What if you had a step-by-step guide to the M&A process?
My guest, investment banker Bill Snow, is the author of Mergers & Acquisitions for Dummies, an insider’s handbook about buying and selling companies.
In this episode, he’ll share his M&A expertise and give an inside look at the process of writing his book.
He’ll also share the one tip that tests if your investment banker has the right negotiation skills for your deal—and give his take on reps and warranties insurance.
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 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 Bill Snow, investment banker and author of Mergers and Acquisitions for Dummies. I, they had to come up with a one for dummies for this. This is great, Bill. Great to have you here. Welcome to the show.
Bill Snow: Patrick, thank you for having me. What a pleasure.
Patrick: Now before we get into mergers and acquisitions for Dummies, and going forward for brevity, I’m just gonna call it m&a for dummies. But it’s fine. We’ll get into that. Let’s start with you and get a little context. What led you to this point in your career?
Bill: That’s a great question. For years, I really didn’t know what I wanted to do. I had sales jobs management jobs, I was working for a publicly traded retailer, we’re buying up little mom and pop retail operations a lot less another lifetime ago. And I eventually segwayed into I want to do more startups and where do business ideas come from. So I worked for some angel funded companies and friends and family worked my way up the food chain, worked for a venture funded company, we were a matchmaker between entrepreneurs and venture capitalists, and along the way of banging my head against the wall and trying to play the venture capital game, you ended up learning quite a bit about business and how to read a balance sheet to make phone calls and sell and figure things out and etc, etc. So, a former colleague of mine went to work for middle market investment bank, everybody else wants to know, how do you become an investment banker? And of course, my question is why? Why would you want to do this to fall down the stairs this morning in your head? So I turned down the job, I think four or five times, and the founder of that firm got me in a moment of weakness. And he said, I’m not taking no for an answer. And I said, Okay, fine, I’ll be an investment banker. So that’s how I got into the investment banking racket. I was not looking forward to another sales job, as you learn in this, when you’re selling a business, you’re really not selling. You’re buying, you’re looking for the right buyer. And it was a great fit, I really enjoyed it and a lot of success. And we can talk about this a little bit by staying active and always being open to new ideas that eventually led to the book deal. I know we’ll come up to that in a little bit.
Patrick: By the way, we’re gonna come up with it right now. And just for the sake out there, there are over 240 books that are entitled subject for dummies. And as I mentioned before, I mean, we had to get one for mergers and acquisitions. So it’s natural that it eventually got here. What led you to think about writing about mergers and acquisitions? And at the same time, this isn’t your first book. So talk about writing in general and M&A acquisitions for dummies.
Bill: Sure, writing is something that I’ve always wanted to do, even though I didn’t have much practice. And for a long time, I didn’t have much to say right, if you know what I wanted to write about. And for me writing, being able to be a good writer being able to use words to explain. When I looked at course, I wrote a 8000 word essay on this, when I started thinking about this, this is what I do. I’m a writing preference learner, I have ideas, I have to write them down, which is why writing the for dummies book on m&a was so helpful. But practice and repetition. If you want to be a writer, you’ve got to write every day, use of technology for me, was huge. I’m old enough where I’m probably among the last of the Vanguard that brought a typewriter to college. And by the time I finished college, four years later, I was in the computer lab and using WordPerfect, and so forth. But back in the day when you had to write longhand, and then try and type it up all that was just too painful. So the technology finally caught up. That’s helpful. As I mentioned earlier, having insights, something to write about having some