Planning an Exit Strategy

In this episode of M&A Masters, we’re joined by Trever Acers, Managing Director of Objective, Investment Banking & Valuation. With over 20 years in the transactions field, Trever brings a wealth of experience and a unique approach to mergers and acquisitions.

Objective, Investment Banking & Valuation focuses on the lower middle market, aiming to serve clients with enterprise values between $25 to $250 million across the United States. The firm prides itself on its client-centric approach, aiming to achieve a clean exit for owners, founders, and their investors.

Trever will share how he assists clients in planning their exit strategy years in advance, allowing for a more controlled and potentially lucrative selling process.

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 Trever Acers, Managing Director of Objective, Investment Banking & Valuation. Founded in 2006, and based in San Diego, Objective’s seasoned professionals have collectively executed over 500 M&A advisory engagements, and 1000s of business valuations. And from one Californian to another one, Trever, welcome to the show today.

Trever: Patrick, thanks so much. Excited to talk with you today.

Patrick: Well, now before we get into Objective Investment Banking, let’s start with you. What led you to this point in your career?

Trever: Yeah, boy, we’ve been at transactions for about 20 years now. I actually started my career in strategy consulting. And I found that traveling every single day was probably not the greatest thing in the world. So eventually transitioned into private equity and then into investment banking. We founded the firm, I guess, well the firm has technically been around for about 15 years.

I think, it was interesting, the thing that really drew me into this space, was the opportunity to help people. I didn’t have the capabilities to become a doctor, as I think both of my parents wanted. But the opportunity to use this unique and strange set of skills to help business owners make really good decisions, such that our metric for success is this two years after the transaction, they get up at two in the morning, look themselves in the mirror and say, that was a good decision.

Not fireworks. That’s unsustainable, the thing that you want from them the most is that boy, that was a great decision. The data says in about 80% of business owners surveyed after two years after the transaction, 80% of them say that they felt like they failed in at least one material way.

Patrick: Oh, my goodness.

Trever: That’s the thing, Is how do we help them really have a plan that drives to that that exceptional outcome?

Patrick: I was listening to something completely off-topic, but just about some of the most sustainable practices out there, and when you have that mindset to serve, rather than we’re going to dominate a market or we’re going to get this major customer base and be number one in the industry. Having that focus on just serving, particularly clients or a contingency, but serving is a sustainable deliverable that is now just now being discovered.

And so you’re tapping right in consistent with that. Now, let’s talk about Objective, Investment Banking and Valuation. I mean, first of all, it wasn’t named Acers Capital Management or anything like that. So tell me about the firm. How did you name it? And then the quick history on the firm.

Trever: So the reason we call it Objective is the foundation. If you talk about what does success look like? It has to be tailored back to our clients’ personal objectives. So that means there isn’t a standard template that works for every single owner. You need to think about if you’re solving for that two years from now really feeling good about what you did, what matters to you.

And then how do we think about the M&A market, your own business’s performance, and start to put together a strategy that maximizes those objectives. That’s why we called it. So the ethos of the firm and you see that culture is one of service. How do we support our clients having that exceptional situation? And it comes down to really understanding what their objectives are.

The easy ones are easy. Financially, what does that look like? People talk about the big number. We want to talk about after-tax cash. We want them to work with their wealth manager to really understand the relevance of that cash so they can make a good decision of this is enough, here’s what I’m targeting, but this is enough.

And it really helps, I understand the value of that incremental X million dollars. The other pieces then are it’s a holistic view. So the other pieces are these qualitative elements. So how do I feel about how my people are taken care of? How do I feel about my customers? How do I feel about my legacy? What do I want to do with my time, right? Do I want to be tied to this thing for the next X number of years, or do I want to be able to exit and go do something else?

These are the pieces that if we don’t think of them ahead of time, we end up with some outcome that’s a hope and a prayer. A guess. Instead, we can engineer these outcomes by defining them and aggressively disqualifying all the opportunities in front of us. Only looking for those situations that solve for those objectives.

