Buy or Build Considerations

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I'm Kisan Patel and you're listening to M and A Science where we talk with deal professionals and learn valuable lessons from their experience. This podcast focuses on stories, strategies and what actually happened during MA Deals Foreign A Science Live where leading M and A practitioner share lessons learned from their experience. If you're interested in keeping up with the latest from M and a science, visit mascience.com and subscribe to our newsletter. It's free. Every Monday we share highlights from our interviews and publications so you can continuously improve your M and A skills. Again, that's mascience.com I'm your host Kisam Patel, CEO and founder of M&A Science. Joining me today is Cameron Wiener, Vice President of Strategic Development and Head of M and A at Shopco Optical. Came out of Shopco Department Stores when they filed for restructuring in 2019 with 363 stores. Monarch Alternative Capital carved out Shopco Optical for eight and a half million, have been actively growing the chain since. Today we're going to talk about how to determine if you should buy or build clinics and what those different approaches look like. Cameron, can we kick things off with a little bit about your background?

Yeah, thank you so much for having me Kisan. I'm excited to be here. I graduated college from UNC Chapel Hill and began my career with General Electric in their two year leadership program. Management consulting as a nature where you go across four different rotations across different businesses and functions and get the lay of the land and what you might want to do in your career. After rolling off that program, I joined GE's corporate M& A team as an associate at their headquarters in Boston. I got the chance to work on a lot of sell side divestiture type works. GE was going through a lot of restructuring at that time and so most of the deals were a multi billion dollar divisional carve outs across industrials, healthcare, a little bit of financial services but I wanted to get some more buy side experience, learn a little bit more about how to be an investor and so I joined a healthcare private equity firm called Bell Health in New York City $500 million under management, lower middle market, focusing on small businesses with maybe 2 to 10 million EBITDA across predominantly healthcare services. So invest in things like dermatology, home health lab, pharmacy, healthcare staffing, a couple manufacturing businesses as well, but really mostly healthcare services. After that I joined Aspen Dental, which is really one of the world's leading retail healthcare businesses. They've got around 1100 clinics across four verticals. Mostly dental, then urgent care, dental implants and medical aesthetics. So four separately branded portfolio companies, if you will. And then I got the opportunity to lead M and A for Shot Go Optical. We now have 111 freestanding optical clinics. I think we're, give or take, the 15th largest out there. I'm incredibly excited. Joined the team. I've been here for now about 100 days. We've got our first LOI signed. I think we're getting very close to a second LOI sign. I'm really loving the role, so that's a little bit about me.

What's it like going from GE M&A to now roll up at ShopCo?

Quite different. GE, the M&A team was probably 100 people. Every vertical had one. Aviation, healthcare, power, capital. Each of the verticals of GE had their own M and A team. And then also there was a corporate M and A team where I sat all in all, probably 100 person teams. Pretty top heavy, a lot of managing directors and whatnot. We were also only really doing sell sides while I was there trying to clean up the balance sheet. It wasn't an active investment type environment. Now I'm building this function from scratch. Shopgo has gone to 111 clinics. Purely organic growth. They've built all their clinics. Before I joined Aspen Dental was very similar where 90 plus percent of their growth is organic building clinics. It's a different environment and I'm really enjoying the entrepreneurial nature and I'm looking forward to building a team and getting the foundation laid and off to the races. You know, in general, I think I prefer being a slightly bigger fish in a much smaller pond.

What's interesting is you became head of M and A without any investment banking experience. How'd you do that?

Yeah, I think I got lucky is maybe part of it. I'm glad that I dodged that bullet. I don't know that I have an inmate to work 100 hours a week. I just don't know that I have the stamina really. So, I mean, I think part of it is I just didn't. I never wanted to do banking because the work Life balance. I've always been someone that defines himself quite a bit beyond work, I guess. I enjoy doing a lot of things outside of work. I think a lot of it really had to do with interpersonal skills. Coming out of ge, I had some M and A experience, worked on some very large deals, was way behind technically compared to your average investment banker or consultant in terms of building LBOs or being able to build a perfect model in 30 minutes and all the classic technical tests. I was a bit behind. But I think one thing that GE did really was leadership skills, project management, how to run a process. GE's leadership program is really quite a bit about soft skills and I think within a PE environment and then eventually going to shop. But getting my foot in the door at PE firm was really selling my ability to be a jack of all trades, someone who would love originating relationship management side of the house, which I think a lot of folks are not interested in. Depends on the firm, but sometimes the relationship side can be fairly undervalued. Originating is right up there for the most important pillar of a PE firm. And so I think it, it came from that and a willingness to knock on doors. I put myself out there quite a bit, just sending sort of cold messages to folks on LinkedIn, trying to get a conversation. I got to give a shout out to my main man, Paul Barrett, who took a shot on me at Dell Health and who now is the founder and managing partner of Argosy Healthcare Partners, who's building something really differentiated there. We'd love to talk about that for a few minutes if we have some time, but I think one of the themes of this podcast is our relationships. Really truly trying to connect with folks, whether that's a founder, a banker, a broker. Leaning into the human side and connecting with people in a more authentic, deeper way goes a very long way. Whether you're originating or you're kind of enjoying a PE firm, I think the human side is paramount.

