Welcome to the risk management show. I am Boris agri Norwich founder and CEO at global risk community.
Welcome to our interview with Chris younger. Here is Chris is a co founder and managing director for glass six partners, a financial services firm focused exclusively on business owners. Chris has more than 25 years of experience in executive management, marketing, sales, law and mergers and acquisitions. He is also a co author of harvest the definitive guide to selling your company. Great. Thank you for joining us for our risk management Show episode podcast today.
Boris, thanks for having me and look forward to chatting with you.
Absolutely. It's my pleasure to So Chris, could you tell us a short story about your career path? What brought you to where you are right now? And what you guys had class six partners up to these days?
Happy to how long do we have? might take a while yeah,
we can take it. It's Friday, Friday afternoon and our part of our world? Yeah, perfect. Yeah,
my, my wife accuses me of having career add. So I've been I started out as an attorney in Silicon Valley and did securities work there and then went to work for an investor group. And through that did consolidation in the communications space. And so we acquired I was the I was the deal guy. And we acquired 27 businesses in the communication sector, built that company up, we got it to about a billion 2,000,000,003 in revenue. And then we sold it to a via I went from being the deal guy to be in the president of that company and Chief Operating Officer. And then we sold it to Avaya. And then tried to retire for a couple years that didn't work out too well for me, and my wife decided that I should have a hobby, which was appropriate. I wanted to stay married. And so we started what what has become class six partners. We started it my partner David Tolson, and I started it as an investment bank. And we've grown it from there. Today, we have 46 people, 47 people on staff. And we do we have three principal pieces to our business, we have one piece that is the investment bank that manages the transactions on behalf of our clients, we have one piece that gets those businesses ready to go to market. So those businesses might be a year to three or four years away from exiting and want to optimize their business. And then we have a family office on the back end, that manages the money for about 90 families. We have about a billion dollars in assets under management. And we advise on another billion and a half for those families. And we have a great time we get to work with entrepreneurs every day. So it just doesn't
get much better. You call it a hawk Kobe are three businesses. Well,
yeah, exactly. Well, it's, it's gotten to be a little bit more than a hobby. Yeah.
Yeah. Compared with your 27 billion. It's kind of small hobby. Yeah.
Exactly. No, it's been, it's been a lot of fun. And we have an outstanding team that that takes care of great care of our clients.
All right. So I believe that we will have a thoughtful conversation on the topic of from the sale or from the buy side on topic of strategic approach to employee is defined and nurturing, promising investment and maybe for if they have some time for us, for sellers for business owners. It will be great to hear your tips about best and worst decisions intrapreneurs make during exit and transition. So can you Yeah. Can you tell us? What does a strategic approach mean when you when it comes to identifying and nurturing investment? And how does it differ from more traditional or reactive approach?
You know, I think the as an investor in terms of looking at potential acquisitions or investments, I'm a big believer, you want to play to your strengths? Do you have a specific understanding of a particular industry? Do you have unique skill sets that could contribute to making an operating business perform better? You know, look, there's a lot of capital in the market today. And in order to really differentiate your capital and earn superior returns, you've got to have some kind of edge. And so it's really I think it's important for investors to really think about what is my edge and hopefully that edge is not that I just pay more for investments right then win these auctions, but that I've got some unique way to make that business better. And again, that could come from specific industry experience, it could come from operational experience. It could come from particular domain expertise. If you've got expertise in marketing, for example, and you're able to acquire a business that could benefit from better marketing than Hey, that gives you an edge that might allow you to earn superior returns or above market returns on those investments.
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So what are the some key factors you can consider when you evaluating potential investment opportunities?
Yeah, there's a there's a whole list of factors that you want to run through. First is really assessing the market in which the business operates. Is that market growing? Is it shrinking? Is it cyclical? If it is cyclical, where is it in the cycle? Is it consolidated or, or is it fragmented? That at least tells you if you've got tailwinds or headwinds? Ideally, you're going to have tailwinds when you're making one of these investments. The next thing I would look at is team. If I'm expecting to use the team that's currently operating the business on a go forward basis, how talent is that talented? Is that team? How experienced? Are they? Have they done? What we're going to ask them to do? How long have they been together? How deep is the team? Do we are we reliant on a single individual in any one of the areas of importance in the business? And then you want to look at the business model? Is the business model one in which the relationship with customers is recurring or repeat? Or is it project oriented and one time in nature, obviously, having more predictable revenues is going to make that business more valuable and easier to get capital for whether that's debt or equity. And then you really want to look at kind of specific factors in the business, are there any unique risks in that business that would or could potentially make their cash flows or their earnings or revenues less predictable in the future. And obviously, the more risk factors in that business, the less valuable that investment is going to be. And there's a lot that goes into that piece of analysis. But there's a and I think, like any good investor, you're gonna need a framework to really analyze the different risk factors in that business. And we use one that looks at financials, organizational customers, team and employees and strategic, and then rounds that out with a good examination of the market.
