"It’s a special opportunity for us to help our clients monetize and achieve their objective that they set out." - Josh Curtis
"I became an investment banker to help an entrepreneur put the capstone on their career from a life time of work through an exit." - Michael Butler
Josh Curtis is Managing Director at Footprint Capital. Mr. Curtis advises business leaders in ownership transitions and liquidity events, including sell-side and buy-side transaction engagements as well as succession planning, strategic growth, management buyouts, ESOP formations, capital raises, and leveraged recaps. His career has been dedicated to facilitating strategic initiatives for both private and public companies with revenue ranging from a few million to over a billion across all industries in the U.S.
Michael Butler is a Senior Director at Footprint Capital. Michael is responsible leading sell-side and buy-side engagements with business owners. Michael cultivates relationships with clients, prospects, centers of influence, private equity firms, and family offices.
Josh and Michael share why they have a 98% success rate for exits and liquidity events.
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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.
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Steve Wells: [00:00:00] I'm Steve Wells.
Jeffrey Feldberg: [00:00:01] And I'm Jeffrey Feldberg. Welcome to the Sell My Business Podcast.
Steve Wells: [00:00:06] 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 account. Most business owners believe that business value is determined during the liquidity event.
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Jeffrey Feldberg: [00:01:39] Welcome to episode 35 of The Sell My Business Podcast.
Josh Curtis is managing director at Footprint Capital. Mr. Curtis advises, business leaders in ownership transitions, and liquidity events, including sell side and buy side transaction engagements. As well as succession planning, strategic growth, management buyouts, ESOP formations, capital raises, and leveraged recaps.
His career has been dedicated to facilitating strategic initiatives for both private and public companies with revenues ranging from a few million to over a billion across all industries in the US. Prior to leading Footprint Capital, Mr. Curtis served as a vice president and CFO with Insource Spend Management Group in Hilliard, Ohio. At Insource, Mr. Curtis directed the company's strategic growth initiatives, including acquisitions, strategic partnerships, and alliances. He led the company through two synergistic acquisitions and ultimately through the sales of Insource to AFS Logistics.
Foregoing his work at Insource, Mr. Curtis has 10 years at GBTQ and Fifth Third Bank in Columbus, Ohio. He served in a director role at GBQ capital, a boutique investment bank owned by GBQ partners. He started in business valuation practice and became an essential contributor to the formation, development and success of the merger and acquisition practice.
Mr. Curtis began his career at Fifth Third Bank, where he held several positions in commercial lending, including relationship manager. In this role, Mr. Curtis served companies with sales ranging from 5 to 500 million in central Ohio. Mr. Curtis currently serves on the board of directors of Great Lakes Assemblies, Golf Shore Assemblies, and Indiana Assemblies. In addition, he is on the advisory board of Silver Threads and Telecommunications and Technologies Group.
Michael Butler is a senior director at Footprint Capital. Michael is responsible for leading the sell side and buy side engagements with business owners. In addition, Michael cultivates relationships with clients, prospects, centers of influence private equity firms and family offices.
Michael's previous roles include auditor and consultant with a big four accounting firm, corporate executive with an insurance and financial service group, president of a securities broker and dealer, venture capital partner, business owner, angel investor, and board member.
These roles, which included numerous acquisitions and exits bring a wealth of experience to any engagement.
Josh and Michael, great to have you back on the podcast, the first time that both of you were on you set a record. It was, our first time on the podcast having two guests.
And now we have another record because you're back on for a second time. So, you're the first set of guests that we've had back twice. And it's absolutely wonderful to have you back on. Michael, before we jump into the interview why don't you tell the audience what we're going to be talking about today and your idea, and then we'll jump right into it.
Michael Butler: [00:04:51] Thank you, Jeffrey. As we think about, the conversations we have with sellers, there's many of them that see an exit event is a, on or off, meaning sell a hundred percent or don't sell a hundred percent.
And quite often a better solution for many companies, many growing companies in particular is doing a recap, either a majority or minority recap. And that's what we thought would be a great topic to, to talk to your listeners about, we’ve done several levels in our past and, continue to have active discussions.
In fact, we've got quite a few active discussions right now on these, and, we thought we just walked through a little bit about who it's good for, where it makes sense where maybe it doesn't make sense and, talk a little bit about some of the magic that can happen regarding the numbers.
