Private Equity Today, Search Funds, and the Paramount Merger

The private equity market has evolved and matured significantly in recent years, driven by several key factors that have reshaped the industry, including increased fundraising and capital deployment. In 2022 alone, global private equity fundraising reached approximately $1.2 trillion. This influx of capital has allowed firms to pursue larger deals and diversify their investment strategies. Mega-deals, particularly those exceeding $10 billion, have become more common, reflecting the growing financial power of PE firms. More recently, the fundraising and investment growth have slowed.

Private equity firms are increasingly utilizing initial public offerings (IPOs) and Special Purpose Acquisition Companies (SPACs) as exit strategies. This trend reflects the strong performance of public markets and the desire to realize returns more quickly

Search funds and other new financial buyers have emerged as innovative participants in the M&A market, reflecting the evolving landscape of deal-making and investment strategies. A search fund is a pool of capital raised by entrepreneurs to acquire a small to medium-sized business. An entrepreneur typically does not have a specific target company in mind when raising the fund. They use the capital to search for a suitable business to buy, operate, and grow over time. Once a suitable acquisition target is identified, additional capital is raised to fund the purchase. The searcher often assumes a significant operational role in the acquired company, such as CEO. Search funds typically target small, profitable companies with stable cash flows and a potential for growth, often in niche industries. 

The ongoing Paramount $28 billion merger with Skydance Media was announced in mid-2024. Skydance, known for its strong portfolio of film and television productions, including the "Mission: Impossible" and "Transformers" franchises, is set to merge with Paramount to create a media powerhouse.

This transaction follows an intense period of negotiations and competition, notably with Edgar Bronfman Jr. dropping his bid for Paramount, which cleared the path for the Skydance deal to proceed. This competition extended the timeline as both Paramount and Skydance had to navigate these competing interests and reassess their strategies to ensure the merger would be successful. The merger is expected to provide both companies with enhanced content creation capabilities and greater leverage in negotiations with streaming platforms. 

The 45-day "free look" period in the Paramount-Skydance Media transaction was a significant aspect of the deal, providing both parties with a window of time to thoroughly assess the implications and potential risks of the merger and the flexibility to withdraw from the deal. 

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.

Transcript

 | Speaker 1: | Welcome back to Selling Your Business with David King. I'm David King. I am the author of Selling Your Business. Begin With the End in Mind. And we are joined today by Kurt Mitchie of Candor Advisors. Welcome Kirk.  
 | Speaker 2: | Thanks, David. It's great to be back.  
 | Speaker 1: | You are our most frequent guest here on the podcast. You got frequent flyer miles to fly around the globe, so I hope you're taking advantage of those. Rick needs no introduction. I don't have to haven't heard any of the episodes with a him before where I've gone into detail about his vast experience. Go back and catch those episodes. Has worked in every aspect of m and a, and he's kind of known in Southern California as two parts McGyver and one part the Dalai Lama. He can do it and he brings it all together with a good degree of nirvana. So Kirk, thank you so much for joining us today.  
 | Speaker 2: | Thanks, David. I think maybe I should just pretend I have a connection problem and just let that introduction be the entire podcast. I love that. Thank  
 | Speaker 1: | You. You definitely want people to know you've got MacGyver in you at least, and that might date us a little bit to show we know who MacGyver is, but that's all right.  
 | Speaker 2: | We could update it for Ray Donnelly.  
 | Speaker 1: | Ray Donovan. Yeah,  
 | Speaker 2: | Ray Donovan. Yeah, that's right.  
 | Speaker 1: | Yeah. Okay, so today we're going to talk about private equity and how it's matured and evolved. We're going to talk about search funds and other financial buyers, and we're going to talk about the recent Paramount merger with Skydance Media. So what we talk about recent changes within private equity that shows that it's evolved and matured over the years.  
 | Speaker 2: | Yeah, so look, I think the leveraged buyout business, which sort of went through a rebranding after the RJR Nabisco KKR transaction and became private equity. I mean, they're essentially the same thing, but as private equity has matured, it's a little less of an outcomes-based business and a little more of an asset management businesses. Some of the big private equity firms don't generate anywhere near the returns that they used to, and a lot of the opportunity has gone down market into what I would call kind of lower middle market and middle market, and even there in the middle market where you had fantastic private equity firms like Marlon and others come in there and kind of ring a lot of extra juice out of the fruit, there's not that much excess to be made there anymore either. And so what you're seeing is a lot more transactions.  
