Sell-Side Behind-the-Scenes: Preparing a Company For an Acquisition Part 2

Are you getting scanned by per page virtual data rooms? The stories I hear from my M and A friends about surprise invoices $250,000amillion dollars 1.3 million. It's crazy, but that's what also gets me really excited about Firm Room. We built the world's most intuitive virtual data room that meets public company security standards at a fair price. In the past 12 months alone, we've saved corporations over $80 million on per page BDRs. That's an average of 87% savings on each invoice in our price comparison. Study the benefits of being built on the cloud with no technical debt. Check it out for yourself@firmroom.com you can test it out for free, do a side by side comparison and there's even a savings calculator that shows you how much money you can save your company. Again, that's firmroom.com 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 M and A deals.

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Welcome to M A Science where leading M and A practitioners share lessons learned from their experience. If you're interested in keeping up with the latest from M and A Science, Visit our website mascience.com subscribe to our free newsletter where we share highlights of our interviews and invitations to events as we build the greatest community of forward thinking M and A practitioners. Again, that's mascience.com I'm your host, Kisan Patel, CEO and founder of M&A Science. Joining me today is Frederic Labor, CEO and managing director at Redlands Farm Holding, a subsidiary of the Blorey Group. The Blorey Group is one of the 500 largest companies in the world listed on the Paris Stock Exchange under bol. The group is a conglomerate that manages a number of financial assets, including plantations and financial investments. We're continuing our conversations. This is part two of the interview. If you haven't seen the first one, probably should start there. We're going to talk about how to prepare a company for acquisition and ensure business continuity. Frederick Glad we got to pick things up. Just to give the quick recap, we talked last time about understanding diligence in general, knowing what the buyer's likely going to look for in that information so you're prepared for it. How do you handle the dirty laundry if you got that going on in your business? And then there's this plot plan forward about what's that gonna look like if you're planning to stay with the business, move on having those things. And then we also talked about building the team around doing this, that you're gonna need to have the right attorney in place. We touched a bit about deal structure. I wanted to continue the conversation and talk about the process itself and managing it. One of the common themes I've heard when you sell a business is is the distraction for the management team. That this management team is supposed to be focused on achieving goals. And here we're going to go exercise this process to sell the company. Entertain diligence coming in from buyers in the form of request of information and clarification questions. And you don't have a lot of people to work with. There's probably a lot of their functional leaders. Who are the leaderships driving against these goals. How do you make sure this process doesn't disrupt business operations?

It's complicated and it will disrupt no matter how well you prepare in advance. You can't possibly think of every piece of diligence or due diligence that the buyer will want to see. There may be some unexpected turns. You may end up in a situation where the buyer tells you, no, I want to talk to some of your key suppliers and I want to talk to some of your key customers. How do you deal with that? Because immediately you're going to create a massive angst on your supplier side. They're going to say, oh, well, if a big company is buying this smaller company, more than likely they have their own supplier and I'm going to lose my own business. And that's going to leave scar if the deal doesn't happen worse on the customer side. Build a story. You've grown, you've developed a relationship with a customer and everything. And all of a sudden you're telling basically that customer while I'm running for the exit and trying to have enough cash and sell away. That's complicated. And I know when I was in that situation, the part that I found the most difficult was talking to customers. Because immediately those customers are no dupes. Know that things will change the way you sell what you have to offer on an ongoing basis in terms of promotion and marketing support and everything. If a larger company acquires, you automatically know that it's going to fall into some sort of mold and the mold of a larger corporation which has procedures and budgets, where everything is a lot more planned than it may be in a smaller company, which typically is a lot more reactive. You don't really help yourself when you're in a situation where all of a sudden you have to reach out to your key customers. Because of course people acquiring you will want to talk to the top 10, not just small ones. You have to reach out to them and tell them we are going to sell the company. And in three, I may not be in this share anymore and things may change. So it's utterly disruptive to the business.

So this is pre close that you're sending communication with customers, that there's a transaction in the works.

Yeah, this is pretty close. Now post close really depends what the buyer wants to do because after all this is their house, not yours anymore. We are placing yourself in a situation where you're selling a controlling majority in the business.

