Episode Description:
In this episode, host Elizabeth Ledoux is joined by Adams Price, an investment banker and M&A advisor who has led and executed countless transactions in the technology, manufacturing, and supply chain industries. Tap or click the play button below to listen to: Navigating M&A with Expert Guidance: Adams Price on Business Transitions.
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In this episode, Elizabeth and Adams discuss the challenges of transitioning a business, emphasizing the importance of understanding your objectives and desires and those of family members. With mergers and acquisitions, they explore the need to start the process early so you can prepare financially and gain a clearer understanding of your objectives. Elizabeth and Adams also discuss surrounding yourself with the right advisors and optimizing your company’s value and performance.
Connect with Adams Price on LinkedIn: http://www.linkedin.com/in/adamsprice
Connect with Elizabeth Ledoux and the Transition Strategists:
Website: https://transitionstrategists.com/
Facebook: https://www.facebook.com/thetransitionstrategists
Elizabeth on LinkedIn: https://www.linkedin.com/in/elizabethledoux/
Transition Strategists on LinkedIn: https://www.linkedin.com/company/transitionstrategists/
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Chapters in this episode:
(0:02) Business succession planning for privately held businesses.
(6:15) Preparing businesses for sale or transition.
(12:08) Strategic planning, IP protection, and financial planning.
(18:14) Financial planning for business owners, including tax implications and investment strategies.
(25:20) Preparing businesses for sale, including valuation, performance, and market conditions.
This episode was produced by Story On Media & Marketing: https://www.successwithstories.com.
Navigating M&A with Expert Guidance: Adams Price on Business Transitions Transcript
Adams Price: The thing that I think business owners need to realize that there are things they can control or things that they can’t control, they can much more easily control the performance of their business and the profile of their business. That makes it a very attractive asset than they can have any control over what’s going to happen in the marketplace itself. And so their focus should be at all times make this an organization of optimal value. You know, they’re those kind of Goldilocks concepts of the management team, the market, you’re in the total available market, the growth prospects, and growth, performance, IP, all those things have an impact on making an organization very valuable.
Elizabeth Ledoux: Welcome to the business transition roadmap. My name is Elizabeth Ledoux. And through my years, I have seen how communities thrive. When business succession and transition are done. Well, me and my team at the transition strategists have been helping business owners develop and implement transition strategies for over 30 years. And on this show, we want to help you by giving you the roadmap to a healthy business transition. Let’s get started. It’s a beautiful day here in Colorado, and spring is definitely in the air. And I am thrilled to have Adams price with us today. Adams has a just an extensive background in the merger and acquisition field. And I think it’s gonna be great just to have a conversation with him about business transition and what he sees in his work and in his market. So Adams welcome. And I’m just happy to have you here.
Adams Price: Well, thank you. Thank you very much. I guess maybe I should start with just a little background, and then we can launch into questions. Yeah, as Elizabeth said, Adams price, and I’ve been in investment banking for about 23 years. And I guess I’ll qualify that was saying, yes, I’ve done quite a bit with mergers and acquisitions, with maybe just a little bit different take than one thinks of in mergers and acquisitions in that I spent a lot of time working with clients who are have privately held businesses usually closely held businesses, and they’re just really trying to figure out, you know, they’ve taken it to a certain level they’ve grown it, what are their options available to them, if they’re looking for succession, or if they’re looking at passing it along to employees or to their children, if their children are interested in being in the business, and just all the different options that exist out there of which there are a plethora of them. So spend a lot of time getting to know really what the objectives are strategic desires are, and then map out a roadmap, a plan to get there, working with working with the business owner, and typically the family members around the business owner and other advisors around the business owner. Prior to doing that, I started that back in 2001. I’ve been doing that ever since. But prior to that I was in industry, I was working in the software industry, designing and developing software systems. And I was also working with finance companies, many manufacturing distribution companies at various levels, implementing software, but process engineering, and really, the net of it is really delving deep into businesses and business issues. And solving business issues. So little different than the typical track of an investment banking. Individual who starts out, gets their MBA and starts out doing research work, and the analysts work and work their way up to associate in VP and all that. And never really spends a great deal of time in industry and really understanding and being on the other side of the table of sweating payroll and things like that. So I do bring that to the table as well. So I would say in a nutshell, that’s
Elizabeth Ledoux: terrific. And yeah, what a great background and some great, well, some great experience to bring into the sale opportunities for people, right. It’s hard to go through. It’s very difficult, I think, to go through a sale process. In my experience, many owners underestimate. I think what that really is like and how demanding it is, you know, on top of their business and running it day to day they add on top of that rate, the sale and that sale process. So maybe it might be great for our listeners to walk through a little bit about what is that like for an owner to go through that?
