On this episode - Corley and I discuss the approach to an ESOP transaction to establish the valuation through an arm’s length negotiation with Trustee. Corley explains the particular requirements and approach to supporting the transaction trustee on the business valuation that will helpful to better understand what you should consider in planning your ESOP transaction.
On this episode - Corley and I discuss the approach to an ESOP transaction to establish the valuation through an arm’s length negotiation with Trustee. Corley explains the particular requirements and approach to supporting the transaction trustee on the business valuation that will helpful to better understand what you should consider in planning your ESOP transaction.
[0:10] Welcome everyone this is the ESOP guy and we are on a journey to an ESOP I'm so glad you guys could join us today, this today is one of those topics that I just love because it's part of my background you know in in terms of, of credential I have a CVA do a lot of business valuation work I've done that for like over 18 years now and so I love talking about business valuation and it's honestly one of the most important aspects of doing an ESOP transaction, it's really on the Forefront of everybody's mind like what is my company going to be, as I go through the process of selling my company and specifically selling it to an ESOP which would be basically the buyer would be the trustee, and so what we want to talk about today is is going into that like what is that all about, and so with me today I have Corley Thomas he's the managing director of HDH advisors, and their role is primarily to help the trustee to decide what they're actually going to pay for the company so so that's what we're going to get into before I let coralie talk I just wanted to say a few things about the podcast.
[1:15] If this is a first podcast for you thank you guys for listening and are tuning in today, this podcast really is designed as a resource for people that are thinking about doing an ESOP transaction and really just here to educate people on the process and different aspects of what it means to do an ESOP transaction, so you can find out more information on the podcast at our website at journey to an ESOP.com, also if you do like this podcast go ahead and like it subscribe to it share it with a friend and then do a five star rating on, on Google or Apple or whatever platform you're listening to so so with all that well let's roll into our topic today with Corley Corley thank you for joining our podcast this is your first time doing a podcast is that true.
[2:03] That's right yeah thanks for having me.
I'm excited to be here yeah excited so let me ask you this as we get started in this is because I'm I do tons and tons of movies what is your favorite movie and why what would you say that to that question.
[2:22] Yeah okay so the first one that comes to mind would be the Departed I think the Simplicity of it is it's an All-Star cast with some good plot twist.
So it really enjoyed that one okay so wait The Departed.
[2:38] Departed having that I actually have never seen that one so I'm kind of excited to see how you add it to the list added to list so quickly is it like what's the plot is it like a thriller, does it like you know ours is somebody died in it.
[2:55] It's one of those old-school mob movies okay all right and that it's got its got that got spies and rats on both sides of the equation inside the mob and inside the police.
It's a good story cool you should watch it awesome.
Well the ESOP world's a lot like the mob isn't it I'm just kidding yeah it's actually not at all but so what we're going to talk about let's frame this out correctly before I get into your interview, so we're going to talk about is is how corley's group how they help, the trustee and working through a normal transaction Corley how did you get real how did you get started in the ESOP world and doing what you guys do what you do for the company now and how did you get started in doing a job.
[3:43] Yeah great question so you know our background is in valuation we value businesses for a variety of reasons and as esops have continued to get popularity.
Started back in maybe 2011 or so we started to support trustees in their analyses of businesses supporting them through the valuation exercise and, it's just an opportunity within the space we knew valuation and trustees had that need to try to amplify the support and the analytics behind, the prices that they were paying and established a few relationships and it's grown to where it is today which is been exciting it's pretty cool.
Yeah so so talk let's talk a little bit about the relationship because for some people listening.
They don't really even maybe understand that the independence requirement that a trustee has when they're going to basically make an offer and negotiate this the actual sale price of the purchase price of a company.
What's the relationship with you and the trustee and how does that get established in the ESOP process.
[4:52] Yeah Jerry question so we support the trustee we worked on behalf of the trustee.
The design is that we're independent from the company we have no conflicts of interest with the sellers the existing owners of the business.
Or any employees at the business so we're in a completely independent third party.
And we provide a financial advisor role to the trustee.
The design of it is obviously the trustee needs to make sure that they're documenting that the transaction took place.
Arm's length fair market value terms that's critical its weather Key responsibilities.
And in order to do that often times trustees need to bring in a financial valuation firm like ourselves and so that's our role.