Does that happen often? And I can assume that this varies industry by industry on how much of that communication with your own customers. And I don't know if it even goes to the vendors about a transaction that's coming up. Why would you start giving that information of a deal to a customer in advance of clothes?

Because the buyer will want to talk to them. As a buyer, what am I buying? I'm buying book of business. I can tell whatever story I want to a buyer. But until you talk to the person actually purchasing the product, you don't know if it's a fable or a nice presentation or a convenient presentation or if it's for real. And imagine you're selling to Walmart and it represent 30% of your business or Costco or a big name. And all of a sudden the buyer knows that it's decided to drop several skus on your line entirely during the next reset cycle. And the buyer, we want to know.

That is that still pre loi or post loi?

Most definitely post. Well, post an announcement will be made anyway. There is a new chafe in town and things will change. One of the worst memories which wasn't really positive on good memory is during an acquisition. I was this time on the selling side. Literally two days after the closing, I was summoned to a meeting room and I was told we are going to file all of your broker network. We never discussed that. Yeah, we have one broker. So we are going to fire all of your existing brokers. And here is a letter and it's going into the fax machine in the next 15 minutes and your broker network is no more. And there are people. Remember when you're in a startup mode, know that you will develop a relationship with the people supporting your brand. It's not anonymous. There are ties that are created and everything. And here you go. All of A sudden you find an entire network of people all across the country that have helped you and made you who you are and put you in a position precisely to sell your company. So it's tough. And in that specific case it wasn't prepared because actually the broker we are supposed to take over from that group didn't even know about the transaction of the line or the product or anywhere. So after that wonderful salvo where all that existing network, broker, network, sorry, was filed, literally there was a void for a period of two or three months where the customers had no support anymore, where the brand wasn't pushed anymore. Not good. Not good at all. Obviously unsurprising, the buyer will not necessarily disclose all the steps to you that are going to happen post closing. And they don't have to. If you haven't handled it into the sales agreement, like carve out some provision about your own people, your own people, that's another thing. They may decide we don't like your head of sales and the guy is gone in two months or one month with a pittance for a severance. All that business of selling one's company takes a heavy human toll and there will be losers. People who are going to lose their job, people who are going to lose their position. All of a sudden your VP cell doesn't report to you anymore. It's reporting to the VP cells in some corporate office. And a person doesn't know that guy may have a completely different vision for what is supposed to happen, is going to tell him no. Everything you've planned for this year, I'm scrapping it. I don't like it and we're redoing it all over again and that's we're going to do it my way. It's tough. There is an excitement when you're working on a deal either side. You really have that goal in mind. You live day by day, night by night about it. And that's really your main focus. And most of the time you're living another. But when it's done, all of a sudden you don't have your word to say anymore. The people are doing it for you and deciding about everything for you. Most of the time you retain for a period of time to facilitate the transaction, the transition and everything. But it's tough again, you have to look at the people who were in that adventure with you. Most of them probably, if you're in a startup, accepted taking a job for a lesser salary that they could find elsewhere. They made personal sacrifices in times, in money, in everything. And Here you go. When you sell a company, sure you can carve out some provisions for your top people, your top executive. But very rarely is a second level of management going to be rewarded in a transaction. You're going to in a small to mid sized companies you have a handful of key people, five people. Those yeah, may question mark, derive a financial benefit, a personal financial benefit from the transaction. Everyone below them, no. And they literally don't know if they will have a job in one month or two months. And especially on the administrative side and everything because those are the functions that are most easy to consolidate. Financial hr, logistics, all of that is what company acquiring you will try to immediately cut to leverage the benefit of purchasing you. Because they already have those people doing the same job. So evidently they don't want to pay twice.

You're right. It's a balancing because there are some of these activities that happen that are disturbing from your side is building the business up and acknowledging the value of the key people through the journey of building the business. But then when you sell it, it's all out of your control. And the other organization's going to have plan, they're going to have their synergy plan and what they're going to do be it cost energies, remove some of the redundant roles and things of that sort. Is there anything you could do to help? Are there considerations you should have from doing a number of these deals that I don't know if it's the right things or considerations to help alleviate some of that or is there anything like that?

