Jamie and Jody discuss mergers and acquisitions (M&A) with Phil Daniels from Seasoned Advisors. Phil shares his extensive experience in M&A, highlighting the importance of exit readiness, motivations for selling, and the evolving dynamics of purchase agreements. He emphasizes the need for early planning, clean financial records, and understanding buyer types, including private equity and strategic buyers. The episode offers valuable insights for agency owners considering a sale, encouraging strategic preparation to achieve successful outcomes.
“It's never too early to start planning because you never know when that end is going to be. Operate with optimism. There's a lot of activity that's really unprecedented in the industry right now, and I think for the years ahead, it's going to be very good for agency owners who build really solid, predictable, nice operating practices.” – Phil Daniels
The finer details of this episode:
Episode resources:
Timestamps:
Welcome to the Show (00:00:00)
Introduction to the "Creative Agency Success Show" and its focus on helping agency owners.
Discussion of Topics (00:00:14)
Overview of the episode's topics: mergers & acquisitions and basketball, highlighting guest Phil Daniels.
Phil Daniels Introduction (00:01:20)
Phil shares his background in M&A and agency ownership, setting the stage for his insights.
Early Career in M&A (00:01:35)
Phil discusses starting his career at JP Morgan, focusing on acquiring and integrating businesses.
Transition to Agency Ownership (00:02:20)
Phil recounts his journey to starting his own agency, motivated by low barriers to entry.
Agency Sales Experience (00:03:22)
Phil explains his experience with agency sales, emphasizing the emotional aspects of selling.
Motivations for Selling (00:04:46)
Phil explores various reasons agency owners consider selling, including burnout and lack of succession planning.
Exit Readiness Concept (00:07:18)
Phil introduces the idea of exit readiness, emphasizing the importance of preparation before selling.
Trends in Purchase Agreements (00:09:34)
Discussion on recent trends in M&A agreements, including structure and incentives for sellers.
Incentivized Buyouts (00:10:57)
Phil talks about the common structure of incentivized buyouts and the importance of owner involvement post-sale.
Valuation Gaps in Sales (00:12:19)
Challenges in aligning seller expectations with buyer valuations, and strategies to bridge gaps.
Timing for Cleaning Up Books (00:15:11)
Phil advises on the optimal timeline for preparing financials before selling an agency.
M&A as a Marathon (00:16:39)
Discussion on the lengthy and complex nature of the M&A process for agency owners.
Private Equity Perspectives (00:17:18)
Phil shares insights on agency attitudes toward private equity investments and their implications.
Private Equity in Agency M&A (00:17:24)
Discussion on the impact of private equity in agency valuations and the changing landscape of M&A.
Understanding Buyer Types (00:18:09)
Exploring different types of buyers, including private equity, family offices, and strategic buyers, and their implications.
Owner Objectives and Planning (00:18:58)
The importance of understanding owner objectives when considering potential buyers and planning for agency sales.
Strategic Buyers vs. Financial Buyers (00:20:10)
Ranking the desirability of strategic buyers over financial buyers in agency sales.
Management Team Retention Strategies (00:21:39)
Ways to incentivize management teams to stay through the transition during an agency sale.
Common Due Diligence Pitfalls (00:22:50)
Identifying key reasons why due diligence fails, focusing on net working capital and owner dependency.
Phil's Experience as an NBA Ballboy (00:24:39)
Phil shares memorable experiences from his time as a ballboy for the Indiana Pacers.
Michael Jordan's Comeback Game (00:26:47)
Phil recounts witnessing Michael Jordan's return to the NBA and the unforgettable moments that followed.
Final Thoughts on M&A (00:33:30)
Phil emphasizes optimism in the current M&A landscape for agency owners and shares contact information.
Planning for Agency Sales (00:34:22)
Phil emphasizes the importance of early planning for agency sales, as circumstances can change unexpectedly.
Eliminating Add Backs (00:35:10)
The discussion highlights the negative perception of add backs by investors and the benefits of clean financials.
Importance of Due Diligence (00:35:15)
Being prepared for due diligence can significantly impact sale outcomes and buyer confidence, according to the speakers.
Long-term Selling Strategy (00:35:52)
The speakers stress the need for a strategic approach to selling, rather than a rushed decision, to maximize value.
Intro 00:00:00 Welcome to the Creative Agency Success Show, the go to resource for agency owners looking to scale their business. Join us every week to stay ahead of the curve and position your agency for future success.
Jaime 00:00:14 All right. So today we had Phil Daniels on and we discussed two of our favorite topics. We talked about M&A and then we talked a little bit of basketball. So, a really fun podcast for me. And I know I know you enjoyed it as well.
Jody 00:00:25 Oh yeah yeah great guy a lot of knowledge. The nice thing about it was he's a former, former agency owner, multiple agencies and now he's in the M&A business. And so, he was able to give some great insight not only on the M&A side, but also as an agency owner on what to kind of expect and what to plan for.
Jaime 00:00:44 Yeah, no, I think he covered a lot in that short episode. And so, I think it's going to be one of those episodes that hopefully our listeners make it to the end on and take a lot of good notes.
