The Exit Trap: What Most Founders Miss When It's Time to Sell

Summary

Podcast Summary: Business Lunch – "The Exit Trap: What Most Founders Miss When It's Time to Sell"

Episode Details:

• Title: The Exit Trap: What Most Founders Miss When It's Time to Sell
• Host: Roland Frasier
• Release Date: June 17, 2025

In this insightful episode of Business Lunch, host Roland Frasier sits down with seasoned entrepreneurs Ryan Dice and Carly to explore the critical aspects of selling a business. Titled "The Exit Trap: What Most Founders Miss When It's Time to Sell," the conversation delves deep into the nuances of navigating exits, maximizing business value, and avoiding common pitfalls that founders often encounter during the sale process.

---

1. Navigating the Private Equity Landscape

Ryan Dice kicks off the discussion by sharing his recent experience attending a JP Morgan Capital Markets conference in Austin. He participated in a "speed dating" style event with 42 private equity firms and family offices, aiming to set up meetings with high-performing entrepreneurs contemplating exits.

"JP Morgan arranged the meetings, and we had seven back-to-back 30-minute discussions with different private equity funds." [07:00]

Carly adds that these firms are actively looking for quality companies willing to pay premiums, especially those positioned as platform businesses that can facilitate further acquisitions.

---

2. Platform vs. Tuck-in Acquisitions

A significant portion of the episode focuses on the distinction between platform and tuck-in acquisitions.

Carly explains:

"A platform company serves as the foundational acquisition upon which a private equity firm can merge additional companies, enhancing value." [12:30]

Conversely, tuck-in targets are smaller add-ons that typically don't command similar valuation multiples. Ryan emphasizes the importance for founders to position their companies as platforms to secure higher multiples, noting that platform acquisitions can offer between 12 to 15 times EBITDA compared to the standard 6-8 times offered for non-platform deals.

"If you're the first company they acquire, you want to be that company, not the one that’s a tuck-in." [13:55]

---

3. Common Mistakes Founders Make

Ryan and Carly highlight several frequent errors founders make during the sale process:

• Not Running a Structured Sales Process: Carly stresses the importance of engaging experienced investment bankers and consultants to manage the sale effectively.

  "Almost every deal we’ve done has been a 6 to 8 initial offer, and almost every sale we’ve done has been a 15 to 18 or 19 multiple." [22:23]

• Emotional Decision-Making: Entrepreneurs often get emotionally attached to their businesses, leading to rushed decisions that can negatively impact deal terms.

• Lack of Preparation: Without proper preparation, founders may miss out on maximizing their company's value.

Carly shares a cautionary tale:

"A founder met with a PE firm directly and received an initial offer that was misleading and unfavorable." [54:17]

---

4. Strategies for a Successful Exit

To ensure a successful sale, Ryan, Carly, and Roland recommend several strategies:

• Competitive Sales Process: Creating an auction environment by running a competitive process can drive up multiple offers.

  "Running a process is effectively an auction." [24:02]

• Early Engagement with Advisors: Starting the relationship with investment bankers and consultants 3-5 years before intending to sell can build trust and prepare the company for a smooth exit.

  "Meeting and staying in touch with potential buyers over the next three to five years increases trust." [27:00]

• Comprehensive Data Preparation: Preparing a detailed data room with high-level financials, growth metrics, and operational data while safeguarding sensitive information is crucial.

  "We send out a confidential information memorandum that includes high-level details but protects trade secrets." [35:37]

---

5. Understanding Private Equity vs. Family Offices

The episode differentiates between private equity firms and family offices:

• Private Equity Firms: Typically seek returns within a fixed timeframe (5-10 years) and engage in multiple transactions to achieve these returns.

  "Private equity is transactional, looking to buy and sell companies to meet their return targets." [37:02]

• Family Offices: Focus on long-term wealth preservation and may hold investments indefinitely, providing a more stable investment horizon.

  "Family offices are about wealth preservation rather than aggressive wealth appreciation." [37:35]

---

6. Negotiating Deal Terms

Carly and Ryan discuss the intricacies of negotiating deal terms to maximize value:

• Seller Rollbacks: Allowing founders to retain equity stakes post-sale can incentivize continued involvement and maximize personal financial gains.

  "Seller rollbacks enable you to retain a portion of your equity, aligning interests with the buyer." [56:53]

• Maximizing Multiples: By demonstrating capability for acquisitions and having dedicated teams in place, founders can negotiate higher multiples for their businesses.

  "Proving that your company can handle acquisitions boosts your valuation multiples significantly." [34:16]

---

7. Distinguishing Serious Buyers from Low-Level Associates

The hosts caution founders to be discerning when engaging with potential buyers:

• Beware of Junior Associates: Many outreach attempts come from low-level associates who may not have genuine interest or authority to negotiate favorable deals.

  "Most outreach from associates is low-level and may not lead to meaningful negotiations." [52:24]

• Prioritize Reputable Firms: Focus on engaging with reputable private equity firms that have industry-specific knowledge and the capacity to execute favorable deals.

  "Identify and engage with serious, reputable firms to avoid wasting time on non-serious buyers." [52:24]

---

8. Q&A and Real-World Examples

In the latter part of the episode, Carly shares real-world examples of deals gone awry and emphasizes the importance of having experienced advisors:

• Unfavorable Deal Structures: An example where a founder received a misleading multiple and unfavorable terms due to inadequate representation.

  "The offer came in at a 6 multiple, but initial talks suggested a 25 multiple, leading to significant value loss." [54:38]

• Importance of Advisors: Having knowledgeable advisors can help navigate complex negotiations and prevent founders from accepting unfavorable terms.

  "With the right advisors, we can negotiate up by at least 5x from the initial offer." [13:55]

---

9. Closing Remarks and Call to Action

Roland Frasier concludes the episode by highlighting the importance of preparation and encourages founders to engage with experienced partners when considering an exit. Carly and Ryan also promote their EPIC Investing Strategy training, offering it for free to help entrepreneurs learn how to acquire existing businesses to grow exponentially.

"Having your company ready for exit is a really smart thing to do anyway, because it will be a better company." [64:23]

"Visit businesslunchpodcast.com/epic to get your free access to my EPIC Investing training right now while it's available." [72:45]

---

Notable Quotes:

• Carly: "We get to deploying a process is effectively an auction." [26:34]

• Ryan: "What you're hearing is that there's not just one way that these things get done." [13:55]

• Carly: "Having your company ready for exit is a really smart thing to do anyway, because it will be a better company." [64:23]

---

Key Takeaways:

1. Preparation is Crucial: Start preparing for an exit well in advance to maximize deal value and minimize disruptions.
2. Engage Experienced Advisors: Investment bankers and consultants can significantly enhance negotiation outcomes.
3. Understand the Buyer's Perspective: Knowing whether a buyer is looking for a platform, their investment horizon, and their appetite for operational involvement is essential.
4. Run a Competitive Sales Process: Creating an auction environment can drive up multiples and attract better offers.
5. Be Discerning with Buyers: Focus on engaging with serious, reputable firms to avoid unfavorable deals.

By adhering to these strategies and avoiding common mistakes, founders can navigate the exit process more effectively, ensuring they achieve the best possible outcome for their businesses.

Transcript

[Ryan Dice]

So we kind of want to get a sense of where that is because it seems like there's been a lot going on in the world, and people think like, oh, so our deals getting done, things like that. So we want to have that conversation, do the proverbial pick Rollins brain on that, and then just kind of open it up to you for what questions do you have? So this is just kind of informal. We figure your brain's kind of mush at this point, usually at the end of the day. And so this is just an opportunity for us to have a conversation on where things are. So I guess to sort of set this up.