People skills have substantially more value in. In the end of the day when we're putting deals together. Let's chat about that. How do you approach originating deals?

I learned so much from Paul, who had really built an origination engine at Bellheld, so I had to give him a lot of credit. But I would say we think of origination as three pillars. There's a classic intermediary bucket. Most people think of that as investment bankers. Depending on where you play in the market, buy side brokers or sell side brokers, which are just like little boutique banks that are less competitive, they might Represent a single clinic that sells for 500,000 way below the average bank threshold. A lot of value in intermediaries developing those relationships, events. So things like conferences. ACG was a big circuit, lack more partners. Has an interesting approach. Just events that bring together founders and investors and of course direct outreach. I've had a lot of success with a system called Source Scrub which is an M and a origination tool. It's got great data sending out email blasts through things like Mail Merge or Salesforce if you're more sophisticated. I've never been a big fan of just cold calling. You know, I haven't really done it at all in my career. But I think there's a lot of value to pounding the pavement. I would say that one thing that I've seen that has a lot of success that's probably underutilized is buy side brokers where you sign a success fee agreement where essentially if they bring you something and if you close a deal with them then you pay them some agreed upon fee percent just by the nature of that it's a win win. If you can find three or five or ten of those guys or gals that you connect with and do they do a great job, they can be your outsourced origination team. That's more scalable. You're trying to lead deals and lead diligence and execution. It's hard to do sort of the development work up front. I love getting on the phone or meeting with a founder and pitching them. But finding founders that are interested is a lot of work and it's great if you can one way or another.

Like hiring is some real recruiting services. Would you say that's your favorite approach or what do you think lends to.

The best results volume wise had the most success with buy side brokers. It's also because where I play in the market, GE is probably going to use buy side brokers less because they're looking at massive deals. But your average PE firm doing a roll up or the buying builds that are happening in retail, health and healthcare services where you've got a strong platform and then you're trying to do a lot of small deals where they might be single clinics or two, three clinics. I think buy side programs are helpful and I think what's most important is when you get into that meeting, how you connect with the owner. Being incredibly respectful, congratulatory of what they've achieved. But I think most importantly treating them like a friend, positive, enthusiastic energy, really trying to get to know them. That first call you're almost barely getting into the business stuff. Learning about their family, what they like doing outside of work, treating them like it's a new friend you just happen to stumble into at the airport or something that yields positive results, really nurturing.

The relationship using the network of different brokers. You build out these different leads that come in and then can you walk me through what does that process look like from there once you start getting those early conversations going and how do you sort of carry that forward?

Yeah, absolutely. 100 days into shop go optical role and so I'm going through that process right now. I have a comprehensive M and a pipeline of active targets. You're sort of stacking up columns. Name geographical priority, quality of real estate, financial metrics, who's the owner. Is it a competitive process? What's the asking price? Having maybe 15 columns, just look at them all side by side and starting to prioritize, I'd say particularly in healthcare services and a lot of the PE shops that are doing roll ups. 80% of the deals they do are single clinic deals. It's sort of a volume game. You're looking at a lot of deals simultaneously. So you gotta stay organized and you have to prioritize. And so having buckets that help you think about that, whether it's how important that geography is to you or how difficult it is to recruit a doc or your ability to build a new clinic in that site based on real estate availability or demographic or geographic data. Have to have a way to rack and stack side by side.

It sounds like you're really developing this market map to identify. Here's the strategy, here's the opportunities we're going to go after. What are some of the factors that you put in when you're developing that.

