Generate the Right Deal Flow

I want to thank everyone for coming. I know many of you spend a lot of time on airplanes, on trains, and in cars, and I'm very appreciative of the time that you're going to spend with us over the next day or two days.

I just want to make a quick comment about the deal market.

We all know it's been a very challenging market. High prices, high leverage, lots of competition. Yet people are still getting deals done. So in putting together the content, for today and tomorrow. We really tried to address this theme. We really tried to attack about— we really tried to address the theme of how people are still getting good deals done in this highly competitive and very seller-friendly market. I hope everyone takes advantage of the panels that we've set up today and tomorrow. We've got great panelists and we've recruited some really top-notch Talent. A couple of housekeeping items. Mayor Rahm will be here at noon. His people tell me he's quite punctual, so I would encourage people to begin congregating at 11:30, maybe 11:45. Mary Lou wanted me to mention the, the CPE forms in the back. And if you have some time over the next few days to fill out the evaluation forms. Lastly, I just wanted to thank my fellow committee members. For the last two months, I've asked them to be on phone calls with me every Friday in the afternoon, which is probably the last thing they wanted to do. And so I know I took time away from their day jobs and probably other areas of their life, and I'm— quite appreciative of the time they allocated to this committee. So with that, I'm going to turn it over to Gretchen and her panel. And thank you very much.

Thank you, Justin. We are all delighted to be here in front of you today. We're delighted to see such a great crowd. So thanks for taking part of your schedule today to listen to us. As Justin said, we all know it's a very seller-friendly, very competitive environment right now, and I think generating deal flow and generating the right kind of deal flow and not wasting your time on things that are not the right deal flow for your particular shop is very important. I think another reason we're happy for this opportunity to be in front of an audience of a bunch of professionals whose job it is to talk to business owners and connect them with capital when the time is right, is our stakeholders. Some of the most important people in our lives are our investors, our limited partners, who have taken an increasingly harder look at all of the business development, deal generation, functions in the GPs in which they invest, because they realize that's a critical part of bringing the right thing in so that you can build upon it and grow. So those are the folks that we want to please most often, is our investors. And so we're really thankful for all of the deals that you guys bring to us, and we're hoping for more. So with that, we will kick off. I have a great panel here, as you can see. What we thought we would do, one of the— our topic is generating the right deal flow, and one of the things in terms of generating the right deal flow is when you have an opportunity in front of an audience like yourselves, you take that opportunity to tell you all what we're looking for and where our real sweet spots are. So we're going to go through a slide of each of ours showing our— the deals that we've done in 2014 and 2015. I think, although Richard pointed out that I may have— I may have jobbed him here and not included everything. So feel free to embellish on your slide, Richard. To tell you what we're looking for and where we're looking to add on, and then if there's any other areas of initiative that we have where we don't have a deal done yet, but we're actively looking, we'll describe that as well. So that's how we're going to kick it off.

And why don't you each do a little—

you know, an introduction of maybe the overview of your firm, where you're located, that sort of thing as well. So we're going to step off with Richard Prestigard from High Road Capital.

Great. Thanks, Gretchen. Yeah, Rich Prestigard with High Road Capital Partners. I'm a partner, and my function is to focus on our business development or deal sourcing. Some people just refer to me as the deal sourcing guy at High High Road. I've been with High Road since our inception, or near, near our inception. I was the first person that the team, the founders, brought on board in 2007. Our mission from then till today has been the same through two funds. We're currently working on our second fund. It's been to find pretty much well-run businesses that are a certain size range and and perform well. And that's defined by us as $3 to $10 million in EBITDA generally. We do look at things larger, up to $15 million, and sometimes things even smaller, down to $2 million for platforms. But generally, we're living in the $3 to $10 million EBITDA range. And then well-run for us is defined— well-run or special is defined as 10% or better EBITDA margins. We are still an opportunistic fund. There's been a trend lately to be more and more specialist in terms of industries, but we feel like in our size range, a lot of the opportunity in improving businesses that we look to invest in are more or less blocking and tackling type things— improving the CFO function, improving systems, things that are important to do in nearly any niche industry. So we do look for control investments, and we look across the US and Canada. So on the slide here are two of our platforms that we've done in 2014 and 2015. I think you'll see in other people's slides add-ons also on there.

I thought that was clear.

That's the part that I didn't catch. We've been more active than just the 2 deals, and I felt embarrassed when I saw everyone else's slides with all the deals that you'll see in a few minutes. But we've done, since 2014, we've done 2 platforms and 4 add-ons. So 6 transactions, so still probably fewer than some of the others on the panel, but we've been very active since 2008 when we closed our first one. We've closed 33 acquisitions and we've done 4 exits. The two on the screen that are highlighted, Gretchen, do you want us to talk about specific deals right now or are we going to come back?

Yeah, talk generally about what those are and if you're seeking add-ons, what those would look like.