I guess it goes a lot to fully understanding what company, what you're dealing with and what is their corporate culture. Is it something that is centralized, is it something that is decentralized? How are they operating in other divisions? So now of course this is really hard when you have someone who is considering spending a lot of money to buy you out to ask incisive questions. So you have to do the backdoor due diligence with people who know people who are working in a division or in a compare or in other headquarters and ask how is that? And at least mentally you can prepare what's going to happen. And you can actually prepare what's going to happen if you know that it's going to be some sort of bloodbath but guarantees in terms of nothing will be touched for a period of one year, blah blah, blah, very tough. That's not when someone wants to buy the company, they're buying your company because they think you have something, they can make it bigger and they can make it for less money. So of course they're going to be disruptive in the normal course of business.

Because as a buyer, I don't want to buy a company and have all these restrictions that a, I've agreed to not fire this head of sales that's not meeting his numbers.

It's like you're buying a house and you say, yeah, I agree that in the middle of my garden there is going to be a pass for a neighbor to go through and then someone will have a right to walk his dog on your loan. And so for something you're going to say, no, heck no, I'm not going to buy that house. Same here. Monetary. The person spending the money has the power.

I like where you describe selling a business, doing your diligence on the buyer because that'll give you a sense of how they're going to treat your company. Afterwards, when you mentioned talking to the people of that company and doing your own diligence, try to figure out who.

They bought before and see what happens.

Would you do that through the organization and say, hey, curious about some of your recent acquisitions and see if they opt to make the introduction to those executives. Maybe they're still around or not. Or do you go back door?

I'll go back there. It's always contextual in an acquisition team. You're going to have people who either genuinely oh, because it's a way to extract more extraction, are going to be on the friendly side and make you believe that they're somehow your friends. And you're going to have the bad cop, the guy who is always tough, who is always demanding and so forth and so on. They're good people in big company have teams where each one has its own role. But in this day and age, you don't really need to ask for what did happen in previous acquisitions and just search it, research it and just look at, go through LinkedIn or whatnot and figure who was. Where are the five, 10 people in that company and where are they now? Six months after and you're going to see if you see nine out of the ten are gone and the one remaining is because he has a contract for another six months. You pretty much have a clear vision on the future. Whatever has been told to you.

Do you talk to them?

Yeah, absolutely. It's easy. It's easy nowadays.

What does that sound like? Is it, hey, I'm thinking about doing a deal with our friend company over here. I'd love to get your feedback. What does that message sound like?

No, exactly this is a simple genuine question, as personal as you can and saying, hey, I may be in the same place that you have been six months ago or a year ago. Would you mind if we have a phone exchange? Because people don't like to write those things too much. But would you mind having a brief phone exchange and so that we can discuss your personal experience. If it's a negative one, people more likely to do it. All those people certainly will have restriction on what they can say, non disclosure agreement on everything. But if it's a phone conversation, it's easier to establish and it's easier to have and it doesn't necessarily leave a track record.

I like this idea doing diligence. The buyer going back to just. Even when you start going through this deal process, you come to terms, you're entertaining the buyer's diligence and you start bringing more people under the tent. What does that look like? Because in the early beginnings it's probably just you that people reach out. What's the order of people that you would get involved?

The initial contact, definitely. I personally would be an advocate to keep it to you. And just yourself is the first appointment and the first screening. And those are going to be on the basis of a couple of meetings. Typically I really wouldn't introduce a whole lot of people in that conversation because again, you're going to create anxieties. You're going to create. It sounds sneaky, I know, but that's a reality. There is no point creating anxieties if you don't even know yourself if it's going to go anywhere. Most of the time the first phone call or the first approach you're going to have is going to come from a very junior person. And you don't know the context. You don't know. Sometimes you don't even know who your acquirer is going to be. And you get a call. We've seen your company very interested. Would you be interested in talking to us about selling it? Okay, where are you coming from? And that initial screening, very much like when you're approached by a headhunter where the first call you're going to get is a junior person doing a basic screening. Well, you have to go past that and really start talking to the actual acquirer representative or the person who will make the decision before you start sharing anything. And then as you become, as you start the financial disclosure process, you have no choice. You got to get your accountant, CFO or whoever you have controller in the loop. Probably very soon HR will come into play too. The Moment you talk to one, it's a fantasy to believe people are not going to talk to one another. Even if you tell someone, okay, it's just you, but don't say anything to anyone. You know it's not going to happen. Or maybe that will happen for a week, but in 10 days, everybody will know about it. And at that point, again, people are going to look at you sometimes like you betrayed us. We invested time, we invested energy, we invested belief, building something with you, for you. And you're dumping us. That stuff. People are not gullible. They will quickly recognize what's going on. You can wrap it any way you want, you can apply as much lipstick to the pig as you want, but the pig is still the pig.

