"Get that quarterback who can run the game for you and don't try to do it yourself." - Mark Herbick
Mark Herbick is the founder and CEO of Pursant LLC. Pursant is an investment banking, financial, and management consulting firm that supports and executes...
"Get that quarterback who can run the game for you and don't try to do it yourself." - Mark Herbick
Mark Herbick is the founder and CEO of Pursant LLC. Pursant is an investment banking, financial, and management consulting firm that supports and executes middle-market M&A-related initiatives and helps business owners grow enterprise value.
Prior to founding Pursant, Mark was a serial entrepreneur and a buyer-seller of businesses having bought, sold, and operated over a dozen companies of his own and advise on countless strategic transactions in numerous sectors.
His businesses employed as few as a dozen people and as many as 1,400 people.
Mark grew his companies through acquisitions, strategic divestitures of divisions, and managed organic growth.
During this time as an operator, Mark found that to grow enterprise value, it was necessary to become proficient at optimizing company performance and executing strategic transactions. He honed his skills in these areas and in 2010 founded Pursant LLC.
The Deep Wealth Experience has you learn the 9-steps of preparation in 90-days. At the end of the 90-day,s you create a blueprint to help you optimize your business value. You also have the certainty of capturing the maximum value for your liquidity event.
This podcast is brought to you by Deep Wealth.
When it comes to your liquidity event, you have one chance to get it right, and you better make it count. Enterprise value is created from preparation and not the event itself.
Learn how the Deep Wealth Experience helps you maximize enterprise value. Master the same strategies our founders used to increase their company value by 10X.
Access the same 9-step road map of preparation that paves the way for success. Enjoy the certainty that you'll capture the maximum value on your liquidity event.
Click here to book your free exploratory call.
Enjoy the interview!
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Mark's email address mherbick[at]Pursant[dot]com
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This podcast is brought to you by the Deep Wealth Experience. In the world of mergers and acquisitions, 90% of deals fail. Of the successful deals, business owners leave millions of dollars on the deal table.
Who are we, and how do we know? We're the 9-figure exit guys. We said "no" to a 7-figure offer. Two years later, we said "yes" to a 9-figure offer. In the process, we increased the value of our company by 10X.
During our liquidity event journey, we created a 9-step road map of preparation. It's the quality and depth of your preparation that increases your business value.
After our 9-figure liquidity event, we committed ourselves to help business owners dominate and win. The Deep Wealth Experience has you create a blueprint to optimize the value of your business.
Our solution is resilient, relentless, and gets results. Enjoy the certainty that you'll capture the maximum value on your liquidity event.
Click here to book your free exploratory call.
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This podcast is brought to you by Deep Wealth.
Your liquidity event is the most important financial transaction of your life. You have one chance to get it right, and you better make it count.
But unfortunately, up to 90% of liquidity events fail. Think about all that time, money and effort wasted. Of the "successful" liquidity events, most business owners leave 50% to over 100% of their deal value in the buyer's pocket and don't even know it.
Our founders said "no" to a 7-figure offer and "yes" to a 9-figure offer less than two years later.
Don't become a statistic and make the fatal mistake of believing that the skills that built your business are the same ones for your liquidity event.
After all, how can you master something you've never done before?
Are you leaving millions on the table?
Learn how the 90-day Deep Wealth Experience and our 9-step roadmap helps you capture the maximum value for your liquidity event.
Click here to book your free exploratory strategy session.
Enjoy the interview!
Steve Wells: [00:00:05] I'm Steve Wells.
Jeffrey Feldberg: [00:00:06] And I'm Jeffrey Feldberg. Welcome to the Sell My Business Podcast.
Steve Wells: [00:00:10] This podcast is brought to you by the Deep Wealth Experience. When it comes to your liquidity event or exit, do you know how to maximize the value of your business? You have one chance to get it right, and you better make it count. Most business owners believe that business value is determined during the liquidity event.
Unfortunately, most business owners are wrong. Your enterprise value is a direct result of the depth and quality of your preparation. Who are we and, how do we know? We're the 9-figure exit guys. We said "no" to a 7-figure offer. Two years later, we said "yes" to a 9-figure offer.
