Ep 318: How M&A Advisors Unlock Wealth In Your Business Acquisition Journey with Michael Frankel

Buying a business to grow your business is the cheat code, but it's not for everybody.

Hi, I'm Jaryd Krause. I'm the host of the Buying Online Business podcast. And today I'm speaking with Michael Frankel, who is the founder and managing partner of Trajectory Capital. He has held C-level executive roles, corporate development, strategy and innovation, CFO, and CEO roles at large and small growth companies.

He is a corporate development innovation strategy and corporate venture leader who has driven aggressive growth through expansion at global technology and information services, professional services companies including Deloitte, Lexis Nexus Group, IR, GE Capital, and VeriSign. Michael has a track record of executing growth strategies and using acquisitions, ecosystems, and corporate venture investments.

And he's been a part of over 110 deals across his career. Inn this podcast episode, Michael and I break down why M&A is the cheat code to growing your business for a great exit or just for a great return and for a great holding company. We talk about what strategy, like what are the things you need to be thinking about if you are going to acquire a business and why.

Michael comes from a standpoint similar to me is like, well, you should, this isn't for everybody and you should prove that you shouldn't be doing this. And if you can't, then you go down the M&A strategy and you acquire the right business. So thinking strategically, what is the right business for you?

We talk about how to work that out. Is it an extra product? Is it the team? Is it technology services? Why should you be doing this? And how can it get you the best ROI for the business you already own? How is it gonna help you grow your primary business?

Then we talk about how you finance it. What's the amount of capital that you can use? We talk a little bit about financing and different types of financing, different risks, and ways you can finance the business based on getting revenue from your primary business and then using the revenue from the business you're acquiring and what that looks like. Just assessing the risk for the lenders.

We also talk about why an M&A advisor is worth their weight in gold and why you're crazy to go down this route yourself if you're trying to acquire a business. And just the certain skills and certain risk prevention that an M&A advisor provides you when you're trying to acquire the business and use the growth-by-acquisition strategy. This is such a fun, valuable podcast. Michael has a ton of experience. It's great to share that with you guys.

I'm sure you're gonna enjoy it, so dive in.

Michael, welcome to the pod and thanks so much for your time. Thanks.

Yeah. Thanks for having me.

You've done CFO, and COO. What do you prefer mostly CFO or COO and why? You've done a bunch of different brands, right?

Between those two, I prefer the CFO. My favorite job is running corporate development. My favorite job is deal-making. Because I love the radical change that you can drive, it's sort of a cheat code, if you will, right? Building a business from scratch is really hard work.

Where yesterday we didn't have this product line and we didn't have all these customers in revenue, and today we do. So yes, I'd say of those, corporate development first, and then CFO, but I'd say only to the extent it's a strategic CFO job. I've never been a bean counter. I don't find accounting that fascinating.

So for me, the fun of being a CFO is being able to turn data into insights, right? Come to the head of sales and go, let me explain what parts of your team are working and not, and why, and provide that insight. So for me, that's the magic of a great CFO they take a giant spreadsheet and extract operational insight that makes everyone better at their job.

Yeah. And all like slim down expenses and reward people that are, you know, incentives for people that are doing good or the marketing teams like, okay, this marketing, we're spending X amount on this marketing channel and it's getting a better ROI than say this other marketing channel. Like, why don't we just read of a like that?

Yeah. All those kinds of insights are buried in the data, And especially if get into, if people are rigorous in their sales process, you can get to time to close and number of meetings and the effectiveness of different pitches. There are all kinds of really interesting things you can use to optimize pricing. For me, that's what fun about financial data is if you can come up with real-world changes as a result of really digging into it.

Yeah, absolutely. I'm a big believer in what I call inside-out growth. If you just like, instead of trying to just hire people that are just like, they're great at marketing. And in this channel, they a great at getting Google ads or meta ads, or they're great at TikTok or whatever it is. Let's just add it like we need it.

We need TikTok in the business. Like what's the point when you look at the data and you go, hang on a second? Like Google ads are outperforming meta ads and that's amazing data. Let's just grow from the inside out versus creating a Frankenstein business with all of this team and systems, unnecessary teams, unnecessary systems.

