In this episode, I sit down with Brett Story, the founder of Britehorn Partners, a leading middle-market investment bank. They delve into Brett’s transition from corporate law to M&A, the founding and rebranding of Britehorn Partners, and why staying focused on the middle market can be more rewarding than chasing larger deals.
Brett also shares insights into the unique challenges and rewards of working with owner-operators to achieve successful exits and the evolving landscape of M&A.
He’ll cover:
- Why Britehorn Partners is agnostic in terms of industries they serve, focusing on the “who” not the “what”
- The challenges and rewards of working with owners and founders of family-owned companies
- Insights into how demographic shifts, especially among baby boomer business owners, are likely to influence M&A activities in the coming years
- And more
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 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 Brett Story, founder of Britehorn Partners. Founded in 2013, Britehorn is a leading middle market investment bank led by an experienced team of dedicated professionals. With its main offices in Denver, Colorado, and Delray Beach, Florida, Britehorn Partners conducts transactions across the United States. And Brett with all the action going on, it’s great to have you here. Thanks for joining me today.
Brett Story: I’m really excited to be here. Thanks for inviting me and looking forward to the discussion.
Patrick: Now, Brett, before we get into Britehorn Partners, okay, let’s start with you. Let’s set the table and just tell us, how did you get to this point in your career?
Brett: I like to call myself a recovering lawyer. I started my career in corporate law and was lucky enough to be a part of a bunch of different transactions, large and small. Got a passion for working with private company, owner operators at the last stop in my legal journey, and discovered that I love doing deals.
But I didn’t love drafting paperwork quite as much, and took the opportunity to transition into mergers and acquisitions advisory and investment banking. Met my partners 13 years ago. And am blessed to claim that we’ve been at it ever since and feel really excited about where we’re headed.
Patrick: Well there were a lot fewer investment banks back in 2013. And probably you’re one of maybe a handful there in Denver. So good for you staying the course. Now I noticed you didn’t name this Brett Story Capital. So tell me about Britehorn Partners. How’d you come up with the name and give us the history of the company?
Brett: As I mentioned, we started the practice 13 years ago under a different brand. That was a little bit confusing. And as we expanded our footprint nationally outside of Denver, we recognized it was time for a new brand. So we hired a group to help us think through some names. We had the existing logo with the mountains and ended up finding a mountain range that’s actually on the border of Switzerland and Italy called the Britehorn range in the Alps.
Interestingly enough, I was there this summer and got to take a picture of the range. It was spelled, eit, sort of Germanic spelling. And so we anglicized it. And the biggest thing that was serendipitous was that there was a clean domain name out there, which is increasingly difficult. So it was as simple as that. We liked the one word name, and it works for us.
Patrick: Now you’ve been around for a while. So we see a tendency with new entrants in whether they start as independent sponsors or at the entry level in mergers and acquisitions, buy side, sell side however they do it. But there’s a trend where the longer you’re there, the more you go up market. And you didn’t do that. You’ve stayed grounded and I’m imagining it’s because of your commitment with the owners and founders. But talk about that, how Britehorn Partners, you’re committed to the lower middle market or the middle market. Talk about the thesis on why you’re in that space?
Brett: Sure, well, both my partners and myself had what I call bulge bracket or large transaction experience in our past, and we really wanted to be able to deliver the kind of service that is commonplace at larger investment banks, but down to those private company owner operators who have poured their blood sweat and tears into these businesses.
And so that’s our service model is a white glove, high touch boutique service that delivers the kind of professional process you’d see from someone like Goldman Sachs or Morgan Stanley, but downstream in the 10 to 100 million revenue companies that we work with. And again, coming back to it, it’s really gratifying to work with these founders and help them with that big win because so many of them have risked so much and worked so hard to get there.
Patrick: Well, I get a sense from you that there’s almost a mission or a purpose that you have behind what you do. We’re around mergers and acquisitions and you come from corporate law and am familiar with it. And there’s just the grind of the deals. And they all look alike over time. And just trudging along.
Conversely, you guys are stepping out and you’re with the owners and founders and you’re making people who I’m sure you and I both respect, you’re making their dreams come true. And I find it a real challenge to find any better line of work, unless you’re really good with your hands where you can do something like that.
So it’s outstanding. I also really appreciate having Britehorn Partners here today, because there are so many owners and founders out there that just built wonderful businesses from nothing. And they don’t know M&A, they may know their business, but they don’t know the process for an exit.
And so they can mistakenly just default to those institutions, like you mentioned. And they will get overcharged, but they’re underserved. They really don’t get that organization’s best. A lot of organizations are built for Amazon buying Whole Foods. They are not built for the stuff that you see there. And so I think you’re right on message.
And I think that’s going to be, I mean you’re already proving it as being sustainable. Being around 13 years, that’s fantastic. What in addition to this conscious focus that you have, what is it that you guys are bringing to the table that other investment bankers aren’t? And I mean, there are a lot more today than there were 13 years ago.
