Bill Snow | M&A for Dummies

Hello there, I'm Patrick Strofe, Trusted Authority in Executive and Transactional Liability. and founder of Rubicon MA Insurance Services. Now a proud member of the Liberty Company Insurance Broker Network. Welcome to MA Masters, where I speak with the leading experts in mergers and acquisitions. And we're all about one thing here that's a clean exit for owners, founders, and their investors.

Today I'm joined by Bill Snow, investment banker and author of Mergers and Acquisitions for Dummies. I they have you come up with a one for dummies for this, so this is great. Bill, great to have you here. Welcome to the show. Patrick, thank you for having me. What a pleasure.

Now before we get into mergers and acquisitions for dummies and going forward for brevity, I'm just going to call it MA for dummies. But before we get into that, let's start with you and get a little context. What led you to this point in your career? That's a great question. For years I really didn't know what I wanted to do. I had sales jobs, management jobs. I was working for a publicly traded retailer. We were buying up

little mom and pop retail operations a long month another lifetime ago. And I eventually segued into I wanna do more startups and where do business ideas come from. So I worked for some

Angel funded companies and friends and family work my way up the food chain, work for a venture-funded company. We were a matchmaker between entrepreneurs and venture capitalists and along the way of banging my head against the wall and trying to play the venture capital game, you end up learning quite a bit about business and how to read a balance sheet to make phone calls and sell and figure things out and et cetera et cetera. So

A former colleague of mine went to work for middle market investment bank. Everybody always wants to know, how do you become an investment banker? And of course my question is, why d why would you want to do this? Did you fall down the stairs this morning and hit your head? So I turned down the job, I think, four or five times. And the the founder of that firm got me in a moment of weakness.

And he said, I'm not taking no for an answer. And I said, Okay, fine, I'll be an investment banker. So that's how I got into the investment banking racket. Um, I I was not looking forward to another sales job as you learn in this when you're selling a business, you're really not selling. You're you're buying. You're looking for the right buyer. And it was it was a great fit. I really enjoyed it, had a lot of success.

And by and we can talk about this a little bit by by staying active and and always being open to new ideas that eventually led to the book deal. I know we'll come up to that in a little bit. Well, I mean we're going to come up with it right now. And just for trivia's sake out there, there are over 240 books that are entitled Subject for Dummies. And I mentioned before, I mean, we had to get one for mergers and acquisitions. So it's natural that it eventually got here. Yeah. But what led you to

think about writing about mergers and acquisitions. And at the same time, this isn't your first book. So talk about writing in general and then and then mergers and acquisitions for dummies. Sure. Writing is is something that I've always wanted to do, even though I didn't have much practice and for a long time I didn't have much to to say or I even know what I wanted to write about. And for me, writing being able to be a good writer, being able to use words to explain When I when I looked at the

eight thousand word essay on this when I started thinking about this. This is what I do. I'm a writing preference learner. I have ideas I have to write'em down, which is why writing the the Four Dummies book on M and A was so helpful. But practice and repetition. If you wanna be a writer, you've gotta write every day. Use of technology for me was huge. I'm old enough where I'm probably among the last of the vanguard that brought a typewriter to college. And by the time I finished college

Four years later, I was in the computer lab and using word perfect and so forth. But back in the in the day when you had to write long hand and then try and type it up. Oh, that was just it was just too painful. So the technology finally caught up. That's that's helpful. As I mentioned earlier, having insights, something to write about, having some sort of inspiration, happy accidents. You have to be open to whatever might happen in life.

finding the time and of course having confidence to write. So I wrote a book on venture capital uh twenty years ago in oh three. It was just something that I was upset about. Uh business meeting that didn't go well. Uh somebody asked me what the blank do you know about venture capital. And I had been working on an article. I didn't know where this article was going to be published. And I thought, well, I'm going to finish that article. That meeting was a disaster.