Despite having the same people, the same company, the same services, we increased our business value 10 times.
How did we do this? We spent millions of dollars and years of time to uncover strategies that level the playing field. The end result is the 12-week Deep Wealth Experience.
We've created a proprietary solution that is relentless, resilient, and gets results. Learn how to master the art and science of a liquidity event. We've leveraged the same strategies that took us from 7-figures to 9-figures.
The Deep Wealth Experience levels the playing field So, you can dominate and win.
Book your free call today to find out if you have what it takes for the Deep Wealth Experience.
Visit www.deepwealth.com/success to book your free call.
Jeffrey Feldberg: [00:01:39] Welcome to episode 62 of the Sell My Business Podcast.
Mark Herbick is the founder and CEO of Pursant LLC. Pursant is an investment banking, financial and management consulting firm that supports and executes middle-market M&A-related initiatives and helps business owners grow enterprise value.
Prior to founding Pursant, Mark was a serial entrepreneur and a buyer-seller of businesses having bought, sold, and operated over a dozen companies of his own and advise on countless strategic transactions in numerous sectors. His businesses employed as few as a dozen people and as many as 1400 people.
Mark grew his companies through acquisitions, strategic divestitures of divisions, and managed organic growth. During this time as an operator, Mark found that to grow enterprise value, it was necessary to become proficient at optimizing company performance and executing strategic transactions. He honed his skills in these areas and in 2010 founded Pursant LLC.
Mark, welcome to the podcast and for our listeners, you're in for a real treat today. Like you, Mark has been a business owner. And in fact, he has sold six businesses. After selling his last business he became an investment banker and quite a successful investment banker.
So, it's not every day that you have an investment banker who's been on both sides of the table, but that's exactly what you have with Mark. So, Mark, welcome to the, Sell My Business Podcast. Why don't we start things off with having you tell us the story behind the story? How did you get to where you are today?
Mark Herbick: [00:03:24] Yeah. Hi, Jeffrey. Happy to share the story. It's probably a bit of a unique path from getting where I was to where I am now as an investment banker. Unique from a standpoint that most investment bankers have a professional path that is more rooted in higher education and Wall Street and a variety of different professional service firms. Where my path actually starts by walking in the shoes of our clients as buyers and sellers.
My first business goes back when I was 18 years old. I opened a gym, which was where my passion, I at least I thought resided both personally and professionally. I went on to either acquire or open a number of gyms after that. Expanding into more of a fitness center oriented model.
So, we're talking about really the mid to late 1980s. And after a number of years doing that realized that fitness is certainly a personal passion, but it wasn't necessarily my professional passion for a variety of different reasons. I decided to exit those businesses over a period of time and sought out industries that add more recurring revenues, less capital intensive, and more recession-resistant.
None of which we're part of the fitness industry. And that led me into largely the facility services and building services industry whereby I owned either through. starting or acquiring businesses that provided services to essentially buildings and dwellings. Non-residential. So, think about security janitorial, landscaping, HVAC mechanical. Really anything that a facility would need regardless of economic conditions to continue operating.
And providing services to its occupants. Predictability and revenue streams. Low capital-intensive nature. And that's where I spent the bulk of my time, building both businesses that fell into that category and related businesses until the early two thousands when I did a planned exit from a number of those businesses. And again, exited in in the mid-two thousands from those operating companies to turn my attention to helping others on their strategic transaction journey, whether they were looking to exit their own businesses or make acquisitions. Actually, prior to exiting my final group of companies, I had started doing transactional work for other people within my professional network, essentially as a favor. I enjoy doing it.
I had a president running my operating company, So, I had the time. Then when I exited all of my operating companies, I still had the time, but I did decide to launch the firm and no longer did it as a favor and actually did start charging for services. And as the years have gone by, we've grown as a firm, we've expanded and built our team.