Brett: For sure. And great question. Really two things. The first is decades of experience. And we’ve, knocking on wood, we’ve seen it all at this point. So we are exceptionally good on the front end of a transaction of not only taking the time to really understand what the seller’s objectives are.
And there’s often a lot more at play than just dollars and cents, but also looking at the company and assessing its strengths, its weaknesses, its vulnerabilities and the types of things that could trip up a deal. So that’s the first thing that we bring. And the second is really freeing up the owner, and freeing up the management team to focus on continuing to grow the business.
One of the worst things that can happen is for an owner to try and do it yourself and sell the company because it’s a full time job. It’s distracting. If you don’t run the process the right way, you can get strung along by buyers. They will miss deadlines, they won’t put their best foot forward.
So you hire a professional to run the deal process. And you focus on continuing to run the business and do what made that business great. Because the worst thing that can happen is to run a busted process and have business suffer. So that’s really the value that we’re bringing to these owners.
Patrick: I’m wondering just as a former attorney, you’ve got the skill set for knowledge of law negotiations, and so forth. But let’s talk about some of the other things that maybe it was a surprise. I know we didn’t talk about this earlier. But I can imagine, therapists would be one of the skill sets. Probably hostage negotiator, and serving as buffer. I mean, talk about some of the things that you’ve experienced as you got into this.
Brett: I love this story. So a deal that we closed in ’21. It was a phenomenal result for the seller. And he called my partner a couple of weeks from his sailboat in the Caribbean, and said, Bobby is her name, he said, Bobby, I feel like we broke up. Because towards the end of the transaction, they had been talking 10 times a day.
And so you’re spot on. It’s, you know, therapist, it’s high school football coach, it’s shoulder to cry on, it’s pabbi/priest, it’s shrink. There’s a lot of psychology, there’s a lot of emotion, especially when the bullets are flying towards the end of a transaction, and you run the risk of fear and greed and ego and all these things coming into play.
So that’s a huge part of what we do, and probably a much more pronounced part of our process than when you’re talking about large public companies that are pursuing a transaction where certainly the people matter, but the emotion gives away in a lot of times to just the structure and the sheer size. So that’s very astute.
Patrick: Calling the founders together. The founding members together is a little bit different than you know, having a proxy vote with a board on next steps, so that’s one layer of bureaucracy you thankfully don’t have to deal with. Let’s talk about your ideal client. Who does Britehorn Partners want to serve?
Brett: Traditionally we’ve served that owner operator who’s typically between 45 and 60 years old, who’s grown a great business and is at some sort of inflection point. Now that can mean he or she recognizes that they need a financial or strategic partner or some capital to really attack the market and get to the next level.
Or it can mean the owners confronting life goals or opportunities to de-risk and take some chips off the table, because perhaps they have a young family and want to make sure that the kids are taken care of and college is paid for. And because for so many of our clients, the business is 90 plus percent of their net worth.
And so it is prudent and makes a lot of sense to take some chips off the table. And one of the misconceptions is that the sale of a business needs to mean 100% sale. Now, certainly that does happen. But most often our clients are selling somewhere between 60 and 80% of the company, putting some cash in their pocket, but then continuing on in operating the business with a financial or strategic partner.
So those are the clients we serve. I think over the next five years, we may see more outright sales where the sellers are transitioning out after six months or a year and that’s down to demographics. There’s a lot of Boomer generation sellers, who will be looking to go and do something different in life, whether that’s charitable or playing golf every day, or playing with grandkids or all of the above.
Patrick: Sailing around the Caribbean.
Brett: There you go. Yeah, and I actually saw a stat that half the businesses in Colorado, where we are, are expected to change hands in the next 10 years, which is a really staggering number. But those are the typical clients that we’re working with.
Patrick: I was gonna ask about percentage wise, roughly, it sounds like the majority of your clients are looking to scale up rather than a pure exit.
Brett: That’s right. We’ve been fortunate to be part of a couple of transactions where we did the original sale, the ownership group or shareholders retained say, 20, 25%, and then they got that second bite at the apple down the road. In some cases, if all goes well, that second bite at the apple can be worth many times more than the first bite at the apple.
Patrick: That’s what’s fun.
Brett: It is fun. It’s really gratifying. And it validates what we’re telling people, when we say with the right partner, some carried equity can really be attractive. I’d say over the last 10 years in 80% of our deals, the founders are remaining involved with some equity and then 20% are a fairly short transition out of the company after selling.
Patrick: So when we see the acceleration of mergers and acquisitions as just a growth strategy now. Before it was you were selling your company because you had to get out there was something wrong or just that you had run your term. Now it’s a productive way for strategic growth out there, both private equity, financial buyers, and strategics.
And so there’re, quite frankly, there are more companies where there are more deals happening now than there were 10 years ago. Now, part of the acceleration that we see is you’ve got professionals like you that are facilitating these deals getting done and shepherding parties together.