I think the question for almost any business decision and it's triply so for M&A is to explain why this makes the company better. Whether it's we should have AI we should do acquisitions or we should expand into this new market. None of those things are by definition good ideas.

So let's step back and this is an analogy that may not make sense to you if you haven't seen a lot of US television commercials in the 1970s, but there was an ad decrying drug use and it said, this is your brain, and showed you an egg and then this is your brain on drugs and it showed you an egg frying in a pan.

And, but I use that analogy all the time, which is whatever business decision you're thinking about making explain to me how our company after it is materially better than our company before.

And so to your point, if one marketing channel is effective, you don't have to be in another marketing channel. There's nothing that says we don't have to be on TikTok. We should only be on TikTok if that benefits the company.

Exactly, exactly. What I like to say is how you build your business is not what people tell you, it's what your business tells you.

Exactly. Wherever the money is coming from, that's a good place to go. There isn't money coming from it, it doesn't matter if other people have succeeded using that strategy or if it's the cool thing to do. It doesn't matter.

Yeah. As we said, like looking back on the data and you see, all right, acquisitions are a cheat code. See, all right, we bought this last business and it worked well. Why did it work? Well, number one, what was the business? What was it? Yeah. They were direct competitors with indirect competitors.

What was the audience like? Did we run a parallel? Did we merge it into our previous business? How did it work? Let's do the reverse, you know, reverse engineer it to get as close as can to a similar acquisition next time, if not better.

So, but first though, some from day dots, say you've got a company where they're looking at thinking about starting acquiring, but they don't know where to start. What sort of examples would you give on how a one-on-one business, maybe a team of five to 10 contractors or some full-time would go and build an out-of-acquisition strategy for the first acquisition to learn from to rebuild it again for the next one? What sort of things they should be asking?

So first and foremost, why are you doing it? Speaking as an M&A professional who spent my whole career doing deals, I always start with the assumption that a deal is a bad idea until it's proven to be a good idea because there's a lot of pain in M&A. It's super risky, right? You hire somebody, you can fire them. If you spend some money on a marketing channel, you can stop spending money.

You do an M&A transaction, that money is gone, and you're never getting it back. And you've made a big commitment to a product, a strategy, a brand, a direction, a team. Always start with, nobody should ever start by going, let's do some M&A. M&A is a solution. It's a hammer that hits certain nails very, very well. So the question is, what's your nail? So what is it that you want?

And then I would always compare it to build because there are very few M&A transactions that don't have a build alternative. If somebody has a unique patented widget and nowhere else on the planet. Is there anything other than that widget?

Yeah, your only choice is by the company or not by the company but 99 point-something percent of M&A transactions have a build alternative to them So I start with what are you trying to achieve? Are you trying to get to a product faster? Are you trying to expand into a new market? Are you trying to add humans and you want to get out a good team that's already there? But what is it you're trying? Are you just trying to create economies of scale?

Those are all good reasons to do M&A but understand why you don't start with the deal. That's always tempting, right? It's like if I walk by a convertible 1960s Mustang, I suddenly develop a need to own a convertible 1960s Mustang. I hadn't been thinking about it before, but then I saw it.

Then I argue with my wife. So I start with, what are you trying to achieve? Number one. Number two, be honest about the build alternative because you may not be able to find an acquisition that you want or you may not be able to find one at a reasonable price. So at least have your comparison available to you between build and buy.

And then what are the characteristics of the target that will achieve your goal? So a good example would be if what you're looking for is another product. Well, that tells me that you care about certain parts of a target. You don't care about others, right?

You care about the data you're going to look at. So our conversation about data, the data you're going to look at in this target is customer satisfaction with the product, feature functionality of the product, and the addressable market of the product. You won't care about a bunch of other stuff.

So going through that journey of what is it we want, what are the characteristics of that thing, right? Then map those against the target universe. And hopefully, if you've gone through that journey, the other benefit is it will have contracted the universe dramatically because saying I want to buy something, I don't know the current data, but there are something like 3 million companies in the United States.