[Roland Frazier]

All right, ladies and gentlemen, welcome back. Glad you made it. You're at a good table. You're all situated. You're all set. That's fantastic. What we're going to do right now is a little integration. What I want you to do is share with your table what was the thing, the takeaway, your number one takeaway to from the topic tables that we just did. Okay. This is called integration because it's helping us learn. You're going to benefit from what other people heard. They got a little nugget, they got a takeaway, they got a tool. They got a piece from another table that maybe you weren't even at. So first, I want you to share around your table, what was the takeaway? What was the best part of the topic table for you that you're going to keep, that you're going to apply, that you're going to take action on. Then after this, we may share some of these with the room. But first, start with your table. Go ahead and share. What was the best part. Let me give you about 30 more seconds. 30 more seconds to make it around and share. All right, let me draw your attention back here to the front. What I would love is for you to share some of those learnings. Right? This is how a mastermind works. If you've never been a part of one, this is how we swap ideas. We share aha's. And it's also part of how adults learn. We learn by review. We learn by integration. We learn by hearing what other people said that stood out to them. We've got a catch box that is at the back of the room. Carly's got one. And as you think about what would I share? I'm going to tell you what mine was. I was wandering around all the tables, listening to all the different ones. Something that you said, Jen, was so good. You said, people don't buy services, they buy better versions of themselves. That's what Jen said. And I was like, boom, that's a rider downer. I love it. Okay, somebody else. You go. Raise your hand. Catch, box. Share something with the room that was helpful for you. That is a takeaway from the topic tables. There we go, right there.

[Ryan Dice]

I would like to thank Lauren for.

[Carly]

The sticky secrets of advertising on the. Well, you know, I didn't want to say it out loud, but yeah.

[Ryan Dice]

So learned that you can drive traffic in all sorts of different places and that segmenting on your Facebook ads is great.

[Roland Frazier]

Fantastic. Excellent. Somebody else? Yes, right up here.

[Carly]

I was at the sales table and.

[Ryan Dice]

One of the things I got is I've been trying to press executive coaches to selling and it would be way better to have a salesperson.

[Carly]

Nice.

[Roland Frazier]

Excellent. Awesome.

[Carly]

Great.

[Roland Frazier]

Somebody on this side of the room. What stood out? What's the takeaway? What was helpful?

[Ryan Dice]

Yeah, I was at Sarah Nay's table about AI marketing and I think I kind of got an idea of the future of leadership in business. There's going to be an AI led leader who's operationally not so much creative, even in marketing.

[Carly]

Not a creative person, but just generally.

[Ryan Dice]

An operator that can execute on an AI and human enabled strategy, but then having people to execute beneath that. It's just an interesting vision for the. For business.

[Roland Frazier]

Nice. Excellent. Absolutely. All right, we're going to do a couple more. A couple more. What was helpful? What's the takeaway?

[Ryan Dice]

Right there.

[Roland Frazier]

Thanks so much.

[Carly]

Yeah. I went to Atiba's table and one of the great questions he.

[Ryan Dice]

He was talking about how you get.

[Carly]

Your team members to take responsibility and how you manage them.

[Ryan Dice]

And one of the great questions I.

[Carly]

Came away with was to ask them what was easier than expected in order.

[Ryan Dice]

To help them help you figure out what their strengths are.

[Roland Frazier]

Nice. Excellent. What was easier than expected? Okay, we'll get two more. Somebody up here and someone right there.

[Ryan Dice]

Perfect.

[Carly]

I was at the table with Richard over there at table 12 and he said something that I really liked. He says when he interviews one of.

[Ryan Dice]

His workers, if he thinks maybe there's.

[Carly]

A problem, he wants to get inside their head, he'll sit him down and ask them, how do you think it's going? And that sounds like a pretty powerful way to start a conversation with one of your workers that you might be having a problem with.

[Roland Frazier]

Yep. And as one of the workers with Richard, I can attest it works really well. How do you think that's going? Somebody at this table or that table? I'm picking on one of you. Guys, there's a whole bunch of folks over here just holding their peace. There you go.

[Ryan Dice]

Yeah.

[Carly]

So I was fortunate enough to have.

[Ryan Dice]

Richard, or I think it was you.

[Carly]

Chris, call over Ryan. And Ryan and I sat down, and we just talked about de guru fying the business. And so I was able to kind of see that, you know, to ultimately exit doesn't require me or really, at.

[Ryan Dice]

Any point, to stop doing what I love and to stay in my zone of genius and just keep doing what.

[Carly]

I love, because regardless, I'm going to do it. And it was just really helpful.

[Ryan Dice]

You know, sometimes you just need clarity, and for someone to tell you and just give you the green light on.

[Carly]

Hey, what you're feeling is real and trust your intuition.

[Ryan Dice]

So, yeah, it's very valuable.

[Roland Frazier]

Yeah. That's perfect. That's awesome. Anybody else identify with that? Give a clap? Yeah. You're like, man, that's absolutely helpful. I also want to thank, one more time, our facilitators. That's not an easy thing to do to facilitate among your peers. So you give them one more round of applause. Thank them. Absolutely. Awesome. So we're going to move into our roundtable Rumble, and we are. Is that correct? That's not correct. Nope. That's just what's on the screen. I just say, what? Not even close. Perfect. It's just on the screen. I'm Ron Burgundy. All right. Please join me in welcoming back to the stage the one and only roland Frazier and Mr. Ryan Dice.

[Ryan Dice]

I know that's my fault. Just know if anything gets kind of messed up, it's because I screwed something up. Thank you. Thank you very much.

[Carly]

We've been together so long that apparently we are one now.

[Ryan Dice]

Yeah, exactly. The one and only. The two and only.

[Carly]

No.

[Ryan Dice]

So I was going to go and get you a water, but now, screw you. Seriously. Do you want a water?

[Carly]

No, thank you.

[Ryan Dice]

Okay. So we want to talk about exits, M and A, the private equity world, where that is. Right now. We got a specific and timely reason for why I wanted to chat with Roland about this. But I also know that it is the goal of many of you in this room to sell. Right. You would like to maybe one day sell your business and have lots and lots of tens, if not hundreds of millions of dollars plop into your bank account. Right? That'd be kind of cool. And I'll tell you, if you've never experienced that, you should.

[Carly]

It's awesome.

[Ryan Dice]

I recommend it. Yeah.

[Carly]

Right?

[Ryan Dice]

Yeah, we'll take that. And so we kind of want to get a sense of where that is, because it seems like there's been a lot going on in the world and people think like, oh, so our deals getting done, things like that. So we want to have that conversation, do the proverbial pick Rollins brain on that, and then just kind of open it up to you for what questions do you have. So this is just kind of informal. We figure your brain's kind of mush at this point, usually at the end of the day. And so this is just an opportunity for us to have a conversation on where things are. So I guess to sort of set this up, can you kind of break down. You were in Austin last week, one of our. I misquoted one of our portfolio companies, I said doing about 80 million a year, I guess doing about 110. 110, 110.

[Carly]

So it was off by about 150 this year.

[Ryan Dice]

110 last year, give or take. The strength of the end, basically the same. Pretty much the same. So they're doing very, very well. And they're considering an exit in the not too distant future or taking some chips off the table and maybe just capitalizing. So talking about some of that as well as a result of this, and this happens when you kind of get out there in the world, you're perhaps looking at doing some taking on some investment, these kind of things. You get introductions to different people. And in this case, it was J.P. morgan that was putting on.

[Carly]

Yeah. J.P. morgan did a capital markets conference in Austin and they invited 42 private equity funds and private, excuse me, family offices and 42 nine figure plus entrepreneurs, and basically set up speed dating. So it was all types of businesses, from products to services. And then they coordinate the meetings for you. It's kind of fun too, because it's all very cloak and dagger because nobody wants anyone to know that they're thinking about exiting because that's the worst thing that you can communicate to your customers and your employees and your bankers, your current bankers. And so it was all done with codes. So each company had a code name so that nobody knew who was meeting with who. And JP Morgan arranged the meetings. And so JP Morgan isn't actually looking typically to represent you as your banker there. They're happy to do it if you want them to, but what they're really doing is basically for these funds that they're working with, they are trying to do kind of create opportunities for them so that those companies do business with JP Morgan, who is typically bigger than they are. And so JP Morgan might be looking to do the debt for them or something like that. And so it was, we had seven meetings basically back to back 30 minute meetings with different private equity funds and there were another two or three that were set up but for whatever reason we weren't able to. They weren't able to make it or they got plane delayed or whatever. And it was really interesting having the conversations so many times in a row because it's basically close to the same conversation but each firm has its own distinct things. And so it was interesting from the standpoint of you would sit down and say well at the like the last meeting it was like, well you probably had the same conversation seven times. And I was like absolutely not. We haven't. Because everybody's got their difference things that they're looking for.