Yeah, so, you know, our modus operandi in any acquisition that we do in platform is generally going to have an add-on strategy. So a blanket statement is when people ask me, you know, which of your platforms are looking for add-ons, the answer is pretty much always all of them. We, you know, that's one of the things we bring to the table. A lot of these businesses have gotten to the point where they've grown nicely, they're doing good things in their space, but they kind of lack the wherewithal to execute an acquisition. They don't know how to go about finding one, they don't know how to negotiate it and put it together and then integrate it once they own it. So add-ons are always going to be an important part of the story. The quick story behind these two deals, they're both fun two deals. We source, you know, our opportunities from lots of different places, and I think I'll be talking more about that a little later too. But General Tools, just to give a flavor, I think is the point of this slide, of the type of stuff we look at. General Tools is a consumer-focused tools and instrument deal. It was somewhere around— both these businesses actually are quite old, 90 to 100-year-old businesses that were privately held. General is focused on hand tools and instruments sold through the large Home Depots and Lowes of the world, as well as specialty channels. And York is a wall coverings business that We say wall coverings, it is mostly wallpaper, but there's other things that go on walls that fall into this category. You're also very old, lots of old equipment, a lot of challenges and working through diligence here on inventory and understanding what the equipment base is and how to grow this business. But also a nice story that actually is the largest platform that we've executed to date. So I don't know how much more detail you want to go into on these.

I think that's good. They're going to look for hand tool companies and wall covering companies for you. Next, we're going to go with Kyle at KLH.

Yeah, good morning, guys. I'm a vice president at the firm. It's called KLH Capital, headquartered out of Tampa, Florida. We've got another smaller office up in Charlotte, North Carolina, or just north of Charlotte. Some of you guys may know my founders, as they were the founders of Florida Capital Partners back in the day, back in the mid-'80s. So in sum, we're on our 7th fund. We've done about 140 deals since the mid-'80s. Since 2005, we've been managing only capital from high-net-worth individuals, half of which carry KLH business cards. So I think that's one differentiation that we bring is that, you know, when we walk in and sit down in front of a business owner, you know, half of that capital is coming from, you know, our own wallets. And I think further than that, it gives us the flexibility to do big deals, small deals, deals with customer concentration, vendor concentration. I mean, we can look at a lot of different quality deals on that scale. As you'll see here, loose $2 million of EBITDA. I think we would draw a line at about $1.7 million, but we can be opportunistic, so call it $2 million to $10 million. Industry-wise, we like to focus in distribution, business-to-business services, oftentimes a lot of industrial stuff as well as manufacturing. And then I think when you wrap up our firm and kind of who we are and what's our DNA, I think it comes down to we're a recap shop. That's really what we've done over the last 30-something years is recaps, management-led buyouts, family succession deals. We're really, really good at kind of bringing that bedside manners to these family-owned businesses, which, you know, none of them are perfect. So we understand that. Getting into the deals that we've done over the last couple of years, these are 5 platforms. CCM to your left. Is a New Jersey-based cell phone tower maintenance company. In the center, Bluesky is a Denver-based restoration contractor, and they're focusing on doing remediation and restoration to high-rise condominiums as well as commercial buildings. Absolutely looking to do add-ons there. The one furthest to your right, Chapfali and Measurement, is down in Louisiana. They're a distributor and servicer of measurement and metering devices going into the oil field all across the South. So we'll— we too will look for add-ons there. Bottom left, Mid-State Machine and Fab is a Florida-based field services business that's doing the plant shutdown and outage work going into power gen, mining, chemical plants, cement plants. And some agriculture. Again, absolutely looking to be acquisitive there. And then Data Display is one of our most recent deals, which is headquartered up in Philadelphia actually, which is a distributor of customized electronics. You know, think audio, visual, and video going into the point-of-purchase display and fixture market. So we're not actually making the POP displays. This is more almost like think about walking into a Best Buy, and as you're going to try on all the different headphones but listen to the same song, this is the electronics that mate all of that together behind the scenes. So happy to chat about all 5 of these. We're looking to do add-ons in all 5 of them, and happy to chat more.

That's interesting, the one you described last, it's another one of those companies that we all run into frequently where you go, huh, I guess somebody does that.

Yeah, somebody's got to do it.

So interesting. All right, Jennifer from Thompson Street.

Is this on?

Yeah.

