Speaker 1 00:00:03 Hello and welcome everyone. I'm Peter Larman, and this is Masters in Small Business m and A. This show is an ongoing exploration into the vast and undercover world of small business m and a, where we interview both the proven and the emerging owners, operators, investors and advisors whose strategies and methods for transaction success have been put to the test. The show aims to surface the nuanced intricacies, the key ingredients, and the important factors that can improve your decision making in your own journey in the world of small business m and a. This podcast is produced by Axial, an online platform that makes it easier for business owners and their m and a advisors to find research and privately connect with a diverse mix of professional buyers of small businesses. In addition to learning more about Axial, you can find this podcast, show notes, edited transcripts, and many other related resources all for
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Speaker 2 00:01:02 Peter Larman is the CEO of Axial. All opinions expressed by Peter and podcast guests do not reflect the views or opinions of Axial. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. Podcast guests may have ongoing client relationships with Axial.
Speaker 1 00:01:21 Hey everybody, it's Peter Laman. Welcome back to Masters in Small Business m and a. It's a podcast that I've been producing for the last about year and a half. I'm super happy to have Brad Smith joining me today. Brad Smith is one of the founders of an investment bank down in the Texas Vertes Advisors. They're focused a hundred percent on the healthcare category, and we're looking forward to diving in on all things healthcare as well as Brad's personal career. So Brad, thanks for coming on the show and, and giving me your time. Really appreciate it. It's great to have you here.
Speaker 3 00:01:49 Yeah, thanks for having me. So
Speaker 1 00:01:50 There's a lot of places to go. As we talked about offline, I think we may ultimately decide to do two recordings today. I want to get started with your transition from employee to c e o at the D M E healthcare business. Let's start there. Tell us a little bit about just the transition from employee to partner and then from partner to to c e o and just take us back a little bit in time here. Just give, give the audience a little bit of placement for, for this. But, you know, we'll start there and then we'll, we'll move forward from there.
Speaker 3 00:02:18 Okay. Easy enough. So <laugh>, kind of the bygone era of, I think it was 19, probably 1999. I was in school at Stephen F. Austin. You know where that is by chance. Peter, have you heard of Stephen F. Austin before?
Speaker 1 00:02:32 I don't know where it is, but I've heard of it. <laugh>,
Speaker 3 00:02:34 It's in the, in the Piney Woods of Nacodoches, Texas, DB Texas, just a little ways above Houston. I was on, I don't know, probably my seventh year of college and maybe eighth perhaps. And I was working for a durable medical equipment provider that one of my old roommates had started years and years ago. And I was doing deliveries and we were primarily focused in mobility and I, I, I took it a cuz I needed a job, but b i I really started enjoying it because as a poor college student, you're delivering mobility in different devices to elderly individuals who I could somehow as a poor college student time, just right to be delivering 'em right close at dinnertime. So somehow I could easily get my way in to have a home-cooked meal with most of my deliveries. So it was a very self-serving, but it actually <laugh>, yeah, you gotta eat right.
Speaker 3 00:03:28 And I really got to enjoy spending time with these elderly patients and I didn't like what I started doing. And so when I finished school, finished school, I went to, I went to him and said, Hey, I, I like what you're doing. I know what you're, I, I understand the concept of it and everything. I, I wanna open up a location with you. I was able to, I'd actually saved a couple bucks and I was able to borrow some money from my, uh, grandfather. And then I actually had a couple credit cards. And so I, like any kid, started a location with him in Tyler, Texas and maxed out my credit cards and borrowed some money, which I, I actually did pay back and I got a location going from scratch up in Tyler, Texas. And then after running it for I don't know too long of a period, I wind up realizing that my business partner didn't provide any help, didn't really know and didn't know what he was doing.
Speaker 3 00:04:17 And so I was able to buy him out and, uh, and then converted into what, what we called actually Lone Star scooters at the time. And, uh, it took off right away. Had a lot of success, fortunately, unfortunately, uh, you had to look at it from the start. And then I started, so I I, I got that on my belt and said, I'm gonna start franchising these. So I got a old school U F O C and started franchising and created a couple franchises in Texas, Oklahoma, and a few other states, and ultimately realized that franchising wasn't a good, a good avenue. And, uh, but I, but I kept opening up locations on my own. So I found myself, I don't know, maybe in like 2004 with about six, seven locations, something like that. And, and, and then I opened up de novo in, in operating these, I got kept thinking, God, there's gotta be an easier way to, to grow business than find a market and then just start everything from scratch.
Speaker 3 00:05:09 And about that same time of gentleman in Tyler, a respiratory therapist who had a, uh, respiratory practice naturally came to me and said, Hey, I'm looking to look at exit. We'd be interested in buying it. And so I said, sure, let me look into it. And I wound up acquiring his business for, for a decent amount of money. And ultimately it turned out to be extremely accretive. They were, they were firmly in respiratory, we were primarily doing mobility. And I was able to capture that, learn what this gentleman was doing, learn how he took care of patients in the clinical side of it. And I was, I implemented in all my locations. So it was this outstanding hit that was, that was just really creative for the whole business. And so I, I decided I need to grow this way. I, I, I need to stop growing organically and I just need to grow through acquisition. My problem was, is I just needed money. And so at that time, private equity wasn't what it is today. And I actually went out and found a private equity, uh, a private equity and did a, uh, recapitalization of the equity structure of the business.
Speaker 1 00:06:08 How big was the business before you recapitalized it? Like how, how many people were part of the business before you started making acquisitions and before the private equity chapter? Just give us a sense for like, what was the size of the organization and who was involved other than you?
Speaker 3 00:06:23 Well, we, we started at Bootstrap and so, I mean, it was just me to, to begin with. By the time we did the, the recap, I wanna say there was around maybe 30, 40 employees somewhere around there. Revenue. We weren't that big. We were maybe a five, six, 7 million maybe.
Speaker 1 00:06:39 When you say it was just you, that's after you'd bought out your partner or are you talking about just, cause it sounds like you used your own money to set up the first location, even though you were partners with, with that original employer of yours. Like you used the credit cards to set up your own location, or you used the credit cards to buy your way into the original corporation that he'd set up.
Speaker 3 00:07:01 I used the capital I had saved and borrowed and, and the credit cards, which by the way, I don't know if you know this, you don't have to pay those back, they don't mind. But yeah, the, I, I used, he came up with, I, I can't remember what it was, maybe 30 or $40,000 each was something along the lines and he came up with his, his half and I came up with my half and that's how we, how we started
Speaker 1 00:07:20 It. And so you guys split 50 50 on the new location and he continued to own a hundred percent of his original business mm-hmm.
Speaker 3 00:07:27 <affirmative>? That's correct.
Speaker 1 00:07:28 Oh, okay. Got it. And then as you expanded the locations from your location and his location to the next set of incremental locations, and you were doing that on a de novo basis, were you guys both buying into those or were those incremental ones just yours?
Speaker 3 00:07:42 That was just mine a at that point I had bought 'em out and he, uh, all kinds of other issues and, and, and other things going on that, and he wasn't any, unfortunately, he wasn't any help in the business itself.
Speaker 1 00:07:53 Got it. But he gave you your first opportunity, right, <laugh>?
Speaker 3 00:07:56 Oh, that's not my first, but, but yeah, so yeah, I, I <laugh> I had other, had other businesses, but, but yeah, he showed me a new, a new kind of style of business. So yeah, you learned from everything. So,
Speaker 1 00:08:08 And the original acquisition of the respiratory business, that was in the same town of your first location that you'd created right? In Tyler, Texas, right.