Jaime 00:00:52 And you may have to listen to a couple times because we really fly through a lot of issues on this one. But I know M&A is on a lot of people's minds right now. So, this episode is the timing is good and I think our listeners are really going to enjoy it. Hello everybody. Welcome to today's episode. Very excited for our guest, Phil Daniels with seasoned Advisors. He is going to have a great conversation with us about M&A and kind of what you can look for and things you should be thinking about. But, Phil, before we get to started here, why don't you give us a little bit about your background and tell us a little bit about season advisors?
Phil 00:01:20 You bet. Yeah. Thank you. You know, for having me today. You know, seasoned advisors really is full circle for me. I started my career after business school in M&A with J.P. Morgan in Chicago, where we were really focused on, you know, acquiring and integrating, you know, different cultures, different businesses.
Phil 00:01:35 For commercial banking. I was I was never smart enough to be near the money. I wasn't a banker, but really was focused on the brand. And that's when I fell in love with agency world and agency life. You know, at the time, we had a multitude of agencies on monthly retainer. This was early 2000. And these agencies were, you know, global, right from LA to midtown Manhattan to Stockholm to London, Prague, you name it. And I thought the work was good. It was beautiful. You know, it won a lot of creative, creative awards, but I just didn't think it was tied to our business, you know, at the time. And it wasn't fast enough. It wasn't tied to outcome. Sometimes it had mistakes. And so, I did what a lot of, you know, young 20s, you know, aspiring entrepreneurs did. And I started my own, you know, you know, the I think the one hallmark of the agency and industry is there's really low barriers to entry.
Phil 00:02:20 So, you know, I remember, you know, the literal, you know, card table and going to the Apple Store to buy my first, you know, laptop. And my wife was with me. And, you know, at that point, you know, we were scared to spend $1,000 to start the business and to start my first agency. And that was when we really did it. Right. So, you know, fast forward to today, I mean, my first agency, you know, I was able to scale, sold it in 2013 and to kind of the Salesforce ecosystem to support their growth. And then over the years, you know, was more on the buying side. So actually acquired a few to build a substantial platform that I still advise today. So, you know, so that that's really informed, you know how I think about season advisors. So, we work exclusively with agencies and agencies only. and that could be, you know, digital, it could be advertising, you know, creative and media and more specifically, we are self-side focused, which means that we really have a heart to help that operator and that founder, you know, when I when I've been through every acquisition personally, you know, I went at it alone and I didn't I didn't have anybody as an advocate to really tell me what's around the corner, what to expect in the process.
Phil 00:03:22 And I think an important part of that was just sort of your legacy and identity. So, you know, you know, just hypothesize with me for a moment. You know, The Wire hits on a Friday, you high five. In my case, I probably went out to dinner with my wife. It was a success, right? by all, by all measures. But then Monday morning rolled around. And your clients treat you differently. Your team treats you, and it's not bad. It's just different. You know, you're it's not yours anymore. You're really not sort of the head cheese and CEO or founder. And so, you're trying to find your place, right? So, a lot of our process is kind of rooted in that empathy, where of course we've got to get the financials right. We've got to ready for business. We got to tell the story and, you know, maximize value and negotiation leverage and everything else. And then we'll do that. But a large part of our process again with that owner focus is what do you want to do? What's your identity after this.
Phil 00:04:08 And the answer could be nothing. If you want to ski and fish, that's fine. If you want to stay around and you know and have a really defined role for, you know, for additional 2 or 3 years or beyond and get that, you know, so-called second bite, we can structure that as well. But it's so, so important, you know, and I think that's really what calls us to do the work is, is investing in those owners and the management teams and really just understanding what their next, next chapter looks like as well. So.
Jody 00:04:33 Yeah, kind of taking us through the lens. It sounds like taking the lens that you actually approach through, you know, kind of backing in. What was your motivation for selling? Are you seeing that same motivation with the existing, you know, clients or prospects?
Phil 00:04:46 You know, it's a great question. It's every end of the stick. I mean, I think there's folks that, you know, you could say they're aging out, maybe not demographically, but just, you know, they've had a 15, 20-year run.
Phil 00:04:56 It's been very good. Maybe they don't have succession planning in place or management team, you know. I wouldn't say incapable maybe just doesn't have any interest to run it. Maybe there's no family or generational, you know, legacy at stake. So you know, this this has been a business and an asset that is worth monetizing. And and I would say a lot of the, a lot of the conversations I have, even post-Covid, I hate to even say the word Covid on a podcast, but post will say post 2020, right? It's not yet. post 2020, a lot of the sentiment I, I feel in market is just folks are worn out. Again, if you've been at it 20 years or beyond, you know, we have high inflation environment cost of capital is really high. You know, there's global conflict. consumer sentiment is there's just a lot of forces. And I think, I think a lot of smart owners are thinking, you know, do I stay on and maximize for another 2 or 3, five years, or do I take maybe a 5% discount today and just go do that next thing? Right.
Phil 00:05:51 So, I think it's really kind of a case by case dependent. You know, we see folks that are ready to fully kind of exit and retire, you know, so to speak. We also see folks that want to be part of something bigger, you know, that, you know, we kind of talked about that, you know, the difference between a platform and an add on. On the add ons side, a lot of folks like the idea of maybe, you know, joining a strategic buyer and being part of something bigger, competing, you know, new markets or new geographies or do competencies and then maybe only focusing on the things they want to do. You know, a lot of owners are really skilled at BDI. You know, they're often, you know, often the sales engine, certainly in the early days. And sometimes that's the role they want to continue with, you know, maybe not managing as much of the team or the back office operation or finances or HR or facilities.