We've expanded our service offerings. And today we are a lower middle market investment banking firm, specializing in M&A advisory, raising capital, financial consulting. And also, more broad-based business consulting with a special focus on helping business owners prepare for exit and optimize the value of their business in advance of an exit
Jeffrey Feldberg: [00:07:09] Mark, what a terrific story. Congratulations. And thank you for sharing with us. At the start, you made an important distinction and you referenced that a lot of investment bankers go more of the traditional route. Through education, possibly through wall street, and then become an investment banker. And so, for our listeners, it would be interesting for you to talk about why does that matter?
What's the difference? Because really what you're saying is not all investment bankers are alike. There are different investment bankers, perhaps for different kinds of situations. But the fact that you've been a business owner, the fact that you bought businesses, the fact that you've sold businesses, I would imagine makes a tremendous difference in how you're helping your clients through their liquidity event.
So, what kinds of things should a prospective business owner begin to think about when it comes time to finding the right kind of investment banker advisor?
Mark Herbick: [00:08:03] Good question. Good observation. When you're exiting a business when you're a seller, that transaction is as much an emotional event as it is a business event. Probably the largest single financial event of your life. Also, probably one of the largest single emotional events of your life.
This is a huge element of your life for So, long in terms of time, it's highly likely you spent more time working in and thinking about your business than anything else in your life. I know we all love to say family first. The reality is the amount of hours you spend either working in your business or thinking about what's going on with business far exceeds for most time with family, thinking about family, time in bed, all the other stuff. So, point being is that it occupies a significant part of your world emotionally and obviously financially. For a buyer. It's very different. It's just a business event. There's very little emotion wrapped in this event, they have no connectivity to the business. The business is not quote-unquote, their baby. Their perspective again is just very limited to being business. So, as it relates to an advisor, whatever advisor you're working with, they need to be able to be helpful and constructive.
Not only advising you on the process but also helping you through the emotional rollercoaster that you're going to be on for the entire, let's call it 6 to 12-month journey because statistically, that's how long it takes to sell a business. So, that's a long rollercoaster ride, you know, go to the local theme park it's done in 60 to 120 seconds.
You sell a business, it's a roller coaster ride for 6 to 12 months. Having an advisor that can help you stay emotionally strapped in during that ride is important. And having been in that roller coaster seat myself I would say the first few transactions, I didn't even have a harness, So, I flew out a couple of times, but I survived.
But having been on that rollercoaster ride myself, it allows me to not only identify with the upcoming loop de loops that my client is going to have to navigate. It also allows me to help them stay strapped in. The reality is if they stay strapped in the ride's ends it's pretty exciting.
If you're not strapped in, you'll fly out, it's going to be painful. The reality is you're probably going to be back in that same roller coaster ride again anyway. If you were planning to exit your business most business owners, it's not a matter of if they're going to exit, it's a matter of when considering most of today's younger generation doesn't have a whole lot of interest in the family business.
Process of elimination. That means you're going to have to exit. So, you know, it’s a shame to have to waste time on that rollercoaster only to have it end unsuccessfully. Better to stay strapped in, to have somebody to help you stay strapped in. The benefit for at least me as an advisor, having been on that rollercoaster I can really identify with what they're going to go through. The upcoming nausea from the spins and help them see that light at the end of the tunnel.
Jeffrey Feldberg: [00:11:25] Mark a lot of wisdom and insights there. And for our listeners, I hope you're listening carefully. What's interesting Mark, is what you're talking about in our nine step roadmap in the Deep Wealth Experience. Step number five is all about a winning mindset. And So, Mark having been through this So, many times yourself, both for your businesses and now for your client's businesses.
What do you have to say when it comes to what a business owner needs to do to develop a winning mindset that helps get the deal done?
Mark Herbick: [00:11:56] Yeah. What immediately comes to mind as it relates to discussions I have with our clients about, the mindset kind of in keeping with the fact that this is a six to a 12-month rollercoaster ride, not as 60 seconds, 120-second roller coaster ride. Is to think about the process and the journey is as a marathon.