[Ryan Dice]

So what were the things as you were going, having the conversations? I guess. Was there anything that surprised you just from an ecosystem perspective, good or bad about like now being, you know, a good time to do a deal, Bad time, is everybody scared? And there's no, no money being deployed.

[Carly]

They're all going on, they're all writing checks and they're all paying premiums because there aren't as many good companies as there have been. And that's interesting. And one of the things that they talked a lot about was effectively multiple cost averaging their multiple that they pay you down, that they're comfortable paying you a significant premium for your company if you're a platform and you've got a good company. But then they're looking to, and we teach, teach at N Epic is they're looking to acquire companies under that. Maybe they pay you 15 or 17x on your EBITDA, but they're looking then to do acquisitions to effectively make that multiple lower by acquiring companies at 6 to 8. And as a company that we've been approached by several funds recently and they're always offering between six and eight and a half times EBITDA as a platform investment where they've already got their platform.

[Ryan Dice]

So for those who don't know what a platform is, can you break down what a platform?

[Carly]

Yeah. So before they own a company that's in the space that they're going to use to roll up other companies into, they're basically clean. And if you're the first company they acquire, then you're the company that they're going to merge other companies into, you want to be that company, not the company that is a tuck in or an add on company. So you want to be the first one. So if they're already in that Industry, and they've already done their platform. You're probably not going to receive as good an offer as the platform company.

[Ryan Dice]

Yeah. And this is really, really, really important because we get a lot of founders, board members, a lot of clients who come to us and they say, oh, you know, got, got approached by this private equity group. They're offering us like six to six to eight multiple. And it seems like it's always about.

[Carly]

A six to eight.

[Ryan Dice]

It's about. It's always about a six to eight multiple. Then you go into due diligence, and it typically winds up something less than six. But they're always like six to eight. Six to eight. Six to eight. That is a pure indication almost every time that you are not the first one of those that they're buying. And I can tell you we experienced this when we sold Traffic and Conversion Summit, that their plan was for that to be the platform event that all the others would get bought into. Covid and other things had different plans, but you definitely would rather be. Because the difference in multiple that you get if you are their platform acquisition, it's the difference between a 6 to 8 versus A.

[Carly]

It could be double. Yeah, yeah. Or more.

[Ryan Dice]

12 to 15 was what they were kind of quoting there, right?

[Carly]

Yeah. And it's interesting because you're definitely doing yourself a huge disservice if you don't have somebody, if you don't have experience not selling a company, because everybody and their brothers sold a company. And it's interesting when you are out in the world looking at people representing that they'll help people sell a company, it's like, I sold my company. I've sold four companies. It's like, but did you make any money? And what kind of multiple did you get? Did you get a multiple that was average for the industry or significantly higher than the average? And they don't tell you that because most people don't know how to negotiate really well with those companies. And we had the nice distinction when we sold TNC to Blackstone of them saying, that's the highest multiple we've ever paid for a company in this niche in this industry. And we want you on our side next time. That, to me, from Blackstone is a pretty good compliment. Right. So that's one thing that you really want to do is have an investment banker or a consultant or rep that has done something like that, because it will be significant. And I can't think of a deal that we haven't negotiated up by at least 5x from the offer that came in to start with. I mean that's a pretty significant. Even if they came in at 10x to get from 10 to 15. I know one deal that we closed about six months ago started at 90 million and closed at 220. I know one that came in at 34, dropped to 14 in due diligence and then closed at 30 36. I know like it's amazing how the roller coaster of expectation, due diligence, knockdowns and then all the things like holdbacks and working capital allowances and things that are designed to stop you from getting your money to reduce the risk for the people that you can negotiate around, through and out of if you just know to do it. But the other thing too is if you take the deal that comes in. Private equity is fishing to avoid a process. A process is an actual sales process to market and sell your company and get several bidders. If you're not doing that and you're not interviewing multiple investment banks before you do it, you're definitely leaving money on the table. Because there's like in private services there's three middle market banks that you really want to represent you. And, and but all of them want to like, all of them want to, but there's three that are like really, really good, that have a good strong reputation and lots of precedence with deals that are in that market. And so you want that group, you want strong negotiation and you want them to run a process to get as many buyers as possible in. So you have strategics and financial buyers and things like that. And when you're interviewing, like when I was sitting down talking to each of these funds, it's a two way interview, remember that you're interviewing them too. So you want to know things like what's their investment horizon? How long are they going to let money sit with you before they need to turn it? How much money do they have to invest? What's the minimum check that they're going to write? Most of these were minimum of 100 million and the lowest, only one was lower than 100 million, it was 50. And then most of them went up to between 300 million and 2 billion that they would be willing to invest. And so that's important to know. But then also how soon do they need to get that money back? Because if it's only three years, like if they're at the end of a seven year fund and they're four years into that fund and they've got to turn that money and give it back to their investors in three years, then you're going to be really pressured to get them their, you know, 3, 5, 6x on their money that they want to earn over that period of time. And so that's, that's something too. And then do they have operators on staff? Like, what's the level of involvement in the company that they're going to want? Are they kind of, we believe in your team and we're investing in your team, or are they, We've got a bench of operators that we've done deals with before and we bring them in and swarm down to help you with your business to get better. That means you're probably going to be not in control and have a lot of participation, whether you want it or not, in how the business is going to go.

[Ryan Dice]

And there were both, there were groups, private equity, and they were like, we.

[Carly]

Just give you money and we want. And they're min max. There's minority and majority investors and then hybrid. So several of them are both, they'll do minority investments and majority, but several of them are majority only. And then they're almost all of them with the exception of one that was just 100% buyout. We just buy you out and then we want, we want you to go away. That was what they said. And, and most of them though, have increased the roll in the amount of equity that you're going to roll back into the deal from traditionally 20% that they would ask you to have to 30 to 35. And the more money that you get, the more roll in they might want. But similar to negotiating a deal, just.

[Ryan Dice]

Just so we're clear. Sorry, so what that. Yeah, so.

[Carly]

So if you don't understand any of these terms, just ask.

[Ryan Dice]

Yeah. So a typical private equity structure would be they come in there and they're going to buy 80% of your business. You're going to hold 20%. That's, that's the roll in right now. A lot of these private equity companies have realized that like, wow, turns out you give an entrepreneur a giant pot of money and now they only own 20% of their business. So they feel like an employee. They sort of stop caring a whole lot. And these things don't really go anywhere. They're sort of getting wise to that. I don't know why it took them so long. And so now they're basically saying, we're not going to do an 80, 20 deal, we'll do like a 70, 30. And what you're saying is a lot of them, the bigger the deal, the more they want you in because they Realize that. But all of these things are negotiable. And what you're hearing is that there's not just one way that these things get done. The ecosystem of. Because at this one, there were just. There were 42. 42 private equity groups. That represents. What percentage would you say of the total number?

[Carly]

I think there's last. I looked like 68,000 of them.

[Ryan Dice]

42 of the 68,000 that are. That are out there.

[Carly]

The good news is these were most of the, like, household names in the industry.

[Ryan Dice]

The bigger ones. Yeah. But you could see just within these 42, some want to do majority, some want to do minority. Some, they want to swoop in and take control, some want to do whatever. So understanding where the different firms fall within that, what their preference is, is really important to align that to your preference. So what would you say are some of like the mistakes? Because I know obviously I'm not going to say we don't want to say what the company is or who the entrepreneur is because it's somebody, you know, founders, board member and that running around here, but somebody who hasn't sold a business in the past. And I know from being on that side myself, entrepreneurs, we tend to get kind of twitchy, I would say, and we get twitchy for two reasons.

[Carly]

One of my favorite phone calls I ever had was with you on the.

