family offices Archives - Business RadioX ®

Brian C. Adams, Excelsior Capital

May 27, 2021 by John Ray

Nashville Business Radio

Brian C. Adams, Excelsior Capital

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Brian C. Adams, Excelsior Capital (Nashville Business Radio, Episode 14)

Brian Adams of Excelsior Capital joined host John Ray to discuss the commercial estate investments his firm organizes for individuals, families, and family offices. Brian assessed the investment attractiveness of Nashville and other markets, discussed why Excelsior’s approach is much more tax friendly than larger commercial real estate funds, and much more. “Nashville Business Radio” is produced virtually from the Nashville studio of Business RadioX®.

Excelsior Capital

Excelsior Capital is a real estate private equity sponsor based in Nashville, Tennessee that specializes in yield generation by primarily focusing on stabilized income and capital preservation.

Their strategy centers around their belief that real estate assets are undervalued in secondary markets that possess strong underlying economic fundamentals. Within these MSA’s, they target stable assets located in healthy submarkets and have a strong history of occupancy. To capitalize on this strategy, they focus on assets in the $10M-$25M range, which are often overlooked by institutional investors.

Company website | LinkedIn

Brian C. Adams, President and Founder, Excelsior Capital

Brian C. Adams is the President and Founder of Excelsior Capital, where he spearheads the investor relations and capital markets arms of the firm. He has 10 years of experience in real estate private equity and has advanced knowledge in best practices for strategic real estate investing. Prior to forming Excelsior Capital, Brian co-founded Priam Properties (an institutional real estate private equity sponsor) in 2010 and provided leadership and direction for the firm in connection with capital markets, investment management and investor relations.

He has served on the Board of Sirrom Partners, LP, a single-family office investing across private and public asset classes since May of 2008. Since May of 2017 he has served on the Investment Committee for Solidus LP, an early-stage venture capital firm focused on investment opportunities in Healthcare and Technology. From January of 2016 to January of 2018, Brian served as a member of the Board of Next Gen Advisory Faculty for the Institute of Private Investors / Campden, a program designed to support next generation family members in preparing the following generation for the responsibility of being a steward of family wealth. He has also served on the Advisory Committee for the Southeastern Family Office Forum since December of 2016. Brian is a former practicing attorney, earning his J.D. from Suffolk University and his B.A. from Wesleyan University with Honors.

Questions and Topics in this Interview

Secondary growth markets and key demographic metrics driving change
Syndication platforms focused on taxable high net worth investors and family offices
Direct Co-Investment structure for RIA’s/boutique wealth management firms/ multifamily offices
Rebirth of the suburban office
Tax advantages of direct real estate ownership

“Nashville Business Radio” is hosted by John Ray and produced virtually from the Nashville studio of Business RadioX®. You can find the full archive of shows by following this link. The show is available on all the major podcast apps, including Apple Podcasts, Spotify, Google, Amazon, iHeart Radio, Stitcher, TuneIn, and others.

Decision Vision Episode 31: Should I Start a Family Office? – An Interview with Chris Demetree, Demetree Brothers

September 12, 2019 by John Ray

Decision Vision

Decision Vision Episode 31: Should I Start a Family Office? – An Interview with Chris Demetree, Demetree Brothers

00:00 /

Decision Vision Episode 31: Should I Start a Family Office? – An Interview with Chris Demetree, Demetree Brothers

What issues should be considered in starting a family office? What makes a family office successful? The answers to these questions and more come out of “Decision Vision” host Michael Blake’s interview with Chris Demetree, Demetree Brothers. “Decision Vision” is presented by Brady Ware & Company.

Chris Demetree, Demetree Brothers

Chris Demetree is one of the co-founders of Demetree Brothers, Inc. and currently serves as Vice President. Chris has served as the Managing Partner for Alico Estates Development Associates and as Vice President of Demetree Pasco Properties, Inc. His past developments include over 2,000 single family lots, a golf course country club community, and numerous commercial office/retail centers. Chris has served on the Board of Directors of several private and public companies.

Chris possesses a strong record of entrepreneurial success, with over 25 years of experience building successful technology businesses. He is currently the CEO of Lazlo, a digital platform that enables new channels for monetizing digitally stored value. Lazlo evolves traditional gift cards, coupons, lottery tickets into dynamic digital assets that can be used as a vehicle for advertising, data collection, and branding, while adding security to digitally stored value.

Prior to Lazlo, Chris was a founder and partner in V-P Ventures (VPV), a private investment firm focused on early stage and private equity transactions. Before VPV, he held C-level roles with successful startups including Recordant, STC Corp., Intelligenxia and Urban Media. He has a B.S. in Industrial Management from Georgia Institute of Technology.

Michael Blake, Brady Ware & Company

**Mike Blake, Host of “Decision Vision”**

Michael Blake is Host of the “Decision Vision” podcast series and a Director of Brady Ware & Company. Mike specializes in the valuation of intellectual property-driven firms, such as software firms, aerospace firms and professional services firms, most frequently in the capacity as a transaction advisor, helping clients obtain great outcomes from complex transaction opportunities. He is also a specialist in the appraisal of intellectual properties as stand-alone assets, such as software, trade secrets, and patents.

Mike has been a full-time business appraiser for 13 years with public accounting firms, boutique business appraisal firms, and an owner of his own firm. Prior to that, he spent 8 years in venture capital and investment banking, including transactions in the U.S., Israel, Russia, Ukraine, and Belarus.

Brady Ware & Company

Brady Ware & Company is a regional full-service accounting and advisory firm which helps businesses and entrepreneurs make visions a reality. Brady Ware services clients nationally from its offices in Alpharetta, GA; Columbus and Dayton, OH; and Richmond, IN. The firm is growth minded, committed to the regions in which they operate, and most importantly, they make significant investments in their people and service offerings to meet the changing financial needs of those they are privileged to serve. The firm is dedicated to providing results that make a difference for its clients.

Decision Vision Podcast Series

“Decision Vision” is a podcast covering topics and issues facing small business owners and connecting them with solutions from leading experts. This series is presented by Brady Ware & Company. If you are a decision maker for a small business, we’d love to hear from you. Contact us at decisionvision@bradyware.com and make sure to listen to every Thursday to the “Decision Vision” podcast. Past episodes of “Decision Vision” can be found here. “Decision Vision” is produced and broadcast by the North Fulton studio of Business RadioX®.

Visit Brady Ware & Company on social media:

LinkedIn: https://www.linkedin.com/company/brady-ware/

Facebook: https://www.facebook.com/bradywareCPAs/

Twitter: https://twitter.com/BradyWare

Instagram: https://www.instagram.com/bradywarecompany/

Show Transcript

Intro: [00:00:02] Welcome to Decision Vision, a podcast series focusing on critical business decisions, brought to you by Brady Ware & Company. Brady Ware is a regional, full-service, accounting and advisory firm that helps businesses and entrepreneurs make vision a reality.

Mike Blake: [00:00:20] And welcome to Decision Vision, a podcast giving you, the listener, clear vision to make great decisions. In each episode, we discuss the process of decision making on a different business topic. Rather than making recommendations because everyone’s circumstances are different, we talk to subject matter experts about how they would recommend thinking about that decision.

Mike Blake: [00:00:39] My name is Mike Blake, and I’m your host for today’s podcast. I’m a Director at Brady Ware & Company, a full-service accounting firm based in Dayton, Ohio, with offices in Dayton; Columbus, Ohio; Richmond, Indiana; and Alpharetta, Georgia, which is where we are recording today. Brady Ware is sponsoring this podcast. If you like this podcast, please subscribe on your favorite podcast aggregator. And please also consider leaving a review of the podcast as well.

