From Private to Public Company

Hello M and A friends. This podcast is brought to you by dealview. M&A is coming back. Would you like to avoid wasting hundreds of hours managing Excel Trackers and building PowerPoint reports? Do you want to make your process more efficient? Well, I have great news for you. Deal Room is MNA management software to save you time, headaches and improves collaboration so you realize value faster. Learn more@dealroom.net here's to the deal.

I'm Kisam 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 welcome to M and A Science Live where leading M A practitioners share lessons learned from their experience. When you use proven techniques in M and A, more value is created. If you're interested in keeping up with the latest from M and a science, visit mascience.com and subscribe to our newsletter. You'll also find a ton of free resources on our website as well. Again, that's mascience. I'm your host Kisan Patel, CEO and founder of M and A Science and Deal Room. Joining me today is Darren Lampert, CEO at Grow Generation Corporation, a NASDAQ traded company under grwg. Today we're going to talk about how M and A transitions from a private to a public company. Darren, how are you doing today?

All good. Thank you so much for having me today.

Can we kick things off with a little background in your M and A experience?

Got out of law school in 1985 so I'm a securities attorney by trade. Got my 763 I think in about 2001. Spent about 10 years on Wall Street. Come from a family of four securities attorneys. I'm the fourth, my dad, my two brothers so been in the public markets my whole life.

I like how the whole family is involved in securities law. GrowGen has implemented a pretty aggressive roll up strategy of smaller regional and single location hydroponic, growing and garden centers. What are you typically looking for in these operators that determines whether or not you're going to bring them under the Grow gen umbrella?

This is a little background. The hydroponic industry as we see it is tremendously fragmented. It was an industry with about 2,000 stores and they're really from the old days. It's kind of if you equated way back when in the 1980s and 90s when you saw the real estate boom with all these little hardware stores that couldn't service the bigger builders that were building condos and developments. And you're seeing that right now in the hydroponics space. You're seeing a lot of little stores fragmented in a small segregated area in the mature markets around the country. So really what Grow Gen has done is we're taking these MAPA stores and bringing them under our umbrella or bringing in Best of Breed. So really what we're looking for is scattered amongst 20 stores in a given area. There's usually one or two that are newer stores that come with what we believe to be tremendous employee base, customer base, stores really size wise that can handle the commercial growers around the country. When we first started in 2014, our stores were 2,000 square feet. Now you're seeing Grow Gen building stores, 20 to 70,000 square feet. We certainly take a hard look at the inventory, the customer list, the balance sheet and the income statement, understanding the EBITDA levels, but also taking those numbers and equating it back to the growth within the region that we're buying these stores. Again, cannabis right now is state by state. So there's different grow laws in every state. So it's certainly extremely important for Grow gen. When looking what we want to buy, we're first starting at what states we want to be in.

You're looking for segment leaders, Best of.

Breed, you never go wrong.

How do you determine which markets you want to acquire stores versus open up your own?

Grow Gen understands licensing around the country. So when you take a look at our 50 states, there are some mature markets. You know the basically when you go look out west, you have California, you have Oregon, you have Washington, you have Colorado. Leaders in this industry for many years. We also take a very hard look at licensing laws within states. There are certain states that are tremendously restrictive in licensing that they're giving out maybe two licenses in a whole state. We also look to see if a state is medical or adult use. So there's certainly a lot of planning going into where we're bringing stores and where we're gonna open stores and we're gonna buy stores really for growgen. Right now we're buying stores in mature states, Best of breed stores in new states coming on board. Like in Oklahoma, we greenfielded five stores in Oklahoma, almost $100 million. Business will be greenfielding in Mississippi, we'll be greenfielding in New York. On new states coming on board. There really aren't Best of breed stores for GrowGen to buy. So these are states that we will be building out and really using our employees from other states that are looking for promotions that are Looking to move up the ladder at growgen that are moving from state to state for us and helping us build out these new locations as we continue to build out the country.

Well, the regulatory environment really shapes that position, whether you're buying or building new.

It does. It's, you know, in a lot of ways, when you start looking at some of the new legislation coming down, even look at the more act that just got through the House recently, certainly not the Senate, looking for social justice issues that are coming up right now, letting the underrepresented starting to grow opposed to giving three licenses to the wealthy. What you're seeing right now in New York, where I am from, is a tremendously broad licensing coming out of Governor Cuomo's offices last month, and it was 50% of the underrepresented. It's craft growing. It's also allowing individuals to grow. Each individual can grow up to six plants, up to 12 plants per family. So it's starting to open up the markets. But you still have markets, you know, right now where you go look at Connecticut, there's five licenses, there's two licenses in Minnesota. These are states where they're just too restrictive for Growgen to have vibrant stores. We have over 100,000 people walking through our gardening centers every month right now. So, you know, Grow Gen is looking for states with open licensing and less restrictions on the individuals and more craft growing.