[Ryan Dice]

We're not telling that story. We can tell that story later anyway. But I think we get twitchy for two reasons. Number one, we get excited about a lot of money and we just want to get it done quickly. But two, we also, it seems like we want to make because most of us are sales people. We want to sell our business to these bankers and make them believe in us. Can you kind of speak to what approach entrepreneurs would take and maybe the mistakes that let's say this particular individual has perhaps almost made in the past and mistakes that you've. That we've seen some of our clients and friends make.

[Carly]

I'll generalize because I don't want to. Yeah, please, I don't want to. It's not throwing under the bus, but I don't want to speak negatively at all because it's all a process. Like it's, it's ignorance is. I don't know, not I'm dumb. Right. And so when you're coming in, you are definitely swimming with the sharks. So they are fins up, teeth out in the nicest of ways because they're smiling the whole way. And.

[Ryan Dice]

And they don't. This was the thing that I Didn't quite grasp at first. They have no real emotion about any of this stuff. Yeah, it's typically not their money. They might have some in. If they're, you know, they're a partner. If they're a gp, they got. They got. They got some, but they're usually doing okay. This is going to be one of many deals that they do or don't do, but just the nature of them being in this business, they just don't bring the same emotional energy that you do when you're selling your thing that you've built. So you got all the emotion and all the rawness and they got a spreadsheet and it's just not fair. So can you. I mean. Yeah. So speak to that.

[Carly]

I think, like, the biggest thing I would say is not running a process, like the best thing they can do. And when I say they have fins out, shark, you know, teeth out, it's not that they're bad people or they're trying to take advantage of you. They are within the zone of fairness, you know, of negotiating. It's not like any of them are going to give you a terrible deal, because if you talked at all, like, if you have any kind of help in the legal side or investment banking or consulting or partners that have done this, then. Then they're not going to get away with anything. But like I said, almost every deal that we've done has been a 6 to 8 initial offer, and almost every sale that we've done has been a 15 to 18 or 19 multiple. So you can see the delta between where the offers come in and where they end up. And there's a lot of negotiating back and forth between. I'd say that not running a process is a giant one.

[Ryan Dice]

Why don't entrepreneurs want to run a process?

[Carly]

Because it's a pain in the butt. And you have to hire an investment banker. And you're probably going to pay them 100 grand or more upfront, and depending on the investment banker, maybe 20 or 30 grand a month while they're helping you identify a full list of buyers and putting together a data room, which is just basically a Dropbox with all the information about your business in it, while you're preparing management for their interviews, because they're going to get interviewed by the people that decide that they're interested in preparing the indication of interest, the IOI mail out and then the sim, the confidential investment memorandum and all that. It's just a lot of hassle. And so if somebody comes in and offers you something that you Think sounds good. And you're like, yeah, I could. I could see myself taking 20 million, 30 million, 100 million for that.

[Ryan Dice]

That seems like enough.

[Carly]

That's kind of in my. In my range. And if I don't have to go through all that hassle, I just as soon not have to go through all that hassle of that process. It sounds pretty appealing. And the process is disruptive. And you have to be careful how many people. This is a mistake. How many people in your company are going to know that you're doing this, that you're thinking about exiting, that you're even entertaining it. Because the minute that you do. In several cases, we see top management that has equity and top management that does not have equity. Both change. The people who have equity are counting their money and spending it based on the highest multiple they can think that you might get. And they might check out and underperform. And then you got to talk to them about that. And that's an awkward conversation. And you might not be selling. Like, that's a significant challenge. Your employees, for sure, they're thinking, what's going to happen to me? I need to find another job. Your customers are going to be like, are things going to change when you're owned by this big PE company? I think I might try to see who else might be good to use instead of your company, because I don't. I don't want to deal with sophisticated financial buyers. So there's all that that's going on emotionally. So not letting people know that you're entertaining the idea until you have a deal, really, as long as you possibly can. Management not letting them know, even your business partners, if they're minority partners for some period of time until you actually come close to an loi, I think is really helpful. And then taking that, like, the temptation to take that first deal and just chase it down without going through the process will cost you a lot of money. I mean, you'll definitely leave a lot of money on the table if you're doing that.

[Ryan Dice]

Yeah. Because the process is effectively an auction.

[Carly]

Yeah.

[Ryan Dice]

You know, I mean, if you got. If two people want you, you're worth more than. If only one wants you. That's just basic supply and demand and creating that, you know, because you said something, you're like, okay, yeah, so to run a process, you know, the first step is you get an investment banker. Well, we all know those, right? No, most of us don't know an investment banker. We've heard of them. But I mean, what do you. So what do you. Do you just Google investment bankers in my area, yeah.

[Carly]

You're bound to found good ones out there. Whoever's got Google reviews or Yelp especially.

[Ryan Dice]

Yeah, yeah.

[Carly]

The other mistake I would say is that when you're within three years or so of thinking that you might do something like this, and this could be a sale of part or all of the company, majority, minority or just a recap including debt financing, to just get money to take chips off the table, you really want to go and start meeting people early on. So like we're for sure three years out from three to five from a sale of this business. Right. But we want to meet now because just taking the deal to the investment committee, if the investment bank, if the PE firms, biz dev person already has a relationship with you, including I met them for 30 minutes at a conference that JP Morgan put on, the investment committee is going to say, how long have you known this company? I met him about three years ago at a JP Morgan conference. That deal's much more likely to get approved than I just met him. It looks like a good deal. And that sounds silly, but just the fact that they've had their cause, you're gonna like, I'll stay in touch with all seven of these for the next three to five years until we do a deal. Right. And so meeting and staying in touch with or having somebody that you're working with doing that is a huge deal to get you through the investment committee and increase know like trust.

[Ryan Dice]

And the investment committee is basically just the partners get together at the Monday meeting.

[Carly]

Yeah. But they're going to make the decision of whether or not to do the deal and enter into negotiations and then they're going to make the decisions on what is the multiple, what's the amount, what are the holdbacks, etc. Etc.

[Ryan Dice]

What were the things when you were talking to these private equity groups that you could tell, you know, I'm sure they asked you some questions about the business. What were some areas where they clearly their eyes sort of lit up and they're like, oh, well that's nice. And you know, conversely, was there anything that you kind of got a sense that they were down on?

[Carly]

They were all very, very interested. It's a very appealing company. The things that were like really important to them were customer concentration. Is there any one customer that makes up more than a certain amount? What is the amount of recurring revenue? Was a big, big point for them. What is the level of AI integration and tech enablement? Was. Was a big deal to them that Was interesting.

[Ryan Dice]

Yeah, you were. So, I mean, a lot of what, what, you know, we're talking about this morning, a lot of what Richard's going to talk about tomorrow, I think that's going to be good for a, for a turn in some, you know, maybe half one, like good for. Maybe it doesn't take you from a six to an eight, but six to a seven. Just being able to say, look, we've AI ified these entire departments is big.

[Carly]

Yeah. The cagr, the compound annual growth rate, ours is almost double what it is in the industry. So that was super, super appealing to them, like eyebrow raising. Oh, my gosh, that's really amazing. Our operating margin as well was about double what the industry's is. So that was also very appealing. So they really perked up and it went from very friendly asking the questions to that's amazing. What you guys have done is amazing. We definitely are interested. We want to stay in touch. How soon are you thinking about doing a deal like this? That's a pretty good question.

[Ryan Dice]

Yeah. So, and you're getting a sense here, so you should know. What is your cagr? What is your compound angle?

[Carly]

Yeah, I went in. It's a really good point. I went in and I had ops, marketing and finance all prepare information so that I had a one sheet like I would actually send out that I was referring to in the meeting so that I could basically answer all of those questions. Yeah, I knew. What's the amount of recurring revenue? What's the cagr? What's the percentage of recurring revenue? What's the aov? Lcv? What's the growth rate and percentage of each business segment? There are four business segments in that company. What percentage of total sales do they represent? What percentage of total profit do they represent? Those are all questions that you need to have ready to go. And when you do, you distinguish yourself from the people that haven't because what.

[Ryan Dice]

Yeah, most of it's like, oh, so you know, what percentage of your revenue is represented by subscription Recurring? I think it's like a lot.

