Buyer-Led M&A: How To with Carson Group's Michael Belloumini

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I'm your host, Kisan Patel, CEO and.

Founder of M and A Science.

Joining me today is Michael Belwomani, Senior vice president of mergers and acquisition at CAR Carson Group. Michael leads the firm's external M and A strategy focused on building proprietary deal pipeline and driving acquisitions from sourcing to signed Lois. Carson Group is one of the fastest growing firms in the industry, completing 14 transactions in the past year alone. Today we'll explore how Michael and his team have developed a buyer led M and A approach. Their journey from internal acquisitions to external growth. The challenges of scaling concurrent deals. Michael, how you doing today?

I'm great, man. I'm excited for this. I've been looking forward to this. So thanks for having me on.

Thanks for taking a break from doing deals to have this conversation.

Oh, hopefully we're getting assigned loi today or tomorrow, so it's a good time to be taking a little break.

Hey, we're here live in Omaha, Nebraska. This is Carson Group global headquarters.

It is our founder. Omani calls us the center of the universe. And look outside today, it doesn't quite look like it, but this is a special place to be.

I like it. Hey, you brought me to my roots. A lot of you don't know. That's right. Grew up in small town Nebraska.

That's right.

Happy to be here as well.

Prodigal son.

Exactly. Can we kick things off a little bit about your background? How did you find yourself in the matter?

I appreciate it. I've been in this business over 20 years now, which is mind blowing to say. I spent the first, call it 17 plus years at one of the country's largest independent broker dealers which is headquartered here in Nebraska. Wore a lot of different hats. I started my career as a consultant and a coach, helping financial advisors build a more profitable, efficient, satisfying practice. Moved into an executive role where I led our relationship management, strategic pricing, some growth initiatives. Moved into business development full time for about a decade and then also did M and A. So as a firm, we were buying small regional broker dealers and converting those into OSJs or producer groups. So that's how I got my feet wet on the transaction side. I was hired by Carson a little over three years ago. I have changed companies one time in my entire life, which I think makes me odd nowadays.

Nowadays.

But I came over here to build an external arm. So when we talk a little bit more about Carson and how we Got into M and A. And our transaction history, it's extensive, but a lot of that's been internally focused. And just over the past three years have we really turned that lens outward to try and find new opportunities with advisors that are looking to solve a problem and joining Carson as a Carson wealth office through a transaction. So I lead those efforts.

Can you tell me more about the Carson Group's M and A strategy in terms of how it's evolved? I think you've seen a lot of that shift and then we can get into some execution.

If you look at our firm historically, we launched the coaching business back in 1993 that was highly successful. To this day, still probably where most people know the Carson brand or name, we were one of only a few firms out there that were doing focused coaching for financial advisors. On the independent side, we launched our partner program in 2012. And the idea was the hardest part of any coaching program is implementation. So if you can outsource the implementation to somebody else and allow yourself to take off those hats that you shouldn't be wearing. No advisor likes being a CMO or a CTO or doing HR reviews. So if they can get rid of some of that and outsource that to us, the thesis was they're going to grow faster. That's been proven now over 13 years of being in existence.

These are coaches for financial advisors or.

These are coaching members. So financial advisors that were in our coaching program that then joined our partner program, which is a 1099 independent contractor position, they still own their own business. But fast forward about, I'll call it seven, eight years ago, some of those advisors were looking for minority investment.

These are all independent advisors. They were on your platform.

That's exactly right. We've got about 165 or so independent offices around the country. But what we found with these offices is they needed to solve for a couple different things. One was they wanted to grow, so access to working capital that they could go out and make their own acquisitions or inorganically grow. They looked to Carson. We would invest up to 25% in general so that they could have some working capital to go out there and acquire additional practices. But more often than not, we saw these folks raise their hand and say they wanted access to Carson equity. They saw what we were doing and what we were building and were willing to exchange a portion of their equity for ours, a commensurate amount, so that they could essentially diversify their holdings and be a part of the Carson story. So when you look at the minority investments we were doing our first four wholly owned offices were minority offices first. Our first external acquisition didn't actually happen until 2022. I had nothing to do with it. That predated me, but I was brought to do more of that at scale.

This really has evolved so quite a bit. The Partners, are they RIAs learning?

They're IAR, so they are part of our RIA? Yes.

Okay, you're an RIA. These are RA. RIA is a registered independent advisor, right?

Yeah. IAR is investment advisor Representative. We love nomenclature and acronyms in this business.

Every industry does. I want to learn a little bit of it. It started off with, hey, we're gonna lend you money so you can start doing some of these activities, do acquisitions. And then they got to the point where I want to take some chips off the table. You became an equity investor in these partners, which is like, great. You're buying into the ecosystem then. Now, more recently, it's going outside of that.

Correct.

And saying, hey, let's look past this and see what's beyond. How did that shape, like, what was like the first deal and how did it evolve?

First deal actually came through our sales channel. That's still an area that we're a little bit different. We have this highly talented business development team that focuses on new partner offices. So they're looking for advisors that are looking for a tech stack and marketing and support compliance. All the things we do that maybe don't want to sell. But every now and then, that conversation shifts to, what would this look like if I did sell? What's my valuation? What would life be like under the Carson wealth umbrella rather than hanging my own shingle? So the very first acquisition we did external was a firm by the name of Carden Cousins in Hartford, Connecticut. Unbelievable firm. Two founders, the father of one of them had mostly retired from the business, but still involved, and they were looking to solve for succession for one of the senior partners. So we were able to craft a valuation and a story that made sense for them, that allowed them to come over to Carson, join our ecosystem, take on the Carson wealth name, and take off a few of those other hats. So not having to hire, not having to run a budget, not having to run a business, frankly, there's a lot of really successful financial advisors that are, by their own admission, terrible business owners. They didn't get into this business to run a business. They got into it because they love working with clients and helping people save for retirement and managing money.