And how we get involved how do they do to get to get to work with the trustees.
How do they qualify you as independent what do they do specifically to do that.
[5:53] Yes it's so typically they're reaching out to us to confirm we haven't worked with the business before.
We don't have any family relationships with any of the existing ownership group or any key employees at the company.
Those are predominately that the main qualifiers but what most trustees often do in addition to that is they look for, what is our experience in that industry right if we're going to support them as a financial advisor, do this business you know if it's the Plastics business or trucking business or a restaurant business right have we worked in those Industries before they have experienced, valuing companies similar to that that's that's typically it also important part of the process yeah that totally makes sense right.
Walking into something brand new your organization so obviously it's not just you you've got multiple people that work.
Within the ESOP part of the practice right because you got you guys do valuation for other purposes as well I'm assuming.
[6:58] That's correct we do it's about 50/50 so the fifty percent focused on ESOP and then 50% outside of ESOP world and.
We like that it gives you a good mix of both right we work with various private Equity companies around the world and their various acquisitions.
And seeing those open market transactions I think better equips you for some of the ephah transactions that the design and the ESOP space.
Is for a transaction to mirror the economic terms of what happened in the Open Marketplace but I think valuation groups that do a mix of both, it's a good strength to have that you have that experience in both types of transactions both open market in Indonesia that world I think I think that's a good point and it makes me think about like some some questions I get asked from people.
Are things like cuz sometimes companies are thinking I don't know if I'm going to be an ESOP are I think I might want to go this other track might be the private Equity route, in some cases they want to kind of run like the same at the same time line they want to run run the route with an ESOP and with a say a private Equity deal.
[8:07] Which just in general I think that it's a lot that's apples and oranges in some cases because it private Equity deals more of a funny intial strategic sale you know and more motivated by money, then the ESOP deals got a lot of other holistic pieces of it you know so just in general but I always tell people it's like not really the same type of deal so you might want to, you know if you want to run them at the same time that's fine but you need to kind of at some point in the timeline you need to figure out what you really want out of this you know.
So my question is and this is what I get asked by people is how much would a private Equity offer or any strategic Market offer to accompany how much would that influence the price for an ESOP transaction.
Say for instance you got the client had our the company had an offer of say 8 times a multiple of ibadah.
And financially where and when we just do a financial fair market value number we're coming up with something like 6 times you know 6 times.
Would influence the trustee to as an in the transaction to move closer to the a or how would that really play a play a role.
[9:21] That it definitely can play a role and I'll give two examples of where it does come in and some examples where it doesn't so, in it in an example where it does play in if a formal process was run a potential buyer did their due diligence they were making an informed offer, and it was a competitive situation, did that offer is a good indication of what the market value of the business is we should not ignore that we should certainly take it into consideration so in your example where.
That offer was an eight times and maybe our initial analysis was that.
[9:59] I think there's there's you've got to pay attention to that and start to gravitate closer to that eight times if that was an open market.
Bid on the flipside we run into some situations where people kind of dab on their feet in the water they're trying to test the market, it may be a group labs in and offer but it's not necessarily a sincere offer right it might be a three times or four times and, and you know they're trying to see if they can scoop up the deal from an uneducated Cellar or something like that, in those instances once we have an understanding that hey this was really not a competitive situation, we're probably going to dismiss that and so I think it can go both ways if it really boils down to what were the facts and circumstances that led to that offer.
That makes sense yeah we would it be in kind of the timeline of a normal like a normal train em a transaction you're going to get the letter of.
[10:58] The company the buyer is going to come in he hears our Loi the LOI is going to include a section where it's going to talk about what they're going to pay for the company of course after that there's a bunch of due diligence that can always change that number you know.
There's a working capital number or usually some kind of alluding to hey we're going to have a Target working capital it probably won't tell you exactly what's going to be so is the LOI enough documentation for you guys to validate that to say that that's a, you know a bona fide offer or just you get that and then you get this facts and circumstances around how the like a created is that kind of what you're saying.
Yeah I think that's exactly it is you trying to understand the facts and circumstances behind on a little lie because that's the case you know how sincere that Allah was and.
How far along they were in their process it's it would be unusual for things to be beyond the know I you know and in other words you know that have had a purchase agreement drafted and then there's, at that point there's ample specifics but the question becomes a kid why did this transaction get so far along and not close right.
