Patrick Stroth Bakri akil

The Role of an Independent Sponsor

In this episode, we’re taking a look at a unique independent sponsor’s M&A strategies.

My guest Bakari Akil is the founder of Graves Hall Capital, which seeks to buy and run businesses where owners and founders are seeking an exit.

Bakari will share his M&A journey and advice for enticing a seller to do business with you.

He’ll also cover:

  • Why he believes buying companies is the best wealth building strategy
  • What types of companies he’s looking for
  • The role of reps & warranties insurance
  • And more

Mentioned in this episode:


Patrick Stroth: Hello there. I’m Patrick Stroth, trusted authority in executive and transactional liability and founder of Rubicon M&A Insurance Services, now a proud member of the Liberty Company Insurance Broker Network. Welcome to M&A Masters, where I speak with the leading experts in mergers and acquisitions, and we’re all about one thing here. That’s a clean exit for owners, founders and their investors. Today I’m joined by Bakari Akil, founder of Graves Hall Capital.

Based in New York, Graves Hall seeks to buy and run businesses, where owners and founders are seeking an exit. And we recently had an article from Bloomberg about search funders. There’s been information about other types of buyers such as independent sponsors, so I thought it’d be great and ideal to have Bakari, who is out there in the market right now, come and join us. Bakari, great to have you. Thanks for joining us today.

Bakari Akil: Thank you very much, Patrick.

Patrick: Now, before we get into Graves Hall, let’s talk about you. What brought you to this point in your career?

Bakari: Sure. So I am the founder of Graves Hall Capital. Graves Hall is effectively an independent sponsor. We bought companies, we’ve done a couple of deals through Graves Hall. Most recently, I bought a burlap bag manufacturing company, based in New Jersey in partnership with a private equity firm.

Before that, I bought an educational technology company in partnership with a family office. And so far I’ve been doing deals or completing acquisitions. So I completed the acquisition with the family office. And so that’s been my process, has just been out in the market finding companies. Before that, or throughout that I’ve been also teaching. So at Cornell, I’m a visiting lecturer there where I teach the MBA candidates there how to buy companies.

And so I’ve just been doing this work of acquiring and helping others along this process as well. And so I’ve been at it since around 2016, which is where I learned about this whole space. And so yeah, it’s been thrilling and difficult and challenging, but luckily, I have done some good deals.

Patrick: So now, when we think about your organization, you didn’t call it Bakari Capital. Where did you come up with Graves Hall?

Bakari: Yeah, so I went to a school called Morehouse in Atlanta. And anyone who knows about Morehouse knows that there are some really beautiful pieces of architecture there. And probably the most beautiful and most prestigious building on the campus is Graves Hall, which is the freshman dorm that I lived in when I was on campus. And so I named my firm after that very majestic building.

Patrick: Well that’s good and also just is a great backstory for getting insight into the personality of a firm. Let’s talk about this, because this has been a trend that’s been out there now of instead of people looking for a job or other opportunities, okay, and they’re not going to be in the house flipping industry, but they want to go ahead and do something in the economy. Hence we’ve got these people now that are looking to instead of you know, applying for a job, they’re buying companies. Talk about this phenomenon, tell us your approach. Why did you start with this? And what are you trying to get out of this?

Bakari: Alright, so for me, I felt very similarly. And I appreciate that you referenced the house flipping aspect of it, because there, when I first was looking into entrepreneurship, I was looking for how can I build wealth for myself, where I wasn’t focused on just a job. And this is back in 2016, as I was trying to learn about personal finance, wealth building, etc.

At that time, I was like 25. I had like a regular sales job for a technology company, but hadn’t yet done anything entrepreneurial in my life. And so, but I didn’t have like a really good startup idea, but and then also, when I would look into house flipping and real estate type of stuff, first it demanding a lot of upfront capital to even do a deal. But second, besides the upfront capital, you also needed some education.

And a lot of the education that was available for people who were interested in real estate was done by people who, in my opinion, seemed a little sheisty. Like people who could, you know, end up taking your money, you know, charge me $30,000 for a course, you’ll learn a little bit about real estate and, but not enough to actually like get started. And just like by luck, I came across this concept of buying a company.