And as I kept writing, I thought, Well, now it's gonna be a two part, now it's gonna be a ten part. Okay, I'll make it a book. Oh, you know what? I'm going to be fancy. I'm going to weave a narration through this and have a lot of fun. So I just did that just for myself. just to I yeah to be in a bonnet, so to speak. And I didn't know what to do with it. This is O three, so I sent it out and all kinds of people forwarded it. And I was a mini viral hit before viral hit was a thing.

And I remember thinking if I knew what I was doing, I could do something here because I was being contacted by venture capital firms and with a lot of thank yous and uh good ideas, bad ideas, all kinds of people. A few years later, this is when I morphed into middle market investment banking after I wisely turned down the job four or five times and was really enjoying that doing well, Wiley Publishing contacted me to write a book.

So that's how it came. That's the lesson. Anybody thinking about how you connect You can't ask. Oh, there's a time to ask. But you have something to offer. So I wrote a book on venture capital, had a certain flair to the way I wrote it and had some fun and and and hopefully there's a lot of good information that's helpful to people.

So Wiley found me. They wanted to do LBOs for dummies. And I thought, yeah, I'll do it. And I thought, well, what's an LBO? Leverage buyout. That's just a form of using debt, a financing tool. Okay, that's good. Can I really write a book? I don't know. And I said,

Who would who would buy that? And they said, those guys on Wall Street who do those billion dollar deals. And I said, Well, there's six of'em, right? And I'm not gonna teach those guys anything. And I started thinking, let's broaden this a little bit instead of just financing one angle of financing. How about the whole process? And it hit me right there. MA for dummies, mergers and acquisitions for dummies. And they said that's a stupid idea, Bill.

Who would buy such a stupid book? And I said, I don't know, tens of thousands, hundreds of thousands, business owners, students, I don't know. And they said that's a stupid idea. So the the whole thing came to a crashing halt. We already negotiated a contract, by the way.

Two years later, Wiley contacted me and they had a new idea. They let me know it was theirs. They thought of it. They're in Holboken, New Jersey. They're really quick there. Mergers and acquisitions for dummies, Bill. We thought of it, not you. Would you like to write it? And of course I said, That's a brilliant idea. I wish I could think of stuff like that. So I'm I'm exaggerating a little bit, really not that much. So I I talk about happy accidents. That was a happy accident. Being contacted.

If I would have would have put together a plan. For that to happen never would have happened, but I had uh demonstrated skill and ability, both in terms of knowledge and writing ability. And through a happy accident, publisher contacted me. So that was written in 10, published in eleven. And 12 years later they contacted me again and we just released A couple months ago, the second edition of the book, May 31st, it came out.

Well and i the the thing about these, you know, books for dummies. is it's kind of a how-to. So for the do-yourselfers out there, uh, you know, it's a you know, a starting point for them to see how they can get that. And what's nice is where you were targeting now, you're not targeting the billion dollar deals. You're looking in a marketplace where we have owners and founders of lower middle market companies. So there's a huge wealth of companies out there that are available to be sold.

And conversely, there are a lot more buyers than there were years ago because between you've got search funders who are just individuals looking to buy something, you have private equity on a slightly upstream, you've got independent sponsors, and so you've got a lot of players in this. And, you know, inexperienced and some with experience, what can they get from MA for dummy?

Yeah, that's that's a great question. What the book lays out is a process, step by step process is part of the book and it's peppered with a lot of other things, how to negotiate, how to structure deals. uh due diligence, how to put the materials together, how to review the materials, all the things that go along with buying or selling a business. are in that book. I would recommend anybody with a business hire a capable advisor to help them with the the

the the book. They can do it themselves. I think that would be a a foolish thing to do. When you work with a capable investment banker, we act as what? A buffer. where between the seller and the buyer, sometimes the seller is upset, venting, okay, we can be so uh shoulder to cry on and and and then be able to

pass along that message in maybe a little more professional manner to the the buyer without blowing up the deal. A full time focus. Investment bankers, that's what we do. A business owner trying to sell the business, they have a full time job running

the company. If they try to do both, they just start running out of time. Uh emotions. We can keep emotions out of it. Somebody who's close to the business, making all the decisions, knows all the good things and all the mistakes, all the embarrassing things that happened. They might get emotional. It might be a third rail that someone's touching. Well, we we are at arm's length away, so that's very helpful. We tend to be uh prepared. We know what's going to happen next.

