Hosting Kirk Michie, founder of Candor Advisors who has more than 30 years’ experience working with entrepreneurs, closely held business owners, and high net worth families strategic planning to achieve their legacy objectives. In this episode we discuss Fear of Missing Out and how the Imposter Syndrome impacts founders in the M&A process. We also discuss the foundational elements to prepping for sale or navigating the sale process and Keeping the Four Agreements when selling. In strategic and senior management roles, Michie has raised and deployed more than $1 billion of capital, been involved with evaluating more than 2,000 direct investments, participated as principal or advisor on the purchase of 21 businesses, and the sale or recapitalization of more than 30 companies. Kirk’s areas of expertise include transaction advisory services, M&A for founder-owned businesses, family office governance, capital raising, private equity, corporate strategy, and succession planning. His combination of investment and business experience inform his ability to help entrepreneurs navigate complex entity and legacy decisions.
Selling a business is the American dream, the pot of gold at the end of the rainbow, the reward for years of hard work. Successful entrepreneurs make countless sacrifices in hopes that they would someday reap the benefits of their labor and live a new life of vacations, recreation, and prosperity.
You only exit your business once, so you should feel confident passing this milestone. A successful business exit reflects the preparation done beforehand. Failing to plan is planning to fail.
The owner of a privately held company has several alternatives on how to exit their business. In the absence of an exit strategy, events will inexorably dictate the final exit plan. A costly involuntary exit may be caused by death, disability, divorce, disagreement, or distress.
Selling Your Business with David King will help you take control of the sale process and make it positive one.
Hosting Kirk Michie, founder of Candor Advisors who has more than 30 years’ experience working with entrepreneurs, closely held business owners, and high net worth families strategic planning to achieve their legacy objectives. In this episode we discuss Fear of Missing Out and how the Imposter Syndrome impacts founders in the M&A process. We also discuss the foundational elements to prepping for sale or navigating the sale process and Keeping the Four Agreements when selling. In strategic and senior management roles, Michie has raised and deployed more than $1 billion of capital, been involved with evaluating more than 2,000 direct investments, participated as principal or advisor on the purchase of 21 businesses, and the sale or recapitalization of more than 30 companies. Kirk’s areas of expertise include transaction advisory services, M&A for founder-owned businesses, family office governance, capital raising, private equity, corporate strategy, and succession planning. His combination of investment and business experience inform his ability to help entrepreneurs navigate complex entity and legacy decisions.
Selling a business is the American dream, the pot of gold at the end of the rainbow, the reward for years of hard work. Successful entrepreneurs make countless sacrifices in hopes that they would someday reap the benefits of their labor and live a new life of vacations, recreation, and prosperity.
You only exit your business once, so you should feel confident passing this milestone. A successful business exit reflects the preparation done beforehand. Failing to plan is planning to fail.
The owner of a privately held company has several alternatives on how to exit their business. In the absence of an exit strategy, events will inexorably dictate the final exit plan. A costly involuntary exit may be caused by death, disability, divorce, disagreement, or distress.
Selling Your Business with David King will help you take control of the sale process and make it positive one.
Speaker 1:
Welcome back to selling your business with David King. I'm David King, and I'm joined again by Kirk Mitchy with candor advisors. Welcome Kirk.
Speaker 2:
Hey David. Good to be back.
Speaker 1:
I've had this podcast now for just under two years and it's, it's been fun. It's been informative. Um, and there's not one single guest who's been back on twice, much less a guest who's been on three times. So Kirk, um, maybe just your, your agent makes it easier to get you on my calendar <laugh> or a variety of other reasons, but Kirk has information. It's the reason that I say you're looking to sell, talk to Kirk first. He is the man who can steer you straight. Kirk has got more than 30 years of experience working with entrepreneurs and closely held businesses and high net net worth families, helping them to achieve their strategic and legacy objectives. He's worked, uh, in mergers and acquisitions in a variety of different settings. He's raised in deployed more than a billion of capital. Uh, and he's worked on the purchase of more than 21 businesses and the sale of more than 30 businesses. His range of M and a experience is, is unlimited. Uh, in addition to all that technical and financial wizardry, Kurt also has some touchy feely skills as well. And so I'm interested in hearing this today. He's got some interesting subject matter that we're gonna discuss, uh, in addition to kind of talking about the general state of the market again. So, Kirk, what is the fear of missing out
Speaker 2:
<laugh>? Well, so, so David, we, I mean, candor advisors handles, um, one kind of client successful business owners in three different ways. They're either people that are pretty convinced that they're ready to go to market, and they're not sure who to call first or next. Um, they need a great M and a lawyer like yourself, um, and they might need an investment bank, right? And so we'll help to build the deal team for a client like that. Um, for a lot of candor's clients, uh, sale is out in the future. We help them work backwards from an ideal sale price and terms standpoint, using some proprietary due diligence questionnaires to make sure that they optimize the things that they're gonna get paid more for. And they minimize the things that could diminish or even derail their transaction. And the third type of client we work with, or the third segment of that kind of client is, you know, folks with a capital problem.