And if you've run a marathon before you'll understand the varying emotions that happen along the way. Those emotions ranging from excitement. I'm feeling really good about the path that we're on only to see a mile marker that says you're only eight miles into a 26-mile marathon. Feeling a bit deflated. Getting to that 20-mile point and hitting a wall and having the last six miles feel like another 60 miles. Wanting to bale many times throughout the process. And that is very much what sale event is like. It's very similar from a fatigue standpoint. You're going to get energized when you see the water station and the goose shots sitting and that's going to be awesome.
And you may stop for a moment and take 30 seconds to enjoy that. And then 30 seconds later, you're going to feel terrible when you restart. So, knowing that's coming. Again, knowing it all is coming helps you successfully make it to that finish line.
The first marathon is always the hardest and the second, third, fourth, So, on and so, forth, gets easier.
It doesn't mean your time gets any faster. People will tell you I run marathons. I always run, this within this time domain, but the first one was always the most horrible because there was the emotional brain damage that was happening because I had not done this before. So, knowing ahead of time, the brain damage that you're going to suffer from the process just helps you say, okay there's going to be some brain damage along the way.
There's going to be some fatigue along the way, but the marathon is going to end.
Jeffrey Feldberg: [00:14:04] Mark, that's a great analogy. And let me ask you this speaking of mindset. For many business owners, they have a belief which is not the correct belief, but the belief is listen, I've built a really successful business. The skills that built my business are the same ones that I'm going to need to sell the business.
I may not even need an investment banker. I can probably just do this on my own because look how successful I am. So, from the Deep Wealth perspective, that's wrong in every perspective from your experience and your perspective it'd be great to hear your thoughts on that and how you would counsel our listeners as to what they should be thinking about in terms of the skills that built the business aren't going to be the same ones to sell the business.
Mark Herbick: [00:14:48] The resilience and tenacity that you used along the way of building the business is absolutely going to serve you well in the exit process. Deal fatigue is a very real phenomenon, and you're gonna need the resilience and you're going to need the tenacity. But to the point that you just made Jeffrey.
The skills to build are totally unrelated to the skills required to exit. A good example is when we have our first initial consultations with clients, we ask them what they think their business is worth. And the vast majority of the time, they feel it's worth double-digit percentages more than what it actually is. There are the rare occasions where it's worth a ton more than they thought it was. And then that's always a pleasant upside surprise for us. The good news is it's worth much more than you think. But the reality is most business. owners have a perspective of the value of their business, especially lower middle-market businesses.
So, when I say lower middle-market businesses, which is largely where our firm works, it's businesses that trade for less than $250 million. To most people, that's a lot of money. It's still a lot of money. So, not suggesting that it's not. But the problem is our mindset gets biased by what we hear on CNBC and on Wall Street about multiples that businesses trade at, cash and stock transactions that are pretty exciting, pretty impressive.
You know the reality is that does not carry over to smaller businesses. So, as a result, business owners have this mindset about value that correlates with the fact that Wall Street's on a tear. So, my business must be worth a ton. They also tend to equate enterprise value to how hard they worked.
They may have lost a spouse in the process because they worked all the time and never invested in the relationship. Surely that's gotta be factored into enterprise value. All the first days and sporting events, surely that must get factored into enterprise value.
Heck, I even lost my hair in the process. That must be factored into enterprise value too. And the reality is it's not. So, business owners out of the gates often don't even know what their business is worth, which is just one example of why they're not qualified to manage the exit of their own business, because they don't even know in most cases what their business is worth.
I'm just really highlighting some of the more tactical elements. What are appropriate deal structures that are going on in the marketplace? What are the various value drivers that different buyers are focusing on in today's marketplace?
There are So, many things that experts have visibility into that you don't, and you don't, because again, it's not your core competence. Your core competency is building a business. And not selling the business. Just think about the difference when a builder of a home and a realtor. A builder’s expertise as I'm building the house.
It doesn't mean that they're going to be the best person to sell the house and vice versa, even though they both understand the underlying asset. Same thing for a business. The other side of it that you're not prepared to do as the business owner is the emotional side of it.
You're obviously emotionally connected to the business, but that is not going to serve you well when you're trying to negotiate. With external parties and the operative word, there is negotiate. You will be showing your hand.