I can see that there's, like, parts in our own Business I prefer not to do.

I'm sure, I'm sure.

Okay, so then and then you continue doing deals. What does that look like now, how it's evolved? Like how many external deals have you done? What's the pace of doing the internal partner ecosystem deals?

We exploded. If you look at 2022, we had two or three investment bankers that would send us a sim or a teaser when they had an interesting opportunity. We probably looked at maybe 20 to 25 potential deals. A lot of the deals that we were looking at though were sourced internally, so we had to go out and find it. I've been in this business a long time, so I reached out to most of the bankers that I knew and a lot that I didn't know, frankly, and built relationships. Now we've got a network of 55, 60 COIs, whether that be attorneys, CPA firms, investment bankers, third party independent recruiters that are out there as a full force multiplier for us, that are finding potential opportunities and sending them our way. And then in addition to that, which we're going to talk about here in a moment, we're proprietarily sourcing quite a few of our own. So just trying to hit the market and be intentional with who we want to buy and maybe not be involved in such a competitive process.

Can we break down the differences between doing the internal acquisitions versus external? I want to understand the difference because you would assume doing the partner ecosystem is going to be easier because there are people you're familiar with, you understand the working relationship and so forth. And then external, bigger variable like how long did you get to know them for? And yeah, just love to hear your experience. What's the difference?

There's truth to all that. We've got a gentleman on our team, Mike Weger, that is a unbelievably talented. He's leading our efforts around internal purchases. Him along with Nick Engelbart. And it is a different process. There's usually a lot shorter close period. We do know them, they're familiar with the Carson story. They've already bought into the Carson ecosystem in many ways. They've already joined us as a partner. Maybe they've already done a minority transaction with us. So it's more about solving that sort of final step and what their career might look like and more often than not taking care of their second generation advisors. So making sure that there's incentives for the next generation to grow and prosper without necessarily being a business owner at a local level.

You say shorter timeline. What are we Talking about the G1.

Advisors that are getting out, I'm just talking about the end of their career because usually the fact that they're talking.

About a full acquisition, they're looking to retire.

Yeah, they're looking at what the end of the road may look like for them.

Not always, but timeframe for the conversation from like first convo to loi to.

Close, it can ramp up quick. We have an event in May. It's our partner summit where we do equity performance, a State of Carson and talk about how our equity has done over the past year. When we do that, Mike's got the fullest pipeline he's had all year long. A lot of those will close same year. So some of those conversations start and end inside of call it three or four months. Whereas external, especially if it's a banker led deal, you're probably talking like seven to nine months from the first contact until the point that they actually close.

On a banker led process.

Absolutely.

Why don't they want to rush and get it done quickly?

They want to rush it, we don't want to rush it. And I guess that's the difference between seller led or buyer led too. Or one of many differences. Part of moving that business is making sure, since we're moving client assets and investment strategies and all of that, we want to make sure that when the advisor becomes effective with us so they become an IAR of our ria they know what they're doing and it's not spinning wheels on day one. They're meeting with clients, getting signatures, moving accounts and we're wiring them. They're closing funds and saying, hey, welcome, you're the newest member of the Carson family.

That's a good thing.

It's a very good thing.

Let's just do biolighted. I am curious because what you described in the beginning seemed like solid, which is typically banker brings you a book and then hey, how do we justify doing this deal? At the same time, while you're trying to figure out how to do the deal, there's some strict timelines for you to be incentivized to keep engaged and close quickly. And then over time, like you mentioned, you started doing proprietary deals and evolved to buyer led. Love to just hear from your perspective, like the differences between the two approaches. People ask me, but you're the guy that's out there doing deals.

Kisan, I think you nailed it right there. A seller led approach is almost 100% reactive. There are nuances to that. There's relationship management you can do with bankers and cois to cultivate that, to make sure that when something does come up, you're top of mind. But you can't do that constantly. I can't call a banker every single month and say send me your best leads you've got or we want to take a look at everything under the sun. And frankly, those are expensive when they go to auction. And we're one of 40 firms that is involved in the process. Usually you're paying top dollar for that property, whether it justifies the price or not. A lot of times we try to control what we can control and that is can we go out and find our own deals. And we have three main avenues that those come in. One, we still run that coaching organization and we have a lot of long term coaching members that are not part of our ecosystem that are now looking for succession or an equity partner. And we just closed one of those last year. Brian Sweet, who ran an unbelievable firm in Minnesota, Billion dollar plus firm, double digit organic growth rate, really strong bench strength. They weren't on our platform, but they've known Carson and been friends of Carson for 20 plus years. Having that proprietary flow from the coaching side is important. We also have our business development team that's looking for pure partners that as I said, sometimes turns into a potential transaction. And then I've got a gentleman on my team who runs a campaign to go out and identify the fastest growing RIAs in this country. Stay top of mind and touch them with email, voicemail, phone call, on site visits, whatever we can do so that even if they're not ready to sell today, when they are, we're the first firm they think of. And we closed a deal out of that last year.

So you got the network and then you said like the business relationships or the business.

A business development team. It sits here in Omaha.

Oh, the biz dev team. Okay, so biz dev team. And then the third one is like your own.

That's our own team managing that. Yeah. So we are scrubbing data and finding or using lists to find the fastest growing RIAs across the country. Segmenting that list out based on usually aum or growth rate and then reaching out to them. So it starts with phone call, followed up by emails, followed by on sites or whatever we can do to get that closed.

Okay, so let's compare the differences. So there's the way you source them, there's those areas you mentioned which is unique to your company. Everybody doesn't have access to those relationships. On the solo led, that's typically coming from bankers, mostly bankers. Yeah, mostly bankers. Is there what are other things that can come sell that. Basically anything that's packaged up.

Attorneys have been a decent lead source for us as well. There's some great firms out there that represent both buy and sell side that sometimes are hired to do legal work, know our firm, know how we do things, and we'll introduce a more friendly deal.