Patrick: And since you’ve been around since 2006, you’re still committed to the lower middle market. Let’s talk about that briefly. Because a lot of organizations start as they get, they start walking, and then they’re running, then the next thing you know, they’re all upmarket going larger and larger deals. You’ve stayed focused and grounded in the lower middle market. Start with kind of the financial size of the clients you’re looking to serve. And why there?

Trever: So the reason we picked this space is, well, now I have some great colleagues. When we started the firm, there weren’t a lot of great world-class lower middle market, investment banks. People that were serving these companies, etc. I saw it in private equity, where I was amazed, and how many owners had just not great advisors.

So the idea was, boy, why go compete against the best in the world and Goldman when we can come to this segment and really impact and have an outlet, have an impact. And so that was why we picked the segment. Right now we focus on this call it 25 to $250 million enterprise value segment.

What New York would call the lower middle market. Incredibly successful companies. To be able to get to that value, you’ve you’ve done something right. You’ve been thoughtful about it. But that’s why we’ve kept in that space is you can help people. The other thing that’s interesting about that space is majority, a lot of the companies are still closely held. While we can certainly apply a lot of these methodologies to widely held companies, it’s incredibly fulfilling when you have a company that’s owned by a couple of individuals or even one individual.

And to help them have that incredible result, where they look at you and you can see the stress off their shoulders, you can see the happiness, you can see the fact that we have designed an outcome that helps them with what they care about. Be it their family, their legacy, or their people.

That’s the most fulfilling. And so we’ve we’ve been dogmatic if you will, about our culture internally. We want to hire people who genuinely like helping others. You add to that, I had an attorney that we used to work with who was an incredible mentor. Used to say, Trever, that’s the sauce. Don’t ever sell the sauce, when you’re selling a hamburger.

You gotta sell the hamburger. The hamburger is look, we have an exceptionally tailored strategy where we do a number of things different than most investment banks in our space to consistently get an outcome. A great outcome for our clients. And then we happen to be industry experts in the spaces that we focus on. Those are must-haves, if you will.

But to me, the thing that, if you talk to a lot of our clients, they hired us for those first two things. At the end of the day, they love us because of the culture. Because we are incredibly focused on what matters to them. We don’t bring our ego into the equation, we don’t bring our incentives into the equation. We focus holistically on what matters to them.

Patrick: I think it’s real key, the way I view the lower middle market and mergers and acquisitions is, most people who aren’t in this space, think of M&A as Amazon buying Whole Foods or whatever they read in the Wall Street Journal. And what you and I know is it’s a people business where one group of people chooses to work and partner with another group of people.

With the expectation that the whole is greater than the sum of its parts. And that’s what we’re trying to do is facilitate that and bring that together. And I think it’s real impressive, where you have that two-year objective post-closing view. When you have that, you’re in alignment with these people, and you’re getting through that.

I think it can get lost in the bigger deals. But there’s no greater constituency I would like to serve, as I see you’re doing with owners and founders. Because out of nothing, they created tremendous value. What a great group to serve.

Trever: For me personally, it’s been incredibly fulfilling. But you hit on something really interesting. You talked about our industry and one of the challenges in investment banking right now is that the most investment banks are running this standard process. We’re they’re talking about the auction process.

They’re not thinking about owners’ objectives. It’s just I’m going to go run a traditional two-step or three-step auction process. And they’re kind of talking past each other. You made this comment. We’re just people. We take the same sort of view of the world when we’re talking with buyers.

These buyers, while they may be public companies, private equity firms, or professional buyer, they’re still people. So we find that this process is failing us. This traditional industry process. Because what we’re focusing on is we end up providing the buyer a bunch of financial information.

Information about the company, and we expect them to give an offer. What most investment banks aren’t talking about, or really not focusing enough on is what matters. Which is the buyer is sitting back saying, hey, really, while the financials and earnings are very interesting to me and critical, what I really want to know is how much money am I going to make in the next three to five years? We call this post-acquisition economics.