You will be giving away enterprise value unknowingly because of the emotional position that you are in. Think about the best poker players. We watch them on TV. And they might as well be wax figures. The amount of motion that they exhibit is negligible. And there's a reason for that because things can be learned and used against you based on cues that you give. And selling a business is no different.
There is absolutely a time and a place for a business owner to engage with the other party to share the energy and the excitement about their business, to talk about why it's a great thing for these two companies to come together. So, it doesn't mean you stay removed from the process, but you stay removed from negotiation because of that emotional component.
Jeffrey Feldberg: [00:19:28] Mark an excellent overview and a lot to think about for the community as you talk through that. So, let me ask you this. In the Deep Wealth Experience, step number six is where we focus on building out the advisory team for the liquidity event. And so, when it comes to investment bankers, there are two different, very different, distinct camps that are in the marketplace.
And so, one camp says, listen, I'm an industry specialist as an investment banker. You absolutely should work with me and nobody else. I know all the players, this is all I do day in, day out. And that's why you should work with me. And the other camp would be a generalist who saying, that's all fine and good for the specialist, but I can cast a wider net.
I'm going to have more deal exposure. I'm going to have better insights than someone who just focuses very narrowly in one particular area. So, where are you on that? And should that be a consideration for a business owner as they look to bring on board an investment banker, who's going to advise them on the liquidity event?
Mark Herbick: [00:20:28] So, good question. And something to absolutely think about when you're picking your advisor. There's no question there are pluses and minuses to both scenarios. An industry specialist and a generalist. So, maybe I can speak to some of those pluses and minuses and we can do the math.
The advantage to an industry specialist is they can very quickly wrap their head around the value of your business within that industry because they know where those companies trade at. They probably have a very deep understanding about how your business operates, how it generates cash flow, what the secret sauce is.
So, that comes very easy to them. What also comes very easy to them are the obvious buyers, because those buyers in your industry are making themselves known. They're probably actively networking with this industry specialist So, that as they get deals that come to market, they will be on the speed dial of that advisor.
Again, the two pluses off the top of my head, they're an industry specialist. They can very quickly understand the value of your business. And they have a shortlist of buyers on their speed dial. That all means speed to market and probably a much more rapid deal process, which are very real benefits.
A generalist is going to take more time to get up to speed on your business because they may not have the depth of experience working as an advisor in your industry as the specialist.
They also don't have the speed dial of buyers in your industry. So, what they are forced to do, which is more time-consuming is cast a much wider net. The concept of a net is that you pull a lot more in. The net of a generalist, not only pulls in in most cases, the known buyers that are already within your industry, but also the buyers on the periphery. Again, the idea behind the net and it being wider as opposed to something much smaller. Think of it as a fishing pole or a few fishing poles, as opposed to a net. So, the net that they're going to cast is going to pull in parties from adjacent industries that may have been trying to penetrate your industry.
They're going to pull in family offices, they're going to pull in more private equity. So, the reality is a buyer pool may go from 10 or 20 buyers that are on speed dial to a 100, 200 buyers that are the result of casting the net. The advantage to that is that oftentimes undiscovered gems of buyers emerge as a result of casting the net.
When I say a gem of a buyer, somebody who has been really searching hard for a way to penetrate this industry has some sort of unique value proposition that can be monetized if they were to acquire a company like yours. They've just been less than obvious to the industry specialists.
You can expect a lot of people outside of the obvious buyers. You should also expect the obvious buyers to be in there. What I'm saying is that you don't lose the known buyers and an industry that were surfaced as a result of the specialist. You're just not limited to that. So, you now have the known industry buyers in that pool plus an expanded pool that goes well beyond that.
So, the net of all that is, it's a much longer process because you're vetting through a lot more buyers. But at the end of the day, you haven't left any stones unturned. And that you've probably exhausted a significant percentage of the options out there as it relates to, best parties to monetize your business.