[Carly]

Yeah, it's good. A lot of people, A lot of people like our stuff.

[Ryan Dice]

Yeah. Yeah. I mean, but you could see the difference. That's okay. So you're a six. See what I'm saying? Like, that's a six. This is why, like knowing the, the questions that are going to be asked before you go in so that you got those answers ready is really, really important.

[Carly]

And they know then that you know what you're doing.

[Ryan Dice]

Yeah. So they're not going to throw There was one other thing because you talked about, and I thought this was really fascinating when we were talking about this, because they want to buy a platform, which means they want to buy a business they can tuck more businesses into. And so one of the things that you said they were particularly impressed by is that this company had already done some acquisitions.

[Carly]

Yeah, you will get multiple turns, higher multiple, if you've proven that you can do acquisitions and integrate them successfully. So I had the numbers on the acquisitions that we've done, how they've performed since we did it, and that made a huge difference. What we don't have that they would like for us to have is we don't have a dedicated M and A team that is tasked with doing acquisitions regularly, and we don't have an integration team that's a dedicated team to integrating those acquisitions in. So, like, what we will do before we take money is we will have both of those teams in place and we will probably do another five or six acquisitions. The reason being that they like organic growth. Organic growth is really important to them. But also inorganic growth, growth as a result of acquisitions is a proof that what they're going to do once they come in is going to give you money to go buy more companies, and that's going to accelerate the trajectory of your growth. And if you can prove that you already know how to do that and they don't have to help you figure it out. And not only that, but you've got dedicated teams, and not only that, but you've integrated and you have an integration team. Team, then you're definitely going to get what I would call a super premium. I think we're already at a premium because of where we are with respect to the industry. But a super premium is gonna be. And we also have your wish list of things that you wish that we had. Because think about how much less risk they've got. If you've already proven that your company can handle, like, identify and absorb successfully other companies, it's pretty indicative you'll be able to do that in the future.

[Ryan Dice]

Yeah, it's the perfect. I mean, if you want to basically be treated like a platform company, act like a platform company before you sell. That's the key. And that's, you know, tomorrow morning you're doing a session on, you know, kind of the newest stuff on business, buying and selling. So even if you think you've heard about Roland, talk about this, there's lots of changes, lots of stuff that happened, SBA stuff, sometimes it's worth going out there and doing some of these deals just to show that you can do it, to signal that you can do it.

[Carly]

It is. And I would ask too, like I asked them, how important are acquisitions to you? Because some of them, like one of them had a company they were in for 10 years and they only did, I think, four acquisitions during that period. And they were like, we're very into organic growth and unless the acquisition provides 1, 2, 3, 4 benefits, we just assume as long as the company's got its CAGR up where we need it to be, we're good. One of the companies was we grow by acquisition. We want to go in and typically over a period of three years, while there's no, you know, no like requirement, we're probably going on average to do 16 to 20 acquisitions. That's a lot of acquisitions over a short period of time. Right. So you want to know what their expectation is too, because if it doesn't match with what you want to do, then you probably don't want to work.

[Ryan Dice]

Was the former a family office? So that's why they were okay with.

[Carly]

Family office was the one that had the longest horizon which was in excess of 10 years. So they're like, basically if we buy it and we like it, we don't ever want to sell it.

[Ryan Dice]

Can you break down the private equity family office and pros and cons?

[Carly]

Sure. Private equity is generally a group of people who have decided they're going to pool money that other investors have like public pension funds and things like that to, to have that money ready to buy companies and then they're going to target a certain return, typically six times capital to over the period of the, of the private equity fund, which might be anywhere from, you know, five to 10 years. But they're definitely transactional financial based looking for exit. They're definitely looking to turn that money and get out. They are not in. They're in for a while and, and they might be in for a while and then let you buy them out and even finance that. But several of them, we talked about that, but they're definitely in and out investors. Family office is looking for a good investment to hold forever. They're typically formed when a family has a very big event that whether it's inheritance or an exit, that gives them a bunch of money. Then they hire a dedicated investment team that only does investments for that family and their investment horizon is significantly longer because they don't want to be in.

[Ryan Dice]

They don't want more money back. Yeah, you give them a giant pot of money and they just got to figure out how to put it back.

[Carly]

Out there trying to deploy the money and get a good return on it.

[Ryan Dice]

Yeah, and I think that's. We'll go to questions next, but I do think that that's something for everybody to remember because we can sometimes feel like, oh no, it's scary out there. The world, it's uncertain. There's a lot of uncertainty. But one thing that is certain is if you're sitting on a giant pot of cash that someone gave you, you have to put it somewhere. You have to deploy.

[Carly]

And family offices are more about wealth preservation generally than they are about wealth appreciation.

[Ryan Dice]

Right, yeah, I got that.

[Carly]

Mor.

[Ryan Dice]

Can you speak to just how much money is sitting out there and how desperately they still want to deploy it despite. Does it seem like there's been big changes in multiples over the last couple of years?

[Carly]

Yeah, I mean everything I read says they're down, but my experience is they're up for everywhere we're dealing. So I can't reconcile that. I don't know why. Maybe there's more unsophisticated. That's probably it is that if you think about what private equity has really done is target very fractured businesses like H Vac and auto repair and things like that. And so they're dealing with much greater numbers of less sophisticated investors. And I think that tends to drive the multiples down. But in that middle market where we play, I have only seen them, I've watched the numbers and I see them go up. And even the latest data from deal stats is that the multiple has increased significantly just over the last couple of quarters over last year.

[Ryan Dice]

So if you think that now for private equity. Yeah. And I'm not suggesting that anybody rush to a sale. But if you think like oh, right now would be a bad time to sell. Not true, not necessarily the case. And if you're hearing like oh, I guess multiples have come down. The multiples that have likely come down are the crazy insane Tiger Global out there throwing SaaS.

[Carly]

Multiples for sure.

[Ryan Dice]

SaaS.

[Carly]

Multiples of SaaS has gone from you're going to get a 25x on a non profitable company as long as you've got more than a million in ARR to to it's gotta be a profitable company with maybe 8 to 10x.

[Ryan Dice]

Yeah. It just finally started recognizing math. Yeah.

[Carly]

Yeah. I've never understood that.

[Ryan Dice]

But for folks selling profitable businesses at a multiple of ebitda, don't let the media or people tell you like oh, it's terrible out There and there's so much money that's been sitting on the sidelines that they need to deploy now.

[Carly]

Yeah, I mean, like I said, nobody there was shy about offering anywhere from 200 to 2 billion in investment capital. And they were all on fund, you know, like I think the youngest fund was fund number three and several were on fund seven, eight, nine and all of them were minimum a billion up to about 4 billion. Because these are middle market, so they're not doing, you know, $20 billion deals. But their sweet spot really most of them were, we really like to invest somewhere between 100 and 500 million. And the other interesting thing which is good for negotiating is there are seller take back notes that basically if your private equity fund allows you to participate in the funding of your acquisition by you effectively lending them some of the money to buy the equity, you can keep the equity that you've got. Plus, it's hard to explain.

[Ryan Dice]

Yeah, I was going to say you got to break.

[Carly]

You can keep the. I mean I'll give me a. For example, I'll try to do it tomorrow because I need like a chart. But effectively you can lend the private equity firm money to buy the interest that they're buying and effectively get paid, plus get interest on what you are getting what they are buying. And it allows you to keep a greater amount of equity in the company and get paid more overall for the deal. And I'd have to do like a side by side to show you how it works, but it's actually really cool. Most of them won't let you do that. So it's a question I ask that is cool.

[Ryan Dice]

I know, I got one more question then. Does anybody else have any questions along these lines? Okay, so can we get the catch box out and we'll start fling these around while. And I know we have two of these, right? So can we get two of them going just for the sake of efficiency? Cool, we'll kind of get one on this side, one on that side. A lot of people when they think about selling the business, they approach it as an all or nothing type thing even. It's like an 8020 deal. That's not the approach that you'd be taking with this business. Can you kind of speak to the difference between private equity growth equity and just taking some chips off the table, cleaning up cap tables, getting some dry powder. And now that could be a better option because if you're thinking to yourself, hey, this sounds great, but I don't know that I want to sell. Like maybe I just Want to get some additional dough. To infinity and beyond, I guess. Can you speak to that? Those different structures that are out there for people.