Speaker 3 00:08:16 I've you ever been,
Speaker 1 00:08:17 That was just a, was that a chance encounter with that entrepreneur or was that someone you'd met in the trade over the course of time, kind
Speaker 3 00:08:23 Of a chance encounter? That's usually the way it's seems to work out is always kind of seems to be chance encounters. But yeah, just someone I, I maybe had met before, but just go on through, I, I think it was, was it Chamber of Commerce? Maybe one of the, they had a, a social or a function and you just kind of run into people and meet people and you had other, I had therapists and, and practitioners working for me at the time and said, Hey, you need to meet this, this gentleman. Yeah. Just, just by chance
Speaker 1 00:08:48 At some point you became a 30 40 employee organization with five to 6 million of revenue. Having started out with just your location and then your original partner's location, tell us just a little bit about that expansion before the, the private equity transaction, which we'll get to probably next. I mean, I know this is 20 plus years ago, or at least 15 plus years ago, but do you, do you remember any meaningful moments along the way there in terms of key recruits or people that you brought into the organization that allowed you to, to go from kind of just you and your original partner to, to 40 employees or, or what, just, how did, how did the organization develop and go from just you to, to 40 employees? What are some milestones? I I
Speaker 3 00:09:30 Don't think there's any one significant, it's more of a microcosm of multiple things. I think part of it is you kinda look back and, and right after college you don't have any kids, you don't have a wife. There's just, just yourself to kind of depend on. And, and, and that energy that I remember, I remember when I first started, one of the things that kind of stuck with me is I, I set my alarm to wake up at whatever time in the morning to get up and get a good start to the day. And I'd always wake up before my alarm and go, oh, crap, I don't have any money, <laugh>, I don't have anything going on. I need to get my ass to work. Yeah, sorry to language, but I, I just, it was one of those that it just, you, you kind of motivated yourself to sit down and do that. And I think it was just being young and kind of the world's your oyster, so anything could happen. And so it would just, it was kind of a love of labor of, of doing that and, and being active. What you can create, the sky's the limit.
Speaker 1 00:10:22 And did you find yourself having outgrown that strategy when you had 30 or 40 employees? Or was that a, was that a, you had 30 people calling you and asking you what to do next? How, how did that, how did that work for you, Brad <laugh>?
Speaker 3 00:10:35 How, how do you think it worked that that wears you down <laugh> you get 30 to 40 problems that aren't your own, that are suddenly now your own. So
Speaker 1 00:10:44 That's why I'm asking
Speaker 3 00:10:45 That, that that has a tendency to, to, to worry you down.
Speaker 1 00:10:48 But did you do, did you develop some team at that point? I mean, was there, were there, was there a number two that worked its way into the organization? Obviously, one of the things that business owners think a lot about or should think a lot about when they're thinking about exiting, which we'll get to probably in the second half of this conversation, is just, if everything's running through them, that's not an ideal plan for, for how to be be exit ready. So just where did you find yourself making progress along that, along that journey when you, when you were in the, the c e o seat yourself?
Speaker 3 00:11:16 I, I did, I, I had a couple of number twos that were really well, really good. I I, I'm, I've always been a big believer. I, I, I, I've, for whatever reason, I've been really good at delegating. I, I think I had to learn that lesson the hard way initially, but I've delegated very effectively and then empower people. I do that here. I've always done that. Empower people to make their own decisions, make their own mistakes. In fact, I applaud people a lot of times when they make mistakes. It, I, I, I, I'm, I've told everybody in my organization, I'd rather you ask for forgiveness than permission. I, I want people to just go out and accomplish, do things of their own. I've been a big believer in entrepreneurs of people that can sit down within an organization and facilitate change and, and, and do stuff.
Speaker 3 00:11:56 So if you could empower people, it, it makes a world of difference. And, and, and honestly, I've never been, not, not enough to try to be like the cool boss, but the boss that, Hey, let's look at outcomes as opposed to look at hours you put in. Especially when it comes to sales folks, I if you, if they can get the sales output that I'm looking for or that that, that they're tasked to achieve, they can do it in two hours a month or, or two hours a week versus 40 hours a week. Well, good for them. I want outcomes, not hours.
Speaker 1 00:12:25 So with the acquisition you made, the respiratory acquisition, which was acquisition, was that acquisition number one in your life that you had? Yes,
Speaker 3 00:12:31 Actually it was, that was my first acquisition I had made, actually, I sold a business when I was 18, so that was the first time for me to sell a business. But my first acquisition was when I was at Lone
Speaker 1 00:12:40 Star. And it sounds like that first acquisition was a very successful one and gave you the confidence to, to move in that direction. Tell me what, what was better about acquiring DME related healthcare businesses versus doing in de Novo? Like what, what made it so much better to pursue an inorganic strategy of acquisition and growth and to do de novo buildouts? Well,
Speaker 3 00:13:04 There's two, two primary critical factories in it. One is I was doing growth, just, I was just growing de novo. And so we had a strategy of, all right, let's look at the senior population of this town. Let's dive dive into the demographics, let's dive into the, of the city of the, of it and what impact we think we can make. And, and then we'd come up some formulaic and, and, and overlay that with quantitative research of how we can justify certain things. And it'd work out great sometimes, and other times it wouldn't work out so good. And the acquisition was game changing because it was, you could look at, Hey, here's what the company's gonna look like a year from now. We know, because we have three years of historical financials, we have three years of knowing that these patients are on service and we knew what we're getting into.
Speaker 3 00:13:48 And so yes, it was expensive, but at the same time, we knew exactly what we were getting and we put in mechanisms to guarantee that we were gonna get that. And it worked out, it worked out beautifully because there was just, it was a certain outcome, and that was just from doing it organically over and over again. That was the biggest game changers. You knew the outcome before you started. Yeah, there was obviously some variables you didn't know, but it was so much safer, safer, easier, and, and ultimately cheaper this way around. And then the second thing that really impacted is it was in an adjacent space. As I mentioned before, we were just focused in mobility, and this was opening up the respiratory door force. So all we had to do was update some, some licenses and our Medicare 8 55 s form and a few other things like that. And, and then had the clinical licenses updated. But after that, it opened up a whole new field for us and said, well, hey, we're, we're doing mobility, we're doing respiratory. What else can we be doing now? It it deepened our bench significantly. Well,
Speaker 1 00:14:46 A lot of people don't, I think, necessarily have like such an unequivocally positive experience doing all these acquisitions. Do you, was there something that you attribute, just like sometimes I think, I think there's a lot of folks that some acquisitions are really successful and others are, are much more challenging. And it sounds like you had a different experience than that. Do you, do you, is there anything that you attribute that to? No,
Speaker 3 00:15:07 I, I've, don't get me wrong, I've had negative acquisitions. This one was really good just because of the kind of the four mentioned factors and, and, and yeah, financially it made a lot of sense. And, and it was honestly, it's kind of right time, right place, kind, almost the medicine you don't know that you need, that you get kind of thing. And then goes back to the aspect of still, I'm, I'm still probably very early thirties, maybe late twenties at this point, kind of the wor world's, your oyster and, and, and having that kind of positive attitude. And, and everybody pretty much in the organization was very young, very eager, very wanting, eager to, to learn new things. And, and this was, this was something that was just completely green to us. And so it was, it's kind of the challenge. And, and you could, once you, when whether you're not, whether you're passionate or not about healthcare, it's very hard not to, to to, to work in a healthcare organization and, and not feel empathy and not feel compassion to the people that you serve. And, and so this became another avenue to help serve that fragile population and, and help someone else. And that really, I, I'd say at Petty before and was talking about getting meals from, from, from, from grandma as you're delivering equipment to her. But it, it really, you get an emotional attachment and, and you really start to try and champion and, and do more for, for these folks. And I'm sorry, I, I think I, I don't even answer your question, but <laugh>
Speaker 1 00:16:31 No, no, it's, it's, it's fine to hear a little bit about that too. It's great to hear about, you know, how the, the patients be began to have a real impact on you because it doesn't sound like that's at all the reason that you, you started your journey in this career. It was really more of like an opportunity for you to find some work while you were in college and you found a lot more meaning in the customer base or the patient base along the way. You mentioned the private equity transaction as like something that you needed to, you needed to find access to capital at this point, the business was not generating enough cash or I suppose was not capable of like raising its own sufficient amounts of debt financing for you to do acquisitions on the scale or at the volume that you wanted. Is that, is that the right way that to, to characterize the way you sort of ultimately found your way into a private equity partnership in the mid two thousands?
