Making M&A Boring (And Why That's a Good Thing) with Leon Brujis

My new book, Buyer Led M and A the framework is officially out over 400 episodes of M&A Science. I've talked to the best corporate development leaders in the world and one thing is clear. Traditional M and A is broken. Buyers chase auctions, sellers control the process. It's reactive and inefficient. This book takes those conversations and distills them into a practical framework for how to flip that so source deals directly, build relationships earlier, and stop being auction chasers. It's not theory, it's what leading teams are doing right now to increase deal volume and take control of their pipeline. If you want to build a proactive M and A program that founders actually want to engage with, grab your copy. It's available now on Amazon. Head to dealroom.netbook to check it out again. That's dealroom.netbook Today's M&A Science episode is sponsored by SMP Global Market Intelligence. If you're trying to map out a niche space, cloud infrastructure, health, diagnostics, whatever your weirdly specific thesis is this week and then actually find real comps and understand how private company operates, Cap IQ.

Pro is the move.

They've got data on 58 million private companies worldwide with especially deep coverage in Europe and apac. You can drill into headcount trends, how teams are structured, ownership webs, funding rounds, all the stuff you need to pressure test to target without flying blind. And now they've layered in new AI features that make the whole workflow faster. Check out their private company data@sp global.com pcd science that's spglobal.com pcd science. I'm Kisan Patel and you're listening to M and A Science where we talk with deal professionals and learn valuable lessons from their experience. This podcast focuses on stories, strategies and what actually happened during M and A deals. Foreign. Welcome to the M and A Science Podcast. This podcast is part of a mission.

To rethink how M and A is done.

The old school Sell that approach. It's dead. Buyer led. M and A is all about strategy, alignment and efficiency, putting value creation at the center of every deal. And let's be real, it's not just about closing the deal, it's about making it successful.

We uncover what truly works in M.

And A by learning directly from the best. I'm your host Kisam Patel, Chief Scientist at M and A Science. I'm joined by Leon Burgess, Partner and co head of US at 65 Equity Partners, a global investment firm with a differentiated focus providing non control capital to founder and family led businesses. Leon brings over 20 years of private equity experience, including a long tenure at Palladium Equity Partners where he invested in.

Companies positioned to benefit from demographic and.

Cultural shifts, particularly in the Hispanic market. Born in Argentina and now based in New York, Leon's immigrant journey has shaped his values and investing approach. This episode we dive deep into his investment philosophy, leadership frameworks, and some powerful.

Reflections on discomfort, accountability and human growth.

Both in business and in life.

Leon, how are you doing today?

Kason, thanks so much for having me. I'm so excited to have this conversation and be here at your podcast.

Hey, thank you for making the time.

For we can meet in person here in Manhattan.

Shout out to VRC for giving us some space to host this podcast.

Thank you. Vrc, can we kick things off a.

Little bit about your background?

I actually have a pretty diverse background. I was born in Mexico, my parents are from Peru, and I grew up in Argentina. So very different perspectives and around a quarter of a century ago my family and I immigrated to the US where I went to college and subsequently started my career in finance.

That's a great journey of cultural absolutely.

Brought you an M and A. I.

Actually went to school to do engineering and I always thought that I would become an engineer, but being an immigrant and I went to school in Washington D.C. at George Washington. All the jobs in engineering were tied to the government and you needed to be a US citizen to get clearance, et cetera. And that steered me away from engineering and more into finance. And my first foray in finance was at a company called Fannie Mae, if you remember, big on mortgages. And I started working in the technology division given my background. And then while I was there I networked myself into working at the trading floor and I was fascinated by it. I was working double the time that I was at the technology division, but I loved it and decided that a career in Wall street was for me.

Where'd you go?

Interestingly, I really wanted to not just work in finance, but I wanted to work in finance. In New York, I was able to interview with the majority of the large bulge bracket investment banks. I wound up getting an offer to go be an investment banker at Lehman Brothers. I joined Lehman in 2005 and did their analyst program. While I was there I moved from the consumer team to the M and A team. It was a great experience, I liked it and I was seduced by the buy side decided that coming into Lehman I wanted to be a career banker. But quickly my mind shifted to wanting to be in private equity and have more of an investor mindset versus an advisor mindset. I felt that that aligned better with my interests and my skill set. A year into my tenure at Lehman, I started going through the very typical buy side process and was able to get an offer with Palladium Equity that you referenced earlier. Palladium spoke to me because, number one, as you may know, Wall street is not necessarily known for being very diverse, welcoming of minorities and women. And Palladium's focus was very much on building a team that looked like how the US Is going to look in a few years. And also a lot of them spoke Spanish. And my native language is Spanish. It really spoke to me. And in addition to that, their investment mandate was centered around investing in companies who are poised to benefit from the growing Hispanic market. The culture and mandate felt like a great fit for me, and it was because I was there for over 16 years.

Wow, that's a long run. And then how long have you been at 65 equity?

I've been over two years now at 65. I started the New York office. There was no New York presence when I first joined and we're actually moving to a permanent space now, which I'm very excited about.

So it's a lot of deals you worked on between the two private equity firms?

Yes, I've been involved in over 20 deals and close to $2.5 billion of invested capital.

If you look at your journey coming in as an immigrant, how do you think that maybe impacts your perspective when you wear your private equity hat?

