South Florida M&A Advisors Podcast
We are a team of highly experienced M&A advisors who specialize in offering bulge bracket like deal advisory services to lower middle-market companies across the United States and globally. Our team of experts have a deep understanding of the M&A process and a proven track record of successfully navigating complex transactions. Our focus is on delivering personalized, tailored solutions to meet the unique needs of each of our clients. Whether you are looking to buy or sell a business, or seeking guidance on a strategic financial decision, we have the expertise to help you achieve your goals.
To learn more visit: https://www.southfloridama.com/
contact (954) 646-7651
email: rcohen@southflorida,ma.com
South Florida M&A Advisors Podcast
EP # 8: Elevate Your Business with Strategic M&A Insights
What if the right M&A advisory team could make or break the success of your business sale? Join hosts Russell Cohen and Jeremy Wolf as we uncover the high-stakes world of mergers and acquisitions, focusing on assembling the ultimate team of experts to guide you through the process. From understanding the pivotal role of a fractional CFO in ensuring financial clarity to navigating complex negotiations with seasoned attorneys, we promise to equip you with insider knowledge that will enhance your M&A experience. Whether you're a small business owner or part of a larger organization, this episode reveals how a specialized advisory team can transform the daunting task of selling into a seamless journey.
As we approach 2025, the M&A landscape is evolving with rising interest rates and increased liquidity from private equity groups. With these changes, having stable financials and a knowledgeable advisory team is more crucial than ever. We discuss current trends and their impact on deal-making, emphasizing the importance of selecting advisors with the right experience and integrity. Our conversation also highlights why every business should engage M&A-specific attorneys to tackle complex transactions. Tune in to gain valuable insights into leveraging these trends and learn how to prepare for the future with confidence.
Welcome to the South Florida M&A Advisors Podcast, your trusted M&A team. Here's your host, Russell Cohen.
Speaker 2:Hello, hello everyone, and welcome back to another episode of the South Florida M&A Advisors Podcast. I am your co-host, Jeremy Wolf, joined by, of course, your host, Russell Cohen. Russell, good to see you, brother, Nice to see you. Yeah, likewise, man. So today we're going to talk a little bit about the M&A advisory team and why it's important to the deal, right? So why don't you start off by, I guess, kind of explaining the primary roles and responsibilities of an M&A advisory team in a merger or acquisition?
Speaker 3:Sure, thank you very much. Obviously, you have the M&A advisor, which would be myself. You will have your CPA involved in the transaction. Typically we get a CFO fractional CFO involved to handle the networking, capital analysis and additional preparation for the quality of earnings. And, of course, you have your attorney, who will be involved from the LOI stage all the way through the entire deal. And then ancillary consultants could be an insurance agent benefits consultant could be a insurance agent benefits consultant. Uh, it could be a tax advisor outside your cpa or or tax attorney or just any advisor that the seller feels necessary to help him or her through the process.
Speaker 2:So basically just a comprehensive team of experts in each facet of the business to help that, that business or business owner, through the process. So I can see there's there's probably two ends of the spectrum here. Right, you have a smaller business that maybe doesn't have so much complexity, that may think, hey, I'm going to sell my business, but I don't, I don't need any help with this. I kind of know, you know the ins and outs of the business. And then on the other end of the spectrum, you have the more complicated organizations that have, where mergers and acquisitions can be a lot more complex. So start with the smaller business owner out there that maybe they're going to sell their business and they think, like I said, they can go at it alone, they don't need help. What ways do you believe that an advisory team would add value to a business like that?
Speaker 3:Well, you're basically negotiating against yourself no-transcript closing. In a M&A transaction, key employees are interviewed, determined if they're staying on. Interviewed, determine if they're staying on. Sometimes clients do you know they do a ramble or a random sampling. They actually may speak to a client and ask you know, are they happy with the seller? So it's a little more intrusive on an M&A deal and key employees who are part of the seller's team are on a right to know.
Speaker 2:Now on the other end of the spectrum, when we're talking about some of the larger organizations, I know, like some of the deals you've done recently in the past with that large roofing company, obviously mergers and acquisitions can be quite complex. How do you typically help to navigate some of these complexities and ultimately ensure a smoother transition through the deal? You know the M&A advisor does not.
Speaker 3:You know they know how to quarterback the deal and we have experience in many facets of the transaction. But we're not experts in law, we're not experts in accounting, we're not experts in benefits or insurance. We're not experts in accounting, we're not experts in benefits or insurance. So that's where that team comes in. Where you know, the M&A advisor team may not be just one individual. It could be a team of three to five people who have different talents. That is helping the seller from from the accounting side, from from all different. We all have different types of experience. So it is a truly team effort, especially on the larger, larger M&A transactions, and it's really not an individual game.