Mike Blake: [00:01:03] Our topic today is family offices. And family offices are probably one of the better kept secrets in the American economy. For the most part, family offices do not seek rock star status. They’re very different from, kind of, your Silicon Valley, fast company, red herring, sort of, I don’t say want to say attention-seeking, that’s not fair, but very high profile organization. The fact of the matter is you may work next to a family office, you may live in the same neighborhood as somebody who’s in or works in a family office or has a family office, and you wouldn’t even know it. We don’t have Yellow Pages anymore, but if we did, there probably would not be an entry for family offices. And I think we can all kind of appreciate that as to why that is. But the fact of the matter is that they are increasingly popular as a tool and an infrastructure for managing wealth.

Mike Blake: [00:02:15] And a lot of us on the radio, myself included, would love to have the problem where we have so much wealth that it becomes a different kind of responsibility to manage it. But the fact of the matter is it is a responsibility to manage it, especially if you’re in a position where you are sharing it with family, and there are not just family relationships, but fiduciary relationships involved. And it’s important, also, because I think a lot of people who are creating wealth, particularly those who are creating it this generation, they’re building it, and then either exiting it, or transitioning their core enterprise, they’re starting to realize that something called a shirtsleeves-to-shirtsleeves phenomenon.

Mike Blake: [00:03:00] There are all kinds of studies out there – I don’t have to cite one in particular, you can Google it – that say that for the most part, if a family makes, or generates, or produces an amount of wealth, let’s call it $20 million just to pick a number out there, statistically speaking, in three generations or by generation three, only 10% of that wealth is going to remain. And by the fourth generation, 3% of that wealth remains. And a great case in point is the Vanderbilt family. They built their wealth in the early 19th Century, and basically doing ferries around Manhattan and Pennsylvania. But the name is much stronger than the wealth. In fact, Anderson Cooper of CNN, who is actually a 6th generation Vanderbilt, has gone on record saying there ain’t no trust fund waiting for him. And perhaps if they’d had a family office or a structure like that, maybe that scenario would be different.

Mike Blake: [00:04:06] So, the goal of this podcast is to shed a little bit of light. If you’re thinking of whether a family office or something like that structure is useful for you, or maybe you’re advising somebody who’s thinking about a family office, the goal of this podcast is to provide some insight into that. And to help us with that we’re talking with Chris Demetree. And Chris is a very successful entrepreneur in his own right. He has more than 25 years of experience building successful technology businesses. He has extensive experience with family offices and is also an active player in the Atlanta startup community. He is currently the CEO of Lazlo, a digital platform that enables new channels for monetizing digitally stored value. Lazlo—I’m sorry. Lazlo evolves traditional gift cards, coupons, lottery tickets into dynamic digital assets that can be used as a vehicle for advertising, data collection, and branding, while adding security to digitally stored value.

Mike Blake: [00:05:06] Prior to Lazlo, Chris was a founder and partner of VP Ventures, a private investment firm focused on early stage and private equity transactions. Before VPVChris held C-level roles with successful startups including Recordant, STC Corp, Intelligentsia, and Urban Media. He also has a Bachelor’s Degree in Industrial Management from the Georgia Institute of Technology. Chris Demetree, welcome and thank you so much for coming on the program.

Chris Demetree: [00:05:33] Michael, thanks for having me. I appreciate the opportunity. Looking forward to today’s conversation.

Mike Blake: [00:05:41] So, Chris, before we begin, I want to give you a little bit of an opportunity for a soapbox here because I know this is a venture that’s very near and dear to your heart. Tell us a little bit more about Lazlo. What does a listener listening to this program need to know about Lazlo, if anything?

Chris Demetree: [00:05:56] Well, no, I appreciate the opportunity. I love talking about investments. As a—unfortunately or fortunately, I’m a serial entrepreneur at heart.

Mike Blake: [00:06:05] We haven’t been able to cure you yet.

Chris Demetree: [00:06:08] Say that again.

Mike Blake: [00:06:09] We have not been able to cure you yet.

Chris Demetree: [00:06:11] Yeah, no kidding. No kidding. I told somebody, it’s literally like a drug. When you get involved with early-stage companies, especially if the first one goes well, it’s hard to kick that habit, but no. So, well, with regards to Lazlo, our core technology and our core platform is focused around changing the way physical instruments today, physical value instruments today are converted into the digital world. And so, we’re creating a new digital platform to share, to purchase, and to disseminate stored value being gift cards, coupons, event tickets, that type of stored value. So, we’ve been working on it for a little while, and we’re very excited about our future. We think there’s a real big opportunity here. So, thank you.

Mike Blake: [00:07:09] We’ll be looking to hear more about it as time goes on. So, let’s dive into the-

Chris Demetree: [00:07:15] Well, Michael, Michael, I want to go back and point one thing out. As Anderson Cooper said, there’s no big trust fund there for him. That’s only because he didn’t want it.

Mike Blake: [00:07:25] And so, you can tell.

Chris Demetree: [00:07:26] When his mother passed away, there was almost a quarter of a billion-dollar fortune in place.

Mike Blake: [00:07:31] Oh, is that right? I didn’t know that.

Chris Demetree: [00:07:33] She died with estimated $200 million net worth.

Mike Blake: [00:07:42] Okay.

Chris Demetree: [00:07:42] But yeah, that’s—he was—that’s self-promotion on Anderson’s part, but, no, there was still a significant amount of wealth in her name. And she’s what? As you said, I can’t remember what generation, but she’s quite ways down the line.

Mike Blake: [00:08:00] Yes. She’s 5th. So, Anderson’s 6th. So, again, it’s the first learning point of the day. We know a little bit more about the Vanderbilts.

Chris Demetree: [00:08:10] Yeah, there we go.

Mike Blake: [00:08:10] So, we’ve talked a little bit about this offline. And I understand that you’re not necessarily involved in a family office, but I know you’re involved in some things that are family office-like or have some family office features. So, I think that there’s a lot that we can talk about and educate the listeners. But let’s start with the basic vocabulary starting point. To your mind, when somebody says family office to you, what does that mean?

Chris Demetree: [00:08:38] Well, a true family office, in my mind, is a—it is a family network that operates very similar to a venture capital fund or a family office that operates very similar to a private equity fund. The main difference is—and again, it goes back to what you were saying with regards to how high a profile these family offices typically try to keep, they don’t need to keep a high profile. The reason they don’t is because the LPs are the family; whereas, for private equity and venture, they do have to tout themselves and their successes to the marketplace because they’ve always got to go create that next fund to sustain their long-term viability. And that means attracting new LPs, in addition to the existing LP network that you had in your first or second fund for each one thereafter. So, that’s a big part of the difference. But when you think of family offices, again, I think of a family office working very much like venture or private equity. How it is structured is completely different, but the LP network is what I think separates it the most. Meaning, all family versus outside capital.

Mike Blake: [00:10:01] Okay. And so, to that end, yeah, let’s then kind of operate with that working definition that is a captive investment fund that just happens to belong to a group of people all with the same last name or, at least, DNA traits.

Chris Demetree: [00:10:17] Sure.

Mike Blake: [00:10:17] Does that mean then that the family office also then faces similar challenges in terms of deal flow and decision making, in terms of good deals versus bad deals, governance, things of that nature?

Chris Demetree: [00:10:32] Number of questions there. So, deal flow, I will tell you that the investment community around a family office. So, let’s take for instance here in Atlanta, if there are family offices here in Atlanta, typically, the investment community, whether that’d be private equity, venture capital, the accounting world, from a deal flow standpoint, will have a good sense of what that family office likes to look at. As far as types of deals, what their appetite may be for size of deals, whether they want to own a majority stake in the company, or they want to follow behind an investment group. So, deal flow, to me, is not quite the same as a private equity group, who’s out there looking at everything. They can be—the family offices have the tendency to see less deals but more targeted deals, if that makes sense.

Mike Blake: [00:11:36] It does. That gets back to the thing you mentioned, your definition then, the network is really a key defining trait of the family office, isn’t it?

