marketing. It's not that they suck at marketing. And sure, maybe they do, but they have enough money to go hire a ton of marketers that are amazing. And if they hire 100 of them and 99 don't work out, they could afford the 99 that didn't work out and just pay the one that does work out. That's how much money they have, right? These guys are on the Forbes list for the founders. And when you look at them, They don't need marketing to work because their playbook works. It's just like, you got to find what works for you. And if it works for you, go and do that. You don't necessarily have to do the same thing that someone else is doing. And it's not just marketing. It could be sales a certain way, or even with marketing. I love social media. I love SEO. I'm not as good at paid advertising as some of the people on my team. I let them focus on paid and I focus on what I'm the best at and vice versa. Like, I'll do a lot of the copywriting. Some of the people on my team, Hate writing copy. I'm like, just give it to me. I'll rewrite the copy myself. Focus on your strengths, and whatever your strengths are, that's your real edge. Just continue to get better at them versus diversifying and trying to learn everything.

You know what I what we talked about on the phone is that you know trying to believe that marketing has an edge over you know whoever controls the money at the end of the day. Like they're the ultimate rulers, right? And so so marketing is a subset in business, right? Like private equity is very much. Business, right? That's playing the game of business. And so I think marketing certainly helps, but for any marketer to think that, oh, what you bring is going to be much more different than a private equity shop. No, you're not going to beat the level of relationships, the financial engineering, and all the, all these cool things that they know how to do. It's, it's hard to beat that. Like, just keep in mind, marketing is under that stuff.

Marketing. Totally agree with you. The people who really have the power in the business world are the people who control the money.

Yep, that's it. So go to marketingschool.io/agency to grow your agency faster. That group is growing really quickly. And by the way, we're increasing the price in increments. And Neil's gonna— after we get 16 more paid signups, Neil's gonna appear for one of the hangouts that we do. And those hangouts are really fun. Yeah. And then don't forget to rate, review, subscribe. We have to spend time with each other to record these. We spend resources recording this. Yeah, so don't forget, and we'll catch you— we'll catch you tomorrow. Bye. Bye.