Private Equity Experience

The Ultimate Private Equity Buy Phase Guide: Preparation is Key

• Emily Sander • Episode 5

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The Private Equity Experience podcast discusses the buy phase of private equity, focusing on the preparation required for business owners to sell their companies. The hosts, Ed Barton, Emily Sander, and Rory Liebhart, emphasize the importance of assessing one's personal and business situation, identifying motivations for selling, and assembling a team of experts, including investment banks and wealth advisors. They also stress the need for corporate hygiene, including getting financial records in order and addressing regulatory gaps. The hosts encourage listeners to ask themselves "why" and "what" questions, know their goals and motivations, and proactively prepare for the sale process.

Timestamps:

00:00 Introduction to the Private Equity Experience Podcast
00:34 Hosts' Personal Anecdotes and Fitness Talk
01:37 Preparing to Sell Your Business
03:27 Understanding Your Motivations and Goals
05:38 The Role of Investment Bankers
10:50 Assembling Your Advisory Team
19:53 Crafting Your Business Narrative
23:31 The Importance of Founder Self-Awareness
27:05 Managing Team Dynamics During Transition
33:40 Preparing for Due Diligence
34:22 Interviewing Investment Banks
36:09 Conclusion and Key Takeaways

Who We Are

If we haven’t met before—Hi! We’re a team of professionals who’ve worked together at multiple companies, seen private equity from all sides, and are here to share what we’ve learned to help you succeed. Ed Barton brings decades of tax and financial strategy experience; Rory Liebhart is a finance and M&A pro with a track record of high-growth exits; and Emily Sander is a former Chief of Staff, multi-time author, podcast host, and founder of Next Level Coaching, helping leaders and organizations accelerate their growth.


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Welcome to the Private Equity Experience Podcast. Your backstage pass to the strategies, stories, and secrets that drive value in the PE universe. No filters, no fluff, just straight talk and expert insights to help you navigate the private equity world with confidence. And now your hosts, Ed Barton, Rory Liebhart and Emily Sander.

emily-sander_1_12-03-2024_160727:

Okay. First of all, my legs are dying because I did leg day yesterday for the first time in a long time. And now I walk like a cowboy. And I can't stand or sit. It's fun. Right.

squadcaster-12c2_1_12-03-2024_160726:

as it's not your back killing you, that's a good thing on leg day.

emily-sander_1_12-03-2024_160727:

No, I have done that. I have done the herniated discs from squatting and deadlifting too much. And that is no bueno. Holy.

squadcaster-12c2_1_12-03-2024_160726:

Yeah.

emily-sander_1_12-03-2024_160727:

You were up there for a while, man. Rory, you were like, I remember that picture of you on the hack squat machine and you were doing like a thousand pounds or something stupid like that.

squadcaster-12c2_1_12-03-2024_160726:

Yeah. That was when I was probably like, you know, 40, 50 pounds heavier. Um, I'm definitely not as strong as I once was, but, you know, we do the best we can that, uh, you know, at this age

emily-sander_1_12-03-2024_160727:

You're looking good. You're feeling good. That's what counts. Ed, have you ever deadlifted anything in your

edward-barton_1_12-03-2024_160727:

Yeah, I've got I'm country strong.

emily-sander_1_12-03-2024_160727:

Country strong.

edward-barton_1_12-03-2024_160727:

I have functional fitness.

emily-sander_1_12-03-2024_160727:

Functional fitness. Yeah. There's the chip. There's the dip. I've seen you, all righty here. We are talking about the bi phase. this is when you're getting ready Sell your business. and we're going to talk about just the main tenants of what goes on there. So Rory, this is a large topic here, but kick us off. What's a good starting point.

squadcaster-12c2_1_12-03-2024_160726:

You know, it's, it's just, you know, you're a founder, you know, Um, you've been in, you've, you've run your business, you bootstrapped it. Maybe you've taken on some angel investment early on, but you've reached a point to say, you know, now it's time to consider selling my business. What do I need to do to prepare for that? You know, so who do I need to involve in the process? You know, who can help me assess. the buyer universe, you know, I know my business, but I may not know MNA, you know, how do we, how do we get the wheels turning? And, you know, hopefully this works out as well as it can for, for me, my family, those around me, the employees that were involved in helping me bootstrap this business. That's kind of what this, this, this phase is about.

emily-sander_1_12-03-2024_160727:

