AM&AA Winter Conference 2016 Value Growth Session: The M&A Ecosystem of the Future

Thanks so much for coming to join us for this session. I know that you could all be out playing golf right now, and so I appreciate you choosing to spend your time with us instead. My name is Ken Sanginario. I'll be your host for the next hour or so. And in a moment or two, I'll introduce you to our very esteemed panelists. But first, I'd like to just give you a little bit of backdrop on this session. And this is the first of actually 5 sessions in this conference that are dedicated to value growth services. Value growth services, those services that are designed to help companies in the 1 to 5 year window of time prior to them going out to the market to try to execute an M&A transaction. So helping companies become stronger, healthier, more profitable, more sustainable, more valuable, more marketable. So that's this whole session, 5 sessions. There'll be another session following this one immediately. And there's a breakfast roundtable session tomorrow and two more value growth sessions tomorrow afternoon. So I would encourage you, if at all possible, join us for all sessions. I, I promise it will be well worth your time. This session right now is entitled The M&A Ecosystem of the Future. Why do we need an M&A ecosystem? First of all, what do we mean by an ecosystem and why do we need it? Well, We all know a lot of the statistics. More than 90% of business owners who try to go to market and sell their companies fail to execute a transaction. Most of them are turned away right at the gate as not being marketable for a whole host of different reasons. Most of those reasons are solvable if they have the right advice, the right guidance, before they go to market. But the problem is there's no efficient process right now to redirect companies that are not currently saleable into a process where they can have their issues addressed. And so the AM&A is trying to create an ecosystem, if you will, perhaps in collaboration with a, a number of other associations who might like to also participate. And the ecosystem might include participation from transaction advisors, from capital providers, from growth consultants, from exit planners, business valuators, a whole host of different professionals and most importantly from business owners. But how do we create a system that will attract the participation of all of these participants so that it becomes a robust system that is recognized in the marketplace as a way for companies to prepare to go to market and increase their chances dramatically of not only selling their company but selling at a higher value than they otherwise might be able to achieve. It's a process that has been started a couple of years ago and is now gaining a lot more momentum. So what we'd like to talk about today in this panel is what are the considerations, what are the factors in creating this ecosystem, what are the elements of the structural design, the systems, the processes, the platforms. What are the incentives that we need to build into the design of this ecosystem in order to attract all of the participants that will make the system really robust? And so with that, I'd like to introduce you to our panelists. I have to my right Chad Byers, who's the managing partner of Symmetrical Investments. Chad is a transaction advisor, has been involved in more than 100 transactions. He's also an equity investor and has ownership positions in a number of different entities. So Chad can offer us some perspectives from a transaction advisory perspective, what it will take from the transaction advisor's perspective to attract that community to participate in the ecosystem, as well as being able to offer some perspectives as an investor of what it will take to attract the investment community. To my left, I have Harvey Strode. Harvey is the founder and principal of UCBB Capital and Transition Solutions. Harvey is a transaction advisor and also a value growth advisor. But for a long time, Harvey spent, I think, more than 20 years as a commercial banking executive where he had a whole team of commercial lenders reporting into him. So Harvey can provide some perspectives for us on what it will take in the design of this ecosystem to attract the lending community. Private lenders and commercial lenders to participate and refer companies into this, into the system. And to my far left, I have Chris Snyder. Chris is the owner of the Exit Planning Institute, which is the largest exit planning association in the U.S., and Chris is also the founder and managing partner of Snyder Premier Growth, which is a family office. So Chris is also an investor. So Chris can bring the perspective— since he works with so many business owners, he can bring the perspectives of business owners. What will it take in the design and structure of the ecosystem to attract business owners to want to come and participate? And he can also provide the perspectives as an investor of what it would take for the investment community. So Really looking forward to getting all of their— each of their perspectives. And once we hear from them, I'd also like to open the discussion up to the audience to hear questions and comments and perspectives from you. And tomorrow morning, the breakfast roundtable session will be a follow-on to this session where we will invite all of you to join us in a roundtable format where we have specific challenges of building this ecosystem that will come out of today's discussion, and we'll invite you to come and provide your perspectives and input, and hopefully get you to be engaged in helping us to create the ecosystem. So with that, I'd like to start with just one general question to our panel, and we'll get each of their perspectives. And the question is, first of all, do you believe in this sort of ecosystem? And from the perspectives of the constituents that you sort of represent, what it would take in the design and structure and in the incentives to get people to want to join the cause. So I'll start with Chris, if I could, to give us some of your perspectives. Your thoughts, Chris.

Well, welcome. Is this on?