So, just, as a teaser there, I'll leave it at that.
Steve Wells: [00:05:35] Michael, I think it'd be interesting too, if you give our listeners an understanding of what a recap or recapitalization means and the mechanics of that, and how it's actually technically structured, it might be helpful.
Michael Butler: [00:05:46] Thank you, Josh has actually worked on several of these very recently here, and we'll get some real-life experiences from him. Essentially what will happen is, an owner will make a decision that, selling a hundred percent doesn't make sense for them.
And they want to stay actively involved. They're still interested in running the company, taking it to the next level and they feel like they could be a smaller slice from an ownership point of view and part of a bigger pie. They want a financial partner to help them get there. And it might be financial.
It might be someone with operational expertise, or someone with some skills in an area that they don't possess. But, to your question, what it really involves is, selling just a fraction of your company. It might be 30%. It might be 70%. That's a pretty often, 70 or 80% is sold.
And that's what we call a majority recap where you're selling the majority of your company, but not a hundred percent. And you're retaining in that case either 20 or 30%, and holding that into the future, for ultimately a second event that would cause you to, maybe the whole company gets sold and, it's grown to a bigger company at that point in time. And the thought is the second bite of the apple, may be actually even bigger than the first is by that. That, let's say you might've had an event where you sold 70% of your company for, let's say $10 million and you retained 30%.
And the company grows to a point where the second check that you received for selling the 30% might be larger than the first. And hopefully, you participated in two transactions by which you ultimately sold. A hundred percent of your company, but over a period of time and joined up with an investor or someone like that, it could be a variety of different types of investors and we'll probably talk about that, to get you there.
Jeffrey Feldberg: [00:07:16] Interesting. So, Josh, with your experience, who would a recap be good for and who would a recap not be good for? What are you seeing and what would be your recommendations as our business owners think about this?
Josh Curtis: [00:07:28] Yeah, it's interesting. I think there are a lot of different deal types, in terms of characteristics of selling owners, that fit and, we've done recaps with owners that, might be young. We did a deal this year. the owner was in his early forties. He had really grown the business, maybe beyond where he initially expected, really felt he owed it to his family, to future generations, to take some chips off the table.
But he was young. He wanted to continue working, wanting to continue to be a meaningful equity holder. So, we completed that transaction whereby he sold, the majority interest of his business and retained 35%. He's going to continue to be the president and CEO long into the future.
And, this is the type of individual that I wouldn't be shocked if he completed, two or three transactions with private equity. We've had other clients that, desire to retire in six months post-close and really moved to more of a, board or advisory role, but yet those private equity groups buying the majority interest of that business, see value in that owner continuing, both in terms of the expertise that he or she may have.
And in this instance, it was a he, I think in terms of the one I'm referencing, he really wanted to get out of running the day-to-day, but he wanted to tackle the special projects as they thought about expansion of service offerings. opening up new geographies, looking at acquisition targets.
He said those projects to me are really fun, but I really don't want to manage the day-to-day anymore. And the beauty of that for him was he could live in Florida. He could do, much of that work remote. and, he retained a 20% interest in the business and, we've had others that, the private equity group really just wants it as a show of faith, they just want to see that our client believes in the business. And for many owners they really come to understand it, the economic benefit can be significant. We'll touch on it. I'm sure in this discussion today, but one of the big benefits is if you're selling a majority interest of your business and let's say rolling over 20%, generally speaking that 20% does not cost you 20% of the sales price.
It usually costs you something much less than 20% of the sales price, because many buyers are putting leverage on the business.
Steve Wells: [00:09:40] So, in the news recently, the founder of Mirror, which is compared to me, a younger woman, she's 37 and she sold her company to Lulu lemon for $500 million. And she stays on and reports to the CEO of Lulu lemon. And in her case, I imagined, she thought this is a way to grow her company and she needed the capital. And maybe even some expertise. Do you see that as happening with some of your clients?
Michael Butler: [00:10:06] I think, two things can occur and Josh mentioned one. One is where someone wants to take chips off the table, meaning they've grown the company to the point where, it might represent all of their net worth, usually, entrepreneurs who are starting companies, throw everything into that, both financially and personally to grow their companies, but it can get risky to the point where that, you have a lot riding on that bet.