Yeah. So you mentioned some key things there. So I think is like part of it like your situation, like you personally, your family, and then your business and who you've got on staff. And then it seems like there's this whole, I like that phrase buyer universe, but first of all, it's taking inventory of like, what do I have going on? And what do I want to do with that?

squadcaster-12c2_1_12-03-2024_160726:

Yeah, exactly. Um, you know, I think it's different for every, every situation, different every founder. There are certainly some themes and we talked about those, I think a little bit on the last pod, which was around motivations. You know, maybe you want to take some off the table. Uh, maybe you gotten to a point where you want to retire and you don't have somebody as a successor to move the business forward. So maybe it's the time to, sell the business and kind of go a different direction or maybe, you know, it could be any myriad of things basically.

edward-barton_1_12-03-2024_160727:

Yeah, I was going to say that the one of the elements is, and it transitions from the last from the last discussion was understand your why. Because that's really going to determine the how. So,

squadcaster-12c2_1_12-03-2024_160726:

Yes.

edward-barton_1_12-03-2024_160727:

maybe that if your why is, you know, I need to get liquid and I want to be able to take a bunch of chips off the table and I'm willing to, um, I'm willing to see a significant amount of control and vision, then, you know, there, there, that's one why. Versus the why I want to be able to build a new house and I want to, you know, continue, I want to actually spend more time over at the lake and I want to be, that's a different vision. And one is going to be, and that doesn't mean you can't do both, but the one is far more aligned to private equity than the other.

squadcaster-12c2_1_12-03-2024_160726:

Yeah. Yeah, exactly.

emily-sander_1_12-03-2024_160727:

so like why, but also like what, like, what do you, what do you want to do? Like, what do you want to be?

edward-barton_1_12-03-2024_160727:

Yeah.

emily-sander_1_12-03-2024_160727:

at this stage

edward-barton_1_12-03-2024_160727:

And what do you want the business to do? Because again, part of this exercise is making sure, and I know we'll talk about it here in a bit, is making sure you've got the right, when you're going to market and you're talking to the investment banker, that they understand what you're trying to accomplish. They, they attach that buyer universe that we were talking about with. They go, okay, in that Bayer universe, there's a few, you know, there's a few constellations in there that we don't want to go to. And there's a few constellations in there that we want to focus on and based upon your why and your what. And so that's going to be really important to understand as you're going through it. And it's, it's not good enough, um, for a founder where founders become imperiled is when they go, well, you know, my buddies are doing it. So I'm going to do it too. Um, that's a bad, and I've seen that. Um, I've had to survive through one of those, uh, PE transactions where their buddy did it. So they did it and then they didn't realize what they did. Um, so, you know, I, I think it's understanding the what and why and making sure you can convey that well to the investment banker before they put you to the market, because that's going to depend on how they position it, who they position it to.

emily-sander_1_12-03-2024_160727:

Okay. And then an investment Baker's banker's job is they're kind of like a, your, your, um, agent for a house, like their person who's real estate agent looking for different houses and matching your needs and criteria with different locations and all that, all that good stuff. So, um, investment bakers are important players

edward-barton_1_12-03-2024_160727:

critical?

emily-sander_1_12-03-2024_160727:

in this whole process.

squadcaster-12c2_1_12-03-2024_160726:

much so. You know, investment bankers, investment banks, represent both buyers and sellers. Just like, you know, the analogy with real estate agents. You have buy side advisors, you have sell side advisers. you know, in the case of a founder, you'd be engaging a buy side advisor to, help you, as you say, match with a potential suitor to buy your company you know, their job upon, you know, engaging with you. And there's a lot that goes into finding the right, you know, investment banker for you, their, their job is ultimately to extract the highest value possible for your business and really meet your objectives because, and we'll get into some of the compensation schematics, but for the most part, they're, they're compensated. on success, successfully selling your business. And it's usually a proportion of the transaction value, you know, with some other caveats and maybe some retention, uh, compensation in there too. But for the most part, it's about just like, again, real estate agent type of scenario, you know, the compensation is tied to the value of the, you know, transaction.

emily-sander_1_12-03-2024_160727:

So they're in, they're incentivized to get the best deal for you, but they also deal in relationships and they want to retain the relationships with both, with all parties in that for the longterm. So they're not going to burn any bridges to, to try to, you know, shove one past

edward-barton_1_12-03-2024_160727:

No,

squadcaster-12c2_1_12-03-2024_160726:

yeah,

edward-barton_1_12-03-2024_160727:

they're they are not and as a matter of fact one of the things to be Cognizant of as a founder is when you're going through the interview process and you should be interviewing investment bankers Um with a much higher level of scrutiny than I generally see them interviewed Um, so it becomes you know, this is somebody who is going to make or break quite literally Um the transaction for the sale of probably your largest asset You And so one, you want to make sure you're well aligned and to recognize to your point, Emily, recognize that these folks, the, you know, let's say they're, let's say that you're being positioned to be sold. They may deal with the managing director at Parthenon on 18 transactions over the next 24 months. And they're going to deal with you once every 10, every five to 10 years. So if there is a, they are not going to destroy the relationship with a repeat buyer or investor client, um, if you are a founder looking to sell. Now that dynamic changes when you've got a private equity trend, private equity ownership on, or private equity parties on each side of that transaction. So the seller's private equity, buyer's private equity, the, the investment banker's got a little bit different tightrope to walk. But, um, on balance, that's not the case. I mean, on balance you're stuck with They're stuck with a situation where it's, you know, they're, they're going to be working for that as much for that next deal from Parthenon as they are from you.

emily-sander_1_12-03-2024_160727:

Okay. So let's go through an example. So let's say, give me a founder situation, like a common founder. They're I want to just some money off the table. I want to go play golf or whatever I want. I want to go do other things. And so I'm going to start this process. Is that like a good example? Okay. And, and then a step one, like, let me, let me go through the vetting process of finding a good investment banker, because there's lots of different kinds out there and I got to find the right one who plays in my, In my pool type of thing.

squadcaster-12c2_1_12-03-2024_160726:

and I, I, how I've, how I've seen it, uh, you know, transpire. I think it's not uncommon is. You know, the founder isn't just getting the idea to sell the business out of the blue. I mean, there's typically been calling on the founder, um, and even, you know, others on the management team to kind of say, Hey, you know, your business is really attractive to this of the, you know, or this is a place where. You have the opportunity where valuations are hot to get the highest possible valuation we could see for your business. And so it's a selling process on their end to kind of get you to consider selling. Sometimes it's easier than not. Um, but you know, in the course of these interviews with potential investment bankers, it usually goes down is, you know, you ask them to provide you with, uh, you know, uh, a proposal what, what the deal entail, what you, what they think. Evaluation range on your business could be who the potential suitors could be, you know, maybe on a, you know, a semi no names basis, et cetera. So they're kind of pitching you with, you know, this is why you should, you know, align with us for the next, you know, six, 12, 18 months. And we'll go do this together. Now, meanwhile, I think if a good, a good move for anybody looking to sell a business, Is to take the work that you're doing with a banker, but also on your own personal side, maybe work with a wealth manager to say, Hey, if this happens, if we do transact this deal, what does this mean for myself and my family? What are the implications of this for our lifestyle, our lives? know, what are the tax consequences? What are the, you know, uh, other things to consider wealth transfer, all of these things. So you don't go down a path and. Do it the wrong way and screw yourself up in the long run by not having type of transaction structure or things like that considered because maybe it isn't the right time to do it given factor A, B, C, or D in your life, you know,

emily-sander_1_12-03-2024_160727:

Right. So are the investment bankers reaching out to you? Is that what you're saying?

squadcaster-12c2_1_12-03-2024_160726:

yeah, yeah,

emily-sander_1_12-03-2024_160727:

How do you know if they're like spammy or not? Cause I mean, like, is it, is it like we're getting with these incoming calls and requests all the time? Or is it like slow dripping? Like, you know, when one pops up, probably want to

edward-barton_1_12-03-2024_160727:

Check our website. No,

squadcaster-12c2_1_12-03-2024_160726:

yeah,

edward-barton_1_12-03-2024_160727:

lot of the spammy, a lot of the ones, if you haven't heard of them before, and if they are reaching out, um, that's probably a little bit more on the spammy side, just like, you know, when you've got a nice house on the hill and you get real estate people calling you all the time going, you know, have you ever thought about selling your house? Um, probably not the ones you want to list with. Um, however, the best way to find a good investment banker is to talk to folks who have transacted their businesses in that industry. So investment bankers will tend to be, larger investment banks will have specialty divisions that focus on financial institutions or manufacturing or what have you. Um, so there's niche investment banks, which you may not have heard of. But that work, you know, only in automotive, or only in emerging technology, or only in, you know,

squadcaster-12c2_1_12-03-2024_160726:

or

edward-barton_1_12-03-2024_160727:

Yeah, so, so you wanna, you, you should get to take some time to do that research, and if you don't know, one of the other people to talk to is going to be, pick up the phone, um, and this is kind of someone you need on your deal team anyway, pick up the phone and, and have a conversation with someone from one of the more respected law firms in the area. that are going to know who's done transactions, who's, you know, they're going to, if they do buy sell transactions, mergers and acquisitions in the area, they're going to know the reputable investment bankers. They may have contacts that they could put you in, in connection with. Um, your accountant may know the same thing, and they're going to know folks that are reputable that you, that they could put in connection, you in connection with. So utilize your professionals. You're going to need them anyway, going through the transaction. So this is a good time to get yourself, your attorney, get yourself, your accountant, make sure you've got, if you don't have them already, and then utilize them for referrals or kind of checking on the, uh, the reputation of that investment bank before you engage.

emily-sander_1_12-03-2024_160727:

Okay. So we're like assembling a team here. So we've mentioned a whole bunch of parties. So investment bankers, um, lawyer, accountant, Rory, you mentioned financial advisor, financial planner. Okay. So talk to me about that one. So that's kind of to the point we were just saying earlier, like you got to figure out your situation and what you want in terms of family and all, all the home stuff, is that where you bring in a financial advisor and say, okay, here's, here's The cards on the table. let's talk about some options or how we would structure this thing.

squadcaster-12c2_1_12-03-2024_160726:

that's exactly right. Um, You're, you're looking at kind of taking the same kind of discussion you're having with bankers and lawyers and all those, but then using the data that's coming from those discussions to gear your conversation with your personal or family, you know, financial advisor, wealth advisor. say, hey, look, this is what I'm, you know, gathering from what could transpire. do we optimize this on the personal side so that we're seeing the most benefit possible and actually on the flip side, minimize any sort of consequences that may arise because I, while I have not been in this position myself, heard a lot of horror stories about people that think they, you know, just are walking away with a fantastic deal. Um, but then there's unforeseen consequences to the, on the personal side based on the structure of the deal, but also, you know, the way in which it was characterized in the deal structure, which could have consequences when it comes to just what you're really trying to extract is the maximum cashflow coming out of a deal. So it's super important that I've just heard. So many people talk about, man, I wish I would have gotten my wealth advisor before I became super wealthy as opposed to once I got wealthy, I needed to go get a financial advisor. I mean, I've talked, I've heard of, I've people heard people talk about, you know, nine figure deals they did, but then, you know, after a while, it's not even close to what, what that was.

emily-sander_1_12-03-2024_160727:

Oh no.

squadcaster-12c2_1_12-03-2024_160726:

hits and all of the other elements of, um, exposure that they had from that, you know, it's going to be, it's super important

emily-sander_1_12-03-2024_160727:

That's a bad day when that happens. Holy.

edward-barton_1_12-03-2024_160727:

Yeah.

squadcaster-12c2_1_12-03-2024_160726:

People that

emily-sander_1_12-03-2024_160727:

And

squadcaster-12c2_1_12-03-2024_160726:

they have to actually go back to work after these things because of that.

edward-barton_1_12-03-2024_160727:

Well,

emily-sander_1_12-03-2024_160727:

my gosh. And it sounds like having a lawyer who, like, can, who specializes in that and can read through a contract and know what to look for. Like, this, you need to switch this around or ooh, I would flag this and have a question. Like having someone who knows what to look for and, and is in your corner. So it's like, I'm only interested in, in how

edward-barton_1_12-03-2024_160727:

yeah, this is, this is one of those times where a lot of founders are pretty frugal and they're also pretty smart and they, they're like, I, I can handle a lot of this myself, or I use my cousin Joe for, you know, doing my, doing my taxes and, and my, my brother in law, Fred is my attorney.

squadcaster-12c2_1_12-03-2024_160726:

Yeah.