Speaker 3 00:17:19 A little bit of that. I'm also just kinda by nature conservative, especially financially conservative. And so to be quite honest, I didn't wanna risk my money. I, I had, I, I didn't come from monies, but everything I had wrapped up, uh, everything that I owned was, was wrapped up in, in this business. And so I was heavily leveraged with this business. So if something went south or changed and, and there was a lot of stuff going on too in the, in the broader macro mar or the macro markets of durable medical equipment. There was some scandals going on and, and, and Medicare was rolling out some pretty significant changes. And so there was some risk at foot of Medicare policy changing and then all of a sudden you're just left holding an, an empty bag. And so that, that was probably more of a driver than anything else to say, you know what, let's take some chips off the table and, and let's do a branch out and, and look at these other kind of post-acute care therapies that we could provide for folks and how they blend together with everything and then take that approach.
Speaker 3 00:18:19 And that's, I mean, ultimately what we did is, is I got in and, and, and I also kind of recognize the need in myself too to like, and, and I, I couldn't contextualize it. I can now of look, I was still running a very mom and pop business and it was my naivety of not knowing it. And I was like, I, I know I need to be institutionalized. I've taken more of an institutional approach and, but I didn't know what I didn't know and I, I knew I needed something more. And when this group approached me, it happened to be kind of really the right fit. The, the gentleman who, who, who ran the private equity and he was a lead lead investor on it, he, he was a former CEO of Farm America, his name's Bob, Dr. Bob Nadella. And he, he, he was a, basically helped guide me through a lot of stuff and was mentor for, for, for lack of a better word, chairman of the board for the organization.
Speaker 3 00:19:09 And what was great about it is, like I said, he was former Farm America ceo. He'd taken them from I think around like a quarter a share to $10 a share back in the, in the nineties. So he, he, he really knew how to grow a business and grow it effectively. And to have someone like that, that I could lean on and say, Hey, here's situations we're involving. What, what do you think about this? What's your guidance? And, and it, it gave me a new way to approach businesses and, and new thoughts around really what I needed as as as a young entrepreneur.
Speaker 1 00:19:40 So he was the, the lead private equity partner that you partnered with in the mid two thousands to, to begin growing through acquisition on a, on a repetitive basis. And and he found you or you found him?
Speaker 3 00:19:52 Honestly, I don't remember how it happened. I, I honestly don't remember. There was a, I know he, he had a couple other portfolio companies, quantum pgs, pharmacy partners and, and a few others. And I think one of the, one of the other companies is sales guy. I believe Owen Larson got connected with him and then he connected with Bob. I think that's how it happened. I, it's again, this is 2000, 2004. So it's uh, close to 20 years ago.
Speaker 1 00:20:16 It sounds like it was like a really important mentorship relationship, you know, that that emerged between you. And was he, was he the founder of this private equity firm
Speaker 3 00:20:26 And, and private equity's probably a little bit more loosely formed, cuz this is 2004. So private equity's not what it is nowadays. Yes. I mean he was the principal of it. There were several other people involved and they had multiple portfolio companies that were primarily wrapped around pharmacies. But yeah, he was the, he was the lead. So he had a, a team around him and that's really, I I learned a lot from, from from him.
Speaker 1 00:20:48 You don't hear too many sort of like, I guess mentorship stories in the world of private equity, it seems to be a little bit more of an arm's length relationship between the operators and the private equity investors. That sounds like a really great partnership that you actually enjoyed there and one that doesn't necessarily come along all the time. And
Speaker 3 00:21:08 To be fair, I I would, I I say private equity, it's not committed capital. They're not s e c sanctioned, like it's more of a operated more like a family office. So they had multiple platform companies, they had, I I don't think they, they didn't have a committed capital. They go out and get the capital on an as needed basis. So it wasn't, it wasn't like he's someone that you see more nowadays. And this is also, once again, 20 years ago. So private equity's really reformed a lot in the last two decades.
Speaker 1 00:21:35 How do you feel like private equity has reformed or, or changed or improved or worsened over the last 20 years? What are your observations of it having been on the CEO side of it and, and now at Vertes?
Speaker 3 00:21:46 Kinda to your point, it's, it's a little bit more hands off, I would say. Well, once again, it depends on the firm. There, there's so many different firms out there and there's so many different approaches. A and and, and, and for better or worse, so there's what, 15, 20,000 unique ones out there where, where previously there, there used to not be nowhere near that number. And it, it's certain, and it's, it's so funny. It's certain ones that are very much so hands on and you see a lot of involvement and knowledge and, and, and value add to it where others you don't see that, that, that are, hey we're that they're really relying on that entrepreneur to become the the expert operator in in in doing that. And I would say that's kind of a shortcoming to an extent. They, and, and, and something that's not really fully realized is how much private equity need operators.
Speaker 3 00:22:33 Because traditionally they're not operators. They don't know the in intricacies of an industry, of a business and they're looking at it from high level and they're finance professionals. And so it really is a symbiotic relationship. Whereas private equity's really good at raising capital, they're really good at execution of acquisitions and and strategy. But they need those operators. And, and so I think as you see more of them, a a a better way to really distinguish is is these guys that are a lot more hands on. And coincidentally we've done, I think just this year we, I think we've done so far two acquisitions with search funds, which whom I've really, really enjoyed working with. And there's obviously some, some terrible ones out there. There's also some really great ones out there and, and these search funds and just so hands on and, and and so passionate cuz typically they are younger guys and and gals that are, they're just, they're at that stage right there that anything can happen in the world's their oyster, which is I love it. I love that enthusiasm.
Speaker 1 00:23:31 Yeah. Maybe we can spend a little more time talking about search funds as, as part of just talking a little bit about Vertes and the work that you're doing with, with healthcare businesses. I think b before we spend time on your, your current career advising CEOs in, in the seat of a, of an investment banker, an m and a advisor. I remember from our, our conversation a week or two ago, you all ended up deciding to sell the D m E business that you had developed and that you'd grown through acquisition. You, you ended up deciding to sell it in pieces, if I'm not mistaken. And usually the play for small businesses that grow through acquisition is you buy the business, you improve some elements of it from an operational perspective and an organic perspective. You lay a foundation upon which to make acquisitions and start growing the business through some tuck-ins. And you continue to try and hope for organic growth in addition to, to to add-on acquisitions. And ultimately you can consolidate the, the ebitda the business and consolidate some of the operations of the business and ultimately sell it as a substantially larger platform business to some form of acquirer who's further and further up the food chain plan. Yes,
Speaker 3 00:24:38 <laugh>.