Speaker 2:
Maybe the co-founders no longer see eye to eye and somebody needs to buy somebody out, or maybe you've got, um, divorcing spouses who owned a business and it's no longer tenable for them to work on it together. Um, or maybe there's just a bad, um, capital partner involved that needs to get taken out and we helped to solve those kinds of problems. I think, I think the first time we were together, I referred to that as the Ray Donovan part of our business, where we just solved problems. And, and I had to make, I had to clarify that I don't drive a Mercedes CLS and it doesn't have a baseball bat in the trunk. Um, so, you know, we solve problems that way. So my, my, um, you know, my comment to you about FOMO, I think a lot of people, um, certainly in technology and in venture capital investing are, are familiar with fear of missing out, right?
Speaker 2:
So the idea that, you know, we've got this kind of reptilian brain that says, um, there's something going on. I need to be a part of it. And, um, let's, let's rush towards it. And so we end up taking a lot of calls and responding to a lot of emails from business owners that, um, they don't say it quite this way, but I would say that the inquiry is coming in. Look, I'm reading about a lot of M and a activity I'm hearing about a lot of people selling their businesses and maybe I should be selling mine. And that might be true. I mean, look, there's literally trillions of dollars out there, um, held by strategic buyers and financial sponsors looking to be put, to work, to buy businesses, um, of the kind that you and I advise many of those business owners. However, when they're kind of in this reactionary mode, haven't done things that, um, they really need to do before they think about selling. And, um, so that, that FOMO, if you will, is just, you know, that's catalyzing people in the current moment to rush towards potential sales and it may or may not be the right thing to do
Speaker 1:
Like this market right now, though, isn't it an optimal time for a lot of people, at least to look into it, at least to give you the call and say, this is where we are our financials, our capital situation, the ownership situation, um, the, you know, the peak of our market, et cetera, isn't this a good time in this market? Or is it starting to cool off? What are you seeing out there?
Speaker 2:
So we haven't seen, um, we haven't really seen cooling in terms of like multiples coming down. Um, we are seeing buyers be a bit more discerning, which is usually what happens before multiples start to come down. Um, and by multiple, I just mean the, the, the number of times the transferable economics usually referred to as adjusted EBITDA, the number of times that, that, um, uh, metric get paid to buy a business. So, you know, let's say you have 2 million of, of adjusted EBITDA and somebody's willing to pay you eight times. It's a 16 million transaction, right? So we haven't seen the eight drop to seven yet, but we have seen, um, especially among the private equity buyers, who've been leading this charge this time, historically it was strategic buyers, but this time it's private equity buyers, they have started to get, I would say pickier and more discerning about what they will and won't do.
Speaker 2:
Um, you know, so, so, but there's still plenty of money out there that, and it is an ideal time to sell in terms of sentiment in that if your company's ready to go, mm-hmm <affirmative>, um, or if your company is 90% of the way ready to go, the timing might be so good that the 10% that you would take the next 18 months to do is worth foregoing. Cuz you know, maybe by 18 months from now, things will have kind of slowed down. But for people that really aren't quite ready, like, um, let's say that they've never even had their financials reviewed or compiled much less audited and they don't really, um, run their company on kind of an accrual or generally accepted accounting principles basis. It's more like cash or modified cash and they haven't kind of systematized their processes and they haven't really built, you know, kind of a management infrastructure to the company. They'll find a buyer out there, but that buyer might be kind of opportunistic and um, you know, they'll get the deal done, but they might accept terms that, um, you know, with two more years of building, even if the sentiment is different, they'd be able to be in more control of the terms and be able to, you know, be a little bit more of a terms maker than a terms.
