Master the Art of M&A with Arthur Petropoulos

There should be nothing in a business that is not defined in the sense of, just like we say from the narrative of business being the fundamentals, access, and capabilities. When we were looking at a business, we want to define, I believe it was a Marcus Lemonis quote, but people, process, and product, right? So whatever can be defined can be improved.

All right, folks, welcome back again. Like, comment, share, engage. As always, help me beat big tech. Say something nice, say something mean. I don't care. Just increase the engagement. Subscribe. And give us some love for today's call. I've got Arthur coming on. We're gonna talk about strategic exits, opportunities for growth in M&A, which is mergers and acquisitions. We're gonna talk about how they're not just creating transactions, but transformations in business, because it's important to understand when you're buying something and how to transform that buying into an opportunity so you don't lose that opportunity as you build or buy a business. It's very important to understand how to do that correctly. So I brought Arthur in here today. If you guys are wondering about how giants buy the minnows or how you wave your business buy me sign in front of people, this is the conversation we're going to have today. All right, Arthur, thanks for joining me so much, brother.

Yeah, well said, Neil, and I appreciate it. Good to be here.

Good. So we're talking about the business of buying. What is the state of the union from your position on the business of buying today?

You know what? It's more qualitatively driven than purely a binary. What I mean by that is good things are selling, good things are being bought. I think some of the hyper hype stuff from a couple years ago has lost a little bit of traction. I think some of the gigantic mega deal stuff has lost traction, but a lot of what we're doing in particular, that kind of middle market down the strike zone, things that make sense, things that are needed, things that generate cash flow, it's been as strong as ever. And candidly, there's just More and more participants are entering the stage there.

And why do you think that is? Why do you think there's more of those middle market businesses? And by middle market, I'm assuming that you, and I'm going to define it, you correct me, somewhere in the $1 to $30 million range would be considered sort of middle market. And why do you think there are so many changes that are allowing for these acquisitions to occur right now?

Yeah, so I would say generally the same definition. We define it a little bit more from the profit perspective, effectively $1 to $10 million in pre-tax profit. So It ultimately does become kind of transactions in that $1 to $100 million range, but a lot of it in that $2 to $25 million. And so what I would say is you have demographic shifts of a lot of the baby boomers kind of retiring, figuring out succession planning on their side. So that's obviously creating a lot of supply into the market. And then from the demand side of things, I do believe there's an uptick in the desire for entrepreneurialism. There's more of a capability to do it in the sense that almost every service or operational component of a business can be vendorized or can be done remotely. So in order to kind of build up the infrastructure to be an entrepreneur, a lot more of it can be done kind of buy it as you eat it type of thing versus tons of fixed costs as it may have historically been. So I'd say the access, the hurdle for access from the buyer side has come down, the supply has come up. And I think there's been some other supporting pieces of the framework where, let's say traditionally banks were only lending against inventory and accounts receivable. Many more banks, particularly those backed doing SBA programs in that middle market, lower middle market, are now looking more towards cash flow situations. So I'd say you have the increase in supply and increase in accessibility, and then further buttressed by capital markets that have been more supportive of these types of businesses has all kind of created an ecosystem that's yielded a lot of action.

So where are you particularly focused in your space right now? A particular kind of market, a certain kind of niche? I mean, you mentioned mom-and-pop businesses are moving out, but what kinds of businesses are those?

Yeah, so we broadly define what we work on. So you have buy side and sell side. So buy side being those people that represent whether it's private equity or acquirers of a certain sort, sell side being people like ourselves who we are helping companies either sell or secure capital. And the way we define our audience is effectively privately held businesses generating $1 to $10 million in pretax profit that are not private equity owned, not venture capital backed, but basically owned by families, entrepreneurs, small groups of investors that are growing. And so That's kind of size and complexion. And then I'd say as it points towards industry, what we are mostly involved in is really B2B and B2C services and products. And if it sounds broad, it is because we find that companies in this size and complexion effectively all have similar kind of goals and hurdles. They take slightly different shapes, but it can be somewhat industry agnostic. And so while we stay away from things that compete on scale or commodity in the sense of we're not working with aluminum smelting plants and lead mines. And at the same end of the spectrum, we're not doing hyper, hyper early stage prototype level startup type stuff, because again, the ecosystem for capital is a bit different. So what we do is companies that make sense, that fit into a part of their respective food chains that have a focus on an end market base and that do a thing or make a product. And so There's elements of it that are somewhat broad, elements more specific, but that's generally the arena that we're in.