Typically this type of research, looking at the synergies, characterizing them, quantifying them, and verifying them, are the three steps. Typically, that’s done in due diligence. After the price has been set. And so it’s a real opportunity for business owners to instead tell those stories, and lean in collaboratively after aggressively disqualifying the buyer set.

Leaning in with those highest fit buyers and having this conversation around let’s talk about these synergies. Let’s get beyond the conceptual level that they’ve usually started at, get beyond PowerPoint, and get into how would we do this on Monday together? How much money would we make? And what do the costs look like? What’s the incremental profit contribution for each of these synergies?

And then get helping validate that, since they have a higher and higher degree of confidence. And the perception is humans will pay more for an eight and 10 chance of winning $100 than they will at a two and ten chance. So the greater opportunity we have to sort of pause the process a little bit. Instead of making this investment banking, the bankers run this traditional process, because it’s so efficient.

It is efficient, but we’re not talking about what matters. And if we take that time and that process, and engineer it such that we do talk about these synergies post-acquisition economics with these acquires, we end up with much more committed buyers, who have a much greater understanding of their willingness to pay. And thus, a much higher probability of ending up in that premium valuation.

Patrick: I would imagine that these deals move a lot smoother when somebody is more eager to pay, seeing this positive outcome, than well, we’re kind of wing and a prayer here.

Trever: That’s certainly part of it. And there’s also a people person part of it, which is, hey, if you’re collaborative, right, our clients tend to be nice people. They want to be nice people with the buyers. We obviously need to be thoughtful and guarded and careful about how we share what we share. By taking a partnership approach with buyers. Being collaborative tends to reflect the values of our clients and get a much better outcome at the end of the day.

Patrick: Now with the approach you have, which is a unique skill set that you’re bringing, what else are you bringing to the table compared to the 1000s of other investment banking firms out there?

Trever: Yeah, it’s interesting. I always talk to clients about most investment banks other for the most part, we’re gonna run a two-part, an auction process. The auction process looks pretty standard. Their pricing looks pretty standard. You don’t see a ton of deviation and lower middle market investment banking pricing. So what changes? What’s different?

They all have typically if you’re talking to a good investment bank, they all have sort of check-the-box industry expertise. What’s different? It is the process. That is the number one thing that impacts outcomes. One of the things we do is this post-acquisition economics. Another one is, we do very, very deep data models.

We believe that the more transparency and insights you provide a buyer into the business, that those diamonds that otherwise wouldn’t come to the surface, start getting identified and increase the acquirer’s interest in buying the company. But I think one of the things that we also do pretty unique is helping them look at how to create an exit strategy earlier.

So the reason we do this is there has been a, one of the big trends in our space in the last 10 years is the normalization of M&A. So M&A is now a normalized business practice, we had this massive growth in private equity. And instead of this very inefficient market we had for selling your company as a business owner 20 years ago, we have this much more efficient market.

So they’re getting calls. Business owners getting calls on a daily basis from private equity, from strategics, emails, and letters. And there are two scenarios. They either bury their head in the sand. They don’t talk to anybody. Or they end up taking these calls. And many of those conversations are unqualified and go nowhere. But the worst is when they spend six months in that conversation, invested all this time, and then they find out that it’s not a fit.

Something they should have seen much earlier on. And if you look at that impact, all that management focus away from growth and allocate it to an activity they could have figured out early wasn’t a great fit, that means that if you take that EBITDA and you multiply it by the EBITDA multiplier, you can see the millions of dollars of enterprise value they’ve lost by making that.

Patrick: That’s an expensive leak. Yeah, that’s a leaking that’s really expensive.

Trever: So we one of the things we often do is work with clients before they’re ready to sell. Up to about three years before saying, hey, let’s do this, let’s have a strategy. Let’s say we’re on the path for growing for three years, we’re looking at this achieving this valuation metric, be it earnings, or ARR that justifies a purchase price that achieves our financial objectives. We worked with our wealth manager and our CPA to understand that.