So, to that end, being able to take chips off the table, selling 70% and taking some of that as cash back to shareholders. But to your point, Steve, there's also the ability to take that money and put it back in to the company as growth capital, all are part of it.
We were just talking to, potential client and, they have gone as far as they can go, acquiring companies and, they feel like they would really like a financial partner to help them go the rest of the way. And they know they can grow a very large company. They've proven it and so they feel like they've got the skills, but they'd need the capital.
And that's where a partner like a private equity firm that Josh referenced will do that. And typically, as a lot of your listeners know, a private equity firm, is generally wanting to, exit a business in let's say three to five years, three to seven years, after they make an investment.
So, the great thing about that is the fact that there is some timeframe by which the second part of the business will monetize, knowing when that second bite of the apple will come in essence.
Jeffrey Feldberg: [00:11:24] It's interesting because private equity gives another kick at the can.
And as another option for business owners. Let me throw this out there. And I'd be curious to hear your feedback. Many business owners that we speak to and the ones that go through the Deep Wealth Experience. One of the common things that we hear from them is I started my business because I could never work for anybody else.
If I was an employee, I would fire myself and I wanted that freedom. I wanted to just either succeed on my own or fail on my own, but it's all mine. I call the shots. It's my lifestyle. I control when I go into the office. And when I don't. And so how do you balance that out in a recap on two counts? Number one, you're now working for somebody. You really do have a boss and there's a lot of money on the line and you're reporting into somebody. And the second part of that is not only are you reporting into somebody, but if the new owner, and we hear these horror stories blows up the company, And you're there for that psychologically, mentally that's one whole thing, but also financially as well.
So, how do you put those two aspects of having a boss now and possibly a boss who runs the company to the ground? How do you put that into perspective? Is that just more fiction than factor? Where is it?
Josh Curtis: [00:12:40] When we have a client that really struggles with that idea of working for someone, what we often find is the appropriate action might be a minority recap versus a majority recap. Because what that minority recap, where you’re selling 20 or 30%, it doesn't really give the same kind of boss-like-feeling. what it really does is it brings in private equity and that private equity firm might have some control provisions, things that they can block if you will. They'll certainly have a voice at the board. There'll certainly be changes to the organization that they influence, but at the end of the day, that business owner, that's concerned of quote, unquote, working for somebody, this is really a way, we're, it doesn't feel quite like that.
I would tell you other clients, why they initially might feel that way, most private equity funds, the days of private equity coming in and slashing and burning and making all these changes and running off employees, it just doesn't really happen. Can it happen? Yes.
Has it happened? Not in, fortunately, not in deals that we've worked on. but I think most private equity groups at this point, come in really trying to be collaborative. And I think as those owners start to meet private equity firms, they start to understand, these guys aren't going to be day-to-day in the business, they’re going to help make strategic decisions. They're going to help guide from the board level. But they're not going to be, sitting next to me and in the passenger, seat telling me which way to turn and who to hire and fire and those types of things. And I think, in that consideration, as well as you assess, if you get into troubled waters, I think a big part of it comes to how much equity has that owner taken off the table.
And when you start to think about that a recap allows them to get off of personal guarantees, for example, whether that's with the bank or whether that's with landlords. So, most often these owners are shoring up their personal balance sheet, hopefully to the point where, to the extent that the business did decline, it wouldn't materially impact, their future and their life.
But I would tell you again, similar to the tune of private equity making an impact negatively in the business. I just don't see as much those major changes coming in whereby the business would be worse off or would have a higher degree of failure because of private equity coming in.
Usually, it's just the opposite of that. These private equity firms have invested in so many companies that they've got experience walking the trail that many of these owners have. And when you start to think about what those private equity firms have seen in their history as investors, and partnering with management teams, that experience can really help an owner avoid a pitfall the he, or she may not have seen on their own.
Steve Wells: [00:15:25] So, when a private equity, when they come in and do, they take the stance that they want a majority or a minority, or do they look to the owner and figure that out? And does the owner take a discount if the owner has majority control and the private equity has a minority is there more risk on the part of the, the private equity?
Josh Curtis: [00:15:46] I'd really put it in three categories. Number one, there are definitely private equity funds where their mandate within their fund is controlled transactions.
So, those firms, they will not have the ability to do minority deals. There are other funds that are essentially the opposite. Their mandate is minority. And then you'll have funds that do both. So, generally speaking, as a client considers private equity, they should understand what type of investor am I talking to?