And again, I'm not suggesting that a specialist can't get you top dollar, but what I'm saying is the specialist is going to be challenged to do it with a smaller pool to draw from. Whereas the generalist is going to have a larger pool to draw from, with the understanding that they're going to have to make a longer time investment into understanding your enterprise value and how that can be then brought to the marketplace of buyers.
Jeffrey Feldberg: [00:25:06] Thank you for that. So, there's a lot to think about for a business owner in terms of what's going to make the most sense. And in what path that takes you to now, speaking of the business owners, Mark, one thing that I often hear from business owners, it's a one-two combo. So, the first thing they say is, listen, I'm going to just find the buyers myself.
I know the industry. It's probably going to be my competitor. I'll put together that list and, I'll just get the investment banker to come in and do the negotiations, but I'm really going to run the process. Everything's going to go through me. I'm the sun, the moon, the earth, and the stars.
I'm the center of everything. And that's just how it's going to be. I'm curious as to your thoughts on that particular viewpoint?
Mark Herbick: [00:25:46] There is value to a seller telling their banker, these are the parties that I have in mind. These are the parties that I know of. Here's why they're interesting and why I think they should be part of the process. There's a lot of risk in limiting the pool to those parties because there's a very good chance that you are excluding parties in the marketplace.
Kind of going back to what we were talking about, the value of a generalist versus a specialist. You're eliminating a lot of really interesting parties to be part of the process. The thing to think about when it comes to buyer pools, and maybe this is a good way to explain it. Buyer pools are ever-changing and dynamic and not fixed. And what I mean by that is we see all the time a buyer, for example, doing deals. What we don't necessarily see is consistency and how they're valuing or structuring. That oftentimes again is a dynamic environment based on what's going on where one company made me more attractive to them than the other, or maybe their capital structure has changed.
So, they can't afford to be maybe as aggressive as they've been in the past, or maybe the opposite. Maybe in the past. They weren't very aggressive. They quit getting invited to the parties and all of a sudden realize that they need to step up if they want to get deals done. So, a buyer in and of himself can move from being more or less favorable as time goes on.
And additionally, new buyers especially in the world of cross-border M&A where more and more people are looking to acquire outside of their home country, especially, coming into the US. That environment is very dynamic. When you look at the universe of financial buyers, that's a very dynamic environment changing constantly because they're in and out. Your company is going to go in and out of favor, potentially every three to five years, depending on where they are in their fund.
Whether it's in the early stages of the fund, the late stages of the fund, they've completely exited the fund. So, if they're no longer interested in that industry. My point is, whatever you're giving to your advisor is a static fixed list. But the buyer pool universe is not static. It's dynamic, it's ever-changing. And whatever list you've got is likely obsolete and incomplete.
Jeffrey Feldberg: [00:28:29] Thank you, Mark, for that clarification. And So, let's circle back now, and this is really the heart of what we do at Deep Wealth. It's on the preparation side where we work with business owners to prepare even before the liquidity event starts and they'd bring on someone like yourself, Mark, to help them lead the process.
When you look back to some of your biggest successes when you look back to some of the failures that happen when a deal doesn't go through. What are some of the common mistakes that you're seeing business owners make in the preparation in due diligence ahead of time that if you could wave your magic wand, you would have them not do it all or be better prepared
Mark Herbick: [00:29:07] Yeah, I would say the biggest challenge that we have that could have been a burden through a better-prepared client really relates to due diligence. And their ability to not only be ready for that stage of the process but have their valuation hold up and have their deal.
So, there are two things that a seller should do, and in most cases, haven't done that just it's a win across the board. So, number one is, call up an investment banker, say, give me a sample due diligence checklist. Whatever they're going to give you is going to cover off 90% of what anybody's going to give you.
Go through that list and say, what do I have and what do I not have? And what you don't have take the time to actually put together and pull together. And by the way, I'm making the suggestion, whether you decide to sell or not, this is just a good, best practice.
Good housekeeping practice in owning and running a business and that is a review of your books on records and understanding what is complete, what is incomplete and the quality of those books and records. That's going to be a monster exercise for most business owners but again, very well worth the time because it's very eye-opening as to either, missing customer agreements, missing employment agreements, incomplete financial statements, and accurate financial statements.