Yeah, you sort of bifurcate buying and building as the topic of this podcast. When you're building new clinics. The de novo process, you need some sort of real estate analytics tool. So folks might use Sitewise or Sightseer, these different sort of softwares that help you. And you're looking at things like pop to shop the population within a particular drive time radius that you think is relevant. Maybe it's 10 minutes, 15 or 20 minutes divided by the number of competitors the market understanding competitive density. You're looking at demographic and economic data like median income and poverty rates. And you're looking at things like percent of folks that are insured. Sometimes they have spend indexes like how much folks spend in dental or optical or whatnot. And you're looking at trade areas. I'm Not a real estate expert per se. I've learned a lot about it by being part of companies that are real estate driven. I think I've had the good fortune of working for companies that grow organically quite a bit. I know there's a lot of firms out there that are backed by P that exclusively acquire. I think if you can do both, you're more valuable. Obviously, you just get more growth avenues and if you hit a dead end on one, you built a competency that you can continue to move with. But I think you're looking at all that data and brand awareness is a big one. That's why people stay adjacent. You've got 20 locations in Wisconsin and you've got zero in Missouri. It's going to be a lot easier to do de novo the next town over in Wisconsin and build that brand awareness. And it helps lower customer acquisition cost. And it's a moat too. It's harder to come in when you have density like that, of course. And then on the acquisition side, it's a little bit what I talked about. I think you're looking at the cultural fit, you're looking at financials, you're looking at the willingness of the doctor, the owner, to stay on, at least for a transitionary period. Doctors are hard to recruit. If you acquire someone and they want to retire tomorrow, that you got to find a way to fill that gap quickly. If it's an existing market where you've got a lot of locations, it's a lot easier to build your own location. If you're entering a new market, you get to buy a base found almost like a platform in that region where you save sales. Ramp time can take a year or two years for a new location to ramp. You get to eliminate a competitor and you just start with something and hopefully you start with a couple of doctors.

I'm curious on those new bills, I spent a few years doing retail leasing. Did you ever see a pattern of, hey, there's a certain grocery store chain that it tends to be in the proximity or a Starbucks or a Walgreens or something like that?

Absolutely. It's a huge component of real estate, is anchoring yourself with the daily needs. A lot of the leading retail healthcare brands, they want to be on the outlook of the Walmart. You have a little freestanding location up front. So every person that's driving to the Walmart sees your location. You're getting free drive by, you're getting free marketing. If it's not the Walmart, it's the local grocer. The quality of your co tenants, like you just alluded to, if you're in a little strip on the outline of a Walmart, you'd much rather be next to a Starbucks than a dying family video.

I know you touched on some of this stuff, but how do you gauge if you should buy or build in a market?

It's art and science, I suppose at the top level it's sort of a new or existing market. I think if it's a totally new market, like a new state, acquisition is probably better. Particularly if you can buy a few clinics. It's a pretty big risk building your own location in a brand new market where you have no brand awareness, you don't really know the patient, there's just a risk that they may not come as much. Whereas if you start with something you're de risking if you're in your hometown strongest market, it probably makes more sense to build an adjacency the next town over. There's not a lot of risk associated with that. You can share providers, you can share staff, you already have the operational framework, the regional managers, but there's a lot of advantages to that. But then I guess if it's not on one of those ends of the spectrum, if it's more in the gray, you have to look at both. You can always build is one thing. You always have the choice to be able to build. You can't always acquire. There might be five owners in town and all five of them have absolutely zero interest in selling. So you can't always acquire the given town. Obviously you can always build. Doesn't mean it's a good idea to build. But you do always have that choice. It's vetting both and sometimes they're not mutually exclusive. Right. Maybe you find a clinic where the doc wants to retire, but the quality of the real estate is quite low and you sort of acquire it and then tuck it into a de novo, tuck them into your real estate. But you're starting with that foundation of patient files with some of the support staff and you build it very close by the old clinic and you have the doctor reach out to his patients and have a continuity plan with marketing, whatnot.

It's interesting how you essentially think of the platform and add on model within your portfolio as you test those markets.

I think there's a lot of truth to that. If there is no brand awareness, that's essentially what it is.

I'd like to go back to approaching the targets. You know, when you do decide to acquire a clinic and hey, we're going in a new state. Here's maybe a location or a small chain. Walk me through. Like how do you engage and get that going?

