Podcast Summary: Second in Command: The Chief Behind the Chief with Cameron Herold

Episode: Ep. 465 - STS Capital Partners Chairman and Founder, Rob Follows
Release Date: April 10, 2025
Host: Cameron Herold
Guest: Rob Follows, Chairman and Founder of STS Capital Partners

Introduction

In Episode 465 of the "Second in Command" podcast, host Cameron Herold welcomes Rob Follows, the Chairman and Founder of STS Capital Partners. The episode delves into Rob's extensive experience in mergers and acquisitions (M&A), his passion for maximizing business exits, and his adventurous spirit that includes climbing all seven summits, including Everest.

Notable Quote:
Cameron Herold [02:56]: "Our guest today is Rob Follows, the chairman and founder of STS Capital. Rob is a dealmaker, a visionary, and an extreme adventurer who's on a mission to help entrepreneurial business owners turn their success into significance."

Rob Follows and STS Capital Partners

Rob Follows shares the genesis of STS Capital Partners, a firm dedicated to assisting entrepreneurs and family-owned businesses in maximizing the value of their exits. Rob recounts his own experience of selling his marketing services business at 27 times EBITDA and the subsequent realization that strategic representation could significantly enhance deal outcomes.

Notable Quote:
Rob Follows [05:12]: "That is just an outrageous multiple. But that's because it has nothing to do with the multiples."

STS Capital Partners specializes in advising mid to large-market businesses, typically ranging from $50 million to $5 billion in enterprise value. The firm exclusively focuses on selling to strategic buyers—companies that can integrate and amplify the value of the business being sold.

Notable Quote:
Rob Follows [10:36]: "Our entire range is $50 million to $5 billion. We love to be in the $100 million to $1 billion range, which is kind of the core."

Strategic Buyers vs. Private Equity

A significant portion of the discussion centers around the distinction between strategic buyers and private equity (PE) firms. Rob emphasizes that strategic buyers often perceive additional value in a business beyond standard EBITDA multiples because they can integrate the acquisition into their existing operations to drive substantial growth and profitability.

Notable Quote:
Rob Follows [07:04]: "Strategic buyer's world, what will they make. How much profit will they make? How much sales will it drive? How much, bottom line will it drive?"

Rob criticizes the traditional PE-focused approach, arguing that it often fails to align interests with entrepreneurs. Instead, STS Capital Partners aims to ensure that entrepreneurs receive the maximum possible value by targeting buyers who recognize and can leverage hidden assets and synergies.

Notable Quote:
Rob Follows [18:32]: "It's a big conflict, Cameron, against the interests of entrepreneurs and families."

Maximizing Business Value: The "Rembrandt in the Attic" Analogy

Rob introduces the "Rembrandt in the Attic" analogy to illustrate how strategic buyers can uncover hidden value in a business that sellers might overlook. Just as discovering a valuable painting in an attic can dramatically increase a property's worth, identifying unique assets or intellectual property can significantly boost a company's valuation in the eyes of a strategic buyer.

Notable Quote:
Rob Follows [08:19]: "And you see the Rembrandts in the attic that it comes with. And that analogy really applies to strategic buyers."

Common Mistakes Sellers Make

Rob outlines several pitfalls that entrepreneurs and business owners often encounter when attempting to sell their companies. A primary mistake is allowing the day-to-day operations to falter during the sale process, which can detract from the company’s intrinsic value. Additionally, overreliance on biased advisors who prioritize their commissions over the seller's best interests can lead to suboptimal outcomes.

Notable Quote:
Rob Follows [15:35]: "Sellers who stop the work they're doing in driving their business value up... do themselves a disservice."

The Importance of Independent Advisors

Highlighting the conflicts of interest prevalent in traditional investment banks and PE firms, Rob advocates for working with independent, sell-side advisors like STS Capital Partners. These advisors are committed to the seller's goals rather than their own financial gains, ensuring that entrepreneurs receive unbiased guidance aimed at maximizing their business’s value.

Notable Quote:
Rob Follows [18:59]: "Recognizing that and finding somebody that will really work for you as the entrepreneur or the family business owner is critical."

Real-World Examples

Rob shares compelling case studies to illustrate the impact of strategic advisory:

1. Heating and Air Conditioning Group: Initially offered $256 million, the entrepreneurs delayed closing, seeking $300 million. The deal was subsequently rejected after external factors caused the business to decline. Eventually, STS Capital Partners secured a $250 million offer four years later.

2. Vancouver Company: A client with a $117 million offer saw his business collapse after walking away, only to struggle with offers thereafter.

These examples underscore the importance of decisive action and trusting expert advice during the selling process.

Notable Quote:
Rob Follows [21:38]: "We're headed for the closing date... And they sent the private jet down to pick the guys up... They wanted $300 million before they were going to accept the deal."

Balancing Ambition and Prudence: Stretch Goals

Beyond business, Rob discusses his passion for adventure, having climbed the seven summits, including Everest. He encourages entrepreneurs to set ambitious "stretch goals" both in their personal and professional lives, fostering a mindset that embraces challenges and continuous growth.

Notable Quote:
Rob Follows [24:14]: "If an ordinary guy like me from the suburbs can become one of the first amateur couples to climb the Seven Summits, you know, what is your Everest?"

Advice for Entrepreneurs: When to Walk Away or Seal the Deal

Rob advises entrepreneurs to clearly define their required and preferred outcomes before entering negotiations. This clarity helps in making informed decisions about whether to accept an offer or walk away in pursuit of better terms. He emphasizes the importance of having predetermined satisfactions to avoid emotional decision-making that can jeopardize long-term success.

Notable Quote:
Rob Follows [20:14]: "You want to go into the process with your required versus your preferred outcomes."

Conclusion

The episode wraps up with Rob highlighting his dual role as a business advisor and an inspirational adventurer. He encourages listeners to pursue both professional excellence and personal ambitions, embodying a holistic approach to success.

Notable Quote:
Rob Follows [24:45]: "Setting big life planning goals and living your life to the fullest."

Cameron Herold thanks Rob for his insights, emphasizing the value he brings to entrepreneurs seeking to maximize their business exits.

Final Note:
Listeners are encouraged to like, share, and subscribe to the podcast for more valuable insights from top COOs and industry leaders.

Key Takeaways:

• Strategic Alignment: Choosing the right buyers who can unlock hidden value is crucial for maximizing business exits.
• Independent Advisory: Working with unbiased, independent advisors ensures that the seller's interests are prioritized.
• Continuous Value Creation: Sellers must maintain their business operations and growth initiatives during the sale process.
• Clear Objectives: Defining required and preferred outcomes before negotiations helps in making informed decisions.
• Ambitious Goals: Setting and pursuing stretch goals fosters a mindset of growth and resilience.

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