 | Speaker 2: | We're not yet back up at 2021 volume levels, but we are by deal count way up there and it's add-on transactions. It's also smaller platform transactions by lower middle market private equity firms. And I think a lot of that is just following the demographics of baby boomers needing to retire early Gen Xers who are really entrepreneurial. And so it's given kind of life not only on the investor side, people are looking for great returns even though frankly the s and p 500 is crushing almost everything else for the last couple of years. But people are looking for alternative asset returns. And so investors are plowing money in, there's a trillion or so dollars available to invest dry powder and all kinds of private equity firms. And then there's also a desire on the part of the private equity professionals or even some of the executives to do deals without having the apparatus of a big private equity front.  
 | Speaker 2: | So an independent sponsor might be a group of experienced private equity investors who doesn't have a fund behind them, but they feel highly confident they can go out to the same group of investors and get deals done. And then search fund investors are essentially executives who've gone out and convinced a few capital sources that if they can find something and it meets certain criteria that they believe that they can buy it and run it. And so they're kind of private equity investors looking for only one deal. I don't think they make a huge difference in terms of the kind of trillion dollars of equity capital held in the funds, but they do have a big, big impact now in all of those, call it 10 to 50 to 75 million transactions. So they are definitely showing up in more and more of the deals, and that adds some complexity both for a boutique investment bank like ours that only represents selling founders and then also for other private equity firms to compete against.  
 | Speaker 2: | Because I'll tell you, one of the weird dynamics that happens is even though that these independent sponsors and search funds don't have capital, nobody does a capital test on you when you write a letter of intent. So in many cases, they're bidding higher in the hopes that they'll be able to go get it because they know that either the investment bank or the attorneys are going to say, well, those guys don't have the capital, so we'll take the burden the hand so the independent sponsors in the search funds have to offer more attractive terms or hire multiples. So it is changing some of the dynamics, some of the sentiment.  
 | Speaker 1: | Yeah. If we could spec from the trees a little bit, just kind of bigger picture brands in private equity overall, would you say that there's dramatically more fundraising going on by private equity funds and not necessarily just this year, but over the past couple of years?  
 | Speaker 2: | Yeah, I would say that selling the historical returns of private equity firms, both as a group and some of the individual private equity firms has made it easier for folks to go out to individual investors, what we call in some cases, individual investors that are ultra wealthy and looking for something kind of unique and maybe they have a family office or maybe they just think like an institution, but they've got more desire, there's more demand for that, and that has made private equity fundraising easier. Now, what I would also tell you is that if you talk to anybody who's been trying to raise money with sophisticated institutional investors in the last few years, they are, unless you're talking about a mega private equity firm or a firm that's got a fantastic track record, they're having a tougher time raising capital. And the primary reason is that private equity and venture capital have had this log jam of fewer exits.  
 | Speaker 2: | The IPO markets never kind of opened up the way they thought they would. And so what's happened is as these private equity firms have had to mark their returns to market, when things extend out, their internal rate of return or their multiple on invested capital goes lower and lower. And so it's harder to raise more money with sophisticated institutional investors when you haven't exited enough stuff because if you're running, if you're doing a fundraise and let's say you've got your first fund was a billion, then if you had good returns, even if you hadn't exited more than say 25, 30% of your first fund, you might be able to go out there and raise up to four times the amount of capital that you raised in your first fund. But if you haven't had any exits from that first billion dollar fund and what's on paper doesn't look like you're going to generate 3, 4, 5 x, the multiple on invested capital, it's harder for you to raise money. So I'd say for retail, high net worth and smaller family office investors, the people that are reaching out to them, they're having an easier time raising capital.  
 | Speaker 1: | That's why I love having you on this is reading financial news. This is today, this is current. If we were looking, say over the last five years and just the general trend, you would say, yes, private equity can raise a lot more money than it did years ago and would also say that again over the longer term, not necessarily just what they're capable of doing today because of the issues you just talked about, they been able to do bigger deals.  