The initial lead comes through either an intermediary, direct outreach or an event. These days events are a lot less once you have a foot in the door. Even if they're not interested in your typically the first meetings on the phone. My approach is, I try a personal, humanistic approach. The average owner of a small business to me doesn't care about which p from your back buying or how much capital you have or what the ebit of your business is. Or you're trying to be a creative buying things for 6x and then selling for 12x. It's not what they're interested in. I try to constantly put my mind in if I was the owner and I started this business when I was 30 and today I'm 65 and this was my life's work and this is my baby. I've been living and breathing it for 35 years. What do I care about? I care about really connecting and trusting someone. And so that is the most important thing to me by far is establishing that I think too many people get into the business and the financial and the strategy when they don't put the shoe on the other foot where this is their business for 35 years, what would they care about? It's the connection and it's culture. Is this someone who's going to take care of my staff and my patients? Is this someone who I can trust with the transition like this? Really trying to treat them like a friend, be funny, be personable, listen, it's sort of the basics in a way.

Yeah, I like how you take that approach to connect with them, try to see things from their perspective, understand what's important to them. Can you walk me through an example? You got like a deal? You don't have to name a name. I want like a real specific example. Some maybe not familiar with this origination process or through that deal cycle. Can you share something like that?

There's a couple docs that I'm working with now that coincidentally two of them where their kid is getting married. They both had kids getting married within the same week or two during this courtship process. When we catch up, what do you think about the loi? Do you have any questions, those sorts of calls? I'm not beginning with that. I'm saying tell me about the wedding. How did it go? Did you give a speech? Oh, what did you talk about? Tell me about the father daughter dance. Genuinely be Interested, and I'm not putting it on. You can choose to be interested and excited about someone else's life. I made sure to not send him any questions during that week or two. Like he's got a big personal thing going on. I wasn't going to hassle him. I was okay losing a couple weeks in the process. We had assigned LOI and the first 20 minutes of the call are just hearing all about the wedding and when there's nothing left to talk about, I say, all right, do you have any questions about the next steps? Like, how's the diligence tracker coming along? Is there anything we can do to make you feel more comfortable? Ironically, there was two of them simultaneously.

I like the example of the relationship development part and I think that does often get overlooked. We get a little mechanical in these deals. Speaking of the mechanics of the deals, can you walk me through that? What are the actual steps? Somebody's never done a deal before in terms of, hey, whether you brokered the deal, found your own deal, which you should probably do more of that get the initial conversation going, develop the rapport. Where do you get to that point where, hey, I need to, obviously need some information to do your analysis, to come up with a number. How do you bring that up and can you walk me through those steps?

Absolutely. I want to hit on a couple of things you said. As we think about getting broker deals or direct deals, I think particularly with these small mom and pop buy side brokers, you might be paying them, let's say a 2% or a 3% fee on a very small dollar amount. So if it's a single clinic deal, maybe you're spending 500,000 or a million and then the fee is $20,000 or $12,000. And if they're helping you get an asset that ends up being non competitive, you're paying five or six times and it allows you to find 20 of these deals. I do that all day long. I don't know that it's worth the time for me to be emailing all day, calling all day to try to find somebody interested. I'm happy to pay an extra 2% if it's saving me a turn or two. Not being a competitive process. I'm just a big believer in working with buy side brokers in terms of getting folks interested in moving them along into diligence. It always happens on the first call, but it's at the very end. Right. So if it's a 30 minute, an hour call, we're getting to know each other for 80% of it, 90% of it even. There's five minutes left. You build a rapport with this person and they're hopefully feeling refreshed that this person was interested in them and not just getting right into it. And you say something along the lines of, I would just love the opportunity to present to you what a partnership with us might look like. And if you're not interested, then no harm, no foul. Stay friends, stay in touch. We can see there's ways we can help each other. I just want to ask you, I'll send you after this call, send you an NDA and I'll send you a list of three to five questions, things that you should all have off the shelf. And from there we'll give you a preliminary offer. At the very least, I hope it's an interesting process for you where you'll get to see how someone like us values your business and how we might propose potential partnership. And I find that people say it's just three to five questions. Sure. I've heard that owners will say, I was worried it was going to be really taxing on my business and my employees. And I have to tell everyone, I think if you can reduce the amount of questions that you need to get to an loi, even if the Lois may be a range or something, that is going to remove obstacles and it's going to allow you to get more deals, really simplify. Like what is the bare minimum that you need to get to an Lloyd?

3 years of P and L, little more.

That's always one of them.

Get that checkbox out of the way.

And then since I'm in healthcare, there's always some nuances that come with it. For one, these doctors, not businessmen. That's one of the big differences if you're buying a financial services business or something. These guys know all about ebitda. They keep a really clean shop. There's a finance person there. A lot of these doctor business are super mom and pop. A lot of it's pen and paper. You're dealing with someone who's not a business, which is a lot different. There's more hand holding and you have to be a little more patient. But understanding revenue mix. So like an optical, what percent of that's coming from services and eye exams or lenses and frames and context? I think you just need a little bit of revenue detail. Are they willing to stay on and keep working for a little bit, at least for a transition to allow us to find a new dock? Is their location owned or leased? If it is Leased. Can you send us the lease and then just personal items or if they could just tell us owner's compensation. So allow us to get to adjust the ebitda. So sort of those four things might be what we would ask you.