But if the most often times you're dealing with an Ela I situation and it's really just trying to get an understanding from the seller of the sellers advisors, what was this process that like an assembly line and why would it not accepted but how informed was this fire.
[12:25] Totally yeah and I think that is helpful because people you know are wondering you know not that I think part of I guess what I would say just to be honest I think they're wondering if I could get this in the market, but my fair market value number is lower why should I do an ESOP you know and that's really.
[12:44] A good question I mean why should you really win that and that's why I'm saying it's apples and oranges sometimes when you're looking at.
[12:51] Do I want a private Equity Group to come into frankly to change whatever I made I mean that there's not going to be a respect for the culture there's not going to be respect for, you know your what they say they'll do what the employees there's really no there's no real reason for them to do anything but to to get more money out of the deal later and that's what they're living right you know.
[13:14] I think from our point of view on the valuation side the ESOP is similar to a financial buyer it should be able to pay the same price that any other Financial buyer is able to pay.
The people that had a concerned that there's going to be some big value gap between an open market transaction or private Equity exit and an ESOP you know.
I would suggest that that's not a significant concern and reality, where I think you can have gaps is if you're in a business where there are significant synergies from a competitor right so if there's some competitor out there, that would have an interest in acquiring your business and could cut overhead significantly those Acquisitions take places at.
[14:05] Oddly High multiples because of the synergies.
But that might not be a good cultural fit either right in order to justify those really high multiples and those Energies.
They're eliminating a significant amount of overhead and a straight of personnel and things like that and that might not be a good fit for the sellers either no yeah I mean in their thought processes how much do we want to keep what we have built in.
After the closing and.
So strategically sometimes I mean are not strategically just kind of in the goals and objectives as we sort through those with people and their businesses it's like does it really make sense for you to go through all that you know, but as we go back to that idea that there's a there's an indication of value that maybe he's a little bit more than.
[14:53] The financial fair market value that we would come up with going through that process which we're going to talk about now I think is important.
You know and I'll kind of just go through this kind of briefly but then I'm going to get get your thoughts on it so so as we go through what I would call it for us to do sell side advisory is if is what I would call valuation model, it helps us to determine a projected value at the time of a transaction and we're going to go typically through, an income approach model that takes the cash flows normalizes the cash flows.
[15:28] Considers the capitalization of earnings method which is a historical income approach method and what's required in that is that we create a cap rate and the cap rate, is really the the risk rate of that cash flow in from a hypothetical buyer perspective, then we're going to take that and get into the forecast and then also use a discounted cash flow method which is the forecasted cash flow and the sum of those present values of that future cash flow, and we're going to look at both of those in the model and we're going to come up with some kind of idea of what we think the Enterprise Value is going to be.
We're going to estimate Target working capital so we can estimate what how the balance sheet a lot of closely held small businesses Middle Market businesses.
For whatever reason they keep a lot of excess working capital and so that's a big component we're doing a deal right now, that's like maybe a half at least a half of the whole purchase price so it's it can be a big number so we want to look at those things so once we finish that, we have like what we think is hey this is what we think the estimate is going to be and we're able to move into it now your side Corley is you don't even get involved in that until the sell side.
Advisors gets the trustee up to speed and then you guys come in to help the trustee so how would you explain your process and supporting the trustee and getting their number together.
[16:50] Okay you know it's interesting it really mirrors your process pretty heavily so you need that the process you just described that you guys are doing on the front end.
By the time we didn't get engaged that's exactly it you're diving into say okay what are the normalized cash flows in this business.
We do look at the historic cash flows as you pointed out but really value is forward-looking so we look at the Historical 's to try to understand what is likely to happen in the future.
But a big part of the process is understanding from the sellers what is the projected performance of business look like.
And talking through that with them to understand the future.
That's going to play into a discounted cash flow model that it sounds like you're using as well and we're going to use that nearly on the every one of our valuation approaches.
And in essence what we're saying is okay here's the expected cash flows that are ahead of us.
And worth the value of those cash flows and to point there's a risk adjustment to that.
[17:55] Cool sounds it doesn't it sounds a little it sounds a little boring but it's just the way it is right yeah I mean it but its necessary it's essential.
[18:04] Yeah I know it's the foundation of evaluation exercise now beyond that what we will do.
Is also look to the marketplace to try to support that income based approach right so if there's.
