This episode of M&A Masters features Tom Brinegar, the Chief Financial Officer of PEAK Resources, a trailblazing technology and systems integrator based in Denver. Under Tom’s financial stewardship, PEAK Resources recently navigated through a complex and successful acquisition by a strategic buyer. With a rich background in finance and the heart of an entrepreneur, Tom’s journey offers a unique lens on the intricacies of mergers and acquisitions from the perspective of the acquired.
- Discover how Tom Brinegar and the PEAK Resources team prepared for the acquisition process and why they decided it was the right time to sell.
- Learn about the strategic selection of a buyer and how cultural fit played a crucial role in sealing the deal.
- Tom shares his insights on overcoming due diligence challenges and the unexpected hurdles along the way.
- Understand the pivotal role of reps and warranties insurance in facilitating a smoother transaction, as provided by Rubicon M&A Insurance Services.
- Gain perspective on the post-acquisition changes and Tom’s personal journey towards finding new horizons after the successful exit of PEAK Resources.
To delve deeper into the world of mergers and acquisitions and to gather invaluable insights from Tom Brinegar’s first hand experience, tune into this episode of M&A Masters. Whether you’re contemplating an exit strategy or looking to expand through acquisitions, this conversation sheds light on the critical elements that contribute to a successful deal. Listen now on Spotify, Apple Podcasts, or directly on our website.
Mentioned in this episode:
Transcript
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 Tom Brinegar, CFO for PEAK Resources. Based in Denver, PEAK Resources is an innovative technology and systems integrator focused on the next generation of data center designs. Tom and his executive team recently completed a successful acquisition of PEAK Resources by a strategic acquirer. And I thought it would be a value for Tom to share with us his experiences through that process. We talk about M&A all the time, let’s talk about it with somebody who actually lived it for a change. So Tom, welcome to the show. Glad to have you here.
Tom Brinegar: Thanks, Patrick, I really appreciate the opportunity. I appreciate the service that Rubicon was able to provide to us and just looking forward to the opportunity to have a conversation.
Patrick: Yeah, and Tom’s great disclosure there is that PEAK Resources, actually, has been a client of Rubicon M&A insurance services for their recent deal, which was fantastic. And it was great to get the opportunity to talk about this on the other side. Now, before we get into the deal and PEAK Resources in particular, let’s start with you. What brought you to this point in your career with PEAK?
Tom: Sure. It goes way back. Grew up on the western slope of Colorado in a small town. One of my first jobs, well my first job was working on a tree farm. And if you haven’t worked on a tree farm, it was a great incentive to go to college. So I emigrated to Boulder and went to University of Colorado in Boulder. I had an opportunity thereafter to join a firm in Boulder. That was a computer leasing company. So what we were doing is leasing high end IBM mainframe and peripheral equipment to large Fortune 1000 companies.
Towards the end of my tenure there, I was putting those leases into portfolio and syndicating them to mostly Wall Street firms. Many of the folks that I worked with, there are a couple of folks that I worked with there, started PEAK Resources in 1991. They offered me an opportunity to come over from an ownership perspective. And it was always kind of, my dream is to be an entrepreneur. Own my own business, and that’s what led me to PEAK.
Patrick: As we get into PEAK, let’s talk PEAK, you joined in 1991, so this is not a young company. But go with that, you know, A, how’d you come up with a name? Because it wasn’t named Brinegar Resources, and then just lead us up to where the decision was made to transition.
Tom: Sure. Yeah. So if we had to do it again, you wouldn’t call yourself PEAK Resources. Because if you’re not familiar with the Denver business environment, PEAK is kind of dime a dozen. I meet people and they say, well, yeah, I’ve heard of your company. And I always say, well, maybe you have, maybe you haven’t, because there’s so many peaks. And then Resources again, for a long time.Denverite, resources would typically mean oil and gas.
So for a technology company, naming ourselves PEAK Resources, maybe if we did it again, we’d do it differently. But anyway, PEAK started out really, in the space of the IBM mainframe environment. So we were actually there was an arbitrage market for those type of products. And that’s really all you needed at the time was a phone and a fax machine. And that’s how we got started. We built a relationship with IBM, particularly on their print business. And that kind of catapulted us into more of what we would term today as a solution provider.