Adams Price: Well, yeah, you can address that on a couple have different levels. First of all, there’s it’s just the personal level, right, the ID and the ego. And just typically, when someone is going contemplating this process is very scary, just because this is their identity in many cases, and this is they’ve spent, typically decades building something that they’re very close to, and they’re very proud of, and they’ve developed relationships with employees and with vendors and with customers. And, and in many cases, I found that that those aspects of their business kind of define them, and they value them a great deal. And I don’t mean that just in dollars and cents terms, I mean that in that that’s been the essence of their life in many respects. And, and so they want to treat it with with with tremendous care, and rightfully so. And so, coming to grips with that I have found has been the more difficult part of it. And that’s why it takes so long I typically will engage with someone who’s contemplating doing something, a couple three years out before they actually start, they actually start running a process. And the reason why is it’s just a lot of discussion, and frankly, education around what to expect and what not to expect, and what different options are available to them, and what the relative advantages and disadvantages are of all of those different options, because all of them have those. And so just weighing that and understanding, you know, just what what they’re getting into is really, really important for them. Then there’s a whole side about the business itself and making sure that operationally organizationally financially, it’s ready to be subjected to a great deal of scrutiny from investors or buyers and be able to sail through a process. And it’s pretty arduous. And I used to say that when people would come in and do due diligence, they would be turning over rocks to see if they could find anything. These days, they turn over grains of sand, expect the business to be prepared to be able to provide information at every turn when they’re turning over a grain of sand. And so there is a lot of work that goes into providing that information. If you look at just the general landscape of merger and acquisition activity in the marketplace, and hone kind of focusing on those circumstances where the owner of the business really hasn’t prepared and spent the time to prepare for being able to go out to market and talk to buyers in earnest. The six success rate is less than 10%. As far as being able to get a deal done. It’s just it’s very, very, very difficult to get done. And so you’ll no want to do this once. That’s for sure. You don’t want a failed process. And so preparation is really important. And it does take a tremendous amount of work. So the moral of that story is the successful ones surround themselves with the advisers that are going to help them be successful with that the right accounting, the right legal, the right, investment banking slash m&a advisory team so that they can be successful and do it right and doing it right. has many facets that have to be defined as part of the process.
Elizabeth Ledoux: Yeah, and it sounds like yeah, surrounding yourself with the right people. You know, kind of a cabinet of people that you can rely on that also can work together. And then also giving yourself enough time, right? It not waiting until the last minute and going hey, I think I’m gonna be done when I’m 60. So when I turned 60, I’m gonna sell my business and I’m gonna sell it that year. Everything you know, it’s all just gonna come together like magic. And this is what’s gonna happen.
Adams Price: Yeah. Yeah, it’s almost like trying to say, you know, I’m gonna build a house over the next couple of weeks, and then I’m gonna move in.
Elizabeth Ledoux: Then it’s like, oh, yeah, but we have to design it. We have to break ground. We got to get permitting. We got to do all these things. Right. I said that out of order. But yeah, a lot of pieces that have to go into place for the correct transfer to happen. And most business owners, you know, deeply care about their business because they’ve been involved in it for so long. And so if it’s not going well, I’ve seen so many just back out and just say this is not my time. Right. I can’t do this right now.
