The Right Buyer: Leadership, Fit, and Successful Exits

In this episode of Leadership Quotient, Lindsay Guzowski, CEO of The Crucible, speaks with Gregg Blake, Managing Director at CapM Advisors and Managing Partner at Brocair Partners, about the leadership dynamics behind successful mergers and acquisitions. Drawing on decades of experience advising healthcare and life sciences companies, Greg explains why the right buyer is often more important than the highest valuation, how founders should prepare long before beginning a sale process, and why trust, relationships, and leadership quality continue to shape transaction outcomes. The conversation also explores the growing need to move beyond intuition toward a more structured approach to evaluating management teams before and after an acquisition.

Transcript

SPEAKER_01 0:00

Welcome to Leadership Quotient, a podcast by The Crucible, where we explore how leadership teams and investor-backed companies are built, aligned, and scaled for impact. I'm your host, Lindsay Gazowski, and in each episode, we'll talk with the people shaping value behind the scenes, from operating partners to investors to advisors to C-suite executives, about what it really takes to drive performance through leadership. On today's episode of the Leadership Quotient Podcast, I chat with Greg Blake, Managing Director at CapM Advisors and managing partner at Brocare Partners about why the right buyer is the right fit, not the highest price, the importance of a great advisor in monetization, and the move from art to science in management diligence. Greg, welcome to Leadership Quotient. Your career has been focused in the investment banking and MA advisory space. What drew you to that profession from the outset?

SPEAKER_00 1:14

Well, I kind of come at it from a fairly non-traditional direction, I suppose. I actually uh started off uh in a completely different industry, but in grad school sort of fell in love with international finance. And so that's sort of what led me down that that pathway.

SPEAKER_01 1:36

And what has been compelling about dedicating the last you know few decades to this world?

SPEAKER_00 1:45

Yeah, I mean, I it's fascinating. I mean, the combination of the uh domestic and international business that I've done all over the world, along with the industry category that I've spent my career focusing on, which is healthcare, and seeing how that's changed over the last couple of decades, has been uh really interesting. And there always are new things happening. Uh, every day is a learning experience and uh on a whole different, whole number of different levels. Um, so it's just uh it's just an interesting, fun way to uh spend my career.

SPEAKER_01 2:22

And so many people start in these spaces doing in when they're in the investing world, doing investment banking and move on to private equity investing as opposed to MA advisory. Why stay on the advisory side?

SPEAKER_00 2:38

Well, I've always enjoyed it. The project orientation of what I do. Things have a beginning and a middle and an end, a conclusion, uh, hopefully. And uh, and so every project is different. So I've always enjoyed that and multitasking and you know, keeping a lot of different balls in the air at the same time. Plus, you know, over time you build relationships and they keep coming back around. Um, I think it's really important to stay in touch with people who you've worked with in the past or interacted with in the past because you never know what interesting thing lies around the corner.

SPEAKER_01 3:14

So you mentioned the healthcare space, and that's where you're you're focused. Um tell us a little more about that. What is your specific area of focus and interest? And then we'll dive into understanding the founders in that space.

SPEAKER_00 3:31

Sure. Well, I'm primarily focused on medical technology, uh, life sciences, and diagnostics. That's really the area that I've spent probably the most of my career focusing on. When I started my firm um, you know, 20 something years ago, being a healthcare sector specialist in investment banking was a little bit of a new concept. Now that's way too broad. So uh over time, you sort of narrow your aperture down and get deeper and deeper into these different spaces. And uh and I think that's really important because you uh you're you're able to become a bit of a subject matter expert on the areas that you focus on. You build relationships, which, as I mentioned, keep coming back around, particularly within an industry as people move around from position to position. So I think that's uh that that's uh kind of my general focus area. And within that, there's there's a lot of different territories underneath each of these things, everything from uh different therapeutic areas, uh different uh different approaches on the diagnostics or life sciences side, whether uh new technologies that are being developed all the time. So there's also a lot of creative destruction. Uh people create something interesting, it grows, it becomes commercially very, very successful, new entrants come in, and there's a constant uh need to stay abreast of what's happening, or the next uh better mousetrap comes along.