So we morphed from that into providing a variety of products, not just IBM, but Cisco NetApp, VMware, anywhere from solutions, pardon me, software, security, a whole variety of technology products. It really became a valued adviser to our clients. Many of which we’ve had for 20 to 25 years. So that was kind of like the process of building our business. When we started the business, wwe were in our late 20s. 30 years later, you can do the math and all of a sudden we had employees, we had a building, we had a captive insurance company.
And so started to say what does it really look like to get some of our chips off the table? And that’s what brought us to the point of saying we think like the timing is right. I think also, I would add that the competitive landscape for a, what I would call a regional solution provider became very difficult. We were competing with multi billion dollar companies. CDW, WWT, really large companies. And it just became more and more difficult for us to compete in that environment.
Patrick: So things changed, and how long ago was this decision to seek an exit? When did that come up?
Tom: It’s a good question. I mean, I would say probably would have been late 2019, that we really started talking to our broker, started exploring what multiples look like. All the things that you would need to do to start looking at a sale. So probably, realistically, a four to five year for us, a four to five year timeframe.
Patrick: Where we came to meet each other was through J.D., which is one of the leading investment banking firms in the country. And Joe Durnford, thank you very much for that. He’s actually a past podcast guest. So Joe came and made the introduction, but talk about the decision to, A, use a banker. How’d you pick Joe? And let’s kind of piece through a couple of the decisions along the pathway here. So start with that. Why a banker, and why J.D.?
Tom: Well, one reason. We met Joe in 2004. I was talking to a friend today. Talk about a long sales cycle, right? Anyway, we met Joe in 2004, he did a valuation for us. It’s part of the thing that where we were in 2004 or where you’re maybe further along the chain, having a banker do a valuation, I think it’s a really great exercise, because I think business owners can have a misconception either way too high, or way too low on the value of your business.
And I think it’s one of the first things that really, you have to do is get realistic with what your valuation looks like. Because if it’s not, if it’s not what’s going to appeal to you, then why spend a bunch of time. Build your business and get it to the numbers that you want it to be. So anyway, back to Joe. Met Joe in 2004. Once we started getting serious about it, we really kind of knew that Joe was going to be the guy for us.
We definitely needed a banker. We were large enough and sophisticated enough that we felt like trying to do it on your own just doesn’t make any sense. And Joe was already a trusted adviser, we talked to a couple other firms. But at the end of the day, culturally, Joe just was a perfect fit for us. And we knew we needed that service. And as things played out, Joe more than earned his fee. He stepped us through a lot of different scenarios.
Patrick: So, the role of the investment bankers, getting you staged up, getting a top price for you. Or, actually, the better ones are gonna get you the best fit. And so that goes into where the selection of the buyer. It was a strategic buyer. So quick story. How did that come around? How did you just center on this one? Obviously, it’s a good fit for you, a good decision. Just give us a little backdrop on how that process worked.
Tom: I mean, and I think Patrick, that you hit the nail on the head, because it’s not just about price, it’s about finding the right buyer. And that’s where Joe did such an amazingly great job. Because although we know a lot of companies in our business, it’s not like we have a relationship with every single one of those.
So Joe was able to introduce us to the company that eventually acquired us. And already right from the very beginning felt like there was a really strong cultural fit with the buyer. And I think that for us, and I hope for the other seller would be something that you really take into consideration because that made a big difference. So I was introduced to them, either late ’99 or early 2000s.
And then you know, COVID happens. The numbers didn’t look great. Our CEO stayed in touch with their deal guy, and every time he’d come into Denver, my partner would meet with him. And so kept that relationship. The stove wasn’t on hot, but it was certainly on simmer. And then once into 2023, when the numbers started looking really good, it was a very natural conversation for us to have. And again, Joe was right there, you know, lockstep with us providing the guidance we needed to have those conversations turn into more than just conversations.
Patrick: Lessons with this, you’ve got to have the patience of Job in some of these situations. I mean, it’s not going to be a twenty year, you know, from start to finish timeline, but there are things that are going to come up and I agree with you that getting a valuation on your company, you got to know where you’re starting from. Even if you’re not going to sell in the imminent future, it gives you kind of a GPS, and then it’s like, are we where we want to be?