One of the greatest lessons from living in many different countries is that it really opens your perspective about dealing with people. Because we all are victims of group thing and thinking in one way. And coming here, it made me reexamine how interpersonal relationships work and get used to different cultural norms. And when you are forced or thrust into that, the feeling I felt doing that was one of opening my mind. And it required me to be more flexible around how I approach relationships and learn a new, different way of doing relationships. And one of the things I've realized is that we've heard this and we know this inherently, but at the end of the day, all businesses are appropriately dealing with people. I remember one of the guys that used to work for me at my prior firm. He was a great guy and he was progressing in his career. And when you are a young analyst or an associate, you are evaluated mainly on your technical skills and your ability to do models and analysis. And those things are pretty measurable. Quantitative. If you did a good job or you didn't do a good job. And then as you progress in your career in private equity, specifically, you move away from that and more into dealing with different personalities and dealing with people. Not everyone is able to do that shift and move away from the spreadsheet and into relating to people. And you have to be able to straddle very different sort of approaches because when you're wanting to do a deal, you basically have to have a selling hat. When you're at the boardroom, you have to wear the influence hat. When things are not going well, you may have to play the bad cop. Wear the bad cop hat. So it really requires you to be very flexible in your approach. Tying it back to your original question. The immigrant mentality really helped me create that flexibility to straddle approaches and deal with different personality types. Because everything that I knew about dealing with people, I had to relearn. And that process, it was a catalyst for me to learn to deal with people the right way. The other thing I would say which may resonate with the people that are immigrants, is that the moment I open my mouth, people can tell that I'm not from here. And I always get the where are you from? And all of that. And initially I really struggled with that because it became a huge part of my personality of having to explain where I'm from. And I would say in the early years, I was perhaps inhibited by that and I saw it as a flaw. But over time, I learned to see it as an advantage. Number one, it gave me this more broad way of looking at the world, which I think was incredibly powerful, as I mentioned earlier, but also it made me different. People usually will remember me just because of the way I speak, the way I look. And because of that, if you go to a private equity conference, everyone looks the same. And now I've turned this perceive disadvantage into an advantage. And it makes me more memorable. When a founder meets 25, 30 guys at a conference, he gets 30 emails. He'll remember me. That has been a tremendous advantage for me. For the listeners out there, the message I want to communicate is that oftentimes things that you may think are a disadvantage, you can reframe it as an advantage.

Yeah, Having that perspective, I like he mentioned just being adaptive. I feel like risk. I always think of that. Even my own father's immigrant journey, coming off a plane with 20 bucks.

And it's like when you bring a really great point, which is immigrants over index as CEOs in companies in the US CEOs tend to be Immigrant or sons of immigrants, more so than their general population. And that's because our approach to risk coming from the countries that we come from is very different. There's a quote that's been living rent free in my head which is when analyzed closely, victory and defeat are almost indistinguishable. And I love that. You know why? Because the difference between victory and defeat is so small is the guy who did one more rep, who did one more lap. It's just like that spirit of persevering that tilts the risk reward towards your favor.

There's a lot of good attributes from our diverse backgrounds and some shape a little more than others. When we look at 65 equity. Can you tell me a little bit more about. I know the one thing you referenced, you don't go out there looking for full biocontrol. You focus more on these kind of non control investments.

First is worth answering a slightly different question which is why do this? And then I'll get into the model specifically. Part of the reason is, as you know, and I think everyone listening knows the investing landscape is changing. There was an article that said that there were more private equity funds than McDonald's franchisees. There's debates as to how true that statement is. But the point remains that private equity has been so successful over the last three plus decades that the strategy is very crowded. So when you have an asset that is coming to market, the supply demand is imbalanced towards the sellers or favorable to the sellers and unfavorable to the buyers. And that's part and parcel of ties back to what you said at the very beginning, which is because all the value has been transferred to the sellers. The buyers need to have value creation plans in order to deliver the return. Because sellers are not leaving anything on the table, they're taking all the value from themselves. As I was thinking of my next step, I wanted to move away from the very crowded space. I was looking as to different strategies and I felt that 65's approach was differentiated and not something that was commonly seen in the middle market. And I really like their approach. And now let me answer the question that you actually asked me, which is tell you about the strategy. But basically 65 is a global firm based out of Singapore with the backing of Temasek.

What's that profile look like for a company?

So the profile of a company is a company with somewhere between 20 and $100 million of EBITDA that is growing organically at double digits and it has a potential to keep doing that and accelerate growth through organic value creation initiatives. And M and A, that's where we come in. We bring analytical rigor to these companies, increased governance and we're building a set of advisors that can help on many aspects of the value creation process, including commercial excellence, digital transformation, human capital management and of course M and A.

Any specific industries you focus on?

Yes, so we tend to focus on no particular order, healthcare, consumer and services. But we also do some industrials and tech. What we're looking for is companies that are pretty sizable in the middle market that otherwise would be great buyout candidates. But because of the desire of the founders, they don't want to sell control. Okay. Part of what is attractive about that is that there is a Harvard study that shows that founder led companies outperform CEO led companies by a margin of 3x. Okay. And part of that is because the skin in the game that founders and family have is very difficult to replicate with a CEO. And that's the kind of alpha that we are trying to tap into. We have this saying at 65 that the best companies are now for sale. And the reason is because these founders and families, we believe that they are the best at translating vision into execution. And that fire that made them go from zero to one is very difficult to replicate with a CEO. But we can help them transition into institutional ownership and take them to the next level so that eventually they are prepared for institutional ownership.

I like that. The key is around keeping that founder there. So you got that same original drive motivation and you're supporting them basically. Not a change control.

If you think about it emotionally, founders and families, bringing a partner is very different than parting ways with your company, your baby, your legacy. To me a non controlled deal is a great way to bring in institutional ownership into a business. And there is a lot of benefits to institutional ownership and there's a lot of benefits to the American entrepreneur. Obviously we believe at 65 that we're able to get the best of both. That fire, that passion, that accountability that comes from a founder led business, combined with the good things of the private equity model, which is data driven analysis, great governance and then bringing so many of the companies that we invest in may have never done a budget, they don't have a salesforce. So we help them bring all of that which is being shown to drive a lot of value. But sometimes people don't lack that know how.

Now Leon, strategy sounds great, but let's be real, anybody can cut a check these days. There's plenty of capital in the market and if we look at the traditional private equity model, we do a full buyout, we come in and aggressively cut costs and then we go stacking in a bunch of acquisitions. Pretty typical if you think of any of the big name private equity firms out there. How do you approach value creation?