Publicly traded companies that are similar to the business that's being valued will definitely want to take a look at the multiples of those public companies are trading on.
If there's private transactions that have happened in the industry we also want to look at those transactions as well.
[18:33] So along with any other valuation group is going to have access to databases that report private transaction multiples and so that's a big piece in the study as well.
For sure just to round it out to where you're not so you have waited.
Different methods that you can weight and feel like you've been you know the best possible representation you can.
So when you get down to your supporting the trustee and then the negotiation part starts.
[19:02] How often at my first let me ask you this how many trustees you guys work with probably a lot write a lot of different ones across the country yeah I say it's about 8 to 10.
Okay ready to 10 different trustees that were working with, in are they as they go through their processes as they do in oh every trustees got its own a sense its own business and approach to to doing this even though it's got to be pretty similar because the deal I'll process.
How much does does it vary for you based on trustee to trustee and how you work with them or is it pretty similar for each one.
[19:38] Yes it's I would say it's similar from a valuation standpoint the methodology is it going to be identical no matter who you're working with, the approach our ultimate deliverable that's on wood product or trying to keep consistency across across the board.
But what you do change you know when you work with different professionals you want to adapt to how people work right no different than, trustees probably want to adapt to how someone prefers to work right is the cellar want to be in person having meetings that they want to know are they comfortable with doing just conference calls on the Fly you know.
I think we try to be adaptive and respond to the PACE and the Cadence and the style of communication that that trustee group wants to see.
But at the end of the day the process of evaluation is going to be identical across the board.
[20:33] And I think that that makes a lot of sense and I think there's a lot of people people haven't done this before there's a lot of mystery behind the trustee you know and.
Who these people are how they think about it what their role is going to be after the fact you know they're going to tell me what to do my business all these different things kind of come out.
With the trustee so you guys kind of are in that behind the curtain type of thing.
[20:56] So that the trustee can come back and say this is what we think it's going to be worth how often when you get into and I was thinking about like just the idea that, you know every every deals kind of different and you know when you put an ESOP deal together.
Just you think you know it is what's going to look like at the end but how often do you guys get to a value gap between you know you guys recommend something and then the other guy the the sell-side advisor comes in with some offer that's just.
Maybe out of there like completely out of the range like what are you guys coming up with why'd you even you know so how often does that happen to you guys in your practical world.
[21:35] Sure yeah I would say it doesn't happen that often I mean at the end of the day everybody's working with the same ingredients if she will write if you thinking about it baking a cake or whatever we're all working off the same ingredients.
We've got the same access to the same Market data we've got the same access to the company's historical financials in the company.
[21:58] The number of times that there's some you know are recoverable Gap and value is pretty rare but what I would say is.
When that happens everybody wants to get ahead of that so typically you identify that extremely early on in the process.
The last thing you want to do is get you know into the 11th hour and realize hey we're still pretty far apart here.
So what we try to do is if we feel like there's a value Gap concerned we want to address that really early on with the seller right and working so it's communicating to the trustee hey I think we've got an issue here, drinking that but the seller in the sellers advisor and trying to resolve that difference, right out of the gate I think that's pretty important dates for a smoother process the rest of the way.
Now I agree with you I mean I could be I think there's anxiety to people going through this process thinking oh you know what am I going to what am I actually going to get I always try to like.
[22:57] Tell people what we just what you just said which is, hey we're using the same methodology it's the same numbers you know so yeah we're might be we may be off a little but we're not going to be awful lot you know that's the bottom line unless, unless they didn't disclose something correctly or you know you there something brand-new came out that we didn't know about and in the midst of the process which.
Can happen you know the forecast was here and then we have interim results that are, not on par to hit the forecast so you know in that case what I'm saying like you know on the sell side what they should do is completely disclosed everything as it comes.
Because it's going to come out in the end anyways right and and your process you have to go all the way up through the closing.
Even you know right at the beginning right at the end of the closing you have to do the bring down call or the takedown call or what do you what do you guys call that.
[23:53] Yeah we call it a bring down call but that's exactly right is you know literally a day or two or three before closing, we're having a call with the with the sell-side to say hey let's walk back to the customers you know you lost any major customers have you gained any major customers have you, you know it had there been any turnover at the executive team level, you know are you dealing with some sort of Challenge on on your supply chain where you can't get inventory right now you know literally three days before closing we're still having that conversation just to confirm that nothing material has changed for business.