Whether that’s a, firm like ours helping guide them, or if they're doing it on their own, certainly you want to understand what type of investor is this and does the type of fund that they have. Fit my need. Secondarily, as it relates to how they engage in whether or not there's a discount.
I think, it's very circumstantial in that certain industries based on how much interest there is within those. So, one good example right now would-be residential services. Michael and I have been doing a fair amount in home services. COVID has really, put a big magnifying glass on the success that these businesses have had through this COVID pandemic.
And as a result, we're seeing effectively the same multiples in a minority deal as we would in a controlled deal. That is not the case in every industry. And it probably also is somewhat predicated by how much, control provisions and blocking rights. And those types of things do the private equity fund have, if they are making that minority investment.
Michael Butler: [00:17:16] I'll, jump on that, Josh, a couple of things you just said, and just to be clear, home services can mean things like HVAC, plumbing, things like that we're, we're diving into. And those particular have been positively affected by COVID. People were spending more time at their homes and taking better care of their homes.
And, with that, they've seen a rise, not a fall, the other thing, I guess I would mention back to a previous point, Josh, about knowing the type of investor you have. It can be as simple as going to the private equity funds website. Many of them will list on their website investment criteria and it'll show the type of, investment they're looking for companies between X and Y of EBITDA.
Companies located in these industries, and whether they're doing, like Josh said, minority, majority, or both types of recaps. So, sometimes that information could be as easy as that to, to receive and find on your own. But granted, we as advisors to exiting owners, have many relationships with people, we know exactly the types of, type of deals, they're looking to do, and in what industries and what size.
And generally, once we hear about a business, we know, we have a shortlist on our mind as to, the best private equity funds and investors that might make sense.
Jeffrey Feldberg: [00:18:24] And so how would the mechanics work on this kind of recap? So, somebody comes in whatever percentage of the company that an owner is effectively selling.
Where does the money go? Where does it flow to? What does it all look like? If you can walk us through some of the mechanics of that would be quite helpful.
Michael Butler: [00:18:41] Yeah. And it's tough do this kind of math verbally, but I'll give it a shot. We also have a piece that we can make available to, to your listeners if, that would be helpful as well.
We can put that on the website, and it'll be available on our website as well, but I've got an example here in front of me, just so I make sure I don't mess up the numbers myself. Let's say we have a company that's generating $3 million of EBITDA, and let's say the, the market is valuing that company at a 5X multiple five times.
That number, which, doing the quick math there, $15 million will be the total enterprise value. The, owner desires to sell the majority, but not all of it and the wants to sell 80% of the company and retain 20 into the future. So, what that would mean is that there would be cash to the selling shareholders of $12 million.
There would be an equity rollover for $3 million and generally there'll be things like transaction expenses and whatnot in there. On the other side of the equation, into the new company, generally a investor in that company will leverage some debt in order to buy the company. In this case, we assumed a seven and a half million dollars of debt.
The investor would need to come up with approximately $5 million. In this example, the way we did it, we put the transaction expenses in here. So, it'd be $5.25 million. And the equity rollover that we discussed that 20%. That has a $3 million value would then go into the new company. This owner is selling 20% of their company, but at the end of the day, they end up with 36% ownership and the new entity. Now how's that possible? What's possible through the use of debt they're getting the benefit of the leverage that's being put on the company.
And clearly that is a debt of the company going forward. It doesn't just go away, but hopefully it can be earned through into the future. But owning 36% of that company going forward, and having cashed out of 80% of it is a pretty decent transaction. So I think that, hopefully those mechanics and like I said, it probably makes a little more sense for most people that are visual, like me to see it on paper, but it’s really the, the magic of the math here, if you will. And it's all really due to the, the amount of depth that gets put on the new, investment.
Josh Curtis: [00:20:48] And I think Michael, you could also say it a different way. You could also say that if that owner was asked to retain 20% of the business, given that $15 million enterprise value with a seven and a half million of debt, they would only be asked to invest a million and a half for that 20% of the business.
So, they'd essentially be pulling off, an extra million and a half. That million and a half dollars that they would invest. making their gross proceeds $13.5 million, is a pretty attractive deal. when we look at the benefits of these rollovers, because I think most owners, as Michael articulated at the front, their mind says, if I'm rolling over 20%, that's 20% of the sales price.