And to find out that separate, you know, sort of different than house flipping unless you’re buying actively managed properties  that already have tenants inside of them. You can use the revenue and the EBITDA of the company to buy it, using leverage from the bank and a little bit of investor capital if you can secure that. And to me, that was just like a phenomenal idea. I had never even considered the idea of buying a company.

And so I started looking for information about how to get that done. And came across a class that was being taught at Columbia Business School by Tim Bovard, who’s the founder of Search Fund Accelerator. I came across that course and I found out that he was teaching this class at Columbia Business School. At the time, I lived in Harlem. And anyone knows Columbia is in Harlem. And so I just went to Columbia Business School, and sat in the class since I was in town.

And that’s how I was initially introduced to this world. And since then, I believe that and I still believe that it’s the single greatest wealth building opportunity that’s available to the people. And particularly people who were in my circumstance. And so I advocate it, I show up on podcasts, I teach courses. And most importantly, I execute on deals myself. And so, yeah, that’s me.

Patrick: So now, you know, this is great for you, for the buyer to go look for some gem that literally pays for itself. What does the seller get out of this?

Bakari: Well, you know, it’s funny enough, I remember I, years ago, I was talking to an attorney. And we were having a conversation about what are some ways to entice a seller to want to do a deal with you. And, you know, there were people who were talking about taking them to nice dinners and taking them to some other perk or, you know, there’s all these other things.

But ultimately, it was clear that this is a transaction, what the seller wants is the most amount of money for their asset. Like erasing all the other minutia, you know, yes, you should show up in a suit if you can. But if the guy doesn’t show up in a suit, and he has a lower offer than the guy who did, this is not gonna be that material.

He took me to a Yankee game, that’s great. The other guy gave me $100,000 more or a million dollars more than the other guy. I don’t care about the Yankee game, I care about the money. And so if the answer to that question is, you know, money. The second thing I think, that sellers are looking for are people who actually care about their company. I think, particularly founders, who and family owned businesses, these are not just assets, these are like children.

These are things that they’ve worked and forged for, sometimes generations. Like the company, the burlap company I bought was founded in 1946. And that company is older than some people’s grandfather’s, right. And so it’s an asset that matters to the people who own it. And so I think demonstrating that you’re gonna be a good steward of the business going forward, not just gonna collapse it once it’s purchased. You’re not planning to do major changes to the company.

That’s one of the things that I always try to emphasize when I’m working with a transaction is my goal, when I come in to take over the company, is to run it very similarly to how it was ran before. And not make major changes. I want the owner to feel like their company is in good hands. And so one, pay them an amount of money that is appropriate for the business, higher than the next guy, and take care of the business.

Patrick: So you’ve got a sizable good value return, there’s continuity, because I mean, it is their literal creation where, you know, there was nothing there. They came along, put in, you know, blood, sweat, and tears and capital, and they created something from nothing. And you’re able to go put a reasonable value on it and go forward with it. I think it’s great. I’ve spoken to a number of other sellside representatives.

And it is amazing if there are people like you, Bakari, out there to buy, a lot of these owners and founders if they don’t have family members or staff to turn their company over to, they end up just turning off the lights and closing the door and walking away. So you’re providing, you’re filling a definite need out there, which is excellent. Now, give us a profile real quick. What types of companies are you looking for?

I mean, you’re clearly not working in the burlap bag company right now. So you’re buying and maybe issues come up where somebody else has management so you don’t have to be there every day. But tell me you know what is your ideal target? What are you looking for, so that our audience members are aware of this?

Bakari: Sure. So I have three basic criteria that I stick to. The first is that the company should be 100% for sale. And that’s mostly to try to avoid situations where a partner is trying to exit and they need a new partner to jump in and clear out their ownership stake. But now I’m stuck with a new partner.

The second is that it generates somewhere in the area of $10 million in revenue. And that’s mostly to avoid businesses that are like pizza shops and salons. You know very small businesses that might generate something like 400 or $500,000 a year in revenue if they’re very successful. But I’m not usually going to jump much higher than that. But also, I’m trying to avoid somebody bringing me a company the size of Coca Cola, I’m not going to be able to complete that transaction.