SPEAKER_01 5:04

And even within the you know, life sciences diagnostic, med tech space, what stage do you like to play in? Are you working with the guys that are seeking early funding? Are you with the developed groups that are selling into you know large notable brands? Are you handling the divestitures from those large notable brands? Where are you in in that sphere? And I know I left out an enormous chunk in the middle there, but yeah, exactly.

SPEAKER_00 5:32

I mean, it's I'd say it's all of the above, although um on the earlier stage companies, it it sort of depends. Um, I mean, mostly what I tend to focus on is mergers and acquisitions, and that tends to imply um commercial uh success at some sort of level, or at the very least, um being late stage through the um RD and um uh regulatory approval pathways, so that you can actually show sort of a five-year projection that kind of you can hang your hat on as opposed to being just aspirational.

SPEAKER_01 6:10

And so part of the question behind that was understanding whether we're dealing a lot with founders, whether you're dealing with professionalized management teams, or dealing with groups that have a specific corporate development and MA function.

SPEAKER_00 6:29

Well, it it's all of those things. And I think that's one of the things that I find interesting because the approach is different if you're at a large multi-billion dollar strategic. And I work with a lot of those types of groups that I have for a long time. They are very structured and typically, uh and they're they they tend to have in off oftentimes silos. So people with certain levels of responsibility in specific parts of the business. So sort of a president of a division, for example, or someone who has um doesn't have operational uh um responsibilities, but has responsibilities around corporate development, for example. So they all have their roles and they all interact with each other, and those organizations can be a little complicated to navigate for people who aren't used to that because people get transferred around or move on or whatever. And so there's just always a uh trying to stay current with those organizations. On the other hand, you can develop a relationship with someone who's uh a founder who started the business themselves, and they could end up running the business for 25 years as chief cook and bottle washer, basically uh doing everything uh the and responsible for everything. And they have a different more entrepreneurial approach. So uh it it really does depend on the animal. And and then, of course, every time every time I say something like that, I I remember there's uh millions of exceptions to those rules. So uh it really is uh a matter of of getting to know people. I mean, I have a uh sort of a trite thing that I say, but it's I I believe it, which is companies don't acquire other companies. So as a research analyst, sort of thinking about it from that point of view, you're you're sort of missing the the trees for for the forest. And and actually people are the ones that make the decisions whether to sell, whether to buy, um, and they do it for the reasons that are important to them. Um, so uh it's not always purely a high-level strategic consideration, but there's also, you know, uh, you know, how is this going to affect my bonus type of things?

SPEAKER_01 8:48

Right. So what are the skills, traits, and attributes that you find are most taxed when these leadership teams are going through MA?

SPEAKER_00 9:04

Well, again, that depends on who you're talking about. But for founders, I mean, they probably don't do MA on a regular basis. And so a lot of it is new to them. They may be familiar with it, but they may not understand it intimately. And so uh my job is to sort of help lead them through that process and kind of smooth out the rough edges, uh, if you will, uh, and and also be the conduit to helping them find the right buyer for their business, or when I'm on the other side of the table, find the right targets that that meet their criteria. So I think the the hardest part is they're experts at doing what they do every day. But this is something they maybe do once every few years, or maybe once in a career.

SPEAKER_01 9:58

And how do you go about advising and walking them through that in a way that enables their success?

SPEAKER_00 10:10

Well, part of it is demystifying the process for them a little bit, um, because it sounds maybe to a lot of people like a Herculean task and something they don't have any training uh about how to do. So part of it is to help them feel comfortable in what the process is and what it entails, and to uh to do a lot of the heavy lifting uh in the process. I mean, preparing marketing materials, managing data rooms, uh uh cataloging buyer interest, for example, and and being able to be responsive to a lot of different parties that may be in different tracks with with respect to the transaction. So that's a full-time job, and it's not something that a lot of CEOs uh or CFOs have the additional bandwidth to do. And one of the things that I always tell people is very important is don't take your eyes off the ball. The business has got to continue to run. And if you're spending all your time doing MA and not focusing on the day-to-day blocking and tackling that you need to do in order to hit your numbers, uh that can actually work against you in a process. So our job as an advisor is to help them to navigate it, but also to take a lot of that burden off their shoulders.