The main difference between our value creation and others is that we have a pull versus push approach. So when you are in a control environment, companies are required to follow the playbook of said private equity firm. Our approach is different. Our approach is we have a world of resources and a world of network that can be helpful for whatever you need, we offer it to them. And what I love about what we do is that I want my ideas to stand on the weight of the ideas themselves. Not that those ideas are done because I am in an ownership position and they need to be done. That to me, number one, it breeds better partnership and number two, it keeps us honest. Because if our idea is not good enough and our ability to influence the founder is not there, then we don't do it. You are right that anyone can write a check. That is something that differentiates 65 from the rest. When we go into bid for a company, if it's not a proprietary deal, we're usually one of one or one of two. So that in and of itself is different. At the same time, the value creation approach is something that we aligned on before we make the investment, in part because we don't have control. So we need to agree on that before going into the investment. At the same time, our companies, after a while, once the relationship settles and is established, they really want our help. We are all on the same boat. If they win, we win and vice versa. We call what we do partnership capital and that's how we lead. One of the interesting things that it ties to your question, Kison, is that we underwrite the relationship with the founders or families first and then the company because if that relationship doesn't work, the investment will not work. And that is different. It's fundamentally different from the traditional buyer model. Because when you are in a buyer position, the main difference is that you can fire the management and bring a new one. We can't. So we spend a lot of time developing that relationship. Many of our deals are usually a year to two years in gestation because we're getting to know them, they're getting to know us and we're developing that relationship and that trust, okay? So that it's paramount as to for us to develop conviction on the business, develop conviction on the relationship and for us to do a deal. When it comes to value creation itself, I don't think what we do is necessarily different in terms of the categories. You know, you're looking at what I would say, referencing what you said earlier. We don't generally come in to cut costs or restructure the business. The types of companies that we invest in are typically great companies that are if anything, underinvested in and they need to be invested on. So I would expect our companies to hire executives and hire sales guys, et cetera, et cetera. Our value creation levers are centered around growth revenue, growth M and A less and going to SGA and optimize to maximize margin, if that makes sense.

You're optimizing things that's more going forward versus trying to go through some experiential cost cutting type of exercises.

That's right. As we've spoken with investors and shared our journey and our story, we've been called late stage growth capital. I don't view what 65 does necessarily as growth capital because I view growth capital as companies that are smaller, earlier stage, more venture driven. And that's definitely not what we do. At the same time, there are companies that are venture backed that have already proven achieved profitability and they've already proven the model. Those companies could be candidates for 65 to become involved. So there are situations where we could potentially do say a pre IPO round to clean up the capital stack before the company goes public.

So I like a couple things you mentioned. One is the band that you play in is up there, you're cutting checks over 100 million. And we talked earlier in the year when I was representing deal room and you're like, you're too small. And at that time I've talked at least 60 of these growth equity firms that sit in this 20 to let's say up to 100 million band. But then you're right, there's not as many players putting those larger checks in a minority position at all. I liked your other point. When I was going to get ahead of me, I was going to ask you what are these indicators on what's a good investment. But he mentioned focusing a lot on the relationship that you really go deep. What does that look like? Look at a timeline of how much you're investing, what it takes as in person meetings or you're going out for drinks, golf, whatever. What goes into that to really get to that point of this is relationship to work together.

I have this belief that if you're meeting the company for the first time when you get the book and you get it, 45 days to do all your work, I feel like, how much can you really know the company in those 45 days? I'm sure you can do a lot of work and we do a lot of work. But if you have the privilege to meet a founder at a conference and then you go visit them at their facilities, you get to see them over time. And they say, hey, we're at X million of revenues. Now we're at Y million. Now we're going to go to Z. If you are able to see a company over different periods of times and in each period of time you see them execute, that's much better to me than seeing a bunch of projections about what may happen. You can always, at any given point in time, frame the story in the best light possible to induce you to make or try to convince you to make an investment. It's very difficult to do that over a period of time when you see the company execute. And that to me has a lot of value when it comes to making an investment. We made an investment earlier this year in an oral surgery practice called Allied OMS. And we met them in September of 2023 and we made the investment a few months ago in 2025. During that period there were several milestones that they completed and also we have several meals and meetings that really deepened our relationship and gave us conviction that this was a good business worth investing in. I don't know how we would have gotten there by just Reviewing the business 45 days before we make an investment. Now, not in every case, we're not going to be able to have a two year relationship. But what I can tell you is that there is 15 to 30 companies in our pipeline that we met last year and this year that we're tracking and waiting for them to come to market for us to make an investment. And I love that about our model, that it's a longer gestation, really relationship focused, and you see the company at different points of time, which, as I said, is better than just seeing one chart at one point in time.

The big thing that this hinges on is this partnership with the founder.

Absolutely, yeah.

What else goes into it to really make that partnership successful? Or what do you see other companies get wrong?

As we were thinking about building our value creation toolkit, one of the first things we did was hire a human capital expert. We brought this gentleman who's a former CHRO for Fortune 500 company, to really help us assess that relationship between us and the founder. And we really want to create a repeatable model, not just the wine test, if you will, just something that has science, if you will, behind it. To be able to underwrite that relationship, what goes into it is something that you cannot do over one meeting. You have to do it over a series of meetings and through a series of conversations. What you want to get to is identify behavioral patterns, personality traits, character. And it's a judgment call as to whether if things are going well, it almost doesn't matter. Because when things are going well, when a rising tide lifts all boats, that greases the relationship is very easy. When things are not going well, that's when you really see who your true friends are. You know who your true friends, and you see the true character of someone. That's what we're trained to tease out. Like, when things are not going well, are we going to be partners or are we going to be adversaries? And our underwriting process centers around identifying how will this person behave if things don't go as planned. And guess what? Another phrase that my team knows this, that I love to say, which is plans are worthless, but planning is everything. And what that means is that Yogi Berry used to say, predicting is very hard, particularly about the future. So we know that all models are inherently wrong. The chances that an investment will perform exactly the way you modeled it is very low. There are going to be ups and downs and sideways. You always have to prepare to be prepared for change. We talked at the beginning, we spoke about at the beginning of the conversation, that part of the resilience and perseverance comes not from being strong willed, but really from being adaptable to change. That goes all the way back to Darwin. Not the strongest, the most intelligent are not the ones that survive, the ones that are more adaptable to change. So that flexibility that has enabled me to connect with founders and have them accept investments from the firms I work, or is it some of the things that I look for in founders? Are they flexible? Do they have the flexibility and the humility and the accountability? We should talk about that in a moment around saying, you know what? This strategy didn't work. We need to pivot. So to answer your question, that's what I want to see in people. Their ability to make a decision, execute on it, and if it doesn't work, pivot and try something else.