Welcome everyone to AM&AA's first session, the Winter Conference. Glad you could join us. Joining us. I think maybe Ken asked me to kick off here because he and I have shared this vision for quite a while. To give you a little bit more perspective before I give you my perspective on the market, Ken is a faculty member at the Exit Planning Institute, actually teaches our value enhancement section. I started in this market about 10 years ago with the formation of a company called Aspire Management, which operated off of a model called BIGS— Buy, Improve, Grow, Sell. And it was what Ken is talking about. It was a model— Ken was in a similar kind of business— a model which basically bridged the gap between buy side and sell side. Originally, when I started it, I started the methodology or created it for my own, for myself, to go out and buy, improve, grow, and sell my own businesses. But as a new company, once people heard I was in the market, they started calling up, asking me if I'd come in and help them. And within 6 months, I, I had a business offering services. So that was about 10 years ago, and that led to Schneider Premier Growth. and either controlling or minority interest in about 9 different companies today. Many of those investments were made with my clients. Um, and then that also led to a certification through EPI called the CEPA, Certified Exit Planning Advisor, in 2008, and the acquisition of EPI in 2012. Now, I'm passionate about this particular market because what we're trying to do, and Ken and I were talking about this, is really bridge this gap between what I call the left side advisors and the right side advisors. So if you're looking at a board, right, and you're looking left to right, on the left side you have these pre-transition advisors. Most of those advisors are members of EPI. They're CPAs, they're financial planners, they're commercial bankers. They're insurance professionals. They're all the types of advisors that work with owners every day. They're doing accounting. They're providing legal advice. And most of those advisors, one or two of those advisors that are working with an owner would be considered what we would know in a market as the trusted advisor. That's typically a CPA or an attorney, but usually it's the CPA. In a survey we did in 2013, The CPA was ranked the most trusted advisor of all the advisors. By the way, number 2 was the spouse, came in behind the CPA. That's quite an enviable position. And then you have these rights, what I call the right side of the equation. You're still looking at that board, which are the transactional people, which are many of you, I believe, or at least many of the members of AM&A, the private equity companies, the family offices, the investment bankers, and if an inside option, it might even be an ESOP or something like that, but that's a different conference. So what happens today is, and you know, my own business, I found success at bridging that and getting in early with clients, offering them services to grow the business and create value, and then taking on the, either this buy side or the sell side work. I don't do that anymore. I primarily just work with the value advisory services, and I hand that work over to an investment banker or a private equity company, but I'm giving them a ready-made transaction. I'm either bringing in private equity because we need capital, I may be bringing in a commercial banker for the same purpose, or we're ready to liquidate and we're bringing in an investment banker. The key to the success of the model was that the investment banker, the private equity, the commercial banker gets involved early in the process. So I might be working with that business for a year or 2 years, sometimes even longer, but that investment banker is involved early in the process and can begin to guide that process, for example, you know, early in the process when we're still trying to formulate the strategy. So I think if we're able to, you know, in the middle of this equation, I'll wrap it up, is the business owner, which a lot of us tend to forget about. You know, we're talking, we have these advisor conferences, but let's not forget about the business owner who's in the middle. That's who we're trying to serve. And ultimately, I think we can do things where we're driving valuable businesses and we're also passing along onto the right side of the equation businesses that can get, you know, transactions that can actually get done. The benefits to you on the transactional side are, one, you're all looking for deal flow. But as Ken and I talked about, you're not just looking for deal flow, you're looking for quality deal flow. There's plenty of deal flow. It's just not enough good stuff. So we're looking for quality deal flow, and the value advisor is the one that actually can provide you that kind of deal flow.

Thanks, Chris. So it sounds like there are— there's— there are a lot of referrals that typically are going from advisors to investors or to transaction advisors, from growth advisors to transaction advisors. that's probably not the problem. The issue is how do we get the transaction advisory community that turns away 90%+ of the deals that they see, how do we get them, instead of turning those deals away, to turn them inward to a system and a process that can help those companies and then return those companies back to them when they're more market ready? That seems to be the big challenge, whether they're coming back from transaction advisors or from the investment community. So part of what we want to talk about today too is what are the challenges in getting the deal flow to go in that direction, right? And are there incentives that we can build into this process to attract them?

Yeah, all of my— so far in 10 years, All the referrals are going left to right, right? There's rarely anything, if ever, something that comes back, uh, right to left. If there is something that comes—

refer—

most of my, you know, when I started out, most of my business came through referrals. It was coming from advisors on the left, on the left side— attorneys, CPAs, and financial planners.