SPEAKER_01 11:31

Yeah, it's I've seen a number of deals retraded because the initial information that was given when a buyer was interested and in the original management presentation, six months later, as all of the diligence things are going through and people are talking, those numbers have changed, the growth rates, the profitability, and now all of a sudden it's not worth what it was a year earlier.

SPEAKER_00 11:56

Yeah, and I mean sometimes. Yeah, exactly. I mean, sometimes that's unavoidable. There can be macro things that are out of your control. But if um it's a shame if it's actually because the management team is getting distracted. So we want to try to avoid that. But on the other hand, the um I've seen people make a decision about when to sell based on, well, I think we're going to have a higher revenue or a better EBITDA in X amount of time. And they uh they might actually achieve it. But one of the things that I always tell people is to think about what is the buyer going to look at? Like if you have um, if you're having a lot of success, the wind's at your back, that's the time to put yourself in a position to get the highest valuation because you keep going back to the buyers with, hey, guess what? We had a great quarter. Those kinds of positive reinforcements um really help to energize the buyer and keep them motivated to move quickly to get a transaction done. And if you're just waiting until you hit a certain level of revenue, the question is, what happens after that? Does it flatten out? Do you go from growing 25% a year to seven or eight percent a year? Because now you're growing a little bit just a little faster than market rather than you know taking advantage of the of the technological innovations that you may be introducing to the market, it's a different type of calculation for the buyer. So it's always good to think about the exit earlier in the process or earlier in your in the life cycle of the company, and kind of always keep that in mind and don't act too late.

SPEAKER_01 13:47

One of the interesting stats that people cite fairly regularly is that you know, 70 to 75 percent of MA deals fail. And the rest of that quote is that they fail to meet their stated objective, um, not that they actually fail. But a lot of that falls at culture. What diligence are you seeing from buyers in how they're assessing the management, how they're assessing the culture of these companies, and then I'll have a follow-up as to how you're helping to mitigate some of that?

SPEAKER_00 14:24

Well, that's an interesting question. I do think this is not a statistic, this is more of a gut feeling, but I've always found that the easier people are to get along with, the more uh proactive they are, the easier they are to get a hold of, for example, um to someone who's trying to build a relationship with them, the easier time they have at selling a business and becoming um an important and trusted part of the new co after an acquisition takes place. They preserve them, their their role within the organization. And I think uh it really is about being able to get along with other people and and being uh a person who's true to their word. Uh so I think those types of you know, just personal characteristics seem to lead to good outcomes um both in a transaction and a post-transaction and the integration process.

SPEAKER_01 15:32

In theory, that makes sense. I'm gonna push back a little because you know stats are there. And also in, you know, for those sold into private equity, roughly any again, anywhere between 50 and 60 percent of those executives have been later fired. So they might get a decent, decent exit on it, but something happens along the way. Are you seeing diligence explicitly or um concertedly on management and culture? Or is it something that people are treating more as art than science?

SPEAKER_00 16:09

Well, I think when you say diligence on the team, people want to know that the team is solid and that they can perform their jobs and that they're going to be uh able to handle what's coming. And so it's really important to have management presentations, even with um, especially with maybe uh founders who own the business that are planning to step away or looking to transition out, they want to know that they've got a depth of management team with uh that that's able to continue to run the business. And so management meetings, when you get to that point in a process, involve a lot of different people who are heads of different parts of the business because the buyers are they want to look them in the eye and and see if they, I guess, like the cut of their jib. Um it's uh I don't think it's I've not seen anybody do like uh diligence on people other than you know just background checks and things like that. But it's really uh so to an extent, I guess it is more of an art form, knowing what you are looking for and making sure that these people that are on that management team are people you trust to continue to run the business.

SPEAKER_01 17:22

Yeah, my my argument on that front would be that they should be doing far more diligence to figure out what they're good at and what they're not good at and if it's a good operational fit for that fund, not just a good product. Um, because I think they end up spending a lot of money after the fact replacing people and having delayed value creation because in a lot of cases, and I I sold our family's business into private equity. I know what I went through in that, which was a ton of financial diligence and contract diligence and customer diligence, but nothing on the management team. And thankfully we had a good team, but it was an interesting scenario where in a lot of ways it felt more like the buyers were trying to court us than understand whether it was a lasting marriage.