Flexibility, humility, accountability. How do you test for this? Do you come up with a scenario? Do you get to know them long enough to see them deal with it?

So I wish I could give you a Three point plan on how I test for it. The way I do it is through a number of conversations, hearing their stories, telling my stories and trying to. Through conversations, trying to understand how these behaviors manifest. If you talk to someone, you can rehearse for an hour time, but when you talk to someone for 3 hours, 4 hours, or 1030 hours over a long period of time, it's very hard to be rehearsed. So it's very difficult to be a completely different person than the person who you really are. Over time, you're able to tease out this. We have passed on many great companies because we didn't think that the relationship with the founder was there. There was a great company that we looked at last year that we loved it, we would have loved to make the investment, but we had a conversation with the founder and just. We felt that we didn't see eye to eye and that the partnership wasn't going to be there. And we decided to pass solely on the basis that relationship was not there.

That makes sense. I feel like the older I get, the more I lean into that.

You've heard this a million times. Life is too short and you want to work with people that you actually like.

I agree. In your model, I take it you do both. You come across companies that are completely bootstrapped versus they've raised money. And just looking at the spectrum of those companies that you've seen, where's your best opportunities?

It's a great question. I should say that for 65 specifically so far, the majority of the investments that we have made have had some form of institutional capital before we came in. That's because these companies are generally very large. And companies that are this large and this tenured have usually already have needed capital at some point and they brought up a partner.

So these are companies that have done like maybe series A, B, C type of thing or.

Or they had another minor, a smaller minority investor in there.

It's one of the one firms I talked about earlier. They came 40, $50 million check.

And originally the only exit was a majority buyer. And we are the new game in town which allows for the minority ownership to continue.

Would you take out the.

Yes. So generally we like to be the lead minority investors so we wouldn't sit behind another minority investor. Yes.

So you take them off and add some additional capital.

Yeah. But I just wanted to address something that you said before. I actually love bootstrap companies. A bootstrap company is a great example of what I mentioned earlier about the passion and the accountability and the fire that these founders have. Because when you have a bootstrap company, you turn nothing into something. I'm always fascinated by those stories. Let me share an example. In our portfolio, in 2024, we made a large investment into Kendra Scott, the maker of jewelry. Yeah, Kendra's story is really fascinating.

You know, I learned this quite well because my daughter, at 9 years old, got into selling jewelry. She'd make it at home and it was amazing. I set up a shopify just opened account and she did everything.

That's awesome.

And I would go to Kendra Scott store and tell her, my daughter about it. It's. Hey, you can.

Oh, that's awesome.

I love that she got really familiar with her big.

Yeah. I mean, it's actually, it's funny enough that Kendra story is not that dissimilar. She started with $500. She created this beautiful jewelry, and she started selling it to department stores. It started to catch on and she started selling more and more. And then she opened her first store, started selling online, and over the last two decades, she built this into $600 million top line business, which is amazing. There was a lot of bootstrapping tied to doing that because she started working out of her house and now she has a huge, beautiful headquarters in Austin. And I love those stories. One of the things I love about my job is learning these great American entrepreneurial stories and learning about new industries and new markets and what their story is. Kendra is a great example of a company that was bootstrapped well into its development before it took outside capital.

Yeah, it was really mature. Then you came in. What was the motives for them to work with you?

It's a two part question. Number one is why were they looking for capital? And the reason they were looking for capital is they had an investor there already that needed an exit. So that was a catalyzing aspect that led to a transaction. The reason they did it with us goes back to what we spoke about earlier, which is Kendra was very focused on returning control. Her name is on the door. And not only she wanted to retain control, she wanted to increase her ownership after this transaction. So we were able to put a package for her that enabled her to grow her ownership and in addition to it, give an exit to the existing institutional shareholder that wasn't there.

Wow.

I should say our partnership approach really resonated with her and with the management team. And that was an investment that took over eight months. Again, we saw the company perform. They got to know us, we got to know them. To me, Kendra Scott is a great Example or exhibit A if you will, of what 65 can do for founders.

Quick break and a reminder that the MAScience founding member presale is now live for December only@mascience.com we opened just 250 seeds and founding members lock in 50% for life. That's $497 instead of $995. Plus early access to the new Intelligence Hub, members only events and a real voice in shaping what's coming next. If you've ever wished all the best insights from this podcast were searchable and structured in one place. That's exactly what we're building. The Pre sale ends December 31st and once the seats are gone, they're gone. Join@mascience.com now let's get back to the interview.

When we talked about push versus pull, more of the company's sort of philosophy that you're allowing the organizations to pull for help versus pushing these agendas on them. Is that one where you have an example that you could talk through of maybe like a success story of a company that really was accretive in value creation without this push effort, that was more of a pull effort, but you're able to really contribute significant value add.

So we made this investment. Part of the success of that investment will be rooted in our ability to build this management services organization within the company. And to do that, part of our thesis was that we were going to help the company build that function. And to do that, they need to recruit several C level individuals to help execute on our strategy. That was around the time that we hired this gentleman I referenced earlier to help us with our human capital needs. And I spoke with the CEO and said, look, you don't have to talk to this guy, but this guy has hired and fired a lot of C suite employees in his tenure as Chro at a Fortune 500 company. He might be helpful in helping lead the recruiting process for these executives. That was a situation where I didn't say, hey, you should definitely talk to the guy. In fact, that's not my approach. I would never say that. I just said, this is the guy. This is his background. He can be helpful to you. And really we don't charge the companies for that. Those folks are available to them whenever they want to use them. That is going to bring tremendous value because that's a resource that Allied probably wouldn't have been able to access without us.