[Carly]

Yeah, depending on what you. What you want to have to go and do acquisitions. And you don't need a lot of money to do acquisitions, as we'll talk about tomorrow. But. But if you do want to do more traditional acquisitions and you just need some capital, the best thing you can do is just go borrow it. Just basically go to the bank and say, can you fund this? Now? The bank might not be willing to, at least. I know our experience with, say, digital marketer is that the bank's like, tell you what, we'll loan you $2 million and then you keep the $2 million in the bank and pay us a really high interest rate. And if you fall below the 2 million, we need more guarantees and we want you to personally guarantee everything. I don't understand. Why would you ever. Anybody ever does that? I guess they do. I know our CFO said, do it. And we were like, you're an idiot in the friendliest of ways if you're watching this. But what you really want to do is ideally, if that's your plan, use debt to do it. Unless you need a lot of capital. And if you want to take chips off the table, then that can be done through a recap. So a recapitalization of the company. And that's a. That's generally a different kind of firm than a private equity. They're just looking basically at, at best to get some warrants in your company, some option maybe if you do sell to get a little kicker to what they're going to get. The Midori, the growth people are typically going to take a minority interest and they're giving you capital to grow. They're usually more early stage. So if you have a couple company that's been around a little bit longer, they may not be interested, but you will get interest from private equity in helping you grow the company. And then you get to how much do you want to sell? And then you're talking about, are you a minority investor? Are you a majority investor or do you do something in between? So I don't know if that answers it.

[Ryan Dice]

Well, yeah, I was going to say for this particular deal, you don't have to sell 70, 80, a majority percent of your company, I guess is what. What I'm saying, like for this particular deal, targeting.

[Carly]

Yeah, we would right now probably be around a half a billion valuation on that company. And we would. It depends on the owner. You Know me, I want to hold it for longer.

[Ryan Dice]

Right.

[Carly]

But sometimes that's not good because the pandemic comes. But usually it seems like it's good with the companies that we've got. So we would probably sell somewhere between 30 and 40% of the company ideally. But there are some strategic partnerships that some of the private equity companies have. And so one of the questions to ask is how well do you integrate your portfolio companies? Because we're a professional services company, they have other professional service companies that are not competitive to ours in their portfolio. And so if they've got a fair amount of them, some of them have formalized masterminds like this for all their portcos, all their portfolio companies, where you all come together and get to know each other and talk and strike strategic relationship deals, which is important to us because we're very flexible in the industries that we can partner with that not compete, but add more money to there and our, our businesses. And so that's one of the things that's important to us is we're looking and something you should, you should ask. And so I was, I would ask. And some of them are, yeah, we generally, it's Chinese wall between everybody and others are, yeah, if you, if there's anybody you want, we'll introduce you. Others are, we can make introductions. And by the way, let me introduce you to two companies. I like those people because they're giving before and then others are. We actually have a formalized structure with quarterly meetings and monthly calls. And you know, that's kind of a good thing to check out when you're looking at it too because it's. Because to grow organically from just those introductions with no acquisition that's facilitated by somebody that has the reputation that your backer has is kind of cool.

[Ryan Dice]

Nice.

[Carly]

Yeah. So three years ahead, we should start.

[Roland Frazier]

Having meetings and building relationships and what have you.

[Carly]

What should we be revealing in those.

[Roland Frazier]

And how careful should we be about giving numbers, revenue and profit and growth.

[Carly]

Et cetera, et cetera.

[Roland Frazier]

And I guess by the same token, every so often some company calls us, I think usually with a platform that.

[Carly]

Might want to buy us. Same kind of thing, they want to get on an introductory call in those meetings also.

[Roland Frazier]

How careful should we be?

[Ryan Dice]

How much should we, should you take them at all?

[Carly]

Yeah, I believe that taking every serious offer is smart. I think that if you get lots of people fishing that I'm not as interested in talking to those people because they're just low level people making calls. But if I get a serious connection to a fund. Even if I don't think we're ready to sell, and I don't think that they would maybe be the ideal. I definitely like for. We like for our founders to have those conversations because that's a great experience building thing for you and it shows you that your company's valuable and it gives you an indication of kind of how the process works and the type of people you're going to deal with. And honestly, from our side too, it lets you see that we're really good at what we do by the questions we ask and how we are able to deal with those people, but also just to get those relationships. We'll know if we're working together, we'll know if you don't have somebody that's advising you that, that knows that this company that reached out to you has no interest in this industry, they're just dialing for deals. Right? But if it's a company that's a significant player that we've identified as a potential acquirer, funder, strategic partner, et cetera, they're in the sector, they're actively investing and we like the way they do things, then I want you to take that meeting and have that conversation. The only things that you would typically reveal would be high level things. You can decide that you want to or not. Tell them what your CAGR is and tell them what your top line is and what your EBITDA is. I am a fan of disclosing that information because I want more people interested and I want them to know that we are in their buy box. And so I'm a fan of disclosing that. I'm not a fan. I mean, even right now we're in the middle of due diligence in a company on exit and we're in pre due diligence. I guess I would say that they have made a preliminary indication of interest and we've got two people that have done the indication of interest that we like that we're talking to now. One of them wants to do customer level due diligence, which we absolutely will not do. They want to do it because it's a little bit of a specialized nature of the way that you value and validate customers. But the most that we'll ever do, even after I won't release any customer information until we have an actual binding offer, not an loi, but a binding offer, customer diligence.

[Ryan Dice]

When they start blowing up, your customers being like, so you actually like these people, huh?

[Carly]

That's weird.

[Ryan Dice]

And it could be incredible. Incredibly disruptive. And by the way, that is when your employees will find out.

[Carly]

Yeah, and we'll do the best we'll do. There is like nth customer like we'll give you, you can have. If we've got 10,000 customers, we'll give you access to 75 and you can do your due diligence and have a statistically significant sample of the number of customers that we've got so that you can verify the things you need to verify. But everything else is anonymized throughout the deal. With respect to that same thing with employees. There's no access to employees, there's only access to senior management once we've got an LOI and we get to management interviews. So high level information, no problem specifics, even CAC and those things, you know, I'm less concerned about that getting out to our competition and honestly I kind of want them to know. So in most cases I'm okay sharing that because we share with you guys stuff that we know is going to get out way, way more than we would tell anybody. Right. And so in our way that we do business we're generally telling more about the companies we work with than a lot of people might. But we don't reveal anything that we feel would be challenging or damaging. So it's kind of like that's what we do. And I'm comfortable with that level of disclosure. I would wouldn't go into any more specific KPIs or individual people or customers or anything like that. Beyond that wouldn't show them offers, wouldn't show them trade secrets. That kind of stuff is later.

[Ryan Dice]

I also would be very careful about what Roland said because probably most of you in this room just get random emails from just associates at some private equity group. We all kind of get those. I want to buy your company or from some search fund. I mean that is one of two things that is a very very low level junior associate might even be a friggin intern. And one of these private equity who like Roland said they were just told to dial for dollars and they don't know who they're talking to and it's going to be a waste of everybody's time. So if it's that, like I said, unless you recognize them as an intro, I don't feel like you need to take any of that or even dignify it with a response. Right. I don't. Now if you think you might want to sell then maybe start having those conversations because it's a good test and it's sort of like, if you're a comedian, you want to go play some small shows before you do your Netflix special, right? So it's worth it for that. I don't think you can have a realistic conversation with them without revealing sales, profitability, those kinds of things. You really don't need to move beyond that. I would just be very, very, very careful about having too many of these conversations if you don't have somebody kind of in your corner, like a Roland, because you can get drunk real quick on the invisible money and they're really good at selling you on what your company could be worth. And we get really good as entrepreneurs at mentally spending it while simultaneously imagining all the freedom we're about to have when we sell this thing. And that's when we get distracted. That's when the business starts to go down.

