Podcast: Inside Scoop on Financing and Structuring the Deal the Right Way, an Interview with Matt Boettner

By Ryan Tansom
Published: January 31, 2019 | Last updated: March 21, 2024
Key Takeaways

Matt Boettner walks us through the financing options he used to structure the deal, what other options were out there and why he didn’t go down those roads.



About the Host

Ryan is an entrepreneur, podcast host of the show Life After Business and the co-owner of Solidity Financial. Having personally experienced the hazards of selling a business, he joined up with his friend Brandon Wood to educate others on the process. Through their business (Solidity Financial), they provide a platform for entrepreneurs called Growth and Exit Planning that helps in exit planning, value building and financial management.

About the Guest

Matt Boettner began his career in the tech industry. After his first company failed he embraced his talent for financials. He learned how to structure deals at a mid-market brokerage firm and became quite comfortable with complex deal structures. In 2009, Matt joined his brother at All Safe Global. He came into the business with the understanding he would buy his brother out. In 2013, that buy out went through.


Matt is an accomplished leader with experience in start-up, private and public company roles. He is an expert in general management and leading growth initiatives for mid-size operations. He has experience with leading acquisitions, IPOs, business valuations and public/private company debt and equity financing.

If you listen, you will learn:

  • Matt’s first attempt and failure in the tech sphere.
  • What he learned from this failure.
  • The lessons learned from his jobs afterward.
  • What he learned from his time at a brokerage firm.
  • Matt’s opinion about brokerage firms and how to find a good one.
  • Matt’s time with WinMark.
  • How he became involved in All Safe.
  • A brief history of the company.
  • Why Matt saw opportunity in the compressed gas industry.
  • The beginnings of the deal structure he made with his brother.
  • The methodology they agreed upon.
  • How Matt’s M&A background came in handy.
  • The capital stack they agreed upon.
  • The types of debt that are available.
  • Why debt can work well for a company.
  • The levels of debt Matt used in his deal with his brother.
  • The importance of an intercreditor agreement.
  • Matt’s strategy to repay his creditors.
  • Why you need a cushion in a deal.
  • How Matt found equity partners.
  • Lenders are not one-size-fits-all, do your homework.
  • Matt’s goal for his business in 2019.
  • The importance of good financial records.

Full Transcript

Matt Boettner: You know, I will say, too, for our size at the time anyways, this was an unusually complex capital stack or financial structure. Now that that's mainly a function of the fact that I was very comfortable, more complex financial structures coming into it because I'd had a lot of experience with that in the past, so I'm not necessarily advocating complexity and it just happen to work in our case. There's a lot of different tools in the toolkit to get these kinds of deals done.


Announcer: Welcome to Life After Business. The podcast where your host, Ryan Tansom, brings you all the information you need to exit your company and explore what life can be like on the other side.

Ryan Tansom: Hey everybody and welcome back to the Life After Business podcast. This is episode 130 and if you're interested on how to get a deal done and what a deal structure can look like from the financing terms, this story is absolutely for you. Matt Boettner is on the show today and he has a very impressive background in M&A and financing and really understanding the capital structures of doing deals. He got his start in his really, really early career by raising a bunch of money in the tech space and having a startup that was not as successful in going to market, but he learned a ton from understanding about how to raise money and terms and deal structures. Then he cut his teeth again by helping Sunbelt Business Brokers start their private equity arm up here in the Twin Cities in the Midwest and after looking at so many deals, he got an offer he couldn't refuse in the equipment financing space where he just blew the top off of it in Biz Dev and sales growth.


Ryan Tansom: But where the story all comes together is when he and his brother Joe were having a conversation about the business at. Joe had bought from his father-in-law called All Safe and Matt was entertaining an offer to go work with Joe. So what Joe and Matt did and how they structured the deal so that way Joe could get the money that he needed off the table to make sure that he hit his financial targets. But then Matt, by the capital structure that they put into place, was able to with some serious leverage to buy the business and then take it and then use his growth and sales biz dev skills to continue growing the company so that way he could get his rate of return on the asset that he purchased, and then he just recently did another private equity recapitalization to eliminate a bunch of the interest payments, give him some more dry powder to reinvest in the business, and so he can continue to grow the asset and the business that he purchased.