Speaker 1 00:24:38 Right. And, and and usually there's like some arbitrage there on the multiple of ebitda or there's some arbitrage there on just the security inc. Stability of the business or some arbitrage on the debt financability of the business when it clears a certain EBITDA threshold. You went in the other direction here and and ended up acquiring multiple companies, building a company through a variety of acquisitions and then you ultimately re <laugh> re disassembled it. Let's just hear a little bit about that. How how that came about and, and the outcome and just any thoughts you have on, on that experience cuz it's, you don't hear that nearly as much as, as the, as the opposite approach.
Speaker 3 00:25:14 Yeah, it was a bit unconventional and it wasn't, it wasn't done that way by design when we did what we created and ultimately was called for Tess, not for tes cause he was called a a, a lone star biomedical was that the corporate holding the idea was let's be a post-acute care provider. So when a patient gets discharged from the hospital, we want to be there to take care of all encompassing of what they needed. And so therefore we did acquisitions in pharmacy. We obviously had D M E, we had home health, we had skilled unskilled, we had a sleep lab, we had essentially all these kind of post-acute care in the home. We're gonna take care of you strategy. And so truly they were yes, integrated, but at the same time they're very distinct, different lines of business. And so in 2008 when we transacted we, well ultimately we had some bad news for some Medicare regulation that was coming down the pike and it was ultimately Medicare competitive bidding.
Speaker 3 00:26:12 And, and, and we didn't get favorable news in, in that arena. And so basically the board said, you know what, just sell it the best way you can to get the best return. And ultimately it, it wasn't a great transaction but it was a transaction nonetheless. And we were able to sit down and, and, and, and, and so really my mandate was to chop it up and sell it in pieces cuz that was the easiest way to do it as opposed to sell it as a whole. Because I think partly is we were too unique as a whole of a business and it was very hard for one entity to, at least at that time there was not as much consolidation as there is now. But at that time to sit there and say, Hey, we can encompass everything because that was the problem that we was encountering to is people come into, I like this part of the business, but this is part that we don't do. I like this part over here. We don't do this part. And so ultimately it, it wound up making more sense financially to break it apart and sell it in pieces and, and I was able to really kind of time those simultaneously where we got rid of majority of 'em pretty much by, I think it was, uh, July of 2008, somewhere around there. And then I did such a good job. I was, uh, didn't have a job after that. So I, uh, went back and started doing clinical work.
Speaker 1 00:27:23 What was the clinical work you were doing? Was that part of the BMS consulting that's on, on your profile or was that, was that a different
Speaker 3 00:27:30 No, well, I mean, yes. So I was doing, so BMS consulting was just a consulting company I had where I did consulting work and turnarounds and a few other things like that. And actually some actually ultimately some m and a work out of that. But I'm a, a ATP by training assistive technology practitioner. And so I went and essentially I was the guy you didn't wanna see. If you saw me, you're, you're probably not in pretty good shape. So I'd script out therapies or equipment for people typically with spinal cord injuries or some kind of really debilitating disease like ALS or people that recently become amputees. So, so that they could have some kind of independence within their life, whether that's providing some kind of like high-end wheelchair in their house to some kind of therapy or, or whatnot. So I did that really for the first time ever. I had not, I, I've had the, I had the clinical designation, but I didn't, I never really used it that much. And then I started seeing patients, treating patients and didn't realized I didn't like doing that. It was satisfactory. I mean I, I like seeing patients and helping people, but at the same time there's only so many like really obnoxious smells and fluids that can get on you when visiting with somebody that just kind of makes you say, maybe I should do something else.
Speaker 1 00:28:41 And is that when you began to kick around the idea of starting VERTES advisors, the investment bank? Or was that years before this?
Speaker 3 00:28:49 Oh no, no, no, no. This is well before I was actually, so I was, so, and then you mentioned BMS consulting, which I haven't thought of in a long time. That was, I, I was using that at the time as well. So I was doing clinical work, but I was also doing some transactional work, just kind of small local work where I would help sell companies or I would turn 'em around and then sell them. So I would do different work within that. And then I got to the point where I was doing kind of enough transactions to really realize, hey, I really like doing transactions and, and I'm actually good at it too to say, you know what, I, I really want to do this full-time of, of just doing transactional work. And, and I didn't, like I said, didn't like doing clinical work to kind of push me in the direction to say, you know what, let's take a job and commit full-time to doing transactional work.
Speaker 3 00:29:41 So I, I kind of quit everything and went to work for a firm out in LA doing, once again, it was, it was healthcare focused transactions. And so I got hired with 'em and I think I worked there for about two, maybe three years doing transactional work. In, in particular, I was just pegged in healthcare. So I was obviously doing durable medical equipment, but then I, I was able to take advantage and do from my background, from pharmacy to home health to home care, to any, anything kind of within healthcare that I, that I had knowledge of. And that's ultimately also where I, I met my late business partner Tomski, and it was Tom that really had the idea for Ver Tess. He, I remember he came to me and had me sign an NDA and I was like, oh God, what am I getting into?
Speaker 3 00:30:24 And he said, I got an idea because he, he and I were the number one and number two managing directors for this firm out in la and you're obviously, it's a, it's a good sized firm. There's probably 30 plus people there. And, and he kind of sat down and he and I kind of pondered, well, why, why are I like the, the top producing managing directors? We we're not necessarily smarter than than anyone else. And they, the aha moment was, is he, like me, has was a former entrepreneur who started his own healthcare company. He also was a clinician, so he was a, a doctor he's in, he was in the, uh, behavioral health space, started his own behavioral health. He built it up, sold it, and, and exited out of it. I obviously had done the same thing with dme and that was kind of the aha moment of, wait a second, we, we, we, that might be the reason why we we've had more success is we understand the space intimately cuz we've done it before.
Speaker 3 00:31:19 We understand what most of these entrepreneurs have gone through cuz we, we've, we've done it firsthand before. And I think also very importantly, we, we play in the space that we know about. And, and that was kind of a shortfall we saw for a lot of these other managing directors is they didn't really, they, they would take anything that came across and all of a sudden I'd get something across my desk of maybe like a dental practice, I dunno anything about dental. Yeah, I got teeth, I've been to the dentist, but that doesn't qualify me to, to know the nuances of a, of, of market values of what particularly goes on in a dental transaction. And by having that intricate knowledge of not what happens, and healthcare is just such an odd duck in itself, whereas healthcare, you know, you, you look at it as like, okay, hey, I'm gonna, I'm gonna provide a patient with the service and, and then from there, but, but prior to the providing that patient service, I have to get a whole bunch of documentation, justify it, get some kind of pre-approval, then provide the service, then go off and bill for that service.
Speaker 3 00:32:17 You don't get paid for 30, maybe 45 days and then you get paid 80% and you wait another 30 days and get paid maybe the other 20%, maybe not. Then you have to go after the patient after that, after 60 days. And it's, it's, it's such a convoluted, weird, unusual system that there's just, there's a lot to know and understand and, and then by the time you explain that, it's like, well, who on earth wants to get in healthcare? So anyways, I'll, I'll digress on that. But kind of knowing that in that, that that pain that these entrepreneurs have gone through, I, I think really gave us that aha moment of, hey, we need to focus on what we know and and, and we can add value to that a as opposed to trying to be all things to all people. Let's just focus on what we know and do a good job at that.
