Sell-Side Advisor, Successful Business Owner, And Philanthropist, Rob Follows On How To Achieve An Extraordinary Exit Through Selling To Strategics In Your Liquidity Event (#54)

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Jeffrey Feldberg: [00:00:06] And I'm Jeffrey Feldberg. Welcome to the Sell My Business Podcast.

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Jeffrey Feldberg: [00:01:39] Welcome to episode 54 of The Sell My Business Podcast.

Rob Follows is driven to helping entrepreneurial business owners achieve maximum value when the right time comes to sell. He has a passion for helping people live their vision and wants to help other entrepreneurs achieve full value for their business.

Today, Rob has been involved with or led over a thousand M&A transactions with a total transaction value of over $100 billion. As well as being CEO and founder of STS Capital Partners, Rob is also the founding Chairman of Altruvest Charitable Services, a Canadian charity that provides training and tools to improve the performance of charitable organizations so they can give more to their causes.

In 1998, Rob received the Top 40 Under 40 leadership award for the work he had done in creating 1,000 new jobs in Canada, as well as founding and growing Ultravest Charitable Services, which has now contributed over $10 million since its establishment.

Rob is a true believer in contributing leadership. He has held various roles with Young Presidents' Organization and World  Presidents' Organization, including founding chapter chair, former Chair of the Global Deal Network, Founding Chair of the Executive Committee of the Social Enterprise Networks, serving on the networks committee of the international board of YPO for over five years and contributing to over 100 events as a YPO best of the best premier speaker.

 Rob is also an extreme adventurer. When Rob summited Everest on May 24th, 2006, he became part of an elite group of people who have climbed all Seven Summits. His adventures also include skiing the North and South poles. Canoeing the Nahanni River in the Canadian Arctic.  The first international descent of the Onan River on the Siberia/Mongolia border. Completing the 250-kilometer Gobi Desert Ultra Marathon and 110-mile Trans Rockies Challenge. Rob has practiced deeper meditation and mindfulness with the Tibetan monks at the Kopan Monastery in Nepal, Tiger's Nest Monastery, and other monasteries in Bhutan.

Rob's academic accomplishments include a BA with distinction from the University of Toronto; an LL.B from Osgoode Hall Law School at York University; a certificate in Not-for-profit management from the University of Toronto and Sheridan College; the Arbor Award from the University of Toronto as an international leader in corporate philanthropy; a master's degree from Oxford University's Saïd Business School in Advanced Strategy. He was also honored by being identified as one of the "Group of 175": the 175 most visionary and philanthropic living graduates in the history of the University of Toronto.

Rob welcome to The Sell My Business Podcast. This one has been a long time in coming. We've had a few rescheduling’s, but you are here in the person, which is terrific.

You're a successful business owner. You then transitioned into investment banking. You're big on the philanthropy side, but let's take it back to the beginning. What's the story behind the story of how you got to where you are today?

 Rob Follows: [00:05:03] Thank you, Jeffrey. Thank you for the introduction. I don't consider myself an i-banker. I consider myself, a sell-side advisor in our 3,600 members of the STS team are all sell-side advisors only. Just for those that are listing investment banking as a whole spectrum of services, including buy-side, including capital raising, including valuation opinions. We're very specialized in sell-side only. And as you ask any back to the beginning, I'll be happy to share where that passion came from, Jeffrey.

I would say that there are three pillars to how we ended up where we are as a sell-side advisor.

The first is my experience in selling my own business and not being able to find a great advisor. I am originally Canadian. I lived in several places in the world now, but originally, I was Canadian. I live in the US, Europe, Canada, and the Caribbean now. I'm moving around as we have international business, but I was in Toronto, Canada at the time and my business grew. Thankfully I was the largest independent marketing services business in Canada. And the opportunity of free trade was one where senior advisors at the time where friends of my father said, you're going to get crushed young man with the large multi-billion dollar US services companies that have ignored Canada, but now with free trade won't. And it'll be nice to have known you, but your business is not going to survive free trade. And so being assertive, I hired one of them as a consultant to take me to the top three which were Carlson Marketing out of Minneapolis, BI, and Maritz of St. Louis, Missouri. And what I didn't realize, Jeffrey, I was doing at the time was something that all entrepreneurs and family business owners that are thinking of selling now ought to do, and that’s thinking about who the strategic buyers would be for their business and how can they get in front of them?

And there's good news and bad news to this story. I very thankfully was able to visit with those three strategics. And one of them said we don't want to have you do all our fulfillment and look after that strategic leverage of Canada for us.

We want to buy you now. And ultimately, I went back to try to find an advisor, Jeffrey. I talked to the senior accounting firms. Back then it was the top five maybe even six at that time before they merged. And they didn't understand that somebody as young as I was in my late twenties would have a business as large as it was, and they didn't understand how it would fit.