Ryan Tansom: Absolutely a fascinating story on how you can get creative in financing a deal, whether you're the seller or the buyer, understanding the mechanisms that are available to you out there that are not just a normal conventional loan or an SBA loan or an earnout. This is more of the sophisticated financing structures that some bigger deals do. But as you can realize, if you understand the tools that are available out there and what questions to ask, there's a higher percentage that you can get a deal done and everybody can get what they want. So if you're interested in more of the technical stuff, check out the show notes, go onto the Growth and Exit Planning website to check out the ultimate guides on how to value your business, the different exit options, and if you've got any questions, reach out to the GEXP team. Otherwise they'll further ado. Here's Matt Boettner.

Announcer: This episode of Life After Business is sponsored by GEXP Collaborative. Their proven process gives you clarity on all of your exit options and how those options impact your financial success, timing and future happiness. Sell your company on your timeframe and to the buyer of your choice at the price you want.

Ryan Tansom: Matt, how you doing?

Matt Boettner: I'm doing good. How you doing, Ryan?

Ryan Tansom: Doing good. So I'm super excited to have you on the show. I, uh, so we've got a good strong connection between my business partner, Brandon, and uh, you guys have known each other like pretty much your whole lives. And I know your brother, Joe and him have been very, very close and randomly like, what was it over the holidays like a month ago? He's like, by the way, Joe's brother's got a lot of experience in this stuff and I literally had no idea that you were involved in the actual buyout of Joe, so it was just like super natural. I'm like, okay, well we got to get Matt on the show to hear the story. So here we are. Um, so the, you know, you got an interesting career track Matt that kind of led you up to how you were able to buy All Safe and the structuring that you did. So maybe let's kick it back, like how did you decide to become an entrepreneur? Was it accidental? Did you intentionally do it? I know the first venture you guys went or that you had was a super interesting one.

Matt Boettner: Yeah, absolutely. Well, my background is in high Tech and corporate finance and I got the entrepreneurial bug at a young age, really interested and excited about technology. And I thought early on in my career that I wanted to be a technologist and somebody who was going to program computers and work with software and things like that. And I found out really quick, uh, I had an aptitude for finance and I really liked dealing with people and working with people directly in a way that, you know, uh, maybe, uh, a technical career wasn't going to kind of supply. So I ended up, I was working at 3M, uh, this is back, oh gosh, in the early nineties. And I was working on some exciting technology there. It got me thinking that there might be an opportunity for me to get out and start my own business. And that's when I founded the Kovex Corporation. Uh, I ended up getting a couple of patents there are the business was in the semiconductor inspection industry. So we were doing data analytics and surface, uh, analysis for various components. So what did the computers at the time. So, uh, that's what I got my first taste of starting a business running a business and…

Ryan Tansom: You raised money for that, didn't you?

Matt Boettner: That's right. Yeah, yeah, absolutely. We raised about $3,000,000, I want to say. And that was all from private angel financing at the time. I was lucky to have some really good mentors and was able to put together a board of directors real early in the process that were helpful, kind of guiding me on how to, how to develop that initial capital raise and really taught me a lot about, you know, what it means to have a startup in a high-tech industry and get it kicked off from a capital structure perspective. So, uh, that was quite a process.

Ryan Tansom: I was going to say what you're doing in the tech space in the early nineties like that is what was probably ahead of its time and like how do you go from wanting to, you know, work on the computer space to, to raising the money. I mean like was it because sometimes people don't even understand that that's a possibility. Like what, what connected the dots to the finance and to the capital raised like that?

Matt Boettner: I think necessity to begin with, the technology that I was working on, it required a pretty substantial investment just to get it off the ground. And in order to do that, I knew I was going to need some capital, so I started out like a lot of other entrepreneurs just raking capital together. You get from your own savings account or from friends and family and you know, the story. You do it all the time and you know, that gets you a business plan, proof of concept. But from there we needed some real money and that, that's where I started thinking about, okay, how do I do this and, you know, keep control of the company and, or at least be involved and also get the capital I need to get me the resources that I need in order to really, you know, build on my vision. So necessity was the driver there.

Ryan Tansom: So then what was the life span and the outcome of the company like that?

Matt Boettner: So that, that business was, it was a total economic failure. The sense of business. If you look at it, say, wow, you know, we put all this time and energy into this thing and it blew up. The data storage industry didn't work in the, uh, late nineties. We werer having a downturn, there was all this stuff. And I ended up exiting that business, but it was a total success in the learning process that my partners that I had developed. Um, we, uh, we licensed a little bit of that technology and people walked away from it saying, wow, we learned a lot and we want to do this again. So I ended up going on to having a number of successful ventures after that. Failure early in one's entrepreneurial career I think is something that's super important because you need to see, see how difficult things can be in order to move on to the next thing. And it really puts things in perspective. So it was a, it was an interesting, a first step in my career path.