And the reality is either in Michael's scenario of rolling over that 20% buys you more equity. or in my scenario being asked to roll over 20% of the equity, does not actually cost you a full 20%.
Steve Wells: [00:21:45] So, I assume anytime you leveraged something, there is potential to have something go wrong and you're putting some risk in there for what you already have in the company.
Aside from that, what are some of the other potential downsides of doing a recap?
Michael Butler: [00:22:01] The biggest thing is you need to make sure there's a good chemistry between you and the purchasing company. If you're going to work for those folks or work beside those folks, you want to make sure there's a great working relationship.
They appreciate, and generally they do generally appreciate the job you've done with a company, but you have to be, back to Jeffrey's comment, there are some people that don't consider them themselves employable by others. So, you need to have some, some tolerance as it relates to, working for somebody, but making sure those good chemistry at the start.
And clearly knowing who you're going to be working with and working, under, if you will, in the case of majority. Or working besides, from the standpoint of private equity is I think super important.
Josh Curtis: [00:22:41] I would say in terms of things you need to focus on upfront, before getting to risks, I would say in the spirit of chemistry, I'd also say having aligned objectives.
But I think you want to make sure that the party that you bring in as a partner has the same vision as you. I think, we've seen situations where our client has had one party in mind, who they thought, maybe approached them and they thought would be a good partner.
And as we've said, look, you should talk to other parties to understand what are the differences between how these parties view the world? The analogy we use sometimes is ice cream, right? How do you know you like vanilla if you've only had chocolate? I think sometimes clients, don't have as broad a perspective as maybe they should, and why we usually urge them to talk to multiple parties because there are different nuances within private equity.
There are different views of, maybe a family office would be a good example of this. Some private equity funds, as Michael said, they can't hold a business beyond seven years or eight years. Many family offices have the ability to hold a business long-term well, if your vision is you want to work in the business, you don't want to have to sell the business at some point, private equity might not be right for you. So, again, that aligned objectives is really important. From a risk standpoint, I think the benefit of bringing in private equity is they've got a deeper wallet, deeper checkbook, theoretically than most business owners.
So, while there is risk of adding debt and operating in a more highly leveraged environment, these private equity funds are accustomed to that. And in every scenario that we've worked in, our client would never be personally liable for any of those debts. Or if they were continuing to run the business and they were completing acquisitions or, achieving organic growth, that required investment, our client would be bearing the risk of that.
So, I do think there is risk in a leveraged environment and it needs to be something that everybody's really comfortable operating within. But I think relative to the personal risk, it really is not the same when compared to, what it would look like without private equity involved.
And then I think, every owner as Michael said, in terms of working for somebody, you really got to consider what happens if it doesn't work out. What happens if, we think the chemistry's great. We think we have aligned objectives. After two years, this marriage just doesn't work out.
How do we break up? Does that own, or have protections in his or her employment agreement? Do they have some way to sell their equity? What are their options ahead of them if it doesn't work out? And so, I think that's something that, unfortunately, a lot of the details and transactions at the front end are talking about all these, what if scenarios that are generally unlikely scenarios, but they're the ones that you spend the most time talking about, because, they're the most challenging to work through when, and if there is a problem.
Jeffrey Feldberg: [00:25:32] And I'm wondering with this kind of scenario, If it changes how you prepare? We have our nine-step roadmap that has a business owner come out prepared and through that process, to increase enterprise value and handing it over to advisors like yourselves you'll then take it to an even higher level. But the question is, if it's going to be a recap and in essence, you're going to be running the company, you're likely not to know who the investor is going to be, how is the preparation different for a recap as opposed to going out to a regular kind of liquidity event?
Josh Curtis: [00:26:08] I would honestly say it's about the same. I would say private equity is going to do the same level of diligence where they're buying 20% or 70% or a 100%. Their level of diligence, and the cost associated is going to be no different.
Michael Butler: [00:26:25] Quite often we're seeing, private equity backed strategics are really a great marriage of those two components. And really what that would be is a, private equity fund has made an investment in an area. And typically, those are called platform investments and those platform investments are usually larger investments.
So, usually it's a $5 million of EBITDA or higher. And, what they're looking to do is then do add-ons to that. There are smaller companies generally that are tucked underneath, the platform company and, integrated to some degree, at different differing levels of degrees, of course.