Considering the majority of our listeners, are risk managers, so it would be great to hear from you examples of maybe your risk analysis structure, what is a kind of considered grade level of you your investment, decision making, when you consider analysis, analysis, make an analysis of risks?
Yeah, we, we actually developed a tool, we patented it, it's called copilot, and it's really a health assessment of a business. And that's designed to identify one of I think, we identified about 95 different risks that we've seen in business. And those really came just from examining all the transactions that we've worked on, what were the risk factors that caused the buyer to have challenges with valuation or even completing the transaction. And those risks can range from the business being too dependent on the owner, whether that's the owner is doing most of the sales or heading up operations or product development to customer concentration, you've got too much revenue coming from a single customer or a limited number of customers due to lack of financial controls in the business that could make at least understanding historical financials more difficult, which makes it difficult to underwrite that investment. To what what are the specific risks in the market in which this business operates? Or do they have environmental risk or intellectual property risk? There's a there's a whole host of things that we examine when looking at a business just to help us quickly get up to speed on what the potential problems with that business could be in the future.
I would like to ask you a personal opinion, what is the major misconception in the world over merger and acquisition, no investment in the company that you strongly, strongly disagree with?
Greg question, there's lots of them. Probably the one that I think, for employees of companies, they often get wrong is that most buyers, when they buy a company, want to get rid of the team, they want to replace the team, or they want to fire a bunch of people. So they can cut cost, in my experience, and have done, you know, a couple 100 transactions, that almost never happens, because the buyer is interested, again, in predictable cash flows going forward. And the last thing they want to do is change the organization or introduce additional potential risk in those future cash flows by changing out the team. And so in most cases, the buyer is really counting on those people to continue to do what they're doing and hopefully grow that business. And so it's very rare that we see after an acquisition, a buyer or an investor or making big changes in personnel of a company. Now, there may be changes in culture. And absolutely, those can be disruptive and sometimes negative for an acquired company. But it's rare that somebody would come in and clean house or fire a bunch of folks, unless it's a business that's not doing well. And it's a turnaround where the buyer feels like they have to do that to get the cost structure in line.
And what is your if they go from other side of the deal to the owner? What in your experience? What are some of the best decision intrapreneurs make when preparing for transition, transition or exit? How can this decision contribute to a better successful outcome?
Great question. It's really one of the things that we see entrepreneurs sometimes struggle with. But as definitely the best thing they can do is really build their management team. If they can build that team, to the point where the owner is, the entrepreneur is really not necessary to the day to day operations of the business, that means that business is going to be more valuable, it also means that the business is more scalable. You know, oftentimes entrepreneurs struggle to build that bench and build that team. And all that does is put a ceiling on how fast that company can grow and how big it can get. So bringing on a team not only hopefully gets the entrepreneur out of tasks and jobs that they may not like doing or may not be very good at. But it hopefully also builds a sufficient bench of management where that business can scale. And as a result, that business is going to be a lot more valuable. And the entrepreneurs hopefully going to get more of the life that they want. Because they're not having to do everything and work 90 hours a week.
Yeah. And how can intrapreneurs ensure a smooth transition during the process, if there is a going, they have to kind of in the process. I know it takes a lot of time and and many, many deals just fall apart and what steps should be taken to minimize disruption in the show continued?
Yeah, I think the best thing that an entrepreneur can do or a business owner can do is, and this may sound counterintuitive, but stick around. We counsel clients of ours on the investment banking side, that if you want to ensure the smoothest transition you can for your team and for your customers and for your partners, the best thing you can do is stick around having a flash cut where the owner or the entrepreneur is there the day before closing and is gone the day after closing, that poses a lot of risk to the operations of the business. And that usually means that there's a lot of disruption. And so if you want to try to minimize that disruption, then keep the team in place, keep the entrepreneur on board, continue to do business as usual. And if you're going to make changes to the business, do that over an extended period of time where you can really manage that effectively and reduce the potential impact on the business.