And then we want to understand that buy now number. Boy, if we get approached by a buyer before that, what’s the price that we need to tell them? Hey, I appreciate your interest, we’re in a three-year growth plan right now, probably wouldn’t sell for less than x. Showing my rationale, or thoughtfulness as an owner, but telling them where we’re going.

Give them the opportunity to usurp my plan before we get there. And so we do this strategy and teach our clients to aggressively disqualify most interest. But to have conversations with very specific sets about types of buyers. Highest strategics, and highest fit private equity. We want to have those conversations.

We want to be clear with them. Here’s our revenue. And here’s our earnings. We’re on a growth path. We’re intending to get way up here. This is our plan. And our goal is if they’re not interested in paying that, we want to start the conversation with these highest-fit buyers. But we want to be open and transparent where we’re going, and then give them the opportunity to come in and usurp that plan.

To preempt our strategy, and to buy us now at this price. And the issue is that the business owner is sitting back saying I don’t want to be distracted by tons of people that are calling me. On the other hand, I don’t want to miss out on that lottery ticket and then have to wait four years to build the business. I could have sold now.

So really helping them with that strategy to be able to say, look, there’s multiple paths to success. One of them is we execute on this three-year growth plan. The second methodology is we are prepared to have that usurped.

Patrick: I think it’s very helpful that you help them get their number. I mean, the cliche out there, everybody’s got a price. Everybody’s got their number. I would imagine most owners and founders out there, say well, what’s your price? They have no idea. Or they pick something that’s completely unrealistic. Or they pick something really low, they may not be feeling good that day. Well, then how about this?

And it’s like, can you live on that? And you’re getting them into that spot, and then they’re on their way. And I think that’s a great sense of comfort that they’ll have because if they do get that number, like you said, well, they’re not stuck. They can now move on, but they don’t have to sell. But it’s nice that you give them that option by knowledge is power.

Trever: And there’s a classic confusion that goes on. The confusion is they think when we talk about valuation that they’re we’re talking about a number. What we’re talking about as a range. And that range is defined by the low end of the range, the highest probability of outcome. You think about that normal curve. We run this 100 times, we know we’re going to hit that price, or better at least 90% of the time.

And then we think about that target number. Boy, this is the number we’re shooting for. And we need to understand the difference because we make planning decisions based on the conservative number. And we set up our strategy to hit or exceed that target number. And so when we set these goals, that’s the framework we want our clients to be thinking in.

Patrick: When you’re talking about valuation, is that what you bring to the table is having that range or the focus on the range? Because there are a lot of companies out there, they’ll say, oh, we’ll give you a business valuation. And fill out this questionnaire and here you go.

Trever: Yeah, we do it as two separate activities. So we do that from an investment banking perspective, we do the valuation to understand sale timing. So is it now? And will often run an analysis of every six months, we’ll run their projections out and look at valuations at six-month increments and say, what does this tell us?

This tells us that the high probability outcome is probably in three years. Which means then we can work backward. When do we need to be doing things in order to be able to maximize that outcome? The different service then from that is more of a valuation, which often is tax driven. Where our valuation team gets in and says you need a 409a or we’re going to do some wealth transfer strategy that we need some definition of value for that.

Or boy we’re doing some planning purposes for an estate or for family purposes and we need a valuation for that. So one is more of an integrated into the M&A thinking of creating a strategy and the other one is a much more detailed and thorough valuation approach typically for tax or planning purposes.

Patrick: A tool for governance. So they have that and they go that way. Okay. Now, Trever, give us a profile of your ideal client. Who are you looking to serve?

Trever: So our clients are, their enterprise value, which is kind of hard to see from the outside, but they’re 25 to $250 million in value, in sale value, if you will. Typically they’re in one of our six industry practices that we have, where they’re going to, we’re going to be able to look at him and say, hey, boy, we’ve got experience in your space and unique view, that’s going to help make sure that we maximize this outcome.