But, but with that, that kind of structure, if you're a, let's say a smaller company that would be considered of an add-on, let's say you're $2 million of EBITDA as opposed to five, but you're in a given area, getting to know from a diligence point of view, getting to know that, that platform company and their position in the industry and how you can be synergistic with them, I think is an important, component as well.
Josh Curtis: [00:27:21] And to continue on there, Michael, I think when you consider what a recap means, there are two facets of a recap. Number one is, are you the platform business? Are you that first investment for a private equity fund? If you're not the platform you're going to be an add-on. You're going to be a bolt-on.
You're going to be some other acquisition to an existing investment of a private equity fund. And those take on the flavor of a smaller piece of a bigger pie. So, the recap dynamic is still the same. What we've discussed here is still the same, but what you end up with is there's a business, on top of you, in the legal structure that might be twice your size. We're doing a transaction right now. we're selling a company with about 6 million of EBITDA to accompany a private equity backed strategic. The core business, the platform has about 10 million of EBITDA and our client's reinvesting 10 million of their proceeds.
Transaction value is in the 50 million range. And, our clients are re-investing 10 million, in the combined business. So, on a combined basis that EBITDA is going to be 16 million. So, when you look at while that might have bought our client 30% or 40%, in their business, f they were just rolling those dollars over to their business, they're going to own somewhere around 15% of the combined business. There are many benefits to our client in this transaction. both in terms of some operational synergies, geographic expansion, covering a wider footprint.
But then also multiple expansion. As you talk about selling a business, with 6 million of EBITDA versus potentially selling a business with 16 million of EBITDA, that larger business, like the cash flows are worth more. There are also some added risks, right? there's kind of two management teams and, how's it all going to fit together?
And what does that look like? But I think the recaps, should be viewed, on a level basis when you start out a process between whether you want to be the platform or whether you want to be the ad-on, and really understand those differences as you prepare for a process and, I'm sure that's something that you guys help educate, your clients on a Deep Wealth as well.
Steve Wells: [00:29:37] It's really interesting Josh, when you talk about that, because you've got multiple levels of decision-making here, because if you're an add on, you may not have this much power or control, but you're leveraging your investment into a larger entity that could grow more, which has its potential risks as well.
And what's interesting our clients that we're dealing with, haven't really decided exactly where they're going yet. They haven't hired an investment banker and they're coming to terms with what are all my options and it's a very emotional time. But a lot of them are wondering, what am I going to do after this? Do I want to stay on? And we're helping them process this. So, I think it's really important to hear what you're saying because the dynamics of the recap are multi-level. There are multiple ways to take this and move this so that kind of gives them, a lot of fluidity. They have a lot of ways to jockey themselves and position themselves. You give them understanding. So, you mentioned your recent transaction, are there any other examples you can think of that you or you've heard about where, the owner has done the recap and you know how that's worked out for them?
Josh Curtis: [00:30:44] We have a multitude of stories. We have one that we completed earlier this year, in the middle of, the shutdown that we all experienced this spring. And it was in the home services space. It was a plumbing business. And, our client was going to be the third add on to a platform investment that had been made.
The platform was based in Michigan. They were looking to expand, in Ohio and in Indiana, as well as throughout Michigan. Our client was based here in Ohio. Our client rolled over about a 10% interest. He was of the, of the idea that he didn't want to work more than 12 months.
Post-close his wife also worked in the business. They were both owners. She only wanted to work 90 days. she was burned out. She was ready to retire. But he was willing to stick around a little longer and, I think was open-minded to what the long-term role was for him. If you fast forward to today.
So, that transaction closed, roughly six months ago. He rolled that 10% interest. they bought another business in the same market as him, about a week before. So, they had now made it for businesses that they had created a holding company for, and that all these owners, were rolling their equity into. The private equity firm was getting approached due to the interest in home services so aggressively that they decided to sell the business. So, if you fast forward, this business is going to now sell to a different private equity firm. I think they've completed somewhere around eight acquisitions now.
Our client will make three and a half times his money, in that six-month period. And he's going to actually roll over 100% of his proceeds with the next private equity fund, and, pretty much retire at the end of the year. They'll keep his board seat. but he won't be working in the business day to day and he's rolling that, 3.5X return, into this platform, that they're continuing to scale and do acquisitions nationally.
