In this episode - we are celebrating football season by kicking off with “Rudy” one of the most inspirational football movies of all time about the underdog…The episode starts a series to cover preparation for the inevitable ESOP site visit whereby the buy-side team congregate typically at the company’s office. The focal point to this episode is to help prepare for the site visit - detailing the industry of the business, its business model, the customer base, geography and other important factors to where the business operates and relevant business trends. We will follow up with other episodes detailing other aspects of the site visit.
In this episode - we are celebrating football season by kicking off with “Rudy” one of the most inspirational football movies of all time about the underdog…The episode starts a series to cover preparation for the inevitable ESOP site visit whereby the buy-side team congregate typically at the company’s office. The focal point to this episode is to help prepare for the site visit - detailing the industry of the business, its business model, the customer base, geography and other important factors to where the business operates and relevant business trends. We will follow up with other episodes detailing other aspects of the site visit.
[0:11] Everyone this is theesopguy we are on a journey to an ESOP looking forward to this topic this episode today want to start off with this.
[0:21] Music.
[0:35] So in this scene where in the movie Rudy the quarterback we were at the very last game and if you know this movie Rudy, is a historic this is basically historically true football movie where Rudy goes to try to play for Notre Dame.
Beaten up pretty bad because he's so small as a walk-on and eventually makes the team, and but he's so small that the coach never is going to play him.
Until this very last game and the coach still is not going to play him but everybody starts chanting Rudy Rudy Rudy everybody in the on the team loves him because he's just put his heart and soul, in to getting to where he's going and, in this scene the quarterback is going to throw he's going to go against what the coach wants to do throw a touchdown so that the defense can come in and that's the only way that Rudy can go get to play, on the team.
[1:31] If you didn't know this we're in football season right now so I thought this would be super appropriate to use a football movie to to introduce this topic and really.
The dots on what we're going to talk about so today's topic is preparing, your company for a site visit first off what is a site visit what's going into that approach like what are we trying to accomplish when we're doing that I think there's a lot of a lot of parallels, when it comes to.
Football in the game plan and everything else but when I when I look at what what we're going to talk about today I'm going to break down some of the specific goals and Stratton strategy.
On the sell side of preparing for your ESOP site visits to your company as we do this is is going to be thinking and contemplating about.
[2:24] How what is going on and how do you approach that.
And I think is going to be really a helpful topic for people that kind of puts us into another stage or part of the process of the ESOP that that would eventually come if you keep going down you know through the approach to, selling your company as an ESOP so.
If you like the podcast please share it with a friend if you're new to this podcast what this is is really a resource that we've we've been doing Four Seasons now to help people think about what an employee stock ownership plan is how does it really work, the title is podcast is journey to an ESOP so it's really about, the journey at people take through the process of selling their company when we say to an ESOP what we really mean is to the trust that gets created, in the in the in the process of the buyer becomes, the trust and when is represented by a trustee so that's that's what this podcast is all about we do have a website at journey to an ESOP.com if you'd like to go there and check out our other episodes, what was that.
[3:36] The Channing for the last two or three minutes.
[3:54] Music.
[4:04] So really gets to come on the field after all that and he gets to play in an order Dame football game why did I choose this movie I mean what was I thinking there's a million football movies I know it's football season so.
You know check the box I feel like that so appropriate you know our country loves football college or Pro whatever I chose this movie because first off let me just share with you my entire family.
Is born out of South Bend Indiana.
[4:38] Boom so we're course I didn't grow up there so but there are all both sides my mom and my dad's side of the family we're from South Bend Indiana so in order to aim is just part of the whole historical, lineage of the family second reason I chose Rudy is because, I love the underdog like who doesn't love the underdog right the whole story of an underdog there's no way he should have been able to play on, on Notre Dame right he's too small.
He's not really that athletic but he's got a heart right and he wants to do the soap I think that, is so compelling and inspirational of course this movie is like if I had to boil it all down to one word I mean this movie is just inspirational.
I feel the same about Aesop's the esops are for underdogs for people that you know can change it can change all kinds of, of potential out likes when people didn't think that that's that's what that was even possible even this ESOP podcast is is an underdog podcast right where you know a small podcast out of Florida, the ESOP world is Big to conferences or big you know so it's just the whole thing just makes me feel, inspiration inspired for esops.
[6:03] The football thing is is simple it the idea of the football thing as we come back to the topic is that it takes strategy.