Hi, good morning. I'm Jennifer Ealand, Director of Deal Origination at Thompson Street Capital Partners. We are based out of St. Louis, Missouri, currently investing out of our third fund. The size is $380 million. We consider ourselves industry agnostic. With that being said, there are 3 primary verticals that we feel have really surfaced throughout our investment history: business services, healthcare services, and highly engineered products. We've also done a number of B2B distribution companies, from traditional distribution to e-commerce-based, primarily those that are focused on SMBs. I would say we're primarily investing in founder-led businesses. Due to the size of $4 to $15 million EBITDA is sort of our sweet spot as well. That being said, as many of my— of the panelists already mentioned, we will definitely go south of that as well as we can muscle up to go north as well. I would say probably the smallest company we've invested in was about $1.9 million EBITDA. And we were really excited about the management team as well as there was a number of readily available add-on acquisitions that they were already in discussion with. And we felt really confident that there were ample synergies with making those happen. I think our real differentiation at Thompson Street, we like to consider anyways, our culture. We're based in the Midwest. We're extremely transparent throughout the deal origination and transaction process. We've had a number of families and founders that we've worked with say that they really appreciated that we really do put all of our cards on the table. They felt like we all kind of knew where we were going into this from the beginning. We like to be involved at the board level, but we're, as so many others, at the end of the day, we're investing in our management teams. So we've had a pretty good 2014 and 2015. We've been pretty busy. Sorry, Rich. I saw the part of the message that said add-ons. The top row are all add-ons. The 3 boxes that you see, the D, E, R, E, and R, R, are all add-ons for our platform called FocusVision, which is in the market research space. It basically adds technology and software that allows focus groups to be transmitted via video conferencing. So the executives at Procter Gamble don't have to fly to Germany to watch this focus group as it's happening in real time. They can log into FocusVision. See the focus group as it's happening and also communicate with the moderator in real time as well. So those 3 add-ons were synergistic in that they added additional services in the qualitative and quantitative research space to the FocusVision platform. Exand and PTP are both add-ons for our data center called TierPoint. Exand basically doubled the size of the company. It was a $40 million EBITDA a mid-size company that we added on to TierPoint earlier this year. The platforms, EchoSat, StonePanels, and Infinity, as well as TriStar. We also had 2 additional platforms that are not— we're not able to disclose at this point. And we had 3 additional add-ons as well that we're unable to disclose at this point as well. EchoSat is a Lexington, Kentucky-based company that helps with security at the point of purchase at mobile gas stations in primarily tier 2 cities. So they're the folks that help make sure your credit card information is not compromised when you put it into the mobile gas station. So they're not processing the transaction, they're not processing the money, they're just making sure it stays secure, which was another one for us that we thought, huh, yeah, that's important. That seems to be increasingly important in these days. Stonepanels is a composite stone panel that is used primarily in commercial applications. This is a building products search that we, that we took on and was able to find this company out of Texas. Infinity and Receivables Management Partners are both in the revenue cycle management healthcare space. RMP at its core is a collections company. We actually acquired that company in 2013, but it's up there because we had two add-ons for it this year. And Infinity is a full-service RCM company primarily focused on the behavioral healthcare system. Behavioral healthcare providers. BioIBT is a distributor of biological products for the early-stage drug discovery markets. So these are cell samples, tissue samples, hepatocytes, anything that a researcher who's trying to find treatments for Parkinson's and cancer might need in order to perform their research. We did 2 add-ons for BioIBT as well. Finally, Tristar is in the energy services services space. They do hydrocarbon cleaning for oilfield providers, excuse me, as well as some chemical plants. If this clean needs to happen whether the market is up or down, as well as in emergency situations. We are looking for add-ons for all of these companies.

All right. Hope you're all taking good notes. What we're all looking for, that's why we're up here. Randy, Summer Street.

Good morning, everybody. Randy Bianca, I'm a partner with Summer Street. Been with Summer Street for 8 years, and I lead our public outreach and marketing effort at Summer Street. One of 3 partners, or one of 3 associates at Summer Street that's strictly focused on business development. So I'm excited to be here today. We're investing our third fund and currently seeking healthy companies that typically range from a $3 to $15 million in EBITDA. $3 would be the floor. It would be tough for us to go any lower than $3, but we can certainly go higher than the $15 for the right opportunities. In terms of our focus, we're generalists like most of the private equity groups. We are focused on healthy companies. We do avoid companies that are highly regulated and will require a lot of reimbursement risk. Those are deals that currently are not in favor at Summer Street. But other than that, we are generalists, and we appreciate any opportunities that you bring to our attention. Currently, across Summer Street funds, we have 13 portfolio investments in our platform. In 2014, we did 3 platform investments, which are the top 3 logos that you're looking at. We did 6 add-on acquisitions. The first one you're looking at is a Las Vegas company called Full Spectrum Laser. That's a company in the additive manufacturing space. We actually manufacture laser engravers and 3D printers. The second company is a company called Dwell Works. Dwell Works is in Cleveland, Ohio, and that's in the relocation management services, and we support basically RMCs, which are the relocation management companies. Our focus in Dwell Works is is international travel. So any opportunities you see in that space, we really appreciate you bringing it to our attention. And then finally, Multisorb Technologies, that's an active packaging company and basically manufactures sorbent materials. You can buy a steak, that little pad that's on top of the steak, or prescription, we have the little caplets inside your prescriptions. We manufacture those products. Very nice company that's actually located in Buffalo, New York. And I added the Curtis Bay and Apple Valley Waste. Those are two of the portfolio companies where we did a number of acquisitions last year. The Curtis Bay is medical waste incineration. Obviously, it is exactly what it sounds like. And then the Apple Valley Waste is a collection and disposal company. We also do recycling, and last year we did a joint venture to do a waste-to-energy conversion plant. So in the environmental services space is an area we particularly like. I guess one thing that makes us a little unique from some of the things we've talked about is we will consider non-control investments. So not just control. And it's something that makes us very unique. In fact, I can probably tell you that we are probably the only private equity firm that can tell you this.