How do you go about integrating stores that you acquire into your organization?

Where Grogen has succeeded and why we've become so successful is really because of our integration by integrating Grassroots, which is really the cannabis industry as a whole, into corporate America. And it's certainly not an easy integration. We have lost some employees when we do buy companies that just don't want to work in the corporate environment. But growgen has. We spent a lot of time with our employees. That comes from me. I've taught most of our employees how to read a balance sheet income statements. I. I now know how to grow. So we've given each other tremendous learning on both sides of it. But integration starts from the beginning. We usually bring in. Our ERP system is much more complex than your normal QuickBooks. It forecasts it, you understand your customers, what they need to buy. Every day. Two weeks before closing, we send both our technology team and we usually send a minimum of three of our senior employees to these stores to really as a buddy system to spend time with the employees, to go through books and records to, to teach them our ERP systems. First day we purchase, we're on you Know these individuals are booking sales on our ERP system. We bring our accounting staff and we bring our marketing, purchasing, our commercial team in. So we bring this whole host of new corporate initiatives to these stores and it's worked out tremendously. Last year our same store sales were up 63%. The year before they were up 37%. The integration process is working because we're buying mature stores and you're seeing tremendous growth after we buy these stores a year later. So what we're doing is working. We're going to continue to do it.

So I'm hearing integrated systems, supply chain and then talent development. Seems like it's part of your integration plan.

It certainly is. For each store we buy, there's two ways for Grosgen, the owners have stayed on with Grosgen. Sometimes they have not. We know prior to purchase. So if an owner is not staying on, we're certainly looking for a manager that's been with this store for four to six years that understands every one of the customers. We're certainly not looking to buy something and everyone disappears following day. The most important part of what we're buying is employees, continuity of business. And in this industry a lot of the growers look towards their sales reps and their grow pros at these stores as the doctor of their plants. So the most important part we're buying again is the employees and we don't have a good feel for the employees. The store is not going to come under our umbrella. Grosgen can open a store anywhere within three to six months and usually take business from anybody. We have best selection in the country, we have best service in the country and solution. We're a technology provider to the growers so we can go wherever we so choose. And we have a very vibrant online division and a commercial team. So if we're not buying employees that we need for the future and customers, we just as well open stores.

Are Your target company CEOs pretty transparent on their plans to stay or leave or do you get surprised?

No, we have not been surprised to date. It's part of the initial conversations. It's part of every one of our APA's asset purchase agreements. We have employment agreements prior to purchase. So we certainly understand who wants in, who wants out, who's going. It's pretty spelled out in the non competes we have with each and every owner and top employees of stores we buy. So we're very careful from a legal vantage point. We're pretty buttoned up when it comes to that.

What's it like finding these opportunities. Do you have a team that's outsourcing stuff or using bankers? Are you out doing it yourself?

We have not used bankers in any of our acquisitions to date. It's a lot of word of mouth. It's recommendations from certain of our manufacturers and distributors that we deal with. But it's also pounding the pavement at this juncture. Now. Everyone knows Grow Gen Soap. It's more inbound calls than outbound calls. We know the environment well. We know each and every store in the country. We go to all the trade shows. It's just a matter of being around since 2014, which is pretty much, you know, again, a lot of the start of the industry. It's back on 420 in Colorado, back in 2014, which was legalization on the adult use side. And that's when GrowGen got started. So we've been in business since 2014. Spring.

Once you identify some of these companies, you're in there cultivating a relationship, trying to get a deal done.

We're always cultivating relationships and we have relationships around the country start to finish. Usually when we want to go further or they want to go further, NDAs are sent out and that's the start of every transaction. And from an NDA, usually we need to see two year balance sheets, income statements in the year to date. We want to see long form income statements so we understand every line item on them. You know, one of the interesting parts, because we've been in this industry, we understand the income statements and balance sheet, what's true, what's not true, what belongs on an income statement, what doesn't belong on an income statement. I can look at an income statement and see a company that tells you that they're making a certain amount of money. And I can look at the margins and I can say there's not a shot in hell. Your margins are that high. Because we understand margins of every store in the country in the different regions. Again, it's being repetitive. It's just we've seen so many balance sheets, so many income statements and we know where we are, we know what rebates in the industry are, we know what pricing is. We can do it deep. You know, I can go look at someone's ERP system or even their QuickBooks system and I can tell you straight out whether they're selling things for the right price, for the wrong price. We understand when we purchase a store what margin percentages we will increase because we buy better than everyone in the country. We have private label products, we get better deals on the street. We buy containers, not pallets. We have a pretty decent understanding when we're buying with integration. When you look at our forecast, we keep very detailed forecasts as a public company.