 | Speaker 2: | Oh, absolutely. And it's skewed by the big firms, right? David, if KKR or Blackstone wants to go out and raise a fund for left-handed entrepreneurs who started companies between 2017 and presents and wants to do minority investment deals, meaning less than a majority of the capital or growth capital deals, and they want a 12 year life on the fund, they'll be able to go out and raise 25 billion that way. But if you're a startup middle market investor, unless you come with a track record from somewhere else and you're talking to savvy institutional investors, it's going to be a slog, which is I think also why there's this opportunity for folks that don't really have a track record, right? In a track record, depending on who you're talking to as an investor, could be a burden. So a search fund will show you essentially their cv. It's an executive who says, I was the CEO of two different companies and they had these outcomes, and I know how this is done and I know how to generate growth, or I know how to create efficiencies, and they go out and they can raise money from relatively unsophisticated, but ultra high net worth investors who don't really know what the conversation's like to begin with. So there's a little bit of striation in terms of where the money's coming from.  
 | Speaker 1: | Well, you've mentioned search funds a few times for the benefit of people who are unfamiliar with search funds, let's just make a general introduction. What are the characteristics of these funds? How much can they typically raise? What size deals do they do? What sort of target companies are they looking for? Who's going to be the new CEO of the company after the deal is done?  
 | Speaker 2: | Yeah, I appreciate the chance to kind of clarify because so a search fund, think of it as a one deal private equity firm. It's like a movie, A major motion picture is creating a company for purposes of existing for six to nine months, and then it just shuts down. Well, a search fund sets up a website, talks to investors and outlines the size and type of deal that they're looking for, starts to create a funnel of potential deal activity and starts to throw in bids and try and get a deal. Usually a search fund is a C-level executive that's had some success. Sometimes someone who's actually been through a liquidity, but oftentimes someone who's not been a founder but who's been a c-level executive in a company or may even be an investment banker or a private equity person who just doesn't want to kind of be in a firm anymore.  
 | Speaker 2: | Their premise is that if they can go find an asset light business with recurring revenue with 10 to 25 million of revenue and a million and a half to 3 million of ebitda, and they can convince the founder seller to trade it to them for five or six times ebitda, then they can double the size of the business with their capital, their strategic guidance and their operating expertise, and then they'll get multiple expansion. They'll be able to sell it for eight times when they get it above 5 million of ebitda. So that's the premise. That's kind of how they go out to market positive is that even though those deals are less and less frequent and most search funds, unless you're talking about folks who are kind of just search funds and name only where they could easily start a private equity fund, most search funds are going to tap out at between maybe 10 and 30 or 40 million of enterprise value and not be able to buy companies bigger than that.  
 | Speaker 2: | And part of the reason for that is this, they are not by and large experienced buyers of businesses and they have no track record for selling businesses successfully. So if they're coming to you, David, and you started this widget company and you got 2 million of EBITDA and 20 million of sales, and they say, come with us. We're going to give you six times. So we're only going to pay you 12 million bucks for the business and we're only going to give you 5 million of that in cash. We're going to ask you to roll another 3 million of equity and then we're going to give you an earnout on the other 4 million we use. The seller, first of all, are going to be having some sticker shock around the idea that, wow, so 12 million only means I get 5 million in cash and the rest of it's contingent on some other stuff happening.  
 | Speaker 2: | And oh, by the way, if I'm going to roll my equity with you, Mr. Search fund, what's your track record for having generated high returns on other people's equity, either guys like me or anywhere else in the world? And lastly, if it's an earnout, isn't that still up to me to generate if we're going to be running the business together, if I'm getting a contingent payment down the road, what you're going to find is that at least what we've found is that search fund investors reveal themselves to be good buyers or not. Within a few weeks of going into exclusivity, you can look at a search fund investor's behavior in a data room and figure out they know how to buy a company or not, as an example. And if I were a search fund and I were paying attention to this, even if I hated everything that Sky Kirk Michu was saying, what I would do is follow these instructions, go into the data room, download every single document.  
 | Speaker 2: | If you're doing anything other than downloading every single document, I know you haven't decided to buy the business yet. If all you've done is download the financial documents and we're going to spend 50% of the time allotted on financial due diligence, that means you have to convince a bunch of investors that you're going to be able to buy this company, which means that my client, the seller, shouldn't have any comfort around your bid at all because you could go away right away. And the other things that happens with search funds, not all of 'em, but some of them, a lot of 'em is that big law firms won't represent them because they don't have any money. They won't have money until they get funded, and the law firm probably needs to get involved sooner. And so if the law firm isn't yet involved, then there's no legal due diligence going on yet.  