We're located in Buffalo, New York.

So that makes us very unique. Hence we do a lot of the travel, but I'm excited to be here today and talk to you all.

So thank you.

Thanks, Randy. I'm going to rocket through this slide because we're running long. That's a shock. 5 business development professionals with microphones in front of them are taking longer than intended.

That is—

that's shocking. I'm Gretchen Perkins. I head up our origination efforts at Huron Capital. My colleague Heather Madland— Heather, please WAVE. We'll be calling on those of you who are located west of Chicago in the western half of the United States. And we have a 3-person dedicated business development team looking for businesses with EBITDA from $5 to $20 million. However, we've been much more active in add-ons in 2014 and 2015. We've done 12 add-ons. This year across the portfolio, and I'm just going to hit on 3 of the platforms that we did and tell you what we're looking for. We have, we have a couple of dental practice management, dental service organizations. So you all know one dentist, maybe two if you take your kids to a pediatric dentist, which is different than your dentist. So we're looking for dentists to add to our practice management groups. We closed a business last year called Accelerate, which is auto auctions. We've done one significant add-on for that this year, looking for that. And then our third platform we did in 2014 was called Alberio Energy. Last year our CEO of that business spoke here at this conference on a panel, so some of you may have heard him. And we're looking for energy efficiency, engineering, and building automation businesses. So United States and Canada, that's what we're looking for. All right. We're going to have a bit of Q&A here, and heads up, we're probably not going to get to all the questions we talked about because I really want to focus on— we've put together a list of dos and don'ts for all of you intermediaries in the audience, and we're really excited to tell you what we love when you send us things and things we really wish you would do differently. And we've limited ourselves to 3 pages. Of said dos and don'ts. So just the really, just the really important things. But first of all, for Richard and for Kyle, could you describe a deal that you generated at some point, you know, for your firms that, that is a good example of, of how you guys differentiate yourselves amongst the rest of us? We all go to market differently. We all have different strengths. Can you, can you give the audience a brief overview of a couple of things of a deal that either shows something that's very typical about how you do things or something that you guys use as your real differentiator for generating deal flow. Rich, you go ahead.

Okay.

It's—

we talked a little bit about this last night. I think the differentiation question is sometimes difficult. We all have a little bit different focus. We'll have a little bit different ways of doing things, but at the end of the day, we're after a lot of the same things. I think really what happens is you're differentiated by your performance and how you ultimately deliver what you say you're going to deliver. For High Road, you know, we feel— I feel fortunate to have joined a group that High Road is not a place, it's a brand, and we, you know, conduct business in what we call the High Road kind of way. We always take the high road. It's a little bit corny. We say when you take the high road in life, you end up in a better place. We think that's really true. And, you know, it goes down to the people that we've hired and how we go about approaching the market. That said, tactically, how I have developed the business development function at High Road has been a very methodical, disciplined approach to Identifying the market and, you know, peering out where, you know, I'm one person and covering the United States and Canada and something like 4,000 intermediary firms, up to 4,000 intermediary firms, 6,000 to 7,000 individuals. That's a lot of people. So you've got to kind of break it down in some way and figure out a right way to approach it. Approach that. Um, at the end of the day, the deals we've sourced have come from intermediaries, lawyers, accounts. Everybody from day one since we started High Road has been considered a potential deal source. Some people are more prolific deal sources than others. So to pick one, uh, and highlight that, it's kind of hard. You know, because literally those two deals that our platforms were sourced from two different types of intermediaries. Most of our stuff is sourced from intermediaries, but not all of it. One of those intermediaries is a long— I call it a really good relationship-based intermediary. And the other one, I think, is interesting, maybe a little bit differentiating. We sourced from Cowen, which normally does much larger deals and and most people in this room would think, why would High Road be targeting a Cowan? You know, my background is investment banking. I came from larger intermediaries, and I know that they do small deals from time to time, so I've kept relationships with those guys. I don't spend a lot of time calling on them, but I know that every once in a while they're doing a small deal that's strategic to them. They kind of want to get it done fast. They have a limited number of sources that they know to go to for capital to get those kinds of deals done. And we've actually done 2 deals, you know, on that basis, one from Cowen that was up there and another one from Moelis.

Still stings that I missed that Cowen deal.

I like to rub that one in every time I can.

Sure, you use this venue to bring that up. Thank you.

The favorite ones though are, you know, relevant to, you know, the audience. You know, one of the first deals we did, there was an intermediary in the room. It was a cocktail party for an ACG event. It wasn't an AMAA event. But, you know, he was kind of standing there by himself and was a more shy type of person. And, you know, what we do, we all do, we're all kind of Type A personalities. You go over and talk to the guy and it turns out to be a huge successful deal for us. My favorite story is, you know, getting out there and talking to people on the golf course. You know, I actually sourced a deal there. Sourced a deal on the food line in my kids' elementary school.