We frame the discussion. So in other words, we as much as possible, we want to be proactive. Somebody who hasn't done this before is going to be reactive to the buyer. They're going to be constantly reacting to what somebody else is doing. We as much as possible, when we're selling, want to be proactive and get the buyers to react to us.

We've got confidentiality. So if we are representing a seller, we can contact the buyers without letting them know that company ABC is for sale. If somebody calls from company ABC and says, Hi, I've got a

Uh a company, I'm not gonna tell you my name, you can figure it out who's who's uh uh a calling. So those are uh some just some of the the reasons that you why you'd want to work with an investment banker when you're selling your business. I you know I I sincerely believe that where comfort is is because Um particularly on a cell site. Sellers, it's not that they're naive, they're just inexperienced in the process.

And I think if somebody were to give them the game plan saying, look look, here's the process, here's some things to expect. There may be some surprises along the way, but we'll just lay out how the path should look and then go from there. And I think that's a great way where they don't have to do it themselves. At least they can see things coming. And a capable investment banker or uh sell side advisor is gonna hold their hand, shepherd them through, and actually save them not only.

time and money, but just wear and tear on their soul. Because if you're in an area that's unfamiliar, you you're going to worry a tre you know, particularly because you just don't want to get it wrong. You've got legacy issues, family issues.

other obligations out. Absolutely. Yeah. Yeah. When we spoke, one of the things because I asked a lot of my guests You know, what separates you from all the other capable professionals out there? And one of the things that we talked about, not to steal your thunder, is that you really have a great keen eye for negotiations. And it was interesting how you pointed out to me, hey.

Let's see how your negotiations go with a perspective investment banker because what's the lesson you told me? The way your investment banker negotiates with you when you're putting the agreement together is how that person will negotiate for you. And the trick there is ask for a fee agreement, cut the fees to the bone. I'm prepared to work on this basis. And if somebody accepts that lowball offer, don't hire them because when the going gets tough in your deal

buyers trying to retrade or do something to lower the price. If that investment banker folded like a house of cards when you put a little bit of pressure, guess what they're gonna do when you have a much bigger transaction, the value of the entire company, they're gonna fold as well.

Negotiating is a key part. People think it's pounding the table, think it's bluffing, things like that. It's it's not that. If you bluff, you're gonna get founded out. If you pound the table, lie in the sand, all that kind of stuff, people just walk away. The key lesson is you have to be able to read. the strength of your hand in comparison to the other table. So If you've got it's like playing cards.

If if you have a weak hand, you've got to get out of the game as quickly as possible with as little damage as possible. If you have a strong hand, and this is the key thing, I think where a lot of people make mistakes, a strong hand, people will overplay a strong hand. They get a great hand. They start betting the maximum bet right away. And what happens? Everybody folds.

Congratulations, you won the ante. So you have to if you've got a strong hand, you've got to know how to play that without inadvertently chasing away the potential buyers as well. And you know, the the issue also is because You're in a business, even though the seller may be out on one transaction, you're dealing with buyers and there are repeat buyers out there. And you and I are very familiar with we don't want to poison the well with one deal.

And I think that mutual respect and that experience is a real value add, particularly for sellers who don't know who all the protective buyers are. Sure. Yeah. Absolutely. Absolutely. As much as possible you want to remain professional. And that's another reason why to hire an intermediary, an investment bank, or somebody to help with the transaction. I've had clients too, great clients, great people. But very excitable, hot headed people that got completely

upset about some issues we're going through the process and without me or somebody on my team in the middle to be able to deflect and be the buffer, the whole deal would have probably blown up. And and the Those are the types of things that can happen out there. Now, because I don't want to take away some of your steam with regard to your practice as an investment banker, let's talk about that. Tell me what your profile of an ideal client is. Who are you looking to serve?