 | Speaker 2: | So that's a red flag. And then the other piece is that even if you do find a search fund that could be the right buyer, if the investors decide that the executive who's running the search fund isn't that great or doesn't know what they're doing, they will step in and now the seller are dealing with a whole bunch of different parties, not just one party. So there's some pretty substantial risks to closing with a search fund. Again, not all, but some of them because they don't have the capital yet, they're usually not experienced in m and a and they don't know how to do due diligence. And then you're not really sure who the decision maker is in many cases.  
 | Speaker 1: | So that's a excellent picture on the personality of search funds and their ways of doing business and the way to kind of sniff 'em out in terms of the difference in their structure and their various capital raising pages. Can you just kind of explain what makes them unique in the way that they're structured and financed?  
 | Speaker 2: | Yeah, so they're only looking for one deal, whereas a private equity fund is looking for multiple deals, right? So search fund's only looking for one deal. They are typically the executive who's reaching out is the point of the spear on the acquisition and plans to be the CEO after the transaction is estimated. So they'll be replacing the founder. And then lastly, unlike a private equity fund, they might not necessarily be looking to exit the investment in five years or seven years or 10 years. They might actually be getting involved in the, to run it long-term and just pay distributions or dividends out to their investors. Most private equity funds, by contrast, have gone out and raised the money. So there's no real closing risk. They're in the business of buying and selling companies, so they know how to do it on both sides of it.  
 | Speaker 2: | If they experienced, and they do intend, even if they have a longer holding period to eventually sell an investment, they do intend to cycle capital because private equity firms make the bulk of their money on carried interest. So if they generate a high enough return for investors and give them their preferred percentage, once they're above a certain preferred percentage, they then split the profits usually 2080 with their investors sometimes as much as 30 70 with their investors. So with search funds, it's not always that clear because search funds are only doing one deal, so they're not setting up the apparatus. They don't have a bunch of associates working for them. And again, a big law firm, or excuse me, a big private equity firm will be using AM law 100 law firms to do their deals. They'll be using, if not big four accounting firms, they'll be using big regional accounting firms to do their financial due diligence. Search funds, not so much search funds will be doing it kind of, even if they're really, really sophisticated, they don't have a team that they've worked with on multiple deals, they've observed it. They can be really, really smart. They might get it right the first time around, they only time they're going to do it. But the point is that they don't have a lot of scar tissue in the m and a gym. They haven't done a lot of reps. Does that clarify?  
 | Speaker 1: | Absolutely. And that's what I was looking for there, the distinction. So in addition to search funds and the way that they're different from traditional private equity, what other newer financial buyers should a seller go out and look for these days?  
 | Speaker 2: | Well, so the independent sponsor model, which is in our view in a lot of ways better than the search fund model in the sense that these are private equity investors who have decided that the hassle of raising and administering a fund and dedicating a person and a lot of capital to working on investor relations with their limited partners is not something they're particularly interested in. They're good at merger and acquisition activity. They know how to use their capital strategic guidance and operating expertise to make a company bigger and more valuable and sell it for a lot of money down the road, but they don't want to really have a company, so that's an independent sponsor. They like a search fund, are going to go out and raise the money. An independent sponsor will oftentimes do slightly larger deals than search funds. You're not going to have an independent sponsor do a hundred million dollars deal, but you might see it in a 50 or 60 million deal.  
 | Speaker 2: | And the independent sponsor, whether they've created a strategic platform, maybe they do one transaction that creates kind of a thematic or kind of business sector platform and then do a bunch of add-ons around it, they're typically going to do multiple deals. They're not setting up just for the purpose of doing one deal. And so the difference, and this is a tricky kind of nuance, the difference is that independent sponsors have to maintain good relationships with lending sources. They have to maintain good relationships with the investment banks that show them deals or that they would want to take deals to market. Contrast that with search funds, they're only doing one deal. So they're out there building relationships. And I'm not saying that you have to have great relationships with your buyers or your buyer's advisors if you're the seller's advisor, but generally speaking, karma happens in the m and a markets.  