Adams Price: Yeah, absolutely. And that’s part of that preparation process to really understand what you’re getting into the good cabinet of advisors will be able to help them under understand just the different options that are out there that are available to them and really what to look for and what to be aware of. So that surprises don’t come up. And it’s this surprises the Oh, you change that on me or, you know, holy what you’re doing what with my employees, it’s those kinds of things that will create distrust and through distrust that will, that will certainly crater, the opportunity to get something done. And so really, if you work backwards from two to three years out, then it’s more akin to designing an outcome as opposed to affecting a sale or a transition. It’s about defining all the different things that are important to the individual or the family, the owners, and craft a solution and find the right party that will affect that solution. So in this kind of marketplace, that’s it, this is the time that you can do that, because it’s a pretty, pretty vibrant market, I mean, has been kind of rough and tumble over the time of the rising interest rates. But once that starts to abate, then it’s going to be pretty much back to a lot of money coming into the market. Right?
Elizabeth Ledoux: Yeah. And I love the way that you Yeah, said that they are designing an outcome. And any kind of a design takes a lot of, I think some you know, introspection, and to really understand the dynamics of the different puzzle pieces, because there are many pieces of the puzzle that have to come together to make it all work.
Adams Price: Yep, absolutely. Yeah.
Elizabeth Ledoux: So Adams is, as you’ve been with these business owners over the many years, with all your experience, what do you think that owners do that really, that you’ve seen them come in with that have put them in a great place to start this process? What are some of their practices that you’ve seen have really worked?
Adams Price: Well, sure, certainly, I would say. Let me talk about the business itself, and then talk about the individual. The, as far as the business is concerned, having a management team in place, such that the owner has demonstrated or set of owners have demonstrated that they can step away from the business, and it still runs, it still runs well, and still achieves a Cheves its performance goals and objectives. That that’s a, that’s a sign of a very mature company in a very mature management team. And any buyer is going to appreciate that very much that adds, frankly, value to the business because it implies less risk associated with buying the company. And so that kind of thing is, is very helpful. And enhances value makes the company more attractive. You know, having being having a diverse and market and a diverse customer base. Not having a lot of concentration in one or two customers that might create some risk is important. For those companies that have IP intellectual property. It’s an it helps a great deal to either have patents, but not always, always the case. If it’s not patents, then it’s well protected trade secret that kind of creates a moat in the marketplace, that that can be very beneficial as well. Having strategic plans in place and being able to demonstrate that, you know, I set up strategic plans a couple of years ago and I’ve hit the the milestones and objectives that I’ve been trying to hit as I go along. So I’ve got a demonstrated a demonstrated practice of implementing something like iOS and it doesn’t have to be iOS, but you know, some kind of operating system where they are consistently planning and adjusting and planning and adjusting and achieving objectives. That’s that is a sign of a mature company, and that’s very beneficial as well. What the Yeah, know, kind of going back to that that concept of designing the outcome once you’ve designed what you’re trying to accomplish and what the key tenets are. It’s very important to run a competitive process. And it’s very important to get as many competitors to come into that process as possible because you every new, every new group that’s coming into that process provides you another set of options that you can compare and contrast And that can be one a fantastic learning experience as you go through this process. And really help you make sure that you suss out the market and choose the right solution that you’re looking for. But to it just when you’ve got that kind of competitive process, you get better outcomes, you get better terms, for your for transaction, you get, typically you’ll get, get a very good price a premium price. It’s rare, sometimes that happens. But with private business owners, it’s rare that they’re looking for that absolute last dollar and sacrificing everything else for it. It’s more about your my five objectives that I’m trying to accomplish and getting the best for optimizing towards those, those multiple objectives that may even be in conflict with each other from time to time. And so the more more people you have come to the table for providing to bid for the business and to go after the business, the better off, you’re going to be. And so when you have those kinds of characteristics that are very attractive, regarding businesses, then that is the net just brings more competition in and it makes it for a more vibrant, silent auction kind of process. And that is very beneficial. It leaves the seller in the driver’s seat and retains the seller power for a great deal longer than just engaging with one. That’s that, okay, so preparing the business itself, but also for the individual preparing themselves, it’s really spending time to come to grips with what they’re trying to accomplish, and, and what is really important to them. And you’ll really write write this stuff down and just get a really good sense of where you’re trying to go and why you’re trying to go there. And, and the things that are going to be important to you along the way. So that’s one. Two, just it makes, it’s very important to be able to do a To Do I refer to it as a bullet proof analysis, but basically, working with someone who’s in a stake or wealth management to help you understand given your lifestyle and where you are just how long? How much capital do you need in order to be able to, to go without the cash flow that comes from this business? Or go with that the the amount of cash flow that you’re getting out of the business now. And taking that into account as you talk about designing that outcome? You know, I’ve certainly seen people who have sold their business, and they suddenly realize that they don’t have income and cash flow. And that can be very scary for them if they’re not prepared for what that looks like. And so that that’s something that they need to spend some time on to really understand and feel comfortable with. So that you know, ultimately, the good outcome, is the buyer looking at it, or the seller looking in the mirror the next day and saying, Yeah, I did that. Right. I covered all the bases. I did that, right?