Sure. Sure. We get hired by the owner of the business. So we want to contact or be in contact with the owner of the business. That might be the president or the CEO or that person might have a piece of the company or certainly be an influencer, but the the final decision maker is going to be the decision. It's going to be the owner of the business. That is who we want to be contact with when we're looking to sell a business.

I also want to be in contact with service providers. I get a lot of leads through lawyers, accounts, wealth managers, commercial bankers, some other uh service providers that might have the ear of a business owner. So a lot of my marketing is geared towards

Connecting with those people and staying in touch with those people, keeping my name, my firm top of mind. So when they have those opportunities, they're thinking of me and at least putting my name on a short list so I get a chance to to bid on something and and pitch out a mandate. No limitation uh regionally or geographically?

Well, I'm in Chicago, so a lot of my clients, a lot of lot of the work is in the Midwest, uh although we've had clients from coast to coast and that's not an issue as as well.

Well, one of the things that's really assisted in the, you know, huge deployment of mergers and acquisitions transactions where it's literally exploded, not only from private equity, but from a lot of walks of life. Is the emergence of insurance coming in to transfer a lot of risk from these transactions away from the players to an insurance company called Reps and Warranties Insurance?

I'm just curious, Bill, from your perspective, good, bad, or indifferent, what's been your experience with reps and warranties insurance? Yeah, that that's something we're we're starting to see more of. I can't say I'm gonna be the expert. I have to lean on you, Patrick. So when we have that I'll be i in touch with you uh for the specifics. But the pricing has certainly come down where being able to ensure the reps and warranties, the promises that the seller makes.

with an insurance product and then that premium is paid by the buyer. Sometimes they they split it. Uh that can make sense. So instead of putting say 10% of the proceeds, you might put a smaller piece, and you know the numbers, what half a half a point or something like that, uh in escrow. So there's a lot more money that the seller gets at close. And then they have to ask. Well is this worth it?

spending some money on a premium to get this money, or am I just gonna wait whatever, twelve months, eighteen months to get the money? And it's up to them. But it it's a it's a great product. We're seeing that a lot more and and you know better than me the pricing is coming down where some of these smaller transactions it it starts to make sense where a few years ago it it didn't make sense for uh smaller transactions.

Yeah, the traditional they're called buy-side rep and warranty policies where the buyer is the policy holder. uh involved a great deal of underwriting, the buyer's diligence. It required an underwriting fee of between$40 and$50,000 just to get the research done on the policy. And the policies are quite frankly, they're six, they're six and seven figure premium items. but they're designed for$100 million plus deals.

Now the market has come down to entertain risks at 50 million, 40 million, they're beginning to come down there. Yeah. Where uh I'm beginning to reach out to investment bankers like you and sell side advisors. is what do you do about deals where owners and founders have a company that's valued between a million and 25 million? What do they do?

And there's a new program out there. It's a sell-side policy where the seller is the policy holder. It's triggered when the seller gets a demand from the buyer of a breach. Seller reports it to the carrier. Carrier pays the buyer. It's a cell-side rapid warranty policy called Transaction Liability Private Enterprise, TLPE. What's great about this is it requires minimum time for underwriting.

is a cost of between$15 and$20,000 per million dollars in limits. You can get a TLP policy for your company that's less than an underwriting fee on larger ones. And what's nice is it's a great way to transfer risks because there are a lot of sellers out there that, you know what, a million dollars is a lot of money to lose.

And if they can get some kind of protection from there, that's why we want to have it out there. So we're very proud that, you know, the market is dynamic and coming in to fill new needs. And so that's what we're looking to do is come into that sub$30 million space with that area.

Well, Bill, 2023 started off slow, at least by my expectations. A lot of other people uh as I talk to think the same thing. Uh now we're looking, we're midway through the year. What trends do you see going forward? Yeah, that's a great question. That comes up all the time. People are always

looking to time the market. When's the right time to go to market? Because they want to sell of course at the at the maximum price. I reminded of a a friend in college who would go through all the the charts of of stocks in the books when we actually had textbooks for everything was on computers.