 | Speaker 2: | So independent sponsors tend to be a little bit more professional. They tend to know a lot more about how to buy a company. They tend to be a lot more buttoned up about their processes. And then the other thing that I would add to it, David, is that even though they've generated virtually no return for anybody anywhere, SPACs have not gone away. The idea of a SPAC is still intriguing to investors, and there've been just enough public offerings of SPACs where they de spac, right? They raise the money private, they acquire a company, and when the company is acquired and goes public, then there is maybe some secondary proceeds to give to the founders and the sponsor or promoter of the SPAC makes a whole bunch of money in fees, and then maybe everybody could work towards a bigger outcome. Maybe you get multiple expansion in the public markets now and multiples in the public markets are higher than the private markets.  
 | Speaker 2: | If you look at the history of SPACs, and I don't care whether you go back 20 years because older than most people think of or just five years, what you'll find is that a bunch of 'em, like the electric truck companies or Virgin Galactic or some of these were very flashy and they had really high profile people like Chama Batya or Richard Branson. I mean, they sounded like they were going to be a great idea. They're just a side door public offering where essentially you're raising a blind pool of money. And by the way, if it's anything other than a blind pool of money, you're violating SEC regulation cannot raise that money for the purposes of buying an already named company. And we've seen a few somewhat high profile deals get looked at where it appeared that the SPAC sponsor always knew the business they were going to buy.  
 | Speaker 2: | So there's that piece. Then there's the piece of when it goes public, who gets secondary proceeds, who makes all the money, who ends up being a big shareholder? So in a lot of cases, even if a SPAC was the right path, chances are the founders of a private company that got really successful and got to be worth a couple hundred million dollars, and maybe as a spac it could be worth a half a billion dollars. Chances are those aren't the right people to be running a public company. And so there's just a whole bunch of question marks with SPACs, but they still, like I said, they haven't died and there is still some institutional demand for the investment out there because they do have a compelling multiple expansion story. And people don't talk about that very much in private equity in general. But I would tell you that when private equity firms buy an investment, they underwrite it to a certain return.  
 | Speaker 2: | And the expectation is that if we get say two and a half to four times our money or multiple of invested capital and we do it quick enough, then we can make a whole lot of money in terms of our carried interest. Well, one of the things that any savvy investor ought to be looking at when a private equity firm comes to them and talks to them about investing money in their fund is what is their case for multiple expansion? If the private equity firm is saying that they're going to be able to buy things at four to six times EBITDA and sell them at eight to 12 times EBITDA, my own personal experience as a private equity principal investor is run the other way. Not going to happen. That party ended years ago. The founders have better advisors now and they're not selling directly to private equity firms.  
 | Speaker 2: | And the multiple expansion is not that extreme. A company that would trade for six or seven times at between two and 5 million of EBITDA is going to trade it eight or nine times. Once it gets above 5 million of EBITDA is not going to trade it 12 times until it gets to 20 million of ebitda. So the multiple expansion story is one that is compelling for the SPAC investor because if you go public and there's enough buzz around your deal, you do get immediate multiple expansion. Public companies absolutely traded higher multiples than most private companies. And so I think that's why the SPAC thing is still persistent. Plus, like I said, you get big splashy names involved. Chama, AYA, who was one of the original people of Facebook and was a billionaire before he ever started doing this stuff, it seems to have been able to promote a couple of SPACs, not make anybody any money and move into being kind of a talking head around politics and business and society in general. And he and three other guys have a podcast that generates huge advertiser dollars. He seems to be able to move from thing to thing. Okay. Generally when people promote SPACs, you don't hear from 'em again, but Jamat is so smart and so savvy that he's going to be wherever the action is. So there are enough people like that involved in the SPAC world that not to mention the 45th president has a spac, so there's a lot of buzz and a lot of press around SPACs still.  
 | Speaker 1: | Yeah, absolutely. Well, we'll just skip over family offices and corporate venture capital and save those for another day. When you come back, I want to give you enough time to really dive into this paramount Skydance deal and all the interesting nuances about that. We've got a major 28 billion merger here and it's been going on for a pretty good while, prolonged buyout periods. Why don't you take us through that? What are the first few things you would hit upon?  
 | Speaker 2: | So when this deal happens, and I'm cribbing a little bit from Scott Galloway here, but when this deal happens, this deal will be a triumph of investment banking talent and merger and acquisition lawyer collaboration. This will not be a deal that happens and closes because the founder and the buyer collaborated really well and everybody got a great outcome. So first of all, just a big picture. This could be proven to be completely wrong. I think anybody who's buying a historic motion picture studio is going to lose money. It is all about streaming. It is all about smaller screens, and you're going to get a Deadpool Wolverine or a Maverick Top Gun two once a year, maybe twice a year. But these tent pole movies cost three to 500 million to make and promote. And so if you hear that they made a billion dollars, once you subtract out the general administrative expense of running a studio and the fact that they lose money on all their other movies, most of these movie companies can't make money anymore.  
