How can M&A advisors help business owners maximize and monetize their life’s work?
That’s the mission of M&A advisory and exit planning consulting firm TobinLeff, whose founder David Tobin is here to speak with me in this episode.
David will share how his firm builds relationships long before the deal and meets clients wherever they are in the M&A journey.
He’ll also cover M&A in the professional services and marketing sector, his ideal client profile, 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 David Tobin of TobinLeff, based in Pittsburgh. TobinLeff is an M&A Advisory and Exit Planning consulting firm that helps business owners maximize and monetize their life’s work, which puts us David, in direct alignment. So welcome to the podcast today.
David Tobin: Patrick, thank you for having me.
Patrick: Now, before we get into TobinLeff, what you guys are bringing, because you do address a real niche here. Let’s start with you. What brought you to this point in your career?
David: I appreciate you sharing that, like many of your listeners and you, we’ve had our journeys. I grew up in an advertising family. I started founded marketing agencies. One of the more niche our specialty, which you will appreciate was prospecting for financial advisors and insurance professionals who wanted to be in front of business owners on a favorable basis. My crew, I, we came up with the idea that the best book, the best door opener, would be to position these advisors as specialists in Exit Planning, succession planning, transition planning, and it worked. That’s what business owners wanted to talk about. Yeah. So like, I’m sure many of your listeners, if that was their client base, they would research their clients industry, I did the same thing. So I really spent time on the subject matters of succession planning, Exit Planning. I talked to her because I grew up in a family business. So I sold the agency that was in the early 2000s. I was away from the industry for a little while. But I couldn’t help myself, I would meet a business owner. And I would ask them, Patrick, what is your exit plan? And they wanted to talk about that topic. Yeah, it was and today, it has been it will continue to be so I started having many conversations, I decided this was in 2009. I want to start charging for this. So I started a consulting firm, we initially were doing Exit Planning consultation, it evolved to where many of our clients had a need to sell to an outside buyers, so we help them. So we evolved into an m&a advisory firm. So because of our roots and Exit Planning, we do position ourselves as Exit Planning and m&a advisory professionals group.
Patrick: And where you’ve got a unique approach, is your client base is largely focused in professional services, as and so let’s talk about that. Because with TobinLeff, that’s an area that you guys come in, because you’re dealing with a lot of intangibles there, compared to other business owners.
David: Exactly. And we concentrated on those sectors. I mentioned my background in marketing. There’s 12 people in our group, I have six partners. Three, my other partners also came from professional services firms. So because of our firsthand real life experience, we gravitated to service firms. And then like many other m&a or consulting firms, you work off of that you leverage off that because that’s where your knowledge and credibility lies. And, you know, what, you mentioned service firms, the nuances, the needs, as relates to helping those owners monetize that they are different than hard assets, manufacturing and so forth.
Patrick: Yeah, and one of the years that, when we spoke about, you talked about the professional services out there, because there are a number of them out there, but it was marketing, and talk about your perspective with regard to marketing because there are PR firms, advertising firms, marketing firms out there. And you know, if you’re not in that space, you keep thinking the large, you know, Madison Avenue major organizations, but really, it can get very granular and it’s developed. It’s evolved over the time. So let’s talk about that with marketing specifically in your professional services.
David: Sure, the sector the industry keeps broadly getting wider when you mentioned some of the common traditionally but advertising agencies but then expensive digital marketing agencies public relations, it ventures into digital transformation because of technology and marketing services. So it really has widened. I mean, there are truly 10s of 1000s of marketing related Marquam agencies, you know, many like are small but covers all ends of the spectrum.
Patrick: Then this even gets a little bit more fine too, because you’ve coined the term actually to serve, you know, Mark calm, and Mark tech. So expand on those four places. I mean, this is fascinating.
David: Sure, more fun, short for marketing communications, that tends to be more of the service aspects of it. The agencies where they’re primarily generating revenue by time for talent or monthly retainers, or in tech includes the platform’s the tools that help take marketing messages to the marketplace. Digital marketing agencies cross over into both realms from doing the agency work, but also all the technology aspects of it.