And I couldn't find someone that could really understand me as an entrepreneur out there looking for somebody that could be a sell-side advisor. And it was difficult to trust as well because we had this strategic buyer, as I now understand what they were on the line that was very keen and their top competitors we talked to as well.

That's the first challenge that we face Jeffrey, couldn't find someone that wasn't an entrepreneur, as we are for other entrepreneurs that had owned a family business that has been there and done that and that we could trust. As you move down through the transaction tour, things happened.

I lost $5 million which was a lot of money to me at the time on the last dinner because the lawyers were all arguing and I sent the lawyers home. We were supposed to be all the documents back then. It was all on a boardroom table. They were on the boardroom table to be signed at seven o'clock in the morning.

We went for dinner at nine o'clock at night. And between those two times, they didn't stop negotiating. And I didn't realize that. I wasn't properly counseled. So, any fees I would have paid would have been clearly saved. I know you've heard this story many times but here's the worst and perhaps the most profound learning. They paid 27 times EBITDA for my business. I remember back then you received a check and I arrived at a restaurant with that check that night and bought everybody in the restaurant champagne because it was a huge check.

My motivation was to start a charitable foundation. So, I was thrilled Jeffrey with that, but about two and a half, if not three years later, I had moved to St. Louis, Missouri, where the headquarters were. And I was working on strategies for the European and the Latin American and coordinating the international. And I stayed with the buyer by the way that was a unique opportunity. And my heart sunk one night. They tried to keep my file from me. I opened my own file because I was looking at a deal in Italy that was very close to the deal that I had done myself. And Jeffrey, they would've paid a hundred times EBITDA for my business.

They would have paid a hundred times EBITDA.  It was profound for me. I didn't know whether to laugh or cry. I left 75% of the money on the table. But what I committed to ultimately was to help other entrepreneurs and family business owners understand, because I'd become a strategic buyer at Meritz- we were buying all over the world. 

How can your business in its integrated essence down the road, be valued by a strategic buyer and it's not an EBITDA multiple? It's a function of how much money the strategic buyer will make or save when they make that purchase and that's the analysis, they make as strategic buyers. It can either be a product that they throw onto their platform and that profit stream is what they'll measure against or its intellectual property that they might integrate and it might be a new country as in this case. But here was the real story and it was that General Motors was their largest client.

And they were losing their intellectual property in Canada to the competitors down the road in Oshawa, Canada because they focused only on Detroit. And all their intellectual property was leaking to their arch competitor. I'd mentioned earlier, which was Carlson in Minneapolis.

And so, plugging that hole would give them a year on their $300 million they made a year in General Motors. A year lead instead of just being a couple of months behind. And that would be worth at least $300 million a year to them. And so you can see that no matter what our EBITDA was the calculation from the strategic buyer’s standpoint was how it impacted the risk they had the investment they had in their largest client and their intellectual property escaping to their competitor who is implementing it because they'd forgotten about, the smaller country of Canada.

That made our firm as we're the only independent marketing services firm in that region at the time, very valuable to them. And that's why they bid that high, but the financial team at the time had run an analysis that would stop the ceiling at a hundred times EBITDA, and what we do now and what I committed to doing back then was to help other entrepreneurs and family owners understand what is the real value, what are the Rembrandts in their attic?

But what are the unique factors, unique assets of an entrepreneur's or private business owner's business that is strategic with value and make more money owning than they currently do through the integration down the road?

And that of course is what we help people negotiate against on an EBITDA multiple.

Jeffrey Feldberg: [00:11:40] What a story and for our listeners listening in, I'm sure they're all saying, wow 27 times EBITDA. On the surface, that's incredible. But then you find out it's a quarter of what you could've got. So, that was your first business. Your first company, hindsight is always 20/20. And you've now been out there. You have the experience and the insights. But if you went back to that pivotal point in time, Rob, where at the moment you thought 27 times EBITDA, I hit it out of the park. That's a grand slam. What do you think outside of that expensive of dinner, where he lost $5 million in value?

But what could you have done differently to not have it 27 times, but close to that hundred times EBITDA, what would that be you know, that one wave your magic wand kind of scenario that I like to say that you would tell your younger self at that point in time?

Rob Follows: [00:12:26] I would encourage everyone to find someone. We're not the only ones that are specialized in a sell-side advisory. Specialized that works only for sellers and not for buyers. And really only works for sellers, not for buyers. And one of the ways you can identify that as they're also not selling to private equity.