[Carly]

And.

[Ryan Dice]

And I tell you, they're more than happy for that to happen a little bit.

[Carly]

And Sharkey wise, we had 16 months or so ago, and they basically reached out to the founder, the founder met them, flew to meet them, and then was about to have another meeting when I found out about it. And I was like, why did you not. We have an interest in the company. Why. Why did you not get us involved? And it's like, well, I just wanted to see. But, you know, but sounds good. And I think I'm going to do it. Like, wait a minute. And what was that multiple? And so it was. The offer came in at a shocking range. It was between 6 and 8.5, which is what I told. I said they're going to offer 6 to 8.5, but they told them 25. So it was like, typically, I think in this situation we can do 25. And I was like, that sounds really high. But yeah, let's talk to him. So I flew in, we met with them, and it was basically a couple of meetings. And then the offer came in at between 6 and 8.5. The actual offer was 6. The range that we were told after the 25 went away was 6 to 8.5. The offer was at 6 with a 30% roll in, meaning we were going to have to put 30% of the money that we got back into the company. And what I loved was they didn't tell us what their valuation multiple was, but I was able to get enough information to calculate that they had recently had a valuation at 11.2, I think it was. So they basically wanted to buy us at 6, then have us so basically give us cash at a 6 multiple, then have us buy 30% of what they had just sold to us, what we had just sold at 6 back from them at 11.2. Not disclosed that way. But that was, I mean, this was, to me, kind of, kind of a snarky deal. And.

[Ryan Dice]

Are you making a formal declaration of shenanigans?

[Carly]

Yeah, you know, turn the camera off. Maybe. I might. But, like, that was really uncool. And it was like, if you don't know how to do that stuff, you can very easily find yourself in a deal like that. And then they were promising all this other stuff, but when you see what's going on with them, and I look at their growth, and I found out that our company was actually growing significantly faster than theirs at a significantly higher profit margin. And a lot of the things that they were telling us about their international division that was creating this giant multiple that they were promising didn't look right. And they were in the middle of a refi to recap out the money that they had invested other companies. So we would come into a company at a significantly higher multiple, almost twice what we paid, what we were being paid for 30% of the total amount, plus a significant hold period, plus all kinds of debt from the recap that had to then be dealt with. So, like, that's, that was, I mean, if they could have done it, it would be great. And they were counting on, basically, they chased the founder and did their best to cut me out, but the founder wouldn't let them. We had equity in that deal, so it was interesting to watch. But fortunately, the founder was smart enough to say, holy crap, once I see all this out, I'm really disappointed that that's what they were trying to do, but they were trying to kind of romance and sell the value of what it could be when they went public in some unspecified date in the future. So I'm always with those deals, like, okay, so you're selling us based on the public value. Are you willing to guarantee it? Oh, no, you know, too many things. It's like, okay, then we're not talking about that anymore. We're talking about what you're going to pay. Right.

[Ryan Dice]

So, Fleet. Yeah. I'm still trying to understand this roll in thing that you referenced a couple times. So you explained it, Ryan. You know, maybe they'll only buy 70% or 80% of your company. You still own 20, 30%. And let's say you're, you're a privately owned company. How much of that is you taking chips off the table? And how much of that capital are you supposed to Invest in growing the company. And how does that work out?

[Carly]

Sorry?

[Ryan Dice]

That the roll in is, is different from what you actually keep. So the, I mean, so there's the. If you're buying from private, if you're selling to private equity, they're typically not buying 100%. Right. They're typically going to buy some and they're going to expect you to hold back some of it for the purposes of, you know, you continue to stick around and add some value. There are exceptions. I was surprised that you're like to hear that there are some firms in the ecosystem that are like, no, no, no, we're gonna buy 100% of you. Get out. I actually respect that.

[Carly]

I do too.

[Ryan Dice]

I respect the hell out of that. I mean, I probably wouldn't necessarily wanna do it. Actually, I might.

[Carly]

Depends. I might.

[Ryan Dice]

Yeah, you might. You might. I kinda like it. But the typical thing was more of like an 8020 deal. Now it's more like a 70 30. The roll in is after they bought it, they're saying like, yeah, we want you to also essentially buy back into this company. So the money that we just gave you as a part of the deal, you got to give some of that back to us. No, I get that part and I get the reason why. That was pretty unethical what they were trying to do. But if somebody's buying you, they're buying you with the intention of that growing. So are they just buying you because they think you can grow it on your own, or are they going to bring more capital to the table to help you grow?

[Carly]

Depends, as everything does. But almost all of them do growth by acquisition. And so they're going to be doing acquisitions. They're buying you now and they're going to. If you're a platform company, as opposed to a tuck in or an acquisition they're doing for a platform, then they're expecting most of them, that they're, that you're going to do acquisitions and they will assist you in obtaining the capital to do that, primarily through debt, which will, you know, which you'll be in for 30% of if you've rolled in 30% of your investment.

[Ryan Dice]

Yeah.

[Carly]

And if that makes sense.

[Ryan Dice]

Yeah, it does. And one other question. So you talked about, you know, beginning to have relationships with potential suitors for six years. But you also talked about the expense of having an investment firm on board or consultants on board over that same period of time. That could be expensive. And then the other part of this, strategic buyers are often competitors. So that seems like a different ball game of how do you keep that confidential so you're not signaling to your niche that you're in, however broad that you're up for sale.

[Carly]

So the first thing that you typically do is you're soliciting indications of interest and you send out an anonymous 1 sheet to every potential buyer, strategic financial or otherwise that you've identified. And so we would send out like for digital marketer we would send out. Is Texas considered Southwest? Yeah, we would say company located in the Southwest, doing Approximately x million dollars of sales and y million dollars of EBITDA. 10 to 20 year old company, 5 to 100 employees and that's about it for the data that we would give. And then the companies that we send that to are like I'd be interested, we don't say what the company is, so nobody knows that it's digital marketer. Right. Then we will get the indications of interest that say I would be willing to pay in the range of this and that for a company like that. And we look at all the IOIs and we might get back 80 or 90 of them, right? So now we've got 80 or 90 companies that say they're interested in buying and we're looking at the ranges that they say and we look at the quality of the company, their acquisition history, how strong they are, do we like them, what's their reputation, what's the number that they're talking about? And we'll narrow that down to a very few and we'll send out the sim, the confidential information memorandum. We'll tell them, we'll say hey, five companies, we like your ioi, we're interested. We need you to sign an NDA at this point so that you can find out what the company is and you can actually get to the point of making an actual offer. When they sign the non disclosure agreement, we'll send them the sim, the confidential information memorandum that has the more extensive details and identifies the company specifically. So we've constrained the number of people that know who we are to a very, very small number of potential suitors that have already told us that they're willing to pay in the neighborhood of what we want for the company and we like them already. And so we've really limited the exposure that way. And it might be and, and very often is one or two strategics that are in there who might be competitors to us. But again we are only providing very, very high level information to them. And even if we get to the NDA and are releasing full top level financials so we won't give them all of the detail on the financials. We'll just give them the top categories. If any of you are in QuickBooks, you can like double click and get things that drop down. We just give them the high categories and they might talk to management. But we're really at that point, we're going to have to give them access to the data room and some of our business plans. No trade secrets, no specific customer information, no specific employee information, just the things that we think they need to be able to make an offer. But you are risking at that point, even though they've signed the NDA, that they'll do things that maybe they shouldn't. I haven't really had anybody that. I feel violated that in all the deals I've done, but I know it does happen from time to time. You're also the purpose of creating this data room, this digital storage box for your sensitive documents, is that you also can tell who came in, what documents they read, how long they spent on each one, what parts they spent the most time on, so that if there is any kind of leak, you know, specifically who didn't access, who did, who spent the most time on the information that was leaked so that you have the ability to state a case against them. But, you know, you're in a losing battle, though, if you're, if you're at that point. But it is nice to be able.