Okay. So you're more on the sell side then as opposed to on the buy side. So you're going to coordinate with a seller, you're going to help structure their business offering and then bring it out. Do you have your own groups or do you go out to a particular path to seller or how are you bringing these buyers into the selling market?

Yeah. So I think the front end of it you've highlighted well is that we are working with our clients to amalgamate relevant information for the company. And so highlighting, we say the 3 prongs of a business, one being the fundamentals. So what does it make? Dollars, cents, margins, but then what access does it have to what customer bases? Where is it focused from that perspective? And then what are its capabilities? What does it do that's special, proprietary, unique? And so we kind of crystallize a narrative about fundamentals, access, capabilities. Then at the same time, we are researching prospective counterparties, depending on the objectives of the seller. So some sellers say, I want to sell this into something that's continuing to grow that I can be a part of. Others say, I only want to sell to a big company, not private equity. It can take different shapes, but depending on some of that guidance and as well as the dialogues we have, we're researching on the front end an audience where candidly, it's, if we've defined a puzzle piece through fundamentals, access, and capabilities, we are looking for the puzzle where this is the missing puzzle piece. So if there's another company that Does the same thing but doesn't hit this geography, does similar things but doesn't service this product or provide this service, then that's really the research. And so through different databases that we utilize as well as our own in-house research, we're kind of finding that audience. But what I would say is it's much more targeted. The traditional lower middle market sell-side process is give us a big upfront retainer. We're going to puke your information to the universe and we're going to pray for the phone to ring and thou reaches to 20,000 people that may or may not be interested. In our situations, it's much more research. Good, proactive, maybe 100 to 200 people, but it's going to be a lot more tactical and laser-focused. And we find over iterations and iterations yields a much better result.

Yeah, no, I do like that as opposed to spray and pray, which is where a lot of these agencies operate in the space. And it's very unnerving for people to get involved in the complexities of selling a business if they've never done it.

Yes.

And then try to figure out who they should trust to work with. That's a big gap in that knowledge. How long have you been doing this with people, Arthur?

Sure. So I have been doing it for about 16 years from a career perspective, but about 8 of those years were working my old Wall Street days in New York. And I was on, in that time span, was on the side of selling companies and buying companies. So investment banking and private equity. Then Hillview Partners, as it currently stands, was founded in 2016. So we've been doing this now 8 years under our own name and umbrella, 100+ successful engagements, a billion dollars plus of transaction volume or aggregate volume of the transactions. And it's been a good run and we continue to pursue that forward and grow.

Good. And what in those transactions at billion dollars have you learned? What could you say in simple summary is some of the biggest learning curves and opportunities you've had during that timeframe?

I think it's whatever can be defined can be improved. There should be nothing in a business that is not defined in the sense of, just like we say from the narrative of business being the fundamentals, access, and capabilities, when we were looking at a business, we wanted to find, I believe it was a Marcus Lemonis quote, but people, process, and product, right? So as we're kind of looking at a company, we want to say, okay, what is the— who are the people? How are they involved? What's the org chart look like? Are there any single points of failure? Now flip over to the operational side or the process side of it. Are there any points of failure? How does the client journey work? How does everything kind of go from first call to fulfillment of business? And then lastly, how are the operations, financing, HR, all of the different elements kind of tied together so that this is a well-oiled machine? And we dig even further into the process standpoint of it where we say, okay, a business is traditionally 3 processes. sales, fulfillment, and operations. And so we're really trying to define that. So we really want to map out a company and it doesn't need to be overly complex, but it does need to be clear and comprehensive. And so what I would say is over the many times we've done this, the more clearly we can define the objectives, the company, the process, the counterparties, the better everything ultimately turns out because—

Yeah.

People are fairly resilient in an exercise or in a process, and there can be surprises, but they have to be, there's certain types of surprises that are more tolerable to us or to anybody than others, right? So we have everything prepared that we possibly can. Like surprise is going to find you, but there should be nothing that's left kind of, oh, we should have thought of that. Or yeah, that should have been better defined.

You need to get in the due diligence and find the deal looks really good only to find there's like 3 sexual harassment lawsuits pending inside the business.

Right, right. No, look, thankfully we haven't We're fairly judicious in kind of vetting clients as we're talking about.

Getting those out of the way before. Yeah. How many times does somebody bring you a business that's like a good deal and you get it and it's like, wow, this is really great? And how many times are you kind of wading through the muck of trying to figure out what they've put together in sort of a structured or unstructured format? How often are you seeing both of those?