Chris Demetree: [00:11:46] It is. It is as far as pre-screening deals. Unlike, I will call it a true venture group or venture capital group who wants to look at most every deal, because, again, that’s kind of their charter is to find, to look at everything, and know the marketplace, know everything going on in the marketplace, especially within its sectors. The family offices don’t have to do that because they’re typically invited in or invited to participate in deals, or they’re looking at something that may be a core expertise that they want to own the whole deal or a majority of the deal.

Mike Blake: [00:12:32] Okay, So, I sidetracked. So, so I won’t get back because I think-

Chris Demetree: [00:12:35] Oh, that’s right.

Mike Blake: [00:12:36] …you had mentioned another part, which is about governance. Do family offices and private equity funds face similar governance issues, or they wind up being very different?

Chris Demetree: [00:12:46] Again, it—and this is one man’s opinion, but I believe it’s just how they are structured. You can have some family offices that are operated literally by a majority of outside advisors and investment advisors, or you can have family offices that are run more by family members that are making investment decisions. I think a lot of that comes down to the capabilities of the individuals. And as I’ve said to you before, I think a lot of that comes down to what the generation that’s setting up the family office believes they have done to prepare the next generation to be able to do that themselves. They very much face similar types of issues when it comes up with regards to—I’m sorry, the success and failures of deals.

Mike Blake: [00:13:48] Okay.

Chris Demetree: [00:13:48] Depending on the profile or the mix of the investment strategy of a family office, whether it’d be outside investors or the family-managed investments. If they are looking at higher risk investments, then, again, at the end of the day, they’re going to have a very similar track record to that of a venture capital firm looking at early to growth capital type of investments. If the family office takes a more conservative role, and they’re only looking at what I call it [indiscernible] businesses, then I would expect to see a higher success rate. I can’t tell you whether or not it’s going to be higher rates of returns or not. That’s just—only time tells you that with your investments. But they’re subject to the same exact issues that a venture capital firm is doing.

Mike Blake: [00:14:47] Okay. So, I think you’re starting to answer this question already, but I want to hit it directly because, again, I think it’s an important question. So, I think when outsiders look at family offices, I think we tend to have an image of our mind of the playboy, the constant gallivanting around the world, the golfing, et cetera, et cetera. But you’re kind of painting a picture that’s much more of a business entity where you’re out there, and you’re actively doing—you’re working, you’re doing deals. The job is different, but it’s certainly a job, and one that has to be taken seriously. Is that a fair characterization?

Chris Demetree: [00:15:29] It’s absolutely. I mean, it is—yes. And that it is a job that has to be taken seriously. You are managing LPs money. It doesn’t matter if you’re managing your own money or if you’ve got advisors that are managing that capital for you. So, I mean, for true family offices, it is a business. And they hold themselves—and again, as I said to you, I mean, every one of them can be set up differently, but I know of a few family offices, and they hold themselves to very strict standards with regards to looking at all of their investments, looking at what their IRR is. Does it make sense to stay in this vertical? I mean, again, no different than how a business would be run. That is slightly different than how you preface the conversation by saying or the question by saying, “Some people think of a family office as a trust fund baby.”

Mike Blake: [00:16:35] Right.

Chris Demetree: [00:16:37] They’re out there. Absolutely, they are. It’s getting harder and harder to generate that type of wealth, although the dot com industry would tell you maybe not, or the Silicon Valley, but it’s getting tougher and tougher. But it’s the same—how do I say this? There may not be as many of those type of flamboyant playboys out there anymore. They don’t need to be. It seems to me that the entertainment industry is more than sufficient at providing us enough icons to follow that are gallivanting around and throwing money away.

Chris Demetree: [00:17:21] I think the family offices now—and again, this is just an opinion, but I think the participants try to keep a lower profile because you were exposed to so much more today with cell phone cameras and everything else going on in social media that the lower profile you can keep, the less you are going to be subjected to risks. And those risks comes in the form of lawsuits and that type of stuff. It’s just different. But it all goes back to what the founder or the creator of that family office thinks of the next generation or the next generation after that.

Mike Blake: [00:18:12] Now, most family offices, I think, are ultimately founded by the success of one core business. And even today, the Rockefeller zone, a stake in Exxon Mobile, and the Fords on a stake, and Ford Motor Company, although there’s a weird story behind that, they should own more, but they don’t.

Chris Demetree: [00:18:32] Right.

Mike Blake: [00:18:32] Mark Zuckerberg has his own family office now, and that still owns a big chunk of Facebook, even though it’s public. Is it your impression that most family offices, once the wealth gets organized in that way, do they tend to then start to branch out into other businesses?

Chris Demetree: [00:18:53] The diversification, absolutely. I mean, take, for instance, Mark Zuckerberg. Zuckerberg has no idea what the next generation is going to look like. And with—though, just an his age, I mean, he’s, what, 20 years younger than I am probably, and I’m not old yet, but he has no idea what it’s looking like. So, I think part of it is going to be transferring wealth generationally. That’s part of why you set up the family offices. Diversification is not only for his future generations, but for him. The old adage, “You never want all of your eggs in one basket,” even though you control that basket.” So, you may even drop it, but yeah. So, if you can diversify—and that is a way to do it and keep it in a structure that is not subject to the transfer taxes later. And again, as you said, he got a—he set up the foundation or the family office most with stock. Well, that affords him the ability to grow the value of that family office as he grows his core business. And that just allows him the chance to move more money into that tax-free.

Mike Blake: [00:20:28] Now, there are kind of different flavors of family offices out there. There’s the classic, sort of, single family office where everything is, sort of, captive. There’s the multi-family office where it’s kind of like a co-op or a fractional ownership of a jet. And then, they’re kind of even virtual family offices where there’s some certain family office characteristics, but it’s not necessarily formally organized that way. Are you aware of those distinctions? And are you in a position to maybe talk about maybe some of the pros and cons of those kind of flavors?

Chris Demetree: [00:21:10] Well, I mean, again, I can give you my opinion for whatever it worth. Every man has one, or every person has one nowadays. I apologize. I didn’t mean to sound that way. So, I am—when I think of a multi-family office, I think of a similar DNA that travels throughout that family office. The names of the players may be changed with regards to marriage and that type of stuff, but there is an inherent DNA that runs through all of them that traces back to the origin of the family office, I could be wrong. Again, I don’t call them family offices per se to know that many of them.

Chris Demetree: [00:22:04] I think of a true functioning family office as being one family. And then, I think there’s two flavors. And again, it goes back to something you taught me, which is that shirtsleeves-to-shirtsleeves. That’s not something I heard before. I do understand it. I didn’t know they put that name to that phenomenon of losing your wealth after two or three generations. I believe—and I hope I’m not rambling too much for you, but I believe that it goes back to what I said before, when you set up that family office or the originator, the titular head of the family sets it up, he or she has kind of made a decision in their own mind, I believe, of what they have done to prepare the next generation. And you have some that look at it and don’t believe they prepared them very well. And they structure that family office where it’s got to be managed by an outsider. The next generation needs adult supervision because they’re not capable of doing it themselves. Well, I will tell you that, for a different myriad of reasons, that goes back to—more times than not, it falls back to the person that’s setting that fund up.

Chris Demetree: [00:23:34] But as I’ve said to you before, we do not operate a formal family office, but I was also forced to work. We didn’t come from that kind of wealth. And my father’s attitude was even if he does create it, we were going to know—his kids were going to know how to work, all of us. The boys were stuck on construction sites, and the girls were typically stuck in the office. That was 30, 40, and in some cases, 50 years ago with my older siblings. So, that was just how they did it. That was his way of doing it, but he did prepare us. He taught us to work. And we were very fortunate as a family that we worked together. I worked with my brothers, and my sisters, and my dad on a daily basis, whether it was running our family development business or whether we were analyzing things to invest in.

Mike Blake: [00:24:41] Now, you said something I want to zero in on because I hadn’t thought of that, and I think that’s so insightful, which is the DNA. And as I interpret it, I know that there’s a biological DNA, but I think there’s also a philosophical DNA.