Okay, and would that still be buyer led or sell it?

No, I'd still say that's seller led.

That's still seller. Okay, good thing.

Yeah.

Not necessarily directly for. Yeah, okay, fair enough. And then. Okay, so there's a way you source the deals and how it comes packaged. I would say there's some benefits having a deal package. Like right now I'm working on a proprietary deal and just getting the data already is like this is some more. Because you got to get them to trust you. Even though an NDA sign is still is a level of like, all right, I still need to get a little more trust apparently. And then you get the information where a sell led things are like ready to go.

Yeah. And that goes back to the price question earlier. You do get what you pay for. So just. I'll use an example. There's an investment banking firm out there called Echelon. They're amazing. The way they package the data and prepare a financial package for prospective bidders makes our work a lot easier. But you're going to pay top dollar for them. But they always close. So if they're seller led, generally speaking they have representation and somebody that's motivated to sell. The likelihood of that closing that transaction being successful oftentimes is pretty darn good. When it's a proprietarily sourced deal, you might not pay top dollar, but they usually don't have their data in a great spot. You're having to coach them on putting together what a financial package might look like and you do an awful lot more emotional management or coaching. These are sometimes people that are not entirely dedicated to a transaction. So they're still sort of working through all the emotions around what it might look like to take my name off the door or join a larger firm like Carson. There are certainly benefits to both sides and you need a healthy flow on both sides. We can control what we can control. So we want to do as many proprietary deals as we possibly can, knowing that we don't always have control over that seller led process.

Pros of a seller process is that it is prepped and packaged so it's a lot easier to invest the time to review it and Come up with your assessment of value on a buyer led. The pro is less competition.

Exactly right.

The minus on a buyer LED is that you're going to have to do more work to prep the company. You may have to play some psychology therapy.

And it takes longer and.

Okay. And it's going to take longer.

It will.

Okay. And then, so then we could say the pro of a seller process is faster.

Absolutely.

Con in the seller process. More expensive?

Very much so.

How much more you think?

Oh, I would say on average, at least a couple of turns on ebitda.

A couple turns on ebitda. It's a lot.

Especially when we start talking about some big firms, you know, and I meet.

A lot of people that just like don't want to do any proprietary deal sourcing. They're like, no, no bankers bringing us enough deal flow, blah, blah. But I'm like, there's some rewards of.

Doing a little, I guess, good for them. It's different if you're going to be a little bit more opportunistic. And frankly, not every firm has the same access to capital that a firm like Carson does. So if you only do one or two deals a year and you don't have the bench strength or the team that we do or many of our competitors, it makes sense to just wait around for those seller led deals that are packaged up. You do less work, you might pay more, but you're pretty sure they're going to close. But with the goals that we have and how aggressive we are in this process, knowing that we are a growth company like first and foremost through and through, we cannot just sit around and wait for those seller led deals. We got to go find our own.

Let's talk through sourcing. They'll come back to the execution and compare the execution part. Your buyer LED approach, you mentioned you got those three big channels, you got your network, you got biz dev folks, and then you're also doing your own research as a primary. Obviously you sort of build a list of opportunities or you get a warm lead. What does that look like? Is it a warm. There's almost sounds like there's warm leads where, hey, I know so and so is like interested in selling and then there's you reaching out, completely cold. Does that sound right? Yeah, warm lead's pretty easy. I think that's straightforward. It's like, hey Michael, you gotta go talk to this person. I'll make the introduction and that's how you get the first meeting.

Yeah, let's use coaching members as a great example. Oftentimes the coach has a relationship there that extends back decades in many cases. So they've seen this Advisor grow from 50 to 100 million to, in some cases, $1 billion plus, and have grown from running a book to a business to an enterprise. They're now at a point in their career where the idea of approaching an institutional buyer like Carson might scare them still, but they're more open to Carson than anybody else because they know us and they trust our coach. So it is a warm lead in the sense that they know the story, but they only know a small sliver of what that Carson story is. They know the coaching side. They might not know how we run an M and A process, and I might not know what life looks like after a transaction. So there's still quite a bit of education that we're doing, but we rely heavily on that coach to stay involved and be a coach, not just on the business, but also on the transaction to help them walk through the process with us. Whereas you're right, if it's a proprietary deal that we're sourcing just by picking up the phone or combing through lists and finding an ideal candidate, you're telling the story from scratch. So it's a little bit of the knocking on the door and say, hey, I'm going to buy your house. What will you take for it? Sometimes people have already thought about that, and I do think, at least in our business, the secret is a little bit out. A lot of people know somebody that's transacted. Now, if you would've asked me 15 years ago, most people just assumed you approached an advisor at the golf course or at the local FPA meeting and said, hey, I'm interested in selling. What will you give me for it? Now we're talking about these businesses that are worth substantially more than they ever thought and they know somebody that's gone through a process. So now there's a little bit more familiarity with what M and A actually means. It's not just one advisor buying another advisor's book of business.

What's your outreach sound like?

Oh, you gotta ask Jeff. He's the one that's making all the calls. In large part, it's, hey, in today's market, your firm has never been more valuable. Have you thought about or do you have a thoughtful plan around continuity and succession? And more often than not, it starts with, oh, yes, I do. I've got a junior advisor that's going to buy this from me when I decide to retire. And then it's a pretty simple exercise to go through current valuations. And they realize very quickly that second generation advisor, more often than not cannot afford to buy that business. Not when these things are going for, in some cases, 50, 60, $100 million plus.

Wow. I like it. It's pretty direct without being too direct.