Technology has definitely had a big impact with normalizing this. But the other area that has literally removed friction out of the process is the way that the insurance industry has stepped in and taken risk out of the deal away from the parties. And they use a product called reps and warranties insurance.
Don’t take my word for it. There are some that think it is one of the biggest catalysts for the acceleration in mergers and acquisitions. But Brett, from your perspective, good, bad, or indifferent. What’s been your experience with rep and warranty insurance?
Brett: It’s one of the best tools for ensuring you get a deal done. United States capital markets in many respects are the envy of the world and the most advanced. However, it was actually the Europeans that were using reps and warranties insurance much more frequently in the lower middle market when I began my career. And I was always a little bit jealous because being a former lawyer, I understand that one of the key negotiating points is the reps and warranties and indemnification.
And it can get really sticky and it can get really difficult. And this is a perfect product to grease those wheels and shift the risk from the buyer and seller to the insurance company in a cost effective way. And that eliminates a significant hurdle in the negotiations. And time kills deals. And lawyers can kill deals too if folks are digging their heels in and this is a great tool.
So we try and bring it in in every instance where it can fit. And the encouraging thing is that there used to be kind of a low threshold, or a lower band of transaction size where it didn’t make sense from a cost standpoint. But that’s changing. So it’s a really great tool.
Patrick: I think just like laptops and big screen TVs, over time with innovation, those entry level prices start shrinking and shrinking and shrinking. And so now, the costs have come way downstream, where it’s really not a big choice to get it or not. What’s great, and the news I wanted to share out there is that traditionally, rep and warranty policies were available for deals that were priced 30 million and up, which is, significantly lower than the nine figure thresholds, it used to be back before 2020.
There is now a product out there that can provide insurance for deals priced from a million to 30 million. And I can tell you that if you’re out picking up add ons at a couple million dollars, you’ve got owners and founders selling, they get scared, and it’s a lot of money to them. It’s not as much money to a lot of the buyers that are out there.
But do you really want to spend a lot of time and effort with all the drama and the fear of this should be a textbook kind of transaction? And what Britehorn Partners is doing what Rubicon is doing is we’re bringing a variety of those tools that were the province of the billion dollar deals all the way down.
We’re going from Wall Street down to Main Street. And we’re very, very happy with that. Now, Brett, as we’re kicking off getting close to mid year here. Tell me what you’re seeing trend wise out there. Either macro or with Britehorn Partners and what you see going forward for the rest of the year.
Brett: Activity is definitely up versus this time last year. There were a couple of reasons that activity struggled the first half of ’23, and really the second half of ’22. And that was the speed with which the Fed raised interest rates and everybody had to recalibrate their valuation because so many of the mergers and acquisitions deals involve some form of debt.
And that cost of capital went from a couple of percent to the high single digits, low double digits, and that changes everyone’s models. That changes what they’re prepared to pay, it changes structure. But once everyone kind of got their head around it, there are some huge tailwinds working in favor of the lower middle market.
There are trillions, literally trillions of dry powder between private equity and strategic buyers that needs to find a home. There is a lot of robust strength in certain segments of the economy, maybe in spite of what some people expected. And then you’ve got this generation of founders who are getting older and in some cases, it doesn’t make sense to transition the business to the kids, because maybe they don’t have interest, maybe they don’t have the skill set.
And so there’s some great tailwinds to M&A in ’24 and ’25. And we’ll see what happens with the election. That tends to not matter as much downstream where we’re playing, but I’m very, very optimistic about this year and next.
Patrick: I was just thinking, as you were talking about this, that one of the benefits or the pivots that a lot of dealmakers had to make, when the financial issues were getting a little bit challenging was they innovated new forms of structure for the deal. And you had mentioned that where they’re rolling more equity, they’re coming up with cylinders.
Deal makers are going to find a way and what’s nice is now you have these newly established tools and levers that can be brought to bear. So that maybe even when times are good, you don’t need 100% cash. There are other ways. So I think this is going to go.
And I think that the other thing that’s sustainable for M&A is just, it’s nice when you can where owners and founders transition with the new organization for a period of time, just to do a nice smooth handoff. They’re not dropping the keys off and running. And that can lead to post closing issues.
And I think this is a real sustainable thing. And I think we’re gonna be looking at this, you had mentioned the baby boomers. You’ve got Colorado you mentioned. There are 49 other states where we got a lot of baby boomers, so I think things bode well for the future. Now, Brett, from Britehorn Partners, where can our audience members find you?
Brett: I love having conversations with business owners, so I can be reached, there’s a contact form on our website, Britehorn.com. I’m also pretty active on LinkedIn. Brett Story just like it sounds. If you’d like to make a connection requests on LinkedIn and happy to have a conversation about your business, not a sales pitch, give you some perspective on valuation, give you some perspective on the market. It’s the most gratifying part of my job and I’m speaking with business owners multiple times a day and building those relationships.
Patrick: Well, Bretty Story from Britehorn Partners, thanks again for being here. I can’t wait to work with you down the road. Take care.
Brett: Thank you so much. Me too.