I like the way you describe essentially the maturity of your M and A approach. You really start understanding these businesses better and better. That allows you to essentially evaluate them faster, come to identify opportunities, probably even identify more opportunities. Is there anything that you've seen evolve from the early days of doing acquisitions, from your actual operation of the end to end M and A process from early days till now?

That old adage, practice makes perfect, and it does in a lot of ways. What I've seen now, you know, we had a very talented chief operating officer start a year ago November. So he's been with us about a year and a half. Tony Sullivan, Senior VP of Operations over at Foot Locker, 2,500 stores. He's been tremendous on the integration process. So really, if you ask me what's different from GrowGen now and two years ago, it's how quickly we're integrating. It's how quickly we're integrating our ERP system and how quickly we're making these stores better. Used to take six months to a year, now it's taking three months. They're seeing an immediate accretion around margins, around sales. We're seeing less complaints from employees in the stores that we're acquiring. We're spending more time, more boots on the ground. We have a bigger staff Now. We've added 26, 27 stores to grow Den in the last seven months. So we've almost doubled our store count. We've done it effortlessly. And I give credence really to Tony's again, sops on purchasing stores and integrating. The easy part is purchasing. The harder part is integrating and making these stores better.

Well, it sounds like you really beefed up the operations that support integration activities over the years.

It's a new industry. So the one thing that when you're dealing with, I hate to use the word, but unsophisticated sellers, sometimes it's different. It's the first time they've ever sold something. So it's just getting them comfortable really with dealing with stock in a public company, something that we do in every transaction, is we usually take 50% of the goodwill portion and use our stock. Explaining what a vwap is and explaining the public markets and explaining valuations, that's challenging. I still do a bunch of our acquisitions on the legal side, that's what I did for a living. And people always ask, why are you wasting your time doing that? It's given me a tremendous opportunity to spend more time with the owners of the stores prior to purchasing. Just getting, you know, a better feel. Firsthand knowledge. One of the things that I always say is, you know, you're better off learning firsthand, opposed to your attorneys or second or third hand. When I'm dealing with, you know, on these transactions, I usually deal pretty. Besides I'm dealing with their attorneys, I'm also dealing with the individual owners on a personal basis. I think it's been pretty dynamic in a lot of ways. And it's also given us some tremendous leads in buying new stores. Every time we buy a store, that store owner knows somebody and it's like, well, if John sold to you, you know, I'm sure this guy will sell to you too. We look up to him. We did a purchase in November this year of GrowBiz. Grow Biz was the third largest hydroponic chain in the country. They were around for 15 years. But the owner of GrowBiz was an iconic individual in the industry. He's now on our, is on our advisory board. So Once we bought GrowBiz, we got 20 calls the next day. Guys, how about us? With the industry we were in, people still get nervous about the future of this industry. Competition in the industry besides Grosgen is any other big chains and get involved. We built this wonderful operation, but we can't grow it anymore. If we give it to Grogen, they'll grow it. We will prosper as well as their stock prospering. It's kept the owners involved with GrowGen and it's kept them hungry. And I think it's been very important for us.

I like how you get referrals from the acquisitions that you do. Is that part of the model? Do you ask for referrals? Do you incentivize for it?

We started in 14. We've been through the harder times in this industry through the Cole memorandum, through the harder banking days of the industry. What we really did is grew this business slowly. The first five years of business, we grew from zero up to 30 million. And if you look right now, between 2018, coming out of 18 and 30 million this year, we have estimates out to Wall street of 430 million earning over $40 million. So you've seen this tremendous growth, as I said, learning the industry, learning the states, learning the people, learning the players, and spending that five years pounding the pavement really understanding the industry before really taking money from Wall street at Gro gen, we move quickly. I don't think there's been a month without an acquisition in some time. We're busy. We have a very, very vibrant pipeline right now. And we're going to continue. We're going to continue what we're doing because it's working.

Based on your recent announcements, your acquisition strategy seems to be shifting. There's still a steady stream of store acquisitions, but now you're mixing technology offerings and private label products. Can you talk about that a little bit?