Right. So it came in a form as a friendly introduction as opposed to we're executing this playbook.

Exactly. And It's a person that has worked with much larger enterprises and it's better trained and brings more data driven rigor to the process, which I think Allied would benefit from.

You mentioned before we talked this concept of crisis of comfort. Can you talk to me about what that means, how it comes into play in our investing world?

Earlier in my career, in fact, when I was at Lehman interviewing one of the interviews I had, I was told that in finance in particular, one needs to be comfortable being uncomfortable. And the reason for that is there's so many things that are number one, outside of your control. Number two, there's so many unknowns that you have to be prepare for. Change goes back to what we've been talking about. The problem, kison, is that encoded in our DNA. There is an inherent laziness to us, okay? We generally try to stay away from discomfort. It's inherent to us. The reason is fascinating is that our caveman brains are designed to save energy because calories were not abundant in the past. And therefore if you're going to hunt, you better bring something back because if not, you overspend yourself and you can die. Fast forward to modern day, calories are abundant. You don't need to go out hunting. But still our caveman brains are still wanting us to conserve energy, which is why people don't like working out and like to stay on the couch and whatever. It's very interesting that this, and I think the majority of people have this tendency and it's very normal and you can think about on an idle Sunday, you probably, instead of going for a run, you want to just stay home and do nothing. Now the reality is that if you want to grow in your relationships, in your career or in any field, you have to be willing to be uncomfortable. If you want to lift, you have to be willing to feel weak in order to feel strong. If you want to learn something new, you have to be willing to look like an idiot for a time until you learn. And this discipline goes against how our brains are hardwired. But at the same time, it is the key to success. Success is outside of your comfort zone. So whatever you want to do in your career, in your personal life, in your personal relationships, you have to be willing to have the hard conversations. You have to be willing to, instead of waking up at 7, waking up about 5:30 and going out for a run, and you have to be willing to at work do things that you're uncomfortable doing because that's where the learning is and that's where the growth is. A Lot of us are trapped in this. Modern life is so comfortable. That has the paradoxic effect of letting us be stuck because we're comfortable. So we don't push ourselves to do things that are uncomfortable, and therefore we can grow. One of my mantras is to convince I try to do this with my kids and do it with people I mentor is push them to do things that are uncomfortable, to take risks, and to learn something new. Because that's how you grow. You grow by putting yourself in situations where things can go wrong. And we have a very closely related subject with this, which is fascinating to me, is that we have a huge stigma against failure in our society. Failure is really frowned upon. But over the past few years, I've reframed failure not as the opposite of success, but as a stepping stone to success. The more reps you can do, the better you become at it and the closer you get to success. So if you're in sales and you get really disheartened by no's, you're not going to be a good salesperson. But if instead you say, I am 20 no's for my yes, then you're going to be motivated to get as many nos as possible quickly so you can get to the yes. Do you see how it's all a matter of reframing and how. I'm sure you've seen that in your career. I'm sure in many instances in the various jobs that you've had, there's been situations that haven't worked your way and you may have felt bad about it, and it's human nature to feel bad about it. But paradoxically, that's the moment when you are learning and growing the most. Most people miss that.

I wholeheartedly agree with you. I think that's like the fundamental discipline is their ability to get comfortable being uncomfortable. I always tell my kids, my mantra for them is learn to suffer.

Yes.

So something I picked up from my immigrant dad.

Absolutely. When I look back in my life and my career, my successes, stories I like to tell are not the stories when I did a great deal and everything went well. I like to tell the stories where things didn't go well when I struggled, because that's when I really saw the growth and the learning and the forging of my character, of me as a person.

It's meaningful. You learn something that was impactful and that's a story that others can learn.

From, versus it really stays with you. It really stays with you.

Yeah, I like that a lot. I think that's a Good philosophy. And that's a good thing to embody culturally on this crisis of comfort. Like there are stories that you can tell people, but is there any other ways that you encourage it with others? Because I feel like even with my kids, using them as an example, I keep telling them, learn to suffer, but they just look at me blankly. You know, even when I push them to do things, like I'll get up in the morning and try to get them to go run out in the cold and they really don't like it.

The way I would answer that is that when you try to distill the suffering, one way to reframe it is you want to put yourself in a position where you do hard things. My son, for example, he loves to play basketball and like many 9 year olds, dreams of playing in the NBA. I don't know if he will or he won't, but that doesn't matter. What matters is, like I said, look, if you want to play in the NBA, you know what it takes. You have to every day practice for three hours a day, is the consistency, the reps that creates mastery and excellence, okay? And that's the only way to do it. The way that you create that suffering without actually pushing your kids to do something that they don't want to do, is to put them in a situation where they can only achieve excellence through discipline and consistency. Creating habits of consistency and discipline is what leads to excellence and success. And all discipline and consistency is little failings that compound over time to a massive success.

But you need, like to spark it. You need to have some motivation or there's like burning desire for it. I feel like that's what drives out all the effort and enduring this.

See, I actually want to disagree with you on that. And yes, if you have the motivation, that's great. Relying solely on motivation is not a good thing because it's easy to do things when you're motivated. It's very hard to do things when you're not motivated. And that's where consistency and discipline, your.

View is like essentially building this as a muscle around this, enduring the suffering or the discomfort, and that your ability to endure that discomfort is what sets you apart over everybody else.

Exactly.

Because you could have less motivation, but you actually have higher endurance over a discomfort that you ultimately do.