sort of inspiration, happy accidents, you have to be open to whatever it might happen in life, finding the time and of course, having confidence to write. So I wrote a book on venture capital 20 years ago in oh three, it was just something that I was upset about. A business meeting that didn’t go well. Somebody asked me what the blank detail about venture capital and I had been working on an article, I didn’t know where this article was going to be published. And I thought, Well, I’m gonna finish that article. That meeting was a disaster. And as I kept writing, I thought, well, now it’s gonna be two parts. Now it’s gonna be a 10 part. Okay, I’m making a book. Oh, you know what, I’m gonna be fancy. I’m gonna weave a narration through this and have a lot of fun. So I just did that just for myself just to be in a bonnet, so to speak. And I didn’t know what to do with it. This is all three. So I sent it out and all kinds of people forwarded it and I was a mini viral hit before viral hit was the thing. And I remember thinking if I knew what I was doing, I could do something because I was being contacted by venture capital firms with a lot of thank yous and good ideas, bad ideas, all kinds of people. A few years later, this is when I morphed into middle market investment banking after I wisely turned down the job four or five times, and was really enjoying that doing well. Wiley Publishing contacted me to write a book. So that’s how came that’s the lesson anybody thinking about how you connect? You can’t ask others a time to ask, but you have something to offer. So I wrote a book and venture capital had a certain flair to the way I wrote it and had some fun and, and hopefully, there’s a lot of good information that’s helpful to people. So Wiley found me, they wanted to do LBOs for Dummies, and I thought, yeah, I’ll do it. And I thought, well, what’s an LBO leveraged buyout, that’s just a form of using dad’s a financing tool. Okay, that’s good. Can I really write a book? I don’t know. And I said, Who would? Who would buy that? They said, those guys on Wall Street who do those billion dollar deals? And I said, Well, there’s six of them, right? And I’m not going to teach those guys anything. And I started thinking, let’s broaden this a little bit. Instead of just financing one angle of financing. How about the whole process, and it hit me right there, m&a For Dummies, mergers and acquisitions for dummies. And they said, That’s a stupid idea, Bill, who would buy such a stupid book? I said, I don’t know. 10s of 1000s, hundreds of 1000s business owners, students, I don’t know. And they said that’s a stupid idea. So the whole thing came to a crashing halt. We already negotiated a contract by the way. Two years later, Wiley contacted me and they had a new idea. They let me know what was there as they thought of it. They’re in Hoboken, New Jersey. They’re really quick. They’re mergers and acquisitions for Dummies bill, we thought of it not you would you like to write and of course, I said, That’s a brilliant idea. I wish I could think. So I’m exaggerating a little bit really not that much. So I talked about happy accidents, that was a happy accident being contacted, if I would have put together a plan for that to happen, never would have happened. But I had a demonstrated skill and ability, both in terms of knowledge and writing ability, and through a happy accident. Publisher contact me. So that was written in 10, published in 11. And 12 years later, they contacted me again, we just released a couple months ago, the second edition of the book on May 31 came out.
Patrick: Well, the thing about these books for Dummies is it’s kind of a how to for the do it yourselfers out there. You know, it’s, you know, the starting point for them to see how they can get that. And what’s nice is where you were targeting, now you’re not targeting the billion dollar deals, you’re looking at a marketplace where we have owners and founders of lower middle market companies. So there’s a huge wealth of companies out there that are available to be sold. And conversely, there are a lot more buyers than there were years ago because between you’ve got search funders who are just individuals looking to buy something, you know, private equity on a slightly upstream, you’ve got independent sponsors. And so you’ve got a lot of players in this and you know, inexperienced and some with experience, what can I get from M&A For Dummies?