 | Speaker 2: | So it's all about streaming. That's why as much as Iger has been assailed, the stuff that he's done at Disney is kind of more interesting. So Paramount though has some really cool stuff, some really cool history, which is why there've been a number of people that wanted to buy it, and they tried to use a lot of structure. And here you have not only an ego asset, a really attractive ego asset, but you've also got a really mercurial seller. People thought that Sherry Redstone was going to be rational because her father, who was a great creator of value and a great aggregator of entertainment assets and a little bit of a megalomaniac, I mean arguably either Rupert Murdoch or Sumner Redstone or a mashup of the two of them is the model for the father and succession mean. So you've got a whole bunch of drama here in addition to the business that they're in.  
 | Speaker 2: | So this has been a process that's been going on for years, years. These investment bankers have been working to try and get a deal done. They have shown so many attractive offers to Sherry Redstone and she either rejected the good ones and then they came back around or she accepted the good ones or the bad ones and then changed her mind. This has happened multiple times on this deal. The Skydance deal is probably the best deal. However, Edgar Broman, who's from the Seagram's fortune, has wanted to be in the movie business for a long time. He's got a production company, he tinkers around the edges, super attractive guy, very wealthy guy, very savvy guy. He could be on paper, he could be a wonderful buyer. Now, what's interesting about this deal, you remember we talked, I think the last time about what Elon Musk did wrong in making a binding offer for Twitter.  
 | Speaker 2: | I'm positive that Elon Musk ignored all of his attorney's advice when he made a binding offer for Twitter because he made a bid at 44 billion when most people thought Twitter was worth maybe off of that, and he made it a binding offer. So he had to try and create an opportunity through due diligence to be able to back out of the offer. And when his lawyers finally told him that the Delaware Chancery Court was probably going to rule against him and that he was probably going to have to pay 10 billion worth of fines and breakup fees or just buy the asset, he went F it. I'll buy the asset because Musk's rich enough that that's not going to make him broke. Well, this is different. This could make Edgar Bronkman go broke. First of all, to buy this company, he has to agree during this 45 day free look period, which is really unique.  
 | Speaker 2: | Most of the time binding letter of intent comes with an exclusivity period where you're only working with the buyer. So Skydance is doing due diligence. There's a 45 day period here where they can shop it around. Now keep in mind this asset's been shopped around for years, but here comes Broman in to make a bid. His bid to top the Skydance bid has to include a $400 million breakup fee. So you bet there's smart people that worked on the Skydance bid that have looked at all of the different ways to put this thing together. This is going to be a premium transaction. So to beat their bid, he's got to come up with more money, including the breakup fee. So David, you and I have been involved in a lot of deals. I've never seen anything that was so attractive that I might be willing to pay 5% more than the asset is currently valued at, plus another three or 4% to essentially ameliorate all the damage I was doing by getting to win.  
 | Speaker 2: | So in effect, probably paying nine 10% more than the asset is worth just to win the bid and pay the breakup fee. So the really, really interesting thing about the Paramount deal is the 45 day free look period almost never happens, and I would turn around and love to hear your comments about whether you've ever seen that happen in a deal. You have a ton of experience too, but the 45 day look free look period, and then the breakup fee, and then the idea that how are they going to make money with this asset? I think this is a fantastic one for most of our clients are not going to deal with anything like this, just like most of our clients aren't going to deal with anything like Twitter. However, there are some lessons here. So  
 | Speaker 1: | It is the opposite of what we typically see. If we get a couple of iis coming across the board, then great, those are first dates. You've got an idea of what the opportunity might be. You've got some numbers to compare against each other. When it comes to an LOI, you're always going to get an engagement ring. It's a wedding engagement. You're going exclusive from that point because they're not going to invest that much into potentially closing a deal with you unless you take yourself off the market. You can break it. You can always end a wedding engagement, but you're not going to be able to keep yourself out on the market and plan for a wedding. It's the same way with an m and a in our market.  