Jeffrey Feldberg: [00:32:38] That's phenomenal Josh and congratulations, both Michael and Josh on that kind of success story. I'm wondering as we continue to go through this pandemic, which seems to be persistent and not going away anytime soon. Does that change particularly for a recap of what we're talking about today, or is it business as usual with that? Any new dynamics that have entered in because of the coronavirus as you look to doing a recapitalization.
Michael Butler: [00:33:05] For a period of time, obviously in the early COBA days, kind of March of, 2020, saw, a bit of just, paralysis people just not knowing what to do or what to make of it.
So, there was a period of time where things got pretty quiet. We had a number of transactions, some of those went on hold. those have actually for all of ours, they've all gone back live. And actually, some of those are the ones we are working on closing right now. With the numbers, still very high on COVID, these days and the vaccine just being approved, to date this podcast a little bit, everybody's got a very optimistic view of the future of a return to normal.
And so, multiples have continued to stay high. Lenders have maybe been a little bit more reserved, but I do believe that hopefully their confidence will come back. So, that's probably the biggest impact we've seen as a result of COVID as those types of things. Our business volume is good.
We believe that many, folks having come through COVID are now the mindset that, they may be done. they may not want to fight another battle. Who knows what's around the corner?
We believe that 2021 is going to be a pretty busy year for, exiting. Obviously, we're a little biased because we're in that game. But we do think the demographic has continued to line up well around that.
Josh Curtis: [00:34:18] Yeah. I think we're probably seeing more interest among owners considering recaps than ever before. And I think anytime you go through a place where owners perceive to have heightened risks, I think there's always a consideration of, should I be more diversified than I am? And should I have a partner that has a bigger war chest than I do? And I think, we're seeing it in every industry right now, where there's just interest from business owners to learn more about what does bringing private equity into my business mean?
And, I think probably maybe more so than ever before as well, there's more, primarily because of the amount of capital out there, there's more flexibility in terms of how does private equity engage than ever before as well. While a recap by definition, means that an owner is taking cash out of the business, one thing we haven't really touched on is that doesn't always have to mean it's selling equity. there can be recaps with strictly debt. And, while those may not be the same risk profile, for the client, because they may still be guaranteeing debt or what have you, those are certainly options that we show clients, as well, just to make sure they have the full spectrum of all their options in front of them. TBD with what other changes there may be. But what I know for sure is, private equity firms are trying hard to tailor solutions for what clients want. What business owners want, because they're trying to differentiate themselves and to find ways to make deals, work with quality companies.
Steve Wells: [00:35:53] And, Josh, I think you've already said it. what I read and hear is that there was a lot of private equity money out there that needs to be allocated. And if they don't allocate it, if it's private equity, they lose it. So, they're motivated, as well as maybe the sellers are motivated too. Any final thoughts that you have before we ask a final question, about, this, whole topic that you think we've missed or would be important to share?
Michael Butler: [00:36:19] First of all, thanks for having us.
We appreciate talking about the topic. Hopefully we can point some of our clients, we're talking to two, this might help to, further explain that conversations we have with them. But, no, I think it's great to have covered this and talked about it. There's just a, as we said, there's a lot of options to choose. It can be a little overwhelming as an existing business owner, but, and again, coming from a little bit of a biased point of view, getting an advisor, talking to people like us that understand these options, understand the market who sell companies for a living, really can help.
And obviously that's what you talk about at deep wealth and how you train people to be educated consumers of, the advisors they choose and the process they run on that sort of thing. you're doing good work out there with that.
Josh Curtis: [00:36:59] I think it's in the right scenario, hard to overlook the powerful combination of a professional investor that's had great success investing and a strong operator that knows their business and knows their industry. And when you can marry those two together, the power that, what they can create is far more than what that owner can do on his or her own. And we've got story after story where, our clients have brought in private equity.
We have another one that just closed a week ago today. that, we weren't involved in. Our client. we helped them four years ago, bring in private equity. and they grew the enterprise value from, the teams, when we completed the transaction, our client rolled over 30%. And, his check, for that 30%, was about $50 million a couple of weeks ago.
And it's not something that would have been possible without bringing in the right partner, to help grow the business.
Jeffrey Feldberg: [00:38:04] And Josh speaking of the right partner in the Deep Wealth Experience, step number four of our roadmap talks about the advisory team.