Chris Demetree: [00:24:55] Correct.

Mike Blake: [00:24:56] And getting into multi-family offices, and I hadn’t—frankly, I had not thought of this issue before. There are plenty of folks out there that offer multi-family office services, all the big wealth management firms, whether it’s Merrill Lynch, or UBS, or whoever, they offer that. And it’s like you want a family office, but maybe your wealth isn’t at that point where you can justify taking on all the overhead yourself, so you get that fractional approach. But then, it occurred to me that, what if the other people kind of in your—that they’re going to be invited into your condo, or in your campsite, don’t share the same values, don’t have the same needs, and short and long-term goals, that can probably very quickly become an awkward fit and hurt the success, really, of everybody involved.

Chris Demetree: [00:25:56] So, Michael, what I hear you describe in the way you’re asking that question or the way you’re kind of describing that scenario, what I hear or think of in my head is an LP network. So, when you talk about a Merrill Lynch that’s managing multiple family offices, I would look at those multiple family offices as limited partners that Merrill Lynch is providing the partner—the management piece of. But, again, each one of those family offices is going to have a—in this term a DNA, it’s going to be an investment strategy, and a theory, and a philosophy of what do they want from that investment. Is this high growth? Is it—do they want something that’s income producing? As I call it, mailbox money, where it’s slightly lower growth, but it’s 8% or 6%, whatever, they can count every year coming in that mail. You’re not going to cross-pollinate if you are the manager. And then, again, we’ll stick with your reference to Merrill Lynch. If Merrill Lynch is the one managing those multiple portfolios of family offices, Merrill Lynch is not going to cross-pollinate a growth family office with an income-oriented family office.

Mike Blake: [00:27:29] Right, or, at least, they shouldn’t.

Chris Demetree: [00:27:31] Or they won’t be managing the money long if they do.

Mike Blake: [00:27:34] Yeah, I would imagine that’s true. So, you touched on something I want to touch on. And I needed to ask this question delicately, and you’ll probably want to answer it very delicately, but it’s important. In terms of the management, the operative word in family office is family. And you mentioned that, sometimes, there are circumstances where it’s not appropriate for a family member to manage the family office. Maybe the people are just too young. Maybe they’re not cut out for it. Not everybody—even if you’re in a wealthy family, that doesn’t necessarily mean you’re good at business, you have any kind of aptitude for it. So, in your experience and what you’ve observed, how does that get kind of worked out? Do families kind of default to the eldest working-age person, or do you find that they go out and hire kind of professional management, or is it some mix of the two? Is it all over the board?

Chris Demetree: [00:28:42] I would—again, not speaking specifically for anything that I know. Again, just an opinion, but I believe it’s all over the board. There are a couple of key things that I have often thought I think are important in a family office. And when I talk about a family office, I think of it as a family that’s investing together, whether that’s formally or informally. When you speak of a true family office, that setup, that dynamic is a formal instrument that drives an organization, whether it’s an LLC, or LLP, or MLP, whatever it may be.

Chris Demetree: [00:29:33] But there are some things that, with an informal arrangement, there are some key things that have to be in place. Otherwise, an informal process doesn’t work. And then, one of the key ingredients is there’s got to be an inherent respect between the players that are sitting at the table, whether those players are all related through their biological DNA, or whether or not they are related both to DNA in operating agreement that says they need to be there. So, if there’s an advisor at the table, the family members need to respect that advisor.

Chris Demetree: [00:30:21] Secondarily, I think, for an informal office to work well, you have to understand that among the family members, there is a hierarchy. You do have older and younger siblings, And there’s a respect that should run regardless of—and, again, it’s just how I was raised. There’s a respect that runs through the family for your older and younger siblings. You look to the older one in a quick diversion, but I can—in my particular instance, I’m the youngest of five kids, and I remember it wasn’t long ago that I lost my dad. And, I was talking with my father before he passed away, and I looked at him, and I’ll never forget it.

Chris Demetree: [00:31:14] We were sitting outside talking. This was probably within a month of when he passed. We knew it was coming. And I said to him, “I’m not ready for you to go yet.” And he goes, “No, you’re going to be fine.” And he goes, “You’ve got your mom here. You’ve got your brothers.” I said, “No, but I’m not ready to be that next generation.” I said, “I’m used to having you.” And my point is we have that older generation to look for. When my father passed, yes, my mother is still part of that generation that is still there, who I still respect and looked to, but a lot of it reverts to my older brothers, my older sisters. I look to them. That is kind of our hierarchy. I’m comfortable of that. Some people might think I was crazy.

Chris Demetree: [00:32:08] And then the last piece, Michael, that I will touch on is in order for an informal office or family to work as a family office, you got to like being around each other, you got to like working together. It’s not just about making money, it’s about being together, and doing things together. When one succeeds, you all succeed, regardless of the degree of success. Everybody kind of does it together. So, that’s more of an informal process. A formal process, it’s all scripted out on paper. Here’s who’s going to make the decisions, here’s how they make the decisions, and that’s got to be decided by the creator of that family office.

Mike Blake: [00:32:59] I think that’s a great way to—I think it’s a great way to kind of finish it. I really appreciate you sharing that story. You can, sort of, hear a pin drop in the studio as we were listening to that. That’s powerful stuff. And I want to go back to something you and I had in a private conversation that I don’t think you’ll mind that I express is that you told me that if the first motivation is about the money, it’s never going to work.

Chris Demetree: [00:33:27] It will never work.

Mike Blake: [00:33:28] It’s got to be the relationships first.

Chris Demetree: [00:33:30] It will never-

Mike Blake: [00:33:30] The money is there but-

Chris Demetree: [00:33:31] Now, Michael, that’s not a family office. That’s life. That’s life. If your only motivation in life is money, you’ve got a long, long road ahead of you and a very sad life ahead of you. It’s not about that. It’s about your family and it’s about your faith. And you follow those two things—that was the core value my parents taught me. You follow those two things down life, and you will have not only a good life but a very successful life. The rest of it will fall into place, but you follow your family and your faith.

Mike Blake: [00:34:09] I can’t think of a better ending. So, I’m going to quit while we’re ahead.

Chris Demetree: [00:34:14] Yeah, because you never know what I could say after that.

Mike Blake: [00:34:16] Or me. I’m not going to add anything to that. So, that’s going to wrap it up for today’s program. I’d like to thank Chris Demetree so much for joining us and sharing his expertise with us. And do check out Lazlo as well. It’s a cool company, I think, we’ll be hearing more of in the future. We’ll be exploring a new topic each week. So, please tune in, so that when you’re faced with your next business decision, you have clear vision when making it. If you enjoy this podcast, please consider leaving a review with your favorite podcast aggregator. That helps people find us, so that we can help them. Once again, this is Mike Blake. Our sponsor’s Brady Ware & Company. And this has been the Decision Vision Podcast.

Decision Vision Episode 21: Do I Need an Investment Banker? – An Interview with Roger Furrer, Brady Ware Capital

June 27, 2019 by John Ray

Decision Vision

Decision Vision Episode 21: Do I Need an Investment Banker? - An Interview with Roger Furrer, Brady Ware Capital

00:00 /

**Roger Furrer, Director of Brady Ware Capital**

Do I Need an Investment Banker?

Do I need an investment banker to sell my company? How does the sale process work? What’s the difference between an investment banker and a business broker? Roger Furrer, Director of Brady Ware Capital, answers these questions and much more in a interview with Michael Blake, Host of “Decision Vision.”

Roger Furrer, Brady Ware & Company

Roger Furrer is a Director at Brady Ware Capital, the investment banking arm of Brady Ware & Company. Roger joined Brady Ware in 2016, and prior to that served as COO and Managing Partner at Bannockburn Global Forex, LLC. Additionally, Roger enjoyed over 30 years in the banking industry in which he held various senior management positions, including leading teams focused on middle-market companies.