I wish I could have found someone like that. I wish that I could have found someone that was very smart and that ultimately Jeffrey, would give us guidance would negotiate for us, but most importantly, to be able to understand the integrated value of our business in the buyer's world, and to understand how to negotiate against that, which ultimately was that hundred times, but we never got to understand that. We thought 27 times was this huge celebration.

But in fact, as you say, we left 75% of the table because from my perspective, we didn't have the right advisor. We didn't have somebody that specialized in Selling To Strategics that specialized in helping private and family business owners really understand where the leverage is in their business value and how to position it with a strategic buyer and then how to have them fall in love with it so that they will negotiate and share some of that upside Jeffrey, share all the way up to a hundred times.

It's a big number, but it all went to charity anyway. So, I would have loved it to be a lot higher.

 Jeffrey Feldberg: [00:13:40] Let me ask you something, Rob, because that moment in time forever change the course of your history. And you've mentioned this a number of times, and I think it's important for the listeners to understand this. You are sell-side only and you deal only with strategics. And so, for the listeners out there, why don't you explain to them, what does that really mean and why you do that?

Rob Follows: [00:14:02] Certainly. Thank you, Jeffrey. I have a one-page summary of the industry I'm happy to share with those that are interested in it.  As a diagram as Plato said, if you understand something, you can explain it simply. And so, I've boiled the M&A world down into this very simple illustration you are, and you can imagine this on one side of an eight and a half by 11 page, you are a private business owner, as many are the vast majority of businesses are.

And when you need to sell for death, disease, divorce, disability, disenchantment, disintermediation. The six or seven D's out there that is unfortunate if you let it get to that point. Because there are financial buyers in this illustration are middlemen financial buyers who have been merchant bankers have been that way for many decades.

 And now, private equity is really strong. VCs have been very strong. SPACs are very strong at this point in time, we're talking that Special Purpose Acquisition Companies. There's various names. There's strategic opportunity funds, hedge funds. There are various names of financial buyers who really all have the same motivation, Jeffery.

And that is to buy low and sell high. So, they want to buy your business low and they say buying well. And private equity is very powerful, they're very smart people and they do a great job at making money for themselves and their investors. But they have to buy low Jeffery and the same with all the financial investors.

And here's the operative question for everybody to think about. Who they're going to sell to? And this is the fascinating part of it. They each have usually actually nine o'clock Monday morning investment committee meetings of financial buyers, including private equity. And if they're going to prove a deal, the people presenting it, the partners presenting it, have to say who they're going to sell to, and they have to have talked to them. And the people they're going to sell to if it's not another private equity firm, another flip, are what we call strategic buyers. So, you are a private business.

And if you decide you're going to go and sell your business proactively to avoid the death, disease, divorce, disability, disenchantment, disintermediation challenges. So, you can sell well, being proactive. Our message out to the world is you too can sell directly to strategic buyers who are the ones that private equity resell to.

You don't have to sell to a financial buyer and then to strategics. Now I'll say that there's a time and a place for private equity, and sometimes they can be strategic depending on the required outcomes of a seller and a preferred outcome of a seller. But 95% of the time a strategic buyer will do a better deal if they're being presented properly too, by someone who understands how strategic buyers think and operate. They will do a better deal than private equity will. And so, our message to the world of sellers is you too can sell to strategics. And if private equity is calling you, you should call a sell-side specialist that works with strategic buyers, just again, as a simple definition, our buyers, when they purchase your business. And when it's integrated, they'll make more money owning than you. And we have to figure out how and how to negotiate for as much of that as possible for the sellers.

Jeffrey Feldberg: [00:17:04] And so for our listeners out there, I hope you took some notes here because what Rob is saying is really important. So, for starters, Rob you've taken any conflicts of interest off the table. You're only working with sellers. You're not working with sellers and buyers. So, that's a thumbs-up right there.

And then you're exclusively focusing on the strategics, bypassing the middle guy and getting those dollars directly to the business owner.

Rob Follows: [00:17:29] Exactly, by the way, I was going to tell you the other reasons why we launched STS, but the third one is to help those business owners, Jeffrey, is exactly what you're saying, maximize value, and that to us can be support for Success To Significance and so they can think about their legacy.

It's important for owners to think about their legacy after the deal before they go into the transaction. We feel that it's very important, and we're building out a whole resource set. Jeffrey, we have trademarked in the sector is Success To Significance. After the sale what would be significant? How would purpose come into your life? How could you think about maybe making the world in your life more enriched and the world a better place? That's how we think about it. And what we're focused on is creating billions of dollars of new philanthropic capital, because of the upside, the people get, Selling To Strategics. They're not going to take with them when they pass on. And so how would they like to create a legacy? And we do that consulting for free. I have a deep background in that area and many of our MDs do as well. And we only recruit partners at STS that really believe in helping make the world a better place, Jeffrey.