Phil 00:06:33 You know, all the cheap bottle washer stuff you have to do. but they want to work on the thing they're really good at, and that's what their legacy looks like.
Jody 00:06:41 And are you seeing more and more of that now? I mean, we've over the last 12 months, boy, we've probably seen 12 or 13 agencies or actually helped them, get through that selling process. and I, you know I There's a lot of them that we have, what we call on our watch list, those folks that are looking to exit at some point. We've got several, even on our watch list that are that are ripe to potentially sell. Are you seeing more and more of that, or are you seeing more of a tightening of that? Because I know I'm seeing that they're not getting what they thought they were going to get a lot of times, and that's kind of drawing them back. And they didn't know if that was a, you know, us thing or if that's an industry wide thing.
Phil 00:07:17 No, I'm seeing that as well.
Phil 00:07:18 I think I think, you know, one concept that's really taken, Foote, you know, in recent years is this whole idea of exit readiness or preparedness, where maybe you're a year or 2 or 3 out, but you can start. There's some motions you need to start thinking about. So, when I think of readiness, I was, you know, alliteration works, particularly with creatives. I think about the 3DS of exit readiness. Right. So, the first one is durability. So, are you building an agency that's durable? Right. So that means a stable customer base, a really strong management team. You know, really anything that a potential buyer is going to look at and say, okay, this the past will predict the future, right? I have a level of confidence that the stability and durability is going to continue, right. The bottom is not going to fall out, you know. Post-acquisition right. The second one is defense ability. And that is just how do we compete in a unique way.
Phil 00:08:04 That could be a proprietary process. That could be we service a vertical or industry sector better than anyone else. Or you know, we have some IP that nobody whatever it is, right. Just that defensive ability and that moat around the business that ultimately allows you to recruit better people, acquire better customers, and probably charge a premium price in the marketplace, that that really matters. And then the third bucket is really what I would call direction. So, what is the strategy and vision of the firm, whether the owner or management teams are part of that, that that's what gets buyers excited to say, hey, here's the success and kind of the current state where we've been. And here's the reason to believe that it's not only who we are, but it's who are becoming right. And you can be a part of that, you know, and kind of kind of jump on the train. So, I think, you know, so a long way to say I think a lot more owners are thinking about that sort of onramp a little bit differently rather than waiting for an event, hiring a business broker and hoping for a good outcome.
Phil 00:08:55 Right? That putting in the work it deserves ahead of time.
Jaime 00:08:59 So, another follow up question on trends. So, we've recently had another M&A podcast a couple of months ago. And one of the things that they brought up that I thought was somewhat surprising. And I'm curious if you're seeing the same thing, is that right now, a lot of the trends on the purchase agreements and what the deals are looking like is they're a little more spread out. So, it's a little amount upfront, a little amount each year and then some amount at the end based on an incentive. So, this keeps the owners in the operations a little bit longer. So, I, I wasn't familiar with seeing that. I've seen it a couple of times obviously. But then I started I guess that's been a real recent trend. Is that something you're seeing as well as kind of those longer term buyouts?
Phil 00:09:34 It is, I would say, just kind of all things equal, you know, as we're talking today could change tomorrow.
Phil 00:09:39 we're seeing from a trend standpoint, I would say it's generally about half down. Right. So, call it 50% cash more or less. And then 50% is either seller financing. which basically just means that the, you know, the cellar is kind of continuing for a tenure of generally 2 to 3 years, and a payback period usually carries an interest or an earn outs could be a part of that. So, the council we usually give is again, you know, not every situation is the same, but all things equal you'll do better transactionally if you will entertain in or out. And if you have confidence in the team and if you want to have a role, you know you shouldn't it shouldn't be forced family fun. Like if you're done, you're done. But yeah. Right. But you know, you generally you'll hear a lot about kind of the cliche second bite. Right. Particularly if it's a strategic or private equity or different kind of buyer. You know, they will, you know, offer an opportunity to have to have a better outcome.
Phil 00:10:29 And I see more folks doing that now.
Jaime 00:10:31 Yeah, I think the big thing for me is I think a lot of people don't have that. When they first go into the sale thought process, they're like, okay, I'm ready to get out of the business. I'm ready to be done and sell this. And then you kind of get into that negotiation phase and you're like, oh, actually, it might be nice to be in, in this one role within the organization or to, like you said, get a little bit more because you have so much faith in the way you're going to perform. So, it's an it's that expectation that people have going into the agreement that I think is important.
Phil 00:10:57 Yeah. And I think even just post, you know, like any, any transaction. Right. There's I'd say 100, 120 days that matter in a big part of that is that owner being there. Right. Just even if, even if it's just kind of an icon of the business that for culture, for team, for community that, you know, so it's rare to see somebody just out day one completely.
Phil 00:11:16 I mean, that's generally pretty irresponsible. and I've candidly not seen that. So yeah, most folks.