I think the evolution of any big chain from the Costcos to the Home Depots to whatever chain you look at in this country and you speak to many CEOs, really, our model is no different. Build out the shelf space and then you have to put some of your own products on the shelf. It's just that evolution of growth and it's all margin accretion for us. So for GrowGen, when you're looking at normalized margins on the 26th to 27 and margins on private label 50 and above, it fits that model. We have 630 employees right now that know how to grow. We understand what our clients need, we understand what's selling every day. So we certainly have a leg up on the manufacturers, suppliers, distribution channels because we're a marketing tool. We have a hundred thousand people in our stores every month. We see the tremendous growth of new products coming to market. Those are the products we want to buy. We want them under our GrowGen umbrella. And so far in the last, I think in the last three months, we've bought two products. And you will see more product acquisitions from GrowGen. But along that side of it, we also have R and D@GROWGEN. So we also are bringing our own products to market as we speak. And one of the interesting parts is last year I think our private label Division did about $2.5 million in business. And this year we're forecasting upward of 40 million in private label products coming out of Grogen. We will be our second largest supplier this year and that's a pretty big leap in one year. We're 100% confident that it will hit that 10% mark this year. And we see that continuing through the decade and an extra couple percent every year. Told grow gen gets the 25% of its own private label brands.

How do you manage that? How do you manage this multifaceted strategy where you have different approaches happening? I'm curious, are you pulling in leaders to run these different strategies? What does that look like?

We do. We have you look at our Org chart. It starts with me and our co founder, Michael Solomon. You know that it goes down to our CFO that has 25 people under his command. And then you have our chief op. We also have a vibrant online division. So we have our technology division. And then we also have our commercial team.

What about like the. When you introduce the private label as a strategy, Walk me through that because I find it really interesting because you're right. You sort of take a model that's pretty proven out there. You've seen the big companies do it. Now you're implementing. I'm just curious, how do you actually deploy it and make it successful? Because you're in the track of making it work first.

We look at products before we even start. We look at what we sell and we certainly understand every product we sell. Even though there's so many SKUs. There are products where people are very concerned about brand names. And there's products that we call product agnostic, peg wall products. There's pots and there's thousands of products that people come in and they don't ask for specific brands. So we start from that vantage point. What brands do we want? A private label. What brands do we not want? A private label. And when we come up with brands, whether we're purchasing or R and D on our own, we give products out, we test them in the street. We have our own individual group that test products for us. We send them to customers to test. Most growers out there right now, commercial growers, they'll have a small part of their grow where they're trying new products all the time. So we get feedback on products to see if they're going to sell you first. Are they a viable product? If they're a viable product, then it's marketing. And that's what growgen does for a living. We're a marketing group. Our salespeople are deemed, we call them grow pros. We walk into our stores, our guy, everyone that works at our store knows how to grow. You don't know how to grow. You can't work at growgen store unless you're in the warehouse.

Do you build a team around that? When you say, hey, we're going to start testing out first, there's sort of this R and D component of what products you want to look at. Potentially doing private brand, for example, and then you start introducing it, Are you essentially creating a new team internally to manage that strategy?

We are. We do have a new product team at growing. It starts with getting it to our stores. So it goes to Our supply chain out to our stores, end caps at every store, advertising. We do YouTube videos on every one of them. We have a pretty talented team at Gro Gen that does videos for us. Right now we have a studio at Grojen. So how to videos, we get those out and then we have our teams marketed. Like anything else, we have end caps at our stores. Guys walk into our stores, they'll trip over our new products. We have the space, we have the online. I think last year we did over 17,000 transactions online. This year will probably be closer to 50,000 transactions online. So we have hundreds of thousands of people going to our website. So you'll see it up on our websites. You'll see us advertising all over the country for our products. And it's working. And this is all new for growgen. Last year was the first year we started with private label products. So this year is really the kickoff of it. We have told Wall street that on a quarterly basis we will break down private label products so they'll see the percentage of what we've sold and certainly the performance of our private label brands.

Speaking of Wall street, what's it like going from a private company CEO to a public company CEO?