Through really supporting the sellers and never being on the side of the buyers and where we can push the virus in an uncomfortable position. I'd love to get into specialized iBanking versus generally. And part of that is when you're supporting generally across all industries, you're not going to be ever on the side of the buyer. People that work in specialized industries often have to worry about those buyers. They go back to again and again. We push those buyers to the nth degree. I could quote them. They'll say you've pulled my elastic to the point where it's going to snap and we'll say, okay, we have a little bit more to go.

Or we're done. We're leaving the auction. We're like, okay, then let's put this in writing. We push those buyers as far as we can possibly push them. Because we're not worried about ever coming back to them again. And then Jeffrey, that upside that's created, we hope entrepreneurs and family business owners will think about how can we make the world a better place.

Do I want to start a foundation? Do I want to give this to charities I care about? Whatever it might be. We just encourage them to think about that before the deal. And we feel very proud of the work we're doing in creating billions of dollars of new philanthropic capital by not leaving that in private equities coffers.

Jeffrey Feldberg: [00:19:39] So, Rob here's a question for you and it's an important differentiation. At the start of the interview, you very eloquently pointed out Jeffrey, I'm not an investment banker. You're really a sell-side advisor. But for a business owner who's new to this investment banker or a sell-side advisor, broker.

They all sound the same to me. What would be the difference and why should I care as a business owner? And where does it really hit the road in terms of what you're doing, Rob, and how STS is so much different and more vibrant than what you might find elsewhere.

Rob Follows: [00:20:12] Our branding is a Success To Significance through Selling To Strategics. And so, we're very focused on what are the needs and the aspirations of the business owner? Not what's going on in the marketplace. And not where the buyers are interested in, but let's start with what are the required and preferred outcomes of a potential seller?

How are they interested in this supporting the rest of their life? And how can we help them create a legacy? That's the first question we ask. That's very different.

But secondly, looking at the business that we don't charge for this because we want to make sure we're going to deliver value, looking at the business for, as you call them those Rembrandts in the attic, what is it that would make that house worth so much more than the average price on the street?

If they had a Rembrandt in the attic that certainly would drive it up. What is it about the client's business, the potential client's business that strategic investors would really value? Clients have some good ideas. We work closely with them to really position them, to understand the strategies of this strategics, and really position them well with the strategic.

And sometimes we're willing to get out in front of those strategics a year or two ahead of time and get them in front of the strategic. So, they get on their radar because we've been strategic buyers. We know exactly how they think. They don't want to fail. They want to be the hero that gets the deal done.

But if there's any risk, then they won't take it on. They'll even do a smaller deal that's less leverage if they're more comfortable with it than one that is more complicated. How do you support being the one that they choose? You get on their radar early. So, we'll even work with people a year or two before they sell to get them on the radar of those strategics.

But Success To Significance through Selling To Strategics is really all we do. And all we focus on now, I was just on a call with a family office group with traditional investment banking. That is a brokerage-driven paradigm where they're actually all usually a licensed broker-dealer groups that are raising capital that are doing fairness opinions, that are doing buy-side.

And by the way, this is the real thing entrepreneurs and family business owners have to think about. If you're one of those people that have to feed the engine, are you more interested in one M&A transaction with a sell-side entrepreneur or family business owner, or is it these groups you're taking this to the private equity groups, the large ones, like KKR and Apollo, et cetera, or the strategic buyers you might do five or six or 10 deals with in a year?

Which side are you more prone to focus on the interests of? You might think if you're that broker, my bread's really buttered with those buyers because I could do many deals with them and they'll compromise Jeffery. And this there's actually a subject of legal suits in, in in the US in California.

They'll compromise on the sellers' needs of maximizing value. So, having someone that specializes in sell-side only as you brought up recently, that understands strategic buyers, that cares about maximizing value for the entrepreneurs is a very different proposition than going to a traditional investment bank.

It'll feel different and the outcomes I would suggest will be different. And one way to test for that is when people are talking to you, as you're potentially looking to work with them, do they talk about all these strong relationships they have with private equity? If they do, you might want to, I'm just being polite, consider working with somebody that is only interested in the maximizations value for the seller

Jeffrey Feldberg: [00:23:32] So, Rob you are really preaching to the choir because here at Deep Wealth, our philosophy is when you pick the right advisors and you have the right team, as the saying goes when the team works, the dream works. And for our listeners, I really hope you picked up on this because what Rob was saying, believe it or not, your traditional investment banker, I'm not talking about Rob here and not all investment bankers, but your traditional investment banker is not your friend.

Your traditional investment banker is in cahoots with buyers that they do business again and again. They have a book of business. So, you're a one-time transaction. They have a book of business with a particular buyer. Who's going to win? Well, we're all in business to be in business.