Ryan Tansom: What were some of the biggest things that you learned in the MBA of failure from that venture?

Matt Boettner: Well, you know, in a high tech world, I learned the best technology doesn't always win. Sometimes it's timing and luck. Sometimes it's, you know, I was, I was really lucky to have a great board of directors, good capital structure. We didn't have great market timing. We had some other things go wrong. Development costs for early stage tech companies oftentimes are much larger than you originally anticipate and you find out that you know what, what you thought was gonna happen isn't always what happens. We learned a lot about, I learned a lot about how to really translate vision into reality and what, what's realistic and what isn't. I mean that was one of the most valuable lessons. Uh, I got out of that process in downstream from there are really applied a lot of those lessons to other businesses that I was involved in which led to a much larger successes both economically but also in terms of a personal growth and, you know, team development and that sort of thing.

Ryan Tansom: So what… after you're licking your wounds, It's a big punch to the, to the ego and also the reality check on what, what, what was the process and what did you end up doing next and how did you come up with your next venture?

Matt Boettner: Well, I went to work for a company in a related industry. That's at the time it was called Applied Epi was a local technology company that was building, uh, the machines that make the chips that go into cell phones. And this was back when 3G technology was brand new. So this is way before smartphones and other things, you know, that was, you know, the early 2000s, like '99, 2001 timeframe. And I knew I wanted this to be in what I really wanted to stay on the deal side of things. So I went to work for these guys corporate development and learned a lot about intellectual property management, raising capital to start new businesses inside of a company. And uh, ultimately that business was, was Ah, sold to a company called Vico Instruments out of New York. So that was a really exciting and good process for me.

Matt Boettner: And you know, from there I decided, uh, I wanted to take a bit of a break from working with other people, get back into my own gig. But I didn't know exactly what I wanted to do. I thought about starting another company. I thought about, uh, um, maybe just being a consultant for a time being, I felt like I had a lot of interesting experiences that I could share with others. That's how I got involved in a small lower middle market M&A work I was working with Sunbelt Business Brokers for a number of years. My plan going into that was really to say, Hey, I want to look yet a number of different businesses. I think this is going to be a great opportunity for me to help people get into business and then finance the purchase of those businesses. And at the same time I'm going to be able to see a lot of interesting opportunities and who knows, maybe I'll buy one of these businesses. So, uh, when I was working there, I actually got hired bye. Uh, Winmark Corporation to help them with, uh, some transactions they were working out at the time. And that led to actually them hiring me to help work with a new startup that they were forming inside of their company. So that, that led to the next step in my, uh, my trajectory.

Ryan Tansom: One little thread into the other one.

Matt Boettner: Exactly. It was, it was interesting, it was a situation where I actually never thought I would go back into, you know, the quote unquote corporate world working for another team, but I essentially had an offer I couldn't refuse and, and it was a team of people that I was excited about working was I went there to form a finance business and head up sales for that. So that way I became the VPGM of that, which you know that that company is a publicly traded company that's had a lot of success in both the finance and franchising space.

Ryan Tansom: To come back to that, I'm just curious to go back to when your Sunbelt experiences, how long were you there and how many deals did you look at? Because it's part of the underlying reason for the question is I think a lot of the listeners who are owners that have not sold, like looking at deals is so important. Even if you have no intention of even if you want to sell because it's kind of like looking at houses on Zillow. So like what were some of your, like how long did you work there, how many deals you look at, what were some of the big takeaways and why did you not buy a company versus going and working for one?

Matt Boettner: Great question. I saw hundreds of deals while I was at Sunbelt. I was there for about three and a half years from, you know, early '04, '05, something along those lines, uh, during that time, sell side, basically sell side lower middle market business brokerage. So their job primarily is to work with sellers of businesses and to match them with buyers. So they represent the sellers. So you get an inside look and a lot of different companies. And I worked initially on very small transactions, ultimately scaled into larger lower middle market deals. And uh, I saw swath of opportunities and even everything from software companies to take being in stores, I mean, you name it because we're industry agnostic. So you see a lot of a different deals come across your desk. And one of the interesting things that, that they did there at sunbelt and in the owner of the Midwest region was he started a fund to invest in a, he would cherry pick certain deals that would come across the desk, you know, they'd offer it to, uh, sellers and say, hey, if you wanted us to be involved in your buyout, we would be happy to do that. And uh, I was involved for a while and it really, it got me thinking, you know, there's a lot of great opportunities here. Uh, I was actually in the middle of working on some of those investment projects when, when mark approached me and said, hey, we'd really like you to come on board and help us with the startup. So I think I ultimately would have bought a business while being there, just,the timing hadn't worked out up to that point.