So saying I want to buy a company, you will never find the target that way. You have to compress the target set to a point where it's somewhat manageable. So you compress it by identifying what are the characteristics of a target company that meets my needs? What's the size that I could digest and provide capital for hopefully that starts to get you down into a world where you can start to investigate.

Yeah, I love it. So let's throw out some examples of like, what am I trying to do to grow my business and put it acquisition work or not? Would it be, you've, mentioned product, no purchasing, I know software companies purchase other software companies to add products and services to their software.

You can have just general e-commerce businesses that want to increase their customer lifetime value by either buying the audience of another company before the purchase a pre-product to what you already have or purchase a product after, so on sale after the, you know, Bert bought your products as well as an example. Do you want to throw in some other ones as well?

Yeah, so I'd say there's a whole bunch, right? You can dissect all the components of a business and you could want to enhance any of those components through an acquisition. As you said, you could want product and you could want product for multiple reasons, right? It's complementary to your product.

It either creates a bigger sale or creates a longer sale, right? One plus one equals three is the ideal where this product plus this product makes something that is unique that differentiates it from all the other competitors. And then there are various forms of product. There's technology as a product, there's data, there's content as a product. So there's all kinds of different products.

There are even humans as a product if you're talking about professional services. Then there's acquiring customers, right? So you may not be that, and I've seen people buy identical products where they're going to retire the product, but they want the customer base. They want the existing revenue. You could be acquiring a team.

Exactly.

Now that's a relatively expensive way to acquire a team. So I find that it's somewhat rare that you're doing just a pure aqua hire unless the company is pretty distressed because otherwise, you can't justify paying such a premium when you can go hire humans on the old-fashioned way. But I will say we're talking about individual items. Oftentimes an acquisition is two or three of them together. So primary motivation is the product.

But wow, that's a great team and they're strong in places that I'm weak. So that's an additive reason. So I'm buying the company for this reason and this reason. Geographic, expansion in terms of customer footprint in a bunch of different ways. It could be into a new geography. It could be into a new vertical. I sell oil and gas. I want to sell to water companies.

It could be into a different segment of the market. I'm SMB. I want to go consumer or I want to go enterprise. So there's a variety of different things. And that's why I say, instead of starting with, this is the company I want to buy, I start with, if I had this capability, whatever this if I had this thing that's in a box, my company would grow faster. It would be more profitable. It would be more defensible. But you have to have that logic chain that says, if I get this thing, here is a very definitive outcome for my company.

Then you determine what the thing is. And that's, I think of that as a strategy process that predates M&A. I haven't even decided on M&A. I've just decided I need a complimentary product that will extend my life as a customer.

Okay. And then what is that product? And you start to refine it because it's not just what that product is, what feature functionality does it have? Who does it sell to right now? Because under the strategy you just threw out, I want it to be selling to my customer type because I'm going to attach the two.

Exactly.

So it's all those kinds of reasons for doing a deal. We haven't even gotten to selecting the right target or diligencing it and things like that. This is a precursor that number one, will make it physically possible for you to find a target because you can't find a target if the target is everybody. And number two, all of the things that we just talked about feed directly into due diligence and integration planning.

They are the basis on which you can't do good diligence if you don't know why you're buying the company. You can't figure out how you're going to integrate it if you don't know why.

Yeah, diligence is the last part. Similar to what you said, when I talk about diligence, talk about, to what you said before is like, you shouldn't just buy it. You shouldn't prove a business a good investment. You should prove it's a bad investment. If you can't, then you must buy it.

Exactly, exactly. You look at all the different ways you could achieve the same goal and determine that they are all inferior to the acquisition. It's yeah. Mean, M&A is like surgery. It's not something that should be undertaken lightly. If there's an easier alternative, you should do it. But in some cases, surgery is phenomenal and incredibly effective.

Yeah, absolutely. Like, yes, it's something to avoid if you don't have the capacity, but if it's one plus one equals three and you do that twice a year or once a year, depending on what capital you can raise, then you can out-beat paying for cold clients.