So every person you meet is a potential deal source.

You take that down.

We didn't do that one, but, you know, we did seriously consider it. So they come from all over. It's hard to kind of pick one thing. My answer to this question is everyone's a deal source. You gotta kind of find ways to be as efficient as possible and be disciplined as possible. And most importantly, deliver on what you say you're gonna deliver on. And that ultimately results in a brand that, whether it's tied to your company name or not, the brand is what you do and how you do it. And it needs to be consistent and deliver on what you say you're gonna do. So I guess overall, I think that's my answer.

Thank you. Kyle?

Yeah, I think when looking at the 5 deals that we just showed you up on the slides, one, just so you guys know where they're coming from, and I'll mimic much what Rich said, one came from an intermediary who was working on the buy side because the seller wouldn't engage him, so we had to pay the fee. We have no problems doing that. One came from more of a boutique investment bank in the South. One came from an accountant, one came from another boutique investment bank out of the Midwest, and one came from an independent equity sponsor. So it's a myriad of different types of sources. To Rich's point, we've seen deals from life coaches, we've seen deals from accountants, attorneys, consultants, bankers, lenders, the whole thing. Let me ask kind of a quick question. How many of you guys have ever walked into a meeting fully expecting to talk business and you walk out without even mentioning your company's name or anything about business whatsoever? It's interesting, not as many as I would have hoped. So I have, fortunately or unfortunately. I think this is kind of a wild story, but I flew out to San Diego for InterGrowth. I think a lot of you guys were there a number of years ago. There's a gentleman who lived about an hour north of San Diego. I'd never met with him. We were supposed to get together at InterGrowth. Intergrowth. He was busy, decided to cancel. I popped in a rental car, drove to his house, sat on his sofa, talked about the Kardashians for 90 minutes. I'm not at all kidding. 90 minutes about the Kardashian family. Didn't talk about KLH, didn't talk about his business brokerage, didn't talk about what we wanted to invest in whatsoever. Clock's due. I had to drive back to Intergrowth. He then called 3 months later with a deal with about 6.5 of EBITDA in New England. He's obviously West Coast. He had mailed them a letter. Wife had opened up the letter on the right day. She had called him. He called us. We did the deal, and it was an over 10x return. So looking back on that, to Rich's point, it's like, where do these deals come from? I don't know. But the point is, you got to cast a wide net and We track our deal flow down to basically any sort of metric we possibly can get our hands on. And it's really interesting to know that there's, there's very, very little correlation, at least within our data, very little correlation with the location of the company versus the location of the intermediary. And we thought that was really interesting when we mapped out the US to say, all right, if we're in Tampa and Charlotte, do we spend 100% of our time in the Southeast? Well, our data proves that I may have to go to California to get a deal in my backyard. So it's a really interesting market right now. But I think the key is to, again, to Rich's point, you have to do what you're going to say. You have to be responsive. You have to bring good bedside manners to these businesses, at least, you know, because we're doing a lot of small stuff, you know, $2 million, $3 million of EBITDA, where the culture is literally everything to these people. So I think you have to have the right bedside inside manners in front of these groups. And I think that's what wins, right? I mean, all you have is your reputation in this industry.

All right. So I assume you have a bullet plan in your marketing plan every year now referred to as the Kardashian content strategy. Go-to-market strategy. I like it.

All right.

I'm going to combine a couple of questions. Randy and Jennifer, together collectively you have 4 minutes to cover this. Just to manage expectations. So can you describe, can you describe for the audience, I mean, we are your primary contacts at each of our firms. So I'd like you to describe what, you mentioned you're one of a 3-person business development team. Describe, you know, very briefly the structure of your team and how, you know, the onboarding of a deal happens at your firm. When is the handoff to the execution team? if there is a clean handoff. Just kind of describe that and, you know, how overall, how do you strategically manage your outreach to this type of audience?

All right.

Well, I can stay within 4 minutes. I'm from Buffalo now, but I'm originally from New Jersey, so I can speak quickly. But so I'm one of 3 folks— one of the other partners in business development, Gary Hall, many of you might know, is also my mentor. He's in the back. Typically the way it works within Summer Street, and I think the easiest way to position it is to kind of understand what a deal team typically looks like at the end, post-transaction. So resources that we engage would typically be business development, we'll have a deal execution person, we'll have an operating partner, and then we'll have a junior associate that's on a deal. The way we introduce resources is typically kind of a stage gate. So deals that come into the firm typically Typically we'll start with your business development contact who will receive the teaser and the information you forward. We'll review that. If it looks like a compelling opportunity, at that point we'll execute the confidentiality agreement and then we'll request additional information. So when that SIN comes in at Summer Street, at that point we're engaging a deal execution person based on resources and fit for the opportunity. So we'll work— the BD person will work with our deal executive partner, in reviewing the SIN. If we like the opportunity, we're going to present it to the investment team. We'll engage a junior resource, typically an analyst or associate, and then they'll get involved in writing a two-pager and we'll present it. So at that point, we have the deal execution person engaged, we have an analyst engaged, and then once we're moving forward in the process and we're going to go to a company meeting, the business development person will kind of exit that process kind of will gracefully back out and will introduce an operating partner who will be— typically it's a senior executive who's the CEO, former CEO of another business that kind of gets involved in the company meeting. And then once we move through the LOI and the close, you know, that same team stays in place and will continue to work with the portfolio company. The business development person is re-engaged again at the end of the process to work with the portfolio company and for any strategic needs that they may have that relates to add-on acquisitions, etc. So one of the things that's important is we all work together at Summer Street. You know, business development deal flow is a team effort. You don't need to copy everybody in their firm. Typically, you can use— if you want to include a, you know, a deal executive in the business development, that's fine. And then we'll engage the right persons and we'll bring it forward.