SPEAKER_00 18:14

Yeah. And I guess my comments were more thinking about the strategic acquirers. But when you're talking about private equity, that's a bit of a different animal. Um, and if you've seen one private equity fund in their approach, you may have seen one private equity fund in their approach. So that is why I always advise my clients to do their own due diligence on the buyers, particularly private equity funds. I mean, if you're selling your business to Johnson and Johnson, you kind of know who they are, right? But if you're selling your business to XYZ private equity fund, you want to understand their approach because the some of them are very much we want a quarterly update, uh, tell us how it's going, and we'll stay out of your hair because we're you know we're not operators, we're investors. Others pride themselves on being able to roll up their sleeves and like help them make connections to increase sales. And and there's a lot in in the middle. And I I tell I tell my clients one of the things that you they should do is their own due diligence on the buyers and talk to some of the people who've sold businesses to them and what their experience has been, because that will tell you a lot. And it's it's very helpful in determining that because sometimes the right buyer isn't the one that just happens to have the highest price. Because you may find that that it's not, there's not a cultural fit with the management team who's going to continue to run the business. And by and large, that's what they expect them to do. They a lot of private equity funds like to have the the owners roll over part of their equity into the NUCO and participate. And that can be really good. And I've had clients that that has been an outstanding success for them. Um, I have one client who sold their business to a private equity-owned business, so there was a bit of a strategic. Um, and the um it was a great outcome for the owner. And his son had a very important role within the business and stayed with the company post-transaction and is now running their the largest division of that, of that successor entity, um, and um, and doing a great job, and and everybody's super happy. So if you get the culture right, uh, it can be a great outcome. But you know, you have to do your own due diligence. Uh so I would almost say that that as a seller, it's just as important to do your due diligence on their approach as it is for the private equity fund to do their diligence on the on the company they're trying to acquire.

SPEAKER_01 20:50

Good. So that was a fantastic story. I'd love to hear another favorite story you have where the management team itself was the key differentiator in the success of the MA process.

SPEAKER_00 21:05

Well, I mean, I can tell you a story actually about uh a private placement situation, which was also kind of similar. I advised a company in the cardiovascular diagnostic space a few years ago on their first institutional financing. And that was um uh they had raised some capital from family offices and things like that, but they and they had started to have some early commercial success. But it was really um uh it was an interesting process because the the founder, CEO, was really an expert at what he did. And he was also quite humble, had a had a very uh self deprecating uh way of about him. And that combination of technical excellence and down to earth, easy to get. Along with personality really made the difference. I mean, a lot of times companies that have great technology and they just can't put the financing together, or it takes a really long time. In this case, what we all just wanted to do was get him in front of investors because as soon as they started talking to him, uh the light bulb went off, or maybe, you know, visions of dollar signs, I'm not sure. But at any rate, we ended up with uh with a couple of um offers uh for term sheets within a a matter of weeks from the time that we launched that process. So it really does come down to the individuals themselves. And I think that combination of knowing what you're doing and being a world-leading expert at it, and also the the way you have with other people is is just the uh home run uh kind of combination.

SPEAKER_01 22:59

So, flip side of that same question stated far more directly. What are the biggest challenges you see with existing management teams as they're going through the presentation process?

SPEAKER_00 23:13

Well, people who aren't that used to it have a harder time with it. Like, uh I mean, as a general rule, people who are familiar and and do you know sales to customers, they know how to present and and and so they're already ahead of the curve uh on that. People who are more technical people who've been spending a lot of time on product development, RD, and sort of outsource the sales functions, sometimes they need a little more coaching and a little bit more practice in order to be able to do that. So uh, because it doesn't come as naturally to them, and it's not what they do on a necessarily on a day-to-day basis. Um, the interesting thing is most CEOs have to do all of that. So they they tend to they tend to be pretty good, but there could be different people within the organization that you you have to work with a little bit more closely in order to make them get them prepped for management presentations, for example.

SPEAKER_01 24:13

And do you see challenges where people who have prepped for the management presentations may not have prepped for, for instance, the dinner or the walk around the, you know, the lab or other other components that may have been deemed less important in that preparation process?