Roger leverages this expertise to help family-owned businesses and management teams maximize the value of their investments. He guides business owners through the sale of their business, or assists them in securing the liquidity needed to grow their business.

For more information, contact Roger at rfurrer@bradyware.com or at 937-238-9401.

Michael Blake, Brady Ware & Company

Brady Ware & Company

Decision Vision Podcast Series

Visit Brady Ware & Company on social media:

LinkedIn: https://www.linkedin.com/company/brady-ware/

Facebook: https://www.facebook.com/bradywareCPAs/

Twitter: https://twitter.com/BradyWare

Instagram: https://www.instagram.com/bradywarecompany/

Show Transcript

Intro: [00:00:06] Welcome to Decision Vision, a podcast series focusing on critical business decisions. Brought to you by Brady Ware & Company. Brady Ware is a regional, full-service accounting advisory board that helps businesses and entrepreneurs make visions a reality.

Michael Blake: [00:00:24] And welcome to Decision Vision, a podcast giving you, the listener, clear vision to make great decisions. In each episode, we discuss the process of decision making on a different business topic. But rather than making recommendations because everyone’s circumstances are different, we talk to subject matter experts about how they would recommend thinking about that decision.

Michael Blake: [00:00:43] My name is Mike Blake, and I’m your host for today’s program. I’m a Director at Brady Ware & Company, a full-service accounting firm based in Dayton, Ohio, with offices in Dayton; Columbus, Ohio; Richmond, Indiana; and Alpharetta, Georgia, which is where we are recording today. Brady Ware is sponsoring this podcast. If you like this podcast, please subscribe on your favorite podcast aggregator, and please also consider leaving a review of the podcast as well.

Michael Blake: [00:01:10] Today, we’re going to talk about hiring an investment banker. And I think this is an important subject because investment banks, I think, oddly enough, have a lot of mystery around them. In many cases, particularly if you’re a small business, you may only use an investment banker once in your entire life. Maybe even hopefully once in your entire life. You do one exit, you make a boatload of money, and then you get on your yacht, or you go to your mountain villa or your Italian Sicilian hideaway, and never have to do anything again. And one of the parties that kind of makes that possible for that lucrative exit is the investment banker.

Michael Blake: [00:01:56] Now, I happen to have a lot of respect for investment bankers because early in my career, I did the investment banking thing. And let me tell you – I’ll get on my soapbox a little bit, and I have no problem with that – for all the for all the junk that investment bankers take, and you hear investment bankers brought up in Congress that they don’t pay enough taxes and whatnot, I challenge any of them to walk in the shoes of a successful investment banker for two years and see kind of how they do with that.

Michael Blake: [00:02:38] It is not a 9:00 to 5:00 job, unless your definition of 9:00 to 5:00 is 9:00 in the morning to 5:00 in the morning. It is not a Monday-through-Friday job. It is an always-on job. And I can tell you for a fact that those folks, if they’re a success at all, really earn their fees. And if you don’t kind of live that lifestyle, you just are not in the business very long. That’s just all there is to it.

Michael Blake: [00:03:06] And so, I washed out, and I took a step back, and I went into business valuation, which is, let’s say, a much more work/life balance-friendly profession. Although, sometimes, my wife will wonder about that. But I wanted to kind of get that on the table because when you hire an investment banker, it’s a very important decision. If they’re any good at all, they ain’t cheap. And they can often be the difference between an exit that makes you comfortable for a while, and maybe pays for a vacation, or some of your kids education, versus retiring, or possibly leaving or creating legacy wealth.

Michael Blake: [00:03:50] So, with that, let’s kind of introduce our guest here. I have with us Roger Furrer, who is a director at Brady Ware Capital, which is our firm’s captive mergers and acquisitions specialized business unit. And they help business owners and entrepreneurs understand, increase, and unlock the value of their businesses. Business owners, often, find that managing the complexities of transaction’s an overwhelming experience. So, they can even find it overwhelming when they have help, I can tell you that for a fact. And you need an advocate that’s going to be out there representing you aggressively in the marketplace and helping you find not just an opportunity, not just Mr. Right or Mrs. Right, Mrs. Right now, but Mr. or Mrs. Right.

Michael Blake: [00:04:37] And that’s what Brady Ware does. And they help ease those challenges and let you continue running your business successfully throughout that transaction. That part’s really important because I can tell you, having worked on a lot of transactions myself, not in the investment banking capacity but as the advisor, selling your business is so physically and emotionally consuming that it can be difficult to actually continue running your business and sort of forget. You can easily lose sight of the fact that until that money hits escrow or until money hits your bank account, you get a wire confirmation, that deal is not done. And if you are not paying attention, all of a sudden, you may be left with a less valuable business than what you started with. But we’ll get into that.

Michael Blake: [00:05:24] Roger joined Brady Ware’s mergers and acquisition team in 2016. As I said, he’s a director. He has more than 30 years of experience in banking – i.e. 15 times more than I do – where he led teams focused on middle market companies. He leverages his banking experience as middle market companies to help family-owned businesses and management teams maximize the value of their investments. Specifically, he guides business owners through the sale of their business or assist them in securing the liquidity needed to grow that business. And with that, Roger, thank you so much and welcome to the program.

Roger Furrer: [00:06:00] Thank you, Mike, I appreciate being a part of the discussion.

Michael Blake: [00:06:03] So, Roger, let’s start with some basic vocabulary because I’m not sure everybody knows what an investment banker does. I think there’s an image out there of what an investment banker is, but I think there’s a misconception. So, kind of in your own words, if you had to kind of describe your job, what is it?

Roger Furrer: [00:06:26] Well, sure. One of the things that people misconstrue about the term is when they hear investment, they think it revolves around stocks, and bonds, and that type of thing. So, that’s one thing that we’re not. So, I would say investment bankers do a multitude of things. Some have more well-rounded services than others. At Brady Ware Capital, we help companies evaluate their strategic options around how do you liquidate or transition your business and discuss possible selling options for them. But we, also, help them uncover, perhaps, opportunities to acquire other companies or merge with other companies, and analyze the returns around that. At Brady Ware Capital, too, we also help companies raise the appropriate bank debt, or subordinate it, or mezzanine debt for the situation that they’re dealing with.

Michael Blake: [00:07:30] Okay, yeah. And so, when we say investment banker, one, I mean, you’re not lending money yourself, but you may be an intermediary to the folks who are lending money. And that first job description that you put out there, really, is more of a wealth or financial advisor when you’re dealing with analyzing stocks and bonds. And the exception may be if you’re the kind of investment bank that is taking companies public, and you’re dealing with public securities but that isn’t you guys. And for the most part, that’s not going to be our listener base. So, we can probably set that definition to the side, at least, for the moment.

Michael Blake: [00:08:09] So, one thing — and I have to confess, I don’t really know the answer to this question in a very clear way. So, I’m very curious to hear your answer to this. And that is, what is the difference, if there is any, between an investment banker and a business broker? Because you hear those terms both used a lot, but I also know many investment bankers that bristle a little bit if you call them a business broker and vice versa. So, I’m curious, is the difference meaningful enough? If so, how would you characterize it?

Roger Furrer: [00:08:41] Well, first of all, Mike, I’d say that there’s a lot of overlap in the term. So, I think, when people define a broker, they think about a transaction being completed, a commercial real estate property, a residential property, a broker being someone that executes the trade of a stock or a bond. So, I would say that I am a business broker, but I would prefer to be identified as an investment banker more so that also helps bring a transaction to fruition. So, I think, in in our terms and in the markets that we deal with, I think, business brokers, generally, deal with smaller-sized companies, and typically list the business for sale, and identify an asking price for that business, much like you would with a piece of a real property.