But within like 10, 20, $30 million in revenue, you know, that’s the size that feels doable by me. And then lastly, the business needs to generate at least a million dollars in profit and have been profitable for the last three years. And for me, those are two hedges. The first is that if it’s a million dollars in profit, that means that, you know, it’s gotten to a level that they’ve been able to meet that that’s a very high benchmark.

Most businesses that are founded, never hit that benchmark period. And so to hit that benchmark is really very valuable. And then second, they have done it consistently over the last three years means that it’s not a fluke. It’s, you know, this is a sustainable profit margin that I can rely on for the future. Because ultimately, I’m going to be using leverage as part of my purchase. And so I’m going to be using that cash flow to execute.

Patrick: Now, you mentioned earlier that you had partnered with a private equity firm, and the family office on another side. Okay, let’s talk about those relationships. Because I think what happens is, you’re targeting these desirable, albeit small targets that, you know, there’s not a lot of public information about. And so, you know, bigger players out there, the private equity and some strategics, they don’t know where to look for these. And here you are coming up, saying, hey, I’ve got a perfect target for you, why don’t you partner with me. Talk about how you are structuring your arrangements to make these acquisitions?

Bakari: Yeah, I mean, what you said is exactly right. The skill set that I bring, that private equity firms are sometimes are not as capable at. And if they are capable, they can’t see every single deal in the market. And the same with family offices that sometimes will not have like a business development department inside of the firm, where there’s somebody who’s like actively sourcing deals.

They’re a capital provider, we’re not necessarily doing you know, the other piece. That’s really where the independent sponsor and the search fund, really maximizes the opportunity. Because if we can identify a good company and negotiate a price that is fair for the seller, but also creates a space where we can actually make some money, once we purchase it, that’s an enormously valuable skill to people who are looking to deploy capital. Private equity firms have a specific set period of time that they need to deploy capital in.

And so finding good deals is their top line. And so to them, it means that ultimately, the private equity firm just needs to diligence me and diligence the company. And once those two things are done, it’s usually, it’s usually pretty good. So those are the things that I would say are the value that I’m providing. And it’s the reason why I’m able to structure deals with and execute deals with these larger players.

Patrick: Is it fair to say that business development for private equity is probably the most thankless, difficult job, in that they’re eager to outsource that to somebody else so they don’t have to have their staff making cold calls?

Bakari: So I think there’s definitely an element to that. But private equity is changing. There are some, there are departments inside of some private equity firms that are dedicated exclusively to deal flow and pipeline management. Those departments are usually called the Business Development Department. And so, there’s definitely some of that.

The partners of firms oftentimes aren’t engaged in that work themselves, but they have multiple different responsibilities. So sometimes, that’s not like the largest responsibility when it comes to like dealing with our portfolio companies and things. So yeah, you’re right, there definitely can be an element of that to it.

Patrick: I just see it as part of this ecosystem, you know, the need for you know, organizations like yours, and the independent sponsors is to, you know, capital needs to find a place to go, and if you can point the direction, I think that really accelerates the process. One of the other real big accelerators that’s assisted in, you know, a successful M&A is that a lot of risk has been transferred away from these transactions.

And we’re talking about breaches of the seller reps and warranties that, you know, they may be disclosing something to a buyer, the buyer doesn’t have the time or the resources for full diligence. And so they gotta kind of take a chance that, you know, their diligence was thorough, only to find out post closing, something that ends up costing a buyer substantially.

And, you know, where, I’m very proud of and the insurance industry has come in with this gaping need and introduced an insurance product called reps and warranties insurance. Where essentially, they look at the reps, they look at the buyer’s diligence, and they say, if you’ve done the diligence, and this is what they’re saying, if this is not true, or inaccurate, and it costs you buyer, don’t worry.

Don’t chase the seller, we will step in. And that’s just been a great, great help in accelerating a lot of these deals. But you know, don’t take my word for it. Bakari, good, bad or indifferent, what’s been your experience of rep and warranty insurance?

Bakari: So I don’t think these days, even in our, so rep and warranty insurance has been a tool that’s really been up until very recently, only really available for large transactions. And so more recently, the insurance product has been made available for smaller deals. The deals that I do. And at this point, I don’t think it’s, I don’t think it’s probable for me to do a transaction where we don’t have some portion of that.