But I think motivation comes and goes. You cannot necessarily control your motivation, or at least most people that I know cannot motivate themselves on a win because motivation is an emotion. At the end of the day, discipline and consistency is a choice. Okay? And you can decide to wake up at 5:30 in the morning to go work out instead of sleeping an hour and a half more and then go to the office without working out. You can decide whether you eat the cupcake or you don't. And you can decide whether you read a book or you don't or you just doom scroll on Instagram. So those are all choices that are completely in your control. And if you are able to overcome your passions and your proclivity to procrastinate and when it comes to eating, when it comes to work, when it comes to working out, that to me is what separates the greats. If you look at any of the famous Kobe Bryant or Michael Jordan or any of the people or any of the great Wall street titans, they all had these traits. They are extremely disciplined and extremely consistent. I want to do a tie in with what I just said and investing. When it comes to investing, what you really want to focus on is consistency in outcomes and discipline in execution. What that means is that at heart investing should be very boring. Learning about the industries is exciting, but you want a company that is a well oiled machine that has repeatable processes and a management team that is relentless on execution and is at their pain by consistency and discipline and that creates exciting outcomes. But investing itself is very boring. You always hear all the stories of the person that invested in Nvidia or in Google or in Yahoo, depending on what decade you invest in. And those are great outcomes and that's great. But there's no investment strategy where you can just invest in one of those companies. That's a terrible investing advice really. To me, good investing advice is put your money in the S&P 500 and let it ride. That's very boring. But over time you're going to outperform most money managers if you just do that. And that's boring, but it leads to the best outcome that can be translated into private equity. You find a company with a management team where there's consistency in outcomes, discipline and execution and then you create the great outcomes because that's what investors at hard won. In private equity, you want that consistency. It's different than in venture capital when you want that max outcome where you can do 40 times your investment. In private equity, if you can generate two to three times your money consistently is much better than having a 10 and a 4x and then a 1x and a 0x. Consistency is key. We always talk about being excited about an investment and I get excited about investments that are inherently boring financially.

On the Quantitative part.

I like investments that have repeatable processes where there is a playbook that they can consistently follow. The greatest example of this is McDonald's. You have a 17 year old kid that doesn't need a lot of skill to cook those burgers and those fries because the processes are so simple, prescriptive that you don't need a PhD to run them. That's an example of what I'm talking about. The process is so simple that anyone can do it. But to get it to that point there was a lot of people and a lot of science and a lot of money invested to get those machines and those processes to that point.

There's a level of predictability.

Exactly.

Versus me promising you a big hockey stick in the future.

That's exactly it.

You teach me how to negotiate a term sheet.

Teach you how to negotiate a term sheet?

Yeah. Let's just make up something right now. I want to learn this stuff from you because you're on the other side of the table oftentimes where I'm talking to. I want to take the opportunity to learn from your experience. And a lot of times it's some of the early conversations when I was working with deal room and thinking about the growth equity, which makes sense. You're a company, we're growing very nicely organically. The business is still like right at 40% year over year growth and then inorganics on the horizon. I'm still supporting the business and looking at some of the inorganic opportunity. I want to learn from you, from your side of like how do you really structure these deals? And even if we make up some general terms, I want to get a sense of there's always consideration of I guess even like the terms. Here's capital coming as primary versus capital coming in a secondary. How is somebody like me should think about that?

Sure, sure.

I feel like too like founders, we're thinking about near term control, long term control. But control isn't just number of shares, board seats and those things. Can we talk through that a little bit? We're riffing now. No script, nothing. I want some real.

Absolutely, absolutely. Let's call it my four point plan. Okay. Number one, when it comes to negotiating a term sheet, you can spend two or three or or more time negotiating a term sheet. But I believe that you can always distill the key items of a term sheet to four or five things that really drive the majority of the decision. So when it comes to a term sheet the way you're describing there's going to be to me five things that matter? Number one, what is the value that you're going in? Number two, what is the structure? What is the character of the capital going in? Number three, what governance rights are going to be involved? Number four, are we aligned on the strategy and on the value creation plan? And number five, how are we going to exit this investment? How are we going to create a return for the shareholders? The first lesson on negotiating a term sheet is distilling it to the essential components and making sure that there is a framework that you and I can align on. Really what you want to do is start peeling the onion from the grand and high level to the minutia. So starting with the minutia to me is a waste of time because if you don't have alignment on the ground themes, then diving into a minutiae makes no sense. In a way, the way I negotiate when you're talking about the minutiae is because there's already a broad framework that has been agreed to execute a term sheet. And the reason I divided into those five buckets is because in each bucket you may be willing to give certain things or not, depending on what happens at other buckets. So these conversations are reflexive.

So it's not like value. Let's take that as example. Right, because price, enterprise value. Is that what we're talking about?

Yeah, well, value of the equity of the enterprise, value, whatever, yeah.

So it's like, hey, how do we value this business?

How do we value this business?

And then agree, this is just my concern on this. I talk to you, you seem like super nice guy and I'm not going to pick on you. Let's make up some person in Boston or where I always give you the nice, hey, this business looks great. I can see this being like 8 to 10x.

Yeah, yeah.

They run through diligence and they come back and say, oh, we think you're worth 6x. Then I get pissed off. I'll run a competitive process and we can play this game. If we don't play the game, that's one little thing on value where I get a little question mark on how would you manage that.

Number one, there is this sort of good is the enemy of great. You always have to balance the full package, not just focus on one. So I would not encourage you to just focus on value. I agree, number one. Number two, the way I would approach that in putting myself in your shoes is you can always supply a certain amount of information that should give the potential investor enough to give you a reasonable range or point estimate on the value before you spend too much time. The whole theme of my advice, Kison, is going to be centered around small and consistent movements in the term sheet versus going deep. So much. Yeah, going deep in so much.

So I can have the multiple conversations. So your suggestion is essentially, it's okay to keep it competitive. I can talk to multiple people.

It's okay to be competitive, but structure.

That process a little bit. So instead of me, like an example where I go so deep with one person, I'm like entertaining a lot of diligence. And that's probably why you get more frustrated where you're like, I spent all this time. But if we structure the process where it's okay, here's plenary information, kind of like a banker would, and say, let's gauge your interest. Let's see, high level, what do you think enterprise value is? And then if you at least have high level, like we're on the same page, then you move into it. Or is it.

Yeah. So I will give them enough information, more what I would call off the shelf information that is not really difficult for you to pull. I'll give them an hour or two on the phone to answer questions.

We're talking like last three years of financials, maybe a customer waterfall.