Roger Furrer: [00:09:48] I think the difference between an investment banker, I believe, is in a higher strategic value proposition, if you will, where when we’re representing a company for sale, we go about an entire marketing process and identify who we see as the best strategic and financial buyers for that entity, so that we’re able to drive the highest and best value for that company. I hope that helps you from a differentiation perspective.

Michael Blake: [00:10:26] It does. And not the suck up to because I’m not, it’s actually the best definition I’ve actually heard. The best distinction I’ve actually heard between the two. So, for the first time, I think I can actually explain it to somebody else, which is the definition of a good understanding. So, what is the investment banker-client relationship look like if it’s a very good one? I think, when clients sign onto to pursue a strategic transaction, we use that generic term deliberately for the moment, I sometimes wonder, particularly if they’ve never been in that kind of transaction environment before, if clients really, frankly, know what it is that they’re getting into. So, maybe could you kind of shed some insight and give us some of the inside baseball in terms of what that relationship looks like on a day-to-day, in a month-to-month basis?

Roger Furrer: [00:11:28] Sure. Maybe to define an ideal relationship, I kind of start by saying the process to sell a business and to discuss the strategic options leading up to selling a business could be a 6, to 9, to 12-month process. So, with that being said, you’re going to spend a lot of time as the business owner with the investment banker that you choose to work with. So, I think it’s very important that you have a degree of chemistry with those folks, that everybody likes working with each other, and that the investment banker is able to also work effectively with the management team of the company and work with other outside advisors, such as their attorney, or accountant, et cetera that’s going to be working through this process.

Roger Furrer: [00:12:19] And the reason that is important, it’s not so much the time frame, but it’s the intensity during that time period. I might talk with my customer daily, twice a day, many times a day, depending on where we’re at in the process. So, there is a tremendous amount of interaction that you’re dealing with during the course of the process of selling that business.

Roger Furrer: [00:12:45] I think, the other thing that I would suggest that that somebody look for in an investment banker, and I’m I’m sucking up a little bit and touting some of my background, but I think somebody that has some experience, a multitude of experience in different business environments because there are technical, legal, accounting, financial, emotional, all kinds of issues that come up during the course of the process. And so, I think, dealing with somebody with a well-rounded background is also very important in the process.

Michael Blake: [00:13:27] I’ll underscore that because that’s also important in what I do. As you know, and if our listeners have listened to these other podcasts, I specialize in technology businesses and professional services firms, – i.e. businesses that have mostly intangible assets. And the process of selling/buying a business and those industries is candidly very different from, say, buying or selling an orthopedic practice, or even a manufacturing company, or a high-tech engineering situation, or the engineering professional services. But the point is all these kinds of transactions or businesses have their own little nuances that have to be figured out and anticipated, preferably, well in advance. And there’s a lot of value to having seen a lot of stuff because every deal will have a surprise or two that’s just unavoidable, but you’d like to keep those those surprises down to a minimum to a dull roar.

Roger Furrer: [00:14:39] And the ability to draw back on past experience and be able to connect the situation from one experience to another and say, “In this situation, this is how it was dealt with,” as kind of a starting point in understanding the discussion.

Michael Blake: [00:14:55] Yes. As I like to say, there needs to be some benefit, in my case, to having gray hair and two arthritic ankles. And what you get in exchange for that is a little bit of experience, and been there, done that, and got the T-shirt. So, one thing that I think a lot of folks don’t know if they haven’t worked in the investment bank yet is that there’s a difference between sell side and buy side transactions. Of course, a sell side transaction, meaning that you’re working for the seller, and a buy side transaction, meaning that you’re working for a buyer. And most investment bankers I know, and I truly don’t know if this is the case for you – I should, but I don’t – but most investment bankers have a preference to work on sell side transactions. So, I guess, my two-part question is, is that the case for you guys at Brady Ware Capital? And if so, why is that? Why is there a preference to work on the sell side?

Roger Furrer: [00:15:59] Well, it’s interesting that you bring this up, Mike. This morning, I was talking to another investment banker that we have a strategic alliance with, and we were introducing ourselves to another party, and they asked if he does buy side engagements, and he said, “No, I flat out refused them.” So-

Michael Blake: [00:16:19] Yeah, I’ve heard that.

Roger Furrer: [00:16:21] So, first of all, Brady Ware Capital’s preference is most certainly to do with sell side engagements. We do take on a limited amount of buy side engagements when the situation seems right for ourselves and the client. But the reason for the preference is — and this may seem a little bit strange at first, but with a sell side engagement, you know you have one willing party to start with. You have someone that has engaged you to go find a buyer, they’re ready to sell. When you do a buy side engagement, the buyer says that they want to grow from strategic acquisition or otherwise, but in many cases, it’s very difficult to define what it is that they’re looking for and trying to identify the right party to be a participant on the other end of the transaction.

Roger Furrer: [00:17:20] And if you’re able to find the perfect fit, and talk to, and find, and get financials, and identify the right selling party for that transaction, well, they work for sale when you call them, so you kind of flip the leverage in terms of the monetary value that was going to be exchanged. You kind of flip that leverage over to them because you reached out to them and created a situation that they weren’t ready for. So, it would be the same thing if I showed up at your doorstep and your house wasn’t for sale, but I said that I wanted to buy it because it was the perfect fit for me. And you kind of take a step back and go, “Well, it’s not that really for sale, but if you paid me 50% over market value, it might be for sale.”

Michael Blake: [00:18:13] Yeah, that’s right.

Roger Furrer: [00:18:13] And so, when that happens, right now, my buyer, who was a willing participant, says, “Well, wait a minute, I’m not going to pay that for that company.” So, it’s very difficult to find the perfect fit in a buy side engagement.

Michael Blake: [00:18:29] It’s like trying to solve one equation with two unknowns, I guess. And for the most part, at least larger companies, they won’t hire a buy side investment banker representative, and that’s why they’ll hire instead of vice president of business development, they’ll have a corporate development team if they’re large enough. And that’s kind of their job to go out there and hunt for those businesses to acquire. And that’s probably the more common model, wouldn’t you say?

Roger Furrer: [00:19:00] I would definitely agree with that, Mike.

Michael Blake: [00:19:02] Yeah. So, how do folks like you, frankly, get paid? In my practice, 90% of my fees are on a fixed basis. I don’t think the investment banking world really works that way. So, how are investment banking fee structures on a sell side engagement typically put together?

Roger Furrer: [00:19:30] Well, I wouldn’t have answered it this way, except for how you stated it with yours are 90% percent. Ours are probably 90% variable. So, for the most part, we are compensated when success happens. And back to your introduction, that’s when the wire transfer goes through. So, most investment bankers will receive a retainer at the beginning of a sale process, and they might receive another retainer or two throughout the course of the engagement at various stages in the process. But, again, most of our fees come from the transaction success actually happening. And those fees would range from roughly a few percentage points on up to maybe 7% or 8% of the sale, depending on the size of the transaction.

Michael Blake: [00:20:26] And the risk level, I would imagine as well, correct? In other words, if you think the deal is going to be easier to do, the fee might be a little bit less. Or does it matter? Maybe it doesn’t.

Roger Furrer: [00:20:40] I’ll say I’ll answer that a couple ways, Mike. One is by our very nature, and kind of the structure of our pricing is built around success, the idea is to identify projects that we would work on that we feel that we’re going to achieve success. And that’s a mutually determined between ourselves and our client. In other words, if we value the business, I’ll just use a number of 5 million, and our customer says that, “I’m not going to sell for anything less than 10,” then we probably don’t see a pathway to success with that. At that juncture, we might work with the customer more about how to achieve a valuation of $10 million at that point in time. So, if we don’t see a pathway to success, I’d say there’d be two things that we would do. One is not become engaged; or secondly, if the client wants us to continue through a process, we would probably change the pricing structure, so that it’s more fixed versus variable.