For me, probably easier than most. Again, it's my background. I used to represent public companies my whole life. And again, I've worked on Wall street and so has my partner, has worked on again, has run a bunch of public companies. So for Michael and I, it was a natural progression in both of our careers. I was coming out of Wall street, certainly practicing law, and Michael was coming out of a few other public companies. So for us, certainly easier than others. I do believe that Wall Street's a complicated area. And if you don't understand securities laws, you don't understand the public markets. It's a tough place to be involved, especially now with St. Oxley and all the different rules and regs. I wouldn't recommend it to someone absent. And really having a great, really huge understanding of what they're getting themselves into. Between the boards and disclosure and the amount of time I have to spend with Wall street every week because I'm a public company. It's 10 hours a week of additional time, sometimes more of your conferences and speaking, and you're on display at all times. Everything you do is transparency. So if you're not looking to be transparent, stay out of the public markets. Small companies that are looking for greener pastures. Wall street doesn't bring greener pastures. Wall street brings complication. It's really important that you understand what you're getting into. I equate it every once in a while when people ask is when a young couple gets married and they're having marital issues. What does a stupid young couple do when they get married and don't like each other? They have kids. What happens a year or two later? Having children is a lot of work. And couples that are having problems putting more problems doesn't work. So I look at a lot of private companies that think that the public companies are going to be the panacea, the gateway to this wonderful future. It's not. It's a lot of work. It's gaining the trust of very smart individuals. On Wall street, you don't gain the trust, you're not getting anywhere. I look back at Grosgen and one of the things that differentiated Grosgen was certainly my experience and Michael's experience. But it was also we found some very big talented funds that were cannabis centric back in 2014, 15 that invested in Growgen. So it gave this rubber stamp on our business plan which certainly helped bring investors in getting the company public. And we brought the company public to an S1 registration to a 15C2. We stayed away from the reverse mergers, which again brings even more complication to corporate structure. And some people don't even understand what a reverse merger is. We did it the old fashioned way. We earned it. We did. We filed our S1 with our disclosure and we got the company public and we got it trading.

There are a lot of interesting things here. You mentioned boards and disclosures. So going from private company CEO to public, you definitely going to have a board in place and you're going to have to meet with them. And disclosures. Tell me about disclosures because I default and think about M and A deals between announce and so forth. But are there other disclosures?

We're a NASDAQ listed company. So between QSK audit committees, comp committees, governments committees, there's a lot of committees.

And okay, so there's a lot. There's a lot. You just mentioned comp committee, audit committee. So now you have to create all these different committees and those are all internally created that you wouldn't otherwise have as a private company.

100%. The way I look at it, it's again, it's all transparency. Private companies, you can be as transparent as you want and transparent as you don't want. You don't have the leeway with a public company to decide what you want to tell people and what you don't want to tell people. The rules are extremely specific, which means you have to understand the rules. You have to play by the rules. If not, good luck with your D and O insurance. You're an open book, and you have to understand that your book's got to be clean and everything you do has to be to the highest standards. One of the things I always look back at in 2014, when we formed Gro Gen, we did a $600,000 private placement. Family and friends rounds in a week. But we formed GrowGen to bring it public. We told our shareholders that invested in our first private placement. This company will be public in two to three years. Does that always happen? No. You know, like anything else. When raising money, people sometimes will say anything. We come from a different mantra. I'm a very conservative securities attorney, and again, I used to represent small cap companies. So for me, I understand the law as well, and I'm overly compliant because, again, the other side of it isn't where you want to be.

You're always on display. People are always watching what you're doing, every move.

See, I thought I was on a podcast today. I would have put a button down on for you.

That's all right. You don't have to. So you mentioned 10 hours a week. I know. Even to make this interview happen, you had to push back an analyst call.

Oh, by the way, sometimes it's 10 hours is a bad week, 20 hours is a normal week. When that's just Wall street, that's just.

Additional overhead of dealing with the nuances of being public, having to take those extra earnings call, analyst calls, et cetera.

And I will tell you, the only positive of COVID was that for a lot of CEOs around the country and CFOs, we don't have to travel to speak. One of the crazy parts is when you have speaking engagements. I have four speaking engagements in the next three weeks. But if you had to travel to conferences, I mean, you're talking not hours, you're talking days. There's two kinds of CEOs and CFOs. Some are marketers and some are workers. You have to balance your time. You just can't go to every conference. Life is about also working and running your businesses. The demands of Wall street are tremendous and they always will be. I have a banking meeting this evening. I have to go out to dinner. In the old days, a couple years ago, you had to fly to California to go speak. Between airlines and everything else, it's three days. It's tough to work on the road. You're on the road talking to analysts some people think are productive, again, some people don't. There's that fine line. If I tell my analysts it's not a productive conversation, they'll get rid of me. But again, it's time consuming.

You're crushing my dreams to be a public company CEO one day.

I've never been happier. By the way, you better make sure you got a lot of hours in the day. And same thing with COVID There's nowhere to go. So it's kind of, why not just work? So it's been a tremendous fill in for me over the last year and a half.

I want to talk a little bit about the economics between being a private and public company CEO because I've operated private companies for a while and you don't think about valuation, what your stock price is, market cap, none of that stuff. You just sort of go and look at your returns at the end of the year and see, see if you did good or not, you know, that's about it. Or maybe do some quarterly reviews. How would you contrast that between the private company and now as a public where that full transparency. But then the factors are so unique. You're not looking strictly at the traditional EBITDA multipliers and things that we typically benchmark for private companies. You're benchmarked against public sentiments essentially. And I'm just curious how you even get that wrapped around in your head.