Last three years of financial customer waterfall, go to market model. They're really basic things that through conversations and some data, an investor can give you a pretty good range of where they will be in value. But when it comes to investments versus buyouts, the structure is almost as important as the value. In many, particularly series A, B and C deals, There is the 1x liquidation preference, and there's preferreds, there's convertible preferreds, and there's whole flavor of equity that is not necessarily common equity that has some structure attached to it. Okay. And the structure sometimes can render the valuation less meaningful, which is why, as I mentioned earlier, you have to look at the package and not just at one thing. And sometimes founders tend to focus a lot on value, and value is just one piece of the puzzle. So when it comes to structure is what promises are you making to the investor? As a founder, what you want is your investor to come in, Parry Passu with you, meaning he's in the same class of equity. But when you're doing minority investments, particularly the ones where you're involved in those investments rarely come in Parry with you. They usually come senior to you. And it makes sense because investors usually want some sort of protection because they're not calling the shots. So I would weigh the value against the structure and sometimes you may get seduced by the value, but the structure is very onerous. And you may take maybe a lesser value, but lesser structure.

What does the two extremes look like? On structure I get multiple X preferred.

The extreme on the structure is a high watermark on the liquidation preference and convertibility into common, where you're basically protected on the downside with uncapped upside. And then the other extreme, like I said earlier, is common equity, which you have no protections whatsoever, whatsoever. It's rare in the US to have, in the smaller end to have no protections whatsoever. So those are the extremes. But then there's governance rights. Governance rights include things like board representation, changes to the business plan, changes to the management team, changes to the budget. Obviously, as a founder, you want that to be as skinny as possible, and as an investor you want that to be as robust as possible. So there's always that tension.

This is when I talked to the founders and they're like, oh, the board blocked this exit that I was trying to do and then we drugged things out, then went bankrupt a year later.

And again, just like with value and structure, governance can create a lot of friction. So that's why the way I would do it is I would grab the menu of the most important things and make sure that you're getting. It's like the cath lab. The best athlete is not the one that is amazing at 100 meters, but terrible at high jump. The best decathlon athlete is the one that gets second on all, not first and last on some. It's a little bit like that. You want to make sure that you're getting what you need, not what you want, such that you get combined you however you want. If that makes sense.

Yeah, absolutely. Can I do a deal without giving up a word? Seat.

My dad used to say you are what you negotiate. So yes, yes, you can. Yes, you can. Can you do it? Yes, you can. It depends on the market environment. It depends on the performance of the company and the leverage you have with invest investors. Generally you do want to talk to more than one party to just get a sense of the market and what the market is allowing you to do. And from there you'll get a sense that there are certain things that for this transaction at this time, you're not going to be able to not have a board seat. Other times when the market is more frothy, maybe you will. And then you have to balance that with the funding time. So can you do it? Yes. It just depends on what the market allows and your ability to Negotiate.

All this stuff comes up in the term sheet, all this value structure and the governance rights.

Yes, for us, certainly. But what I'm giving you is very general and very customary things that come up. And then there's always, particularly in venture deals, oftentimes companies start doing something and they change to something completely different. You want to make sure that you have enough flexibility to do the pivot, but the investor wants to make sure that there's some guardrails. So you see how when you're negotiating this, there is a natural tension on. You want the highest value, the investor wants the lowest value. You want the least governance, but the investor wants the most governance. You want the least structure, they want the most structure. So you have to identify what can you live with, what you cannot live with and play with those boundaries and see where you can get. Once you have that framework, then you can sign a term sheet and then you can get into the minutia. And that's how I would do it.

The other things you mentioned was the strategy value creation plan. Is that more of alignment on the strategy value creation plan or sort of my impression of I can see how you as a partner is going to be accretive with your resources, connections. Is that sort of my factor is the partner part?

It's all of the above. The value creation plan, number one, it changes drastically between younger smaller companies and bigger companies. But you always want investors that are going to bring more than just money. Okay. Because the right investors can create a lot of value for you with their networks and know how whatnot. Think about this. Investors have a much wider lens on the companies and what they do, what works, what doesn't. And you can leverage that if you have the right partners. You want to make sure you bring good partners that are going to be there for you when things are tough and can help you cover some of the gaps that you have as a founder.

And then the exit part, I'm assuming your terms like a five year sort.

Of a target hold at 65 in particular, we can go beyond five, five years. But the general investing life cycle is five years.

So have an idea like five years is it we got this strategic probably going to be likely acquire or go IPO or just another fee from all.

Of these term sheets. Have an outside day which at some point you have to do something because none of these investors or most investors are not permanent capital. And therefore they want to have at some point in time a chance to redeem their investment.

But if it's like the example you gave earlier, with Kendra Scott, we'd do another recap down the road. Is that a viable thing or is it better to put down something more?

Again, you are where you negotiate. And in the case of Kendra, could be a recap, could be a sell, could be an ipo. We don't know.

It's hard to know five years out.

It'S very hard to know. The exit really depends on what is market, what the preference of the founder are. What are your views about a potential exit for the businesses in Wall Street? The answer to all these questions is always it depends.

Okay, now I'm gonna flip it around and put you in my shoes. And then these are things that we talked about. The goal here is I wanna create a competitive process and get best terms, do what's right for my interest in the company. And the big thing you emphasize is the relationship. And what I'm curious is if I look at this range, this past year I've talked to like 60 growth equity firms. And some are folks I've known for years, they just in the firm and their partners there. Cause I've known them for a long time. And then there's folks that you know, you get the model, the biz dev model. Like you get the associates calling you.

Yeah, yeah, yeah.

And then they push you up, sometimes they push you up to vp, sometimes they'll get you up to a partner and whatnot. So you have a sort of varying degree of who you're talking to at the firm. Given that you have all this kind of range of relationships and you're trying to keep the process competitive, how would you approach it so that you're not going so broad or you're trying to make it more targeted?