There's this case of we're going to sell a company. That's it. Story ends there. Because that creates a lot of uncertainty. Versus hey, we're looking to merge with this other company and build a narrative of how we're going to be able to accelerate our growth faster by joining forces with this other company. Is there positioning there that you think of to get that alignment where it's not something that you have to worry about? The ripple of the bad news going through versus Can I at least look at it optimistically? There's a reason we do M and A. It's to create value, the only thing.

But at the end of the day, when minute you say that and you're playing people's job in play because that's really what you're doing, the only thing that is going to counteract this, in my opinion, is some form of financial benefit for the actors. If you can convey the message, you know what, whatever happens, you're going to get a year worth of salary. If at the end of this acquisition they decide, or within six months after the end of this acquisition they decide, you're not going to stay on board, you'll get a year of salary. You'll get time to figure out things out for yourself and land back on your feet. All of a sudden you're creating a situation that of course is going to seem a lot more acceptable.

Is this something you could negotiate?

Yeah, you can, absolutely. Of course, it has to be proportionate to the size of the acquisition. But if you're talking about an acquisition that's going to cost 50 million bucks, if there is half a million worth of severance packages or potential severance packages, should they decide not to keep the people on board, they're going to look at it as a very small fraction of the acquisition price and a cause that may not even happen. So yeah, but at least you're creating something that will make the conversation a lot more easy.

I like that. That's a little bit of good. You mentioned the finance person. They're going to be obviously organizing a lot of the financial information, hr, anybody else that you start bringing in, you know, as you continue, you keep adding.

Sales is tough because salespeople by nature are typically creative and more emotional and everything. At the end of the day, someone who is your cfo, that person knows that unless the market sucks, but if the market really sucks, chances are they know that a CFO job in your company or a CFO job in another company is not dramatically different. The system is different. People are taking ownership of the brand, of the product, believe in it, and you're essentially telling them you loved it, you bled for it, you spend a lot of weekends on the road doing food shows and this and that and the rug is going to be plugged from under you. Personally, I found this is a department and a group of people that is the hardest to deal with. And I'm saying that not in a demeaning way, but also the one that is most likely to run for the door the quickest because precisely if they have what they perceive as a better opportunity, but they're just not going to wait for the guillotine to come down, they will leave before especially the good ones, which are precisely the one you want to in terms of incentivizing. Because there are also people that are easier to incentivize from a mentality standpoint. They are definitely the people you have to put the most, the group of people have to put the most money on. If you're able to work out something with a buyer or carve it of your own earnings, hey, after all, why not? Why not saying that you decide in your own head if you're the owner of the company that 10% of the proceed you will use them to take care of your own people. What's wrong about that? Absolutely nothing. Actually. It's small. It's a moral way to do it.

How is that tied into the post close success? Would you still care about their post close success?

You do, because personally you also invested a lot. So you don't like to see your own brand just perishing, taking care of.

The people in general. That's why you would do something like that.

Well, you do care, because whatever. Especially if you're an industry specialist. It's always a small world. You will find those people again in 10 years, in 15 years, in five years. You will need help at some point. You never know. First company I sold in the US I found a person who was on the acquisition team. Twenty years later, sitting on the board meeting of a company I was working with people who tend to be industry specialists. Always be careful, manage your long term relationship and don't treat people bad. It will come back at you if you don't do it for the moral side of it, of taking care of the people who are around you. Do it for your own self preservation.