edward-barton_1_12-03-2024_160727:

one of those times where it makes sense. And again, being in my own case, kind of a solo practitioner, I'm about to speak, speak against my own position. This is one of those, if you're going to do a, a 9 or 10, 8, 9, 10 figure deal, you want to engage like Kirkland Ellis. You want to engage a large, a large national or regional, highly reputable regional firm from probably the large city near you that does these things on a regular basis because what that firm will have is they'll have an expert In transactions, they'll have an expert in tax structuring. They'll have an expert in privacy issues. They'll have an expert, so they'll be able to advise you. Now it's going to cost you a small arm and a leg, but as Rory noted, this is one of those where you may spend 200, 000 on legal fees and you end up making an extra million bucks because of the way that the deal is structured or they identify concerns for you, um, that you may not have thought of. And the same thing, you're going to want to have that law firm's tax department. Working with your certified public accountant or tax preparer. And if you don't have a tax preparer, this is a good time to get one. Because these transactions generally have significant tax impacts regardless. Except maybe if it was a C corporation that you're holding stock. They're all, almost always going to have significant tax. Uh flow through impacts to you that as Rory noted They can it can blow up this deal for you six ways from sunday where you have phantom income So you end up paying tax on cash you didn't get yet Um, you know, there's there's issues like that that can be resolved if you get your advisors in At about the same time you're getting the investment banker in and you just kind of get them familiar with the issues

squadcaster-12c2_1_12-03-2024_160726:

Yeah. Even structuring something as a stock sale versus an asset sale. I mean, those are things that really need to be considered in the totality. I think the, the point here on this kind of element of the discussion is make sure you have a really strong team around you. You may be. You know, you may know your business better than anybody and that's most likely the case. You may be extremely level when it comes to your business, but these other ancillary aspects are, you know, these other professionals business. So utilize them, know, don't be penny wise pound foolish. Um, but you know, also, you know, also choose wisely who you will, you know, kind of lock arms with on these processes.

emily-sander_1_12-03-2024_160727:

And someone with an outside perspective might see something in your business that you don't, or how to position it, or how to it, tilt it like this and position it like this,

squadcaster-12c2_1_12-03-2024_160726:

that's

emily-sander_1_12-03-2024_160727:

and it becomes more lucrative. Okay. So we have a founder who wants to take money off the table, go spend time doing other things besides working 80 hours a week. They've assembled their team. And then, and then what happens?

squadcaster-12c2_1_12-03-2024_160726:

Yeah. I think then you start into what's really kind of the beginning of the selling process. So you have, all of my experience has been once you have an engagement letter signed with an investment bank, more or less, that's when the real heavy work starts. Um, and you know, we could probably spend an entire podcast on this, but You know, so much, especially with a business that's earlier stage, doesn't have a really robust financial planning and analysis team, cetera, et cetera. There's a lot of work to be done to get it to a point where, hey, we, we have. Information that's organized and shareable with, you know, buyer universe. And in what happens at the beginning is you start to work with the investment bank crafting the pitch, crafting the story story is an important, important to describe it is you're telling the story of the business in terms of why it's most valuable commodity out there for a potential buyer. And, you know, everything kind of. know, stems from that and the work you do to, to get yourself out there in the market.

edward-barton_1_12-03-2024_160727:

Yeah, you're gonna

emily-sander_1_12-03-2024_160727:

that's kind of interesting. So talk about that narrative. Ed, you can, you've done this a million times as have you Rory, but there's like the personal founder narrative. There's the company narrative and that story arc, but it can't end because you're trying to say there's a next chapter that you can

edward-barton_1_12-03-2024_160727:

yeah.

emily-sander_1_12-03-2024_160727:

me type of thing. So it's kind of like a different type of story arc.

edward-barton_1_12-03-2024_160727:

Yeah the the story arc you're gonna so kind of going taking one small step back As you're assembling this, this team, um, and you're looking at what the, who the investment banker is. So as you're kind of going through that interviewing process, you're going to want to ask the question of them. Look, here's, you're going to want to tell your story in a couple of different ways and get their feedback as to what the market is going to want to hear. And then triangulate that amongst the four or five, and I would recommend you don't, Go with fewer than four investment banks that you interview. Triangulate that feedback so that that way when you do lock in with one, one, the investment banker has heard the story before and they're already thinking about how to position you and who to position you with in the market. And two, you've had an opportunity to kind of, to pitch it a few times, refine your own messaging, understand what that story looks like. Get some feedback from the, from investment bankers, different ones. Um, and then be able to go into the market going, look, that the story we're going to sell and that's the, what you just said, Emily, is we've come this far and there's a lot further to go. And in order to go that lot further, we need growth capital. We need an investment in our management team. We need a strategic partner. We need a, and so there's also going to be a theme behind it. What a lot of founders do, and they make this mistake and, and buyers look at it routinely. Is they make it a founder led story.

emily-sander_1_12-03-2024_160727:

Yes.

edward-barton_1_12-03-2024_160727:

You should, the founders should be, should be darn proud of what they've accomplished. We're a founding team. But this needs to be about the, you want to maximize your value? Here's what, here's why it's all about you, buyer. And here's how we're positioning it so that regardless, and it may be different stories to different buyer, uh, potential buyer types. Here's why having you on board is going to help us attract the strategic partner that we need to be able to grow this business. The strategic capital we need to grow this business. The, the couple strategic hires we need to grow this business. So you're going to modify that story arc a little bit, but clear, clear the general approach during the interview process. Ha!

emily-sander_1_12-03-2024_160727:

Well, I mean, we harp on this so much in our book, but like the famous last words or the deadliest words for a founder is you cannot run this business without me. That is a surefire way to like pass.

squadcaster-12c2_1_12-03-2024_160726:

of hubris right there. Fault

emily-sander_1_12-03-2024_160727:

Yeah. And people might like founders might think that, and we've known plenty who

edward-barton_1_12-03-2024_160727:

Pretty much everyone I've worked with.

emily-sander_1_12-03-2024_160727:

that and, and all that. And it's actually, they don't understand you're decreasing the value. You are taking money away from yourself. By doing that and, and making it dependent on you. So listener, if you get nothing else from this episode, please take that away, cause that will just kill a

edward-barton_1_12-03-2024_160727:

Well,

emily-sander_1_12-03-2024_160727:

that will kill the

edward-barton_1_12-03-2024_160727:

and seasoned private equity, um, folks know this. They also know that founders that go into that, go into the transaction with that approach are likely to need to be replaced. And they will probably, they will probably tell you what you want to hear. Um, to get the deal done, they're going to, if they don't run away. Um, so you're going to end up with a smaller buyer, buyer, um, universe. And the folks that are coming into buyer universe will probably have already reached out to some of the folks in their Rolodex to figure out who their successor is going to be, whether that they're bringing in the CFO, CEO, or a new CEO, and they're going to have that on speed dial, um, because the, the ego doesn't. A healthy ego works. A you can't do this without me ego is going to get replaced pretty darn quick or they're going to walk away from it.

squadcaster-12c2_1_12-03-2024_160726:

Yeah. Yeah. Yeah. It's just more, it's just more risk that's introduced risk, you know, to the buyer that if, you know, You know, you take that position, you know, they're going to have to intervene in some way, and that's, that's not ideal for private equity. I mean, they're, they're, know, they're there to buy companies with strong management teams, not strong, you know, um, messiahs, if you will. Now, every business that is, that I've seen that's gotten bootstrapped to a certain point does have a founder or CEO with those characteristics, the really strong ones also have. Bench strength as well that they can demonstrate, you know, and that's where you see, you know, this, I I'm buying a turnkey solution as opposed to I'm buying a company, I'm going to have to do a lot of stuff to it to, you know, make it a scalable and or functional even.

emily-sander_1_12-03-2024_160727:

That's another really good point. I mean, that kind of goes back to assessing like personal situation of the founder, but also the staff, like who's on your team and are they ready to go? Like, are these just like the a team or are we, are we going to need? To bring some new recruits in or plus up our bench. Cause

squadcaster-12c2_1_12-03-2024_160726:

yeah, it's usually a little of both. I, you know, my experience is I've never seen it where there's a wholesale change right out the gate because I think, you know, you talk about a founder. This is I'm indispensable. Well, my experience has actually been it's, you know, the next level down or even two levels down are the people that actually. know, are super important

emily-sander_1_12-03-2024_160727:

make this stuff happen.

squadcaster-12c2_1_12-03-2024_160726:

Um, so, you know, uh, functional team is important, but I, I've seen it mostly where there's usually a couple of pieces that need to be brought in just to handle the rigors of. it takes to be owned by another company, um, in the reporting and all of the interactions and things like that, that's just wasn't present before. That's natural. I've not seen it too much where there's like a wholesale change because that's just a too, almost too much of a, too much of a burden unless you're just buying for

emily-sander_1_12-03-2024_160727:

Yeah.

squadcaster-12c2_1_12-03-2024_160726:

and you're going to shut this damn thing down basically. Yeah.

emily-sander_1_12-03-2024_160727:

So, so a coaching engagement I had was PE firm came in, could not make it. So they, they sent him away, brought in one of their own people to run it. They knew a guy and had been there within days, but this team, the new president hired me as a coach for his leadership team, for the five people. Who were like, just happened? Like P E what? And then our, our person we knew is gone and we're sitting here going, what the heck is going on? So it was like, just walk them through this process, give them someone to talk to who's been there, done that who's not in the business, but just let them know it's going to be okay. And when I first met them, it was like, it was like Bambi and like deer, you know, a deer in a headlight. It's like, what is happening? Like I had people on the verge of tears. Um, so it can be a big adjustment, but

squadcaster-12c2_1_12-03-2024_160726:

not just can, it always is. Yeah. Yeah.

emily-sander_1_12-03-2024_160727:

Yeah. And I mean, people react to change in different ways and you got to let them go through that process. And some people, I mean, some people will sink, but some people will flourish in that and they'll rise to the occasion. And you're like, Oh my gosh, like, I didn't know you had, we had that in you, like you untapped potential right there. So it's a, that's a really interesting process all by itself.

squadcaster-12c2_1_12-03-2024_160726:

is. Yeah. Yeah. Um, I, I just, you know, it's the end of the day, it's people, right? Like that's, you know, people, humans are, are unique and and, and all of those things. And so you just never know. Um, you know, but believe this. Any buyer of your business is going to have contingency plan A, B, C, and N, And

edward-barton_1_12-03-2024_160727:

hmm. Mm hmm.

squadcaster-12c2_1_12-03-2024_160726:

being thought of, whether as Ed said, you're getting, you know, sweet talked and, you know, given, told the story about your value in the future. You know, those, those plans and contingency plans are, are always, always in play. Yeah.

emily-sander_1_12-03-2024_160727:

Well, and here's where I would go back to Why are you doing this? And what do you want? If you want to step back from the company and have a lot more money and a lot more time, then go, go step back and have a lot more money, a lot more time. And don't let your ego get in the way of that. Yeah.

squadcaster-12c2_1_12-03-2024_160726:

CEO and just, you know, kind of semi retire and, you know, back. But if you're, if you're really trying to, you know, I think in a lot of ways. You know, you know, you have this amazing business that you, you just haven't figured out how to unleash or haven't been able to access the capital to unleash it. And if you can show the concrete path to doing that, know, you, uh, you know, great founder is always going to see that potential and then look at having another bite at the apple, right? So you sell your business, but you still want to be part of the journey. As you said, the next chapter, and I'd say, you know, eight times out of 10 that I've, I've been in, you know, seeing these things that always is the case. Very rarely is the founder. Basically just sacked right out the gate and said, goodbye, you know, there's value that they they've brought to the business to get to that point. And so the PE group or whomever the buyer is, isn't going to like, want to see that walk out the door if it can possibly work in flourish, like you said.

edward-barton_1_12-03-2024_160727:

No, and I'm a

emily-sander_1_12-03-2024_160727:

important too. They don't, they don't want to kick the founder out. They will if they have to, and they will have someone on deck ready to go, but that's not their plan A. They would much rather this work with the founder in place in a potentially new capacity. Ed.

edward-barton_1_12-03-2024_160727:

Yeah, I was going to say, on the flip side, what you, what you do have an opportunity to do is, when you're putting the company up for sale and when you're going to market, if your intention, and, and Rory had kind of said this, if your intention is, look, I do want to step back, I do want to be able to get more, then be very upfront with that. And then collaborate with the private equity guys on coming up with a With a strategy to bring in the successor chief executive or to highlight the person on your team That you think would be the good successor chief executive and be prepared to let the baby go I mean that's you know that let the fledgling out of the nest and let it start flapping its wings But that's the you know at the end of the day don't think That you're going to be able to go in and go, no, I'm going to stay the CEO and it's going to get easier. And I'm going to be able to get a lifestyle and I've got money in the bank because that just doesn't happen. It's, it's, you could get the money in the bank and have a lifestyle, but be upfront with it if that's really what you want. And there's nothing wrong with that. And where founders have made the biggest mistakes that I've seen have been in that situation where they think because it's, they can't do it without me or for whatever reason, You know, they're not as hungry anymore. And so they go, okay, well, I can do this. You can't it's, if you're going to do that, be honest with yourself upfront and just be prepared and say that going into the investment banking, um, selection process, cause that becomes part of that story arc we talked about. Um, as to one of the reasons why you're transitioning the business, a buyer will look at that as an opportunity and pay more. So you talked about, they don't necessarily want the founder to go. That's true. If you're, if you're staying and you're adding value, if you go into it and go, Hey, what? The reason this business is on the market is because I'm ready to transition. I'm in my fifties or sixties. I'm, you know, taking money off the table. I'm ready to transition to a new leader. I know that I'm not the person to take it to the next level. That becomes an attractive buy for the private equity guys because they're not, they know they're not going to have to fight that battle. It takes that risk off the table. And now they can collaborate with you to find the successor management that you need.