Bill: Yeah, that’s, that’s a great question. What the book lays out is a step by step process as part of the book. And it’s peppered with a lot of other things, how to negotiate how to structure deals, due diligence, how to put the materials together, how to review the materials, all the things that go along with buying or selling a business, or in that book, I would recommend anybody with a business hire a capable advisor to help them with the the book, they can do it themselves, I think that would be a foolish thing to do. When you work with a capable investment banker, we act as what a buffer where between the seller and the buyer, sometimes the seller is upset, the venting, okay, we can be such a shoulder to cry on and, and then be able to pass along that message and maybe a little more professional manner to the buyer without blowing up the deal. Full time focus investment bankers, that’s what we do as a business owner trying to sell the business, they have a full time job running the company, if they try to do both, they just are running out of time. Emotions, we can keep emotions out of it, somebody who’s close to the business, making all the decisions, knows all the good things and all the mistakes, all the embarrassing things that happened, they might get emotional, it might be a third rail that someone’s touching. Well, we are an arm’s length away. So that’s very helpful. We tend to be prepared, we know what’s going to happen. Next, we frame the discussion. So in other words, as much as possible, we want to be proactive. Somebody who hasn’t done this before is going to be reactive to the buyer. They’re gonna be constantly reacting to what somebody else is doing. We as much as possible, when we’re selling, want to be proactive and get the buyers to react to us. We’ve got confidentiality. So if we are representing a seller, we can contact the buyers without letting them know that company ABC is for sale. If somebody calls from company ABC, it says hey, I’ve got to a company I’m not gonna tell you my name, you can figure it out who’s who’s calling. So those are some just some of the reasons that you why you’d want to work with an investment banker when you’re selling your business,
Patrick: I sincerely believe that we’re confident because particularly on the sell side, sellers, it’s not that they’re naive. They’re just inexperienced in the process. So I think if somebody were to give them the game plan say, look, look, here’s the process. Here’s some things to expect: there may be some surprises along the way. But let’s lay out how the path should look and then go from there. And I think that’s a great way where they don’t have to do it themselves, at least they can see things coming. And a capable investment banker or sell side advisor is going to hold their hand Shep Shepherd him through and actually saved them not only time and money, but just wear and tear on their soul. Because if you’re in an area that’s unfamiliar, you’re going to worry about, you know, particularly because you just don’t want to get it wrong. You’ve got legacy issues, family issues, other obligations.
Bill: Absolutely, yeah.
Patrick: When we saw one of the things because I asked a lot of my guests, you know, what separates you from all the other capable professionals out there, and one of the things that we talked about not to steal your thunder is that you really have a great keen eye for negotiations. And it was interesting how you pointed out to behave. Let’s see how your negotiations go with a prospective investment banker, because what’s the lesson you told me?
Bill: The way your investment banker negotiates with you when you’re putting the agreement together is how that person will negotiate for you. And the trick there is to ask for a fee agreement, cut the fees to the bone, I’m prepared to work on this basis. And if somebody accepts that lowball offer, don’t hire them. Because when the going gets tough in your deal, buyers trying to retrain or do something to lower the price. If that investment banker folded like a house of cards, when you put a little bit of pressure, guess what they’re gonna do, when you have a much bigger transaction, the value of the entire company, they’re gonna fold as well. Negotiating is a key part, people think it’s pounding the table, think it’s bluffing, things like that. It’s not that if you bluff, you’re gonna get found out if you pound the table lie in the sand, all that kind of stuff, people just walk away, the key lesson is you have to be able to read the strength of your hand in comparison to the other table. So if you’ve got like playing cards, if you have a weak hand, you’ve got to get out of the game as quickly as possible with as little damage as possible. If you have a strong hand. And this is the key thing, I think a lot of people make mistakes, a strong hand, people will overplay a strong hand, they get a great hand, they start betting the maximum bet right away. And what happens, everybody falls is congratulation, you won the ante. So you have to if you’ve got a strong hand, you’ve got to know how to play that without inadvertently chasing away the potential buyers as well.
Patrick: And, you know, the issue also is because your business even though the seller may be out on one transaction, you’re dealing with buyers, and there are repeat buyers out there. And you and I are very familiar with the fact that we don’t want to poison the well with one deal. And I think that mutual respect and bad experiences are real value, particularly for sellers who don’t have all the virus on.
Bill: Sure. Yeah, absolutely. Absolutely. As much as possible, you want to remain professional. And that’s another reason why to hire an intermediary and an investment bank or somebody to help with the transaction. I’ve had clients do great clients, great people, but very excitable, hot headed people that got completely upset about some issues, we’re going through the process and without me or somebody on my team in the middle to be able to deflect and be the buffer, the whole deal would have probably blown up.
Patrick: And that those are the types of things that can happen out there. Now, because I don’t want to waste your steam with regard to your practice as an investment banker. Let’s talk about that. Tell me what your profile of an ideal client is, Who are you looking to serve?