But you make a great point about the deal flow that's desired. You know, we're in an industry right now that is absolutely saturated with available capital. There's no shortage of capital whatsoever. A trillion dollars or more of capital, private capital, sitting on the sidelines. Not enough deals of high enough quality and high enough value to attract that capital. So it's There's no issue with capital. There's no issue with the volume of deals. The issue is with the quality of deals, and there's a lot that can be done to make the quality of deals be a lot, a lot higher.

The other challenge you have with the left side is that many of the left side advisors don't really understand value acceleration either.

That's right.

So they can't— they're turning over businesses to the advisors on the right side that aren't transferable. They're not saleable.

Right.

And they shouldn't even be turning over those businesses in the first place. So a big part of what we're trying to do at EPI is really educate that left side so that before they even turn over a business, they're turning over businesses that are saleable right from the get-go.

Right. Great. Thanks. Chad, you had some interesting perspectives when we spoke over the last week or two also about creating some incentives. Love to hear your thoughts.

Well, good afternoon, everyone. My name is Chad Byers. I think Ken wanted me on the panel here to talk about the sell-side banking aspect of things. So similar to all of you folks, I'm an advisor, and we do do some principal investing as well, and we look at every situation a little bit differently. So as an advisor, and we talk about the left side to right side referral. And obviously we're looking at the opposite referral. We want the referral back of the company that's ready to sell, and it's, it's of the highest quality. To the same extent, just to back up a little bit further, you know, we build our businesses based upon a market maker paradigm, and we try to build a more of a pull-based platform. So all of the opportunities that we see do come by way of referral, usually from there, from a wealth advisor, an attorney, an accountant, and the like. And a platform like this would make sense because you say 90% of the opportunities that we see, we turn down. Trust me, it's not because we want to turn them down. It's because we don't think that we can sell them at the right value. And I'm actually doing a sell-side panel tomorrow. I'm moderating with a couple of great, a couple of great advisors. The things that we spoke about, we talked about motivation. So motivation's a big big piece of the pie. So the business owner goes to Chris and he says, I'm ready to sell my business. But what are his expectations? That's the second piece of the pie. So when we look at this, and the reason that we get referrals is because we go out to the market and we try to work with all these, these other side advisors, we'll call them. And we say, when you have a client who's thinking about doing something and they don't know who to trust, they don't know what the process looks like, and they don't know what the real range of value is. We'll give them an honest opinion, and we're not trying to sell them anything. We just want to be that trusted advisor from, from the other side of the fence that they can work with when their time's ready. So I've been doing this for almost 15 years now, and I'll probably do it for another 30 years. So if you look at it from that perspective, and most of these owners are baby boomers, those folks that are baby boomers, whether they're going to sell in 5 years or 10 years, we're happy to do that transaction whenever it's the right time. So for us, I think my buy-in, and when Ken spoke to me about being on this panel, was, do you believe in this, this system and this, this, this idea and this concept? And I believe in it because if we get 90% of those opportunities that don't make sense, I find that it's not that they go to another advisor and do a deal with them, it's that they do nothing. So if we can give them back to you and you can make them more valuable, and there's a way to provide economic benefit to us after you fix them and they could come back to us, that— we find that to be advantageous.

Sure, and it certainly won't be every company. I mean, it's— if we can increase the success rate of companies trying to sell by even a couple of percentage points, the benefits can be huge to everybody who's participating in the process. Big benefits to the transaction advisors, to the investment community, to the growth advisors, and to the business owners themselves. So we're not looking to take every company necessarily, at least not right now, that's not saleable and make them saleable. But there are a lot of companies that may be very close, but they fall short in some area or another. And a growth advisor can work with them for a year or two, sometimes a little bit longer, and strengthen those weak areas and then bring them back when they're when they're stronger, healthier company. So the key is getting the transaction advisory community to recognize the process and be willing, instead of turning companies away, to turn them into the system. But we need to create the system. Right now the system is somewhat haphazard. There are a lot of people like Chris and myself and some others in the audience here who work with companies and evaluate growth capacity, but there aren't enough of us yet, and the process itself is not recognized broadly enough in the M&A community. So that's part of our challenge, is to create more exposure and more recognition for the process, but to get more transaction advisors be willing to trust the process and refer companies in.

Well, and one more point, as a transaction advisor and as transaction advisors like a lot of you folks, you're looking for these opportunities because you can capitalize on it and you can make money. So the one thing that Ken and I spoke about is maybe this— there should be some sort of a formalized process where if that referral comes in from the transaction advisor, there's maybe some sort of an earning amount that they can earn, whether it's a percentage of the fees earned by the growth advisor or it's the promise of getting the deal back down the road or whatever it may be. I see this community wanting to be compensated, so if there's a way to formalize that process and institutionalize it, I think maybe that brings some of the leads back in the other direction for you, Chris.