Thanks.

Jennifer? Sure.

Our process is very similar to the one that Randy just described for Somerset. At Thompson Street, so I work with 3 other individuals on the deal origination team alone in terms of our sourcing efforts, our marketing efforts. We try to do a pretty broad spectrum of direct sales-like outreach to intermediaries and others, as well as some broad marketing activities as well. We're a little unique in that the way that my colleague Jack and I have split up our outreach efforts is I handle primarily more broad-based marketing activities, a lot of conference attendance. I also do some level of— we would sort of call it limited and proprietary deal flow, although we do really like it when intermediaries get involved even on our proprietary deals, because as you guys all know, that really helps get the transaction actually done. But we try to reach out to to business owners directly on occasion to give us the chance to have a seat at the table when they do decide to go to market. We have— we are actually getting ready to increase our team and add an associate/analyst to the deal origination team as well to help us in a number of those efforts. We like to work with executive partners and try to have executive partners involved in a number of the industries that we've identified that we want to try to sort source a deal in. We also like working often with buy-side intermediaries who are actively looking in a particular space. In terms of when the handoff occurs, so my colleague Jack is a special operations former Army Ranger, so as it turns out, as you can imagine, our process is pretty militaristic. Yeah, it's a little traumatizing. Occasionally.

Right.

So we have a color-coded chart that we review every Monday morning in addition to when we have our standard deal origination meeting. And we like to stay as involved as possible up until, similar to someone said, up until the point that we are at a management visit. Obviously, if it's a limited process deal or proprietary deal and the relationship originated with me, I will stay involved longer in the process even to the point of close and of course then post-close. The origination team also gets involved again as Randy said. When we close a deal, we work actively with the management teams to source add-ons.

Thanks. I think the overall message is we're the frontline, we're traveling all the time, and so when the handoff occurs to the execution team, that means we've decided and we've vetted it enough, with you all to deem it worthy of having our guys back in the office spend some real time on it. And if we made that decision, then they're going to jump on it, right? And they're going to be your enthusiastic supporters of the deal. It's not that we've, you know, we don't love you anymore, we don't want to talk to you anymore, it's just time for us to go to the next city and, you know, generate the next batch of deals to bring in. So that's— just wanted to give you a sense of of how that works. Rich and Kyle, if you can do this in 2 minutes or less, big topic we wanted to cover, because these are somewhat the bane of our existence, but here to stay, is online deal portals. Can you talk about your approach and how you efficiently work with those? Stay away from dos and don'ts, because we have a few dos and don'ts regarding this topic.

You want to go first on this one, Kyle?

Yeah, so deal portals are an interesting thing. I do think that they're here to stay. We do use them. I think we, you know, of a 3-man origination team, one of us is dedicated, you know, not full-time, but covers the deal portals 100%. Make an interesting comment. I think When we look at where these deals are coming from and what's the quality of the deal flow, again, we use Salesforce for our CRM. We track everything. We've noted that, I don't want to say the quality is different from the online deal portals, but I don't know that we've ever chased anything that's coming from the online deal portal. So I don't know if there's any correlation there, but our data would say that of all the deals that we're getting outside of these things, we haven't yet chased one. So we use them as almost like an insurance policy just to make sure that we're seeing everything that we should be. But I think it, you know, so far it seems to be slightly different quality.

Rich?

Yeah, I'd echo pretty much every word. We look at it as a safety net basically to make sure there, you know, might be a deal out there that we didn't see. Intermediary base that we had in our outreach program may not have hit somebody, and we may not have been thought of. The biggest benefit of it is, I think, we've expanded our database. You know, we do see a lot of intermediaries and broker types that we may not have otherwise reached out to. But it's really hard to find the right deal that's the right quality in these things. I mean, the profiles that you set up for what you're looking for are really important, but it seems the intermediary community goes around those a lot, and so it gets really cluttered, and it's really difficult to find, and that's part of what the quality issue is that Kyle's referring to, because you end up getting a lot of stuff that really just is not even close to what your profile says you're looking for. It's here to stay. You have to look at them. We did, you know, chase one that we didn't do. We're chasing one right now that, knock on wood, we may actually close here next— this week potentially or next week. So I am going to say that we did find one. And it can happen. And I just feel like you kind of have to have this approach that Kyle also referenced earlier. You've got to cast a wide net. There's lots of different distribution channels that people are using. We'll get to this in dos and don'ts later in terms of picking one, I think, or, you know, but from our perspective, we kind of have to look at all of them.