Yeah, that's a good principle to live around. Just do the others good and it'll come back. That's your reputation you're building with other functional leads that probably come in the deal as needed. How do you prepare that leadership team about the sale? What's that conversation look like? Because even you've mentioned it's hard to get around creating the negative skepticism. How do you get that alignment so that they can actually do this work? The buyer we talked about before, of their expectations around the information they're going to want, but they're also going to want that collaboration knowing that this is the team members that they're going to be working with in the future.

I'm going to be repetitive but I would say one, do your own diligence on the buyer and know some example of other acquisition and be able to allocate to it. Explain to your own people, hey, look at them. They did that with company XYZ year ago and this is what it became. And most of the people, all of the people are still there and it's working great because it's a big company, they had better benefits and everything, better programs and a better 401k. If you can establish that, it's great. If you're on the other hand and you know that it's going to be a brutal consolidation. If you have a manufacturing operation, it's going to be scratched off and rolled in into a larger plant and the people will be given a deal. If they're given a deal, either you relocate to the other side of the country or you're filed. If you know that what's going to happen, then you better think about a monetary incentive to cooperate. Because yeah, regardless how strong you want it, you can get internal sabotage. People may work and your own people may turn against you and work against you in an acquisition. They don't want it to happen. When you look at a set of numbers, it's a set of numbers, but always there's always A story behind it. And either you present the good side of the story to the acquirer or you present the negative side. You know what this and this may happen in the next six months. All of a sudden you created for yourself another two weeks of due diligence. The buyer wanting to look a lot things and talk to other people and get second opinion or get an expert to come in and make some form of review on this and that. So yeah, it's important not to turn the people inside as your enemies the process and try to again, is there present a way where it's going to be better for them personally? Because when it comes to the company is going to be sold, there is no group anymore. Everyone realizes is very few exceptions that there will be some consolidation, either departmental or 100% consolidation of everything. Manufacturing, sales, administration, finance, all day.

Is that the goal to be as upfront as possible?

Yeah, I would think so. Always keep in the back of your mind that your transaction may fail. So there will be a morning after, there will be a morning where you have to wake up on your bedside, you have someone who you made clear you don't care really about and money is more important to you than that person, regardless of what you've said in the past. So yeah, of course I make it sound like there is no, no happy endings. But from a human standpoint, it's true. It's rare that you see people blooming. It happens. I've seen it when a person who started working for the company as a forklift driver, she became production supervisor, she became plant manager. And as she was a literally a diamond on the rough, the acquiring company recognized that and made a manager of a much, much larger plant. And that person had a great career and went from what a forklift driver is making to plant manager of a huge manufacturing unit with several hundred employees. All of that in the course of seven years, eight years. So just sure that person is going to be happy. But that's the exception that confirms the norm that most people are not.

That's true. There is an opportunity post close. But even when you describe it of your leadership team, there's still this level of uncertainty. So you can't promise or putting any guarantees and saying, hey, we're doing this deal with intentions to get the best outcomes for everybody.

But again, it goes back to having some serious conversation with the person or group of person ultimately will decide the future of the transaction at a high level, not in intermediary. Because intermediary is just that, it's an intermediary. And it's going to relay whatever is being told. And if you really cannot talk to that group of people, maybe you're better off passing off and wait for something better to come around. Because again, if you have no idea what's the mindset of those people, what they're trying to accomplish and what form of guarantee executive at a high level put a high value on their world. And if you can get from the CEO of the company or the CFO of the company that's acquiring you, yes, we will take care of your people or of your 10 key people and we will dedicate an envelope of that much. Yeah, maybe that person will renege on its word. But I would say 90% of the cases they want and they consider that they are bound by what they said even at a time where they had little or insufficient information. But if you frame it right at the beginning, if you establish yourself as really caring about that path too, chances are your outcome will be better for everyone.

It sounds like doing diligence on the buyer we talked about research some of the backdoor references. What are questions that you would ask the buyer directly to better understand these things?

Be blood. What is the plan? Are you going to keep that unit as operating independently? Are you going to integrate that unit in your larger corporation? If you do that, how soon, how quick? And they don't approach you having no idea what the heads are going to do. So they have a plan or you would hope?

Yeah. If that happens and it doesn't sound like they know what they're doing, that's probably a pretty big red flag for you right there.

There is some sort of design.