Ryan Tansom: And the offer you couldn't refuse, right? This has got to be the next logical thing. But before we go into the wind Matt, and then kind of the natural progression of the story is, you know, for the listeners, because I know I've done, I've talked a lot of brokers and investment bankers and the different spectrum and there was a gal named Stephanie who just was on the show. She sold her company for over 55 million bucks. Didn't use either. She had looked at both and she was in the weird, but we like to call no man's zone or in the no man's land. And I'm just curious on your definition, you're, you're just because you're out of the industry, your two cents on brokers, investment bankers, what is your definition of lower middle market? And it just Kinda your. And we don't have to get too much into it. I'm just curious because like, there's so many, a wide range of them and opinions about it.

Matt Boettner: My opinion about it, it's not unlike the residential real estate industry in some ways. There are a lot of business brokers, a lot of lower middle market, uh, folks that'll tell you they understand how to buy and sell businesses. The reality is there's a small group of them that do it well, in my opinion, you know. So you have a lot of people that can get into that industry. Some of them are dabbling, some of them don't have a track record. To your listeners, I would give them that advice that you really want to work with someone, whether you're buying or selling. You want to work with somebody and affirm that has a strong track record of completing transactions in the market space that you're in. Whether that means geographically or industry-wise because, uh, you know, there's so many people, for instance, you can sell your home with, right? Do you want to work with someone who's done this before and successfully and has maximized value and gotten the highest price if you're the seller or get you a great deal if you're a buyer? Or do you, you know, work with somebody who's, you know, never done it before. So that selection process can be hard. Uh, but it's really important upfront.

Ryan Tansom: And how about your definition of the middle market and the size brokers have versus investment bankers and the different kind of skill sets of the two?

Matt Boettner: Right. It's been a while since I've thought about that, where those cutoffs are. I can put it in perspective of the company that I run now. You know, businesses that are below $4 million of EBITDA I would say are generally going to be in that lower middle market category. So you know, at Sunbelt we used to have rough cut offs of…. You've kind of got the small owner operator type of operation which is convenient store, single unit operator at the very low end. Maybe they're discretionary cash flow or, or modified EBITDA we would call it was somewhere in that $200,000 range. That's really tiny, right? And then you get up into you know, businesses that start to get into the next strata of maybe half a million to a million of EBITDA. You know, now you've got a little bit more substantial size business. Maybe, maybe a layer of supervisors or professional managers that are starting to come together. Maybe some systems in place but not really fully developed yet. And then you get kind of that $2-5 million of EBITDA. But uh, you would expect those businesses too. They may not be sophisticated and fully developed from a professional management perspective, but they're getting close, you know, depending on how their position might be set up, know did you add on acquisitions or other things. So there's, there's different ways to slice up that market that's kind of the spectrum of lower middle market in my mind, you know, once you get above that, I think you kinda get midmarket levels and beyond.

Ryan Tansom: I appreciate the overview because I think it just varies from opinion to opinion and brokerage to brokerage and like you said, even broker to broker. So it's, it can't be over discussed I think for the listeners because, you know, when they go to that, to that altar, you know, they got to pick the pick the guide that actually works the best. And so moving onto to when Matt, I'm curious like, you know in, we don't have to touch too much on this, but like the it, which is interesting because this is where you and I kind of have the overlap in the Venn diagram where you were doing an equipment leasing and financing, which we were doing at Imaging Path, where you at the end up learning a bunch even more about like juggling money and leasing and all the numbers and how do you know, what was the, what was your, the, the track record and kind of your career at when mark and then how did you end up getting to the triggering point and maybe it may be kind of given a little bit of context of All Safe and why you ended up going that direction?

Matt Boettner: Well, I was recruited to head up sales, so we were doing small ticket leasing. My job was to go out and build a, a revenue stream, a book of business. And you start with, you know, like any good sales process, you know, you're working your network and you're getting out figuring out how to access the end user that needs small ticket financing. So we were doing transactions that were small ticket leasing is a high volume, low ticket type of business. So you're doing, you know, transactions are anywhere from 10,000 to all the way up to maybe 200,000 at the very largest. Our average ticket size was $25,000 to $30,000, something like that. And um, the trick to that business is to build a volume of applicants that come in, typically small business owners and getting to that market is historically been a challenge, you know, American Express strive to do, GE Capital tried do it.