May I insert the word painful before safety net or insurance policy? That's my only comment.

Yes.

All right. Dos and don'ts. So I'm going to commit the cardinal presentation sin, and I'm literally going to read these off the slide that is in front of you. And you guys, I guess the slides are available via an app, so you guys all have this as well. But panel, please jump in, talk over me, color commentary wherever you feel very strongly. So let's go through the dos. Do attach a teaser and the NDA together in an initial communication. It's just more efficient when you're on an airplane using your phone to search, to find the documentation, to get a deal going. So if you can combine those, that'd be great. Do send NDAs in Word format so that we can modify them and insert the few things that we all have that are important and the holy grail to our firms. A PDF is difficult, and so please send it in a Word document. Please leave a voicemail following an email for a deal. 1,000 emails we get. I don't even want— I never count how many I get in a day. It's too many. So if you leave a voicemail as well, some of the panelists, a number of the panelists wanted that as well. It helps you kind of cull and cut through the things that, you know, you can either ignore or not ignore when you finally get to your email. I actually have a different view. Please send me an email because I am checking my email more often than I'm checking my office voicemail. So I guess you gotta do everything for us.

I personally think it needs to be both. I mean, most people are not gonna call. But the problem is we're on the road so much, email often is the default where we go look at stuff and actually figure out what it is you're working on and trying to get our attention on. But the email situation is, it's like an epidemic. If I just sat down and focused on just my emails answering and deleting and doing it. I may not still get through everything that came in in a day.

That's true.

Yeah.

So you have to find a way to get your deal to stand out today. And that's why another issue with the deal portals, if it's just sitting there, people may not ever get their attention on it.

Yeah. And actually I was speaking at this conference, the AM&A, at some point, I think it was 5 or 6 years ago. I think we were in Miami. I was on a panel and we were talking about things like this and I, very full of myself, said, listen guys, you don't need to follow up 3 times with an email or a voicemail. I got your stuff, I'm gonna respond. Everybody just simmer down. And now it's like, please God, follow up. If I haven't responded, it's because I just I just missed it. It was one of those things I didn't get to. Please send me it again. So things change, right? Okay, do include key data in the teaser. We get so many teasers that don't mention what the company does, where they're located. You know, for me, if it's in Brazil or if it's in, you know, China, that's not a business I can invest in. But if it's here in North America, I can. And so please include these items that we've listed. The sector, the description, geography, revenue, and EBITDA. Do include the largest customer percentage in the business. Several of us, that's a silver bullet for us. If it has big customer concentration, and for us big is over 40%, we're not going to do that deal no matter how great that deal is. It has nothing to do with, you know, what your baby looks like. We're not going to do that deal. So please include that in the teaser. It's a quick way to, you know, to get to the decision. Do copy anyone on our team. So if we send you an email, if we respond to an email and we've included our associate who's going to execute the NDA or the deal team member who's going to actually look at this deal, please reply all to all further communications because those are the folks that are going to be turning your documents. So please, please do that. Because if you send just me the SIM, It's very possible that you're going to have to ask me about it because you didn't hear back. So that just happens. And do send teasers in the PDF format. That's easy for us to process. Don't send teasers— please, please stop sending teasers that can only be accessed with a password to a data room. It's real— just to get a teaser, it seems very unnecessary. and you gotta create a password, you gotta go in, it's really a problem, especially when you're doing this from the road. Please keep in mind that most of the stuff we're reading from you, we're doing it on our phone.

I think that's a really valid point, and in fact, most of it, we're all equipped to work remotely, and most of our work is done with our cell phones. If you have to attach in half the time, those pieces aren't getting looked at. They're probably getting passed and missed. Or they're getting access and then you're frustrated if you get it you're not interested in it because they didn't include the key indicative information up front.

Yeah.

I would say even a SIM, try and keep a SIM out of the data room.

Yeah, we don't want to have to do that for a SIM either.

Yeah, and obviously confidentiality is an issue, but we're under NDA and just try not to use the data rooms for SIMs.

All right, I just got the 5-minute warning, which is, can we go maybe 5 minutes over, Mary Lou? Anyone? Fantastic. We're gonna consume just a little bit of your room. Feel free to peel out if you need to. We won't be— we won't be upset. I'm gonna let— I think this was Richard's, or maybe Kaz. Don't post deals all over the universe. You want to mention that?

Yeah.