Is there things that you're assessing their strategic view and the opportunity with your company. And maybe you're in a situation where a bank is running a process and you have multiple buyers that you're entertaining, where you're understanding their strategy to get a sense of. I see how they can create value here. This company has a much greater opportunity to create value. That part of your thinking consideration?

Yes, it should. I'm a big believer about running different deals at the same time, even if it's even more exhausting and demanding and everything. But your single potential acquirer situation is not working in your favor ever. If you're putting yourself in that situation, at least have some sort of breakup fee or whatever that person costs you as a potential deal, you walk away with something for your company.

How much breakup fees should I be negotiating?

As high as you can. And give a call to Elon Musk. He will tell you he's in the midst of it with Twitter. Isn't it as high as you can? It cannot be outrageous, of course.

Is that breakup fee then in the LOI legally binding?

Yeah, of course. Yeah, definitely. It's in the first document you will exchange.

I guess this goes to the legal question and how complex you can make that language on what actually defines. But at the end of the day, if you're not going to close, you're not going to.

That's why you need a good counsel. Because sure, the moment you put that breakup fee, that LOI is going to get a whole lot longer because. Because it's going to try to define what circumstances, whose fault is it and this and that. Is it you didn't provide the information? Is it them? They walked away? Did you misrepresent? Are they walking away on their own and you did not know misrepresentation. So yeah, but at least it gives both sides an incentive not to just have a knee jerk reaction.

Is there anything else you'd ask the other executive when putting a deal together, understanding what's your plan? You get into what's your plan with me? What are some of these other things that you would really want to dig in and make sure you don't have a. Oh, shit, I wish I forgot about that.

In the very initial phase, it's frowned upon. When you are in that situation, you have also to sell yourself, not only your company, but yourself to the potential acquirer during the due diligence process and during the subsequent meeting that would ensue why they should retain you permanently over a period of time and why it should be for a significant amount of women. But I don't think this is a first thing you put out there.

Understand the rationale from their perspective and how they're going to execute it.

Exactly. And if you put that out there first, it's showing also how somewhat how insecure you are.

What about culture and management style? Do you sort of dig into that?

If you ask the CEO of a Fortune 500 company and what is the culture of your company? And you're going to get a cookie cutter answer. Something that has been worked through all the level of invented by the legal department and so forth and so on. Again, try to talk to people and try to talk to people who used to work in that company, not necessarily who are there because they will fear for their own hide. But if again, you're an industry specialist, you have many years in an industry, it's a small world, you will find Someone, one way or another, who has either worked or who has connection with someone who worked there. And we can help you figuring out what is a real culture beyond what you put on the wall. What is it really?

That's good to know. I'm thinking of like worst case situation. I feel like we're going to go back and touch on some similar points. But worst case, you sell a business with a lot of regrets, especially if it's the baby you've built up and really made something and then you're looking at it as a sinking, burning ship. And we talked about the diligence that you should do in the buyer to build that confidence that the company is going in the right direction. Is there anything. I almost think of it as we use the term deal fever. We refer to it on the buy side, where you just get fixated to do the deal. There's a lot of forms of that I've been guilty of. But on the sell side, if that same thing applies, you start thinking about the check and what kind of jet model you can buy and stuff like that.

Yeah. When that deal is closed and the money is in the bank and a big amount that you've never seen in the bank, the natural reaction probably is to say, I can do it again. I did it once, I can do it again. But guess what? Very rarely does that happen, that second act or that third act for a startup, for a new business to be successful. It's about skills, but it's also about luck. Whoever tells you now, but strictly carefully mapped out how we had a killer business plan and this and that, that person, in my humble opinion, is somewhat delusional. There is a lot of things that you don't control, particularly what your competitor or potential competitor may do or may not do do. And that's going to help you or stop you. If you were lucky enough to create something from nothing and grow it to a $50 million company a few years, well, a lot of things had to fall into place. I'm also talking about my world of knowledge, which is a food industry. Okay. If you find the cure for something and you're in the pharmaceutical industry, and that's a different ball game, obviously, because you found something that is unique. But again, like we said before, when you're manufacturing food, very rarely is there something absolutely unique that has never been seen before and that is going to change dramatically the eating habits of an entire population, how many times does that happen? You had a lot of factors that happen through work, but also through luck. I remember When I was back in school I had a teacher who was saying that being successful in exam is a combination of three steps. It's a combination of work, it's a combination of luck and it's a combination of showing up but showing up well rested with a good mind. Pretty much the same should could be said but from a business you need luck. You do need luck. You do need someone to stumble one of the key competitor on that market to make a strategic mistake to take the price increase when they shouldn't have to have changed their packaging or change their logistic networks or they've done something or they fire the broker network and all of a sudden they created an army of people against them. And those are the things you don't control. There is no way that in a business plan you can say in three years your competitor is going to fire anti broker network to save money and we will just be there to scoop them up. You don't know that. But the reality is that when you look at a lot of success stories this is what happened. Something happened, something that was not your control. And that's right.