That maybe could go both ways also. I mean, there could be, for the transaction advisor who refers the deal, maybe there's a fee-sharing component on the value growth consulting fees, but maybe the value growth consultant also could participate somehow in the actual transaction once they make that a marketable deal. So there's a lot of collaboration that could go on. It's a matter of getting people sort of open to the concept.

It becomes a function of the— when I began in this business, I think it was a lot more I keep my intellectual capital close to my vest. And that's kind of how everyone operated versus each other, versus it's more of an open source platform today. Today where you share your concepts of what you would have otherwise kept really close to the vest, is you share that with everyone else in the hopes of making the whole better. So this, this is one ecosystem that makes a lot of sense for me because we're not going to compete for, for the same business. It's the owner's decision whether they're going to do a deal or not. So if there's a way that we can collaborate together the same way as we do with wealth advisors, accountants, and attorneys, This is just one more piece of the puzzle from my perspective.

Creating an abundance mentality, sort of an abundance viewpoint in the marketplace. There's plenty of value, there's plenty of money to be earned by everybody in the process, and the collaboration will sort of benefit everybody who participates. Thanks, Chad.

You're welcome.

Harvey, you bring some interesting, unique perspectives from the lenders' community because is just as investors turn away a lot of companies and transaction advisors turn away a lot, lenders also do the same. There's a lot of competition among lenders to look for quality deals, but there are a lot of companies that especially having come out of the recession, the last recession, are sort of stuck. They have growth opportunities, but they don't have the capital availability to be able to capitalize on their growth growth opportunities, and the lending community sees a lot of potential deals that are not even financeable for them, and they typically turn them away. They may be a little more proactive in making referrals. I know we get— we tend to get referrals from some lenders who see the benefit of collaboration, but a lot of lenders haven't come around to that yet. From your lending perspective, Harvey, what do you think is important to lenders? What would it take to attract them to be active participants in this whole system?

I'm going to stand up because it's hard for me to see who's in the audience. But how many in the audience are lenders? Just raise your hand. Not very many. If you look at the attendance list, 10% of the attendees that are to come to this conference are lenders. That includes commercial bankers or commercial banks affiliation, finance companies, factors, all lenders, MAS lenders that are going to be at this conference. If you stratify the conference, it's probably an indication of what the M&A ecosystem looks like, or what the— more broadly, what the business ecosystem looks like. 25% of the attendees today are M&A advisors. Another 25% are PEG advisors, are private equity providers. So you see the majority of the attendees in this conference, 50%, are equity providers from the PEG perspective and M&A advisors from an origination perspective. Those two are more interested in getting together or need to get together. Why? Because you've got a supply and demand issue. Like Ken was saying earlier, you've got— probably got anywhere from $500 to $1 trillion of dry powder from a private equity perspective that's looking for somewhere to put that money to work. The M&A side are the distribution or origination system that could perhaps generate opportunities for PEGs to invest their money. So you have this huge gap. From my perspective, value growth could be the connector for those two sides. Why? Because value growth is more relationship-driven, more trusted advisor-driven than the other two. The reason that perspective is important is business owners are tough.

Why?