Elizabeth Ledoux: Yeah, and a couple of things, you know, talking about what preparing on that financial side, so many times. And it kind of doesn’t matter how much money they get, it’s hard if they don’t have enough. And most of the time, they don’t take into consideration all the taxes. That that’s one thing that at least I’ve found that they don’t take into account, right? And a business owner says, oh, yeah, you know, it’s, it’s this much money, I’m gonna get $5 million. And that’s what I’m gonna get for my business. But knowing, too, that you have to calculate the tax and do all the other pieces to that. And it’s not really $5 million, it’s a it’s pretty significantly less than that depends on what your basis is, and all of these other things, and how well you’ve kept track of that over the years since you’ve had it for 1020 30 years. That’s a difficult one. And then the other thing that I think is, is very interesting is taking into account the two other things, the additional things that you’re going to be doing, since you’re not working. So how are you going to spend your time is that going to take additional money? Are you going to want to have a second home a boat, you know, what’s what’s that next adventure look like? So adding those things in? And and then the third is the growth. A great financial person can help you figure out you know, what’s that growth look like? And are you going to be okay into the future because it feels weird. When not to have expenses that normally would get paid by the company, right? Normally you go on a, you know, to a conference or something and do that And that’s paid for by the company in some aspect. And then, so you don’t have that you’re paying for things on your own and then and your paycheck is gone, or your even your ability to just reach into the company and say, oh, you know what, I need an extra 10,000 for this. And it’s sitting right there in that bank account. I’m just gonna grab that and go do it. So a lot of shifts, I think in thinking about financial, your financial model and how you live. Yep.
Adams Price: Yep. And there are things you can do, if you’re far enough out in front of it, there are things you can do to help shield at least some of it, taxes, certainly shield estate taxes, through whether it’s transfers to kids, some of the equity in the company, that kind of thing. Better to plan further out in those kinds of instances.
Elizabeth Ledoux: Sure. And that’s the whole idea of designing the outcome, not only the outcome of the business transaction, right, and what happens to employees, etc, but also maybe the outcome of your life, and also your tax situation. Further out, depending on how much that business is worth. Yep. Which is great. So, navigating a little bit down that path. What, what kinds of things, have you seen that have been just really confusing for business owners when they come into this process? That it’s just like, I just don’t understand this?
Adams Price: Sure. Well, so many things. You know, what I find is that, you know, business owners and entrepreneurs, they understand their markets, they understand their customers, they understand their vendors, they understand the competition.