Matt Boettner: Some of them have done it really well. Some of them have gotten into that market and failed or never even been able to. So given my experience with finding small business owners through sunbelt and that sort of thing, I was able to apply some of the. That's a uh, I had used throughout my career to kind of market to that particular group of people. And we were very successful at it. We were to uh, we worked with a number of Franchisees, a number of small business owners in different industries in order to provide them financing. So that business started from basically zero and grew to a point where we were regenerating, Gosh, I want to say it was over $50 million a year in application requests. So we didn't do all those deals, but that's the kind of volume that we're getting presented to us. Right.

Ryan Tansom: So then after the, you know, the, the, the journey from winmar actually, I don't know if that was the journey, but like, you know, at what point did your, did it kind of was the writing on the wall that it was time to switch gears, that you wanted to go back in and run your own company?

Matt Boettner: Yeah, no, that's a great question. Winmark was very successful and had gotten to a point where our cost of capital and resonance and things were changing in the marketplace, this was really during the financial crisis of 2007, 2008. I had decided that that business… I had a difference of opinion, let's say with the CEO of that company about how to move forward. So I decided at that point that, hey, you know what, you've got a different vision for where this is going. Uh, I think there's a certain way to weather the storm here in with what's going on in the industry and decided that since I wasn't going to be allowed to pursue that, uh, that I would head off and do something else. So, uh, I was doing some due diligence on a number of different companies that happened to be tech driven distributors or, or just wholesale distributors that we're in a, a couple of different industries.

Matt Boettner: So that was an industry that or in markets I should say, that wholesaling business model that I was really interested in and my brother Joe, I asked him to do some due diligence work with me on an interesting deal and the more we got to talk, the more we kind of looked at each other and said, hey, why don't we work together? And we struck a deal where I basically proposed to him, look, I'll come onboard and work with you. We'll grow this business together with the understanding that I'm going to buy you out after a period of time. And that's what happened. So I came on board at All Safe to head up sales and marketing in 2009 and ended up buying a majority stake in the business in 2013. And since then, you know, we've had really strong tremendous growth story. I think we've grown…. my compound annual growth rate since 2009 was over 17 percent per year, so it's pretty strong. Yeah. And we've, we've been, you know, we've got really strong plans here going into the future too. So they're just this year or this last year, I should say 2018, I completed a recap of the business with a private equity firm out East that has really positioned us nicely to take advantage of a additional growth opportunities in this business. So we're, we're going to be growing both organically and through add-on acquisitions. And I've got a vision to really grow this business, you know, nationally. So we're excited about that.

Ryan Tansom: Did the cliff notes on is what we're going to unpack a little bit because I think, you know, from, from the stories that I've heard from Brandon, this is where I think a lot of listeners could use a little bit of, you know, two cents people that are doing a what tools and mechanisms are available for them to do these kinds of things because that was what you and I were talking about before we jumped on shows that, that was some of the stuff that I didn't know I was not aware of. There's a lot of owners when they're running their business, they don't understand this kind of stuff, so they just don't explore it because they don't really understand that these are options. So maybe we'll start back from the, you know, when you say that you and your brother started talking, um, so what was the history of All Safe and joe working there and how did that whole negotiation actually come about and what was some of the, the, the, the outcomes of that negotiation?

Matt Boettner: Yeah. No, it's an interesting genesis. So Joe got involved and maybe just quick background on is a wholesale distributor and service provider of compressed gas service and sell welding gas and it's a very large industry, a somewhat fragmented throughout the US and, uh, touches a lot of end-use markets. So everything from beverage carbonation to welding gas and medical gases and alternative fuels. There's lots and lots of applications for what we do. And, uh, Joe got involved in the industry when he found out that his father-in-law, I had been diagnosed with cancer. His father in law was the founder of All Safe, or one of the founders way back in the, the mid-seventies. This business had been a small, relatively successful but sleepy. You know, what you would consider a small business for many years.