That's their business and they have a right to be in business as do you. But if you know the rules and Rob is sharing some of the rules here that you need to know, then you know what you can do and what you can't do. And Rob, I'm wondering, we're talking about PE and hear a lot about private equity today.

They are just everywhere with more money than who knows what. Have they begun to infiltrate into what would have been just strict strategic buyers? So, you now have a strategic buyer who perhaps is backed by private equity. And if that's the case, what's that looking like that hybrid?

Rob Follows: [00:24:45] Yeah. Thank you for that question. So, there are two nuances there around private equity. So, I'll start with the basic one. If private equity is knocking on your door, you definitely want to work with someone who is going to bring all the strategies. I'm going to use a case history example.

It was a client out of Tampa, Florida. We have videos. We're happy to send you a short one, a longer one that explains their experience. And so the headline of this is sometimes if you use a strategic buying process, you can drive private equity to be above the strategics and to meet all the required outcomes of a seller, sometimes.

And I'm going to use this example and that is a Tampa, Florida-based distribution business, where, when we met them, they had a $40 million offer on the table. And they said, our father's gonna be so proud of this. And they said we don't need your help.

And I said, okay I'm happy to have dinner with you and help you anyway. And I gave them lots of advice. And at the end, they said what's your summary you want us to remember? When they retrade, which they will do when they get into due diligence or even before, and they start reducing that $40 million, call us.

And I guarantee you we'll get you more than $40 million. I guarantee you because it's a bid from private equity. There's lots of elasticity in that and the simple point is they need to buy low to sell high.

So, they're not going to bid the full value of the business ever. And so that deal, after we took it out to the strategics and we had 20 or 30 strategics. We kept the private equity group warm. We're not aggressive with them. We kept them warm. We connected with a top of the firm and said, look, you guys have put a bid in here.

We respect that. We respect your relationship with the client, but please realize, read our name. It's STS, Selling To Strategics. We'll let you know how it goes. And we'll come back to you with what you need to pay, to get this done to the terms of conditions that would be acceptable. And of course, they're going to be above all the others, Jeffrey, right?

We're working for the seller. So, we went out to the market and we came back from the market, let them know that A, we had deals that were over twice their offer. And B, they were looking at it wrong. So, when you're working with private equity, you have to be quite sophisticated because they are.

What we said to them is, look, you've got the value proposition wrong, and it's in the wrong platform company. You need to move it over here and look at it this way. And if you do that, by the way, you're allowed to rebid. And here's where all these are. And of course, we're working for the sellers. So, we put it up 20% and said, that's the threshold. A hundred percent cash upfront, which they never want to do. Adjustments for anybody you want to fire because we know you want to fire the salesforce.

You have to adjust for that. And the normalized EBITDA times the multiple and the client couldn't believe that we were able to achieve that for them. And again, you can see the video on it, the two brothers. And we need you to come in at this number. We close that deal because we were having trouble with the strategics.

To be honest, in that case, there were too many SKUS, Jeffrey. There was a concern there. And so we came back to the private equity group and that private equity group, the same private equity group that offered $40 million closed at $106 million, Jeffrey.

Jeffrey Feldberg: [00:27:34] Wow. That's phenomenal, Rob. And what a takeaway for our listeners. Your first offer, typically isn't your best offer, at least in selling your business and mergers and acquisitions. And it's having that leverage. Rob ran an auction process. You went out to the market, he had other buyers coming in and then work the magic that he does to get almost triple the offer of what they originally came in at.

Rob Follows: [00:27:56] Yes. Now that's the first point I wanted to make. And by the way, it's not me. We have a fairly large firm now, so I don't want to take credit for that. It wasn't me as our teams that do the work but thank you, Jeffrey. Thank you. We did do all of that and the clients, you can see them. I can send their video out.

They're happy to talk to others because they're so thrilled you know, they're able to really push the Success To Significant side much more than they would have with $40 million. But the second piece on private equity you asked about, which is a very informed question, Jeffrey is how does it look with these buyers that are private equity-owned. And ultimately, it's the same as dealing with a private equity firm, ultimately. We just closed with one on long Island and when we got into it, and this is really important for sellers to know. When you get into it, a strong private equity firm will try to shoot that is removed, that is take out the advisors.

So, after the first meeting, that's how difficult it is. When you're dealing with somebody that does not want the seller to be well-advised. They went to the father who is in his mid-seventies and said, this is a bad deal to have STS representing you guys. Remove them and we'll bid.

So, we had to explain to the client that is a great sign that they have a great business and that they're of great interest. But behind them, Jeffrey was a private equity firm that when the rubber met the road came storming into the process and saying, you know, we need this, we need that.