Maybe a little bit farther in. If we’re not, maybe behind it? We’ve got time, there’s no urgency. That relaxes everything, and then you can move forward. Also, sometimes it can identify some soft spots or weaknesses that you have, that you weren’t aware of. And then that gives you a chance to address it. And then also, I mean, if you’ve got somebody that’s well connected with the M&A community, they know a lot of buyers. They know the ones that may be a fit, may not be.
There are a lot of buyers out there that just kick the tires and waste a lot of time. And you cut through a lot of that as you move forward. Now, what other things came up that were kind of like surprises to you. I mean, you had expectations when you started the process, and you identified the buyer. And then things, maybe they change and it wasn’t exactly the plan. I mean, was there anything that you were expecting and didn’t happen? And then how did you respond to that?
Tom: Well, a couple of things happened. I think when we initially went into the transaction, we were assuming there would be an earn out. And the numbers looked good enough that we didn’t have to have an earn out, which I think was a super positive entrance point for us with this acquisition. I think the biggest, I guess, surprise for me was the acquirer is a publicly traded company.
And the volume of due diligence was, it was a heavy lift. We’ve been doing what we call powerlifting for 30 years, and this was definitely four months of very serious powerlifting. So that was a little bit of a surprise. We were ready for it. We’ve always been, you know, had a really clean back office. But it was daunting.
Patrick: It’s never as long or as short as you think it’s going to be. And as prepared as you are, you will get those. And it’s interesting to note because you’re not an unsophisticated business. You’re having to deal with a lot of IBM level clients. So there’s a bureaucracy there. So I’m sure you had to keep all of that going. Any other surprises, good or bad, that came through on the process?
Tom: I mean, I guess the only other surprise was once, you know, we signed an LOI in October, and we were able to close in January. So although the volume of due diligence was pretty hefty, the acquiring company, they’re on to the next deal. They’re very adept at closing transaction. So that might be a consideration for a seller as well is like, what is the timeframe? And again, the broader timeframe was much longer. But once we got down to brass tacks, it was I would call it fast and painful.
Patrick: A lot of these, particularly strategics, if they’ve got a dedicated acquisition team, they need to move on to the next thing. The last situation they want is a process dragging out a lot longer. I mean they have their costs, they have their priorities, and they want to move on to the next deal. If there are no red flags or they’ve covered the bases and addressed it, you know, move on.
So it’s not personal. That’s the other issue. I mean, they may be beating you up, but it’s not personal, and it goes forward. And so it brings us to where Joe gave me a call and we had an introduction to you. And that came on the topic of insurance. So let’s just talk about that real quick, where we did a reps and warranties policy for PEAK Resources. Talk about real quick from the insurance perspective. What about your experience with insurance? You know, and how we came along with that?
Tom: I mean, we’ve had plenty of experience with insurance. We own a captive insurance company, but we’ve never had any experience with reps and warranties. And we’ll talk about it. But that part certainly moved fast. Because I think this is a trend in the industry. I’m not not 100%.
But I think certainly in the case of the acquirer being a very large company, and a company like PEAK being more of a mid market company, the requirements for indemnification was pretty hefty relative to the purchase price of the deal. And so that came at not the last minute, but darn near the last minute and posed a pretty significant roadblock for us. Although we know our back office is clean, although we know our contracts are clean, you just never know what could come out of the woodwork.
So we didn’t want to, we didn’t want to put ourselves, we didn’t want to paint ourselves in a corner and either sign some big indemnification, or not have any coverage. So that’s where we had the great fortune of getting exposed to Rubicon, kind of at the last minute. And really kind of saved us from either having to blow up the deal or swallow something that we just really weren’t comfortable with. So it was pretty serendipitous at the last minute.
Patrick: What we’re talking about on this transaction is the reps and warranties insurance that most people in the audience may be familiar with is a traditional buy side policy where the buyer is the policyholder, the underwriters underwrite the buyer’s diligence of the deal. They don’t have to talk to the seller and they go through a process. There’s outside underwriting that’s required, there’s an underwriting fee. The price has come down over the years, but it’s been pretty flexible and pretty market responsive.
And in terms of timing it goes well. The challenge is when you have deals that are priced under $100 million, and in some cases, well below $100 million dollars. Now rep and warranty buy side is not as nimble and accessible. And in those cases where these smaller sub $100 million deals are involved, there’s a new program called transaction liability private enterprise, TLPE. And what it does, it goes to the other side of the table. Underwriters very simply on these smaller less complex deals will go in and they will underwrite the quality of the seller.