Jody 00:11:22 And when I, when I talk to clients or when I advise them on what to do because we like I said, we've had quite a few, probably 20 or so over the last, you know, two years, definitely more uptake. Just recently, you know, they, they come to, they come in the idea that, hey, I want X amount of dollars and so that maybe it's, let's say it's 20 million bucks, so 20, 20 million bucks. That's great. Well, how are we going to get how are we going to how are we going to present that in a way that a buyer's even, even interested in entertaining that, because maybe they're thinking it's only worth $13 million. So, a big gap there. A lot of times we'll present it and will present it like you had mentioned, a bite in the apple, maybe half down now based on earnings today, and then half based on that quote unquote, you know, $20 million amount that they think is going to hit at that point, and enabled them to get there, but also to enable them to take the risk on that, that maybe purchaser is not willing to take because they don't think it's worth 20 million today.
Jody 00:12:19 You know, they think maybe it's close to that. 13 are you seeing that type of a second bite of the apple, where it's incentivized so greatly that it's kind of putting your money where your mouth is, right? You think it's worth 20 million? Well prove it, you know, over the next five years.
Phil 00:12:33 Yeah, I would say it's the most common structure we see. And so much of it, you know, really depends on the kind of the buyer profile. Right? I mean there's financial buyer strategic buyers and you know, a jobs for teams like ours is to really tell that story. So not to keep it at 13. But how do we push that to a 16 or so? You know, and that and there's a lot of factors. Right. So it could be, you know, there's an industry sector or focus that's trading really well right now. So as an example, some really hot client portfolios are home services businesses. So, if you're an agency that has, you know, a deep, deep bench and expertise and client roster around heating and cooling and concrete, you know all the just follow private equity.
Phil 00:13:14 Right. That's what a lot of the investments are. That's a really hot sector. senior living is an incredibly hot sector right now. Fintech is very hot. And at the top of the heap is pharmaceutical and life sciences. So, there was actually a deal that closed recently. It was not mine, although I wish it was, you know, traded on high teens of EBITDA and it's largely because of their, their client roster and portfolio was nearly 100%, pharmaceutical, you know, so a buyer wanted to pay to get in that space. I don't know that they overpaid, but they paid, and they wanted to get in that space strategically. Right. So again, all to say, you know, our job really is to close that gap, right in that auction process to really, you know, to really communicate the strategic value, not just book value of what the company is. And that could be, as we said, sector, it could be by competency. So other examples of practices that trade really well, you know, crisis PR right now is trading at a premium.
Phil 00:14:09 You know logic would bear right that, you know, every CEO, you know, in America is one sound bite away from, you know, being on the wrong side of the news. So, whether that's a product recall or cultural issue, return to what? There's just a host of issues and landmines. So, you know, crisis communications and PR bills out at high hourly rate. And, you know, almost like senior you know, law firm type hour. So that's really good revenue for somebody to bolt on and get in that practice. So, you know obviously data and analytics and I mean all these things were trading high. So, you know you're trying to mesh together the best story of either who you serve or how you do it to really get the most turns on EBITDA. Right now. So yeah.
Jody 00:14:45 Because I know a lot of people will come to us. We'll get a lot of clients say, you know, hey, I'm coming to you because I want to get my books all cleaned up.
Jody 00:14:51 I want to get that forecast in place so that when we do sell, you know, I can get the best EBA that I can possibly get when is too late coming to, you know, a firm like ours to clean everything up. And when is it the right time to bring a firm like yours on to get that, you know, to get that EBITDA, where it needs to be? Yeah.
Phil 00:15:11 You know, I'll share something that, you know, if agency owners listen, they may not like it, but it's a bit of truth and humility. I won't say all, but a lot of agencies become lifestyle businesses and it's natural, right? It's professional service, oftentimes singularly owned. Maybe there's a partner or co-founder or something. And over the years, it's natural that, you know, you run the Tesla through it, you run the boats and the condo in Florida, you know, all these that really aren't business expenses. So, you all know this, but those become advocates in the deal and sophisticated or clear minded buyers see right through that.
Phil 00:15:43 Right. So, I think the you know, so to answer the question, I think, I think just cleaning up the books to the extent that, you know, you don't have to sort through that later. So, understanding no add backs, it's clean the numbers of the numbers. True understanding of our net working capital. And then again showing again. We talked about kind of the future vision but just showing that that durability that we have a reliable engine to grow. And these numbers will continue to not only sustain, but we have every reason to think that they'll, you know, they'll continue to grow as well. So, you know, from a timeline standpoint, I mean, generally six months is sort of a minimum, you know, entry point for us. I mean, we'll get some frantic calls. And by then it's just it's hard to. Yeah. And it's multiple, but it's you're not going to get the best outcome. You know. And there's certainly instances where you have to do that whether it's, you know, changing health or family matters or whatever it might be that that you need to kind of pull the ripcord.
Phil 00:16:34 But in an ideal world, you would have, you know, I'd say six months to a year runway to, to really ready the business.