Because most of them, over 90% of them, are in business for what reason? I know you guys all know this stuff, okay, but I'm trying to put it in more of a perspective so we can get this ecosystem much more effective and much more efficient. I believe the value growth advisor, if he's able to create an alliance with the transaction advisors of private equity and M&A, if you can create a trusted relationship or alliance between those three, that's essentially the secret sauce to improve the effectiveness and the efficiency of the M&A ecosystem. And the M&A ecosystem improved effectiveness and efficiency has to come from speed. And who's the driver of the speed? It's the business owner. The business owner isn't gonna move or take action unless he trusts someone to ask him that he needs to go through this process. Now, who does he trust? He trusts mostly his commercial banker, his CPA, and his business attorney, and probably his insurance agent. Why? Because he doesn't have a business without them, right? He doesn't have a business without them. So he'll answer their call and he'll listen to them. So we talk about 90% of businesses that want to transfer, they're not market ready to transfer, and it's probably more like 95%. This ecosystem problem is a devastating problem for us as M&A advisors and transaction advisors. Yet we as transaction advisors, we're reluctant to ally, create an alliance with relationship advisors like Value Growth. Why is that? Time. We don't have the time. We may— well, we can close a transaction or get a business owner market ready within 6 months to achieve maximum value, then that— if you can create that secret sauce, it would be great, but that secret sauce is almost impossible to create. Why? Because it's going to take a business that's not market ready 1, 2, 3, 4, 5 years to get market ready. So how do we convince that business owner to employ a value growth, or how do we get a transaction advisor to ally with a value growth advisor? Financial advisor. How do you monetize that? That's the big question. But we know the driver of it, the driver of it is going to be the business owner. That business owner, he probably got into creating his own entrepreneurship for lifestyle reasons. Now he's a baby boomer. Right? He's a baby boomer and all 20, 30 years that he's spent creating this valuable asset, this tangible asset, how do you get him to start taking risk, in his mind perceived as risk, to grow his business to maximum value? It's difficult, but if there's any element that that's able to do that is gonna be the trusted advisor. I could talk about this stuff all day because I've been thinking about it for years. I'm a commercial banker that's been around for 40 years. I was a bank strategist, tried to start my own bank in 2008. Bad, bad timing. Capital dried up. Prior to that, I was in the military. I was a military strategist in a little place called Vietnam. There, as a military strategist, you have to collaborate internally with people in your platoon. I was a platoon leader. You got to collaborate, you got to figure out where the rockets are gonna be, where the machine guns are gonna be, but more importantly, where that point's going to be. Now, forwarding to the banking world, from my experience. I become a bank strategist, which is essentially the same as a military strategist, because you have to collaborate. So my lens in terms of what I'm sharing with you today is coming from experiences, some 40 to 50 years of experiences as a military strategist, a bank strategist, an IB strategist, and a value growth strategist. I'm pulling all of this stuff together to share with you my perspective on how we can get, perhaps, this ecosystem to be much more effective and efficient. And the secret sauce for that is how do we get all the constituents of this ecosystem The CPAs, the private equity, the bankers, the lenders, all of these components within the ecosystem, how do we get them to collaborate where everybody wins? And if we can figure out how to get everybody to collaborate where everybody wins, we can fix this thing. There's going to be a breakfast roundtable tomorrow and hopefully some of you, if not all of you, can join the breakfast roundtable and you can share your thoughts on this and how we can get this fixed. But I'm convinced the way you get it fixed is by creating more transaction advisors to become more strategic trusted advisors. With the business owner. It's hard to do because that takes time. But if you can transition the transaction advisor to be— to function more as a trusted advisor, which means you got to spend time with the business owner talking strategy and really getting to know that business owner's business and know him personally. If he's able to do that, he gets— to be perceived by that business owner as a trusted advisor. So you have a combination of trusted advisors becoming— you have transaction advisors becoming more trusted advisors, this combination. If we can figure out a way for all of us to do that, where we could be perceived as a trusted advisor, not just as a technician, Not just as a technician. A banker's a technician. He's a transaction guy. Tech— technician, he lends money. CPA does taxes and they do financial statements, right? I can go on all— for quite a long time on this because I'm passionate about it. So with that, if anybody has any questions afterwards, I can share more with you. I'll stop.

Thanks, Harvey. Chris, I'd like to turn it back to you for a moment to talk a little bit about from the business owner's perspective. You work with a lot of business owners and the members of your association work with a lot of business owners. What do we need to do in terms of building this ecosystem to get more exposure, more recognition from the business owner community? What does the outreach look like? How do we incent them? Some people have advanced the ideas that maybe if we had some sort of organization that could provide incentives to the business owners themselves, maybe there are low-cost loans or grants or something of that nature, financial incentives to get business owners to be attracted to come and participate. There are all sorts of different ways that maybe we could do it, but do you have any thoughts on how we get the business owners to— And that they obviously are the key. If the business owners come to the system, everybody else will flock like white on rice, no doubt about it. But it's the business owners are the key, as you mentioned earlier.