For example, I like to talk about, you've got a marketing budget and you want to grow the business or you've got capital and you want to grow the business. Well, you can go and market to, you know, a cold audience and try to convert cold who don't know who you are to purchasing your product.

But to do that, you have to build trust. But somebody who's already bought a product from you or bought a product from a company is going to already have trust there because the trust is already proven with the purchase, right? So somebody who's already purchased something is a lot closer to another purchase and increasing the customer's lifetime value. And you can buy that trust.

Yeah, it's a good point. You're right. It's one of the characteristics I didn't mention is it's implicit in customers if you have customers but the brand, right? You can buy that trust. You can buy that track record. You can buy that goodwill. So yeah, there's a lot of benefit to acquiring an existing business as opposed to just saying, I'll build it from scratch.

And it's going to make more viable sense because I can see there's a bunch of these companies out there that have that specific audience. And the benefit is that they've already got a product that is similar to mine and it's a pre-purchase or after-purchase, it can be up, sell, or down-sell. And they've got a team and you've got like three different things.

You're like, wow. Okay. So my ROI on my capital for acquiring a business is going to be better than what I can convert with even like a good return on ad spend, right? A great row as. Then you go, how much can I afford? How do companies work out what they can drum up in capital and or finance to finance the deal?

Yeah, absolutely.

So, there are two layers to that question. The first is, how much should you afford? In other words, what deal makes sense? And it's important to differentiate between the market value of an asset and what it's worth to you. Every asset has an estimated market value based on a bunch of different dynamics. And the reality is, you should buy a company when it's worth more to you than it's worth to the rest of the market.

So, first, you have to establish how much it's worth to you and that's going to be in effect a financial projection issue. This is where the strategic CFO comes in because you have to do the one plus one equals three calculation and you have to, it's a hard calculation because you're not just magically putting these two things together. First, you're going to pay a bunch of money to purchase the business or maybe you won't, maybe you'll get it for equity, but you're going to give something away to get the business. And by the way, that equity is worth something. Then you're going to invest in integration.

You're going to invest in creating that one plus one rarely just magnetically come together. So there's both time and money and distraction associated with doing that. And so you have to model all of that. And then you model the one plus one equals three. And there are sort of two ways of looking at how much can you afford to pay. The first one is how much cash will you make as a result of this transaction? And you can sort of discount that back and say, okay, well, over the next five, seven years, I'm going to make this much more cash, which is worth this much today.

That's how much I can afford to pay. The other way of looking at it, and a lot of this depends on your strategy. Are you planning on keeping this? Is this your family business and you're going to keep it forever? Or are you on a journey to be sold? If you're on a journey to be sold, then the other way to look at it is, this is how much my company is worth now my target is fully integrated and I've gotten all these synergies and I've gotten the one plus one equals three, how much is the combined company worth? The difference between those two numbers is what I can afford to pay and be neutral as a shareholder, right?

I would be happy to be a shareholder of this company and I would equally be happy to be a shareholder with a similar shareholding of the merged company. So you figure out that sort of math and that tells you in theory how much you can afford to pay.

I discounted pretty significantly because there will always be screw-ups, right? Integration won't go to plan. All my visions won't turn out. And so you should never pay one dollar less than what it's worth to you. You should probably pay 50, 60, or 70 % of what it's worth to you to ensure that even if you overshot your projections, you're still making money. It was still a worthwhile exercise.

Then the second question you asked was, the second angle is, how do I get the capital for this? And I would say there are a couple of different sources. The first is to just look at your balance sheet, right? Look at whether you have the cash. That's going to be the cheapest cash. The second layer is, you borrow?

And it's easier to borrow based on your current business. You already run the business. You already own it. That's a much easier borrowing conversation. But sometimes that won't get you all the capital you need or it won't get you the rates that you want and so then you have to open up the can of worms going what you're borrowing your lending against is combined but now you have to explain to a lender not just your business but One plus one equals three.

What does this combined business look like a couple of thoughts on that one is that's a tougher journey number two, it can be dangerous in your deal because to do that you have to share information about the target company. To share information about the target company you have to get their approval and you then have to expose to them that you don't have all the money right. So which can put the deal in danger. So it's something to consider if you think you can borrow.