emily-sander_1_12-03-2024_160727:

And another scenario I've run into a number of times is founders who know their sweet spot and they know they like taking it from to 10 and then they want to hand it off to someone. So it's kind of like, uh, and they do this over and over and over again. It's kind of like the relay race you see in the Olympics where like the first person runs the lap and hands it off. They know they're really good at that first lap and they suck at all the other laps. And so they just do that first lap over and over and over again, and then hand it off to someone else. And they make a, uh, very lucrative, very good career out of doing that over and over and over again. So if you. And you know it, then play to that.

squadcaster-12c2_1_12-03-2024_160726:

yeah. self awareness and knowing your, you know, your superpower, so to speak, is important. And I think people that have figured that out, you know, tend to tend to flourish and others, you know, they kind of go against the grain. Um, yeah, it doesn't work out all the time as much, know, oftentimes they're still very successful, but maybe not as successful as they could be, you know, what have you.

emily-sander_1_12-03-2024_160727:

What else is, what else is good to know as a primer for this phase?

squadcaster-12c2_1_12-03-2024_160726:

Well, I think this, you know, this is a good place to wrap this segment. I think we can pick up in our next discussion, but I think this is about where the business starts to undergo a little bit of a cage rattling, so to speak. This is a point where. You know, other folks on the team are going to need to get involved because a founder can't manage an entire diligence process. And when, when we talk about diligence, we will talk about all that goes into, uh, to kind of making your business position in the best possible way. And I'll, I'll just say, it starts with being really proactive as opposed to reactive. And, you know, informational hygiene is super important. And. need a team to kind of oversee that because it's, it's a lot. So,

edward-barton_1_12-03-2024_160727:

Yeah. And I, and I,

emily-sander_1_12-03-2024_160727:

like, what's the, it's like Avengers Assemble, what's the, or Avengers Unite or something where it's like, your team!

edward-barton_1_12-03-2024_160727:

Yeah, I was gonna, I was gonna add that, you know, this is the point where an investment bank worth their salt, especially if they're going on a contingent fee sale, like a realtor would, where they're going, okay, I'm gonna, you know, get a percentage of the sale as opposed to a retained, uh, kind of a retainer plus. Um, you're gonna start your diligence process before you've even, you know, talked to potential client one. And so, as Rory said, kind of the, the corporate hygiene piece is important, getting all the stuff pulled together. But, in a lot of cases, I've seen investment banks, even during the interviewing process, Emily, go, we want to see this, this, this, this, this, and this. And, you know, these are the good investment banks, the Goldman's, uh, the, you know, the Cowan's. And they go, and if you can't, you can't pull that together, they're not going to engage you. You're not ready. And they're going to tell you, you're not ready. You need to do these three things, or four things, including getting your books together, Making sure you have an audit, making sure you have an IT exam done, you know, from a securities perspective, security perspective. You've got regulatory gaps, and then come back and talk to us. So utilize that process, you know, even before you go to market, utilize that, and I can't stress enough, the interview process with the investment banks is a time to get a better understanding of what their go to market strategy is, what is going to be expected of you and the management team during the sale process, And then they're going to be asking you, the ones that are good, are going to be asking you to have almost a mini data room put together before they even engage. And that's going to be a good test as to whether you guys, as the founding management team, are actually ready to go to market.

squadcaster-12c2_1_12-03-2024_160726:

Yeah.

emily-sander_1_12-03-2024_160727:

Yeah. Okay. All right. We'll wrap this one up. But I think takeaways are there's ask yourself the why and what questions and go have like a walk around the block with that one. Cause those are important. You're going to have to know those and come back to those over and over again. Is it Descartes, the famous philosopher? It's like, know yourself. Um, but you've got to, you've got to do that internal work. Um, which sounds, which sounds kind of silly sometimes, but if you don't have that, you're going to be blown in the wind, like a leaf with a leaf blower over your face. Um, and then there's the tactical and practical pieces of assembling your team. And that's important too. And we, if you're sitting there going, Oh, like, I don't know what investment banks, I don't know what wealth advisors I should go to. Um, we actually have some free downloads with lists of those resources for like, okay, here's a starting point. Go check these out. And we'll have a link to that in the show notes,

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