Speaker 1:
Understood, understood. Now the imposter syndrome. And I have heard a bit about this, uh, and it's real. And uh, in Ron Burgundy's words, it's science, it's true. There's and I've heard of, uh, the, the symptom or, you know, a syndrome this syndrome where there's been injuries to the amygdala, uh, because of the way that the brain works and the emotive part of the brain trumps over the logical part of the brain, it always does that people will walk in people who've had this injury to their amygdala and they will see their own loved ones, their parents, their children, and their siblings, and believe that they are imposters because they don't have the feeling of love and emotion for them. So, but if, if they hear them first, so they take out their phone and call them before they see them, then the emotions are going and um, and they don't have the imposter syndrome. I assume this might be something different.
Speaker 2:
Yeah. Although, um, I will tell you that, that, um, I think you nailed it. I don't know. I, I, I don't know if you went to, uh, medical school before you went to law school, but um, I think you nailed it kind of the scientific explanation. I'm talking more of a, kind of the pop culture phenomenon of how we can all and you know, I suffer from this just like any business owner suffers from this, just like, um, you know, uh, LeBron James probably from time to time suffers from this. And that is the idea that, you know, I'm not quite good enough or, um, you know, I'm, I'm kind of punching above my weight class or I don't deserve to be in this conversation or, and where it shows up with business owners is, you know, one of the thing I told, one, one thing I told the guy that I'm working on a transaction with right now, whose deal is going to be just under 20 million, by the time it's all said and done, the initial offer was about $12 million.
Speaker 2:
And we helped the buyer to see more value without being doing anything manipulative. And we helped to structure the transaction so that the seller could get paid for some things that weren't obvious to the buyer. Right. So, you know, we, we, you know, obviously created a bit of Delta in there and when I was talking to the seller and he was aware just because there was a press release on it and our firm name was involved, he was aware that we had just worked on a transaction that was 215 million, you know, his imposter syndrome kicks in, like, what are you doing, working with me? And, you know, one of the things I told him was that, you know, first of all, we charge monthly consulting fees. We're not paid like investment bankers, so we're not indifferent to whether a transaction happens, but we don't want to, um, incentivize ourselves to get a piece of a transaction when that would cause us as things get closer, even if it's not the right thing to do to push, to get the deal closed so that we can earn our feet.
Speaker 2:
So that's one of the pieces. But the other thing I told him is that the people that sold the 215 million company and, and you know, him and his management team were very similar in their kind of emotional inputs to the deal. They overreacted to some perceived, um, you know, slights or kind of accusatory and invasive due diligence. And we had to walk 'em in, off the ledge on that. Um, they weren't quite sure what to do with some of the buyer's questions and the buyer's positioning. And, you know, we had to kind of counsel 'em around that. You know, people are people. So while, you know, working on a 7, 8, 9, or even 10 figure deal, there are different things. There are nuances, there are, um, you know, usually more people involved. There's usually, um, more complexity in financing, the human emotions and specifically, you know, kind of the imposter syndrome of a person who's in the middle of a deal.
Speaker 2:
Who's about to get eight or nine figures can cause a little bit of a crisis of confidence. And usually what ends up happening is, um, their fear comes out. They don't think of it that way. They don't call it that, but they react angrily. Or as if they've been slighted to, you know, what is oftentimes a, a neutral request. Mm-hmm <affirmative> why do you use that accounting treatment or, um, you know, <laugh> how, how, why are you doing this this way? It's a simple answer and they react poorly. And you know, usually there's some of that imposter syndrome in there.
Speaker 1:
I see that all the time, maybe they don't hear their own voice, so they don't realize it's really you there. And you really have it's you who built this valuable enterprise. Right. And, and I see that in deals, uh, as you know, and I also see it with companies as they're working up to being ready to go out to a deal, it's kind of like in the movie, the jerk, uh, the, where Steve Martin had made all this money and he was still living in a crappy apartment and had a Butler and a maid and everything. They're like, sir, your, your accommodations are a little bit beneath your income. These days. I, I have clients I'll be working with clients that have solid financials and yet they're their infrastructure. They, it needs a little bit of enhancement. They don't realize how valuable their enterprise is because they're the ones who built it all these years, the same old, same old. So it really does take a little bit of work to get them used to the idea that you've built something bigger. It's worth a little bit more, get it all polished up, and then you can get it sold it off.