The third avenue is equity, which is sort of the same logic, which is you can go to somebody and say, would you like equity in my company? Or you can go to somebody and say, would you like equity in the combined company? The upside to the first one is you don't have to expose any information about the target.

The downside is that you're presumably worth a lot less and you may not want to give away equity at that kind of valuation. Lending has become more and more viable for small-deal M&A. It used to be that lenders shied away from small transactions 20, to 30 years ago. Now, I know lots of lenders that will lend on 1 million revenue, 1.5 million revenue businesses, no problem, right? They're less concerned with size and they're more concerned with track record.

So if your core business has been around for three, four, five years and you have a nice steady track record then we can get into all the financial characteristics, because obviously if you have long-term contracts, if you have larger and more credit-worthy customers, all of that feeds into how easy it is to get financing. But there are a surprising number of different financing sources from from traditional banks to venture lenders who may take a small amount of equity as part of the deal, revenue-based lenders that are lending on your revenue streams, and other kinds of asset-based lenders.

So there are a lot of different paths. In my experience, if you have a solid, stable business, and if the business you're acquiring is also sort of stable and somewhat predictable, you should be able to get a fair amount of financing, probably not 100% because a lot of lenders like to see if there's some equity coming in, but you should be able to get a fair amount of financing.

Where it's tougher to get financing is effectively on what looks more like venture deals, which is not a matter of size, but more a matter of predictability. So as an example, if you're buying a company with a technology and zero revenue, that's harder to finance because they have to believe that somehow those people weren't able to sell the product. But yeah, and you can provide lots of explanation evidence and stuff like that.

But that's a harder sell for a lender because lenders are naturally risk averse. On the other end of the spectrum, if you have a business with Fortune 500 customers that have renewed multiple times and the target you're buying has a similar dynamic, that's incredibly attractive from a lending perspective because the risk is so low.

And if you've got a solid stable business over five years yourself, that one plus one equals three is easy to sort of build out in a business plan for say maybe SBA.

That's right. Exactly. And there's a lot of complexity to SBA loans and venture lending. It's a little bit opaque because these tend to be smaller organizations that nobody has heard of. But it's well worth investing the time and finding your way to those different lending alternatives.

I love that explanation. It’s super important to be able to understand what you sort of can finance. So when you go out into the market to buy, you're like, okay, this you can say, no, you're not stuffing people over by, know, doing DD and…

Yeah, 100%. No, I would have all those conversations. Now, if you're trying to finance based on your business and the target, you will never get a really solid commitment for a conceptual target. But you can still get somebody who says, look, I understand your business, I like your business, I'll finance a certain amount on your business. And if you have a target and you show it to me, that'll increase the amount that I'm willing to finance.

So at least you've had sort of 60-70 % of the conversation with that lender. The other thing I'd say is, especially for small company lenders and especially for venture lenders, there's a significant amount of diligence on the management team, on you, right? So if I'm lending to a Fortune 100 company, I don't care who the management team is. I've got their financials. I'm lending to company X. The smaller you get, the more I care about the management team.

Do I trust them? Are they credible? You know, if you think about the spectrum, there's investing in a Fortune 500 company and there's investing in a startup in a garage. Which is two people on a desk. So as you move from this side of the range to that side of the range, who you are, how much I've gotten to know you, do I trust you, become more important. And so my advice would be to anybody who is thinking about doing an acquisition to a small business, or in person.

You're thinking about your financing sources well in advance, line them up, and start to have those conversations, right? Meet with a few venture lenders, meet with a few traditional SBA lenders, establish a relationship, invest the time so they at least can say, I know Jaryd, I've talked to Jaryd a bunch of times, Jaryd's a really good CEO, I'm comfortable with him, I know their business, I'm comfortable with that business, I don't know the target yet, but I'm also, I'm comfortable that Jaryd and his team know how to diligence that target.

So you've sort of gotten me most of the way to a decision and the only empty piece is going to be the details of the target, but that's much easier and faster for me to digest.