If I think about that in the context of deal fever, what I took out of it is don't forget about all the hard work that you put in and lock to get to where you're at to be mindful of it. But the other part of me is you get a good offer, you should probably take it. I'm wondering like how do you go through that thinking if all of a sudden even for my business right now I run today I'm at a really excited point about the organic growth and that maybe a year or two we're going to start exercising our own M and A. But then all of a sudden I get whatever a very significant. It's got to be up there like nine figure plus offer. I don't know if you've been in that situation when it comes to the wire about do I do it or not do it.

It's a combination of factors. At what stage are you in your personal life?

I just wonder because it's like an irreversible decision if there's something that you would say from experience like hey just here's a double check just to make sure and thinking of because once you move that track and deals done that's a big change.

True. Asking me there are situation where I personally regret it. I've been doing it. Yeah. Precisely because at that moment where you got the money, you got everything, you have such a belief and confidence in yourself that you think you're going to do it all over again and it's going to be even easier. It's not trying to climb back up again, especially again, because in that process, you may have created a situation with your salespeople, with your broker, with whatever where they lost in the transaction and you're starting something new and different and you're reaching to the same group of people because you like them and you know they're good. It happened to me where people told me, hey, we worked for you for five years, we built your company on everything and then it was sold and we ended up with nothing within 48 hours of the close of the transaction. So thank you, but no. And I have that happening to me. So, yeah, sure. Are you going to regret it? I don't know. I mean, who knows?

But you don't have the hindsight view of this is what I would have done different or if I would have thought about that one thing.

The second part of that is how much confidence do you have that you can't keep growing at the same rate without starting to sell pieces of your company to the point where you lose control. You don't really have a tangible financial benefit because this is the reason, okay, I need more money, so I'm getting a new person, 10%, 15% and it goes, you end up with 51. And you're at that 51. And maybe in the 49, you have a group of people or one person who is far richer than you are and you get through a tough time. So that person is going to, ah, okay, now is a good time to take control of the company. And this is the point where you end up with nothing. You've lost control of your company, you've lost everything, and you walk away with nothing. This is where having a good group of people you trust, mentors and people you can reach out to and who are going to talk to you candidly because they have been through that, because they have no vested financial interest in their answer, where they're going to put it straight to you and make you see things that you may not want to see yourself. But certainly I think it's a better situation to just walk away with bundle of money rather than putting yourself in a situation where you try to keep going at it, but some of the momentum is gone or the next step is going to require so much more capital that you can't and you get another someone at, like I said, 20% participation. And then you go another one and within three years you've gone and that's it. You've lost control of the company because hiccup will happen. Customer run will happen. Something will happen where you have to go back to the well. The bank won't do it. So what's left? Your minority shareholders and your minority shareholders will tell you, yeah, sure, we'll help you. Now we have control. You no longer have a decision making. You don't own 51% anymore.

I like it. I think that's why it's good to have that advisor circle that you mentioned of some trusted confidants that can give you different perspectives and help you think through this. Why do people walk out of deals? If you get something signed an loi get to that point, have you ever come across something where you start learning about their integration plan and saying we got to back out?

Yeah, it's really hard to walk away from a big check. But if in the first place that big check came to you as a possibility, it will happen again. So if really something happened, give me an example.

What's the thing? I don't know if you ever walked away from a deal, but what are the things that would cause you to do that after loi too?