You know for Rudy to do what he done and also just as a football game right it takes strategy it takes planning and it takes it takes all of that for the game-day the game day for us I would like to kind of.
Use this as our metaphorical game day for us is the site.
[6:30] And what I mean by that if I just give a little bit of context to this this topic or thought process behind the ESOP process is that, as we go through the steps of doing the ESOP process from a cell site perspective, we start off planning we do evaluation model we're planning we do a feasibility model we're planning we get into the to the warrants in the tsar's and we start really rounding out from the bank financing we're just doing planning planning planning you know similar.
You know the coach is planning through the way that games going to work on game day.
Ultimately they both sides of the of the team are created or both sides of the equation are created so you have the site the cellar.
Aside the Southside is created in these up process the by site is created so now you have to in a sense teams and they're all going to head into this game, game day which is what we're going to refer to as the site visit so all of this is really kind of fun because it really does.
[7:34] Look at this idea of what what do you do to prepare for the site visit so as we do that we're going to go into, very I would say strategic ways to think about that but I want to make sure we start off the right way to definitionally the site visit, is when the cell side which includes the sell-side advisor for an ESOP transaction.
And the company Representatives could be the shareholder shareholders could be the key members of the team key managers key people, come together.
[8:09] And are going to orchestrate a meeting that will involve what we were going to call the Sim the confidential information memorandum which is really going to be this PowerPoint presentation which we've spoken about in other episodes.
Now they come together against in a sense the buyer I don't mean against like in the in a hard way but really the buyer is there to evaluate.
The company and look at all the different different factors specifics now of course a lot of this is being communicated.
To the company or or five by the company to the trustee and the valuation firm which again represents the buy side.
Through a data room of files of information so of course the financial information and.
Information on the structure of the business Articles of Incorporation the lease has any potential you know liabilities, all of these things and more are being evaluated, at their base level of facts that are going to be put in the data room documentation lies that are going to be reviewed by the trustee in the valuation firm.
[9:25] But the site visit really is the opportunity to tell the story about.
All of the documentation in there that's that's obviously significant and material.
Tell the story about the company and tell the story about how this whole thing works so the site visit really is.
A chance for the company and the sell-side advisor to really work through all of the things that they want we want as we talked about it from my perspective.
The trustee the valuation firm to really understand, so what we're going to do is we're going to just break down really four pieces of that and the reason I'm doing this episode 2 now is I've got multiple site visits going on and it's just it's just top of mind for me.
And I think that people always have questions about this as well.
[10:14] And as we think about it the goal of what we were going to accomplish in the site visit on the sell side.
Is we want to just be we want to tell the story the right way and we want to address what I would say are.
[10:29] Realities and things that you might not see in the financials things like, specifics related to the industry specifics related to see business processes.
[10:41] You know specifics related to the management team all of these things so as we as we dial into this we're going to want to just go into this one thing at a time and in really think higher level.
[10:51] You know how is this how how does how did things work so that the trustee and their goal as we start thinking about what they want to accomplish.
Is they want to really understand all of those the parts and pieces especially the valuation firm that works for the trustee the independent valuation firm, they're going to want to really understand how those types of things work and so that they can properly assign what they believed to be a range of fair market value.
To prepare for the eventual negotiations which is, kind of the next game that happens after all this happens but the first part is is if you win here you can win obviously in the negotiation so that's why it's all connected to.
[11:39] You know how it all fits together from a from affluent fluid process if you will.
[11:45] So the first thing I would say is is organizing before we get into the Sim and the details were on the Sim is really organizing the team on the sell side.
Um before of course before we even do that I would say that we want to make sure that we have.
[12:05] Talked about with the team like who is involved in the cell site for presentation.
Now this has happened for us a lot of different ways let's just kind of go start with the most simple way is that the you have one shareholder the one shareholder is dealing with everything with the sell-side advisor, nobody else is involved and I'd say that's probably not the normal.
In that case it's pretty straightforward where to meet me maybe me and the sell-side Army meet me in the shareholder are going to walk through the planning together and it's going to be very specific so.
It could be the who could also be probably more than often than not would include a shareholder or multiple shareholders Plus, a team of people like on the key management side so maybe maybe that's the maybe non shareholder CEO not shareholder see 00, the CFO or just you know maybe a real key person at some level of the where we say the c-suite of Executives that are going to be part of that.