Absolutely. Absolutely. And yeah, I mean, you first need to know what, you said, the step one is to work out what's the problem you want to solve with M&A. Like how do you want to grow your company? And that's have that sort of loose strategy. And then your strategy will also change a little bit once you work out the capital that you can use to acquire the business. And then you can go after the races.

And then from there, when you're on the search, like how are you typically searching you using a contractor, giving them a specific buy box and they're out there. Or are you doing this yourself? I mean, you've got a little bit of it. You've got a network, right? Obviously like what I do with my network when I'm buying for people, but how do typically go about it?

So I'd say it depends on the target universe. So if you are targeting a space that you already know very well, then I think the network gets you there and it should get you there. The network is valuable because the network is effectively a free layer of diligence. If my friend Jaryd sends me a company that he is at least somewhat familiar with, I'm sure it's not a terrible business because he wouldn't have, he wouldn't have sent it to me.

So if you're acquiring in your space, right, your industry sector, your size range, I always prefer network. The other thing I'd say is I don't think of networks in the way people often do, which is I'll talk to other deal makers in the space because what I need from them is not any kind of M&A expertise or even whether the company is available for sale. What I need is somebody who understands all the little companies in the space and the characteristics of those companies.

So as an example, one of my best sourcing tools when you're operating in a space you already know is to go to a conference and then find salespeople, your salespeople, other people's salespeople, buy them a couple of drinks at the bar and ask them who they're hearing about when they're with their clients.

Because if the client is saying, this is a good company, that's a good company, I've used this product, I've been thinking about using this product, it's great diligence. So you don't need an MM&A person to find targets. You need an MM&A person to execute a transaction, but what you need to find targets is somebody who knows all the companies in the space knows their reputation, knows their product, and hears things about them.

So yeah, I'm a big believer in network. Where the network fails is where I'm trying to expand into a new space. And usually that new space means a new customer type often or a new geography. So you know, my network in fintech is pretty strong in the U S I have a little bit in Europe. I have nothing in Asia. So if I'm looking to add another fintech player in Asia to my fintech play a company in the U S my network is going to be weak and anemic at best. And so that's where I go and look for help. What I'll say is I think that you can go to business brokers. Number one, they can be expensive.

Number two, they will find companies, they will probably be better at finding companies and identifying whether or not they're potentially for sale than they will in evaluating products or brands, right? Because that's not what they do. So I think for initial sourcing, if you can find somebody who is an industry player in the space, they can be, that's sort of a little bit of a cheat code because they will often do it for free.

Because it's interesting to them, and they enjoy discussing the industry. Perhaps they hope that you'll bring them on as an advisor after a board member, which is possible. I believe it's beneficial to use brokers, especially when the target pool is quite large. I just can't reach a lot of players myself.

This person helps with some of the work involved in filtering; the referrals from my network provide me with numerous email addresses, but they don't do any of they're not going to do the first call, right? My friend Jaryd isn't going to filter for me. They were doing me, he was doing me a favor, just sending me an email address. So, and then the other thing that business brokers are good at is as I said, identifying companies that are for sale versus aren't for sale.

Again, something that your friend Jaryd isn't going to do. And depending on the space, that's an easier or harder exercise, but it's especially valuable.

Is that?...

Yeah, exactly.

If you're dealing with a lot of founder-owned businesses, because of private equity-owned businesses or corporate-owned businesses, the answer to that question is an absolute yes or no instantly, right? If you have a private equity fund and you have an asset, you're either willing to entertain offers or you're not. And if you're a corporation and you have a subsidiary, you're either willing to sell it or you're not period.

Where it gets harder is founders where the answer is often a very emotional one and a very subjective one, right? So maybe I would sell it, who am I selling it to, what are they gonna do with it, what about my team, I don't know, would I continue to have a role, all that kind of stuff. And that's where having a business broker can be incredibly helpful because they get to be the therapist for that series of conversations.

Yeah, which is so valuable. Like that's what kills most deals is the emotions from…

Well, we haven't even talked about this is just sourcing. Once you start negotiating a transaction, everyone feels their feelings very hard, and having an independent third party in the middle can often be very valuable. You could sometimes use a lawyer, you can sometimes use your board member or an advisor, but I've found that when you're dealing with founder-owned businesses, having a little bit of a buffer, especially for the tough conversations can be helpful.