Be it in our life science services and tech, or healthcare tech and services. We’ve got a lead in our technology practice where we do a ton of SaaS work, or our consumer group that does a lot of practice. But when we talk to a client, the goal is we should be able to start talking about the specifics of them. So they look at us and say, okay, you’re my people.

That’s what we need together, right? We need to have trust in that understanding of each other. And that’s the responsibility we have is to work in spaces that we can do that within. So that’s one of those characteristics. The other one is, look, we’ve been doing this for a long time. And so we’re looking for good partners in this.

We owe our everything to our clients, and we expect from that, good clients for us often look like people who are honest and open about what they want to achieve, who are collaborative in nature with us. We don’t have any ego, we don’t need to be right. That’s not our goal. Our goal is together to work with our clients to make really good decisions. So there’s a psychographic component there that we’re looking for.

Patrick: Okay, and then no limitations in terms of geography regions?

Trever: Because we’re so industry-centric, our clients tend to be national. They’re across the US, be it in New York, Texas, California. Our team concentrations are Los Angeles, San Diego, and Dallas, and our clients are pretty well widespread across the US.

Patrick: You talk about the normalization of mergers and acquisitions as a business strategy. Now, before I was just thinking, it was almost like you’re in trouble, you’re going out of business, you’ve got to get acquired, or you’re a megalomaniac and you’re just, sucking up all the oxygen in the room. And it’s definitely widely in the middle of what it is. And it’s now a business strategy.

One of the reasons why mergers and acquisitions has become acceptable is because the insurance industry came in and developed a tool to remove a lot of the risk from the parties. And it’s reps and warranties insurance. Don’t take my word for it on how good reps and warranties are. Trever, good, bad, or indifferent, what’s been your experience with rep and warranty?

Trever: It’s become a best practice. And the rationale is, buyers often were interested in this. Sellers were curious about it as it’s become a best practice. But buyers love it because it takes, the last thing I want to do is have my seller be distracted by something in the indemnification. Something comes up post-transaction, we all have to make a big.

As a buyer, I’m trying to partner with this person that I just purchased. The last thing I need is conflict. So one of the things that the insurance does is it allows that issue to be dealt with without the two of us having to come against each other. And so buyers love it. Sellers like it because it helps us go to sleep at night.

Boy, are they gonna come, how much of this money, this after-tax cash at closing, right, that’s in my bank account now. How much of that can they come get? And knowing that I have an insurance policy that backstops that, that makes sure that I’m going to be okay, helps my clients sleep a lot better.

Patrick: I think that the performance of the product has been exceptional. Otherwise, you’ve got particularly private equity would not be the biggest user of your product. If they could transfer risk without insurance, they’d do it. And this has become just their go-to tool. I’m very proud that, there’s been a new development in reps and warranties.

Because it was originally set up for deals that were priced above $50 million in enterprise value. There are now products out there that can insure transactions price as low as a million dollars to $30 million that’s now available. And the cost of that product, it’s called TLPE, is $15,000 per million dollars in limits.

I mean, it’s a fraction of the cost. It’s a different approach that’s there, but it’s a way for either portfolio companies that want to secure a bunch of add ons, or for investment bankers like yourself where you’re on the sell side of the table, maybe rep and warranty on a larger deal is not available to some of these $50 million deals.

There may be another way through that. And so we’re just seeing the evolution of the market as M&A has evolved and gotten a lot easier. And as a way to bring less friction or remove friction from these happenings.

Trever: And it’s so cool for our clients. And the reason I say that is because it used to be as we started off, it was these huge deals. These billion-dollar deals where you saw this. And those tools were not available to our clients. And now we’ll have a client do a $35, $40 million deal. It’s available. And that is a really, really great change that has occurred in this market. And it’s just a maturation. It’s a maturation following the maturation of the M&A markets, as we’re seeing this.

Patrick: Technology is turning in. Virtual data rooms. Now way to transfer risk. So it’s the evolution is going forward.