You may as part of that process, do a background, check on your organization for liens and things of that nature. And all of a sudden you discovered you've got a bunch of liens on your business out there, unpaid, government taxes. Think about it as the equivalent of the executive physical a very deep dive on your body and your mind.
Doing that same work on your business. And again, the advantage of doing that ahead of time is it'll really be very eye-opening, but what it will also do is if you are going to transact, you will look like a precision drill team because you have everything ready and available.
We had an LOI signed yesterday with a client and they are now scrambling to pull together all of the information that has been requested by the buyer. So, if they would have done what I just said, scrambling would be better averted. The day after the LOI is signed, you can push a button and open up a data room to give the buyer everything they've requested.
How do you think the buyer now receives the professionalism of your business? Where do you think their anxiety level goes? Down. Wow. I'm dealing with a seller that really has their act together here. So, my need to heavily overly scrutinize this business in the back of my mind just comes down a notch just because of how precision they have come across and how quickly they respond.
The short of that is you look like a shining star during the due diligence process. That's absolutely a best practice. The second-best practice is in the same category. And that is, having a quality of earnings review done. So, making sure that whatever earnings you think you have in your business is going to survive due diligence, not only from a historical but from a sustainability perspective.
People say I've had audited financial statements. The only thing audited financial statements state is that what has happened in the past is true and accurate. A quality of earnings review is designed to focus on the sustainability and the defensibility of future cash flows of the business and not just whether the past is accurate.
And that's what a buyer is thinking about. Buyers like audits. They love quality of earnings review because a buyer is buying what your business can do in the future. Not what it has done in the past. QofE focuses on the future and audit focuses on the past. So, those are the two best practices that I would have among the list of many more pre-transaction process.
Jeffrey Feldberg: [00:33:24] And for our listeners, what Mark just shared it's worth its weight in gold. And if you follow what Mark is saying, and we do the same thing at Deep Wealth. What you're really doing. You're saving your health, your time, and your money when you prepare well in advance for the liquidity event. Mark, one of the things that you were talking about you're still running the business when you're having a liquidity event. And part of that is you've given projections that you're going to be under very close scrutiny of, and if you miss those projections during the liquidity event, it can spell a disaster for your enterprise value. Possibly you may even lose the deal itself.
And So, words to the wise prepare well in advance. Now, Mark, let me ask you this. Can you talk about why having an auction for your liquidity event whenever and wherever possible is really the best thing that you want to do?
Mark Herbick: [00:34:15] The short answer there is that competitive tension is a good thing. In the absence of multiple suitors at the table not only is there no competitive tension to drive up the valuation and favorable deal structure for the deal. But it also puts the seller in an emotional mindset of having options. The common negotiation deal term called BATNA best alternative to no agreement. And if you have multiple parties lined up, ready, willing, and able to do this deal, you have a lot more leverage, your emotional BATNA is much stronger. But if you've got one party that you're hanging your hat on, that's going to come through. One way or the other, it comes through in the process and you ultimately end up caving or conceding on points that otherwise you may not have needed to had you had other options and that competitive tension to help shift the tide in your favor.
Jeffrey Feldberg: [00:35:20] And again, words to the wise. As we begin to wrap up this interview, just a few more questions for you, and you've been very generous with your time. Thank you. So, this first question is a lot of times we'll hear what some people will say is conventional wisdom, particularly when it comes to a liquidity event.
Is there anything that you're hearing right now that's relevant and current that most people are talking about in the M&A industry that from your viewpoint is absolutely wrong? Not only is it wrong, perhaps it's dangerous to even follow and do?
Mark Herbick: [00:35:52] First thing that comes to me is the relevance of the current environment. What I mean by that Is we're just, you know, emerging from a pandemic and, the pandemic has created a very different environment for the M&A world.
What it's created is an environment full of fatigued business owners, amongst some other things, but we'll just focus really on the fatigue business owner condition that's going on out there. Business owners during the last 12 months have gone through a lot.