Speaker 1 00:33:05 And so Verts was born and Verts continues to stay true to this model where the managing directors are all ex c e o business owners from the the healthcare category, is that right?
Speaker 3 00:33:15 That's correct. So really for managing, for, for managing director, they have to have really one of the three, a lot have all three, but they have to be a former operator or entrepreneur or clinician. And, and then everyone focuses in really what they know. And there's obviously a lot of overlap in different verticals in different areas. But you know, I think that's something that a lot of firms are really shortsighted with is come out with a, I don't know, clinical research like a CRO and oh, hey, I can take that on. Well, what do you know about clinical research? Well, I know the theory behind it, how it works and kind of pality of it, but, but really you don't know the, the nuance of it. And and that's I think how we separate ourselves and we separate ourselves by adding value because we know the nuance. And especially if you're doing say a private equity recap, you're educating this private equity probably more so if not at least as much, uh, as that entrepreneur and, and, and having to explain that of what happens in the day-to-day from a clinical level to an operational level, to a, uh, a billing level to compliance to everything else. It's so convoluted. And there's really, especially in healthcare, there's nothing straightforward. There never is for better or worse. That's just the how we've set up the healthcare system.
Speaker 1 00:34:30 Let's spend a little bit of time talking about healthcare with an eye to towards like healthcare through the, through the lens of either investors and or operators. I mean, maybe we'll just start with what is exciting for you in healthcare right now? What are you spending time learning about? Where are you spending your time within healthcare right now? Either as an advisor or, or otherwise, just what's interesting to Brad Smith in, in the world of healthcare today?
Speaker 3 00:34:56 Honestly, I I kinda covid really changed landscape of, of, of healthcare it for, for the good is one of the few good things that came outta covid is, is how we as the US or healthcare system as far as, and also internationally as well. Covid really advanced everything in the future. So to the telehealth, the metrics by which certain things are gauged. So everything just fast forwarded 10 years in the future and that was really exciting, at least, at least for me it was. But, but really kind of what excites me now is, is there's, there's always startups that actually have capital that didn't have capital before. And we're getting this level of innovation in technology that we never had. And so I'm part of a Angels investment group here in Fort Worth, and it's probably half, not two thirds of what we see is, is, is healthcare focused startups.
Speaker 3 00:35:48 And, and it's just fascinating because traditionally you'd have to be a big Johnson and Johnson and, and, and have a big r and b team to, to go off and, and, and, and study a molecule, study something nuanced and new and, and now these entrepreneurs are getting funded and getting capital to actually go out and solve problems that they're encountering in their own space and, and, and learn new things. So it's, it's a whole nother dynamic and and I think it's really, and everyone has it, it it's advanced healthcare just across the board in, in numerous avenues and I think in the next 10, 20 years we're gonna see just countless advances in the way we, we treat the body and treat the mind and it's more of a whole body approach. I I love those just aspects of it. And I also love the aspects now that people are really recognizing, look, it's, it's big people comfortable in their own environment. Home care is something I've been passionate about for a long time and it's something that I think that, that really a lot of people are waking up to to say acute care is, it has its place, but that's not a long-term sustainable approach. We can provide good quality care in the home. It's gonna get people better qualities of life and and and better outcomes for a longer period of time.
Speaker 1 00:36:57 Are there certain businesses that you've been following or certain sort of sub-specialties or subcategories of healthcare, I definitely pick up on your enthusiasm for just like the overall pace of innovation and capital that's going into healthcare. But are there specific places or businesses that are, that are exciting to you and or specific categories where there's a lot of interesting change?
Speaker 3 00:37:21 Yeah, I mean, I like the newer, like the, the, the fragments in markets and I say that kind of Tegan cheek, tongue in cheek, excuse me. And I, I like the fragments in markets because they're, they're so fraught innovation, so like dentals one where it's just kinda, it, it it's kinda almost like the wild west durham's a little bit, something like that too. Certain markets are really consolidated like, uh, like complex rehab where I came out of, it's very consolidated. There's not a lot of change and new approach and innovation happening or, so that's because it's just been so consolidated over the years. So I, I like the stuff where it's that the blue sky, the sky's the limits and, and and quite honestly, you hear a lot and in the news about private equity and hey, the, the possible negative impacts that private equity's had, I, I kind of see it the other way around.
Speaker 3 00:38:07 Private equity's really streamlined a lot of these businesses, made them much more efficient, made them much more profitable. And as a result has brought a lot better care to, to, to a lot of good different scenarios. And I'm sure there's, there's, there's bad stories out there too. There's good, there's always good with the bad and bad with the good, but I, I think that private equity involvement and continued involvement will help and has previously helped advanced just healthcare in general because it's supplied it with so much capital. It hasn't reaped huge rewards out of it. Yeah, absolutely. But at the same time it's, it's prompted innovation in people to take risks that they wouldn't have normally taken as a business owner or as an entrepreneur or it's just as a clinician to sit down and say, well when do I try this therapy that may or may not work? And all of a sudden you, you, you're getting these outliers and that's what's, that's just kind of neat to sit down and say, Hey, just cuz we've done this approach for the past 50 years, that doesn't make it right. So let's think about this and and maybe there's something different we haven't tried before and let's tap into that and, and, and having capital that private equity can provide could be liberating to try and do in aggressive therapies and approaches to to, to other avenues of healthcare.
Speaker 1 00:39:21 Are you advising in the dental category right now through vertes?
Speaker 3 00:39:24 Unfortunately not. So I, I don't know enough about dental to feel confident to doing it myself. I run the perimeter in in sleep like oral appliance? Yes. Because we have some experience within that with PACT therapy, invasive non-invasive sleep therapy. But I kind of back to our guiding principle, we, we wanna have someone who's preferably been a dentist have their own dental practice and, and gone through an acquisition because it's, it, it, it, it makes such a big difference of having that intricate knowledge of seen it done it before and unfortunately no one from my team has that. So we, we haven't done a dental prac or, or transacted anything dental because of that. And, and we've had some opportunities and, and quite honestly we've, we've sent those over to folks that we know that can do a good job with that practice. It's, once again, there's, there's so much in the nuance in the market terms and everything else.
Speaker 1 00:40:19 I'd love to talk a little bit about how you guys assess business owners who you're going to potentially represent in a, in a sale transaction. And we were talking about this before, pushing record, obviously when business owners are thinking about exiting their business, they're, they're ultimately gonna talk to a set of advisors that they might get referred to or that they might research and find out about, or maybe they get an introduction from their lawyer or a wealth manager, whatever the sort of channels by which they, they ultimately get in touch with potential advisors and sometimes they're doing this way in advance of a transaction and they're biting their time and other times it's a little bit more of like a sh a shotgun, all of a sudden they've decided they wanna, they wanna sell the business for, for, for either good reasons or bad reasons or or or personal reasons, whatever.
Speaker 1 00:41:08 I'm just curious to hear a little bit about, you've been running vertes now as one of the founding partners and now as a managing director working with businesses almost 10 years now. What have you learned about the kinds of business owners that you and the team at Ver Tess want to try and compete to represent? Like what, what are the traits of those business owners or the traits of those businesses or the, what are the things that you guys are trying to, to lock in on that make you feel good about spending your time going on a 12 month, 18 month, maybe even 24 month journey from
Speaker 3 00:41:43 <laugh>? Yeah, and this is a, it's a great question and there's not a greatly quantifiable answer for it. We discussed this kind of link that our annual, annual conference and we get together work on best practices and stuff as a firm overall, we have a very good close rate where we're, we're closing probably close to 80% of what we list, but as any given time a owner is, we can't bind an owner into selling and there's no scenario in which would be plausible, which you could. So it's, it's, you have to find that owner that's truly ready and willing to transact. And so we've really kinda racked our brains to try and figure out what are those qualities and, and, and some stuff you look for or at least that we look for is, hey, owner, that's, that that's, that's really ready for whatever that next step is, whether that's a retirement or whether that's moving on to another project or, or really hit a, you know, we, we had one we transacted earlier this year that it was gentleman and his sister sister and they, they built this business up to a 20 million, no, it's 25 million revenue business.