Jaime 00:16:39 So I think that's what a lot of people don't understand is like M&A is really a marathon, right. Like I think we've seen with our client bases that they're, you know, they're ready to sell or they're ready to start making this move. And they think it's going to happen tomorrow. And it's really like by the time you go through all the potential buyers and then someone else comes in, there's just a lot of things that happen in the race. And so, I think that's one of the things that we always tell our clients. And so, one thing I you mentioned earlier and it's kind of a it's sometimes it's a bad word in the M&A community. But I'm curious what your thoughts are and what a lot of companies thoughts are on the private equity. Like, do a lot of companies try to avoid that or a lot of companies going in that direction, or how do the how do you advise when it comes to having those private equity, private equity investments?
Phil 00:17:18 Yeah, I would say as a as a rule, you know, agencies have long been overlooked from, you know, strategic money.
Phil 00:17:24 And I don't know if it's because firms couldn't put a valuation on them or understand, you know, creative, you know, whatever it was, it was just it was different than other businesses, you know, business service firms like architecture, engineering, even, you know, accounting, legal, etc. that's changed where private equity has entered in a pretty substantial way. The last couple of years and I, you know, I, I understand I think there is a stigma, you know, big bad private equity. They come in, they cut jobs and you know, they're on a generally a seven year timeline to get their money back for their, you know, limited partners. And, you know, I think, you know, I think what's important to remember in private equity is it's not private equity money. They have their own investors, right, that they're trying to satisfy. So, the clock's ticking and you get it. But you know, I think the positive it is, you know they're very good operators.
Phil 00:18:09 Oftentimes they're not just buying one asset. They're building that platform. So, they might be buying, you know, three or 4 or 5 to repackage and be part of something bigger. So, you can see what this ties back to the earlier conversation around turnouts and second bite. And so again, just it really comes down to that, that owner profile, what their objectives are. Right. I think private equity again, they're professionals. They work quickly. They do deals every day and they have a bigger vision. Right. So, you know, the counsel we always give when looking at the buyer types is, is really breaking down with that runway. And return on capital is. So again private equity generally has a 6 to 7 year, you know, runway to kind of return their money. They're going to want to exit and repackage again versus call family office or high net worth individuals that have a I wouldn't say perpetual but a much longer hold time. They're not looking to maybe flip it as much.
Phil 00:18:58 Right. So as an owner of an agency, I mean that that has impacts on your planning, your culture, your clients and, you know, so these are just kind of decision points that you have to make. So, a lot of our processes is really understanding, you know, again, once we want to know what you want to do is what is the right type of buyer. And then we'll go find them. You know, if you don't want private equity at the table, there's a host of other options. We'll find, you know, your strategic peers, we'll find family office or, you know, other groups that that might want to tuck you in. And I'll tell you the other, you know, kind of the fourth leg of you know, buyers that are coming in the space now is a different set of strategic. And these are large consulting shops like the Deloitte's the NY, the Accenture's Insurers. And, you know, for many years they, you know, they weren't participating in that downstream, you know, digital or media or development revenue.
Phil 00:19:46 And now they want to write. So that just illustrates again that I think, I think there's a stronger thesis around the agency space. And there's ever been I mean the activity is strong and we're just seeing more and more, you know, volume of transactions and interests than we have in many years.
Jody 00:19:59 So, how would you rank the like if you were, if you were selling today? I mean, which of those would you rather go towards and which would you rather. That's kind of like the last resort.
Phil 00:20:10 Yeah. I mean, obviously strategic, you know, by definition will often pay more than a financial buyer. Right. Strategic sees the one plus one equals hopefully more than 2 or 3.
Jody 00:20:19 Right. Right.
Phil 00:20:20 Right, right. you know, so that's the path we generally would try to take or advice. Right. Again if.
Jody 00:20:25 It.
Phil 00:20:25 Yeah. And oftentimes on the strategic side they're going to want that owner management team to be durable to stick around, you know for some period of time.
Phil 00:20:33 Right. So that that's one of the prerequisites, right. To really achieve that, that kind of outcome But, you know, and I would say again, that's always dangerous to toss around numbers. But I mean, I would say the base case right now off of EBITDA is probably that 6 to 7 range. If you if you don't have a client concentration issue, have a stable management team can demonstrate some level of ongoing business development engine. You know, you have you have growth that's predictable and you're not completely owner dependent. You know, again, just all things equal what's called seven. But then from there the you know there's a lot of kickers on that turn. Right. We talked about having a, you know a deep practice in an industry or, you know, something that's proprietary or access to a market or geography. You know, again, that's where it fits into that strategic buyer, you know, that that you could push it and that 910 1112 range, with relativity.
Jody 00:21:21 So yeah, you mentioned strong management team.
Jody 00:21:24 You know, one of the things that happens often is that the management team will start looking elsewhere. You know, it's a different culture, different all that kind of stuff. What are ways that you can tie that management team into the into the deal so that they kind of feel an upside as well.
Phil 00:21:39 Yeah.
Jody 00:21:40 Why don't you recommend that at all? That's a.
Phil 00:21:43 No. I think it's a it's a conversation we often have. So, I mean, often we start with an owner, right. Kind of under the tent. Right. Or under the hood. yeah. Because it's confidential. But then ultimately, you know, CEOs or, you know, controllers and other folks get involved and, and, you know, the CEO and owner usually has a good pulse for kind of who might want to stick around or who would be an asset moving forward. So, I would say it's case by case where you can structure, you know, some sort of staying power around those that could be additional, you know, earn outs.