Patrick: Yeah, because you can’t just go ahead and put your own stuff on YouTube or some social platform, you want to be effective as it as a large commercial venture, you want to go out and do something professional. And there’s a pathway to all those channels. Okay, David, tell me what is Tobin left, bring to the table for lower middle market professional, the professional services firms, because you guys have approached I really like how you do this.
David: Yeah, I appreciate the opportunity to share that with your listeners, Patrick. So you mentioned our market, specially any group of faith, have expertise. So one, it’s our experience with professional services firms. What we have developed that we’ve come to believe and it served our clients well, there’s a couple keys, one, relationships, we and those of your listeners who have gone through the m&a process, they know that we are developing relationships on many fronts. It’s so important. And when I say relationships, it’s having the right professional professionals at our level partners, who build relationships with their prospective buyers, who really get to know our sellers to be able to tell their story, their value proposition more than just creating the sim confidential information memorandum. It’s to feel those relationships, prospective buyers whether they’re strategic or financial, being able to take the time to make sure our client and the buyers their values, visions, cultures are in line because if you’re selling a service from most likely, the seller is going to stay involved for some number of years. They are now provisions as the buyer is going to want to tie the sellers to the buying company through rollover equity or earn out provisions. So we have found you cannot shortcut taking time to make sure that relationship, the culture of visions align. We combine a relationship partner with a transactional partner, somebody that really has deep chops as it relates to the working capital, presenting numbers defending their value through due diligence. So it’s combining relationship skills with technical expertise. So most of our engagements will have two partners working on the transaction. We also believe that work on the front end, wasting an awful lot of time, performing what we call a market value analysis to help our clients appreciate the value of their companies for different types of transactions. What typical terms will look like with our down provisions, the pluses and negatives of selling to a strategic compared to a financial buyer, making sure that their expectations align with what we believe the market will pay. Because nobody wants to go into enter. That’s a process and the sellers expectations in our mind aren’t realistic. So we really spend time on the front end mentioned that the relationship work. We also in today’s market, look everyone knows it’s a tougher market than it was 12 months ago, moves uncertainty in the market interest rates are up. But there’s still we’re seeing successful transactions we’re completing them. We know and others you have to go wider now and deeper to find those prospects. Because this is some buyers are on hold. And then it’s also being creative with the types of buyers
Patrick: I think what’s important to get is you talked about the the pre load and the pre work that you’re doing setting up the relationships, I think you guys have this as one of your sayings I mentioned earlier is your rate and meet the client, wherever they are in the m&a journey. There are very few people that wake up one day and say, I gotta sell I gotta get out of here unless there’s some big family emergency or some life change. Other than that, I think it’s incumbent on people where, you know, if you don’t know, what, five years, 10 years out looks like. That’s where you start reaching out to Tobin and luff and David Tobin and his team because they can at least begin the conversation, even if you’re not ready to do it. Now, it gets you in the process to think about what the steps are. And the steps may not result in a transaction, but at least you could see that journey.
David: Yeah, I appreciate the entree to this topic, where we say meaning solar website, you know, our clients relationships where they are in the Exit Planning journey. What you just mentioned, Patrick, some owners just need to appreciate what does it need? What does your company need to look like when they’re ready to sell? Related to that someone did start doing some Exit Planning work, appreciate what their company’s worth, understand what are the viable exit pathways. So I mentioned how we got started crafting exit plans. That is something we’re not the only one but we bring them to the table, being able to combine that Exit Planning consulting with the m&a work owners, if they have time, 234 years, there are a number of steps that they can take, that should position their company to command that or multiple, more favorable terms. And if every owner every month, every week, they’re trying to increase their net income. That’s a given. And but it’s not only are they working on their financial ratios, if they also have an appreciation, what are the value drivers? What are the factors that will most likely influence the multiple, whether it’s a multiple of earnings, even revenue, if they got to work on that, now you really get leverage, because they can use that time to not only increase their earnings, the Navy, just using this as an example, with the right strategies and techniques, instead of commanding a multiple of 5x, they can command a multiple of 6x. Now you’re really leveraging the energy and money you put into preparing for a future liquidity event. So that’s actually where we get to on the Exit Planning journey. And the other part, there’s so many different pathways that, you know, we I mentioned on selling to a strategic or financial, we have helped more than, for example, 30 companies with management buyout plans, because that’s a viable pathway for service firms. We have relationships with very qualified advisors for Aesop’s. Not that we’re trying to stay with specialists in all those areas, but to really be able to help our clients appreciate the pros and cons economics of those difference. We call them exit pathways.