And so, for our listeners out there, this is just one of many examples with our good friends here at Footprint Capital, with Josh and Michael, they're talking about something that you may not have heard of. And so, as a business owner, if you're wondering, do I need an investment banker? Maybe I should do it on my own, or I have a family friend who's a terrific banker or broker, no, you need to have an advisory team and particularly investment bankers that this is all that they do in the world of mergers and acquisitions. Today, you'll walk away with a new tool in your toolkit called a recap, and it's something for you to consider that you may not have had before.
And just one more reason why when the team works, the dream works and that your advisory team, they just got to be your A-team, to make things happen because you only have one chance to do this, and you want to make sure that you're going to be doing it right. And Steve so no pressure on you, I'm going to put you on the spot because we were talking offline how, as we said we have some repeat guests and friends back on the show. We can't ask them the same question we ask every guest. We've got to change it up here.
Steve Wells: [00:39:15] We've got to change it up. So, my, my final question to you.
Actually, someone asked it to me. So, I thought this is a great question, because I want to hear the answer is, and Michael, you can start, so you don't have to stumble over who's going to be first. So, I'll slow down my question. So, why did you get into this industry in this business?
How did you start? What was it that made you want to get in into this? This isn't something I know you're in school, they talk about it, but it's tough to really understand the mechanics of your M&A and investment banking until you work out there in the world. What was it that brought you to this industry?
Michael Butler: [00:39:56] Yeah, that's an easy one, so I don't need a whole lot of time to think about it, but I've been around for bet and I've done quite a few things. I've had a chance to be a CPA and a corporate executive and a venture capitalist. And so, all those experiences have led me to this.
And what intrigued me about it is just the fact that I'm such a big fan of entrepreneurship and to see an entrepreneur be able to put the capstone on their career through an exit and really benefit from, a lifetime of work. Folks work so hard, to build businesses and they're so talented and gifted and they make a lot of sacrifices.
And, with that, we'd be able to monetize that and have them enjoy life is pretty fulfilling. and just also the process is a lot of fun. it's a lot of fun. First of all, for us to get to know people's businesses going into factories and seeing how things are made.
Talking to people about different business models, all those sorts of things are just fascinating to me. I'm just constantly curious about, different ways people put a business together. So, learning about that and getting to rub shoulders with some of the most successful people in the world is why I'm in it.
Josh Curtis: [00:40:59] I've obviously got a lot of the same reasons. I think, at its core for me, it is the curiosity of getting to learn both about business and about human beings. About people, and helping them through, what might be the most, important business transaction of their life.
For many clients, it's definitely the largest, it can carry a huge emotional weight. So, it's not only about the numbers, it's not only about the details of the transaction. So, much of it's also about the person. And I enjoy, learning about their companies, but also really getting close with these people.
We have a philosophy of Footprint that we want to have our clients be people that we enjoy spending time around. And if they're not people that we enjoy spending time around, generally for us, they're not going to be a great client. And we spend so much time with these people. I could tell you more about these people and their schedules and those types of things and how that evolves over a process. We've had clients and we feel a Footprint that when a transaction closes, you go through a little bit of a withdrawal from talking to these people and how much time you spend, working with them, where, sometimes it can feel a little anticlimactic.
And, I just think it’s a special opportunity for us to really be able to help these people, monetize, or achieve their objective that they set out. Even some of them unknowingly, many years ago. One of the transactions, he said to me, yesterday on a call, he said, Josh. She said, when we started this business, we were just looking to supplement our income.
We never guessed we'd have the opportunity to sell it for $50 million. I can't help, but feel, almost astonished, how blessed we've been, growing this business that we just thought it was going to be a side hustle, our whole lives.
Steve Wells: [00:42:46] it's obvious Josh and Michael, that aside from your knowledge, and there's a lot of people with knowledge, the understanding, the empathy, the heart that you feel in, in helping your clients really achieve probably a one-time or at least a lifetime, pinnacle financially. Again, thanks for sharing with us and it’s always fun and enjoyable to help you educate us on something new today. Recap.
Josh Curtis: [00:43:07] enjoyed it. Thank you.
Jeffrey Feldberg: [00:43:08] Thank you everyone. And please stay healthy and safe.
Michael Butler: [00:43:11] Thank you.
Josh Curtis: [00:43:11] Thanks very much.