Adams Price: It seems very common to not to have kind of a blind side of how an investing market or a buying market would perceive their business. Right? And so helping them come to grips with just how is the buying community going to look at your business? And what are they going to? What are they going to like about it? What are they going to think as a risk about it that they need to hedge against? That can be surprising to a to buy to the seller. And so coming to grips with that working with someone like myself or someone in the industry, who is talking to buyers day in and day out? And getting that perspective? Is, is really helpful. D The, frankly, the expense associated with doing this can be harrowing, right? If you’re doing it right, you’ve got good transaction counsel. Right. And they’re working on an hourly basis. Working with Tom,
Elizabeth Ledoux: what’s up basically, your lawyer, your transient. Your lawyer just Yes, yeah. A lawyer
Adams Price: who has done a whole bunch of mergers and acquisitions transactions in the last year, right. So typically, I tell clients, you want to choose who you want to choose, because there needs to be a good relationship there. But at the same time, make sure that they do 20 to 30 transactions at minimum per year. And the reason why I say that is because they just the due to market conditions, the fabric of transactions changes all the time. And so you need to know the need someone on your team who knows what is in and out of market right now. Right? So that’s important, you need to have good tax counsel specifically to address that tax issue. Because there are a lot of trips and tracks, tricks and traps around just what can happen with taxes. And so when you’re evaluating the different types of options that are available to you, for structuring a deal, you know what the tax consequences are for each of those, because it could be material that can be a surprise to them, if they’re not aware of that ahead of time. And then, of course, you’ve got someone like like a m&a adviser or investment banker, who was taking a fee as well. And so it can be an expensive proposition to to go through a transaction. And so the thing that I you know, the thing to realize is that because you’re using all of that, that cabinet of advisors, you are, you will get a better outcome, a better designed outcome, a less risky outcome for the seller. Instead of going it alone and trying to, you know, save up, save some some pennies to, to lose some pounds as, as it were.
Elizabeth Ledoux: Yeah, I mean a great, great concept there because typically, well, I was actually at an event the other day over at our local university here. And I happen to sit next to an auctioneer from Sterling, Colorado. Who is he? What he does is he auctions off basically family, businesses, ag businesses and property. And so yeah, and it’s a true auction. So not m&a is more, I guess of a maybe a silent auction and way there your various crypto? Yes, yep. Well, this is an open auction, for the land for the water, etc. And, you know, he said that he typically will get somewhere around 105 to 120% of the market value in that kind of an open auction environment, where if you went and just sold it by owner, or transferred it, you probably would not get that and years ago, I was Yeah, somebody said, Yeah, going in and doing you know, getting a professional group of people is like going to an auction. And you know, putting your business out there, we have multiple people that are competing for the business and like it. So they’re competing again, against each other, versus going to like a garage sale, where there’s only one of them, and you’re the one that’s selling it, and they just Whittle you down with every dent in the bike and all the stuff that is wrong with your business. Yeah. So it’s money well spent. But I think it is a surprise to people when they really start to think about it.
Adams Price: Yeah. And then I think the other surprise, really is that, as you mentioned earlier, it does take a lot of work and and the Cabinet of advisors takes a lot off of the plate for that individual. And there’s still a lot of work to do, right? Because they know the business better than anybody else. And when buyers are wanting to learn about the business, understand the economics of the business, and the inner workings of the business, and the risks are so associated with the business. At the end of the day, they’re gonna want to hear it from the business owner in the management team and really get under the, under the covers with them to understand everything that’s going on. And so there’s a lot of work that goes into that. There’s a lot of preparation that goes into that. And so particularly for a CFO, they it’s another full time job.
Elizabeth Ledoux: Yeah, yeah, so a lot of weight, a lot of weight on the owner, and also that management team, in addition to having to not just wanting to but having to keep the business running at the high level, right, you can’t take your eye off that wall over there to take care of this one over here. You really have to keep your eye on both. And that’s pretty tough.
Adams Price: can be absolutely it is I’ve seen i Yeah, I’ve seen circumstances where people have taken their eye off the ball just because it’s so, so intense, I’ve seen circumstances where they start counting their chickens before they hatch, and kind of let things kind of slow back a little bit. And that can be very detrimental to the deal as well, because performance falls off or if a client decides to depart because it’s not gonna have been taken care of as well as they should, then that changes the dynamics of the business, which changes the dynamics of the deal, which can you know, crater crater a deal. So it’s gotta keep all the balls in the air throughout the process.
Elizabeth Ledoux: Yeah, all moving parts. So yeah. So, you know, our time goes so fast, I can’t believe it. I always end up in these conversations. And at the end, I say, Gosh, what happened to all that, but just a great conversation with you, Adams as far as how to move through this process. And you know, what, how to prepare for it and how important it is to get, I think, you know, kind of go for it and take the time. It’s hard to do that when you’re operating a company and you think it’s a long ways away. That sense of urgency is low. But yeah, so how do you see how would a business owner create that sense of urgency to say gosh, now’s the time, how do you know that?