Yeah, this is the beauty of an M&A advisor. Really. It's like managing the transaction and making sure people are always connected in communication and preempting their feelings and sort of having that conversation with them before their feelings, feelings come up and sort of share those expectations. This is how long it could take. This is how you're going to feel when you like this last little document that you need to send over. And they're like, they've asked me so much, you know, what's their skin in the game?

Oh yeah, well I think the MM&A advisor plays a bunch of critical roles, especially for people who have not done a lot of acquisitions before. My argument is that they can be helpful in sourcing, but I wouldn't depend on an MM&A. I don't think of MM&A advisors as dumb sourcing machines, especially in an era of technology and LinkedIn. That's not the big value they bring.

They may source, but the big value they bring is all that negotiation stuff, all that emotional stuff you just talked about. Having an understanding, they may not understand your business in detail, but they've seen this movie 150 times before. So they know where due diligence often fails, where integration planning often fails, where people often have over-optimistic financial projections, and where they often have trouble getting their capital lined up.

It's all that kind of stuff that unless you've done 20 deals, at which point you have a corp dev team, you don't know M&A is not for training wheels, right? It is a very scary place to learn. And so that's where having an advisor who, as an example, even if they know nothing about your technology, they know enough to go, have you looked at their code base and your code base and evaluated how complex it's going to be to integrate the two?

Have you looked at whether they're using open-source code because that's a liability risk? Like there are some, who may not understand a lot of the details, or have you looked at their customer renewal rates? Have you looked at their customer contracts? Have you talked to their customers and made sure to talk to not only happy customers but churned customers It's stuff like that where even if they don't understand your business in-depth, they've now seen this so many times and they've seen the aftermath that they can warn you off…

Need to understand code. don't need, they just need to understand how business works. And like I said, preempt, these are the biggest risks in acquisitions and the biggest risks in typically any technology acquisition, any ecom, any media business acquisition. This is what you need to check for any e-commerce business, know?

Absolutely. Yeah. And you know, I think the other thing they do well, this gets back to the emotions is a good advisor not only tells the other side the truth, but tells their client the truth. So they tell the founder of the company you're trying to buy, look, your business is worth about this much. Know you, someone offered you more in the past or you heard stories, but I'm telling you, this is what I do for a living. This is, and the flip side is they'll say to you, Jaryd…

That offer is not going to get this deal. Unless this guy is an idiot, you're underbidding. I'm glad to send that message if you want to, but I can already tell you what the answer is going to be. I may blow up the deal.

Yeah, so the advisor just they've been down this road so many times that they've seen a lot of the different outcomes and they can warn you about them. And the good news is you can then decide whether that's relevant in this situation. So they may say, look, we have to check the IP on the brand.

I've seen a lot of situations where people don't own the IP and you go we're going to trash the brand three seconds after we buy the business. So thank you, but that's not relevant here. But it's that mesh of.

I've done this a thousand times. I understand what I'm trying to accomplish in this specific transaction. You put those two together and you have an effective team.

Yeah, absolutely. Yeah. And that's why having an advisor basically from the start can help you with, you know, you might come up with an idea of like, how do I create that one plus one equals three strategy? And then you get an advisor in and say, well, yes, you can do it and or this or, what about that?

And maybe they can get one plus one plus one equals five, you know, and build out a better strategy and you get a better ROI for the capital you spend in a company that you acquire versus like, I can just get one plus one equals three. But what if you get an advisor that gets you like so much more and then, yeah, and then they help you merge and then they help you go again and they become your main guy or main person to keep acquiring?

And that's what M&A advisor actually, that's what I want is, you I want to work with people that want to do multiple deals and we build out great companies because it's great for my business. I don't have to go out and advertise and I get referrals and then I help you grow over a longer period, a longer time.

And we've created a great relationship. You make a ton of money. We make money. Everybody is loving life and it doesn't need to be stressful at heart because we have each other.