[13:16] So that's going to be the who on the sell side of keep the who on the on the buyer side of course is the trustee.
They may have other people in their company in their firm that trustee firm that made me want to have listen in or be part of it, some trusty firms have their own valuation people in addition to having an independent valuation firm at the meeting and the valuation firm will probably have there.
[13:42] Representatives that do the the actual role you know the I would say the real work but they do a lot a lot of the detailed work around the analysis.
In some cases will have the ESOP attorney as part of the site visit that helps on the sell side.
They're the company what we call the company attorney that does the work to create the plan document their role in the site visit would just really be to really understand, better understand the transaction really understand that the corporate structure of the entity structure making sure the shares all of those types of things make sense for the stock sale.
[14:20] In some cases they're going to be more you know the attorneys could be more involved in that presentation in other cases they're there they're not so it's just really kind of depends, likewise sometimes the trustee has their attorney in the site visit and so again there it's not necessary, you know essential that that's the case but that can happen when we look at the who so that's logistically what we want to plan for is okay now that we know who that is we also want to just be.
Mindful of the schedule.
[14:54] And start setting some possible dates for site visits that make sense and enter this sounds kind of basic but it's it's just part of the process and I want to be pretty clear about how that really works and.
We want to be obviously when we're thinking about the site visit we want to be thinking about the closing as well like when do we want to get this thing closed.
Where are we at with other things in the process itself so that includes you know are we, are we at a point where we've actually firmed up the ESOP financing with the bank or are we still in the process of doing that, what would be helpful in the site visit to help continue to help the bank underwrite the the ESOP deal or if we already have that, how do we use that in terms of strengthening the site visit as well, so so those are some Logistics to all of it so the other the final thing is that most of these meetings are in person which means that you know as we schedule out the site visit.
[15:57] We are thinking about everybody traveling to that location and you can say well typically that's going to be at the company's office that just makes the most sense, accomplishes a lot of things for for both sides number one for the trustee they really do want to better understand the company and be able to see that it's really there and be able to meet the people in person I think that really does help, especially with the valuation firm there's definitely a.
Part of valuation itself is to be able to do a site visit in and see the company and be able to to from a risk standpoint know that that.
[16:37] His been said and been represented as actually really there and so so that's going to be all part of what I would say is.
Effectively planning out the site visit and really what it is in general.
Outside inside outside we're gonna get another one more once we get 100K mother on then we're gonna go go go go go go and when I can stop go get my psycho.
[17:01] Music.
[17:19] I love this scene this is where Rudy can stands up and he's talking about he's impersonating the coach for Notre Dame, and just it's just kind of like helps to think about like how much he loves football how much he loves the game and why he's doing it and so as we think about that and transition into the to the site visit conversation.
Um from the logistical planning to what we're trying to accomplish is now, working through on the sell side what we're going to be working through is a collaborative process.
Of evaluating how we want to go about presenting the company in.
And we think about the deliverable here the deliverable is going to be representative in a confidential information memo which, for our purposes what that really means is we're going to be really breaking down this presentation in.
Components to try to do this in a way that will be the site visit in a way that will be efficient, and helped accomplish some things one of the things that we're going to try to accomplish is is preemptively answering questions.
That we know the trustee and the valuation firm are going to have and so.
[18:40] Part of that and answering those questions is going to be to really think about, um the purpose like the goal behind what the question is that they might have so that sounds a little circular.
So the me just go through the first the first part that we want to think about and educate the client or the trustee and evaluation form on.
Is we want them to really understand and this really for us has started in the way we would approach presenting the deal memo.
To the trustee initially for the interviews that we would have.
In out of that what we what we're trying to do within the deal memo and the and the Sim is to try to really nail down the business model that the company is operating out of and.
Where it's Unique maybe where it's not unique how they function as a business within an industry.
So we're going to be very definitional in terms of the industry part of it to identify.
[19:43] In the Sim really who and what we're doing in the terms of the industry so that the trustee really in valuation firm really have that concrete.
So If I back up a little bit what we're really going to be doing is when we present this we're going to present an agenda of what I would say is for primary categories that includes the industry overview.
That includes the company overview that'll include financial highlights and financial overview.
With some details regarding of course the forecast in that then we're going to include two follow-up or conclude is the, structure the transaction the ownership, the entities those kind of things to make sure that those are very clear in everybody's mind as far as how that how that transaction is going to work so that that's kind of the what I would want to start with I should have started with that was the agenda.