I think it's spending a lot of time talking to Wall street, basically putting your life on display. My kids know how much money I have now every day along with my neighbors. Between Google and going online, everyone knows everything and even your proxy statements at the end of the year and your 10Qs and your 10Ks. So again, you have to put that all behind you and you have to be numb to it in certain ways. The other part of it is evaluations between private and public. One of the interesting parts, when you look at roll up strategies that have worked in the past and you even can look right now, you look what pool is doing, look what site one is doing, it's pretty similar. Grosgen is following that footprint. One was rolling up the swimming pool industry and site one is the landscaping industry. Growgen is the hydroponics store industry. We buy for a multiple when we trade for a different multiple. So for us, return on investment is a wonderful thing. One of the hardest parts of my job always is when we're buying something, someone would always say, Darren, you're trading at five, six times revenue and you're buying me at a half times revenue. I don't really understand it. And it's not that easy of an answer for it, by the way, because we're growing and we're Republican. We're growing at 60%. You're not growing anymore. And you know what? No one cares about private companies. People care about public companies. So it's all this differing of opinions. But I do believe when people ask me what's the main difference between a public and private company for my employees and for again morale at companies, most of our employees are owners of Grogen and they take a tremendous pride in that. We've had very little turnover at growgen. Making your employees owners of your company are different. I think when you look at a lot of private companies, when an owner gives bonuses at the end of the year, a good majority of them say, you know what? That's money coming right out of my bank account, my pocket. When I make decisions, they're decisions that I think are best for the company that I have nothing to do with. When I'm looking at bonuses, when I'm looking at giving people raises, promotions, it's best for Grosj and it's not best for me. I take myself out of it. I tell people and they say, well, Darren, you own this company. I don't own this company. Everyone owns this company. Every one of our shareholders owns this company. And the board of directors is the one really where everything goes through. And all the different committees at Grojan, if they don't like what I do, they can throw me out as quickly as they can throw out any one of our employees. I always try to explain to people, I have more bosses than you do. You only have a couple bosses. My bosses is our board, it's my shareholders, it's Wall Street. If Wall street wants me out, It'll take about 10 minutes. So I answer to so many more people than most. And it's the difference of being public and private.

I like that explanation. It makes a lot of sense. I like how you explain getting rid of the self interest. Well, aside from a private company where you are have more self interest because you do look at it that way, where hey, this bonus is money I am literally paying out of my own account versus a public company. You're very much with all those people involved and check and balances, you have to pretty much have no choice but to think about the transparency on top of it about the organization itself. Why go public? Why would a company be interested in going public?

A lot of different reasons. One of you have a tremendous business plan. I think most people do know that in the public markets, it's the field of dreams in a lot of ways. It's building something that hopefully will be around for many years to come. It's a tremendous way to create wealth if you do a good job at it. Raising capital is so much easier in the public markets than the private markets. People are very, very hesitant to invest monies in the private markets because there's no way to get your money back. And it's just a tool that's been used in our economy for so many years. And it's a tremendous place if you build something and you build it right on the M and A side of it. If we were a private company, I don't think people would be interested. They would think our company is worth the same as theirs. So we would never have that leverage. I think public companies have tremendous leverage, especially the ones that are run properly. That's the word. If I was to say the difference. It's the leverage of the public markets that are so tremendous if done properly.

You talked about employee ownership earlier. So I think that's a key part of it is being able to use that as a real incentive of equity that's actually liquidable. Raising the capital. When you need to raise money, you just essentially do another offering. And a lot of ways, bonds, you have a lot of different options that are more accessible to larger amounts of capital. And then the brand, because you're public, it's something people pay attention to. What's this new ticker that's listed and all the announcements and press PR that goes around it?

You get a lot of free press. I've been on Kramer the last four quarters. So for us, we get to speak and people listen. But, you know, through that, it's expensive like anything else, marketing is expensive. And I think when looking at public companies, you know, between D and O insurance, audits, filing requirements, the cost of being a public company are tremendous.

How much you think that's like a million bucks a year?

It's more than that. I mean, I would take a million and run. Most private companies don't have D and O insurance. D and O insurance is out of control right now. You could talk to any public company. It's crazy. Same thing with audits. Auditing is expensive in this day and age. Even filing a requirement, your marketing and your IR and your PR as a public company, you have a duty to your shareholders. If you don't want to market and have IR and Have PR and speak, you better be. In a private company, you have that duty to be transparent. And to be transparent you have to speak. And we're under a duty really to tell our story. And, and that's part of my job. My job is partially keeping Wall street happy and telling the story of Grosgen so people understand it. If I don't tell the story, better off being private.