Let's discuss a little bit the current environment for business acquisitions because since last year we kind of in different environment from zero interest rate to about five and a might be 6%. Rate federal worksheet rate what What did you What do you see in the market was merger and acquisitions,
you know, last the fourth quarter and 2022 felt like it was the worst of in terms of deal flow. And I think that was because it was on the heels of a pretty rapid increase in interest rates by the Fed, which was obviously, as you said, Boris, a lot different than having 0%. Now, historically speaking, the interest rates that we have today are maybe slightly above average. But I don't know, if everyone, particularly sellers in this market, appreciate just how significant a zero interest rate environment was, and how unique it was. I don't know that we'll ever see it again. And I think what we've seen in the first and second quarter is deal flows coming back more to normal. I think that's just both buyers and sellers adjusting to a market in which interest rates are higher than they have been historically, but not necessarily out of the range of historical averages. And so we're, again, we're starting to see the deal market pick back up and it feels like it's, you know, if if not healthy, certainly on its way towards healthy,
though, might maybe can you share some stories from your career paths, best and worst, maybe without naming names, but it will be nice to listen to, to hear your opinion, and the stories, some kind of that risk managers or people who just kind of analyzes deals and also owners can take from these stories.
Yeah, you know, the best stories that we have multiple, it's, and this is really for the entrepreneur, is, these are ones, these are entrepreneurs that have really been intentional around their planning. They're not necessarily reacting to somebody showing up and asking to buy their company, they're intentional and putting their plans together, they plan two or three or four years in advance, they really get their business ready. And when you do that, it's again, it's like any business process, if you do it off the cuff and you're inexperienced, and you're highly reactive, you're not going to like the results in all probability. However, if you if you're intentional, and you set the business up, and you plan and you execute on that plan, over a period of time, get experts in to help you, those results are going to be much better. Conversely, we've seen lots of business owners who just react and you know, they might, for whatever reason, just engage in negotiations with a single buyer. And I think it's because they believe that, hey, that could be less work and less stress and faster, it actually turns out to be a lot more work much more risky, those deals typically fall apart. And they're slower because the business owner hasn't been well prepared. And so, you know, when I think of the best and worst stories, the common denominator for those best stories is preparation and intention and planning. And And the opposite is true for the worst stories that we've seen. And it's It saddens us when we watch an entrepreneur who spent 20 or 30 years building value in their business only to see that value evaporate, because they haven't planned the transaction side very well at all.
Are you guys only busy with United States businesses worldwide.
So all of our clients are in the United States, we do have lots of foreign buyers for our clients. So we just sold a company last year to a Swedish company and a company before that to a British company. So we have lots of buyers around the world, but all of our clients are here in the US.
Okay, interesting. So, so if we summarize this interview, if someone who is listening would like to walk away with one or two major takeaways, what would it be?
Great question. I, I think it's, it's really comes down to hey, if you're if you're a business owner, and you want to optimize the value that you get for your business, or just optimize the business itself, you know, you do want to you do want to carefully look through Hey, what are the risks in my business that are going to degrade value or make my future cash flows less predictable, and by addressing those and that comes in a variety of flavors and shapes? By addressing those I can not only have a better business today, but a more valuable business.
Fantastic. So I know that you all So you should publish the book or was it a guide for business owners? Can you tell more about about this? What Yeah, where people can find it on your site website? Or where is it?
Yeah, you should be able to find it on Amazon. It's called Harvest the definitive guide to selling your company and, and my business partner David Tolson, and I wrote that book, Gs 14 years ago, we're doing a second edition, which will come out hopefully this year or next. And it really is about explaining both valuation as well as transaction processes to entrepreneurs that we're this might be a black box to them. And if you're having any problems sleeping, it's a good antidote.
All right, thank you, Chris was fantastic. A short interview for the first introduction to your company to yourself. And this way, oh, my questions. Perhaps if I forgot to ask you something that you will find valuable to our audience. Please go ahead and tell us system.
Terrific. Well, thanks very much for having me on Boris and thanks for doing what you're doing.
Absolutely. Thank you, Chris again, and hope to speak to you or maybe with your other guys on about other interesting topic in your business.
Terrific. Thanks so much. Absolutely.
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