So if I start to kind of just go into first the industry what I was saying really is that.
[20:51] An industry like construction or an industry like architectural and Engineering an industry like retail those are just general Industries right we know that like that that just makes sense now in some cases, the business may just be like they're just a general contractor in a construction industry and it is what it is like right, but in within that though the general contractor could be for instance I've done this before I've had this type of ESOP client before, they could be a general contractor that has a Specialized Service, experientially with a specific industry like for instance a general contractor that does builds a lot of Auto auto dealerships.
Could be a general contractor that builds a lot of, grocery stores or schools or you know that's their kind of that's their their real focus is that now if that's the case the first part of it is is to really understand in the industry part of the site visit.
[21:57] Is of course where they where they fall in the general side and then how if they do have this how do they really deal in that industry what do they specifically bring to the industry.
[22:08] They may have a very specific business model as well they may have an approach to that, industry that is very unique in the way that they provide services for instance I have a client who does, you know the way that their services are provided is is varied is very.
Unique in the way that they compete because of the design part of the construction is going to be done.
At higher levels with architects in so they're designing their being designed into programs or contracts and so that makes their their part very unique in.
You know one thing I would just say if I take a step back and just talk about this for a second strategy wise.
[22:58] When we're doing this and the reason I'm getting into the specialty nature of companies is that we don't that we want to support.
The strength of the company if it's there that creates a very.
More a more predictable Revenue model than if they were just a general company subject to the economic forces.
[23:23] And so there if there's no competitive Advantage this is get real, if there's no competitive advantage or there's no other way that they can go in and compete then they're just subject to the general economic forces and now we're just dealing with hey what's happening in the industry are we as the industry growing, what's happening to the customer base in the industry what's happening to the demand could be what's happening to the supply of whatever, um Services or products that are being delivered so when we do have a specialty what I'm able to do is cry to leverage that into the the Strategic part of the SIM.
Into really helping to show why eventually why our forecast is really reasonable.
[24:10] Now that's a whole nother ball game when we get to talk about forecast that's going to be a whole nother ballgame because the point there is just going to be that we are we're proving out in this process of the reliability, predictability in, again keeping with the he's the sustainability of what from a business pure business perspective this company has that is something that trustee in the valuation firm are going to be evaluating.
[24:37] Because if there if there were a flash in the pan okay, in the industry section that means that the company is going to flash out and then chili right and then we had this reason, in the business and now it's really there's really no demand or you know just being extreme the trustee and evaluation from half to think about, the long-term nature of what they're buying not just to support the forecast right for evaluation purposes but also to support, that this makes sense from a from a buyer's perspective and not having some long-term big issues with with the company.
[25:15] We could all go back to some big examples of this in economic history right so you know what happened with the typewriter companies when the computer came out right eventually word processors were created eventually Venture eventually, typewriter business was a declining industry and it has all but ceased right, what happened with the Uber in taxi companies right so didn't kill them but Uber but took a huge market share from taxi companies, Airbnb and hotels all these different examples we need to be really at this higher level of the presentation, we need to be really clear about what is going on in our industry now, if we have a situation where we do see some potential transition disruption things that are happening in that industry we also have to implicit not implicit but and we also have to start in curtain, cluding in the conversation the Strategic nature of the company's plan around those types of things, so it may be that there is some disruption in the industry it may be that there are some things in this industry section that kind of .20 we've got we've got some, you know Forks in the road that we got to start looking at that might lead the company strategically in their in their business plan to say hey we're.
[26:38] We're going to let's just say it's a geographic restraint and the company for whatever reason needs to get into another geography well our plan is to get into another geography and we're going to do it this way by acquisition, or we, you know we have a scalability issue we're going to you know the company is growing and we have to scale up we're trying to meet the demand how are we going to do that so so part of this.
[27:01] He's going to lead into the company overview in the in the specific things as we get to that but but what we're doing is we're setting the foundation in the industry section to dig deeper into some of those Concepts, if we have a very robust industry that's growing, and we're a big market player in that that's easy I mean that's like okay we're just going to keep growing with the industry.
There's not a lot of work but if we do have some challenges in the industry we need to identify really clearly what those are.
[27:33] Look at the diversification in this section on not only our business model but how we strategically have Diversified the revenue not just by customer.