Bill: Sure, sure, we get hired by the owner of the business. So we want to contact or be in contact with the owner of the business that might be the president or the CEO or that person might have a piece of the company or certainly be an influencer. But the final decision maker is going to be the decision, there’s going to be the owner of the business. That is who we want to be contacted with when we’re looking to sell a business. I also want to be in contact with service providers, I get a lot of leads through lawyers, accounts, wealth managers, commercial bankers, some other service providers that might have the ear of a business owner. So a lot of my marketing is geared towards connecting with those people. And staying in touch with those people keeping my name my firm, top of mind. So when they have those opportunities, they’re thinking of me, and at least putting my name on a shortlist. So I get a chance to, to bid on something and pitch out a mandate.
Patrick: No limitation recently or geographically.
Bill: Well, I’m in Chicago. So a lot of my clients, a lot of the work is in the Midwest, although we’ve had clients from coast to coast, and that’s not an issue as well.
Patrick: Well, one of the things is really assisted in the, you know, huge deployment of mergers and acquisitions transactions where it’s literally exploded, not only from private equity, but from a lot of walks of life is the emergence of insurance coming in to transfer a lot of risks from these transactions away from the players to an insurance company called reps and warranties insurance. I’m just curious, Bill from your perspective: Do Good, bad or indifferent? What’s been your experience with reps and warranties insurance?
Bill: Yeah, that’s something we’re starting to see more of, I can’t say I’m gonna be the expert, I have to lean on you, Patrick. So when we have that, I’ll be in touch with you for the specifics, but the pricing has certainly come down to being able to ensure the reps and warranties, the promises that the seller makes with an insurance product, and then that premium is paid by the buyer. Sometimes they split it, that can make sense. So instead of putting, say 10% of the proceeds, you might put a smaller piece and you know, the numbers of half a half a point or something like that, in escrow. So there’s a lot more money that the seller gets at closed, and then they have to ask, well, is this worth spending some money on a premium to get this money? Or am I just gonna wait whatever, 12 months, 18 months to get the money and it’s up to them? But it’s a great product, we’re seeing that a lot more and you know better than me the pricing is coming down where some of the smaller transactions it starts to make sense where a few years ago, it didn’t make sense for smaller transactions.
Patrick: Yes, additional. They’re called biocide, rep and warranty policies where the buyer is the policyholder, involved a great deal of underwriting the buyers diligence, it required an underwriting fee of between 40 and $50,000, just to get the research done on the policy. And the policies are quite frankly, there’s six, there’s six and seven figure premium items. But there are designed $400 million dollar plus deals. Now the market has come down to entertain risk 50 million 40 million, they’re beginning to come down there. We are. I’m being reached out to investment bankers like you and sellside advisors is what do you do about deals where owners and founders have a company’s value between 1,000,020 5 million, what do they do? And there’s a new program out there. It’s a sell side policy with a cielos. The policyholder is triggered when the seller gets a demand from the buyer of a breach seller reports to the carrier carrier pays the buyer is a sell side rep warranty policy called transactional liability private enterprise TLP. What’s great about this, it requires minimum time for underwriting is a cost of between 15 and $20,000 per million dollars in Windows, you can get a DLP policy for your company that’s less than underwriting fee on larger works. And what’s nice is it’s a great way to transfer risk, because there are a lot of sellers out there that you know what a million dollars is a lot of money to lose. And if they can get some kind of protection from das way we want to have out there. So we’re very proud of that, you know, the market is dynamic, and coming in to fill new needs. And so that’s what we’re looking to do is come into that $30 million space with that area. Well, Bill 2023 started off slow, at least by my expectations, a lot of other people, as I talked to us think the same thing. Now we’re looking, we’re midway through the year, what interests you see going forward?