Yeah. And repeat acquirers, like anything in life, you get better and better at it. And so, and that doesn't necessarily mean you become an M&A expert, but you build the internal muscle to do simple examples. The first time you acquire a new employee base, you don't know how to integrate them fast, right?

The second time you've now hopefully only tripped over a couple of the landmines because you had an M&A advisor who warned you, but by the second time you've done all the stuff you need to do. As an example, if you need to build out material to explain a transition of benefits from your benefits system to our benefits system, you build that for the first deal, you use it for the next deal, and the next deal, and the next deal.

So financial modeling or considering tax issues there's a whole bunch of stuff that gets easier as you do this more frequently. It doesn't mean you're an M&A expert, but at least you're an expert in evaluating your own needs as a company and then figuring out how to absorb targets. So by the time you get to the 15th deal, it's dramatically, everything becomes more effective. And you're right, the return rates are good M&A has phenomenal return rates, just as bad M&A has phenomenal loss rates.

It's not true.

The risk level is, I mean, my analogy would be, and that's why you need to trust your M M&A advisor, the mechanic you hire for a broken down old Honda Civic is not the same advisor you hire as a mechanic for your Ferrari.

Yeah.

And I would argue M&A is a Ferrari kind of decision.

Yeah. And you've got a Ferrari and then you got all these other luxury brand cars as well. Different types of M&A advice for different types of sectors.

Absolutely, but it's all high risk and high return so Not getting the help you need is penny-wise and pound-foolish I'm not saying whether anybody specifically needs any kind of help in my experience Unless you've done a lot of ma need somebody who's advising you on M&A from a deal perspective You need a lawyer. Maybe you need a tax advisor But my point is if you're spending a million two million three million dollars, saving $20,000 $50,000, or $200,000 is probably not a wise decision.

Absolutely and also as a founder or somebody that's going to buy something for that range between one to five mil, they're typically not going to have a big team. They're doing it themselves. You're better off not wasting your time trying to do it yourself when your time is best spent on one certain activity in your business to get growth.

Distracting yourself and taking yourself away from that is just silly. For example, even when I'm buying any sort of property, I'm not going to try and outbeat somebody who is a buyer's agent who's been doing this for 20 years. Here is the money. They're going to buy me the deal for the cost price cheaper than what I'm paying them for a fee anyway, which is what an M advisor does too. So your fee is paid for, but you get, you know, decades of experience.

Well, and I'd say, yes, they'll negotiate down the price. But I think that the greatest value that an M&A advisor brings you is, number one, helping you avoid a bad deal, which would be catastrophic. And number two, executing a good deal the right way. And part of that is getting the lowest price possible. Part of it's getting it done faster rather than slower. Part of it, to your point, is minimizing distraction. You'll never eliminate distraction because the buck stops with you.

The MM&A advisor can't do everything, but they can do the bottom 80%. So it's going to be stressful for you, but there's a difference between it being a distraction and taking you off of your day job. And you're right. You want to avoid that because your core business failing will also do the M&A transaction anyways. So yeah, there are a bunch of ways that getting help is critical.

It's why I'm always frustrated when people sort of treat M&A as just another business transaction. I'm like, no, it's a specialty. As you said, you wouldn't go and try to negotiate a house purchase. You wouldn't try to inspect your own house. Well, unless you have the app and have that set of skills. That's very right. Yeah. Is a high-stakes place where you don't want to, you know, it's the same reason I'm never going to have, even if there's a 50 % discount, I'm never going to have my dentist do heart surgery on.

Yeah, exactly.

I'm certainly not going to do heart surgery on myself.

Yeah, exactly. I love that. Let's leave it with that, Michael. Thank you so much for coming on. Where can we send people to check out more about what you're up to?

So I'm on LinkedIn obviously and then michaelfrankle.com, which is just my name dot com, has the books I've written and some of the podcasts. I'll put a link to this one as well when it comes out.

Awesome. Thank you. Appreciate that. Everybody is listening.

Thank you for listening.

Thank you so much for your time, Mike. And yeah, I hope everybody enjoys it and I'll see you in the next one.