Realistically, there's a demographic tailwind for us. Most advisors are aging to the point where they need to start thinking about what a continuity plan looks like for a lot of them. Five, six years ago, it was all right, if I get hit by a bus, who's going to take this thing over? You can do that. But think about the value you're leaving behind if you don't proactively sell. And there's some really great studies out there, you're more valuable seven years before you retire if there's growth, than at any other point in your career. So why would you not want to take advantage of that and start building a plan around that and look at the market maybe eight years before you're going to exit so that you can maximize the enterprise value and make sure your clients, your stakeholders, and most importantly, your family is taken care of.

That's true. There is like a best time to sell. I learned that the hard way in a previous venture. Yeah, definitely mindful of it. And it's hard to, I don't know if you have to do like I did, screw up once and then you're super mindful of it. But at a good point, if you can educate that person that may not be familiar with it.

I had a conversation yesterday with a prospective seller and they're growing at like 30% a year, which is just like 10 times the industry average. And that's net new asset growth. We get on the phone and one of the first things he says is, I'm not interested in selling the whole thing right now. And I said, well, you shouldn't be. Why would you sell the whole thing right now? But he's in his 70s, so now the math becomes a little bit trickier for him because how long do you keep that growth rate up? You are certainly more valuable today than many other firms of a similar size because your growth rate. But if you've got five years left, you need to start thinking about locking in that value now rather than waiting until you're a year before you're going to retire, because nobody can count on that growth go forward if you're not in the picture.

Do you convince people to sell?

I don't think you do. Maybe I sound like I do, but honestly, I'm a big believer that if somebody's not ready, if they haven't made the mental connection, that it's time to sell. It's very difficult to get them pushed off center because that's how you get into those conversations where it's like, all right, let me see what's my value? Everybody's curious what the business valuation is. Or maybe it's, let me see what a minority investment might look like, or maybe I'll talk to you about a direct partnership opportunity or coming on as a 1099, but those are a lot less likely to close, frankly. It's somebody that's made that mental decision and it's finding the right buyer that has the right solutions that gives them the right valuation and structure. That's where we win.

Then it comes down to trust.

Absolutely. Yeah. They're buying you more than even. Sometimes they're buying the firm.

It's not objectively purely a price. It's other factors that go in. They're going to take care of my people better legacy, so forth. Do I just like them in general?

I'll tell you what, there's nothing harder than being on the wrong side of that transaction when they don't pick you because they like somebody better. But that's life. M and A at the very end. Some of this is just a coin flip. You can put your best valuation forward, you can tell an amazing story, and we're going to win more often than not. But sometimes you don't. And sometimes they just have a connection with somebody else they just feel a little bit better with, and that's okay.

Oh, interesting. I'm shopping for debt on a deal I'm working on, and I'm having all these conversations, but you're like, all right, we're talking some point difference at the end of the day, and then you're like, you're going to work with who I like and believe can actually execute. That's it. It's not just about the best offer.

That's one of the things I love about this business so much is the whole sort of old adage about it's not personal, it's just business. That does not apply to the independent wealth space at all. There is nothing stopping clients from walking out the door tomorrow. If you're not delivering on your service model, you don't own the relationship. You might legally own the relationship, but they can go hire a different advisor. Same can be said for a firm like Carson or an ria. On our direct partner side, we're not Delivering the value. Those advisors are going to leave, so it has to be personal. Some of my best friends are advisors of ours or advisors at the prior firm that I worked for. That's what makes this such a unique business. There's so much built up into the goodwill.

What do you do? Build trust.

Oh, man, that's a good question. Be authentic. I'm a big believer that we sell better when we believe in the product we're selling. I do, and I always have. And I've been fortunate in life to only work for two companies where I did believe in that product. I think that conviction comes through. So be authentic. Be open. Tell people bad news the minute you know it. That goes a long way towards building trust. Don't hide behind email. Pick up the phone. More often than not, people see that and they respond to that.

That's good. Do you do dinners, drinks, stuff like that? FaceTime is what I'm learning is such an instrumental thing.

I agree. The world kind of got away from that a little bit during the pandemic too, for good reason. But man, I'll tell you what, I remember the first conference I went to when the world started opening back up and there's 5,000 people there and everybody's hugging and backslapping. Just we were craving that human connection. And I'm a huge believer that you cannot do a deal with somebody unless you've sat knee to knee. We require folks to come out and see us and we are going to go out and see you. You should know that we're not a fly by night company. Likewise, I kind of want to see the space that you're in right now so that we feel really good about what we're getting into.

You ever done that where you met somebody, get all cringe feeling and say, I can't do this deal 100%. Really?

It was in the city of New Orleans. I'm not going to mention any names, obviously, but it was one of those where I sat down in the way they handled themselves, the way they treated the waitress at this restaurant we were at. I walked out of there and called my associate back in Omaha and said, burn the file. There's absolutely no way we're doing business with this person.

Build trust. Then you got the process in place where you'll collect NDA, get some information, come up with the valuation, which I'm assuming you got pretty standardized. I'm curious about the structure of the deals.

Like what does that look like in your space?

Is it all cash? Are you using earnouts? Having Seller hold note, most deals in.

Our space look pretty similar, frankly. I usually know because if we lose a deal, I'm getting intel from either the banker or the seller, depending on the situation. So generally speaking, and this is also where proprietary versus seller led really comes into it, if it's more competitive, then there's more down up front. But generally speaking, you're seeing 60 to 70, 75% of the total consideration paid upfront at close. The remainder is usually broken up into two different earnouts. So there's usually a retention earn out at the end of the first year, which essentially just measures gross revenue. And as long as 95% of the gross revenue is there, that gets released. The growth earnout is paid at the end of the third year. And that's a formulaic approach to growth. So we are allowing the advisor to participate in the upside. And for every percentage or 2 of organic growth or inorganic, frankly, if they go out and bring us new potential deals, then they can qualify for certain tiers of that growth earn out. So the overall headline is the overall valuation and that's usually split. Call it just for simple numbers, 70% upfront, maybe 10 to 15% in the retention and the rest in the growth or not.