And he would always pick the stock at the lowest point and say, wouldn't it be great if we would have bought then? And he picked the absolute highest point and I want to sell there. And I'd always tell him, That's never going to happen. Just be happy with the profit. So timing the market is near impossible. The focus on on business owners. What they should focus on is the company.

Because the underlying fundamental in M and A is MA is microeconomic. Yeah, the the greater economies certainly can have an impact. on terms of valuations, but the demand from buyers, as you you mentioned earlier, is high, remains high, whether it's an individual looking to buy a company, the search funds uh private equity firms, corporate buyers, etc. It's family offices. The amount of buyers, everybody and their mother wants to buy a company, bringing a good company to market.

is difficult. And I think that the low interest rate environment of the last decade and a half, roughly until recently, has been very devastating. I mean, you talk to anybody on a fixed income, talk to them about the returns they're getting. And so business owners have been looking at, well, let's see here, maybe it's time to sell the business. Let's see what happens. Okay, maybe I get a little bit more valuation. That's nice.

Three people show up at the the closing, the buyer, the seller, and Uncle Sam. Uncle Sam's gonna take somewhere around a third. So you're left with some money after you pay off the bank, after you pay the investment banker, the lawyer, maybe some other people. What are you left with? Fifty percent? Something like that. I've gotta now live the rest of my life on that. Okay.

I'm not going to put it in the stock market because I don't want to put principle at risk. I need income. I need to find something that is generating income. Let's see here. Fixed income is paying what? Half a point?

Forget it. I'm gonna keep my money, I'll keep my capital in the business, clip a coupon, and keep getting my income that way. I'll hire a president, a GM, somebody to run the business, and I will keep my money there because I can get a higher return without having to pay all those taxes. by keeping my money in the business. So I think hopefully what will happen with higher interest rates

you can get a higher not I hope you can now get a higher rate of return on a fixed income product. Will that bring more people into the market? Okay, now I can get a reasonable return without putting principal unduly at risk. I think that will happen. People, you know, you have to keep in mind that MA, as I've said, is is sell side. Okay. And it is microeconomic. So great here's the check. Great company. in a bad economy

is going to get a really good deal. Okay. Growing, growing profits, strong EPA Dow margin, uh, no concentration, all the things that you want in a great company. I don't care if the economy is good or bad, they're going to get a really good deal, if not a great deal. Flip it around. Great economy, growing like gangbusters, but you have a struggling company.

Okay. Declining revenue, maybe losing money, big customer just fired them. That company will struggle to find bids. So you have to focus on the company. It is microeconomic, not macro. Yeah, the macro sometimes can factor. But it is microeconomic when you're selling a company.

Bill Snow, author of MA for Dummies and also Venture Capital 101, which I gotta mention with Venture Capital 101. It's a great brief business book read. It's an easy read. It's not some big long tome out there. What I liked about it was with Venture Capital, for those people who are unaware, there's this huge myth.

that are these very wealthy investors or companies that are just literally throwing money at anybody with a good idea and they've got tons of cash because they got in the ground floor on Facebook and Airbnb. And so they've got cash to burn. You to sell that entire myth, give great working steps on how to understand that sector. So it can be an esoteric complex sector. You make it simple. You do the exact same thing with MA for dummies. And so I really encourage folks.

to take a look at this, particularly even if you're not in the market today, is a great reference point just to give you some perspective and to manage some expectations. And with that, Bill Snow, how can our audience members find the book? uh plural and also how can we they find you?

You can find me at my very creatively named website, BillSnow.com, or some people say BillsNow. Why would I want to pay BillsNow? And that has links to well, that has links to me and the books. You can find the books wherever any Well, you can find the M and A book where any fine books are sold, which is typically Amazon these days.

Uh Barnes and Noble sells at books a million. Any other retailer will have it. The the ebook, so Venture Capital One O One was was self-published. That's on Amazon. So you can go to Amazon and find Venture Capital One O One as well. If you need more than an hour to read that book. See a doctor. Bill Snow, MA for Dummies, thanks for being here. It was a real pleasure meeting you and having you on the show. You bet, Patrick. Thank you.