What's the size? You think it makes sense for a company to go ipo or is there a certain amount the ideally need to be eligible?

It's a challenging question. Again, there are biotech companies going public that don't make money for 10 years. There's EV companies that don't make money for years. Depends the industry, the appetite of the investors and really the growth. I think there's a tremendous appetite right now and there always has been from compounded annual growth and also tam, which is total addressable market. Those numbers are right. You're getting into a market that there's unlimited growth. Some people want to get in at the start. So it's that interesting thing. If you're selling something that's not around, that's new, and you think it's going to be revolutionizing industry. What we're doing isn't revolutionizing, it's making better. But we saw an opportunity. The cannabis industry right now is a $20 billion industry. On the plant touching side right now, if you look at the compounded annual growth rates people are forecasting, they're forecasting 100 billion by the end of the decade. And some people think that's lowballing the expectations. We're growing faster than the other side of our industry because there's less competition for us when we're dominating what we do. So we believe we'll grow faster than that. I think there has to be a story to be told. You can bring a company public doing no revenue, you can bring a company public doing a billion dollars in revenue. But where are your growth rates if you grow? If you're bringing a company public that's doing a billion dollars in business and next year it's going to do 900. No one's got any interest. But if you bring a company public that's doing 20, 30, 40, and it's $60, then it's going to do 120 and it's going to keep doubling. It's a tremendous opportunity to people get involved at the early stages. So it just depends what that end stage is, what the end game is, what the total addressable market is.

Yeah, a lot of variables and all goes back to public perception.

Yes, very much so.

Let's talk about M and A. How would you contrast between doing M and A deal as a private company versus public? What's different?

We haven't done any M and A deals of public companies. So we've just. We put all private companies. But as a public company, again, it's transparency. Everything else, we have to file an 8K which is a reporting requirement. Every time we buy something. We need our board of directors to approve everything. We will never buy anything without board resolutions. We also were able to use some of our stock as purchase prices. So those are some of the interesting parts. But again, it has to be approved by our board, you know, and again, our board is certainly elected to our shareholders. So it's that different process. So if there's checks and balances as a public company buying something as opposed to a private company, we have certain rules and regs when we buy things. SEC rules with accounting. If we're buying something that's material to growgen materiality when we're buying something is based upon their sales and their earnings versus our sales and earnings. So really it's a percentage. So as we get bigger, we won't need audits on some transactions, while we may need audits now on transaction. So again, the rules are very defined in a lot of ways when we're buying organizations, what kind of accounting materials we need, whether we need a two year audit, whether we need a one year audit, or whether we need no audit.

How about the negotiations? Do people get more excited that hey, this is a public company, it makes it easier or does it work against you where they think your public could expect a high offer?

We are very, very sticky when it comes to price. And like anything else, we've stuck to our original believe it or not business plan back in 2014. And that is held pretty close to vest. You know, back then we came up with this multiple. For every million dollars we put put to work in the markets, it'll buy us $3 million of revenue first year. And those numbers have been pretty consistent throughout what we've done. We're very disciplined. The word discipline, I think when being a public company and when purchasing is of paramount importance, if you lose your discipline, you buy things, you overpay for things and you get that reputation within the industry. Now if I was to go buy something for five times more than I normally buy something for, Wall street knows it in five minutes and so do all the other stores in the country. Because it's disclosed within our queues. So we have to be very careful in what we pay and to keep it consistent. So consistency, transparency and discipline are all important, I think. Footnotes when looking at what we're buying and what we're paying.

Really good points. It sounds like you articulate a lot of stuff that makes it harder. You got a lot more red tape when doing the public company. Any benefits of being public and doing.

Ma we have a bigger market like anything else. We're using half stock opposed to cash.

That's nice.