Patrick: Yeah, I would think that sometimes as you’re making that calculation as an owner and founder, you if you sell the business right out, and you’re not making any income any longer. And so you know, I mean, you will have a liquidity event, but that me and I, you know, check all the boxes for you. So having some ongoing relationship through a management buyout where you know, you do almost no work, and you’re still drawing, drawing an income. I mean, there are a lot of options out there that people never would have thought of.
David: Yes, yes. And that just reinforces the value and the importance of knowledge education around these topics. You know, I’ve heard the saying and I think it proves true for lunch, it’s harder to get out of the company than it may have been decided to come. First service firms, you know, some of you have hard assets. That’s a different.
Patrick: Yeah, absolutely. Well, David, tell me, give me a profile of your ideal client who’s a good fit that Tobin left wants to serve.
David: I also appreciate so you touched on our mission statement. Now this may sound like a sales pitch for you and my partners and I we truly stand behind. We are focused on helping owners maximize and monetize their life’s work. We don’t put a disclaimer on maximize and monetize only for owners above x. So we just welcomed the opportunity to talk Up to owners who want to look to turn their life’s work into personal wealth. In our organization, we’ve got some partners that they, they are very good, they love working with smaller firms. Other partners, we’re proud that we’ve dealt with some pretty significant transactions. So artists like anyone, I mean, it’s, this is gonna sound like a cliche, but if somebody’s values, and they’re good culture, we’d love to have a discussion with them, whether they’re near term or long term around the topic of Exit Planning.
Patrick: When you’re based in Pittsburgh, you are not limited geographically. Correct?
David: Or not? My partners include locations in Raleigh, Durham, Nashville, Long Island, New York and Detroit.
Patrick: Okay, great. And you’ve got a client, you’ve had clients out of California bias.
David: Yeah, we do. We are trying to help clients wherever they may be, you know?
Patrick: One of the big catalysts for a lot of mergers and acquisitions isn’t just the aging of the population or business cycles. It’s been the development by the insurance industry to take risks away from the parties in the transaction. While I talk about this, I talked about reps and warranties insurance, where more and more sell side advisors particularly are saying the biggest change in m&a in the last 10 years has been the presence of insurance, because it enables the parties to get rid of risk and move forward with the deal. And it’s really revolutionized it. And I’m curious that I mean, good, bad or indifferent. What experience have you had with rep and warranty insurance?
David: Meeting you because of this podcast helped us because we were aware that there is RW insurance for the smaller transactions? Yes, we’ve used it for transactions in the 20 plus million range, that knowing what you share it with and Patrick, there are solutions that may not be price prohibitive clients who are selling five to 20 million, because without the insurance, it just becomes such a painful process. When we go through the reps and warranties. I mean, that is like pulling teeth if you don’t have the backup, when the insurance is there does make it go that much easier. For us.