We need this. I'll tell you we can close that deal at $130 million cash upfront. During COVID by the way. And when the father said, look, because interestingly enough, we didn't bring those people to the table. The father brought them to the table and said, I've done a handshake deal. I know they can do it quickly.

My friend sold it to them and I want to sell it to them. And so, when we got to the end, he said why would we pay you your fee? This is good learning for the listeners as well. We said, but do you not realize after the LOI came in and it became clear, it was private equity, the massive negotiations that went on from the LOI through to the closing.

So, we prepared a document. And there was $50 million of negotiations that we won on working capital adjustments, inventory adjustments. These guys drill into every single line on an item, and you have to have a team that can defend against these private equity-owned strategics.

Because ultimately, they'll play the exact private equity playbook. And you have to be very cognizant of that. Now, if you have somebody strong enough on your side to negotiate with them, then you can win. But it's challenging and it's tough. And it's no different, ultimately working with a private equity-owned strategic than it is working with private equity.

Jeffrey Feldberg: [00:30:30] And what's interesting for our listeners, and you've heard this before on the podcast, when it comes to private equity, they are price insensitive. They are price-insensitive for their advisors. They will hire the best of the best for the lawyers and the strategists. And the list just goes on and on.

So, why are we talking about that? Well, you're hearing some in the trench’s stories from Rob. A lot of business owners will say well, you know what, my regular business lawyer you know, he’s been with me from the start and he knows the business. I'm going to save some time. I'm going to save some money.

I'm going to use that person. Or I've had an advisor. Maybe it's not an advisor like Rob, but I've had an advisor from the start and we know each other and I'll just go to market with that person. You're going to lose. You're going to lose every time, particularly with private equity, because if you don't go up against these giants, with their equivalents, it's no competition.

You know, there's an old saying that they're coming back when you're just heading there. And so you're hearing that from Rob in terms of why it's so important that when you set up your advisory team, that you have advisors who have that experience and who have won the battles and they're here to talk about that.

Rob, you mentioned COVID and as we record this conversation, we're still in the midst of COVID. Light is at the end of the tunnel, but we're still going through it. I know a lot of business owners are saying well, you know, maybe not the best time for me to sell right now with some craziness that's going on out there.

I'm curious what you have to say to those business owners, and what are you seeing in this pandemic in terms of the M&A environment?

Rob Follows: [00:31:57] Thank you for that. Jeffrey. We've done some webinars on this ourselves. There are three different categories that we see clients falling into. Either highly affected. We did kind of green, yellow, red in our webinars on these highly affected industries. And they're obvious travel, accommodations, you know, and an airline we're doing an airline right now.

We considered those red. And in those industries, mergers are what we're seeing as the opportunity. And that's obvious, right? If you've got reduced revenue across the whole sector, then they can merge together, reduce their cost synergies, and have a decent organization to move forward with.

And that work. Because of all the government subsidies have not clicked as much. We have a distressed division at STS called STS agility. And that work has not started to come yet. It's headquartered in Switzerland globally. And that work has not started anywhere in the world yet.

It will come. The second area are the yellows, as we see them. The industries where there are some winners and losers in that industry. And that's where there's an opportunity for roll-ups. And so, we work on what we call a roll-up to sell, where people don't have to go to private equity to do this.

They can do it themselves if they want to identify and take advantage of the potential of the challenges. They're talking about this as a K recovery, as I'm sure you know where some are doing really well, some aren't, but there's the middle group as well, where there are some well-capitalized businesses in an industry.

And they can lead a roll-up. And if they're going to sell to a strategic in the end, we can develop a currency for them to buy their competitors with. And so that's an area where we are seeing some activity now starting up. And then the area that we see a lot of activity are industries that are doing very well.

A lot of COVID-related industries. We have white businesses; we have air cleaning businesses and they're doing exceptionally well. And there are other industries, vitamins are doing exceptionally well. People want to be healthy. We have about a half a dozen vitamin deals. We have all different deals in industries that in fact are doing well and want to capitalize on the opportunity now and then reinvest in other businesses.

And so that's, you know, a general overview.

Jeffrey Feldberg: [00:33:58] What's interesting about that, Rob and for our listeners, nobody ever knows what tomorrow's going to bring. Most people did not see this pandemic coming along and yet here it is. But for the businesses that were prepared. And if you're in that green light or perhaps that yellow light quadrant, you could have gone to market and in some cases have done better than you would have in a traditional regular business, normal kind of markets.

So, preparation is always key. And for our listeners, please take note of that.

Rob Follows: [00:34:26] I agree a hundred percent. We're saying exactly what you're saying. Jeffrey. It's time to prepare because whether you're over here, strategics will come out with lots of capital.