Michael Blake: [00:21:54] Got it, okay. And the way you described that just made me realize something, and it goes back to the previous question of buy side versus sell side. If your compensation is going to be a factor of or driven by the size of the deal, and you’re working on a buy side engagement, you’re kind of working against yourself, right, because you’d be trying to drive down a price, but in so doing, driving down your fees. Now, that would be a pretty hard balancing act to sustain in any event.

Roger Furrer: [00:22:26] Yeah, we’re a little bit — and our pricing structure, we like to be in neutral lockstep with our clients, so that we’re not in a situation like that where we’re not trying to drive the price down, so we drive our fee down. Correct.

Michael Blake: [00:22:44] All right.

Roger Furrer: [00:22:44] And, also, back to your buy side situation, because I described before that it’s difficult to identify and achieve success with it, and that’s the nature and structure of our compensation system is based on success, you don’t want to get into a lot of situations where you don’t see a pathway to success.

Michael Blake: [00:23:05] Yeah. That’s a good way to not be in business very long.

Roger Furrer: [00:23:09] Correct.

Michael Blake: [00:23:13] So, take us through a sales process. Let’s say somebody has been — you’re now engaged, and you’re ready to put a business on the market for sale at some point. I’m guessing there’s some preparation that goes into the process, but I don’t want to answer that question. I’ll let you answer that question. What does that process look like?

Roger Furrer: [00:23:37] Sure. Maybe before getting engaged, I’d like to take a step back and discuss the process of getting engaged. So, I mean, it sounds a little bit like a marriage here. So, what are you trying to accomplish, business owner? What are your objectives? Are you trying to transition your business to your management team? Are you trying to transition your business to relatives, cousins, daughters, sons, whatever it might be? Or are you trying to exit 100% of the business on sale to a strategic party? A financial party? Are you trying to retain some ownership and partner with somebody to take you further and help you grow your business in another direction, perhaps, geographically or from product diversification, whatever that might be? So, I think the first part in thinking about a sale process is really identifying and discussing, what are you trying to do with this? What’s the right solution for you? Because that’s going to drive the marketing process that we go through.

Michael Blake: [00:24:54] So-

Roger Furrer: [00:24:55] Is that helpful?

Michael Blake: [00:24:56] No, no, it is. I’m glad you brought us back to that point because I think it’s very important. I’m guessing the process where or the number of clients that you, or any good investment banker has, or if someone just sort of calls you up and says, “Hey, an investment bank,” “Great. I’ll send you a letter. Sign it.” Next thing you know, you’re engaged. I’ll bet that’s pretty close to zero, right?

Roger Furrer: [00:25:20] That would be less than zero, yes.

Michael Blake: [00:25:22] Yeah, right. So, you’ve had months of of conversations. This is something a lot of people don’t realize about investment banking is folks like you invest a ton of time, energy, and expertise in that pre-engagement relationship-building period where you’re trying to understand (A), business, and (B), the goals of the owners, and make sure those are something that you can realistically accomplish.

Roger Furrer: [00:25:55] That’s correct. And as part of that process, it’s also identifying a value range of that business, so that you understand what the potential outcome could be as a result of the marketing process. So, back to my example of the $5 million valuation where the business owner feels that 10 is their exit number, now, we’ve got to step back and talk about ways to get that business valuation up. So, I digress a little bit from your question on the sales process and what happens when you get engaged, but I thought that was a good backdrop.

Roger Furrer: [00:26:32] With that being said, so to directly answer your ,question through an engagement process, and we describe it as a several different steps that we go through throughout that 6 to 9-month process that we discussed before, where we literally write marketing material on the business by gathering financial data, understanding the products, the markets, the sales process, whatever it might be that are positioning the business as to why this is an outstanding investment consideration for a potential buyer to look at. So, we go through the entire marketing process and understanding the business.

Roger Furrer: [00:27:21] And then, as part of that process, we set down and identify who we see as potential buyers for this business. And how we do that is we review companies that might be direct competitors of the customer. They might have ancillary businesses associated with this particular business. They could be large suppliers to the business or have other strategic interests that could align with purchasing of a particular company that we’re representing.

Roger Furrer: [00:28:00] We also identify what we’ll call financial buyers, who, broadly speaking, would be identified as private equity groups or, perhaps, family offices that engage in private equity transactions. Private equity can be a very powerful option for people, especially who are interested in retaining some ownership and continuing on a go-forward basis. Typically, these financial buyers also have a strategic interest in an industry. So, a private equity firm that has a specialty in managing manufacturing companies probably isn’t going to be interested in a retailing business, as an example, but it’s usually something that’s tangential to the business that they’re already in. So, those are the things that we go through at the start of that process. And then, we literally do hand-to-hand combat outreach to the leadership team of these prospective buyers and send marketing material to them in an attempt to get them interested in this company.

Michael Blake: [00:29:22] Yeah. I like the way that you mentioned that hand-to-hand combat. And just as an aside, you mentioned, you bring up family offices because I think that’s a relatively new trend. When many of us think about private equity — I’m sorry, financial buyers, we go right to private equity. But as you know, I’m doing an increasing amount of work with family offices and dynastic wealth, and they’re starting to become a more important player as a financial buyer of buying operating businesses. At least, I’m seeing that. Are you seeing the same thing?

Roger Furrer: [00:30:00] We are. They, too, like others, are looking for profitable ways to deploy the capital that they have to invest, and they see this as one of the avenues that they might allocate a portion of their portfolio.

Michael Blake: [00:30:18] So, typically — just, let’s do a rain show. I don’t want to nail you down, but I still think it’s important in terms of managing expectations. When you and a client agree to work together – excuse me – how do you set expectations or what expectations you typically set in terms of how long it will take from, “We’re signing this engagement letter,” until you’re going to sell the business, and money wire transfers go through.

Roger Furrer: [00:30:52] Sure. I’ll start with the end answer, and I’ll break it down in stages for you, Mike. The end answer is probably six to eight months from the start of the process to the wire transfer clearing. We say it’s about a month doing our market preparation and marketing material. Another month to six weeks in terms of executing the marketing process, and identifying potential buyers, and outreach, and getting indications of interest from those buyers. Another six weeks or so in terms of providing additional information, hosting those companies on site for visits, and ultimately picking the right party and negotiating a letter of intent that we all agree on. So, that’s about — I’ll call that maybe four months total there. And then, it could be another three months or so to develop documentation, do the due diligence research that the buyer is going to do, and ultimately get to the closing process.

Michael Blake: [00:31:59] So, there’s a question I want to make sure that I — a conversation I want to make sure I have with you because I think this is very important for our listeners, and I’m sure that you’ve addressed it. And that is part of the compensation model is there is a retainer involved. And to be candid, I actually advise clients that hiring an investment banker that requires a retainer, I think, is a good thing, because that’s what helps keep the investment banker interested, especially when the deal isn’t particularly active as opposed to — and we know business brokers tend to be more like this, so they’ll operate without that retainer where there’s a purely a success fee out there, and you’re going to get the very definition of ADHD, and that whichever deal happens to be getting transact – I’m sorry – traction today is the one that’s going to get your attention. That means that yours is going to go to the bottom of the pile. Can you comment on that? Does that make any sense to you?

Roger Furrer: [00:33:09] Well, I would say what went through my mind, Mike, is I’ve seen investment bankers that charge a monthly retainer. I’m not a big fan of that. And in advising a client, I would advise a client against that because that just keeps the meter running and doesn’t necessarily drive one to success. The retainer fees that we have and the way that we restructure it is around hitting certain benchmarks, so that there is demonstrated progress in the work that we’re doing.

Roger Furrer: [00:33:48] Now, it doesn’t necessarily mean that we’re going to close the transaction, but, for example, having a retainer that hits when the letter of intent is signed, that shows that work was done, and progress was made, and this keeps us engaged and kind of covers our expenses, and time, and effort in working through to the closing process. So, I’m a big fan of retainers that way that are benchmark-driven. I’m not a big fan of retainers that are driven by the turn of the calendar.