Trever: The other thing we’re seeing is our market is this lower middle market used to be sort of a, they would take many of the same practices they could at the bulge bracket and the billion dollar deals. And the trend we’re seeing is, we’re seeing a maturation of this lower middle market where these types of tools have become tailored to the lower market because we’re different.

Our deals are different, our clients are different. And so the processes have to be tailored, these solutions have to be tailored. We see capital solutions that are becoming tailored in this space. So that’s a neat, neat trend. And then we start seeing like, where can this go? How much better and better is this going to be for business owners just in the next 10 years?

Patrick: Also is pushing the envelope, I would say innovation-wise and improvement-wise, there are a lot more investment banking firms out there than when you guys started 20 years ago.

Trever: Yeah, yeah. Definitely.

Patrick: Between that and the number of private equity firms, and now you’ve got family offices, you’ve got independent sponsors, you’ve got search funds, I mean, the list of prospective buyers keeps growing, which is great for owners and founders. Now Trever, as we’re looking forward, now, we’re just wrapping up Q1 as we’re talking. So hopefully we don’t date-stamp this too badly. But, what do you see trend-wise going forward for the rest of 2024? And that’s either for Objective Investment Banking, or M&A, you know, macro.

Trever: Yeah, yeah. Two are really tied quite quite closely together. We have seen in 2023 a period of time, we saw a decrease in private equity deals completed. The ability to put money to work. That’s the hallmark of their industry, how they make money. So we saw in 2024, the end of ’23, and then certainly at the start of ’24, this massive surge in private equity activity.

In outreach activity. And what we’ve seen then in the last three months is a huge number of companies getting calls from private equity and a lot of transactions getting started. A lot of add-on transactions, especially. Where a private equity firm is adding to an existing portfolio with an acquisition. We’ve seen a ton of those.

And that’s great, but I think what our goal is. our hopes for the world is we always just want a normal environment. When I say normal, functional environment where there are buyers that are buying, and our clients are selling at the appropriate time.

And that’s what we’ve seen is this massive increase in return of normal functional buying levels, without the fears of macroeconomic collapse or what have you. And that’s a wonderful thing for business owners because it basically brings valuations back to a very attractive level. It means there are a lot of buyers in the marketplace, so they have a lot of options.

Also increases the probability for them. So that’s what we’re seeing is we think that that’s going to, I don’t expect, again, don’t expect fireworks in 2024, because I’m not sure that’s even good for anybody. But we’re gonna get back to a functional level of M&A, really reflective of the fact that this has become a normal business activity.

Patrick: We had an unusual surge of M&A needs in the end of 2021. The post-pandemic big surge and it was not good for anybody because prices went up, costs for any services, attorneys, accounting, any of those services through the ceiling. Accessibility was nowhere to be found.

So nobody wants that. And 2023 was a little slower than any of us wanted. And so if we have something nice and sustainable, I’m right with you there. Slow and steady and we’re good. So we’re hoping to see that. Trever Acres from Objective, Investment Banking & Valuation, how can our audience members find you?

Trever: So they can always get to us on our website, objectiveibv or just typing objective investment banking, or objective valuation. It should pop right up. And then what we love to have is that conversation. We may or may not be the right fit. They may be too small, too big, an industry we don’t serve.

But what we commit to ourselves is anytime we talk to somebody, they’ve given us the gift, the opportunity to talk with them, what we owe them is really good insights and guidance. So independent of the fact if they’re a client or not, they walk away from that conversation saying that was well time invested. I learned something important from that.

Patrick: Well I think they should make you their first call because if they don’t connect with you immediately they’ll know, but also is a great benchmark for future calls and having those conversations.

Trever: Our team loves it. They’ve got that culture of wanting to help people so they love those conversations. And again, it may or may not be a fit, but what you owe them is that really good guidance.

Patrick: That’s fantastic. Well, Trever Acers from Objective, Investment Banking & Valuation, thanks for being here today.

Trever: I really enjoyed this. Thanks so much. Appreciate it, Patrick.





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