Look, I think we started our business with the notion of And I've always been an advocate for that Buffett-Munger ideology of good businesses that do real things. And so fundamentally, by defining companies that make $1 million to $10 million a year in profit, sometimes we do things a little smaller in that $500,000 to $1 million. But if it's been doing that for a long time, there is something there, right? Because at a company of that size, you're not competing on the cost of capital. You're not competing on economies of scale. It is something that is exceptional. It's just a matter of how opaque is it or how clearly defined that is. And so look, there are some situations where we have to polish it, really kind of sift things and organize them on the front end. And there's other situations where it's a lot more cleaner that comes to us. But that being said, I think what we've done a good job at is not going too far down the road with anything that does not have that special element to it. And so we really try to define an end base where it's almost, if you have a company that is owned by a family that's been in business for 30 years that has generated $2 million in profit a year for the last 10 years, it's almost impossible for there not to be something exceptional about that business.

Yeah.

It's just a matter of organizing it. So there's a little bit of that in every situation, but that's part of what we do is kind of bring order to an element of disorder or kind of, you think of this box of balls flying all over the place and it's how do you kind of Isolate the differentiating variables and kind of stabilize the other ones so that way you can really express to the world what is exceptional about the business, what makes it different. Because if you took 5 businesses that do the same thing, maybe 90% of those businesses are exactly the same, but what are those idiosyncratic elements that make it exceptional? That's what we try to hone in on. So there's an element of what you alluded to in every deal, but I think we've tried to define the audience in a way that It's going to be, there's something good in every situation. It just needs to figure out the angles and the characterization.

Yeah. How many deals do you have on deck right now? Just out of curiosity.

Yeah, so we're working on 10 deals at the current moment. And I would say every year we've kind of had more and more deals that are live at any given point. At its current stance, we tend to be somewhere between 8 and 12 at a time. And I think goal for the years to get that more towards the 20 range. But we're working on it, building our own processes and procedures in place to be able to support that. So it's good.

How are you feeling this year about the acquisition space? Are you feeling bullish? Are you feeling there's a conservative push? Or where are you guys at in terms of your feelings about this year so far?

It's strong. And I'd say it's strong because the things that we focus on, I believe, are somewhat cyclically agnostic, right? There are certain situations. But in any business, to some extent, the economy's going to impact you. But we've never worked on companies that have been the high flyer. Hey, we've got an app that makes cat noises and a billion people want it and it hasn't made any sales. And I get it, people have gotten very wealthy doing some of those things, but it's never been our area of focus. And so what I would say is that when economies grow and contract, not every element of the economy grows and contracts pro rata. So even though you might see deal volume, people call us and say, you know, I heard deal volume's 30% off for the year. Yeah, but it's disproportionately weighed towards IPO ABC rounds for companies that are pre-revenue or whatever.

And so business types. Yep.

Right. So I would make the argument that the ends of the bell curve, if you will, are somewhat rotated into the things that we do. So let's take, for instance, if we had a software company that made a few million dollars a year in profit and we went to go show it to Microsoft or Oracle, they're spending less time looking at the moonshots and more time looking at things that work because the corp dev groups and all these major companies, they know you don't get fired buying companies that make consistent profit. Now, they might not put you on the front of the newspaper and have a parade for you, but in terms of self-perpetuation, if you will, of these companies and of the people that work at them, it's always going to be better to kind of strike for value. What we always say, good deals at a fair price versus fair deals at a good price, or trying to find the lottery tickets. So I think that's the environment we're in. And as it trickles down into our business, it just creates a tremendous amount of strength because the numbers don't lie. At the end of the day, if the business has made $2 million a year in profit for 10 years, I don't need to— it helps to paint that trajectory, that addressable market, the path forward, how it could do all these wonderful things. But fundamentally, it does what it does, and that is beyond refute, right? It's just data. So I think that's kind of how we view the market and how we look at it.

Yeah, no, and it's good insights. I appreciate you sharing that. Obviously you've spent some time in this marketplace, so you know pretty well what you're doing. What do you consider to be the most exciting part about your business and your job? Like what gets you up and going every day?

