Episode 23: The Boutique: EXIT HACK: BUILDING A LARGE UNIVERSE OF POTENTIAL BUYERS
Sean Magennis [00:00:16] Welcome to the Boutique with Capital 54, a podcast for owners of professional services firms. My goal with the show is to help you grow scale and sell your firm at the right time for the right price and on the right terms. I’m Sean Magennis, CEO of Capital 54 and your host. On this episode, I will make the case that the key to selling your firm is to build a wide and deep universe of potential buyers. I’ll try to prove this theory by interviewing Greg Alexander, Capital 54’s founder and chief investment officer. Greg, maybe more than any other thought leader understands how to develop broad interest in a boutique from potential acquirers. Greg, great to see you and welcome.
Greg Alexander [00:01:06] Thanks, pal. Great topic today. By the end of this show, I hope our listeners learn how to tilt the supply and demand equation in their favor.
Sean Magennis [00:01:13] Amen. So maybe we should start out with that very thing. Supply and demand. How does this economic theory apply to selling a professional services firm?
Greg Alexander [00:01:25] OK. It might not be obvious, so let me explain. Supply and demand will impact one’s ability to sell the firm. Let’s consider first the supply side. If there are many boutiques like yours available for sale, valuations are going down and the opposite is true. If you are the only firm in your niche willing to sell, valuations are going up. And if we flip the coin, and considered the demand side. If the universe of buyers is wide and deep, the chances of a successful exit increase. If the number of potential buyers is small, exiting will be difficult.
Sean Magennis [00:01:58] Excellent. I can see how supply and demand effect valuations and the probability of exiting. This begs the question, how does an owner of a boutique manipulate supply and demand?
Greg Alexander [00:02:10] So this is where the investment banker earns his feet. It is their job to generate lots of demand for your firm. They are skilled at doing this using a variety of methods, starting with market maps, adjacencies, segmenting the private equity investors and many others. They are experts at throwing a wide net.
Sean Magennis [00:02:31] Greg, it’s one thing to build a list and yet quite another to generate real interest from firms on this list. How is this done in your experience?
Greg Alexander [00:02:42] This is where the owner and the banker need to partner. The investment banker will build an exhaustive list of potential buyers. But he or she will need the owner’s help preparing the pitch. An owner can contribute at this stage, by given the banker compelling strategic rationale to buy your boutique and I advocate for developing this deal, rationale for each buyer, for customizing it for that specific buyer. This will increase the positive response rates the investment banker generates.
Sean Magennis [00:03:14] Excellent Greg. So let’s save our listeners some time by giving them some examples of what might go into such a customized pitch.
Greg Alexander [00:03:24] There are many, but here are a few since our show is meant to be short. Maybe buying a boutique opens up a new market for a strategic acquire. Or maybe if I buy your boutique, it will strengthen my value proposition and help me sell more of my core services. At times I must acquire because I’m at a competitive disadvantage in buying new fixes that a common one these days is firms buy boutiques to diversify revenue streams. For example, my firm has too much client concentration and I can buy you. Which brings a whole new set of clients. These are but a few, do you get the picture?
Sean Magennis [00:04:03] I do Greg, so simple and practical examples listeners can use as a starting point. Really excellent.
Sean Magennis [00:04:13] And now a word from our sponsor. Collective 54, Collective 54 is a membership organization for owners of professional services firms. Members join to work with their industry peers to grow scale and someday sell live firms at the right time for the right price and on the right terms. Let us meet one of the collective 54 members.
Brenda Hurtado [00:04:39] Thank you, Sean. Hi, my name is Brenda Hurtado. I’m president of The Point Group. The Point Group is a marketing communications firm built from a different model. We’re an integrated full service agency with strategists from both the agency side and the client side. Our unique combination of business acumen and marketing expertize brings a fresh perspective and approach to find creative solutions that truly make a difference and drive business results. For more than 25 five years, we’ve worked with startups, the Fortune 50 brands to help them enter new markets, position them for growth and improve their customer engagement strategies. At the Point Group, we create work that works to learn more about the company. See us at thepointgroup.com.
Sean Magennis [00:05:23] If you are trying to grow scale or sell your firm and feel you would benefit from being a part of a community of peers, visit the Collective54.com.
Sean Magennis [00:05:40] So this takes us to the end of this episode. And as is customary, we end each show with a tool. We do so because this allows a listener to apply the lessons to his or her firm. Our preferred tool is a checklist. And our style of checklist is a yes-no questionnaire. We aim to keep it simple. By asking only ten yes-no questions. In this instance, if you answer yes to eight or more of these questions, you have a large universe of buyers. If you answer no too many times your buyer pool is too small, which means you might not be able to exit. Let’s begin.
Sean Magennis [00:06:21] Do you know how many firms like yours are for sale?
Greg Alexander [00:06:25] Quickest way to find that out is play the role of an acquirer. Pick up the phone, call people and say, hey, you want to sell your firm? I’m interested in buying. And you can get a really quick gauge for how many firms like yours are for sale.
Sean Magennis [00:06:36] Excellent. Number two, have you completed a market map?
Greg Alexander [00:06:42] For those in our family with that term, does Google market map, and there’s lots and lots of how to step by step guides to create one.
Sean Magennis [00:06:49] Correct. Number three, has this market map produced an exhaustive list, exhaustive list of potential buyers? Number four, does this map include adjacent markets?
Greg Alexander [00:07:02] Yeah, and this is important. Don’t think too narrowly. You know, there’s markets to the left and right, a view that also contain possible acquirers.
Sean Magennis [00:07:10] Number five, does the map include private equity firms with a known interest in firms like yours? Number six, have you developed the strategic rationale to buy your firm? Number seven, have you customized this deal rationale for each potential buyer? Number eight, do you know the leading investment banker in your niche? Number nine, have you approached them about representing? And number ten, has this investment banker creatively enlarged the universe of potential buyers for you?
Sean Magennis [00:07:56] In summary, keep in mind that supply and demand will impact your exit. Take the time to strategically approach the market. The goal is to build a wide and deep universe of buyers. There are many more buyers than you likely realize, some of them just might respond well to what you have built. And one of them might be willing to pay you a lot for your firm.
Sean Magennis [00:08:24] If you enjoyed the show and want to learn more, pick up a copy of Greg Alexander’s book titled The Boutique How to Start Scale and Sell a Professional Services Firm. I’m Sean Magennis. Thank you for listening.