SPEAKER_00 24:36

Not necessarily. I think dinners are where you sort of see everybody's personality because there are usually conversations about the business as well, but there's a lot of conversations about you know, kids playing soccer and you know, what part of town do you live in? Um, the walk around usually is it takes care of itself often because people are just really proud of what they've built and just love showing people around. So you kind of experience that energy with them. So those are usually that uh those usually happen before the the formal sit-down management presentation so that people have a little context and sort of walk into it with good feelings and you know sort of have a everybody's been able to brag a little bit about what they've done. So that's always kind of fun.

SPEAKER_01 25:23

Good, good. So as people are thinking about entering an MA process, what should they be doing 12 months before calling you?

SPEAKER_00 25:41

Well, it's it's always good to make sure you have your numbers solid. Um that doesn't necessarily imply that you must get them audited, but it's it's good to know uh have a good handle on on your financials and also have an idea of how things have trended. I mean, those are those kind of things are are seem to be pretty basic and usually usually are, but it's uh it's a kind of a must-do uh kind of topic. So I think that's important. The other thing is just being able to start conversations with some strategics that may potentially be interested is always good and uh highly recommended because you you the a lot of times those relationships gestate over a long period of time. You may find that there are opportunities to have some commercial success by partnerships and what have you, but and that's always nice to see. But I think the earlier you start those conversations with potential buyers and build those relationships, the better it is. Um, you know, there are there are some companies that if you approach them in a process, um, they and the they have never heard of a company before. They may literally just say, we're out. It wasn't on our chessboard. Um, because they they they build their pipelines over a long period of time and and if and and they get to know these companies. These strategics tend to do this. And it's that knowledge of what that business is all about that makes them feel able to be competitive in a process. Uh, and they you know, they already have an idea that this is something they'd like to put in their portfolio. So uh it's um it's kind of a soft skill, I suppose, but it's it's important to build those relationships.

SPEAKER_01 27:38

Fantastic. What's your advice for leadership teams going through the process of selling their company? Outside of diligencing the group that's buying you, whether that's because you know them already or not, and prepping by getting your house in order.

SPEAKER_00 27:58

Well, I think the it's really important to try to get a good advisor who can actually help you. Um the uh the I mean the cost of paying for an advisor as you know part of the that experience is generally more than outweighed by the increase in valuation you tend to get. So it's not uh a time necessarily to skimp on trying to save a retainer fee or something or a success fee, because it can be self-defeating. Um, it also allows you to have uh someone in your court who can help you to think through different approaches, who have the experience of having done this many, many times, and um, and understanding how things are going to be perceived on the other side of the table. Um, it also helps, as I said, take take away some of the burden, the administrative burden of running a process because you need to continue to focus on running the business. That's the primary objective. Um, so I think those are some of the things. I think also an advisor can help create a sense of competitive tension that might not be that easy to do for the CEO or the management team themselves. And um, and so that that is really important as well because people are more willing to pay more when they think there's a chance they're gonna lose the deal. I mean, that's it's just uh human psychology.

SPEAKER_01 29:39

One of the complaints that I was hearing from investors um over the last couple of years is that sellers have an outsized expectation for multiples. Is that a tension you're still seeing, or have the buy-sell spreads shrunk?

SPEAKER_00 29:57

Well, it depends. I mean, there definitely was in say the toward the end of COVID, for example, and in the overhang from COVID, there was a lot of valuation mismatch because prices have been bid up a lot in 2020, 2021. And then in 2022, after the invasion of Ukraine and the inflation that was starting to take hold at that point, um buyers adjusted, but sellers didn't necessarily adjust that quickly. And so there, I think a lot of that has tended to resolve itself. Um, but you're always going to have a mismatch between a buyer, uh buyer's expectation and a seller's expectation. And uh, you know, the fact is that evaluation isn't uh is all theoretical until both parties meet somewhere in between. So you have to look at that and and and try to find a way to bridge that gap. And I mean, that's one of the things that I spend a lot of time thinking about as well, is trying to figure out interesting and creative structures to sort of help bridge those gaps, whether that's in the form of contingent parts of the consideration, such as an earnout or a royalty stream or something like that. There's usually a way to get there.

SPEAKER_01 31:21

When you think of the next wave of value creation in the life sciences and diagnostics space within healthcare, where do you see that heading over the next three to five years?

SPEAKER_00 31:34

You're asking where do I think valuations are gonna trend in the next one?