So, you know, we have a pretty strong group in Australia. For example, the Australian government actually does fund owners' transition plans. They provide funding and incentives for doing that. It always is surprising to me as to how much emphasis we place in this country on startups, and yet we have $10 trillion of value businesses that are likely going to transition in the next 10 years or so, and we're really doing nothing for them. But I'm a baby boomer, so I'm not counting on any of that. The only thing we have to do, and I'm saying this not as an opinion but as a fact because we've done it, is educate the owner. The challenge is, how do you get in front of the owner? Okay? Because they don't like advisors and they don't want to spend any time with us and they think we're going to suck them dry. But if you can get in front of owners, and we've done 3 specific things, they are, and I use the word enlightened, and I use that word because they use that word with me. There's 3 things that we have done successfully. One is we've done these corporate events. So a large part of our economy, manufacturers distribute product through through distributors. A lot of these distributors are independent businesses, low-middle market businesses. And what we've done is we've gone to the corporation, the distributor, the manufacturing company, and we've said, okay, let's look at your distributors. Case in point, 200 distributors across the country. And we went to the manufacturer, we said, okay, what percentage of those 200 distributors are owned are businesses owned by baby boomers? Roughly about two-thirds. All right? And are you familiar with what the statistics are related to successful transitions? It's not good. By the time we got done with the analysis, we were coming back to the, you know, CEO of the manufacturing company and telling him, you know, you're likely in jeopardy of losing 70 out of your 200 dealers in the next 5 to 10 years. How devastating would that be? What does that mean to your supply chain? And what are you doing about it? We were able to successfully get that organization to sponsor a 1.5-day ownership education session where they could bring their spouse, they could bring their family, and we would take them through a day and a half education. And I could show you the letters and the feedback that I've gotten from the manufacturing company of all this activity. That occurred after they got educated. We've also recently done— in fact, Scott Yoder is here— EPI sponsored with our local chapters what we're calling an owner's forum. We had about 160 owners attend in New York City and about 109 in Cleveland. And we put on either a half-day or full-day event where we brought the owners in for a full day on this integrated solution, so it included both left and right side. And we've gotten tremendous positive feedback out of that. And then most recently, we've done a number of these small roundtable sessions around this, what we call the 5 stages of value maturity: identify, protect, build, harvest, and manage value. And we brought— we bring 8 owners in at a time, and we take them through a— almost like a peer group session, we do one session a month for 5 months in a row. We completed 2 of these recently. We had all 16 owners attend every single session. And the hit rate out of that is roughly about 25%. The hit rate on all of these things is roughly between 15% and 25%. So what that means is that these owners are moving forward with action into that value growth stage. And, and if I could tell you, I'm going to try to actually get one of my clients to, uh, said it to me a couple of weeks ago. One of the questions we ask in our assessment is, how well do you understand valuation? And her comment back to me was, before or after I went through the roundtables? I said, well, after. She said It's a 5 out of 6 now. Before, it was a 1. So what I'm saying is if we can get programs which are educating owners, they're smart people. They'll figure it out. The problem is they're just not educated.

Right.

And, you know, it starts in the advisory community, getting ourselves educated.

Right.

Because we have all these pockets of knowledge, but if we're really going to be good team players and this ecosystem will require it. If you're— if it's going to work, you have to be a team player, which means you have to get out of your box and you have to try to understand the other person's point of view, even though you don't do it. So, you know, if you're not an M&A advisor, you still need to understand it because you need to know when to bring the M&A advisor and the best way to use them and introduce them to the client, right? So it's really, I think, through education and an effort, I think we said this, and a little bit of effort on our part to play in the sandbox and understand the other person's point of view, I think we can actually bring more quality deals to the table.

That's great. Good perspective. So if we can create a larger-scale educational effort for business owners—

Targeted at owners.

—targeted directly at the owners to educate them, maybe we can start to get them to be drawn into this system. And then if we could somehow maybe enhance that with potentially some financial incentives that might be able to be provided, then it gives them a little bit more.

Well, the financial incentive is harvesting the wealth I've built in my business for the last 30 years. You know, that's the challenge. That's where the real incentive is, right? If we can get owners, every one of us are going to be interested in being part of the ecosystem.

Right. Thanks. Chad?

Ken, the owners, like most of us, don't know what they don't know. Right. So the key, how do you get to them so you can advise them on what they don't know? Because once they know, they're there.

Right. Thanks. Chad? Is there any sort of secret sauce in getting the word out more to the transaction advisory community? You get it. I would say a minority portion of your colleagues get it, but the vast majority of the transaction advisors, I think, don't really have a strong interest yet in this kind of a process. So how do we get to— convince them?