Phil 00:22:11 And I, you know, and I've often seen owners with the stroke of generosity, not because they have to because they want to write. Well actually you know, give kind of some state bonuses or even retroactively kind of reward folks for you know years of years of work as well. So.
Jaime 00:22:26 So let's talk a little bit more. I know we, you kind of touched on the, the 3DS, but I'm curious about you know, just one more tip or one. One of the things that you see makes due diligence fall apart because we've all seen the deals that, you know, you're in due diligence. Everybody thinks this is a go. And then all of a sudden, like something triggers where they're one side backs out. So, what would you say are 1 or 2 really common reasons that happens. And that one ways to avoid that.
Phil 00:22:50 Number one is networking capital. I don't know why it's not I don't know why it's not talked about sooner. It should be in every alloy.
Phil 00:22:59 I mean, the assumption needs to be spelled out. I mean, the equation should be there. And when it's not, it's always a surprise later about cash. And what's what do I leave? What do I take out even if it's an asset sale. And so networking capital is number one. And number two I'd say is owner dependency. So, whether owners know it or not, you know, oftentimes out of pride or habit, you know, they want to demonstrate that they have command of the business that they're in. And that's wonderful. But you also need to show there's a second layer that doesn't depend on you day to day. Right. And there's many symptoms of that. You know, it's a management team that doesn't make decisions or they oftentimes don't even have a, you know, a unmerited title. You know, they're just they're kind of in a seat. The owner's doing all the sales. The owner's actually, you know, an account management working on projects. I mean, those are symptoms that indulgence they'll find.
Phil 00:23:45 And it's a it's a yellow, maybe not red, but it's a yellow flag. It's a bit of concern.
Jody 00:23:48 So yeah, we always tell owners you have to make yourself worthless. And then you make basically became very, very rich doing it.
Jody 00:23:56 That's right.
Jaime 00:24:00 Awesome I definitely appreciate all the answers here. Again, this is this is a topic we could talk about forever, but we're kind of getting close on time here. So, I do want to talk about our fun question. Make sure we have time to hit that. And then our final thoughts. So, you didn't bring it up, but I did read in your bio that you were an NBA ballboy. so, I want you to obviously, Jodi knows all of this. I know this is this is my passion is basketball. So, we're gonna we're going to talk about this a little bit. So, I first I want you to tell your story. But then after you tell your story about being an NBA ballboy, I want each of us to answer the coolest sporting event we've ever been at for any reason.
Jaime 00:24:31 It could be cool, but just one of those events where I was like, wow, I was I was lucky to be here today. And I'm sure being a ball boy, you probably saw some pretty cool stuff. So, we'll let you start. Phil.
Phil 00:24:39 Yeah, I have to tell you, I mean, I, I peaked in my career around 15 or 16 years old. I mean, it doesn't get any better than that. So, I, it was with the Indiana Pacers I joined.
Jody 00:24:48 Oh, nice. Nice.
Phil 00:24:49 I, I was a ball boy for seven seasons, and I missed one game, and it was for my high school graduation. Okay. And it was more than. I mean, there's 41 at the time, right? 41 games plus preseason, hopefully playoffs and otherwise. And we actually as ball boys, we would travel with the team, particularly if we were off for the holidays or over the playoffs. They would want it. So, we I mean, the experiences we had, not only knowing the Pacers in the locker room and being there for practice most days, but, you know, traveling with the team and those accommodations and being on the road and going to Madison Square Garden.
Phil 00:25:20 I mean some of those are just, you know, priceless moments, right? So yeah, for sure. I mean, I, you know, and then I went to college and I was like, wait, this I want to be a ball. And then ballboy.
Jody 00:25:29 Yeah.
Phil 00:25:30 The tips were great and access and all that. So, you know I was just really fortunate. So out of the gate, I was assigned the visiting team locker room. So, you know, which was great because, you know, every year you would see, you know, you would see familiar faces, right? Particularly if it was in the same conference or division. And you would kind of get to know the preferences of folks. We played the Knicks a lot, for example. So at the time, John Starks and Oakley and Anthony Mason and Patrick Ewing and Pat Riley and so you would know what the you know, what the guys would want. And so, like Patrick Ewing, for example, would always want kind of a well-worn ball to dribble while he was watching film.
Phil 00:26:05 So he'd just be sitting down. His legs are a lot taller in mind, but you know, so he would doing that and then, you know, so we played the magic a lot with at the time. Shaq was on the team and I knew that he would want little snicker like the fun sized snicker bars, you know, because over the first few seasons, you know, he would send us out to get them and tip us to do it. So finally I realized on the way the game, you know, I'm going to be ambitious. And so, I'd stop at the, you know, Walmart or grocery store or whatever and, and take him and put it in his locker. So, it's the little things like that that, you know, by being in the desert, you just the repeatability at the end. You really know. Yeah. You get to know the guys. Right. And it was fun and my you know probably the, you know the pinnacle was seeing Jordan. So, the day he came back he wore number 45 jersey if you remember.
Phil 00:26:45 And I do remember.
Jody 00:26:46 Yeah I do.