Um it could be by products and services it could be the you know the Rd the company's doing now that will lead to potentially new sales so so you can see how this kind of whole thing or the reason this is so much fun for for people that do like MBA business work it's like it's.
Getting into a lot of the corridors of things that help to help to communicate how the company's key management and shareholders are thinking.
And how they're thinking about really more about the future and using some of the historical stuff of the past.
So once we've nailed down for in the industry section once we've nailed down say that the business model itself.
Um we're going to want to really nail down in the in the industry we're going to want to nail down the customers that they deal with.
[28:33] In all of these are going to have potential research to be done around the trends you know associated with those with those customers want those Industries and so as the trends.
Dictate potential growth within say a customer grouping like, my construction company that does auto dealerships and we know with, auto dealerships you know what what we would research is you know hey how often do they rebuild their their auto dealerships and how many new ones do we need in the next 5 to 10 years, all of that is really good information that will help build the case for the sustainability and the future ability of the company to meet.
The forecast eventually when we get there in the Sim and so so that's going to be important, um the buying pattern the changes you know if I have a government-related customer what's happening with the government and how they're that might change if I have a, um researching and understanding that the, the profile and the target market of those types of customers is going to be super helpful and the other side is in not as much as as a customer side but really the supplier side can be part of this industry analysis because, we all seen different things happen over the last several years with say supply chain and how that could really affect.
[30:00] Negatively the ability of a company to meet the obligations in a very good market place with a lot of demand from customers.
The demand from customers doesn't really matter if the supply chain can't be met and so if they're meeting materials to fulfill a contract, and those are being held up because all of the, materials are on cargo boats and they're stuck out in the ocean and they can't be delivered all of that has to be, considered as well so so in the combination of all this what we really are on our game plan as we start thinking about, is we want to keep drilling into these questions and I think you kind of know this as I go through it as I start with the first item on the agenda it's really a higher level, topic it's a bit softer than getting into the company information yet, but it's so so necessary because we can't assume that the trustee and evaluation firm really understand our situation.
[31:01] They may have done a lot of construction companies as clients or they may have done a lot of whatever we are as, you know in Prior transactions historical information they might have they might have all of that but we need to steer the ship towards really helping them.
But your company is.
So as we think about this this this whole topic is going to take some time for us to develop and we want to go into some of these details because I think it really does matter, as we're thinking about the strategy of having a successful site visit and what that means to the ESOP process.
As we break down these pieces what I'm hoping you'll get out of it as being able to think about your process, ahead of time one one thing as I start to close I want to I want to make mention of this because I think it's just really important for whomever you might use as a sell-side advisor.
[31:56] A lot of the things that I'm talking about in this site visit in this Sim that worker helping a client create they should have been talked about at the very beginning and in the process itself I would say the ESOP process self one.
Thing that I think it's important to keep in mind it is an integrated process between.
All these different steps that we've organized into 10 steps and they can be just as easily more or less but 10 steps.
Each of the things that are being done in the modeling in the valuation or the modeling of feasibility or all of these things are going to start to produce.
Um information and data for us to supply for what we're doing here and one of the things I would say.
For people that are just starting the process is you know having in contemplating what.
[32:49] The site visits going to look like before you even get there so so a good sell-side advisor should be walking when they do the valuation modeling and the feasibility modeling they should be asking some of these questions that are going to be asked in the site visit.
Almost predictively or from a forward-thinking standpoint and so.
As its integrated and it's done really well a lot of these Concepts what we're doing here.
With a client at this point is we're really just digging into some of the stuff a little bit deeper deeper deeper than what we met we might have had a more of them a higher level standpoint but it's deeper and deeper so that.
[33:25] You you are prepared, to go through this process in some companies I would just say in General on the site visit have have a really strong background when it comes to either the presentation side or, you know they may not have gone out and tried to raise Capital before they may have gone out and even tried to sell the company before so they they already have some maybe level so it's not like you have to reinvent the wheel.
You just have to make sure that everybody's on the same page in the team as you prepare for this very important step so with all of that I wanted to say thank you for listening today.
If you have questions go to our website at journey to an ESOP.com.
If you like the podcast share it with a friend go out and do a five star rating I think that's always helpful for people but don't don't do that if you don't like it and you know I totally get it so but if you do like it if that would be great if you could do that.
So with all that thank you guys for listening today and we're looking forward to our next step on this journey to an ESOP.