Matt Boettner: And Mike, the founder, found out that he was sick and was actually told he was going to die. And he went to my brother and said, hey, I want a workout or arrangement with you so that you can take over this business. And Joe was already successful business owner himself. He, uh, it was run on a concrete business the time and your really well on this wasn't part of his plan or playbook, but life circumstances led him to buy this business from Mike. As it turns out to be a good news story for Mike. He miraculously a year later goes into remission, so his cancer disappears and he still works as a consultant for us today. He does kid around with us. Gosh, I really wish I wouldn't have sold that business. Mike, We're going to count it as a win for you because it all worked out in the end. Well, I was just gonna say that I got to talking to Joe about buying a company, as I mentioned previously, and I really got intrigued by this industry because compressed gas equipment, it's not sexy, but at the end of the day there's a real fundamental opportunity for the industry and we've been doing a good job of kind of leveraging technology and bringing, you know, kind of a new skillset into what I would say is kind of an old-school industry. So….

Ryan Tansom: So Joe buys out his father-in-law… what kind of time frame goes and how they came up with some valuation. I'm sure there was a lot more emotions in that where you know how did you and Joe structure your partnership and what kind of stuff did you have predetermined of what that whole arrangement was going to look like? Because I want to kind of go get all the way up to me because essentially you've been buying this for a return on investment. You've got a growth strategy, so I want to make sure that we totally jump into that, but I'm curious because a lot of these, a lot of entrepreneurs when they get into these partnerships and they have stuff just happen and then they just realize after the fact that they wish they would have structured things differently. The partnership, the valuations, different strategies, so I'm curious, especially with, you know, negotiating with your brother. Um, that's, there has to be some challenges that went into that.

Matt Boettner: Oh yeah, absolutely. And he's probably got another version of the story, but I'll tell you, mine because he's not on the podcast today. Joe's a great guy and he's a super successful business man. Uh, you know, I've had my successes as well leading into those negotiations as well. There were certainly times where we didn't see eye-to-eye on either how to structure things or how to even run the business post-transaction because him and I were partners for a long time, but we saw, we saw things, uh, we were more alike than the not and you know, were able to overcome those differences. But I would say getting into a deal number one, you have to consider carefully whether or not you want to be in business with family. I mean, that does add a whole nother dynamic, a whole layer of complexity because obviously those family relationships are uh, important and you want to maintain those. But at the same time want to make good business decisions and chose a pretty level-headed guy.

Matt Boettner: I like to think I'm a, a reasonable guy at the end of the day, you know, we, we were always able to come to, you know, a mutually respectful resolution. But I will say going into the deal, um, I had my heart set on and my mind set on I'm going to buy this business. And I was clear with him about that. So it wasn't, hey, let's be 50/50 partners forever or less, you know, have some other arrangement. It was we're gonna grow this and yeah, I'm going to acquire controlling interest in the business. So he remains a shareholder today, but he's a minority shareholder and um, I wanted it that way because I wanted, I wanted clear direction clear, uh, I wanted to focus on who was in charge, what the plan was going to be and how we're going to move ahead. And for us that worked out really good.

Matt Boettner: So prior to me acquiring the company, but him and I working together, he was in charge and post-transaction, I was in charge. And I wanted that real clear delineation and that doesn't work for everybody I'm sure. But for us, um, you know, I just think it, it made sense because we're, we're both drivers, we both have visions, our visions were aligned. But I would say that our methods sometimes are different. That was important going into the transaction as far as negotiating price and terms of a deal. Obviously I had had a lot of experience with negotiating M&A deals coming into this because I had done that both, uh, well a lot of time spent at Sunbelt doing that. That was my job, but then also on the corporate finance side, licensing technology or looking at acquisitions, whether it be, you know, with applied Epi or other other companies that I worked with. So, um, I that approach, here's what I know about valuing a business. Here's what I think is reasonable. He had his own ideas about what made sense and we were able to, I would say do some structuring. I would call it from the corporate finance camp where it meaning, you know, he took some notes back. Um, there was some seller financing the deal a little bit right there was important to him that he had a certain amount of cash, you know, in closing. So I was able to arrange for that, um, came from both equity and debt partners. So there was a, there was a capital stack I would call it, that really got him to the price that he wanted. And me, the price and terms that I needed to be a comfortable buyer.