You sign something, price reduction one is telling you when you start the conversation and buy is at least the basis for a price calculation. And mid course the people doing the due diligence are going to come back to you and say, oh man, we really didn't know that. And that's changing everything. Either we walk away or you accept a complete revision of that deal structure. And this is what a new deal structure is going to be. It's hard, but at least because if you say yes, you've also sent a message that can be done again and it will be done again. The people you are dealing with are not here to help you. They're here to make the best deal for their own company. Well, there is no shame walking away. And if you have something someone else will be interested in, if of course you have something that is not of much interest and completely duplicable and the people realize it during the due diligence. And you know what, rather than buying this company for 20 million, we could do the same dancing for 5 and spend 15 million in marketing and squash them as a bug. And then, okay, so there's some big.

Material things you should be comfortable knowing when to call it off.

I keep repeating that, but it's people doing business with people. So you got to have an opportunity to call our deciders plural and to Get a sense of what kind of people they are. You got to do your own research and what have they done in the past? Are they behaving they're going to discard it if it's more convenient to them or do they attach a certain value to their image, their work? Besides doing your due diligence on those people, on the company they lead and talking to them.

Parting advice what's your advice for choosing the best buyer for your business?

Don't go necessarily for the best known one, for the bigger name. There is an example that stick in my mind. A company that Starbucks acquired many years ago, California based company called Laboulanche. I don't know if you remember that, but a few years ago Starbucks acquired a baking company called La Boulange and they had some really good product. And at the time Starbucks had decided that they would acquire them and roll out La Boulange as a brand. In all the Starbucks nationwide you started seeing some conversion and you had banners and displays in the cake window and everything and overnight that thing. And I know that the people who did the deal didn't work with where they got engulfed into legal issues in this and that wasn't a good experience at all. It goes to. Again, who are you talking? Figure it out. Figure out if you're dealing with a family owned company or a company where a person or a group of persons, as I would say, if it's a completely anonymous decision like a bank is doing into a black box and something comes back as a verdict, you don't know why. So that's it. Essentially it's. But I don't have a magic recipe here.

Stay intact with the people and stay aligned and know who you're dealing with. Do your diligence even from the sell side. I asked last time, what's the craziest thing you've seen in M and A? I don't know if you have another crazy story or even crazier. We talked about the tantrums that pop up during M and A deals. You had the story about throwing the stack of papers. You see anything else crazy like that?

No, no, that was a pretty good one in itself. That was a pretty good one. No, and I have not seen anything outrageous like that. Most of the time it's a lot more subdued. But the result sometimes will be that people walk out, people throw tantrums. People use tantrums as a negotiating tool.

That's actually one I like to learn how to use.

No, no, no. It was very well, hey, we had a president who did it very well.

And it worked.

Absolutely.

All right. That's the crazy one. Use your tantrums. How about some French M and A terms?

The terminology is all English. It's like the Anglo Saxon population did loi. It would be let, but it's a servile translation of the English version. And most of the time, even in actual documents, you're going to see the English term because the translation looks goofy. There's nothing coming to mind, but it just doesn't sound right or it's too long. And that's a great thing with the English language. It's very concise and it uses a lot of acronyms like LOI or things like that, where the European language tend to be longer to explain something. And there is not that massive use of acronyms like here, ASAP, M&A. All of those things. The deal is dead. We are finished.

I was going to say the kid. Then the response would be, the deal is never dead.

Actually, I don't agree with you. No, you have to be able to say the deal is dead. If you're not, you won't reap.

There you go.

Entrepreneurs. And that's something important to remember. Entrepreneurs are somewhat gamblers. I mean, they are a group of talented people who probably could have made a very nice career in something a whole lot safer without risking their house and their lifestyle saving and this and that. So you're always dealing with people who are by nature a little bit of a gambler. And I don't know if you're playing poker or anything. It's like giving up a hand. And sometimes you have to give up a hand.

That's great advice. Know when to truly walk away. All right, Frederick, thank you so much for coming back.

Thank you, Kyson.

How do you say it in French? Here's to the deal.

Even in French, we would say the deal. Vive la deal.

I actually like the sound of it. Vive la deal.

Vive la deal.

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