Phil 00:26:47 The old arena in Indianapolis Public Square arena. Yeah. And you know we usually would get to the games as ball boys, I don't know, maybe three hours ahead of time because we'd set up the locker room, hang the jersey, and then we'd actually meet the bus and get them in the locker room and everything. And I just knew that day was going to be different with media coverage and hype around MJ's return. So, I was there, I don't know, 4 or 5 hours early. I go in the visitor's locker room and I hear something, you know, the other the other room, I go in there, well, it's Jordan just standing by himself and he's looking for a basketball and said, hey, can you get me a basketball? I'd like to warm up. I, I don't know if I've ever run faster. I mean, the basketballs were, you know, the complete other side of the building, but I, you know, I'm, I'm so sure enough, I mean, we're in a dark arena.
Phil 00:27:27 No one is there. And it's just, you know, this is the day he's returning, right? And before the madness happened, sitting there, warming him up. And I never forget, he, he, I mean, he famously would always give away his shoes, and so he offered to give me a shoes. I didn't get that pair. I wish I did. yeah, but yeah.
Jaime 00:27:45 That's another M&A area right there.
Jody 00:27:48 Yeah.
Phil 00:27:49 This would be in a vault. But you know, subsequent years he would always say, hey, you know, you want my shoes. And I say, yeah, well and then but he, I think, I think he was so generous he would overpromise to other folks. I remember one day, you know, in the locker room after the game, I don't know if they went or lost but said, you know, MJ loved your shoes. He said, "I'm sorry. I promise to somebody in the media, I'll get you next year.
Phil 00:28:07 It was the last time they were in town and I was like, oh, sure, sure. You all right? Well, sure enough, the next year rolls around. I don't know if it was October November game, whatever. He literally gets off the bus. I mean, it just blows your mind. I'm a, you know, 17 year old ball boy, said Phil. You had my shoes tonight. And like, so the fact that he remembered my.
Jody 00:28:26 Name and that's how he was, he was.
Phil 00:28:28 I mean, he was probably the greatest you know, basketball player, but second, probably a politician. I mean, he would remember security guards names, ball boys. I mean, he was just working I mean, a different just a different level of EQ that I've ever seen. So. Wow. So I got the shoes and all ended well. But yeah, it was just an incredible experience, you know, as a teenager. So.
Jaime 00:28:48 All right. Jody. So, the Jordan comeback game.
Jaime 00:28:52 Let's see. You topped that.
Jody 00:28:53 I can, I can I.
Jody 00:28:54 Can definitely relate to that.
Jody 00:28:56 Because,
Jody 00:28:57 During those how many years out of college, but I was heading down to watch that game in Indiana because that was my team, with Reggie and all the guys on it, Dale Davis and you name it and, super excited about it. At that point, Jordan wasn't playing, and so we're like, hey, we'll get tickets there. It was really cheap. Tickets were super cheap. You can get them right there you can scalp them back and you can scalp tickets and stuff. And so, we're like, we're getting there. And then we're at the actual hotel game is the very next day. And guess what happens? The announcements made. Boom. Tickets went from like 50 bucks to $2,000 overnight. It was like. And we didn't have the tickets yet. And so, I watched that game also from a bar downtown Indianapolis.
Jody 00:29:48 With a bunch of other people.
Jody 00:29:49 And it was a great experience as well.
Jody 00:29:51 Wasn't the experience you had, for sure, but it was a lot of fun and that was that was my team back then. We watched them. So, it's kind of funny. We can relate in that way because we watched every game back then. It was, you know, it was, you know, so close to getting to the to the final. And of course, you know Jordan and you know all those guys prevented that from happening, which, kind of was a big bummer. But I would love to seeing that team win a national champion.
Phil 00:30:18 Yeah. And they were all, you know, if it makes you feel any better, too. I mean, they were all just incredible guys. That pacer team, just the guys themselves were just the way they treated us and the community And they, they were really good for the city. So.
Jody 00:30:30 Yeah, that's good to know, because you never know. Because people, you know, the media paints really rosy pictures around really bad people and the opposite around a really good people.
Jody 00:30:39 So it's good to hear that, that, that they were as good as you say they were.
Jaime 00:30:43 Reggie Miller just seems like a I mean, I've seen enough interviews of his where he just seems like a good guy, like you can just tell, like his personality. Just like beams from when you watch him interview or talk. So, he's definitely one of my favorites. But I'm a, I'm a bird guy. So, I have to ask, were you there when he was coaching or was that when you were in college?
Phil 00:30:58 No, I was there. And you know, funny enough, he and Larry Brown did this too, so that we would I mean, the ball boys would always play, you know, on the court before practices or whatever. And he would actually let us jump in sometimes, which is hilarious, you know.
Jody 00:31:10 Oh, wow.
Phil 00:31:10 You know.
Jody 00:31:12 That would be fun. Yeah. I mean, it was fun but humbling to say the least.
Phil 00:31:16 And but anyway, I remember we would be out there shooting sometimes, you know, practice and he would always he would always be set like courtside in the front seat had his legs crossed and say, bend your elbow you know, like.
Jody 00:31:27 You know, and it's just like.
Phil 00:31:29 And he'd be doing an interview, but he couldn't help himself. Like, you know, he's a consummate coach, right? He would see, you know, these kids making all the fundamental mistakes and bend your knees, you know, whatever. And you listen, you know, and when Larry Bird tells you how to shoot, you listen.