SPEAKER_01 31:38

No, the next wave of value creation. Like what what types of what types of businesses are gonna have more interest versus those that are interesting but not saleable?

SPEAKER_00 31:54

Well, I mean, there's been a lot of you know, flavors of the month type of things that I've seen over the last uh 20 something years. Um and everybody sort of piled into stem cells at one point, and then it just completely fell out of favor. So there's there are always different technologies that are coming. I mean, right now, AI is everything. Every everybody's trying to find some sort of inter intersection with AI. And that's uh, you know, there's going to be some value creation with that. There's also probably going to be some people that don't really see the benefit from it. That's the way it has tended to be with different technologies uh that have been introduced. Um, so investors are always looking for that. And you look at the venture capital type of things that have been uh done, I mean, in the last couple of years, and there's been a lot of things with AI-enabled diagnostics and AI-enabled, you know, uh software uh things to manage, you know, clinical decision support or or what have you. And there's a lot of really great potential there. Some of them are going to be winners and some of them aren't. And it's really hard to tell which one that's gonna be. So digital health is another area that has uh people just piled into. And it was taking a long time before people could start to have a valuation anchor because there just weren't a lot of MA transactions buying these businesses. Um, that's some of these companies have started to go public, and some of there's been a few more transactions that have occurred. So the the picture for those types of businesses is a little clearer now than it was 18 months ago, for example. But uh, you know, that the it's the the neat thing about this industry is there's a constant wave of new things coming, and um and a lot of these can be quite disruptive to existing workflows and existing clinical practice. Um but just because I mean that that's a double-edged sword as well, because if it can uh if it can change clinical practice, this could lead to a lot of you know, a lot of new sales for these types of products, a lot of better treatment for patients, better um uh uh approaches to care for the for the providers. On the other hand, if it has to change the workflow too much or requires a lot of training, um there's going to be resistance to to being able to purchase this and and roll it out to the market. So it's a it's a bit of a delicate balance. And not only that, it varies from specialty to specialty. I mean, I suspect a cardiologist is much more willing and interested in changing their practice to take advantage of new technologies that may be revolutionary than a dentist, for example, that is going to do something that they weren't trained to do in dental school. It tends to be a little more conservative. So it really just depends on which which alleyway in the industry you're talking about.

SPEAKER_01 35:04

Makes sense. I just invested in a dental technology, so I hope that uh I hope the opposite is true, but point taken.

SPEAKER_00 35:14

No, but there's uh there's some really neat technologies uh and it's uh that that have been introduced even in the dental space for, you know, but it is uh it's sort of uh uh an area that people universally uh agree is tends to be more conservative, one of the more conservative parts of the medical professions. Um, but yeah people get used to using certain types of technologies in med in dental school and they use it their whole careers. But that being said, there's plenty of exceptions of things that have really taken off.

SPEAKER_01 35:50

Yep. So in closing, any uh any summary thoughts, any advice?

SPEAKER_00 36:01

Well, I think the uh I mean I would say, you know, I think it's a it's an interesting and dynamic time to be in my profession. I'm really enjoying it. I think it's uh it gives me the chance to really to think strategically about a lot of different aspects within the industry and what what is happening, what could happen. Um, and I I really enjoy having conversations with with owners and operators all the time because you're always learning and you're always getting a different and fresh perspective on someone who's who's actively trying to change um the clinical standard of care or develop the market. So it it's fun uh doing what I'm doing. And um, but I think that there's um yeah there if you find a good advisor who understands your industry, um, you should you should take advantage of their knowledge and uh and and take advantage of their advice and and at the right time help uh have them help you think through your monetization event on your company because um uh they they can add a lot of value in in terms of bringing uh what might be a sort of bilateral discussion into a competitive process. And invariably you're gonna see a premium to your valuation by doing that.

SPEAKER_01 37:38

And that wraps up another inspiring episode of Leadership Quotient. I appreciate Greg for bringing both depth and practical perspective to today's conversation. To our listeners, if you found this conversation valuable, be sure to subscribe to Leadership Quotient wherever you get your podcasts. You can also learn more about The Crucible and how we're helping investor-backed companies align leadership teams for scale at thecrucible.com. We'll see you next time for more real conversations on leadership, talent, and value creation.