Speaker 2:Yeah, for sure. So due diligence it's critical in any deal. How does an advisory team enhance the due diligence process and what are some of the common, I guess, like pitfalls that they help avoid?
Speaker 3:So what I like to do is I like to bring in a fractional CFO very early when I start talking to the seller. The typical CPA will not be involved in the quality of earnings or in the calculation of the networking capital. They do not really. They want to be more of a consultant to the seller and they would get involved if it's their work that's being done, that's being scrutinized by the accounting firm. But what happens is we bring in a fractional CFO. They make sure the books are really clean before we enter into the quality of earnings, make sure all the categories aligned If there's anything unusual. They also start educating the seller for the networking capital.
Speaker 3:How much money are they leaving behind in the transaction for the benefit of the buyer? And that's one of the main differences. When you're selling a very large company, you are supplying working capital to the buyer because you are selling a work machine, a business that is a train going 150 miles per hour and it needs that fuel of that capital. So the private equity group is expecting networking capital and to a business owner this is like another language. So as a M&A advisor, I educate them on what's coming, what is networking capital and how it will affect the transaction. And then I start bringing in professionals who will do the analysis of networking capital and start educating the seller and then the quicker they engage how the CFO works, the better they're going to do in the transaction.
Speaker 2:The negotiation process. I'm curious how does that typically work for you guys? What role does the M&A team play in the negotiations? And I'm just trying to obviously, you guys do your homework on your end for the seller and then the buyer does their homework. Do you guys sit is it like a mediation process? You sit down and discuss this openly. Do you guys sit is it like a mediation process? You sit down and discuss this openly. Do you go back and forth? How does that?
Speaker 3:typically work. You know. So, typically when we have a high quality business, we're getting multiple offers. You know it could be, you know, a couple offers. It could be 10 offers. So you know that initial thrust of offers. You know we are there with the seller going through all the offers, limiting the offers down to a couple, and then we go even deeper with the potential buyers. So it's important the attorney will get involved and negotiate the LOI. But what you negotiate in the LOI hopefully will carry through the entire deal.
Speaker 3:So that initial negotiation of that LOI is the deal. Basically it is the structure of the deal, from the price to the if there's seller financing, rollover equity, if there's an earn out, and they all have different tax consequences. So the M&A advisor, you know, and if we don't like the like, I had an example I had 15 LOIs come in over time on a roofing company, another roofing company, so I didn't like it. He was learning what all these terms meant and he finally got his grasp on what he really wanted. Well, hence, one year later we go under an LOI with 94% cash out with a 6% rollover equity. So sometimes it takes sellers to understand the new language that they're now embarking in the M&A process and we have to go through many LOIs to find the right buyer with the right deal terms for the seller to move to the next phase. So it's a negotiation that probably never ends throughout the entire deal because there's a lot of negotiation points and other facets of the transaction.
Speaker 2:So, russell, what about when the deal is done? Obviously, the main focus is on getting the deal done. What post-transaction support, if any, does an advisory team provide to ensure the integration is successful? Because I know if it's not just a sale, if it's an acquisition, sometimes the previous owner stays on. There's a lot of complexity and logistics. That goes on. Do you guys play a role after?
Speaker 3:the deal is done. Definitely On the M&A advisory side, obviously we're there from start to finish. So we're hearing and we have all the documentation of what was talked about. So, if there networking capital true up at the, you know, the 90 days after the closing, so the CFO a fractional CFO will be involved in that. The attorney will be involved post-closing because there's money held back in escrow, money held back in escrow for the networking capital, and then there's money like typically around 8% of the entire transaction, held back for reps and warranty violations. So, yeah, we all potentially have a role after the fact. The M&A advisor will go down minimally unless needed, but the other advisors definitely will come into play in certain topics.
Speaker 2:Basically, Can you share with our listeners maybe a success story where having a strong M&A team made a significant difference in the outcome of a deal?
Speaker 3:No doubt about it. So, yeah, let's go back to that large roofing deal. It was $100 million. It started out with 80, I think it was $70 million down and we had a rollover equity. We had an earn-out structure, two earn-out structures. So we're going through the deal and it started, let's say, in January and February, and one of the earn-out structures was in the current year. If the seller finished the current year at a certain EBITDA, he would have earned $10 million. Okay, ebitda, he would have earned $10 million. Okay.
Speaker 3:So, by the time you know and this was like January of, I think it was 2022. No, January of 23. Yeah, january of 23. 23. Yeah, 23. If he hit in that 23, if he hit his EBITDA numbers, he would get $10 million. Well, by the time we got to September of 23, he already hit it. So he already passed like an EBITDA of $13 million. So, technically, while we're still trying to close the deal, he already hit the mark. So we were able to negotiate to get him that $10 million. Okay.