Get this information, start reviewing it, model it out, get a sense of, here's the price we're comfortable with. Is it a range or is it a target price?

Right on the dot, Try to do a target price. I, I have never submitted a range, although I'm starting to think about that as an idea as well because it would just allow me to submit sooner.

Yeah. How do you present that offer? Here you go, here's an email. Or let me get you on the phone and talk you through this. What does that look like?

Yeah, try to get them on the phone but also send it via email. Maybe you have a call set up and you send it 10 minutes for the call and sort of walk them through it.

What if they don't take your call?

It happens sometimes, particularly with doctor driven businesses. It's more of a long process. You just gotta be patient with it. Honestly, I think even if someone doesn't want to sell, if you get them past that point, they're very interested in seeing what the offer is and they're excited. Even if they end up choosing not to sell, it might be their first time getting an offer like this. They've had this business for 30 years. It's really exciting for them.

You get a lot of people that do that, they just, I would be curious and hey, what's my business really worth? Let me get a free valuation out of Cameron. Do you get a lot of that?

It definitely happens. It hasn't happened to me much, to be honest with you. I think it happens a lot to bankers. A bank is trying to win a mandate for a small little health care deal. In the process of trying to win that mandate, they'll do like an appraisal of the business and then the people just take that appraisal and they don't sign the mandate. I've seen that happen quite a bit.

Interesting. So we get this offer out there, we get them on the phone, hey, let's review this, talk through it. Walk me through that. Like, what does that conversation look like?

A lot of times there are just legal questions. What's indemnification or what's escrow? There's a lot of legal variables in the various sections that probably aren't that clear and that are probably still not fully clear to me. I'm still learning about half of them. So I think getting them comfortable with the legal jargon and of course what they care most about is price and earn out. What percent's upfront? What percent is earn out? Well, they have to keep working. A lot of folks that want to sell a business either want to retire now or soon. Particularly in health care. Doctor, you don't get a lot of docs that are 35 that are killing it, that just want to seller business for obvious reasons. So I think it's bridging that gap. Okay, I want to retire, but I'd be willing to stay on for a year, two years until you find another doctor. And this is what that looks like. Most ask for more money, as they should.

That's factored in. You assume that you at least know that, hey, I'm going to throw an offer, but I'm going to have some room just in case we got to negotiate.

Yeah, absolutely.

Fair enough. That's part of it. They might step back and say, hey, let me review this with our lawyer.

Go quiet for a couple of weeks. Sometimes they review with their family and their. I have times where I'm talking on the phone with the wife or the husband. That's not uncommon in these little mom and pop deals where I'm talking to the spouse on a conference call with them. These are family businesses, depends where you play in the size range, but like lower middle market PE type deals, you're really dealing with mom and pop businesses exclusively. If you are a KKR and you're buying a business that has a billion of ebitda, obviously you're not talking to spouse and you're not explaining a lot of these things, just different.

Is there a lot of follow up? Do you get that here? I got this offer letter out. They said they want to review it with their family lawyer, et cetera. Then find yourself in this little period of grace that you gotta wait a little bit but wait long enough and start pinging them to follow up.

Yeah, absolutely. The last thing I wanna do is pester someone. I never try to sell. I don't wanna be ever seen as aggressive or pushing or pestering. I want to be absolutely on the patient kind side. Yeah, he hadn't heard anything. Give them a ring and just check in and when I talk to them I'll ask the question and sort of try to keep things moving forward. But I'll also always say, I understand this is a huge decision, this is your life's work and take as much time as you need. I think the human side and the connecting with folks is just deeply undervalued in M and A. I really believe that.

I appreciate you shedding light on these details. You get the soft letter out, get assigned loi, then move through diligence. I'm curious about if you're working with a potential target and they're reluctant to sell their business. Are partnerships part of the consideration or their alternatives that you look at?

I guess it depends on how you define partnership. I've done some deals in the urgent care space where joint ventures with health systems are really predominant. They're popular for a lot of reasons. Where you strike a partnership with local health system, you're their retail arm, they have a huge referral network where every time someone goes into the hospital and they don't need to see the er, they might just kick them out to you at the urgent care. And you sort of have this referral relationship and you're sharing certain things, I guess. What do you mean by partnership?