That's helpful. Keep a tail, keep them engaged.

Yeah, absolutely Right.

Let's talk execution. What's the difference between executing a seller led process versus a buyer led process?

We have a really good team and we've built quite a bit of muscle memory over the last three years to make sure that we can support this because we are at any given time running three to five concurrent deals. So the difference between the two processes I would say is when you have a seller led deal, they usually have their external stable of folks, so their own attorneys that they recommend, maybe their own CPA firms that they recommend. You have a little bit less control over how that process unfolds. You have your own integration process, but the players at the table you don't have as much control over. When it's a buyer led process, we have our stable of attorneys and CPA firms or folks that we can recommend, which leads to a better outcome for all involved. Mostly because those attorneys already know what our purchase agreement and employment contracts and subscription agreements look like. So we're not going to fight over red lines on a contract that are pointless or that we aren't going to negotiate on. They know what they can push on and what they can't push on. And we can control the service delivery. We know we're recommending people that are going to provide white glove service and an extra level of support.

So on the seller process, they'll actually recommend attorney for you to use.

They will, yeah. They usually have their own that they really enjoy or like working with, which doesn't always bode well for us.

But then who's the. It's a different attorney than the seller.

That's the. Yeah, that. That'd be the seller's attorney. So obviously have our own corporate counsel that represents us.

Okay. You always have yours.

Yeah.

But on a proprietary deal, you may have your attorney work with the.

Well, we can recommend an external attorney to work with them, but it's somebody that we have a history with that's closed transactions with us and we like the way they do business.

So you can influence the folks you're working with on the buyer led process.

Yeah. And that's usually requested if it's a proprietary deal, more often than not, the conversation starts, they say, oh no, I've got my local guy or my local gal that I work with. It's a general practice attorney or estate planning attorney or somebody that doesn't know M and A or wealth management at all. We can recommend somebody that specializes in this because it's a whole different ballgame. I had one attorney one time, he's like, well, what's personal goodwill? Or how does this work?

Yeah, well, it happens. You know, we have an attorney. I give everything to our attorney, but he knows enough and that he knows from our business that when it comes to M and A, we need somebody to specialize in it. So that's interesting. So the influence of vendors. How about timeline? So timeline, Obviously somebody's got a big incentive to close the deal as fast as possible versus a proprietary deal. Is there a timeline incentive to close as fast as possible?

No, there's not. When you actually look at us versus some of our competitors, we may take a week or two longer to close a deal, whether it's proprietary or external, because we are very thoughtful in the way that we approach this. So let me give you one example. This is another area. We're different than the industry, so we do a one stage close most of the time. So what that means is when the advisor becomes effective with Carson, they become an IAR of our ria. We are closing that same day, releasing funds that day, and they are moving client accounts that same day. We have incentive to make sure everything is ready and locked up tight before that closing happens.

Sign and close.

Other firms might have. You become effective, you start moving client accounts. The upfront Consideration actually goes into escrow and sits there until a certain percentage of assets transition over onto the platform. Then that gets released. That could be 90 to 120 days after effective date. So since we do a sign and close or a one stage closing, we are incentivized to make sure that everything looks really good from an integration and transition planning so that there is no wasted time or effort.

Is your diligence approach any different between a seller buyer led process?

It's not, no. We have the same due diligence request list that we would send to either prospect whether it was being represented by a banker or something that we uncovered internally.

How about integration planning?

Integration planning would be the same as well. We generally take call it 12 to 15 weeks from assigned LOI until we close, which again is maybe a little bit longer than some of our peers. But that process itself or the checklist is going to be the same whether it's seller led or ours is on your seller.

It's interesting. It's not like a real auction process.

Not always. Sometimes it can be and that, that, that's highly dependent on the representation. Whether the banker involved goes to a true A or if they winnow the list down ahead of time.

I assume it's always an auction. In this case, it's not always an auction.

There are certain bankers we know we're going to be one of 40. I mean they're going to fire out exactly everybody under the. They can fog a mirror.

Actually it's not bad. I got one deal I'm working on where there's an advisor there, but it's not one in an auction which is good. It's working out pretty well. But let's say it is an auction. Going back to the diligence integration approach. If it is an auction, are you doing the same level of diligence or you're just trying to compress it and do it faster. You're pulling some steps out. And the same thing with integration planning, that's what I often hear is an auction. You don't get to do as much integration planning you do.

It just all happens after offer acceptance. So I think that's exactly. Yeah.

So loi happens. You're essentially getting the same amount of diligence.

Right.

And then integration planning, we should still.

Get the same amount of time. But you can't do any of that ahead of time.

Right?

Yeah. They're controlling the process entirely prior to the signed loi.

Okay. Pros and cons, a lot of just influencing the process itself in that you can influence the vendors because you need to in the proprietary deal. And then depending on the timeline, if it's auction or not, there's a little bit of that in terms of having that flexibility where you can take a little longer and adjust as needed. Otherwise it seems like the net difference mainly goes to price.

If you want to price, price is the big one by far.

Exactly.

Yeah.

What's your preference?

It depends on the pipeline. If the pipeline is screaming, proprietary deals are by far better. We know we can control the process, we can speed them up or slow them down when necessary. And we're not going to pay top dollar or maybe not paying top dollar when things get lean. Or if we're not seeing the results come in from our proprietary efforts, then I'm ready for a buttoned up, seller led process that's got a really good sim.

Yeah, that makes sense. Concurrent deals. You guys did 14 deals last year.

That's insane.

You can't do consecutive when you're doing 14 deals unless you're closing them like a couple weeks at a time. Even then you still can't do the diligence and everything. So you're running concurrent deals. How do you manage the efficiency? Doing that many deals, getting that right balance of minimizing risk and maximizing value.