We like it because our system is based on valuation. So we go out and we try to talk to advisors about valuation because the advisors and you folks are trying to get to the business owners. So if we can change our strategy, instead of trying to get to the business owners and we can get to the advisors, it creates this, this broad network of referrals that comes to us because again, we look at it like we're building a buffet. So We're saying, here's what we can do, this is how we do it, who's got opportunities? So if we've got opportunities, we can do what we do because let's be honest, I mean, we're M&A advisors. We're looking to turn equity into liquidity. If an owner is ready to do a deal today, most of these folks are lifestyle owners. So they've had their business for 20, 30, 40 years. They make more money than most of their neighbors. They do really well, whether that's a million $1 million a year or $10 million a year or whatever it may be, it's all relative. The guy that's making $1 million a year or the guy that's making $10 million a year, do they want to try to make $2 or $3 or $20 or $30 or whatever that number may be? The odds are if they've had it for 20, 30, 40 years, they're probably pretty happy with where they're at. So from a value advisor perspective, there's a lot of things that we all see that can be done in that business to make it more valuable. But Whether it is or not, that's another question. So when you look at this business and you, you, you come into contact with this owner, again, it goes back to motivation and expectations. If they can do a deal today and they're going to turn their equity into liquidity and they're meeting with the right wealth advisor and they know that they're going to have enough money to sustain the rest of their life, maybe other generations as well, do they really want to go out and push it again to, to, to play plug a transaction, I guess, thesis here. I mean, a lot of the deals that we're doing are majority recapitalizations. That guy wants rid of his personal guarantee, he wants to secure his family, and he wants to keep working because people are working longer and they want to keep working. So if we can do that kind of deal and we can plug additional capital into the business, the groups that are working, the groups are following the same strategy as you guys. You guys and other group of folks can help add value to that business. I don't always know that the owner is looking to do that. So it's, it's, if we can invest in the business and we can employ that, that kind of tactic or strategy, great, then we get the value. If we can go and we can take that to the market, if we're selling a business, the group loves that because you say, this is what the business is, this is how they got started, this is where they're at today, this is what they could do, and we took what they could do based upon upon what the owner told us, he just doesn't want to do it, then it's a validation of what the business is and what it could be. And then, you know, you guys are going to see a lot of value in that because then you know what you could do with the business and someone's going to get that value one direction or another. And, you know, my estimate is 95% of all privately held businesses to a certain extent are lifestyle businesses. Sure. So someone's going to get it. So my theory is If we can help them, show them what it is today and what it could be, do they want to participate or not? Right. And that's not up to us, unfortunately.

Yeah. Thank you. Go ahead.

One of the comments that reminded me of a conversation I had with an owner just a few weeks ago, and it's a $30 million business. We're talking lower middle market here, right? $30 million business. I had the conversation with him that you say, well, what do you think it's worth? What it was worth, and we were taking them through the assessment. And we had them off to the side, and I said, it might not be worth anything. He's like, how can it not be worth anything? I said, if it can't be cashed in, if it can't be transferred, or we can't find somebody attractive, that's attracted to it, because it's dependent on you, there's lack of contracts, you know, we can go through the list, I don't care if you do it $30 million, right? Unless we can maybe sell the contracts or something, maybe orderly liquidation is the best, you know, he turns white because he's realizing it may not be worth anything if he doesn't, you know, do something to at least get it ready. So I think to your point, what happens is that sort of crash of reality. And I was trying to, you know, a little bit of shock value in there by being so direct, but that little bit of shock value can initiate the owner to do something. And we're not necessarily always talking about 2, 3 years. You know, sometimes it can be 6 to 9 months just to get, you know, things together, get some contracts in place, renegotiate a few things. And the— and I love the recap solution because a lot of times what we find is once an owner starts to get excited, we had a family transition not too long ago. Brought the children in, and the owner's comment on this panel was, I'm reinvigorated. You know, I was on autopilot and wasn't going anywhere. Now I'm reinvigorated, and now I do want to talk to private equity because I want to grow this thing and I'm pumped up about it. So I think it can actually turn these things that look dead into something that really becomes a great investment. Certainly, you know, from a private equity or family office standpoint, they not only need the money, they need that expertise to get them to the next level.

Well, another point there, you know, we're looking at an opportunity right now, and it's $3 million of EBITDA, and there's $4 million of assets, and they're 100% customer concentration. Who's stepping up to take that? The owner's looking at a deal of 1x EBITDA, which is less than asset value, and if you look at the you look at how you can get that financed, you can look at something interesting. So, you know, my crazy group of people that I work with like that kind of deal because we can do a majority recapitalization. We've got a great valuation. If we go bolt on 2 or 3 other businesses and we spread out the risk profile, now we look at an institutional investor, things are looking pretty good. But that owner says, listen, I just want out. I'm ready to go. I'm like, well, you want out, but you've got a couple more years in you, right? So it's the promise of something more. So you're creating value for him indirectly. He's not going to go and do those other things that need to be done, but he can keep the thing on the tracks for 2 more years, 3 more years. And that's enough time to find someone to run that business. Or maybe it's an owner of one of the other businesses that we bolt on and/or merge. So it's, it's, I think, thinking outside of the box a lot of times.

Great, thanks. Ken? Yes, Harvey.