Adams Price: So I would say it does depend in part on which industry they’re in. Right. But you know, there there are, you know, they always say you can’t time the market, you can time it to a certain degree, the last year and a half has been tougher for m&a than it’s going to be in the next six months, six to six to 12 months, I think, just because of the changing interest rates, and inflation horizon. Hopefully, that will abate some seems like it’s being pretty stubborn right now. But hopefully, we’ll be able to have the Fed start lowering the target rates. And if such happens there, then I think that’ll be a good sign for being for tapping the private capital markets. But the thing that I think business owners need to realize that there are things they can control and are things that they can’t control, they can much, much more easily control the performance of their business and the profile of their business, that makes it a very attractive asset, then they can have any control over what’s going to happen in the marketplace itself. And so their focus should be at all times make this and make this an organization of optimal value. And, you know, there are those kind of Goldilocks concepts of the management team, the market, you’re in the total available market, you know, the growth prospects and growth, performance. It all those things have an impact on making an organization very valuable. And actually, even what I find over the last year and a half is that very good companies that are performing really well, we’re still getting premiums in the marketplace, they were still getting, you know, high valuation, high bids, and they were getting deals done. It was the companies that weren’t quite there, where buyers were stepping back and saying just a little bit too much risk. That’s not something I can do. And so good companies get good attention. That’s just that that’s just the way it works. And it’s by the way, a very vibrant, private capital market, right. I mean, it’s money is, is like water, and it just it flows in and the nooks and crannies. And basically the IPO markets are largely, even though I bought I just public, the public markets are inaccessible for the vast majority of businesses in the US just statistically speaking, probably a better chance of winning the lottery. So really, it’s about it’s about those private capital markets. And there are so many different sources of capital in the private capital markets that are that are in every stripe shape, size. And, and that goes back to that concept about, you know, designing your outcome. Because there are so many different sources of capital and so many pools of capital that are trying to do something, it’s about going and finding that right one, that’s going to be the one that’s going to best fulfill your specific objectives. And first of all, you got to design all those objectives. And then you got to go ferret out who that individual or who that organization is, it’s going to fulfill those objectives. And
Elizabeth Ledoux: yeah, so some takeaways that, you know, just to sum up our conversation a little bit is takeaways are to think about it early. Give yourself a little bit of a runway, like three years or more, maybe to start to understand who is the who are the right people to help you through this, maybe prepare your financial situation, both personally and also the financial situation for the business to have this kind of an expense, the impact of that on it. And then just really understand, do a little bit of work on yourself on what your objectives are and what you’re trying to achieve in designing this outcome so that you can really go get it and it’s 100%. Possible. Yep. Yeah. Wow. That’s terrific. Well, gosh, Adams, thank you so much. Adams is, you know, a wealth of knowledge. And so his information will be on the, at the end of this podcast will be posted for you. So if you have any further questions, I’m sure that he wouldn’t mind if you reached out to him and asked, and I just appreciate you and appreciate your time. Thank you for being here.
Adams Price: You bet. My pleasure. Thanks very much, Elizabeth. Good to see you again.
Elizabeth Ledoux: Thank you. Thank you for listening to this episode of the business transition roadmap. If you’re listening to this and you find yourself wanting to go deeper into these topics and start the process of putting together your transition strategy, I’d love to offer you a free initial strategy session with my team, where we’ll help you to explore the future transition of your business, head over to www.transitionstrategists.com To schedule a call. Thank you again for listening, and I’ll see you on the next episode of the business transition roadmap.
SCHEDULE A COMPLIMENTARY CONSULTATION
The Business Transition Roadmap with Elizabeth Ledoux
How do communities thrive? When businesses experience healthy growth and transition. Join CEO of The Transition Strategists, Elizabeth Ledoux as she and her guests identify what makes a successful business transition roadmap. If you know you want to transition or exit your business “one day”, today is the right day to start planning. This show will give you the roadmap.