Particularly considering I like to partner with large firms, and they’re very accustomed to doing transactions where you have reps and warranty insurance. And so it’s unlikely for me to complete those transactions without that. And so it’s a tool that’s incredibly necessary and valuable for us as we evaluate deals, and ultimately look to execute, which is the most important piece of our business.

Patrick: And you mentioned that this has been a tool of very large private equity firms for very large transactions. And rep and warranty was originally set up for deals that would price over $100 million in purchase price. And there are a lot more deals down there. And so over the years, and it’s been a very successful product, the tolerance in the guidelines have come down market where you can insure a deal that’s maybe $30 million in purchase price and is still, you know, a value there.

The problem is, what do you do with deals such as add ons or bolt ons that are 5, $6 million or a million dollars? Those folks who actually need protection the most, because they can’t take a half million dollar hit or a million dollar hit. What happens to them? And what’s been great is the industry has now evolved. And there’s a new sell side policy that the seller’s the policyholder.

The policy can then respond in some mirror image of a buy side policy, where in the event of a breach, buyer just notifies the seller that there’s been a breach. The seller reports the breach to the insurance company, the insurance company contacts the buyer and they work to settle the deal. So there’s one extra step. The great thing is this product is set up ideally for transactions priced between a million and $30 million in purchase price.

The rate because it’s a smaller, simpler product and smaller, simpler transaction it’s covering, the rate runs between $10,000 and $20,000 per million dollars in limits. So the more limits you buy up to 20 million, the rate goes down. But you can, you know, feasibly see a $5 million deal being insured for $75,000 for the full $5 million. And that’s a fraction of what buy side policies come.

And we’re very proud that that comes in because now we can step in with the sell side of the table and just say, hey, if the buyer is unable or unwilling to find protection, we have it here. So it’s a great value add and we’re very pleased with that. Now, as we’re coming, you know, we’re looking at 2024 is virtually here already. Bakari, what do you see going forward? What trends are out there for you or for M&A in general?

Bakari: Yeah, so my sources and my world has seen this year as being sort of a difficult year for M&A. The transactions have come down in terms of volume. Obviously deals are being done, but the volume I think is a little bit lower. And a lot of that has to do with the debt markets. And so I think a lot of us are watching the debt markets very closely.

All of us we invest using leverage and so as leverage has gotten more expensive, we’re taking a stronger look at deals that may have been easier to pass on before. These days, you need to make sure that you’re not going to end up in any situation that results in a, you know, miscovenant, a credit crunch, a cash issue.

And so I think a lot of people are very cautious. Who knows that this is really gonna play out. I think as we’re coming into an election year, that’s going to be, it’s going to be another factor that people are going to be considering. And I think if 2023 was somewhat quiet relatively on the M&A front, I think 2024 is gonna be a wild ride.

Patrick: Well good. From your lips to God’s ears, hopefully we can get some more activity going. I think that there’s an issue because a lot of people keep looking at 2021, end of 2022, where it’s post-pandemic and that was just an outlier. Sort of, we can return to the pre pandemic times, I think it’s gonna be nice and robust. So that’s fantastic. Well, Bakari Akil from Graves Hall Capital, where can our audience members find you?

Bakari: Yeah, so I’m pretty accessible. So I’m always accessible via email. So reach out to me anytime with my first name at Graves Hall Capital, or Graves Hall So LinkedIn, very, you know, accessible. You can search me, find me there. I’m on a world tour right now. Actually, I’m traveling to 12 countries for 12 months, and documenting my experiences online.

And so if you want to learn a little bit about that, some of my videos of me traveling. In July, I was in Cape Town. Next month, I was in Athens. Last month I was in Valencia. This month I’m in Istanbul, Turkey. So I’m actually, that’s where I am right now. And next month, I’m supposed to be in India. And so yeah, you can see when I’m traveling and the experiences and you know, looking at companies out here and the whole nine yards while I’m on this trip.

Patrick: Well and thanks to technology, you can still do deals from anywhere around the world, right?

Bakari: That’s right. And I forgot. The way to find those videos. My platform is called Nomad Noir. Noir, n o i r.

Patrick: Very good. Well, Bakari Akil thanks for being with us today.

Bakari: No worries. Thank you very much for having me.


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