Yeah, I was just wondering if there's an alternative. You have somebody, hey, we're not really looking to sell. I'm just curious if there's alternatives that you fall back on. Maybe we can do something in between. Something to facilitate a relationship. Keep them on the burner until they are ready to sell. What does that strategy look like?

I think in some industries it is joint ventures. You see it a lot in urgent care, which is an interesting in between. In the more traditional partnering with a family practice and independent. The way that we've been talking about for most of this podcast, there's a legal structure called an MSO PC. It's really prevalent in health care services. It sort of allows corporations to. You sign a managed services agreement with a doctor, that doctor owns 100% of the PC. But the PC sort of rolls up to the corporate through this managed services agreement. They have a fee sharing arrangement, but that doctor still has a lot of autonomy and sort of ownership of the local legal ent level. That's a lot of jargon there. But it is different than just buying 100% of their practice and employing them. And they're just an employee doc. And you own 100% of the practice, you sort of create another level in the legal structure and that person becomes like a local regional owner and you can tuck future practices in underneath them. That guy might own five practices today, but then as you build more practices in that same state or in that same region, they could come under his division and you just have an arrangement. Maybe there's a fee sharing arrangement. They're paying some sort of fee to be part of that managed service agreement. You're still taking care of a lot of the administrative work. They have tremendous clinical autonomy, almost complete clinical autonomy. But you sort of have more of the business ownership. I think of M and A as a blank canvas. I think you can structure things any which way. You know more about that than I do. But I think within health care, the MSO PC model is sort of an interesting in between that's become very popular.

Yeah, that's actually really interesting. But it sounds like that needs to be part of the strategy from the beginning before you're really getting these companies engaged.

And you need the right candidate for it would just choose anyone for that. You really need to choose someone who has financial savvy, strong businessman, a leader who you can trust. Set that person to manage several other clinicians and clinics. You're choosing someone who's maybe already proven that they can be a successful entrepreneur or business owner. Maybe they've scaled from one clinic to five clinics all on their own with their own capital and they've built a really nice business. Maybe they've already stepped out of a clinical role and they're sort of already functioning as a business owner. Someone like that would be a terrific candidate.

What does integration look like? Are you fully integrating clinics when you acquire them?

We haven't closed any deals yet here at Shop Cook. We hope to in the next month or two. You know, the integration rebrand Integrate systems. Get them on sort of our operational model. I think it really is a full integration. You talk a lot about this in your pockets and I appreciate it. Integration planning needs to start really early. It needs to be in lockstep with diligence and people overlook integrations quite a bit. I led a large integration at Aspen. Well now Urgent Care acquired Hometown Urgent Care. It formed maybe the seventh or eighth largest urgent care in the country. It was probably a foreign group. Million dollar enterprise value Integration. That was my first time leading integration. It was a phenomenal experience and I think it's made me a much better M and A practitioner. Integration is hard work. You need to have a huge spreadsheet that has two or three hundred items. Who's owning it? What is the start date? What is the completion date? What codependencies are there? Is item 79 dependent on number 68? What is the priority? What percent complete is it? And then weekly meetings or biweekly meetings where you're just quickly going around like a cross functional roundtable. Everyone is updating in front of the whole group. It's a lot of meetings and it's unfortunate. I think it's an impetus for people to get their work done. If they know that they are going to have to present in front of every functional leader for five minutes, they're going to make sure to update their section to review the documentation. It forces it. Yeah, it's incredibly important.

From that experience, what do you think are some of the must have or really important things to start thinking about earlier than later?

At the highest level, you need a comprehensive integration plan. That's the document I just described that needs to be completed a couple weeks before the deal closes. So everyone and their teams, everyone is signed off on it. Everyone is ready to hit the ground running a week or two weeks before the deal closes. And then you're educating your teams and you start day one. And some things start before day one if there's lead time to it. If you're going to rebrand and flip the signs and the building, maybe you need to order those three weeks before closing. That's in the tracker too. The completion date might be day one for some of these activities, but ultimately you have to empower folks and they have to realize that they are owning their functions and that's why their name is on the tracker and they have to present in front of the leadership team and you have to hold folks accountable. And yet you sort of have to pester.

It sounds like plan early, but also get alignment early.

Absolutely.

Any advice on that? I'm trying to imagine myself working an organization and Cameron comes knocks on my door and it's like, hey, we got this big integration we're doing. And I'm just like, go away. I don't want anything to do with it.