Because it's a process right that when you do in an ESOP.
Two months three months sometimes you know depending on the Cadence it could be longer and so you just trying to make sure that that you're working through and real-time what's going on with that company because it can change from a day-to-day basis.
[24:44] You're exactly right I mean there's there are times through a closing that something happens and, it may revised projections or whatever but I would say can go both ways we've seen it definitely goes both ways we've seen it where hey things are getting a little soft and so we're going to revised forecast down but I've also seen where hey, we just landed the new contract and that forecast that we had is way too conservative now we need to revise this and so it you know, everybody's dealing with the information in real-time if there's changes like that yeah so and and that's why you know one of the things I look for.
This is this is the part that I think is important to just the trustee selection process is you.
The art there are some trustees that you just I don't know what for whatever reason they become so inflexible on certain things that.
[25:37] You're like well it's changing you know and I believe that, it is real time so if it goes it can go both ways and I've had situations where the trustees are just like well you know just not flexible at all and it's not about being flexible to to do something that's, illegal or unethical it's about being flexible to say hey this we know things are going to change this in different in different ways so you we need to have these ongoing conversations about that and being able to openly discuss those things, there is a little bit of that like part of the conversation is what can be because there's there's as part of the ruling that we have under the under the transaction we have to be negotiating an arm's length transaction.
Which basically means that you have a buyer who doesn't have any bias doesn't know you know anything more than what they need to know write the same thing on the seller side.
So to to respect that the trustee doesn't give the valuation to the to the seller ever, you know and so that so talk about that a little bit in terms of you know I I understand it pretty well but it's probably good for people to understand that because it's a little bit confusing to me sometimes because we got this, this this process that becomes like the Optics are important and.
You know the offer the way we do offers and back and forth but there's a little bit of like you know you can't cross this line and whatever that line is so.
[27:02] Yes I would put it as simply as.
Sneak peek of our deliverable is we're going to communicate a range of value to the trustee so we're literally going to say hey this business is worth somewhere between, 50 million and 60 million right and and so if you can imagine that that's what our deliverable says, if the seller had access to that it puts them in a very strong negotiating position right because they know exactly hey this trustee can go up to 60 million, visors get a sign off that the transaction is fair, and so that's the significance of why that product can never really make it to the cellar Pages yes, it just you know if it was ever that ever happened you would need a serious reset on the process just in terms of the documentation of the independence of everything.
[27:59] Yeah and that's and that's and I think that's important for people to try to understand and grasp.
In these are the changes that have come because there's what there was abuse, in Deals Deals long ago where like one you know they actually did one-sided deal is like everybody did everything it just there was no separation and there was no Independence and.
[28:20] And the result of that as you had overvalued companies that ended up blowing up and then you have all kinds of problems and one of the main things I always think about as much as much as I want to help my shareholder.
Max out what I believe fair market value is is there's this balance and this is why I like cash flow valuation more than I like Market valuation just.
If the cash flow shows the value then as we dig into them to the actual repayment of the debt, feasibility side there is a balancing act that happens or the value and the cash flow, they meet together where the company is in a good position the shareholders in a good position the employees in a good position and we haven't, we haven't like created some big time bomb in a time bomb would be we've got some big number that everybody was excited about great, but when it comes time to pay the piper and there's any adjustment to the forecast.
Then it can be not so great when that you know it could feasibly blow up or the Department of Labor could say hey this this transaction isn't isn't right right, so I think that's what we're talking about we need to respect that that, as much as we're trying to do the job for the seller in Coral he's trying to do the job for the trustee we both need to figure out how this thing is going to really work for the company and I think that's got that brings us together and I think in a in a good way.
[29:44] No that's exactly right I mean you know going into transaction as seller wants to maximize value that makes sense.
But post-closing you know when you think about the ESOP and how it plays into a workplace culture.
[30:01] People want to see value their right people want to see you Share value growth they want to see account balances grow it can be a really exciting retention tool and motivation tool to employees.
[30:13] And you know getting the value of right out of the gate is an important part of that process is, if if a business is overvalued and and the company's underperforming projections, you're setting yourself up for a period of time where you have a really minimal Share value and there's minimal account balances and, and that doesn't do anybody any good for morale that's it that's a great point right and it probably didn't yeah the numbers eventually come out to the employees and they're like wow that's doesn't really move move the dial for me I'm not really you know we're using it for motivation and retention and.