We've had to take certainly a more specialized approach rather than everybody being a generalist. We've had to divide and conquer, which is in many ways why Mike leads our internal efforts and I'm focused on external efforts. We have our own independent teams that are sourcing or working those deals, our own analysts that support us, directors that support us. We also have to be really efficient with our time. This year in particular, the focus is going to be on getting to know fast on a deal that does not fit our ideal criteria and the ones that do. We're going to go super aggressive, super hard and put everything behind it. The last thing that you can do when you want to do 14 or 15 deals is take a look at everything and dabble in everything thing. I'd much rather find those three or four a quarter that really makes sense for us and put in the top offer and show that we want that deal.

Prioritize.

Absolutely right. Frankly, I've got to be very guarded with my time. Mike certainly does on the internal side. And all of our team has to make sure that we're focused on the right things because this is a huge driver for us this year.

How about the concurrent deals and limited resources? I feel like people are probably running more of A full time role. Unless you have pure dedicated people for all the different functions to do M and A, it sounds like you're going to end up with shared resources that are working on multiple deals.

Exactly right. Yeah.

How do you do that?

How do you do that without blowing people up?

I don't know that we found the perfect answer on that. Honestly. We went from essentially newbies in the space in 2022 to being a top three acquirer last year. That's a pretty short ramp to get from where we were to where we are now. We are hiring. So we have multiple positions open that we're looking for talent both on the sales side and on the analyst and director side. But we also have to use technology efficiently. That's why we switched to Deal Room, frankly was we were not managing our pipeline effectively. And we were in a position where trying to track leads from all these different sources and remembering bid deadlines and due diligence dates and effective dates was getting overwhelming. And we knew we needed something better than what we were using, which was essentially a Salesforce instance that was built as a generalist for the entire company. Not M and a specific.

I put a quick disclaimer. Michael is a Deal Room customer. That's how I cohorts him to do this interview.

That's right.

Now that disclaimer's out there. That's actually a good question. I'd love to hear before and after because it does sound like running concurrent deals technologies obviously could be an assist. What did it look like? How'd that happen? Because you mentioned just tracking. Even the process itself.

As a firm, we use Salesforce as our backbone for almost everything. We have that for workforce management, for advisor reporting or case management. When advisors need to enter something into the system for a coaching database, it can do all those things. But it's different to track an opportunity on the M and A side than it is to track an opportunity from a coaching standpoint or from a direct partnership. And clearly a lot different steps and a lot more steps on a business integration versus somebody that's just choosing to hire us as their back office provider. So we recognized pretty quickly when we went from looking at three or four deals at a time to looking at 35 deals at a time that we needed a better way to manage this. We needed a better interface. We needed something that we could use for diligence rather than just a ignite room or a Dropbox room. Something that actually created accountability and tracking and would force efficiency on us was really important. And that's how we ended up with where we did, and I'm really glad we did. We're early in it, we're just implementing, but it is certainly going to be a game changer being able to see the entire pipeline, adjust things on the fly, make adjustments to our process on the fly using the technology, and then get to a part where we can actually celebrate those closed rooms at the end.

That's true. We had this interview in the works before you guys became a customer. So it is early. I like those reasons why the pipeline efficiency when you raised this capacity or looking to raise your capacity of deal volume since you're expecting to do more deals and then blending in the execution as opposed to just having one piece of it.

I would say speed too. We've got a great technology team here, but they're generalists for the entire organization, which is 400 stakeholders and four or five hundred advisors out there. So when we needed something changed, we had to go on our prioritization list and kind of sell why we needed something change. Whereas when we can control our own environment with deal room, it's really easy for Mike or Brad or any member of our team to change the process or change label. All that stuff that maybe took a little while in the past is instantaneous for us now.

At some point I'm going to come revisit you in like four or five months and hopefully convince you, like compress your timelines to get deals done. Now. Say it does that right, Say it does like whatever, 30% reduction. Do you think you'd actually save money?

Oh, absolutely.

Because all the hourly people, human capital.

Alone to look at a deal and know that you put seven to nine months of work into it and all the people that touch that, even if you can shave a week or two off, you're talking about real money when you consider how many people are involved in the execution of one of these.

I'm really, really optimistic on AI because we built some component for the contract analysis, but now we're doing a second tier where it's really around the whole process. It's going to be a big game changer. So I'm looking forward to working with you.

We do too. I got to admit, I know very little about it, but our chief Strategy officer Danny Fava is like a brilliant mind, huge believer in AI. We plan on being at the forefront of this, especially when it comes to advisor efficiency. If we can save an advisor a little bit of time prepping for meetings or doing their portfolio analysis, then we know that's going to translate to real money and better outcomes for the client.

Were you involved in the selection process for Deal Room?

I was not, no. Mike was.

I'm gonna go talk to Mike.

You need to talk to him.

I have to talk about a word with Mike.

Tell you what, though, I saw it. When I got to see it, I was a loud voice for, yay, let's do this.

Awesome. I like to hear that. I want to hear from him because, like I said, I wasn't involved. The team was. And they kind of.

No, I have.

We had a whole different thing.

Mike and Brad led that process for us and reported back. We have a larger group that meets on Monday afternoons. We got to live vicariously through them as they chose the. The vendor. But I'm sure glad where we ended up.

Yeah, I say it worked out ironically, because Amani I'm going to be talking to later this afternoon. And I was like, wait a minute, you guys are customers of ours. So it was real fun. So, going back to deals, one of the things I'm really curious about. A lot of these companies are acquiring. They're smaller. And this is always a thing that is very underestimated for a seller is how taxing the diligence process is.

Oh, yeah.

How do you balance having doing through diligence without blowing up freaking them out? Yeah, this is like the most underestimated thing for somebody selling a business.