Speaker 2:
Yeah. That's really well said, David. I mean, that, that, that is it. I mean, first of all, you had me when you started talking about NA Johnson and which, but this is the first time I've ever been involved in, in, you know, any professional setting where he got referenced. So, you know, let's, let's just mark that important moment. That's for history right now, but yeah, that, um, and one of the places where, and I'm sure you've seen this too, where that's gonna work against the seller is if the seller continues to be, um, connected to all the biggest relationships and doesn't hire a VP of sales because he or she likes being connected to all their best revenue sources and they haven't hired a controller or a CFO because you know, their assistant QuickBooks and their outside accountant can get things done well enough and they don't have to pay another $80,000 a year for, you know, somebody who's gonna be on staff and they continue to outsource a bunch of functions rather than build them in house to a buyer.
Speaker 2:
Some of those things look like the company is not yet professionalized and it is mm-hmm, <affirmative>, um, a little precarious as it relates to certain risks. And those things will count against the seller. So the seller might be maximizing their EBITDA, but what the buyer might do when they look at the, the seller's proposed adjusted EBITDA is they might make adjustments backwards and say a businesses size needs a controller. So we're gonna take $90,000 outta your EBITDA there. Exactly. You know, you need a chief operating officer and you need a VP of sales. So we're gonna add three 50, um, to your expense structure and thereby reduce your EBITDA. So, you know, the, for the business owner that kind of doesn't recognize that they are running something really, really valuable. I think about us as you know, we're, we're not Don Quixote Sancho Panza we are the guide. Um, he's the hero he's on the hero story, the business owner, right? But to your point, you know, we've gotta help him look in the mirror and say, look, here's who you are right now. I don't care who you were when you started this business resentment towards your former employer at your kitchen table with a small severance package. Here's who you are right now. Right. And you need to show up for meetings as that person
Speaker 1:
Mm-hmm <affirmative> yes. Right. And so we get them ready, the business, they, they appreciate how valuable they've become. They, they realize that they've got a place at this table commanding this type of attention and this type of price. So what are the foundational elements of selling?
Speaker 2:
Hmm. Well, no matter how unique you want your business to be, or think it is, um, the financials are gonna drive, um, valuation, right? So that piece is what I would call, um, the primary kind of foundational aspect. Um, the, the steps and, and this may or may not be answering your question, but, but the, the process of work, something like this, um, you'll have a buyer, whether it's, um, the business development person that a private equity firm, or, um, you know, a supplier who's a strategic who might wanna own your company rather than continue to, um, you know, pay you to do what you do. They will make an inquiry. They'll sound you out about whether you're interested in selling and you'll find that attractive. We all want to be wanted. And, um, the idea that we could kind of stop working, take a big chunk of money and ride off into the sunset is interesting to most of us, unless we're really, really early on in the business' life.
Speaker 2:
So we say, yeah, sure. And they send over an information request. The information request is what we at can advisors call early due diligence, and don't give up too much too soon. Do not, you know, a, a buyer does not need to know much more than a couple years worth of your financial results. Maybe you are forward projections, your legal structure, and, um, you know, a few, very few things operationally for them to put together a non-binding and very instructive letter of intent. Um, and you know, that should start the conversation, right? So, um, when that happens, then if the seller accepts the letter of intent, um, you know, after some markups and back and forth, some getting it over to David King for, you know, no, you're not gonna do this and no, you can't see that then yes, we'll agree to this. As long as you do that, well, then that starts exclusivity.
Speaker 2:
And that buyer gets a chance to kind of O you know, open our kimono and look at everything. That process is like, I've said many, many times for invasive and accusatory. And so you kind of, you gotta prepare yourself for that as a seller, you're gonna find out all the things that are embarrassing to you when you reveal them to somebody else mm-hmm <affirmative>. And if you're doing things like running personal travel through your business, or paying for your car with your business, or, um, you own your building and you pay yourself a below market or above market rate for more EBITDA, better tax advantage, all those things are normal. There's no savvy buyer who hasn't seen those things before. So get over it. If you've got the right advisors involved, you're gonna have to show that stuff anyway. Right. So, but you know, kind of foundationally speaking, nail the financials, make sure that, um, you don't give up too much too soon.