I like that it's the people interaction of business, right? Because as much as our world has become somewhat virtual and tech-driven and this and that, It's fundamentally the people that have grown these businesses. It's the people dynamics that create the transactions, create the dialogues, create the negotiations, create the relationships. And so it's fascinating because if you really think about the economy, you have these consolidations of industries and growths of these monolithic type companies. And then you have these entrepreneurs that start businesses. And if you go back far enough in any business, there's an entrepreneur somewhere, whether it's Cargill, DuPont, Berkshire Hathaway, right? It's someone who had an idea. And so Right. And so what's fun in our business is that we're not dealing with companies for the most part that are owned by private equity. We sell a lot of businesses to private equity, but they're still, whether it's the founder, the family, the entrepreneurs, they're still in the business. So we get to get in there and listen to the story of how it started. And it was in a basement somewhere, it was in a garage somewhere. It started with this idea, with this one client. And it's a lot of encouragement because these are low probability situations that worked out phenomenally well. Right? Because a lot of wantrepreneurs out there who said, oh, I'm going to do a thing when everything's perfect. But these are all people that have actually done it, have persevered, have kind of beaten the odds. And then it's nice to see them at the moment where the company that could never figure out how to beat them pays a lot of money to buy them, right? And, or where they merge in with a competitor or they transfer it over to the next generation of ownership in the company. It's neat to see that tail end of it, but to learn all of the the genesis and the lineage of the business too. That's, so that's exciting to us.

Yeah. The people. That's interesting because at the end of the day, if you've got good people behind the business, you typically will find those businesses are the ones that have that longevity, the history, the profitability. And a lot of times it isn't the total uniqueness of the product or service, it's just the way the owners have approached the business model. Is that a fair statement?

I would say that if you looked at a very successful company and a not so successful company, again, 95% of the company is the same. There's going to be a slight nuance or a slight edge, just something that they're a little bit better at, whether product, service, or offering. But what they really then expand upon that advantage is doing all of the unexceptional things exceptionally well and for an exceptionally long period of time. So it's just, it's not that they, I mean, they're all 95% free throw shooters. You know what I mean? Like they just keep hitting it every day. That's the impressive part.

That's what we try to do. That's because they're taking a whole lot of shots.

Yeah, exactly.

We know how it gets in that business. And you also understand that you can have a great business and a bad partner and it won't work. And you can have the mediocre business with a partner and watch it take off into a great business. At the end of the day, it gets down to the people in the business.

Yeah, look, I think people are oftentimes, and I've said it to family and friends, people are oftentimes looking for the billion-dollar idea. I say, gimme the $1 idea and just iterate the hell out of it, right?

Just sell it to a million people, right?

Right. Just do it over and over again. Be the best at it. And it will be very valuable.

Very good. If someone's interested in what you're doing and has a business they want to talk to you about, Where do they reach you at, Arthur?

Sure. So you can find me, Arthur Petropoulos, on LinkedIn. You can find our company on LinkedIn. You can find, I have a YouTube channel. We're putting out a couple videos a week. And then I'm proud to say it actually just finalized today, so it's good timing. We just bought the domain of hillview.com. So we were hillviewps.com. So Hillview P is in Peter, S is in Sam, .com. But now if anyone types in hillview.com, it'll be on our Page and you can sign up for some time to chat.

Took a while to get that domain under your control, huh?

8 years, but we're there.

8 years. I got a few people I'd like to kick off the Voltage domains. Haven't got there yet. In time, right? Patience is a— and business is a marathon, isn't it? I mean, it's never a sprint to these deals. How long does an average— speaking of which, how long does an average deal take for you guys to complete?

Sure. So one of our strong competitive advantages has always been the timing of things. We really know how to get deals to the market quickly, effectively, efficiently, how to feed the information to the counterparties and how to drive the negotiation. So honestly, we want start to finish in 6 months. We want offers at the 100-day mark. We always say 10 hours of our client's time until we get to the offers. Now there are certain, so you have the front end of the transaction being our work largely, and then the second half of the transaction's a lot of confirmatory diligence. With the acquirer. That second part of it can drag on a bit in different situations for different reasons. But in any deal that we're working on, we want the goal is start to finish in 6 months. It can linger at 7 or 8, but very rarely does it go beyond that. So, okay. And that's important.

That's about normal time.

Yeah. In today's environment, it's important. I mean, historically, a lot of these were 18 to 24-month situations and like we know, the world just changes too much in that kind of timeframe. It changes too fast.

Yeah, exactly. It's too fast to go beyond that certain timeframe. That's a good period of time to kind of figure out if you're headed the right direction in the numbers and people are going the wrong way pretty quick.

Yeah, precisely.

And does it have to be localized to you or can they be anywhere? Do you geographically kind of limit yourself to a certain area or is it anywhere in the world or?