I did a podcast with one of our partners and we were talking about the integration planning, and this is where we spent quite a bit of time. It's two different work streams. At the beginning, it's about getting necessary data to do evaluation, which is very different than quality of earnings and tax returns and a vendor list and product list and all of that. So at the front end, we don't want to scare that person away. We want to make sure that we get enough data to feel comfortable about the valuation we're placing on that company and know enough about their organic growth rate and how they meet with clients and deliver something. And we know that what we're asking for is going to be asked for by any of our competitors. So it shouldn't scare them off when we say, hey, we need two years of production reports, or we need a P and L. Those are basic things for them to put a valuation on a business. Diligence, though, we don't start that usually until the LOI is signed, and that's the one that you have to coach through. That's again, where maybe not delivering bad news early, but at least being Forthright with what this looks like. I remember one of our deals, they described it as a financial enema and maybe a little bit crass, but probably not that far off base. It feels uncomfortable to turn over all of this data about you and the business you've run, knowing a lot of times that you haven't run the greatest or most attractive business. Giving that over to somebody and putting everything together and then also dealing with all the follow up requests is a lot.

Yeah, a lot of it's just giving a heads up and it's just relationship.

Management and coaching, honestly, because they got to do it. We have to get there at some point. And I'll tell you when you set proper expectations and folks know what they're getting in for, it's amazing how fast they can pull it together. I mentioned Brian Sweet earlier. They had 70% of the data ready in the first week. Just flew through the due diligence list. You know, they had an amazing staff and a lot of prep.

You nailed it, Michael. It is setting expectations. Yeah, I've been in that where I didn't want. I remember it was doing like an SBA loan. It's just for some reason you think SBA is going to be easy? Just for some reason. The way they like the whole thing, the way they explain it, the Small Business Administration behind it, we built this program for as well. It is like the worst. It is the worst. But if they would have came at me with like, hey, you know what, this is brutal, blah, blah, blah, this is going to be really rough. You're going to hate us later for this, but eventually you'll thank us.

It's going to result in something good. But you're going to hate us in the meantime.

I wouldn't felt as bad. And hopefully the tech, that was my big frustration too is when they get redundancy of requests. And this is the third. And you go back to the email where you already sent it to make a point that you already sent it, but then you came passive aggressive. So I'm hoping that some of the stuff.

Oh, absolutely.

Hey. Create a better incoming experience for the people as well.

You talked about trust earlier. It's pretty easy to start eroding that trust when you're asking for the same thing the second or third time.

Yeah, that's actually a really good point. Any parting advice? The deal makers out there, your peers.

Be really intentional with what an ideal fit is. One of the things I love about this business is there's a home for everybody. And I'm just Being honest. There are two dozen great firms that do what we do in some fashion, and everybody's got a little bit of a different twist or niche or focus. If one firm's not the ideal fit, that's okay. There's somebody else that will do it for you. Find the right firm, and if you're a buyer, find the right seller. Make sure they fit what you're trying to build and the community you have. Because, man, there's nothing worse than letting the wrong one in.

I'm going to confess something to you.

You let the wrong one in.

I haven't yet. I haven't yet. But I will admit I don't know if it's taking like a disease. It is a disease. But I have deal fever. Yeah, I definitely do. Because the way I've been looking at deals, and I love that I split it with our COO because I'm like, at the end of the day, you have to own this after close, and I say, I'm making you the committee. You work with the functions and ultimately decide yes or no to do this deal. I'll build the business case. I feel like so far it sounds like a good idea. Maybe not now, because everything is getting shot down. I'm finding I like it. And there's reasons why you're like, oh, the financials are superb on this, and it's a deal. I know it's very doable. I can get this thing done. And then the stuff where I'm just, they want to do it. I'm like, this is going to be so hard to do. Like, I don't get along with this person there, and this is not going to work. I don't know. But what I've learned is deal fever is a real thing. And I think this is why corporate development is actually really important.

Yeah.

You could be the CEO, founder in my role. And I now I know, I live it and understand, like, why deal fever is a thing. So I would put that out there is like, there's a good reason to have corporate deal. Just be more objective and actually.

Oh, yeah. I'm a big believer too, in culture being the most important reason to do a deal. I mean, economics, it's amazing. You meet a firm, you fall in love with each other, and, you know, they're a great culture fit. Like, the money always works out. You both want to get that deal done. You're going to meet in the middle somewhere.

Michael, culture fits. If I get along with their CEO or not, that's culture fit.

Yeah.

And then Again, Again, my CEO, very different Deal culture fit. He's talked to engineer, engineer, talk to their engineer. Like, these guys are not engineer teams are not going to come together nicely.

No. But I mean, I'll tell you, if there's a red flag on culture, that's one too many, in my opinion. You cannot paper over a bad culture fit. You can't economically massage a badge Culture fit, like, really have a good idea who you're going to be doing business with, because they're going to be representing you and you're going to be representing them, and you're going to see each other in the foxhole multiple times throughout the year. And the last thing you want is that person that sold the firm that is now inside the gates, that is just miserable being there or you're miserable with having them.

That's true. Something I'm going to learn. I'm going to have to write a little series on how to overcome deal fever.

Oh, my gosh. Let me know when you do.

It's like the founder dilemma, too. It very much is. It's hard to look at the full scope.

Oh, it is a thing. I totally agree with you. Without a doubt, it's a thing. It's amazing how much more that ramps up the closer to the bottom of the funnel you get. You're close to the loi. It's like things kind of. Everything gets a little bit more exciting.

I'm saying. I even got to that point where I blew a bunch of money on diligence 1. I spent a little bit, but still, it's funny, like, seven years of the podcast, I was making fun of people with deal Fever, and now I got infected. Yeah, I'm going to start a group. We're going to get a little deal fever. Anonymous group.

But I mean, don't you think it's vital to success? Like, you can't win deals if you don't have at least some level of deal fever.

It is a whole skill of its own to be that conscious of the objectiveness part where it's like, these things got to add up. And I think that's where people talk about, do you guys do deal scorecards?

We do. We sure do. We're actually in the process right now or revising ours because we recognize that with all this volume we've done over the last year, we probably need to take a different look as we've moved upstream and worked with more successful firms.