Speaker 2:
And when you do move into due diligence, um, with advice of the right counselor, transaction advisor disclose everything for, uh, for a buyer to ignore something about your company, that's on them. That's either poor due diligence or, you know, kind of, um, tolerant due diligence for you as a seller to exclude something from due diligence that's fraud, right? So, you know, once you're in, you're in, you gotta go, you know, down the wire. And that's why we recommend whether we're involved or not get the right advisor in. And this is gonna sound like a, um, a, uh, shameless plug for you. But I will tell you that you are a lot more important to the transaction than we are. They can get to an outcome without an investment banker and without a transaction advisor like candor, but using their traditional corporate attorney or worship their real estate or trusted estate's attorney rather than a skillful M and a attorney will cost them so much more money in terms of structure cash upfront, potential risk down the road, right. Than anyone they would save by not using the right M and a attorney, the gist. They need to find somebody who's got lots and lots of reps in the M and a gym. And that's guys like you.
Speaker 1:
I appreciate that. And I always tell clients, uh, selling your business is like getting married. Uh, we all have defects and before you get married, the other side will know your defects, but you need to make them fall in love with you. First, start with love, then disclose all the defects, then have the wedding day smooth sailing. You go without <laugh>. So
Speaker 2:
Well said. So
Speaker 1:
Thank you. So what are the four agreements when selling a business? What, what a, what are the four agreements that a, a business owner should keep?
Speaker 2:
Yeah, so I mean, the four agreements, um, written by Dom, Miguel Ruiz, and kind of repurposed in here, you know, the first one's being impeccable with your words. So we were just talking about that. You just amplified that, like, look, if you're gonna sell your business and you're gonna engage after the LOI is done and you move into due diligence, um, do what you say are gonna do, deliver the stuff on time and be truthful about it. Even if it might not look good, trust the process between a willing buyer and seller with the right advisors involved, a deal will get done in the right way at the right time. If you, as a seller are clear about your, why for selling, then a deal will get done and you just have to be, you have to be absolutely truthful, even when it's uncomfortable, the other piece, um, and it kind of connects up with this is don't take anything personally, um, right.
Speaker 2:
A buyer is going to continue to ask questions from their initial data request to their, um, you know, diligence tracker that might be anywhere from 30 items to 400 items, um, where they ask you for a bunch of information. Then when you go into disclosure schedules and all the other documentation that come along with finalizing the sales business, the buyer is gonna keep asking questions the entire time. Don't take it personally, if it does feel personal, if it does feel too invasive, rely on your more experienced transaction advisor to say, Hey, should this piss me off that they're asking for this? Or should we react to this? Let your advisors experience substitute for your own emotional reaction to something don't take it personally, then don't make assumptions. Not every single thing that the buyer's doing, um, is strategic. Like, um, you might infer something from them, not responding to you for 10 days.
Speaker 2:
So maybe the guy was on vacation, maybe at a death in the family. Maybe he couldn't get his partners altogether for the investment team meeting. So he couldn't respond. It might not be strategic. So don't make an assumption about why they're asking for something or what their, um, questions mean. Ask your advisors about those things. Your advisors assumptions will be a little bit better, cuz they'll be informed by a lot of experience and scar tissue around doing deals. And then lastly, you know, and this is gonna sound like, um, you know, almost a homily, but you know, do your best, right? If, if, if, if the buyer wants really wants to buy your company, they understand what they're buying. Um, on the $215 million transaction that I was talking about, we had a, a 10 plus billion dollar public company buying a five year old company that had more than 20 million of EBITDA and growing at a hundred percent a year.
Speaker 2:
Um, when, whenever we hit Rocky points in diligence, I would caution the sellers to not take it personally and not make assumptions about what the buyers were saying. And also to remember that they were doing their best, that these people knew what they were buying. And if they expected this smaller newer company to operate like their bigger older company, that's on them, that's not on us. Right. Just do your best show up, be truthful. You know? So I, you know, again, I'm repurposing do Miguel Reese's words, but I mean, it works in due diligence too.
Speaker 1:
Well, Kurt you're, uh, your touchy feely skills are, is just as strong as your technical, uh, financial skills. And we're always grateful to have you share them here on this podcast. And everyone thank you for tuning in to selling your business with David King. Uh, please subscribe to this podcast and rate it and please check out my book, selling your business, begin with the end in mind, which is available on Amazon. Kirk. We will see you again soon.
Speaker 2:
Thanks, David. Great to be with you.
Speaker 1:
Take care.