What am I what am I kicking around here I mean we're never going to get out of debt.
You know we're never going to be this thing's never going to be worth anything so and and that's and that's a good point and that's part of it like when and then you know you talk to people about Aesop's in there like they're so motivated sometimes about the employees.
But then we can they can get so kind of Blindsided or blinded by this, the multiple and and the other part so that's where there's got to be such a balance and that's why I say it's an apples and oranges deal with with private equity, if you truly want an ESOP deal you know not that you should take a lower price but you should you should do a create a balanced proposition for everybody.
[31:31] Okay so what kind of like just as people love different stories like what kind of crazy story would you say in your experience you've run into with.
With doing these kind of types of transactions things maybe you didn't expect to happen that happened or anything like that you would want to share.
[31:51] For the fun ones are when there's a big win big win for for for everybody you know and when I say for everybody oftentimes in a lot of these transactions.
Sellers are receiving warrants as part of the transaction I don't know if you've talked about that on your podcast yet or not but a bunch of times but yeah it is.
[32:14] As an incentive for sellers to finalize the transaction oftentimes warrants are issued and so they you know share in some of the upside of the business down the road, and so the really fun ones are when you know a transaction closes, employees are motivated they're incentivized and you look back two years later and the business has nearly doubled it right yeah and now you know hey this the sellers warrants or worth a tremendous amount of money again, but the employees are thriving at that point you know those are always the fun ones.
To see there's a big success stories that we love now that's all that's great I think that is a good point to like where people sometimes get so stuck on.
The purchase price but the but when you do warrants there's a sense of a Down the Road there's going to be a, you know potential and and as we talked about warrants in a transaction.
[33:14] One of the things that it's important like you can get you can get so fixed on any any aspect of this right so people can be like oh I want this huge warrant payout right or you know and that needs to balance itself out with.
You know the purchase price and then all of those pieces kind of fit together and I think that's part of like creating what you want and what we all want is that experience so when you go couple years down you're like wow this is great.
I'm normally out of that process but you guys are normally in it because what happens is you guys become the ongoing valuation firm for the trustee.
For the company going forward so so, talk about that a little bit I know it's a little bit obvious but just you move from transaction valuation independent valuation firm like you're the bad guy, Frank's getting your kind of like on the other side of the table and then now you become the good guy afterwards because you're part of this company you know you're part of a third party, advisor team that helps the company each year do the valuation so talk a little bit about that beginning and in getting into that transition of a different role.
[34:21] Yeah so once the transaction closes.
Every year at the end of the plane here we've got to come back and we've got a value the business so that the trustee can determine what the share prices and at that share price ultimately been gets conveyed to the employees and makes its way into the employee.
You know at that point the part of the process is extremely we're relying on management to get us the information that we need and so, working with them talking through how the year did talking about what they see ahead for next year, it's a big piece of our process and so we're often going out in person and have those meetings and walk through the facility or the office or whatever the case may be.
Making sure that we've got a good read on what happened and transpired with the company over the last year the fun part about that to is.
[35:16] You get a lot of Engagement with the executive team to say hey look we understand that your independent you work for the trustee still, help us with it what drives value what are things that we can be doing that drive value for this business because we all want the Share value to grow and so, you know help coaches through some of those things and it creates a lot of interesting engagement to talk through I mean even I remember one of my favorite ones was talking through the importance of, accounts receivable and staying on the turn of accounts receivable and being as efficient as you can and collecting that as quick as you can, and how it can have a direct impact on value and I think a lot of people.
You know the people in the in the 8ar group they don't necessarily Drive value in any way but.
But they do if they're doing a great time to John it drives down the working capital with needed in a business and lower working capital businesses.
[36:18] I've higher valuations and so, I didn't get a chance to talk through those micro details with an executive team is pretty fun and, even more fulfilling and seeing them Implement them and come to fruition hmm now, I think that's a great that's a great point I mean and put most people like at the executive level I mean these are smart smart people obviously because they have they're doing what they're doing for the company.
But if you didn't like major in valuation and you understand that the mechanics of the connecting points between.