I think it's why you need this, like, roundtable with all the leaders. So like you said, let's say you have a signed loi. Let's say the deal is going to close in two months and you call a meeting. It's called integration planning. It has the leader of every function, maybe the CEO of the business too. And the 10 of you get in a meeting and you have the tracker skeleton that you share on the screen. It's just a skeleton. And you say, okay, we are closing this deal in two months. We need to complete this document in the next six or seven weeks. This is the value to it. It's going to allow us to have a successful acquisition between the first meeting, the second meeting. Please add your items. These are the 10 things my function needs to do for real Estate, it's flip the sign, do a site survey, look at their H Vac, change this, change that. You incorporate all that together. The next meeting, it's sharing it, making sure you're not missing anything. People ask questions and you just continue to iterate from there. It can't be isolated and siloed the way you just described. You're not knocking on doors and saying, hey, can you do. It's everyone is there, the CEO is there. It would be awkward for that person if they showed up that week and seven of the leaders of the company have their section filled out and they're presenting on updates and they say, oh, I just forgot to do that. It's not a good look.

I like that. It sounds like transparency is instrumental to getting alignment.

I think so.

Great example. What's the hardest part of doing a deal?

The hardest part is always the interpersonal, on the personal side in one way or another. It's not going to be building the model or creating the integration planning doc. All these things are incredibly important. I think selling the business is emotional. You get folks that are incredibly overwhelmed by diligence. I've been on calls where people are getting choked up feeling like diligence is overwhelming and they're struggling to run their business and maybe their employee just quit and they're not very tech savvy and they're having a lot of trouble getting everything out of systems. And I think selling a business is emotional. It brings up a lot. So in one way or another, it's always personal, I think. And you're at the center of the cobweb where the owner's talking to you. You're trying to get him or her what she wants and represent her. Your CEO might want something different and one of the diligence leaders might want something different. And you're. So you're the one brokering the compromise at the center and you're representing someone else's story to someone else. The owner just said this. How can we help? Our head of operations just said this. How can we bridge that gap? You have to be like a calming influence on folks. You have to be positive and energetic, not encourage people not to get stressed out and be calming influence. And there's a lot of compromises.

Therapy.

Exactly. That's what we've got M and a science for.

We're the therapists for the deal professionals.

Exactly. You can write a book about that. I'm sure you already have.

Do you ever come across any interesting surprises during diligence? I feel like every Industry has some shape or form and I'm just curious what that looks like for you.

Two deals that fell apart at Bell Health, one of them billing and payers and reimbursement is obviously something that's unique to health care. You have to be aware of. And with one particular deal I think we saw their reimbursement was very high. We thought there was maybe a risk of them up coding or billing for a higher level of complexity. If it's a more complex visit, more dollars, less complex, less dollars. This person just seemed to have above average complexity consistently over the years. And they were in a state that had regulations that allowed them to use lower level providers. Like maybe most 48 states you have to use nurses for this procedure, but in this one state you can use medical assistance. And so it was an exceptionally high margin business. And for those two reasons and we just said it just feels like too much risk. Walk away. What if the state regulation changes? What if they get dinged for upcoding? Sort of two issues there. Another one was related to shared services, which is a pretty interesting one. This business we thought had 4 million of EBITDA and this guy was an entrepreneur who owned a few different businesses. Essentially when the quality of earnings came back, it was like they had 2 million of EBITDA. Because a lot of his corporate leadership team and some of his even mid to low level employees were shared amongst the different businesses. He was allocating their cost or their salary onto a different onto a different business or sharing their cost. And he's dividing their salary between the four businesses he owned. I don't think he was trying to do anything misleading per se. I think he said they really do only spend 25% of their time in this business. Well, we can't really invest in a platform where half your employees are part time. That was an interesting one where related to shared services and cost and allocation. It turned out that ebitda was like 2 million instead of 4 million and just couldn't really bridge the gap after that.

Those are great examples. Are you doing Q of these on these smaller deals?