Bill: Yeah, that’s a great question that comes up all the time. People are always looking to time the market, and when’s the right time to go to market because they want to sell the course at the at the maximum price right reminded of a friend in college, he would go through all the charts of stocks in the books when we actually had textbooks for everything was on computers. And he would always pick the stock at the lowest point and say, wouldn’t it be great if we would have bought then and he picked the absolute highest point and I want to sell there and I’d always tell him that’s never going to happen, just be happy with the profit. So timing the market is near impossible. The focus on business owners what they should focus on is the company because the underlying fundamental in m&a is m&a is micro economic. Yeah, the greater economy certainly can have an impact on terms of valuations. But the demand from buyers, as you mentioned earlier, is high remains high, whether it’s an individual looking to buy a company, the search funds, private equity firms, corporate buyers, etc. It’s family offices, the amount of buyers everybody in their mother wants to buy a company bringing a good company to market is difficult. And I think that the low interest rate environment of the last decade and a half roughly until recently has been very devastating. I mean, you talk to anybody on a fixed income, talk to them about the returns they’re getting and so business owners have been looking at well let’s see maybe it’s time to sell the business let’s see what happens okay, maybe I get a little bit more valuation that’s nice. Three people show up at the closing the buyer the seller and Uncle Sam Uncle Sam is going to take somewhere around a third so you’re left with some money after you pay off the bank after you pay the investment banker the lawyer maybe some other people what are you left with 50% Something like that. I’ve got to now live the rest of my life on that okay, I’m not going to put it the stock market because I don’t want to put principal at risk I need income I need to find something that is generating income. Let’s see your fixed income is paying what half a point. Forget it. I’m going to keep my money I’ll keep my capital in the business clip a coupon and keep getting my income that way I’ll hire a president the gym somebody to run In the business, and I will keep my money there because I get a higher return without having to pay all those taxes by keeping my money in the business. So I think hopefully what will happen with higher interest rates, you can get a higher not I hope you can now get a higher rate of return on a fixed income product, will that bring more people into the market? Okay, now I get a reasonable return without putting principle unduly at risk. I think that will happen. People, you have to keep in mind that m&a, as I’ve said is, is cell side. Okay? And it is micro economics. So great. Here’s the check, great company, in a bad economy is going to get a really good deal. Okay, growing growing profits, strong EBIT, Dom margin, no concentration, all the things that you want in a great company, I don’t care if the economy is good or bad, that are going to get a really good deal if not a great deal. flipping around great economy growing like gangbusters, but you have a struggling company. Okay, declining revenue, maybe losing money, big customer just fired up, that company will struggle to find bids. So you have to focus on the company. It is micro economic, not macro. Yeah, the macro sometimes can factor. But it is micro economic when you’re selling a company.
Patrick: Bill Snow, author of M&A for Dummies and also Venture Capital One on one which I gotta mention with that Capital One is a great brief business book read is an easy read is not some big long tome out there. What I liked about it was with venture capital for those people who aren’t aware, there’s this huge myth that are these very wealthy investors or companies that are just literally throwing money at anybody with a good idea. And they’ve got tons of cash because they got it on the ground floor on Facebook and Airbnb, and so they’ve got cash to burn you to sell that entire myth give great working steps on how to understand that sectors. It can be an esoteric, complex sector. The exact same thing with M&A For Dummies. And so I really encourage folks to take a look at this particularly even if you’re not in the market today is a great reference point just to give you some perspective and to manage some expectations, and without Bill Snow, how can our audience members find the books plural? And also how can they find you?
Bill: You can find me at my very creatively named website Bill snow.com Or some people say bills now why would I want to pay bills now? And that has links to well that has links to me and the books you can find the books wherever any while you can find the m&a book where any fine books are sold, which is typically Amazon these days. Barnes and Noble sells that books and million any other retailer will have it. The the ebooks so Venture Capital One One was was self published. That’s the Amazon so you can go to Amazon and find Venture Capital One on one as well. If you need more than an hour to read that book, see a doctor..
Patrick: Bills Snow, M&A For Dummies. Thanks for being here was a real pleasure meeting you and having you on the show.
Bill: You bet Patrick. Thank you.