The groups we're buying have much more transparency into our business, believe it or not. I think it goes twofold. One, they fear our business also. So like anything else, you heard the Home Depot stories way back when. You know every hardware store when you know, if you ask your kids to go down to the hardware store, they're looking at you nuts right now. But if you ask them to go down to Home Depot, they'll go down and get you what you need. And that's what's happening in our industry. So we're taking a mom pod nascent industry and we're making it better in a lot of ways on the gardening side of it. But our industry has evolved tremendously. Back when I started in 2014, if you walked into a grow facility, plants were on the ground, they weren't on rolling benches. There were 20 people running around with watering buckets and food for the plants. Now you walk in, facilities are run by computers. I mean, everything is all technology based. It's controlled environment, agriculture. So the industry has evolved tremendously, which has also given Grogen the opportunity to evolve tremendously. We got into an industry that we believe would mimic the wine and spirits industry, which is almost a trillion dollar industry. We were starting in an industry that was probably back in 2014 was a $2 or $3 billion industry. So we saw this incredible. We thought that we were getting in on the picks and shovel side of an industry that was just beginning, that was in such early stages. I spoke at a dinner three years ago and I still remember the question. We were so early in our growth stage. I was at a, you know, dinner, everyone was in suit and ties. They asked me an interesting question. Do you believe that the cannabis industry is a revolution right now or an evolution? And the first thing I said was, if it was a revolution, you guys wouldn't be here. Opposed to suit and ties, there'd be growers here, earrings, tattoos, and people wouldn't be drinking fine wines. Maybe it'd be a different Element, different group of people. I got Wall street people here. So it's been an evolution, which is always good for most industries. It's given people the opportunity to understand the industry on the medical side and on the adult use side of it. Tremendous talent has come into this industry. And the one thing with every new industry, the passion of most people leading these industries are tremendous. Their second, third careers are people that have usually been successful in the past. When I talk to CEOs of the other public companies in our space, it's usually dynamic because everyone is. No one has to prove themselves anymore. They proved themselves years ago. And this is something that they have passion for and they have love for.

Caught onto a big trend before it was widely accepted.

Yes.

Okay, so advice, Advice for a company. They're thinking about doing IPO or maybe something you would have done different.

I look back on everything that we've done, and I wouldn't do it differently. One thing that we always did is we left money on the table for our investors. We never tried to squeeze every dollar out of offerings. We did care about our investors. We didn't take salaries. For the first couple years we ran this business, we started it on credit cards. In a small offering, you have to watch every penny like it's your own. And I think it's really important. A lot of people running public companies, they have that mindset of growth at any cost. Ours is growth to make money. And I think it's a very big difference. There's two strategies of running a public company. One is, let's just build the business. We don't care what it loses. They'll keep giving us more money. And those are the companies that run into trouble. But for a young company going public or thinking about going public, I think the year or two before you go public, run it like it's public. Set up a board, have a board, have financials every month, do your consolidateds posted, doing Q's and K's. You know, get certified, audits done. Start the process early because the process is very tedious. And make sure you can do that process and understand the process. Hire a talented attorney that understands securities law. Securities law is so specific. You can't just go hire an attorney. You have to hire a securities attorney that really understands the nuances of the securities laws, understand the tax ramifications. I do believe most public companies go through certain rounds of private placements before going public. Bring some shareholders in, build the confidence of a group of people, but make sure you understand the industry. You're in and the growth rates of the industry. Understand how much capital you're going to need. The worst mistake people make is they go out and they raise too little capital and they're broke six months later. Don't do that. Don't put yourself in a position to fail. You have to put yourself in a position to win. And I think that's the most important thing because it's hard work. It really is. It's a lot of sleepless nights starting companies and raising capital and doing QSKs and reporting to Wall street every day. You have the ability, but you have that, you know, you have the constitution to do it.

What's the craziest thing you've seen in M and A?

I've seen a lot of crazy nights after M and A. But you know, our M and A is pretty simple. We're buying. Our M and A has been pretty normalized in a lot of ways.

Why does it be current? This could be lifetime. Any of the craziest thing you've ever seen?

That's a pretty loaded question coming from a law background.

I know you got a lot of.

Them and I grew up in the small cap market so I could tell you many crazy stories. I represented Lawrence Taylor when he went public back in, I think it was 1993, 94. So I spent my time doing many deals on Wall street and getting to know many public companies. Most of the crazier parts were the due diligence parties back in the 90s. But with M and A we keep it very businesslike in this day and age.

Let me give you one story. No names or dates.

I'm getting ready for my 2:30 banking call.

All right, I'm going to hold you to it next time we chat. Hey Darren, thank you for your time today and until next time, here's to the deal.

Cheers. Thank you very much.

Thank you for taking the time to explore the world of MA with our podcast. Please subscribe for more content and conversations with industry leaders. If you like our podcast, please support us by leaving a five star review and sharing it. I enjoy hearing feedback and connecting with our listeners. You can reach me by my email. It's Kisan K I s o n ealroom.net M&A Science is sponsored by Dealroom, a project management solution for mergers and acquisitions. Additional educational content is available on Deal Room's blog@dealroom.net thank you again for listening to M&A Science. See you next time. Views and opinions expressed on M and A Science reflect 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.