Jody 00:31:41 So for sure.
Jaime 00:31:43 Well, I, I definitely have an experience. I'll tell it real quick, but also just thank Jodie for one of them. But on the my best experience, I'm a baseball fan too. And the Red Sox. I saw the Red Sox sweep or sweep the Rockies in Game four of the World Series. And, you know, growing up in the kid in the 80s, like, I never thought I'd ever see the Red Sox win the World Series, nevertheless, in person. So that was that was one of those moments where it was it was awesome because they happened to be in Colorado, and that's where I'm at.
Jaime 00:32:07 And I was able to catch game four, and they ended up winning that series and just being there for the trophy and all that was pretty amazing. But then, right behind that was, when the Celtics played in the championship against the Warriors. we I was actually coaching in a basketball tournament that weekend before, and I'm on the car ride trying to get tickets, and all of a sudden Jody calls me and he's like, hey, I got you a couple tickets for the for game one. You said to find your way to, to Golden State. I'm like, I'm there, dude, thank you so much. I'm sitting there in the car trying to, like, get tickets while I'm driving, and it just wasn't working out really well. And Jody called me and hooked me up. And that game was the one. The Celtics kind of blew him out. And they played really well. Unfortunately, they couldn't win that year. Obviously just they just won a couple a couple months ago.
Jaime 00:32:47 But that was a really cool experience for me and my son and, and my, my dad actually joined as well to be at that game, one of the, the Celtics finals. So, has been a lot of cool, cool sporting events over my life as well, but I definitely am jealous of your experience. That sounds so cool. We could play had like a 45 minute podcast just on that.
Jody 00:33:05 So yeah, you know.
Phil 00:33:08 We my wife and I've talked about, you know, our 13 year old son maybe wanting to do the same, but it's so different now, right, with camera phones and social. I mean, it's just, you know, it was the right time to do it. I mean, what we were exposed to, unfiltered was, was good and bad, you know?
Jody 00:33:22 So definitely cool.
Jaime 00:33:24 Well, let's wrap this thing up. We want to make sure we get back to M&A. But so, let's I would like to end each podcast with is just kind of your final thoughts.
Jaime 00:33:30 So for the listeners that that finished the podcast here, what's the one thing that you want, you want them to know about M&A. And then also, how they can get hold of you. So, Phil, let's start with you, with your final thought and how people can find you.
Phil 00:33:42 Yeah. I would say just to operate with optimism. again, as I mentioned earlier, there's a lot of activity that's really unprecedented. You know, in the industry right now, there's widening buyer pools. I think valuations are holding up and there's just a lot of strong investment thesis around acquiring agencies. And I think that's going to last. You know we don't know you know what's ahead. You know economy and otherwise. But I think for the years ahead, it's going to be very good for agency owners who again, build really solid, predictable, you know, nice operating practices. So, I think I think that's the encouragement I would leave with. And I'm easy to get Ahold of seasoned advisors.com.
Phil 00:34:17 best way to get me so great.
Jaime 00:34:19 All right Jody, final thoughts from this from this episode.
Jody 00:34:22 Yeah.
Jody 00:34:22 Phil, I completely agree, and I appreciate you being on. This has been a great conversation. I would say the biggest thing that I've noticed is that it's never too early to start planning. you know, because you never know when that end is going to be. You know, it could be the hey, I'm never going to sell. Then all of a sudden something happens and you're like, oh, I've got to sell here in the next year, year and a half, whatever. So, turning that lifestyle business into a true business is really important. as Phil mentioned, the, add backs are kind of looked at in a negative way or skeptical way with a lot of investors. And so, if you can eliminate those from your financials completely, it just tells the investor that this is a serious business. And I think, correct me if I'm not if I'm wrong there, Phil, but you're going to get a better multiple if that investor has solid confidence in your financials and the way that they look.
Jody 00:35:10 And I think eliminating those add backs is huge.
Phil 00:35:13 Yeah that's awesome.
Jaime 00:35:15 Yeah. And I, I say this every time we talk due diligence. And I probably sound like a broken record with clients and listeners. But like the biggest thing to me is, is being prepared you know the how clean you are and how better you look and how fast you can answer questions during due diligence is going to make a huge change in the amount of money you'll get and how confident the buyer is coming in. So, like you know, being prepared, having plenty of time. But again, you don't want this to just be, hey, tomorrow I want to sell things. You want it to be okay, I want to sell it in the next two years. So those are the steps I need to take. This is the cleanup I need to do because it will pay off. It'll pay off. And probably more than anything you've ever done in your life in terms of a business owner, like, you know, people try to save, you know, 5%, 3% here.
Jaime 00:35:52 But when you're talking about a sale, just having clean books and being able to answer questions can save you millions of dollars. So that's really something to keep an eye on. appreciate you coming on the show today, Phil. And you as well. Jody, I think that was a great episode. And I know we had talked about a lot of topics, and I'm sure our listeners will get a lot out of this. So, thanks for joining us.
Jody 00:36:08 All right. Thank you all.
Outro 00:36:10 Enjoy this podcast. Visit our website Summit Connect to get more tips and strategy for achieving business success. We're here to be a resource in this ever-changing industry.