Patrick: Yeah, I think what happens with negotiations in that part of the transaction cycle, when you get to the reps and warranties and the indemnification especially that tends to get really contentious at a point when there’s already fatigue built in because the deal has been going on the diligence has been going on. And so what I’m very proud about is what we mentioned earlier is there’s a new product out there, it’s a sell side rep and warranty policy, it’s called transaction liability private enterprise. DLP works just like a biocide rep and warranty policies that mirror image. But what it provides is for sellers, if you’re selling a company as little as a million dollars, enterprise value, up to 30 million, we can insure some or the entire purchase price of the transaction so that in the event, there’s a breach, the buyer just notifies the seller of the breach, the seller notifies the insurance carrier, the insurance carrier will go ahead and negotiate a settlement with the buyer takes care of the legal expenses. So the seller doesn’t have to get an attorney to negotiate on because you’re not going to write a blank check to the buyer, when they demand something, you have to sit down and work with their attorneys. And so the insurance provides that at a cost of between 15 and $20,000 per million dollars in cover doesn’t matter how big the deals is how much insurance you get, that’s a very reasonable expense that can be there to really give sellers a clean exit is a very smooth process takes a day or two. There’s no underwriting fee. So there’s actually no cost just even considered as that. And we’re we’re finding it particularly for the lower middle market, sellers want success, they want completely out buyers, they just want an asset sale. And when you’re dealing with professional services, firms like that there aren’t a lot of assets to begin with. So you know, the you get that tension there. Well, if you’ve got insurance for stock sale, it can work either way. But buyer, who cares this stock or asset sale because of the stock sale, whatever those liabilities are, they’re now covered by this policy. So it eliminates a real issue. And again, at a fairly discount of pricing is not not as much the purchase price of the premium costs is the wear and tear of the soul. And the worry that gets eliminated from that we were really, really happy about that. And so that’s what we’re looking forward to particularly for professional services for work again, a six $7 million deal. That’s a nice deal and you don’t have to ensure the full amount you just you know can do part of it. Now, David is we look forward, we had a really tough first quarter for 2023. What do you see going forward either, you know, for TobinLeff or for m&a in general as we go through into 2024.
David: My partners and I are feeling good. We’re cautiously optimistic that, yes, interest rates are higher, it’s putting some pressure on valuations. If buyers want to buy a company valued between two and $20 million, somewhere, they’re going to move forward. Yes, the cost of borrowing is slightly higher. But we’re also seeing it’s more financial sponsors, private equity groups, family offices, independent sponsors, because they have all this capital, we all know that saying there’s dry powder sitting there while it’s there. So what’s happening, the challenge to find the larger quality companies, they’ve moved their criteria down. So we’re seeing more and more financial sponsors coming into this low and middle market. And that’s really been a benefit for our clients in us. Five, seven transactions have been by strategics, backed by a financial sponsor warned financial plans, sir that wanted to establish a platform. And this is what service firms were maybe sonically that may not have been one of the primary sectors they were targeting.
Patrick: Can you tell me real real quick about the strategics being backed by financial software? How does that work?
David: A marketing service firm or mar tech company, they’re substantial enough, they have a vision for growth. So they might be able to sell create a platform to a sponsor a private equity group, they become the hub. Then they’re using the resources of the sponsor, the PE groups, backings, and they’ll go out and do acquisitions, add ons, bolt ons. So it’s that buy and build strategy, we’re seeing an awful lot of now they’re not roll ups, it’s a vision around the platform. And they’re going out with very respectable offers to buy these add ons. So that the platform might be a company with an EBIT of three, this 7 million, the add ons could be a million to 3 million. And with the add ons, what’s great, the sellers get the opportunity for to liquidity events, they’ll get natural over equity up front, and be able to participate on the off side appreciation of the platform.
Patrick: I never stopped being you know, impressed with the creativity and the innovation in the financial space. That’s fantastic. David Tobin of TobinLeff, how can our audience members find you?
David: I appreciate that. So our website, TobinLeff.com, they’re welcome to, you know, find us through our website. Your listeners are welcome. By making my cell phone they can call me or one of my partners. We’d love to have those discussions.
Patrick: And I must say if you want to go ahead, check out our podcast right after you’ve been taking a look at m&a Masters. Once you go ahead the search bar and go look for TobinLeff, they have a podcast too. And if you’re in the professional services run, this is great to get some context on what’s out there for you.
David: Patrick, thank you. Appreciate the opportunity to share this with your listeners
Patrick: now. Well, thank you very much for being a guest here today and we’re going to talk again Okay, thanks.