[36:54] The what we talked about originally like with cap with your cash flow and normalized cash flow and the target working capital in the all the mechanics have cap rates and all that so that's so helpful I think to just ongoing thing I think for.
An ongoing ESOP company what you want is you want to show that this thing is continuing to grow the you want the employees to be, I get a little nervous when things go in the next year I mean they go too quick for the wrong reasons and you're like oh man because it can go back down like that and so we don't want our the employees to be like oh this is like a roller coaster.
You know you want this long term ESOP benefit to as a retirement plan to be like yeah you're every year you stay here we're going to have this this good inquiries you know.
So so I think it's important to kind of keep those in mind to as you go post ESOP like this is these are things that the executive team needs to become more educated on I think your role and that's really going to be super helpful.
[37:53] So as we as we kind of close out the conversation today again I appreciate like your Insight I think it's really helpful for people to think about.
What happens on both sides of the equation and understanding kind of how you guys do your job is super helpful, my guess my final question would just be kind of as you think about advice to companies that are thinking about going through an ESOP transaction, I'm what would be things that you've seen that have been really good things for them because because there's a million questions that they have, about you know going stepping into the ESOP processes is it a good time for me to do it now and you know we're kind of getting out of that covet bump time period I've seen some companies kind of like now things are leveling off, but just in general what would you advise people when they're thinking about stepping into an ESOP transaction or looking at that.
[38:48] I mean.
[38:50] My first suggestion actually would be to reach out to somebody like yourself to be honest with you we've had a couple times where people think to reach out to evaluation firm.
We'll get an initial call and somebody saying hammocks learn an ESOP and you know our answer is Hey look.
We're not sure guys I mean the second that we if you want to engage.
It's not what we do right you want to reach out to somebody who knows esops, who understands how to organize a transaction and you know can give you a feel of pay is this the right time what sort of range of value might you expect if you go now, and in talking through okay if you don't go now what lies ahead, and what might value be in the future right you know I think if if you're an owner of a business and say look I'm I'm doing 2 million and even on right now and, but I've got these initiatives in place and I think will be at three million in the next two years.
Maybe it's good to wait for two years right and and I've been okay answer to but I think engaging with somebody who organizes these transactions, you know arms you as a position to say okay here's what the range might look like now here's what it might look like in the future and.
And that's how I paid to make an informed decision.
[40:20] And I appreciate that and I think that is a lot of good people that do what we do to help people too and so it's just like trying to find people you're comfortable with I always tell people at the end of an interview I'm like.
[40:30] You know not that I don't want to work with them but I mean I do.
Just find some of your super comfortable with a you trust like you really have to trust the people that you're dealing with and sometimes the due diligence for people that I work with I mean they'll call clients which is always good but.
You know I'm always going to give you a client that had a great experience and to be honest with the other usually do but but I think it's important to find people you really do, you know feel good about I think the some of the issues in our industry are that you know it's I personally find that there's a lot of investment banking people involved in it that, maybe are not in you know they sound great because they're super good at talking, but they may not be your best fit because of the way that they approach more of it's more like an m&a deal to them than it is like hey I'm warm master-planned holistic plan thing so so that's my two cents and I'm not going to, put that on you guys but I do think that's an issue in our industry as we as we kind of think about, educating people and giving them options about who should you use corley's group can't really if they do anything they don't become independent so they can't really do anything I think that's what you were alluding to.
[41:41] Right that's right yeah cool so so good I love I love the content and we talked about it's like with the trustees that you work with as you get down to that you know they were going to make you an offer you can't refuse.
Which can is Godfather it's not your departed roulette and I went and I held back from doing my own Godfather impersonation because you know I love doing that but but thank you so much and if people want to get ahold of you guys HDH advisors what should we tell them.
[42:11] Yeah sure probably the easiest thing is our website HDH advisors LLC.com cool and you can find my buyers they're my partners biomes are there and just reach out to us we're happy to concealed any questions anybody has.
Well great well thank you for your time and it's super valuable I really do I think people get so much out of these types of interviews because they're good they get to hear from people that do the work in different ways and I think that's just very very helpful so thank you so much Carly.
[42:42] Absolutely cool thanks for thanks for having me you're welcome so for those that were listening today thank you again for joining please like And subscribe share this with a friend, and do a five star review and that will be great and with that I would just want to say thank you again and we'll see you on our next step on this journey to an ESOP.