A lot of it depends upon what kind of deal you want and how much bandwidth you have. I spent years courting and tracking a company and then given early access to the materials, all to see something that we didn't talk about that makes it a non viable investment to me. To me, ideally you develop enough relationships and if you ask me how many, I don't know if it's 5 or 10 or 20, but not 60 and not 3. Where you have enough people that over time have shown interest, that want to try to dig deeper. To me, if you're able to strike the balance of critical mass, which I think it is, sort of that 10 plus or minus, it's not three and it's not 60, then you can create the competitive tension without overextending yourself. Because if you run a process and you have 60 people. It's very difficult to manage and it becomes unwieldy.

Let's say there's 60 and then I could tell a lot of them are very. Just taking a quick peek. There's maybe 20 that are actually expressing some serious interest. You've had three plus phone calls with them, maybe some visits in person, things of that sort. There's five that are like, I would actually want to work with them. I would be super excited to go work with them given their track record and what I've seen and just culture of their firm. Now what do you do? You sort of have these five star and still run it to 20 people.

Investment bankers get a bad rep. I do think that when it comes to these kinds of situations, they can be helpful helping you tease out what's the right thing to do. And it has to do with where you are in the life cycle of the business. And certain businesses get more traction because they're in the right sectors, they have the right profile and other businesses don't. It is not a terrible idea to have an advisor that does this for a living give you advice on how to find the right balance. What I would say is that I wouldn't rely only on five people. From where I sit, 20 people should be plenty to give you a sense. But look, there's a famous phrase, beggars can be choosers. And if you need the money and it has to happen, then you want to go more broad. Okay, what investment bankers can do is go out to 60 people and share information and see of those 60 people. How can you shrink that to a more manageable level? You cannot do diligence with 60 people. In fact, you cannot do diligence with 20 people. But you can do diligence with a handful. Investment bankers in many ways approach this process the way I mentioned it earlier, they start peeling the onion. There's stage gates at each point of the game, reduce the funnel and leave you with the ones that are really interested have the wherewithal to do the deal. They are largely around the parameters and the value and the structure that you want. That's maybe how I would go about it. You can always make the process bespoke and give those five parties that you really want to work with early access to give them an unfair advantage to win the deal. But you will be remiss not to include a broader set of investors in case those falter because five is a low number when it comes to raising capital.

What if you're like really cheap because you have those Immigrant values instilled in you and you don't want to pay the banker fees. Is there scenarios that you would say, hey, I wholeheartedly believe, like in this scenario, I wouldn't hire a banker. I understand if you're going broad auction.

Basically, I would say it comes down to how much conviction you have that there's five people that you really want to work with are going to get there for you.

You have like that much conviction that this is like I'm in love with this relationship or it's almost like a strategic acquisition. Man, this is such a good fit that it doesn't make sense for us to shop around Kison.

It's really both situationally dependent, market dependent and company dependent. And there's an infinite number of factors that it's hard for me to generalize what works. And I'm trying to give you the best advice possible. Generally speaking, if you don't need the money, in the spectrum of I'm going to go bankrupt if I don't get the money versus I don't need the money, but I would like some investors that drives a lot of the decision. If you really need the money, then I would go broader. If you can afford to say no and not do the transaction now, I will go to less people. It's much better.

Yeah. Hence I was able to have those 60 firms they talked to over the course of a year.

If you really need the money, then you need to go broad because you don't have an option. What I would say about paying a banker is that oftentimes, and I've seen this with companies many times, there is an inclination to be penny wise and pound foolish. My view is that an investment banker may be able to get you a much better deal that pays for their fees multiple times over, make sure that you don't pay a huge retainer to them, but other than that, their fee pays for itself.

Generally fair advice. I know we're getting close to time here. I got to ask you, what's the craziest thing you've seen in M and A?

The craziest thing I see in M and A is when the market is incredibly frothy and it's usually a great marker that we have peaked in the cycle is when people do deals, when they forego the discipline and the analysis and the due diligence because they get that irrational exuberance around doing deals. And I've seen people do deals without doing any of the work that a year before or two years before would have been absolutely out of the question. Not to do that type of stuff. That's how crisis start bubbles get popped and how you get burned goes back to what we talked about earlier around the discipline and the consistency. The process needs to be followed always. You cannot skimp on that. And if you skimp on that, then I will be very skeptical about any investment where you're following your own process. So I would say the deals that we're Getting done in 2021 in M& A, some of them follow that pattern. And my view is that many funds that made investments, a lot of investments in 2021 are going to have a tough time showing great returns.

That's so true. People really get deal fever. And especially back then he went straight.

To contract, people went straight to contract. Very little work. And that's just not a recipe for success.

You still see all these data shows bonds are sitting on a lot of dry powder. They have longest hold they've ever had in history. Is that still going to keep a pretty frothy market or have it come back to that state? It's just I just don't see how prices are going to go.

I have a long term view on finance, that it's a survivorship business. Finance is inherently a cyclical business and there was a report a few months ago where Hamilton Lane said many funds are investing their last fund and they don't know it yet. And that is my view. My view is that over the next few years the industry will contract and there's going to be a lot of funds that will not continue because I don't think that the amount of private equity money chasing deals and the amount of private equity funds is sustainable. Now interestingly, people say that the cure for low oil prices is low oil prices. And it's the same in M and A. There will be another 2021 in our future. I cannot tell you when but at some point the pendulum will swing back into the buyer's favor and things are going to look better again. But right now I think there is a glut of private equity firms with old portfolios trying to look for exits, which makes it for a very challenging environment because many of them went at the height of the market and multiples are just not where they were before.

Makes it tough. That's where you're just seeing weird ranges in the market right now.

Yep.

Leon, this has been great. I appreciate taking time from doing deals to have a conversation with me and helping me be a better M and A scientist.

Excellent. Thank you so much for having me. I really enjoyed our conversation.

You're still listening to this podcast. Fellow M and A Scientist I commend you. Love to hear from you especially so many dedicated as you to listen to this much content for this long. Reach out to me on LinkedIn. I welcome feedback. I welcome the criticism. So I learned to get better and even topic ideas. Some of you probably know we're carving M and A Science out from Deal room. A lot of new things that we're creating as initiatives so look for more to come. Till next time, 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.

We'd love to hear from you.

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 keep learning at your own pace, Visit MA 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 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.