[Ryan Dice]

To have that data. Any other questions on this front? Cool. So want to have this conversation for a couple reasons. One, it was timely. Roland just is right on the back of this, wanted to give you some information for those of you who are out there. This is all stuff that I wish I had known. I mean, I had sold a number of companies before Roland and I were partnered up and just looking back, I mean, left many, many, many millions of dollars on the table because I just didn't know. Somebody came along, said, hey, I want to buy you. I was like, that sounds great. Somebody likes me, you know, you respect what I built. Well, I like you for that. You clearly have fantastic judgment and taste. So wanted to have this conversation so that you knew a heck of a lot more than what I did. Also wanted to encourage you that, you know, because again, if we spend too much time watching the media, we can get very, very down on where things are right now. There is so much money sloshing around out there, and it's not until you go and you talk to the people that have it that you realize like, holy crap, there's a Lot of money sloshing around. And we also just wanted you to know that when you get to the point that you're ready to do this, please talk to us. Like, we're good at this stuff.

[Carly]

Tim, in particular, you definitely want to do it years before you're ready. Yeah. There's so much that you need to do to get ready for it. And also getting ready for it makes it so much less disruptive when you do it. I mean, I have watched deals fall apart because of the disruption of the acquisition process or the exit process. Having taking so much time away of the senior executive management team that the business started to have issues and underperform, which then caused due diligence to fail. I mean, it's like this just domino effect of not good things. So really getting your company ready for exit is a really smart thing to do anyway, because it will be a better company. You will exit. We all do eventually, one way or the other. And having the option to be able to do it when you're ready in the least disruptive way really, really makes a difference. And if you decide you want to exit and you're going to do it six months from now, man, you're definitely going to not do as well as if you had planned it sooner.

[Ryan Dice]

Yeah. So let us know along these lines. One of the things that a realization that we had is that in this world, we've got a lot of business people who are maybe looking at some selling, maybe looking at doing different deals. But then we have another business unit, another division, Epic Network, where these are people who are buying and selling business. How many of y' all are familiar with that, that side of the company? Okay, cool. Some of you, but not all of you. And so we kind of had this. This realization that we have these different ecosystems within our world and even within our different portfolio companies where there's this knowledge that's out there. And yet, like with so many businesses, we've got our own silos. So the stuff that's happening in here and the discussions and the business deals that are happening over here, many of you would benefit from knowing some of the investors and some of the acquirers that are on the Epic side, Certainly the epic side acquirers over there might want to know some of you. And definitely within our broader portfolio, there are people who you should connect with that might be a good strategic buyer at some point to your point fleet. But we actually trust them and would say, if you like, we're gonna give you the detail, we can keep it all private if you reveal this, we'll kill you because we know where you live. Right? Like, just. We've got this really cool ecosystem of businesses, and what we haven't done a really good job of doing is connecting the people, especially in this group, our highest level clients, with one another. That was kind of our big realization, sort of the big breakthrough that we had. And the reason is, it's because all of our client services people exist at the division level, at the department level. So we just recently made a pretty big organizational shift where we're not gonna have one person who is sitting at the main parent portfolio company level, the same level as Roland, Richard, myself. And this person's job is, is simply to make sure that they know what's going on in your world so that when appropriate, they can connect you to people and companies in other parts of our world, in our portfolio, in and outside of the founders, board and scalable community. For many of you, this is a person that you know. It's a name that you know. For many of you, it is not. So I just want to take a minute before we break today to introduce you to this person. This person's name is Deanna Rogers. Please give Deanna a big round of applause. Come on up, Dee. And come on up. So Deanna is now the managing director for the scalable company, which, again, is our parent company, that represents our interest in everything that we're doing. And truly her goal, what we've asked her to do, is to get to know all of you in addition to all the other people that she already knows. Which is amazing because Dana is so much better at humans than Roland and I both are. She really, genuinely likes every one of you. And those of you I like, hugs. She loves hugs a lot. And those of you who know Deanna, who've worked with Deanna, you know this very, very well. So here's what we want you to hear is Deanna's gonna be actively, like, reaching out, looking to connect with you. Cause she just. That we want to get to know you so that we can make connections. Anything, Roland, that you would.

[Carly]

No, that's it. Deanna has been the CEO of the Epic Group for several years. Five years.

[Ryan Dice]

Is our business partner.

[Carly]

Is our business partner in that as well. And I've known her for 15 years and worked with her. She's just an amazing entrepreneur. She's done multiple acquisitions. She's. She's just somebody that connects with people better than almost anybody that I know. That's her superpower. And I think she's in the perfect place to be elevated up here across all the companies and she can really help make a difference in your business.

[Ryan Dice]

Yeah. Anything you want to say?

[Carly]

Well, there's a lot of new faces. So if you were in the days of War Room, I knew a lot of you. Epic. I know every one of you, but there's a lot of new faces here that I don't know. So the goal is I want to get to know you because I probably know how to connect you in some way. So the goal is if you need something, if you're looking for someone or something, please tell me. I'll probably be reaching out to a lot of you in the next couple weeks to set up one on one calls just so I can get to know you better. Because it's hard for me to meet all of you in one setting. But I do want to get some one on one with you guys and find out how I can best support you guys.

[Ryan Dice]

And that's the reason we're doing it. It really is to support you. And this is in addition to the great work that Chris and his team is doing. This is for us to know so that we can work across all of our different companies.

[Carly]

Also lesson learned that Ryan said from Digital Marketer, which was like one of the big questions when they said, what can we do to help you better? And everybody wrote back, how do we work with you? And it's like, but that's what we do. We want to work with you. We want to work with you. Our evil plan and doing all of this stuff is not just to help. We do want to do that and that's first. But the secondary thing is we want to work with you. So we love the idea of helping you build your company grow faster, do acquisitions get ready for exit. And this is the path to how we do that. Hey, Roland Frazier here. If you're looking for a way to grow your business exponentially to get more customers and ultimately increase your wealth, there's no faster way to do it than to acquire other businesses that already have the customers, products, services, teams and media that you want. If you want to double your sales, just acquire a company that has the same sales as yours. It sounds simple, but far too many people end up starting new businesses that fail and forget that they could skip all the hard stuff and just acquire one that already exists. There's a reason why private equity firms, family offices, big companies like Apple, Google, and some of the smartest entrepreneurs on the planet do not start new businesses from scratch. They acquire already successful Businesses and when they do it, they instantly increase their sales, their profits, and if they want market share, they increase that. They can get new products and services to offer all instantly. Hey look, 90% of new businesses fail. 90%. Why not acquire an already successful business and increase your chances of success by 900%? What most people don't realize is you can acquire highly profitable businesses with no money out of your own pocket in pretty much any country in the world, regardless of your credit and without having to go find a bunch of investors or needing any experience. Look, I've been acquiring businesses for over 30 years now and I cover the whole process in my EPIC Investing Strategy training and I want to give it to you 100% free. Just visit businesslunchpodcast.com epic to get your free access to my EPIC Investing training right now, while it's available. Hey, Roland Frazier here.

[Ryan Dice]

If you're looking for a way to.

[Carly]

Grow your business exponentially to get more customers and ultimately increase your wealth, there's no faster way to do it than to acquire other businesses that already have the customers, products, services, teams and media that you want. If you want to double your sales, just acquire a company that has the same sales as yours. It sounds simple, but far too many people end up starting new businesses that fail and forget that they could skip all the hard stuff and and just acquire one that already exists. There's a reason why private equity firms, family offices, big companies like Apple, Google, and some of the smartest entrepreneurs on the planet do not start new businesses from scratch. They acquire already successful businesses and when they do it, they instantly increase their sales, their profits. If they want market share, they increase that they can get new products and services to offer, all instantly. Hey look, 90% of new businesses fail 90%. Why not acquire an already successful business and increase your chances of success by 900%? What most people don't realize is you can acquire highly profitable businesses with no money out of your own pocket in pretty much any country in the world, regardless of your credit and without having to go find a bunch of investors or needing any experience. Look, I've been acquiring businesses for over 30 years now and I cover the whole process in my EPIC Investing Strategy training and I want to give it to you 100% free. Just visit businesslunchpodcast.com epic to get your free access to my EPIC investing training right now while it's available.