Yeah, we are. Not everyone does. It's an interesting thing. I'll give a quick shout out to Elliot Holland of Guardian Due Diligence, who's been a tremendous resource, at least on the first one. He sort of has found an interesting spot in the market where so many QOVs start at 40 grand for a $500,000 deal. Increase your purchase price by 8% for a Q of E. Maybe that doesn't make sense. He really focuses on, I think sub $2 million deals. Mom and pop. It's cheap, he has a cheaper service, but he does really solid, comprehensive work. He's a former PE guy. He's a cfo for a period of time, I think he was a consultant at Accenture. And so he's honing in on these sort of small QOVs for small deals, which has been really interesting. I think it's important. If I had a big team and one of them did audit at ey, maybe I can just have them do a bare bone Q of A on their own where you have them doing sort of cash proofs and looking at trial balances and doing some cross checking to make sure you feel comfortable at ebitda. But I don't have that. These small little mom and pop businesses, there is a risk that things are just not accounted for properly. It's almost like there's more risk in certain ways. If you buy some giant business, at least everything is going to be clean. They're going to be sophisticated enough to present EBITDA that is probably not fully real in various ways, but they know what they're doing. And you can have that back and forth. That's a classic bank. There's a large investment bank involved and you're going back and forth agreeing on what EBITDA might be. This one is. This person just might just be off their office manager, who's also their wife is doing their books. So I think it's important. It just needs to make sense from a price. The small deals, very little can change the economics.

Yeah, I like that. I think there is like a pretty substantial market to provide a Q of a service that aligns with the transaction size. It's pretty cool to know that there's vendors out there for that. It does make a lot of sense. It's hard to get those kind of red flags when you dig into the numbers.

I don't know that anyone else is really doing what he's doing. It's pretty cool.

Yeah, maybe I have a spot to feature that. Are there any other lessons learned that you'd want to share to other practitioners that may be tuning in?

Nothing that we haven't hit. I guess I would just really emphasize the importance of relationship building. Connecting with folks in a way that you would connect with a friend. Maybe a little bit more casual. You don't have to be so buttoned up. You just genuinely care about people. Empathy, positivity, being enthusiastic, bringing all that, whether it's an interview you're trying to originate a deal, you're trying to quarterback diligence amongst your own team. Those things always go such a long way. I just personally think that they're more important than any technical skills and spending time developing that, writing a little script or practicing in front of the mirror or whatever that might be. But it's interesting. It's the most important part of business and perhaps even the most important part of life.

That is true. You can overcome some of the biggest challenges with the right ability to communicate and connect with people. What's the craziest thing you've seen in M and A?

I wish I had more. Funny story, that's one of the downsides of not doing banking. My friends who have done banking all have these just completely insane stories at 3 or 4 in the morning. I did have. There was a former M and A leader I guess sort of a leader at George who is great person, learned a lot from. They had two offices. One was their office and one was just filled with like hundreds of deal toys which I thought was pretty amazing. The extent that this person worked on those deals and how much they work I'm sure is probably suspect, but it's pretty funny. And I had an interesting. The first deal I worked on at ge, we were looking at selling a division within the industrial space. I was 23 years old. I had never worked on M and A deal before. Again, when you're selling a business it's really emotional and confusing for a lot of people. You're trying to help them bring the diligence data so the investment bank can build a book. And this person's like why would I help you guys sell this business? Am I going to have a job? The incentives aren't really lined up. Sometimes these big corporate divestitures, particularly for a high mid level manager who's not going to get any dollars from the transaction. And there's just pure risk almost. There's almost no upside for that person. There's no guaranteed upside. I would say best case scenario, the business sells and they find themselves in a similar or maybe slightly higher role at the next company. But the worst case scenario is obviously there's all sorts of bad scenarios. There are cost energy, they get fired, they have to relocate their family. There's a lot of bad possibilities. I got sent down to this division. I went there by myself and I was 23 and I had never worked in a media before and I found myself in a conference room with different sort of functional leaders were coming into the room and like asking questions and I think a they were very disappointed how young and green I was and they were super emotional. One lady was on the verge of crying, wondered if she's going to lose her job and I think it was just a tactical error. I probably just shouldn't have been there. Shouldn't have been there. That was an interesting experience. The deal didn't happen. Anyway.

It goes back to that theme around communication, how you communicate these things and interesting scenarios and variety of different interests you got to deal with.

It's a good point, man. It's like someone much higher up than me should be there to bring everyone to Confidence Room, to answer all questions, to be authentic and vulnerable and empathetic and try to bring some positivity to it up front. All that stuff is critical. Yeah, I appreciate you tying that around.

Yeah, we'll just send the 23 year old kid to do this carve out or divestiture for us.

And I, I was playing a small role. I wasn't building a model, I was just. I think they wanted me to help support the diligence process, get all the data together sort of, you know, I was playing a small role but I just ended up. Maybe some of the other folks just didn't want to travel for it. Yeah, it was a mistake.

Awesome. Cameron, thank you so much for your time today. I enjoyed this conversation.

Thank you so much for having me. Pleasure to be here.

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