Speaker 3 00:42:44 I said, we've just taken this as far as we can get it. We need someone else to really take, we can pass the baton to and take it to the next level. And he truly meant it. And, and that's always the hard part is finding someone that kind of truly means to, to, to do that. And that was actually, we wound up selling to a search fund for, for, for that one individual. So they were able to stay on with a minor role and, and, and keep going, keep going forward. So we do a couple things. One thing that we do really for us is we do valuations and a lot of times we'll, we'll charge for valuations, but if someone's serious about coming on with us, we'll we'll waive the fee and do valuation and, and ultimately that valuation is for that managing director more so than it is, uh, potential clients.
Speaker 3 00:43:25 I wanna know that when we go through and start getting in the numbers and going into detail of everything, people start talking and you really start getting their motivations, what's really irking them because everyone's a seller at the right price. But we wanna sit down and say, look, if we take this to market, here's what we think it's gonna get transact for and here's the nuances behind it, what type of buyer it's gonna be, what type of the, the structure, it's gonna be all, all those little details. And I I want to hear from them that this is their expectations that we're meeting that, that that's gonna be satisfactory. That's kind of the first line right there is let's pass that threshold. But really it kind of boils back down to are they truly ready? And there's, once again, it's more of a gut feeling to kind of figure that out.
Speaker 3 00:44:07 I, I knew that. And then the other thing that I, I guess we had really identified is are they willing to listen and are they willing to do what you tell 'em to do? Because we do this all day every day. I still love it. I still get a kick out of it. It's still fun to negotiate stuff, but it's a lot more fun when someone really buys in a hundred percent of what you're saying and they will do exactly that because I know the little tricks that sit down and, and, and cause these buyers to just eat outta your hands. And if they're willing to really go all in and listen to you and do what you say for them to do it, it makes these transactions be just that much more fun and then you can achieve these just crazy outcomes. We had one, not this December, but December before that we transacted and we got a a 17 and a half times ebitda and it was just, it was so much fun because it just got outta control as far as like dollar wise very fast.
Speaker 3 00:44:58 But it was because they really bought in and they listened to what I was telling 'em to do. And it, and when you get into stuff like that, it's just, it's kind of defying rules and that's always like to be, I'm the outlier. If I can find something that I can be outside the norm and do something that's, that's really neat and it's set these these guys out for, for, for life with what they exited with. But it was just fun getting outside the market norms and, and doing unique things. So I think kinda the big factors, if they will listen and it's, and, and it's kind of sad that the amount of companies out there that you see with their, they're, they're doing well. They're 50 million in revenue and these owners just surround themselves with yes men and whatever they say, they have a whole team run and say, oh, that's a great idea, let's do that <laugh>. And I'm usually the first to point out, that's a terrible idea. Someone ever do that under any circumstance. But
Speaker 1 00:45:47 What are some bad ideas that are popular?
Speaker 3 00:45:50 <laugh>, oh crap, I dunno, I'm trying to think right now coming to mind. They always hear these people inevitably when I'm going to transact and people always sit there and say, well, I know who's gonna buy us. I know exactly why and I've yet to ever have that workout. People always say, just go to this one particular buyer, they're gonna buy us to the perfect fit. And inevitably I will include them obviously in the process, but I've never, ever, knock on wood once had that ever work out where, where that that one right buyer is gonna buy 'em because, and that's goes back to people don't know what's going on in, in, in these buyers in in particular strategic buyers or what's happening within the business at any given time. But the thing, they'll just sit down and, hey, use this strategy. And I, I'd love kind laying out strategy and, and, and approach and <laugh> and, and tell 'em do something and they just do the exact opposites. So that, that, that has a tendency to happen.
Speaker 1 00:46:44 What do you see Brad, in the way of like, what is the CEO e or the owner's involvement in the transaction process when it's a vertes deal? So if you guys are running a deal, what do you guys tend to involve the c in or the business owner in and like, what, what role are they playing and what role are, are you all playing and, and just where are you advising them, but they're the one sort of across the table having the conversations that need to happen or where are you guys in that role? I'm just curious to sort of how, how you describe what you want out of the owners in a process that you're running versus what you're gonna put on your put on yourselves to, to execute on their behalf. That's
Speaker 3 00:47:29 A good question. I mean, we're, we're the heavy lift, so we're gonna be the ones doing the majority of the work and everything. And it, and, and it honestly, it depends greatly on the outcome they're looking for. So if they're looking to just sunset and have a strategic tran strategic buyer acquire them and they're looking to exit out, that's gonna be very different than say a private equity recapitalization where they're gonna be the, the platform company. So I mean, we're, we're the ones orchestrating creating the marketplace, orchestrating the strategy, going through doing, doing everything from start to finish. And then their role once again varies under the kind of exit they're looking for. So if, if, if it is a platform investment and it is a private equity recap, then I'm gonna have them a lot more involved because they need to be involved, they need to understand the ramifications of their decisions.
Speaker 3 00:48:14 And I sit there and preach to them, they always look at it from the opposite approach. They're always saying, well what's what, what's the amounts we're getting for this terms and then the cultural fit? And I was like that, that is always the exact opposite approach. You need to have the right cultural fit because if you have the right cultural fit, the right minds that think alike that get along that, that, that add to each other, one plus one equals three, then you can achieve pretty much anything at that point. And, and, and overcoming any obstacle. The second most important thing is terms you gotta have, terms will absolutely make or break a deal and, and 98% of people gloss over terms altogether. And I can tell you some horror stories of people of just glossing over terms. And then finally, third is price. Price should be the, it's always everyone's top thing they're worried about, but it should be the, the third most important thing they, they're concerned about at the end of, I would say probably 90% of our transactions, our clients typically have enough money to, to do whatever they want for typically the rest of their lives.
Speaker 3 00:49:13 And people get so hung up on getting an extra couple million dollars here or, or, or a couple notches on the belt here. And, and honestly, at the end of the day, that's not gonna change your lifestyle to, to squeeze out an extra couple million dollars is not gonna change your lifestyle whatsoever. What will change your lifestyle is the culture and the legacy that you're leaving of that company. And if you can find that good fit with the right terms, that's gonna make much more of an impact on your life going forward than than an extra two or even five or even 10 million in your pocket.
Speaker 1 00:49:46 Do you feel like that message lands with your clients once you've had a chance to sit down with 'em? Or do you feel like sometimes it lands and sometimes you, you can't get them there?
Speaker 3 00:49:54 Sometimes? I, I hope it does. I, I seem to preach that a lot and maybe half the time it lands other half the time it doesn't think half were saying, oh, that's nice. I still want top dollar, which obviously we want too. But from being in, going through it, coming out the other side, at the end of the day, the quality of life is much more important. If, if you're happy with where you are or where you're going, that that's worth more than money.