Speaker 3:So, instead of $70 million down, he got $80 million down in the and when we closed on it, november 30th of 2023. So, and keep in mind, the private equity groups already have structured their deal with their investors and have money earmarked. So it kind of upset the apple card and and. But it was justifiable because the company was trending towards 20 million dollars that year and which is very rare that you know, while you're in this quality of earnings during the year you're selling, your numbers are just going up like a hockey stick. So we were able to. The seller was able to get you know 100, a hundred million total purchase price $80 million down. He kept 10% equity and then another $10,000 earn out, which is basically occurring right now. So, yeah, so here we got a seller of $10 million more just for because he did a great job.
Speaker 2:Very cool, very cool. So, as we get closer to 2025, as we're wrapping up the year here, what current trends are you seeing in the M&A landscape, and how should businesses adapt to these changes?
Speaker 3:It's always tough to get quality of inventory. That's our biggest challenge. We're seeing seeing interest rate hike cycle, even though we just had a pullback of 0.5. So it makes money more expensive and that hurts multiples, of course, when private equity will always put like 30 percent down of their own money that's committed and then they'll put out a leverage debt and then they'll put out a leverage you know debt. So yeah, so as interest rates are high, the cost of money is higher and the debt service is higher and that squeezes the multiples. The good news is there are a lot of private equity groups with a lot of liquidity. That's great. Now it's just a matter of a seller having numbers that are stable or trending upward and having a desire to go through that one-year process to get the business sold. And what we're hoping, if you know, after we get through this election, whoever wins, the economy will stabilize. I don't have high hopes, unfortunately. I think we're going into very unusual times which will, I think, affect the overall M&A market, unfortunately in 2025.
Speaker 2:Yeah, we'll keep politics out of the discussion for this episode at least.
Speaker 1:Who knows Every?
Speaker 3:time you wake up you kind kind of turn your head, you're like.
Speaker 2:Really, we live in an interesting time, for sure. Any advice you'd like to give to business owners out there that are considering a merger acquisition regarding the selection of their advisory team? Obviously you're there to help you have any, but I'd imagine, as a business owner, you'd want to interview a bunch of different advisors to find the most competent and the one that you feel the most comfortable working with. Any advice you'd like to offer to folks out there.
Speaker 3:Listen, this is your biggest, one of your biggest assets in your portfolio. So you got to trust the person that you're. You know you don't want to use car salesman. You don't want someone looking out for their interests. Bottom line if we look out for the seller's interest, then seller wins. Seller has to win. It has to be a win-win situation with the buyer and the seller. But if the seller, you know, wins and hits their goals and that's also talking about taxation and everything Taxes are a lot of money. So the advice, you know, picking an advisor, experience they have to have the ability to have the investments and the subscriptions to find the buyers. They got to make, you know, capital investments to have the network of buyers that will pay the highest price. So these subscriptions to these databases that we have could run 30 to 50 grand a year and a lot of brokers don't spend the money on it. And then you got someone who's representing you who can't bring any buyers. What good is it? Experience, integrity that's important. You know I have a. I do recommend certain CFOs and attorneys that are familiar with the M&A space. That's very important. We need you know.
Speaker 3:I have another thing for you, jeremy, you know, if you have a heart problem, you don't go to a podiatrist. Jeremy, you know, if you have a heart problem, you don't go to a podiatrist. So when you hire an attorney, get an M&A attorney, don't get a divorce attorney. Don't get a state attorney. Don't get another attorney who's never danced around an M&A deal, because guess what? The buyer's attorney are very large M&A firms that specialize in this space. They're M&A attorneys and that's all they do and they know their stuff. So you better have an advisor, an attorney that can stand toe-to-toe to them, because they're a very demanding process and most attorneys can't handle it.
Speaker 2:I'm witnessing it right now so important to have a team of experts surrounding you in these important transactions. So anyone out there, you hear that any business owners thinking about possibly selling that business or merging your business or getting involved with us, reach out out to Russell anytime. He is a wealth of knowledge, really doing some great work here in our South Florida community and beyond. So, russell, always a pleasure, brother. Hey, thank you, appreciate it, of course, and to our listeners, thanks for tuning in and if you like this content, don't forget to drop a comment. Let us know if there's any topic that you'd like to hear about. Don't forget to like and subscribe and we will catch everyone next time on the next episode of the South Florida M&A Advisors Podcast. Everyone, take care.
Speaker 1:Have a wonderful day. Thanks for listening to the South Florida M&A Advisors Podcast. For more information, visit SouthFloridaMAcom or contact 954-646-7651.