 | Speaker 2: | Yeah, it's amazing that the conversation, the reason I say this is a triumph of investment banking and m and a attorney expertise is that the conversation when you're accepting a letter of intent or accepting it in large part, but then saying, we don't want to go exclusive. You have this massive bid. You're going to be talking to tons of big institutional capital sources to line up the money behind this bid. Sherry wants to make sure there's no closing risks. So anybody she says yes to can close the transaction. This is not a contingent deal that at the same time you're saying yes as the investment banker or the deal lawyers, you're saying, but we would like 45 more days, even though you've been in market for two and a half years, we'd like 45 more days just to clear the decks and make sure there's no better bid out there. Now, that's a phenomenal sales job to get a buyer to say. And if you're the buyer and you really, really want the asset to say, we'll give you the 45 days, but you got to give us 400 million to cover all of our expenses and our opportunity cost if you end up not taking our deal to just imagine being in those rooms when that was happening. I've been in some tents negotiations. I've never gone through anything like that,  
 | Speaker 1: | And I've worked on big deals when I worked on for big firms on Wall Street and Silicon Valley, but I've had minimal exposure to the entertainment industry. And those are some bold personalities. If anybody has got the hotspot to ask for it, they sure as hell do.  
 | Speaker 2: | Yeah, yeah, well said. That's about it. So that one would be fun. That'll be fun for your listeners and our clients to watch because I wouldn't say that the binding LOI on the Twitter deal had no applicability to our clients. I would say that all of us had to sort of look at the idea that while an LOI is generally non-binding, there are parts of it that are binding. You can't just walk away from a bid when you decide the buyer's not the right buyer. You have to get them to terminate the LOI, and that takes a relationship on both sides. Otherwise you could go dark. So that teaches so must deal taught us something, and now that we've got this, it's not like a legal precedent, but now we've got this thing out there where in a really, really hot process, the buyer was able to say that first, the seller was able to ask for a little bit of extra time to make sure that there were no better offers out there, and the buyer was able to say, yeah, but we want a massive breakup fee.  
 | Speaker 2: | This could be instructive. When we work with clients that have really attractive businesses and we go through say, two rounds of iis and then one round of Lois, and when firms are close, I'm not saying that this is going to become a part of our practice, but I would say that we can take something from this and say, let's say that a strategic buyer wants to take the deal off the table. They know that we're going to market in a broad process and they want to subvert the process by saying, what's it going to take so that you don't go to market with this deal? We say, okay, it's going to take this and this kind of structure, and if you're willing to agree to that, we want a 30 or 45 day free look period before we sign the LOI. Now, you'd have to be representing a really attractive asset, and a buyer would have to have deep enough pockets to be willing to spec the cost of due diligence in those first 30 to 45 days. But that could create an interesting dynamic if we're in really competitive processes. And at the same time, if you're a buyer and you're savvy enough as a negotiator to say, well, I want this asset, but I don't want it so badly that I have to overpay and I don't want to spend a half a million dollars of due diligence only to be left at the altar, so I'm going to ask for a breakup fee. I think those two things could start to creep in, especially with more competitive processes.  
 | Speaker 1: | Yes. Well, Kirk, I really appreciate it. It's so useful for our listeners to get the latest and greatest information about private equity and the trends in that market. They should certainly be scouting out search funds and understand what makes them, what they are, how they operate. And even if we're not going to be working with a whole lot of 28 billion deals, there's so many lessons to be learned from this, and the ones that go well and those that follow don't go as well that you can apply that in smaller transactions. So I really appreciate it, and their listeners also gain so much from everything you share.  
 | Speaker 2: | Thanks, David. And just if you'll allow me one quick kind of commercial plug, if you want our guidance on anything, there's a button on candor advisors.com. It says, talk to Kirk. Just drop a note in there, ask whatever question you want to ask. You don't need to be an engaged client of Candor Advisors to get our feedback on that. And if you want to get ready to go to market, ebitda university.com is our kind of business training courses. There's a free course monthly there, and then there's also kind of a longer term program. And in some of those programs we bring in experts like David King and others who have lots and lots of deal experience to talk to our attendees. So anyway, thank you for that. Oh,  
 | Speaker 1: | Absolutely. And it's going to take a team of people to properly get a deal done, but as I always say, talk to Kirk first.  
 | Speaker 2: | Thank you, brother. Appreciate it. Well,  
 | Speaker 1: | Listeners, thank you so much for joining us, and we will see you next time on Selling Your Business with David King.