Speaker 1 00:50:21 Can you talk a little bit about culture assessment and assessing and, and selecting for culture fit? I'm sure that some of this is a little bit abstract and there's, there's obviously whatever that feeling is in your gut, but what, what have you, what have you put together for your clients in the realm of culture fit as given how important you believe it is and how much you try and persuade your, your clients to, to prioritize it at the top? Yeah.
Speaker 3 00:50:49 Yeah, I mean, you're right, it's a lot more nuanced and it's a lot more just kind of feeling in your, in your gut. But what I really encourage them is, is everyone come, brings money to the table. That's, that's what an acquisition is. They're bringing capital to the table. So just try and take that off and look at what else can they provide. And that's a question I usually pepper my clients with questions to say, Hey, ask these questions. And what does day one look like? What does day hundred look like? What does your philosophy with, with, with this and that? But really it's, and I think you learn more about asking off the cuff, off the cuff questions and seeing how people react to it. So you want someone that's that ultimately, once again, the, the magic formula is one plus one equals three.
Speaker 3 00:51:33 If you can sit down and find a, a partner that can see your business and from a different angle, they're gonna come up with different solutions than you come up with, which is very powerful. Whether the right solutions are wrong solutions, at least it gives you a different angle to look at an issue cuz there's always gonna be issues. But if you can look at it from a different perspective, you might have a different appreciation for it and you might have a different solution that you're not even thinking about. And that's so powerful. Some of my favorite acquisitions we've done are these adjacent providers. So you have someone that's just in home health and then a, uh, d medical provider acquires some or a health, it acquires some. And so that someone that comes from completely different background, completely different perspective and they see it for something completely different.
Speaker 3 00:52:18 And that's what's really, I think that's what's really neat is when you start seeing those and that's what really starts to create true value is is when you approach it from a different angle. But yeah, it's, it's, it's hard to find that. Honestly, the best way is to kind of old fashioned, to go and go have a beer. You really get to know someone after they get a drink or two in 'em. They're a lot more forthcoming and, and you wanna see what what they're thinking for, they can add value. And there's also the quantifiable ways, I guess we'll say. What we have learned in the past is, uh, we ran a process with this one group out of Florida management meetings. Everybody just clicked ev all the owners of this firm clicked. The owners of all the private equity clicked and all the private equity was just healthcare focused practices.
Speaker 3 00:53:04 They all had committed capital, they all had great board C-suite leaders. They checked every box. And my client was like, how do we pick every, every one of these is the, the, the bell of the ball. Everyone's beautiful. And at first, my, my my thought was, that's your problem. I got you here, you got a great problem to solve. But then I started thinking more about it and, and it kind of dawned on us, let's go look at their LP base. And that was one thing that we found that was just really, really interesting is that LPs we started, we, we pulled the LP base up for each of 'em and looked at the top, I think it was the top 10 LPs for each of the firms. And obviously they were healthcare focused firms. So, but the top ones that we found that we went with ultimately you looked at the number one investment was I think U H C number two was B C B S.
Speaker 3 00:53:55 Number three was a big hospital system. Number four was Aetna. They were all healthcare providers, healthcare insurance providers. And that ultimately really helped weigh the decision when you're trying to stack up essentially what people seem now completely apples to apples was that prevailed. Cuz at the end of the day, this was a national provider and one of their biggest issues was getting contracts into all these, all 50 states that they, that, that they work in. And the, it was very powerful because at the end, the CEO was able to say what he needed to get in Blue Cross Blue Shield of Illinois. He could just pick up the phone and call the CEO of Blue, blue Cross Blue Shield Illinois and say, Hey, by the way, you're, you're the largest or one of the largest investors in this business. We'd like to be a network. And that was just such an eye-opening game changer there to to, to just really look at a different way to to size up. How does this make sense?
Speaker 1 00:54:51 I love that approach. I mean, have you, is that, is that part of the, the standard punch list now on every one of your transactions to examine that? We
Speaker 3 00:55:00 We do, we do definitely take a look at that. That is something that we ask now of everybody. Yes.
Speaker 1 00:55:04 And getting a beer. Wh wh when when should the CEO o or the owner get a beer with these different perspective partners in your, in like where in the process is that too late, too early, just right.
Speaker 3 00:55:16 Depends on the process you're running. But before the loi, I, I I think it's always a great idea. Bef I know the LOI is nonbinding, but it sets the, the precedence of the entire transaction and, and essentially you're, you're, you're getting embedded at that time. Yeah, it's nonbinding. But, but that's, you really need to have be on the same page and, and be of the same mind at that point in time and have a, you'll see i i eye to eye and have that understanding.
Speaker 1 00:55:41 Let's talk a little bit about the way you, you think about buyer outreach. You just mentioned just a minute or two ago, like some of the most interesting transactions that you've seen or advised on and led yourself or had someone on your team leading are ones where you have this like heavily adjacent acquirer end up coming out of left field, or it's not necessarily the person who, the entity that you would guess. And you also mentioned that a lot of times your clients will say, let's sell it to this firm, like they're definitely the perfect buyer and never once is that ended up being the, the clairvoyant forecast that it was laid out to be. So what does that mean for your process? I mean, are you a believer in a, in reaching out to a large number of buyers because of that? How do you think about who you're gonna reach out to in the world of buyers? As you said, tens of thousands of private equity firms, there's tons of corporate acquirers, you have search funds in the mix now too, which brings something really interesting and unique to certain transactions. How do you approach how wide or how narrow you go and what informs the decision that you and your client make on a, on a given transaction for how you approach the market?
Speaker 3 00:56:56 So it, what, it depends on our client.
Speaker 1 00:56:58 Does it depend on their sensitivity to going wide or does it depend on something else?
Speaker 3 00:57:04 Most of the time it depends on their sensitivity to going wide. There's, there's a lot of folks that are just very secretive. I've had transactions before, we said two buyers, you can go to these guys and these guys and that's it. <laugh>. Like, really, so what
Speaker 1 00:57:16 Do you do there?
Speaker 3 00:57:17 You go to those two guys, you do what your client wants. You run a process with those two and see what the outcome is that you get. I'm just favorable sometimes as not. And that's really their decision. It goes back to the very beginning. So early conversations I had very, very beginning with every client is what's the outcome you want, what's your motivation for doing this at the end of this, where do you want to be? And you, I really try and stress, there's no wrong answer. There's, there's not what you want is what you want. Great. Really, if you can, the, the more you can illustrate that to me, better outcome I can get. And then once again goes back to that trust. If you can trust in me and say, Hey, let's look at these different approaches that that usually produces a better outcome.
Speaker 3 00:57:58 Them being able to let me do it and, and, and listen to me and say, Hey, let's do this. Because yeah, you have certain people that, Hey, I just want to exit out. Okay, that's probably gonna be a strategic, let's just go, go down that avenue. But, but the ones that sit down and, and basically just give me as much slack as I want, those are the ones that get really fun because that's when I start kind of getting more and more creative and say, what, what, let's, let's really understand the business that you're doing and then what's, what's a different value add? And, and bringing those adjacent buyers. Cause that's where it does really get interesting is when you sit there and, and have these people that are coming from a different element and it, and it adds to them and it just gets fascinating in, in, in those outcomes.