Ryan Tansom: Well actually that's what I wanted to peel apart because a lot of entrepreneurs are not as aware of that. There's mechanics that you can get through negotiation and structuring that can get a lot of, you know, through creativity you can get people kind of what they want. I'm curious. Matt did. So if you came on in '09. And then you bought them all in 2013. Did you and own it because I think a lot of families struggle with this or you know, owners who hire, you know, run-and-gun, you know, second in command who are sales were like did you have all that determined and '09 when you came on? Predetermined price, deal structure, that kind of stuff? Because I think the big challenge that so many people have is okay, so I'm going to grow your company in them and I'm going to buy my growth back from you, so that doesn't make any sense. Right. So like how did that work when you came on board and then when you got to the closing?

Matt Boettner: Well, there was two parts. It's a really great point you're making. There was a, there was a fuzzy part, the part that wasn't solidified and then needed to be flushed out, you know, basically 2012, 2013, you know, leading up to the, the acquisition and then there was a, a concrete part of our arrangement. The concrete part involved me coming on board and getting some equity right away. I said, look, I want, I'm going to help you grow this. I want to participate in the upside of this business regardless of what we end up with as a final transaction. Now we did talk generally upfront about valuations, uh, where we thought this was headed, what, you know, what the exit plan might be and kind of what the number was in his head that what's going to get us there and what we would need to achieve in order to justify that from my perspective as a buyer. I would say we agreed on a methodology going into it more so than a specific purchase price in a specific set of terms. We had a range when we knew the transaction would be in a certain range and we were in that range at the end and we knew that there'd be some parts of it that would have to get negotiated and structured at the time. Uh, so, uh, and I felt comfortable entering into that arrangement because I also had equity in the business, a minority stake, you know, out of the shoe. And uh, I had confidence in my own ability to grow it. So with those two things together, and the first piece is I trust my brother, too. Every business relationship, whether it's with family or not, requires a high level of trust. And I think that level of trust is commensurate with the level of risk that people take. Right? I mean, I, I trusted him a lot, so there was maybe a little bit more risk in the deal that I did maybe wouldn't have done. I definitely wouldn't have done that if he wasn't my brother, but still that can be structured in order to accommodate for that. So, uh, and I saw lots of transactions like that when I was at Sunbelt. We had to put deals together and the way we got paid as brokers to make deals happen, so you had to find a way to bridge those types of price and structural gaps.

Ryan Tansom: I want to get into that because then how you structured it to and how you get the creative things you guys did. But I also think that, you know, there's a lot of trust in relationships, but then if there's very unclear expectations and the details are fuzzy, that's when even the closest relationships will have a nuclear bomb go off it because they don't know what they don't know. So then people just go back to self survival mode, which is what I see happening every day with families and um, and other partnerships. But so did you have to put any capital into the business right away or and like…. So that's the first part of the question. The second part is when you said that you were comfortable with what you get with the methodology that you guys are going to be doing for growth, was there like a certain things that you guys discussed about capital that was going to be used to invest in the business too? For you to want to buy a business, there's got to be certain things that you wanted to be done. So like what was the kind of the strategy there?

Matt Boettner: Well, as far as the initial structure, getting into it, I was coming away from a pretty successful situation previous to All Safe. So I took a, I took a pay cut. My salary, my base compensation in order to get into the business. And uh, Joe recognized that and that was kind of a trade-off between me bringing my skillset and my business development background into the business. He saw value in that and was willing to give essentially some equity to me for doing that. And I took it, uh, I took that pay cut in order to help finance, essentially. Because I believed in my ability to grow the business. I knew that that equity was going to be valuable downstream and I also knew there'd be more current earning potentials as we grew the business. That was kind of the initial mindset between the two of us was, hey, I'm going to risk some things here. You're going to risk, we're going to come to an arrangement, a financial arrangement that makes sense for both of us. And I think that, you know, I ended up paying off the deal wasn't perfect. Not Everything worked out exactly the way we had originally anticipated, but you know, I think there was, there was a substantial economic upside in it for both of us and we, we're continuing to realize that today. I'm currently still the CEO of that business.

Ryan Tansom: So when you talk about the capital stack and like how that all works, if you can give the mechanics of how you guys did that because I think it's super interesting. And then you bought out Joe, right? Because then you also it with another PE firm. So I'm just like give maybe as much detail as you want on how you went through that to bridge the gap of what Joe wanted up front. How you, you know, like I think it wasn't it mezzanine financing that you found or wherever it was like I'm curious like what was the actual mechanics of what, what the, what the deal structures that you put together?