So along with what we discussed a couple minutes ago about the deal portals, we've been noticing and seeing deals come from, you know, what I think is the original sell-side intermediary intermediary, right? So there's one. Then we'll get it from 3 different buy-side intermediaries. Then we'll get it from a deal portal. Then we'll see it on a website. So obviously you guys are trying to, you know, cast a wide net, and likewise we're trying to do the same thing. But it's, um, it can be a problem when you're getting the same deal from numerous different sources because the story that they're telling is always slightly different than what the original sell-side intermediary is doing. So if there's a way to consolidate that and keep it more organized, it's so much more appreciative. And then the other one is, you know, getting— seeing the deals, you know, on day 1 and then day 60, you're seeing it again, you know, after being signed up from someone else. And it's, you know, you're seeing the same deal, you're spending time on the same deal. So try and focus it to, you know, 1 or 2 possibly different channels here.

Got it. And that kind of covers the next bullet point as well. The last one on don'ts, don't send SIMs that exceed 50 megabytes, which happens, that's from my colleague Heather, you know, our system can't, we can't open that. Again, seems kind of unnecessary that the data you'd be sending would consume that much space, so try to be mindful of that. We— I'm going to kind of start rocketing through these. Oh, the second one in dos, do use unique deal project names or code numbers in the subject line, because we search that way all the time. We can't always remember, you know, who in your organization sent us an NDARIS SIN, but we remember it was a hand tool deal. You know, if you put, you know, hand tool acquisition opportunity, that's very searchable in our Outlooks. And when we put it into Salesforce. So please do that. Many, many things come in that just say, "New opportunity, new deal." It's very generic, very difficult to search. Do forward relevant deal opportunities in attractive sectors regardless of size or perceived fit. I think we all would rather see more from you rather than less because you never know what we're working on that's in pipeline that we can't talk about yet for which your deal may be a great combination or an add-on. So even if you think it's too small, send it anyways. I think we all universally agree with that. Do include an e-file of the SIM even if you're using a data room. Same, same comment we made before. Do call to follow up if you don't receive feedback. Don't rely on us to spot— this is yours, Kyle, I want you to do this one. I thought this was hilarious.

Yeah, I'm just going to read it off here. Don't rely on us to spot spam-looking email from the data room service to fetch the SIM. Send it to us as an email attachment PDF.

Yes.

Come on, it speaks for itself.

Can I add a comment to the do call the portal up? Sure. I do want to emphasize that, you know, as we've mentioned before, it's something that we try really hard to get back to everyone with meaningful feedback in a timely manner. One thing that's happened a couple of times to us is someone called my boss to say, well, I said Jennifer The Sim and I haven't heard back from her. I would say that's just, that's not a good idea. It's just not very nice. I think we have a relationship here. I'm doing my best to get back to you. There's something going on. There's an executive partner. I haven't sent you an email. I apologize. But not a good idea to call my boss or other managing partners with the word founder on their name to let them know you're having a bad day. So that's happened one or two times. I would appreciate it if you wouldn't do that.

Oh, very good. Let's see, one of us said call me, don't email me. Again, we all have different needs. I'm trying to be fair to everybody, so So you gotta do it all. You gotta call us and you gotta email us. That's the only way you're gonna satisfy us all. Don't fail to disclose any target's performance through the downturn if it's in a cyclical industry. We get it, you know, we know things have cycled. We just wanna know how hard. If it's a business that only cycled 10% when the rest of the market was down 25%, that's a positive. It's okay, it was down 10%. If it cycled 50%, 20% in a downturn, that's probably too cyclical for many of us. But not saying it doesn't— at the front end does not mean we're not going to find that out. Just tell us up front. That's important. Do know how to play both sides of the fence to get your deal done, which is, you know, advising your seller, if it's an engagement, on how the things we're asking for are not crazy or, you know, You know, you all run into things where the demands we are making or requesting seem unreasonable to a business owner, of course, because they've never been through this process before. So we're relying on you guys to coach them through. And we're not asking you to represent us, but represent the process really well and explain it to your seller so we can both get to what we want, which is a closed deal. Do discuss with us a bit about the company before asking us to sign a fee agreement. We're going to need before we sign a fee agreement is a much higher level of engagement and risk than just an NDA. So if you want us to sign a fee agreement for a business, number one, we've got to search our databases, make sure one of our other partners hasn't signed a fee agreement in the past for this company or one of our portfolio companies. At the portfolio company level, we have to do a lot of searching. We certainly don't want to be on the hook to two people for the same deal.

So we paid two deal fees, one's a question.

I know you did, Richard, because you take the high road and that's— that's actually a really good story. Too bad we don't have time for it. Let's see, keep it simple. Non-market NDA terms. You guys know when your client has something crazy in there, please give us a heads up. Like, listen, this guy will not sign any NDA under 5-year term, you know, so just letting you know right now, you know, just let us know kind of these non-market things up front and we'll make the decision, go or no-go. And I'm getting the 5-minute again, okay. Don't tell us what we are really missing on an opportunity that we just don't understand your deal deal. We probably do, and we probably have some burn history, we have some really good reason for not wanting to invest in that sector or that type of business again. Don't send a deal inquiry to every person at my firm. I think we all— when you send it to 12 people, 3 people are going to jump on it. It's going to cause duplicative effort. We don't have time for that, so if you could help us and pick your business development contact, and if you You want to throw another or two on, that's fine, but please don't email the 23 people here on Capitol.

So.