Speaker 3 00:58:39 So we had this one transaction that two gentlemen that were, they're younger and they had this business that just growing like a rocket ship and they wanted a private equity recap. They wanted just to do private equity. I said, great, let's, let's do that. But, but I also wanna bring in some strategics because I want some strategics because they're gonna offer more money for it. And I wanna hold the, the private equity feed feet to the fire so we can get higher valuation for it. And who came down to it? And we had essentially four lois that we were going ground and round with. Three were private equity and one was a strategic and we were stuck at around 60 to 65 million and we just were kind of round robining for it seemed like forever. It was about two weeks. And finally that private equity, I done private equity, excuse me, the strategic said, you know what, we're tired of this. We'll give you 85 million for it. They went from just, everyone was stuck at 65 million. They just added an extra 20 million to it. And my clients said, I said, well, I know this is not what you want. You want private equity. And they took 'em all a two seconds to say we're we're sold <laugh>, we're moving. And, and we did. And so it, it wasn't necessarily exactly what they were looking for and it wasn't something that we had expected, but it, it was a hell a lot of fun.
Speaker 1 00:59:52 Hopefully they got the culture and terms right on the 85 million offer as well. The
Speaker 3 00:59:57 Interesting part is the day before close, they said, Hey, we got a little bit of surprise. We want you guys to come and be and run the company. You, you want, you two want be the CEO and wanna be the president. So they took over the whole publicly traded company.
Speaker 1 01:00:11 Wow. And that's what they wanted as well, or that they were ha they were pleasantly surprised or they had to think that one through or no,
Speaker 3 01:00:18 They, they, they were, they were fine with it. They enjoyed that. So yeah, they were wanting a platform anyways and they got, they got a lot more than what they bargained for.
Speaker 1 01:00:26 Let's talk a little bit about search funds. Maybe to wrap up the, the conversation, I wouldn't have talked about them if you hadn't mentioned them. You like working with search funds, at least it sounds like you are interested in working with them at least in certain circumstances because usually the, the search fund is led by someone who's young and very hungry to go into, typically into the c e o role. But yeah, I'd love to just hear your thoughts on search funds. We obviously at Axial we serve search funds. We also hear a lot of positive and negative feedback on search funds from investment bankers who are trying to get a deal done with a high degree of certainty and that feel unsure about how to take search funds seriously or not to, and when to take them seriously. What kinds of processes to potentially take them more seriously in versus others? Yeah, tell us, tell us how you're, how you're working with search funds. There's, it's a rapidly growing category of acquirer and so I'm, I'm just interested in hearing what you're doing and how you're working with them. Yeah,
Speaker 3 01:01:28 I I think they're great. I've always been a big fan of any entrepreneur and, and, and search funds is, is is absolutely an entrepreneur to be able to take company from whatever level they're at to to, to the next level. And I've had good experiences and bad experiences. I think we probably transacted with maybe, I honestly don't know how many, I would say maybe close to a dozen of search funds and like the last couple ones, they've been actually really wonderful from professionalism, from, from as professional as possible to just dedicated and committed. Um, and really knowing them stuff. The scary part of like fundless sponsors and search funds is that extra layer, are they gonna be able to get the capital that they need? Are they gonna be able to raise it? Are they gonna be able to, to, to pass those thresholds within that?
Speaker 3 01:02:14 And that's always, as an investment banker, your job is to, to deleverage as much risk as humanly possible. And that's just something that's easy to factor out from a, say a committed fund. The experiences I've had for the most part with search funds have been extremely positive. Once again, I, I have a passionate, I love that these kids are outta school and they're aggressive and they want to go out and put their stamp on the world and their heart's in the right place and they want to grow and, and grow business and, and, and, and take kind the bull by the horn. So I, I really enjoy that. And a lot of these, like I said, they're, they're very prepared, very professional and I've, I've done quite a few transactions and for the most part we, we go back and look several years later. Those transactions for the most part have worked out quite well.
Speaker 1 01:02:59 Do you find yourself having to persuade your clients to entertain that, that buyer or does it tend to just sort of work itself out for certain transactions as being ideal and others? It's not and it's, it's pretty self-evident
Speaker 3 01:03:13 For the most part. You, there's, you gotta persuade 'em for the most part, they don't quite get the model and, and see a lot of risk in that. Oh, which to fair part there is, but there's also a really good area too, cuz a lot of times you'll have a very nice solid company that maybe has some kind of legacy management that doesn't wanna stick around, but they're not really big enough to be a platform investment. Maybe there's sub 5 million of ebitda. We see a lot that are more along the lines of like two to say 3 million of ebitda. It's just a little too small for a private equity platform. And, and especially if they've been flat and a lot of times you, you kinda look in and, and once again, it's kind of about knowing your, your industry and the verticals you're operating in.
Speaker 3 01:03:57 You can kind of look underneath the hood and say, well, the owner really hadn't been engaged. They haven't done certain things that they should do to really properly grow the business. And that just might be a function of where they are in life, where they are with the business. I get it. People get burned out doing the same thing day to day is I can, can burn a lot of people out. Especially if you're dealing with Medicare, Medicaid and constant cuts and regulations and, and onerous paperwork Yeah. That can wear you out. And so it's easy to become disenfranchised and be flat. They'll have a, a flat profit and a committed capital private equity's gonna really looking for, Hey, here's that growth, here's that spark and hey, that everything could be in place and the spark that's needed is that young leadership that's gonna be aggressive and talented in there. So that's why I think there's a a great place for, for search funds and I, I, I really do like what they do.
Speaker 1 01:04:47 I think that's a great place to, to wrap up, I'd love to just close with, with maybe one final question, which just if you could share maybe who has been sort of the most influential person on, on you in your professional career, whether it's somebody who you've worked for or worked with or whether it's somebody who you've never met, but but who's been super influential on the career that you've had and the career that you've built for yourself, who would that be and why? I'm
Speaker 3 01:05:11 Gonna start operating during a lot of, but I, I would say, you know what I always really, I I I, I looked up to a lot was my grandfather. My grandfather, I just always was super supportive, borrowed money from him to start my, actually I think two of my businesses and he had a great business acumen. He actually, he and his colleagues invented the first mutual fund. It was back in, I can't remember, like pre, pre-World War II with the Detroit Auto or Detroit Investment Club. And it was him and his buddies and I've, I've, I've read a newspaper article from back in the day about how they, they would take their, their proverbial beer money and channel some of that away from beer into investing and they would pull their money together and invest in stocks. And ultimately it's what started the first mutual fund. There were some other articles after he, after he passed about that, that was really unique. But he always just had a great, great head, great mind for business and, and really was just early on, very encouraging for me to take an entrepreneur aspect in life and in how to budget money and, and, and run a business and, and for that matter, just treat people. I think that's probably one of the most important things is just treat people and, and communicate effectively with them.
Speaker 1 01:06:25 I love that answer. Brad, thank you so much for about an hour and 15 minutes and it's just been great to be with you, great to learn about you and great to learn about Ver Tess and all of the chapters along the way. Really appreciate your time and looking forward to sharing this episode with, with all the listeners. So thanks again. Yeah.
Speaker 3 01:06:41 Yeah. Thank you Peter. I look forward to getting up to New York and seeing you sometime having a beer with you.
Speaker 1 01:06:45 Come on up and visit. I'll be here, <laugh>.
Speaker 3 01:06:48 Sounds good. All
Speaker 1 01:06:49 Right, thanks.
Speaker 1 01:06:56 If you enjoyed this episode, check out axial.com. There you'll find every episode of this podcast as well as our recorded axial member roundtables, some downloadable tools for deal makers axials quarterly league table rankings of top small business acquirers and investment banks, and lots of other useful content that we've created over the course of time. If you're interested in joining Axial as either an acquirer, an owner considering an exit, or as a sell site m and a advisor, you can get started for
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