What goes into your deal scorecard?

There's quite a bit that's just straight quantitative what are organic growth rates? Is there a G2 in place? Are they in a metro area that we want to be in? Is the growth curve accelerating or is it just a three year average where it's been flat? And then there's quite a bit of qualitative things in there too. Do they fit a strategic niche for us? Are they from an underrepresented group that would allow us entrance into a new market? Do we like doing business with them? Are they good people that we feel good about wearing our name? All of that sort of goes into a scorecard and then we track that over time and then we also track it along with valuations we're putting on those deals. So if you see something that's a mediocre score with this big old high, even a multiple, then, well, we probably need to dial that down. Or if we find that just the scores are sort of out of whack, then we need to recalibrate the scorecard. But so far it's been a valuable tool for us. Five point scale. Anything over a three we should be pursuing. If it's four or above, let's go all in.

I am, I'm going to work on that. That might be a solution to try here of making a scorecard. Michael, what's the craziest thing you see in M and A?

One of the craziest things I've seen is we had an advisor that closed last year that lost two of their really talented junior advisors during due diligence. So after the loi, during the process of us really feeling each other out and it was a panic moment for them, it was a panic moment for us. They did lose some assets as part of that deal. But I will say that was an example of delivering bad news right up front, showing that you've got a plan around that and that you can solve or mitigate that risk. And then just the faith that we had in that advisor, because I think one of the advisors concerns at the time was are they still going to do a deal with me or is this thing off the table? And for us to go back and say, hey, we're not going to, we're not going to change major parameters. We might put a little bit more protection around client attrition or retention. But we believe in you, we believe in the team and we've got a plan in place to mitigate this, I think went a long way to getting that deal done, frankly, and putting them on really solid footing go forward. So that was, I'd say, one of the Craziest things, at least in the last three years I've seen.

Let me ask you this, because these are all like wealth manager people. They, like, see all this stuff that happens, like how people spend their money and this and that, and they see other exits. What do they do when they exit? Like, what do they spend their money on?

We have one advisor that did retire about a year ago that wanted to go into fintech. So he's working with a friend of his in the northeast to develop some level of technology. I don't even know what it does, honestly. But he wants to go into fintech and thinks that he's got a future there. We had one advisor we talked to that was super into cars and that's what he wanted to do, was build drag racers after he got out. No joke. It's about finding your freedom. That's our tagline. Putting you in a position to find what your next is. Sometimes it's not leaving the business altogether, though. Everybody's got a favorite deal. You've got one deal that you just love talking about. One of my friends and somebody that I just have a ton of respect for now trade out in Kansas City. His next is. He wants to do M and A. He's talking about, all right, I'm going to build my own network of attorneys and CPAs and solution on the investment side to help mitigate capital gains liabilities. And he's going to go out there and do exit planning for business owners and wants to find those opportunities where he can sort of act as the investment banker, have that client, sell the business, come into substantial funds, and then he gets to manage the assets. And he's pretty damn good at it.

Michael.

That's cool. That's a really good story. That's cool. I was wondering. I want to get the house in the mountains was my thing, but.

Yeah, slow down.

I don't know if there's anything I'm missing out because the island money thing is like, why would you want to buy an island?

I hear you.

Maybe that's got to be a whole thing. I should do a study on that. What do you do with your money after you exit?

I have. I'll bet you that's where you find what's the craziest thing in M and A.

That's going to be maybe a LinkedIn survey.

There you go.

This has been a great conversation, Michael.

Hey, I appreciate it. This has been a blast. I love doing this.

Thanks for taking the time helping me become better M and a scientist.

We got to Bring you back home to Nebraska. All it took was this to get you back.

Yeah, I know. What do I got to do here? I got to go get a Runza. I got to go to the Haymarket hang out.

Is that still, like, listening right now? You got to explain what a Runza is. Essentially, it's a hot pocket. It is. You're describing a fancy hot pocket.

It's a fancy. But remember, and you, you know, they cater in Runza. It was like it was a thing. So I definitely got to do that. Is a Haymarket still a thing?

Yeah, absolutely. That's a thing.

All right, so we're going to hang out. Hang on. The Hay Market tonight.

Old Market, too, here in Omaha.

You got to go Old Market.

Oh, that's what it was. Hay Market.

Lincoln. Lincoln had Haymarket. Now I remember Lincoln had Haymarket. Old Market here.

You should wander down there. There's a whole area called the Capital District that looks totally different than the sort of urban blight that was here last time you were in town.

Is that by the Old Market?

Is that right next to it?

Right next to it. Capital Market. Okay.

Yep.

I'm gonna go hang out in the good old Moha. If you've listened to this podcast this far, you are true M and a scientist. I respect you. I thank you. I adore you. Love to hear from you. Reach out to me on LinkedIn. I love to get feedback, criticism, welcome, all of it. I don't mind helping M and A people and try and connect dots and some of it, it's just I honestly don't get the time. But I can try to turn it into content and share with everybody because usually it's the same thing. Advice and stuff like that. Until next time, friends. Here's to the deal.

Thank you for taking the time to explore the world of M and A with our podcast. We love hearing feedback. Tag us on a LinkedIn post, add a review on Apple Podcasts.

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If you need help standing up an M and a function or optimizing one that you already have, we're here to help. And if we can't help you, we probably know someone that can. You can reach out to me by email. Kisan K I-s o n a science.com or you can text me directly at 312-857-3711. If you just want to keep learning at your own PA, visit mascience.com for a lot more content and resources. That's where you can also subscribe to our newsletter. Again, that's mascience.com here's to the deal. Views and opinions expressed on M and A Science Reflection only those individuals and do not reflect the views of any company or entity mentioned or affiliated with any individual. This podcast is purely educational and is not intended to serve as a basis for any investment or financial decisions.