Let me make a comment. You know, when we're talking matrixes and profits and restructuring capital and all of this stuff, that's a technical perspective. What gets business owners to move and to take action to do anything, to just listen to you, is emotional. It's emotional. They make their decisions based on emotion. So if you got a business owner, particularly a baby boomer, who's just fine with where he's at, how do you get him to transition into a mindset of value creation, because the transaction advisor thinks, he's thinking matrices, he's thinking how to grow the business, he's thinking how to grow the EBITDA, which will benefit the business owner, but the business owner is not thinking that. Somebody has to get in front of that business owner to get him to start thinking strategically to create value. What I'm saying is that I believe within the ecosystem, the 3 key advisors that can make that happen are bankers, commercial bankers, CPAs, and business attorneys, because that business owner emotionally is already connected to those three. So strategy-wise, our focus within the ecosystem should be to ally value growth, which are strategic advisors, with the misnomer trusted advisor, which are not. They're really transaction advisors, 'cause they do their discipline. I'm talking about the CPAs, the attorneys, the insurance agents. But if we can really strongly ally with them and accelerate the process with speed, that would create and trigger the momentum to make this ecosystem much more effective and efficient.

Great. Thank you. With the few minutes we have left, I'd like to open up to the floor for any questions, comments, concerns. Yes, sir. I can't really see who that is. Terry. Thanks, Terry.

Of having the local chapters actually do the education stuff as business owners.

And you're right, because we always get together and all these people are—

it's all the professionals in here.

And we do that back home too in the Boston area.

And where are the business owners?

You know, because it might be a great idea, but if each individual advisor doesn't go out there and show you a shotgun approach one at a time, it's not going to get the word out. And there's so much at risk, as all of you guys know, and there's such great wealth that's out there. You know, Canada did a study, I think it was 8 years ago, 10 years ago, doesn't really matter, but they know there's gonna be a lot of businesses that are just gonna close down because there's not that value. They don't have anything to sell, to your point, Chris, some of them, or very little, and there's 10 million less people behind us, boomers, to buy. Buy the business. So they need to do things to increase the value besides get themselves personally ready. So there's more than just the financial aspects, but you need to get the awareness out there and educational process out there. So if the chapters could do that, if AMA could do that, I think that'd be a great start.

That's a great perspective, Terry. Thank you. In case you didn't hear the beginning of that when Terry didn't have the microphone, it's— his suggestion is the AMNAA has chapters around the country. EPI has chapters around the country. There's some others like XPX. And if we can take this message out to those chapters, if you belong to any of these association chapters, and start to sort of propagate the message there and have those members, the chapter members, take it out to their relationships as well, we can start to spread the word a lot more quickly. That's great. Thanks for that. Other questions or thoughts or ideas?

Can I follow up on that question? Go ahead. Oh, Terry, just to follow up on that, a couple of ideas. One of the guys you guys should talk to if you have a chance, I hope you don't mind, Scott, talk to Scott Yoder who's right here, raise your hands. He's on the board of our New York City chapter, and they ran an extremely successful ownership forum. And it was a big collaborative effort by the chapter, and they did a really nice job. We throw that word like collaboration around a lot, but that's how it works. So one is, yeah, chapters is one way to do it. Another way that we found is just get together with with a couple other advisors. We've gotten together with Skoda Minotti in Cleveland, and we've run these roundtables. We bring in a couple of— we bring in a law firm, we bring in a CPA firm, we're in there, and everybody contributes some clients. The way these forums were done, were done that way. So if we even just sort of create small pockets where we work, really work together to set goals and objectives and run these events, we can get owners to attend these events, especially if you're the trusted advisor and you're calling the client up and you're saying, look, Randy, I really, really think this would be a good idea for you to come, right? And they'll come. Yeah, and all the content better be good or they won't come back, right? But, uh, but they'll come to that stuff. And if we get 2 or 3 or 4 firms, different firms working together, you can create these kinds of events, and that begins to stir. And in the events we've run, every one of those owners we've asked to recommend another owner that should come. So it's now— it's perpetuating itself. All right. Good.

Chris, I agree. I agree with that. And I've run quite a few seminars for the last 12 years and brought in other advisors. So we're collaborating and getting in a bigger source of business owners. I'm just— I was looking at greater leverage than one-offs. That some of the— me or the RSCG, a smaller organization, we can do some of that. But if we have the chapters going out there and actually putting a definitive development plan in with some action steps that they're going to carry forward and do 5 or 6 or 7, whatever it's going to be, on a quarterly basis around the country, I think that's very impactful to start getting it going that way.

Great. So education. Outreach, collaboration, an abundance mentality, incentives. These are all ideas that we can sort of start to formulate or get, get to be a little more formal in how we go about creating this ecosystem. We're out of time. I'd like to thank you all for, for staying here and listening to the presentation. I hope you'll stay around for the next session and join us tomorrow for the breakfast roundtables as well. And please join me in thanking our panelists here. I greatly appreciate it.