No. So it's a good thing you brought up is we are functioning globally at this point. Even when we started, we were national and we always had the idea that clients in this range were underserved because historically our business has been a very hyper-regional business, right? Where it was the local business broker who was working with the guys that own the lumberyard or whatever it might be. But businesses themselves in the middle market and lower middle market have become more national and global in the way they operate. And so it only makes sense that they need representation that does the same thing. So we are now working Entirely covering the United States, doing good work in Canada, South America.

Excellent. So if you're aware there's a business person listening to this, this could be your opportunity. So last question for you. If there's somebody I could introduce you to, somebody you want to meet, sit down and have lunch and haven't had a chance yet, who would it be? Who's your big, hairy, audacious interview?

In terms of a specific person's name?

Yeah. Person, person. Yeah. Person.

Yeah. I mean, look, if I always said Warren Buffett would be that type of person because I think the— and Charlie Munger said it too, but there's the buying and the selling, but the waiting, right?

Yeah.

And the patience component of business is one of the hardest parts because you'd never know when you're growing a business whether it's everything's going the right way, if you just need to keep doing the same thing for more, or do you have to do something different? And I think Buffett's been perhaps the greatest example of someone who could just sit and wait and wait and I think it's underemphasized in this world of constant content digestion of the ability to embrace the silence and the uncertainty. So that would be my part.

Love it. Well, we've had everything from Elon Musk to who Warren Buffett has not come up yet, surprisingly enough, which is cool to hear that name. Andre 3000 was another one I heard the other day. So everybody's on that. Anybody you want to talk to is a possibility. Well, Arthur, is there a question I didn't ask you that maybe you wanted to get to that I didn't bring up yet?

No, look, Neil, I really appreciate the time. This is good. I mean, I would say from your perspective, because you're working, I ask you the question is you're working with people that own businesses and run businesses. What part of the exercise do you think is the most opaque to them or the most kind of confusing to them that when they think about capital or selling a business, They say, oh, I really don't know about that part of this thing. Really confuses me. Anything that strikes you in your conversations?

Yeah, I mean, a lot of times it's difficult for people at their current situation to realize how much bigger the abundance of opportunity in selling your business actually is.

Yeah.

I don't think they quite grasp the numbers. It's kind of hard. I think we kind of get a bit of zero stroke these days when we hear the numbers like trillions being thrown around.

Yeah.

And really understanding the size and scope of that physically. Is quite hard to imagine. So I don't think people, I think a lot of times with the situations, they feel very limited in their understanding and limited in their comprehension of what that actually means and lose sight a little bit of that opportunity to continue to work forward for the opportunity of exiting that business. And in a realistic amount of timeframe, I mean, now we can, with the world we're sitting in front of, build businesses in 3 to 5 years that used to take 30 years, right?

That's true.

And so you can see numbers and things of abundance now that are quite fascinating. And I still think that doesn't quite resonate with the limiting beliefs of a lot of people who are maybe listening to this or thinking about it or wondering how they could get started, or they're in the process of building past that first million in sales and they haven't even hit their first million in profit yet. And they're wondering how much longer or when it's going to take. And I think that, again, I just, I think people have a limiting belief based on situation, they, and money and availability of certain things, time or money in their life. And they tend to kind of still lean on the limitations of that. And they don't see it moving. It's an ever-shifting river of time and money, and it happens to move and change locations. And sometimes it's just, you're farther away from the river and sometimes you're closer to it, just depending upon where you are. Right. And the real question is how to get closer to that river because it's always moving and overflowing.

Yeah.

And as we've seen in 8 years of your business, you've gone through some pretty tumultuous times. That 8 years prior to that would've looked very different in terms of the economic standing of our country and business in the world. Frankly, that has changed pretty dramatic. And so I very much see the changes coming and I really wish people would have less limiting beliefs and more abundant thinking because there's just so much out there right now.

Well said, Neil. I couldn't have said it better myself, but I agree. There's an immense amount of opportunity in these next 20 years to do things that, to your point, would've taken a century to do before. So I think the more people can embrace that, the more they'll ultimately accomplish.

I often joke the bar is so low you could just fall over it these days. I mean, it just is so low nowadays. Just got to get out there and try and do something. And if you got a business and you're looking for a way to do it and you're looking for a way to sell it and you want to get on the other side of this conversation, you got to connect with Arthur, folks, and talk about what he's doing in business and see what happens. Man, thank you so much for coming on and spending some time with me today.

You got it, Neil. I appreciate it. Thank you.