Whether their business did well or not, this was an emotionally fatiguing 12-month period for them. We talked to many business owners that their business has thrived during this period, but they're exhausted. That's like saying you won the title fight, for the heavyweight championship of the world.
Yeah, you won. But you're done. Get me out of the ring baby. This fight is over with, and I don't want to do another one. I just want to take my cash and go home. Or as I say, go to Disneyland and that's the way a lot of business owners are feeling is they just won the prize fight, but they want to go to Disneyland.
They are done, they have been fighting this fight if you will, for decades. And they're exhausted. The pandemic was a battle, like no other, for many of them just managing all the gyrations of their business and pivoting and adapting and people getting sick their employees getting sick, their employees dying.
It was just again the proverbial emotional roller coaster. They're done, they've won the fight.
And the same thing, there are times when the business owners and the businesses did not do well because they were in those unfortunate industries. And in that case, the towel was thrown in. I fought this battle one too many times. Last time was in 2000 8, 9, 10 period during the Great Recession.
And the other shoe has now dropped I'm out. So, as a result of this, you've got this surge of people that are looking to exit, at least in the US. We've also got a surge of people that are looking to exit because they see an eminent tax increase on the proceeds of the sale of a business coming in 2022. So, yeah, sure. It's great for firms like ours in terms of seeing a surge of people engaging us to take them on that journey and through that process. But what's happening is at the expense of preparation. So, we are seeing not only a greater number of people looking to exit exited, but they're exiting in an unprepared fashion.
We've talked about the risk of doing that. And things are even more complicated now from a process standpoint because in terms of preparation, you have to be able to demonstrate how COVID did or did not affect your business in the diligence process. If your business was hurt, financially, you have to be able to demonstrate how it's going to recover and prove that out.
Otherwise, you're not going to capture full value for your business. If your business thrives during the pandemic period, you have to be able to show how that new heightened level of earnings is sustainable. Otherwise, you are not going to capture the value of those one-time earnings in the sale of the business.
So, there's additional complexity going on and exit processes right now as a result of earnings fluctuations up or down related to the pandemic.
Jeffrey Feldberg: [00:39:23] Thank you. Thank you for those insights. And it's interesting how all roads lead to preparation. When you're prepared. You can dictate what that looks like. If you go to market if you don't go to market. Mark, one of the last questions I have and ask every guest on the Sell My Business Podcast.
And the question is this. Think about the movie Back to the Future, where you have that magical car, the DeLorean that takes you back to any point in time. So, imagine now it's tomorrow morning, you wake up and you see the DeLorean car sitting outside, waiting for you. The door is open and you can go back to any point in your life.
Maybe Mark it's when you're a young child or a teenager, young adult, whatever the case may be. What would you be doing and what would you be saying when you go back in time to that younger Mark? What words of wisdom, lessons learned, do this, don't do that? What would you be telling yourself?
Mark Herbick: [00:40:17] Yeah. If we limit this to the category of business, because. I could go on and on about where I would take that car in my personal life. But that's another podcast.
Jeffrey Feldberg: [00:40:26] That's a whole other podcast for sure.
Mark Herbick: [00:40:28] I wouldn't take it back to those early-stage transactions when I was a young man exiting and I told you that I was in that rollercoaster ride.
I did not have a harness because I did not have an advisor in the early years the first two or three transactions, I did not have an advisor. I did on the later transactions and, it was just a night and day difference in every way.
So, I would absolutely encourage my younger self to get the advisor. Get that quarterback who can really run the game for you and don't try to do it yourself.
Jeffrey Feldberg: [00:41:00] Some terrific words of wisdom. Mark, for our listeners. I will put this in the show notes. If they like to reach out to you, learn more about how you can help them, where can they find you online?
Mark Herbick: [00:41:11] My email address is mherbick[at]pursant[dot]com. Our website is www[dot]pursant[dot]com
Jeffrey Feldberg: [00:41:27] Thank you, Mark. On that note, a big thank you for sharing your wisdom and your insights on the Sell My Business Podcast. Please stay healthy and safe.
Mark Herbick: [00:41:36] Thank you. Same to you, Jeffrey.