Nobody knows the target company better than the owners and founders. So just like any other insurance policy, they collect an application, they sign the application. You sign the application warranting that you didn’t know of anything that could give rise to a claim. Every application has that, so that’s nothing new. And from there, underwriters are able to in a very streamlined, efficient manner, come up with a cost basis that was a fraction, literally, of what a rep and warranty policy is.
Because these are smaller deals. They’re less risky, they should be priced that way. And we were able to turn around that in I mean, quite frankly, you guys got us a complete application in a matter of, I wouldn’t want to say hours, but it was two days. And we had a proposal, went back and forth to fine tune it, and it was delivered.
And that’s the intention out there that we like to have is for these, literally 1000s of mid market deals that are under $100 million, there is a product that gives the owners and founders the exact type of peace of mind and protection from their buyer that suffers a breach and they want to be able to respond and not have that money come out of their pockets.
This is a great tool for that. It is very elegant. And the buyers, even publicly traded companies, we’ve had a couple of them, you know, big box distributors doing acquisitions. Sometimes while they don’t care about insurance that much, because it’s not that big of a loss to them, it’s nice having an immediate source of remedy.
And in a lot of cases, we are providing through this policy more coverage than a 10% escrow or withhold would be. And so that’s where we would go ahead and recommend and bring it to top of mind because not enough people know about it. As in your case, you had never heard about it, and you’re probably one of the more sophisticated insurance clients we’ve had because you’ve had a captive insurance and that’s PhD level insurance knowledge.
So that’s pretty good. And that’s where we have it on those. And I mean, we can have these for deals that are as low as a million dollars and is exclusively sub $100 million deals. And it’s one of those things. So I really appreciate us having the chance to take care of that. And that’s the thing. The purpose of it is you don’t want your money on the line 100 percent. We can go ahead and sidetrack that for you. And that’s a hedge that I think, as you said, it avoided the deal either going off the rails or you guys would swallow a pill that you probably wouldn’t be sleeping for a year or two.
Tom: Definitely. And I would just say that the underwriting was very streamlined. The pricing and structure process, all of that was fantastic. It really took us less than a week to pull the deal together. And Rubicon, you just kept us informed the whole way. We just found it to be a really economical solution to a problem that could have derailed the transaction. So, thank you.
Patrick: Well, you’re very welcome. An absolute pleasure on our part. The other thing is that because of this particular policy, it’s on the sell side of the table, there’s no involvement required from the buyer. Now, you can tell the buyer about it. If the buyer wants to participate in many, many cases, buyers will split the cost with the sellers. That does happen. But here’s the thing, when you’ve got a publicly traded buyer, or a very large buyer, this may be a new step in the process for them, that’s only going to slow this down.
And then they have to get over their comfort level and learning curve on the product and everything. And it’s not necessary. So that’s what’s really nice here is that we can get the seller on board, get it taken care of. If the buyer wants to find out about it later, or benefit or whatever, that can always be done. Now, we’ve gone through this. The deal closed and things are moving along. So what’s your future looking for you right now?
Tom: That’s a good question. So most of the employees at PEAK are now employed by the acquiring firm. They don’t need a new CFO. So I’m left to go back to the tree farm. I got to look for a job for the first time since I was 16. So I’ll hopefully figure that out. But I think there’s obviously a lot of opportunity for an old broken down old CFO like me, so.
Patrick: Well, I think you’re coming as somebody who experienced a successful transition and closed, and I’m sure there are quite a few companies out there in the middle market that need somebody with your experience, because there’s no discounting for that. And so, you know, we wish you the very best of luck on this. Tom, how can our audience members find you?
Tom: Sure, I think the best would be if I just applied my email address. So bear with me here. It’s T Brinegar. So it’s t b r i n e g a r @peakresources. And that’s p e a k resources.com.
Patrick: Tom Brinegar from PEAK Resources, congratulations again on crossing that finish line. But it’s not the end of the race. You’re just at another milestone and looking forward to your next milestone and reaching your next peak. So you take care of thanks again.
Tom: Hey, thanks for your time, Patrick.