They're just waiting to see exactly where they're going to get the highest return and exactly how the chips are going to fall. But being ready is if you're in the green zone is absolutely the right thing to do. And so, putting your team together, Jeffrey, you've referenced it several times. It is a great specialized M&A lawyer.

It's a sell-side advisor. It's a coach. It's. You speak to this quite a bit. Jeffrey, there's a private banker. That's going to help you with your investments going forward. So, you're not, surprised with a huge bank account and new friends knocking on the door. That team, and an, a coach that can coach you through the process is an absolute requirement.

And so, I just want to echo that for you, but going back to the point. Getting ready early now is really important. Putting that team together. And whether you're in the red, the green, or the yellow kind of outcome, potential areas for M&A. Being ready for the strategics, you're at the front line.

So, the strategics come out, they're gonna want to put points on the board in individual industries. And if you're ready, you're three or four months ahead of your competitors. And that is a great place to be. If you're in the potential roll-up you want to be ready to be selected to go into that potential, bump in equity through a roll-up before your competitors are.

And if you're over on the red zone, you want to be the lead in mergers, you want to be the merger, not the mergee so you're in a better position. And so being ready for all of those is a great comment, Jeffrey

Jeffrey Feldberg: [00:35:56] Thank you, Rob. Again, it just underscores nobody can control what happens around them and you cannot time the market, but you can time when you do go to market and having that preparation done in advance. As I like to say, it's a rounding error relative to the return on investment that you're going to get.

And Rob, let me ask you, you've said this multiple times Success To Significance through selling. To strategics. And in that bedrock of a statement and in what you do day in, day out, it's that philanthropic side. And I'm curious, what got you into philanthropy in the first place?

Rob Follows: [00:36:32] Oh thank you for that. There are several points that goes way back to when I was in university, studying world history and realizing we're all very lucky in the Western world to be where we are, because it's a product of our ancestors, and we're very fortunate.

And I just am very appreciative.  If it's true, there's a causal correlation for, where we are versus, for instance, I was in, the DRC Democratic Republic of Congo, one of the poorest countries in the world last year. Doing work in our industry, by the way with people that do want to just put all that money back into their country.

And so that's another area we work in philanthropy is working with entrepreneurs that want to invest back into their countries. But we are lucky to be where we are. That's what stimulated me originally is how can I make a contribution? And so in selling our business, the first time I realized I wanted to give to charity, but wasn't sure how to make that really effective.

And I started a charitable foundation, which we will take to the world called Altruvest.  We created the word standing for altruistic investments. I was 20 years too early on that Jeffrey, it's now becoming of interest. In growing Altruvest Charitable Services and its program, Board Match, which matches business leaders under the boards of charities to increase the governance.

I presented Altruvest because the business I was doing Meritz at the time was very simple.

And I said I want to present a foundation and how to scale it because scaling is really hard in the charitable sector. And they said, come and see us, Rob, we're offering you a Ph.D.

And I said, a Ph.D. I don't have time and I'm not smart enough. That would be my view of it. And they said no, Rob, this is only being offered to two people and you can't transfer it. And so please go and think about this. And you realize you're being offered a position in the Ph.D. program, in the business school, in Oxford, so you can continue this study of your charity.

 And so, I went to try to quit my job. I went to Bill Maritz and said, bill, I'm quitting. And Bill said I'm dying, Rob. And so, I have cancer and you can't quit.  My family needs you, you know, I said, well, I’m giving you three years’ notice because I'm doing work at Oxford.

I want to continue that. He said well, go do your work at Oxford and promise you're going to stay until, one of his sons said, it's okay. I'll make that promise. And he sponsored the Ph.D. program. So, I started working in the business school in Oxford on a Ph.D. thesis while I was working full time, leading a billion dollars of global business for Meritz. And it was an intense time, but a very illuminating time. And I realized then that there's so much that business owners can give to philanthropy. Through my work. I spent three years there.

I didn't finish the Ph.D. I came out with a master's and I will finish it. They want it finished at Harvard because of the politics between England and the US in philanthropy, which I will get into here. But what I realized there is that, and this is where STS Capital Partners was born at Oxford.

And I realized two things at Oxford. One, they don't teach the students strategy at Oxford or any business school in M&A, they teach them numbers. So, the strategy has to come from somebody's experience.

And so, I promised to take that out to the world the way that you can maximize value business, of course, is through that strategic positioning. The third plank coming out of Oxford in that broad study that thesis. I did write on the whole background of corporate philanthropy.

How can we give back to make the world a better place? We, as entrepreneurs and business owners, can, and through the sale of our business, through the highest return on equity industry in the world, which is the advisory business, we can encourage the true value of businesses to be paid. The hundred-times EBITDA in my case, and we can help people understand how they can give that back to make the world a better place.