Michael Blake: [00:34:21] Okay, good, good. So, have you ever run into a scenario where a prospect kind of raises the question of, “Well, my law firm says they know buyers, and my CPA firm says they know buyers, and maybe I can just let them sell my business and not have to pay the fee”? Do you ever encounter that? And if you do, how do you respond to that?

Roger Furrer: [00:34:50] We encounter it frequently. And the way that we address it is a number of ways. First of all, there’s many great accountants and attorneys that I’ve worked with through these processes, and many of them may have the capabilities to do these. I’ll call them one-off transactions from time to time, where buyer reaches out directly to the seller to get a transaction completed. That could work. I don’t advise that you should approach it that way, but that could work. I find it, I don’t know, I’ll use the term laughable, that accountants and attorneys would do outreach to identify potential buyers, and try and get them interested, and do the work that we do.

Roger Furrer: [00:35:46] So, they certainly have some skill sets that help in the process. But the other thing I’d say is that they’re rarely staffed to handle those steps to do it. I mean, we work constantly on a deal. Constantly, we might spend half a day for six months on a particular deal. I don’t see an accountant or an attorney having the ability to do that based on the other workloads that they have. So, we always hear about the realtors sale, the FSBO, the for sale by owner. I certainly don’t think that is the recommended approach.

Roger Furrer: [00:36:23] Independent of the advisors, here’s the other thing that I think is the critical piece of this. So, it’s a very specialized and, at times, sensitive process, which I’ve just articulated, but the business owner and the management team needs to focus on running the business and maintaining the value of the business. If you devote an inordinate amount of time to the selling process itself and the business suffers, guess what, you just diminish the value that you thought you were saving by not paying the investment banker fee. So, how is the expression? What’s the saying? “If you act as your own attorney, you have a fool for a client.” I think this is pretty similar to that.

Roger Furrer: [00:37:15] You’ve used the term before about trying to do this cheaply. Well, we certainly believe a thousand percent of the time that the process, and the effort, and the marketing approach that we do is way, way more offset. Our costs are way, way more offset by the value that we drive in the business. So, first of all, don’t do it yourself because your business is going to suffer. If you’re in a situation where you can spend six to nine months working on the selling process, I challenge that that just doesn’t happen in business very often that you can establish a new role for yourself and not do your current job. So, don’t do that is my huge advice with that.

Michael Blake: [00:38:11] So, the bullet point here is do not try this at home.

Roger Furrer: [00:38:13] Yeah, no.

Michael Blake: [00:38:15] And I agree with that, and I’ve seen it happen even with an investment banker involved. And I think, frankly, one of the values that you guys bring to the table is understanding how to manage your clients’ time to make sure they are still managing their business because there’s the dynamic of work that if your eyes off the ball on the business, that’s one thing. Over time, you could probably recover it. But the other part that, I think, is extremely hard to recover from is psychological. It’s that once your mind is kind of one foot out the door, and you’re thinking more about that condominium in Costa Rica than you are your business on a day-to-day basis, I think it’s very hard for you to snap yourself out of that and get back into full on business non-exit mode.

Roger Furrer: [00:39:15] I would completely concur with that. And I think one of the things that we do in the process is the coaching aspect of it about making sure that the business is still performing. Now, obviously, these situations occur where that doesn’t happen, but the idea is to make sure that people are maintained and maintained in their focus on where they should be to maintain the value of the business during this six to eight-month cycle.

Michael Blake: [00:39:49] So, we are talking to our Roger Furrer of Brady Ware Capital. And we’re talking about whether you should hire an investment bank. I’ve just got a couple more questions, and I want to let you go because I know you’ve got deals that you’re working on right now. But one question I want to make sure that we do cover is investment banks such as Brady Ware Capital are not just about buying and selling businesses, are they? There are other kind of ancillary — I don’t want to say ancillary because that sounds like they’re not important, but there are other important services that you offer to clients as well, as do other many investment banks. Could you talk about that for a minute?

Roger Furrer: [00:40:30] Yeah. I think a couple of things that we do well also. And I think having Brady Ware Capital being a part of Brady Ware, the accounting practice, gives us the unique capabilities of being able to work with what we would call transaction specialists that are able to be participants in a due diligence process and identifying issues that might arise in the financials of a target company, as an example, or preparing the seller for issues that might come up with their target company. So, I would broadly categorize that as transaction services type of work.

Roger Furrer: [00:41:14] Additionally, we also participate in what I would call corporate finance, which would be helping companies analyze potential cash flow and return on equity metrics for an investment that they’re making, an acquisition that they’re making, those types of things to make sure that they’re on the right path from a financial perspective. And finally, I believe I mentioned before, we do assist in capital raises. Most traditionally we have worked in the area of bank debt and other mezzanine debt that would assist the company with their capital structure.

Michael Blake: [00:41:58] Now, you mentioned debt. Sort of noticeably absent in that conversation then is equity. Does that mean that you’re not as aggressively pursuing transactions where you might help somebody raise equity capital?

Roger Furrer: [00:42:14] We do not do that as a routine. No, Mike. It’s almost one of those situations that I would parallel with the buy side discussion in that trying to find the right fit of equity participants with a particular equity need is maybe needle in a haystack type of approach. I would say, more typically. from an equity raise perspective would be around the potential transition of some of the ownership, maybe a minority ownership perspective, to provide liquidity to the primary owner or perhaps to engage in some expansion activity or acquisition activity. There is a fair amount of private equity groups that do specialize in taking a minority ownership position. So, when that scenario arises, that might be something that would be part of a process in an equity capital raise. But rarely do we do one-off type, if you will, for smaller dollar amounts to bring equity into a business.

Michael Blake: [00:43:34] So, if Wiley Coyote is coming to you, and he’s trying to raise venture capital for his roadrunner catching machine, that’s not a good fit.

Roger Furrer: [00:43:43] I know Wiley Coyote had some great Acme machine that I remember as a kid. We might invest in that.

Michael Blake: [00:43:50] Now, there you go.

Roger Furrer: [00:43:52] But yes, that is not one of our strong suits.

Michael Blake: [00:43:57] All right. So, Roger, this has been great. There’s other questions we could ask, but I know we’ll let you get back to it. If somebody wants to contact you and learn more about investment banking, and how investment banks can help a company from a strategic perspective, and maybe a bit more about Brady Ware Capital, how can they best find you?

Roger Furrer: [00:44:21] Well, I’ll tell you that, but before I do, I think there’s one other point that I think that we should talk about with the listeners. A lot of times, we’ve talked about a party not doing it at home yourself type of thing and doing it for sale by owner. When people get outreach from a buyer who calls them directly and thinks that they should engage in an acquisition discussion, investment bankers are very useful in that process as well in that the first thing that we do is help with the identification of what the value of that business should be. And, also, kind of go back to the starting point that we had before is, what are you trying to accomplish, business owner, around your goals and objectives with transition? So, I just thought that was worthwhile to bring up to before actioning.

Roger Furrer: [00:45:19] With that said, in answer to your question on how to get a hold of me, my email address is rfurrer@bradyware.com or anyone may reach me on my cell at area code 937-238-9401.

Michael Blake: [00:45:43] Okay, Roger, thanks very much for that. I think there’s a lot of good content for someone who’s thinking about whether or not they need to retain an investment bank. Chances are if you’re thinking about it, you’re probably doing. And Roger’s a great place to start.

Michael Blake: [00:45:58] That’s going to wrap it up for today’s program. I’d like to thank Roger Furrer so much for joining us and sharing his expertise with us. We explore a new topic each week. So, please tune in so that when you’re faced with your next business decision, you have clear vision when making it. If you enjoy this podcast, please consider leaving a review with your favorite podcast aggregator. It helps people find us, so that we can help them. Once again, this is Mike Blake. Our sponsor’s Brady Ware & Company. And this has been the Decision Vision Podcast.