And that's a contribution I want to make to the world because I could see it being deep in the business school, deep in the experience myself, and that's how STS Capital was born. And that's why we talk about Success To Significance. I wasn't brave enough Jeffrey to bring it out in the early days, but I realized this is where our heart is.

We are about Success To Significance through Selling To Strategics. I knew through all the work I did at Oxford, that eventually people would start to realize that, they can't take it with them. If we can maximize value, not leave it on Wall Street or on Bay street or in the city of London's coffers, but actually protect the entrepreneurs and the family business owners.

They can be philanthropically generous in a way that creates billions of dollars of new philanthropy. And that is a deep passion that runs through our whole organization and people that join our organization believe in supporting that. And that's one of the reasons they're at STS.

Jeffrey Feldberg: [00:41:02] It's a wonderful story, Rob with the three planks. What comes across to me and I share this with our community all the time. You know, when you're looking for advisors, particularly a sell-side advisor. Having a sell-side advisor who has been where you are, who's owned the business and preferably sold a business, is everything.

That's all the difference. Look at Rob. He sold his business. Thought it was a great deal at the time. Found out afterward that wasn't the case, but he took that. He transformed that and he said, hey, look I am going to look back and I didn't have any good advisors. I couldn't help that. I'm going to change that.

I'm going to change the world for that because I'm now going to be that good advisor with myself and my team, helping other people do it. And while I'm at it, let me tap into the whole corporate philanthropy and make a difference out there. So, as business owners, entrepreneurs, founders, we're part of a very special community where we literally do make the world go round and make it a better place through our actions and our efforts.

And Rob, thank you so much for sharing that story. So, Rob, as we begin to wrap up the podcast here, there's one question that I like to ask every guest on the Sell My Business Podcast. And I want you to remember the movie Back to the Future. And you had the DeLorean car and that DeLorean car could go back at any point in time.

And so, imagine now, tomorrow you wake up. And the DeLorean car it's sitting outside waiting for you and Rob, you can go back to any point in your life. And the purpose of you going back in time is to share some wisdom, some lessons learned some advice to the younger Rob. Maybe it's Rob as a young boy, or teenager, or an adult, or wherever it may be.

What would you be doing? What would you be saying to yourself in terms of lessons learned and some life wisdom?

Rob Follows: [00:42:48] That's a brilliant question. I think the answer is that this is the irony of life, right? As you grow older, you're wiser and wiser. And you have more and more experience. I've had a very fulfilling and a great life. I would suggest that with all the knowledge I have now that I should have started in this industry way, way back.

And that's because there's so much need for what we do Jeffrey. So, many people are taken advantage of in the sale of their business. I was not taken advantage of I was treated well. But I left a lot of chips on the table, 75% of the value. If I could have started in my twenties, maybe working with some other traditional i-banks with my heart in philanthropy and in wanting to really work for the sellers.

By the time I was 30, I could have started this earlier. That's the only advice I would have because what we're doing is so powerfully leverageable for business owners to actually recognize the full value of their business by leveraging strategy and leveraging marketing, positioning, and realizing that we can't take it with us when we pass on.

And so, we can actually create an incredibly leverageable contribution by helping family business owners and entrepreneurs. And so, my only advice to myself would be you didn't need another, 30 years of learning, you could have started it way back then.

Jeffrey Feldberg: [00:44:02] Wow. What a story, some incredible advice, and insights and so many takeaway points for our listeners in the community. Rob, I want to thank you for that. I'm going to put all of this in the show notes, and you've been very generous in offering up different resources that people can come and take a look at and we'll have those in the show notes.

But generally speaking, Rob, if someone wanted to go online to find out more about STS Capital Partners, where's the best place for that?

 Rob Follows: [00:44:29] Well STS County Partners, our website will come up. If people want to email me directly, I'm rob[at]stscapitalpartners[dot]com and we're global. We operate in many languages and many countries around the world and bringing global strategic buyers to the table is what you'll see under STS.

And you're welcome to reach out to us through our website or to me directly. And thank you for asking Jeffrey. We were happy to be resources to people. We'll start by contributing the strategic value of their business. Who strategic buyers might be and an assessment of what that might look like for no charge.

 Jeffrey Feldberg: [00:45:00] Wow. That's terrific. And this is coming from a guy who has been through the trenches and has learned all this firsthand and is now paying it forward and making it better for all of us. Rob, thank you so much. I know you have many places to be and people to talk to. Thank you for taking some time out today to be on the, Sell My Business Podcast, and please stay healthy and safe.

Rob Follows: [00:45:18] Thank you, Jeffrey. Really appreciate what you're doing for everyone. Really think it's fantastic and inspiring. Thank you, Jeffrey.