Matt Boettner: The initial structure, meaning in 2013 when I acquired that business was a capital stack that included… I had brought in a small minority equity partner, small meaning they for about 10 percent of the total purchase price, so they put in a small amount of equity. These were folks that I had business experience with previously. I have rolled my equity, I got equity when I came into the business. I had earned that. It was valuable. Rather than cashing out, I left it in the company, so between the money that I left in and the small equity investments that I brought in, that was kind of the equity based. So thinking of it as a layer cake or that capital stack, that equity is your foundation and that's where I started and then we layered on some senior debt and some mezzanine debt and then seller debt in this particular case.

Ryan Tansom: And Joe left some equity in, too. Right?

Matt Boettner: That's true. Yes. Yeah. He didn't completely exit the business so that that's a really good point. Joe left equity in there as well and it's a meaningful amount.

Ryan Tansom: And can you, can you explain to the listeners maybe each of those different layers and what they mean in terms of the deal structure? Because I've, you know, I've had people on the podcast that are represented different layers of it, but I think it's coming from like the whole cake liquor describing it and what the purpose was in the deal structure would be awesome

Matt Boettner: for our size anyways. Was it an unusually complex capital stack or financial structures? So now that that's mainly a function of the fact that I was very comfortable with more complex financial structures coming into it because I'd had a lot of experience with that in the past. So I'm not necessarily advocating complexity, it just happened to work in our case and there's a lot of different tools in the tool kit to get these kinds of deals done and I think that's the takeaway. So whether it's, and I can walk you through that step, but whether it's senior debt, mezzanine debt, we also had a warrant on our deal with a put option, which is highly unusual for a lower middle market transaction, but it worked to bridge a gap because he wanted a premium on the price in my view. He would argue that it wasn't, but the point being there was a gap.

Ryan Tansom: I think it's awesome. And like, you know, it might be like kind of drinking water for you, but I think, you know, like the stuff that you just described that, that you're gonna you're gonna dive into is it is stuff that's happening, you know, at the, at the top level of investment banking, right? I mean it's getting deals done through crazy different tools. But most people like honestly, Matt, it's like there's an SBA loan, great. Or there's cash or there was an earnout announce, right? I mean, and even though it was our people slowly understanding that and then there's PE recaps. And so either there's this building block of knowledge that people are getting and I think, you know, showing what's possible. And then also, you know, explaining what, what pressures came after that I think is important, but absolutely dive into them because I think it's… even though it might be unusual, I think it's interesting giving an explanation of the different tools and why that, why you used them.

Matt Boettner: Absolutely, and I'm happy to share that. If there's a takeaway from, from the complexity, it's that there are various flavors, you know, out there of financing that are available to people at different stages. It depends on the size of the deal at the time. Uh, you know, this was a in the millions, double-digits size-wise, so it made sense to have a little bit of additional complexity. And um, you know, I was able to bring some of those tools to bear. So when you think about the different pieces thinking of the equity part of the deal generally comes in two flavors, there's common equity and preferred equity. We kept everything fairly simple at that equity layer. It was all common equity. So everybody who was, uh, a shareholder in the transaction, the same rights and that, you know, whether it came to voting rights, economic distributions, downstream, that sort of thing. So it was plain vanilla equity, um, to begin with, you can make that more complex and that's probably a whole nother conversation, but there are things you can do at that level, but then I started to look at different types of debt that I could use. And debt works well in certain circumstances, All Safe was a strong business with repeatable cash flows, we have recurring revenue sources, a relatively high margin so you can support relatively high debt loads compared to types of businesses that maybe your cash flow is really lumpy. If you're a capital equipment manufacturer or something like that, and you sell two pieces of equipment a year, you might make a lot of money, but you're, you must not heavy flow type business. And that doesn't work as well with large amounts of debt. So in this case it made sense to layers of data on the deal and an appropriate amount of debt, you know, people will say it's anywhere from three to five turns of debt, three to five times free cash flow is the amount of debt that you can put it in a business of this size. And it depends on other aspects of the structure, but that's a general guideline. And so when you think about that debt piece, now you want to, you want the lowest cost of debt, of course, which is going to be senior debt. And a senior lender is a commercial banker typically, Kinda like get with an SBA loan in this case. So it was not a SBA, this was. So it's going to be a little more expensive because you don't have the government guarantee of an SBA loan.

Ryan Tansom: Was it just a normal, conventional loan?

Matt Boettner: Yeah, it was a, it was a revolving credit line along with a term note. So yeah, it was basically conventional amortized debt, atthe commercial level. So in that case you're talking about now that there is no personal guarantee is involved and no government guarantees, so you're going to pay a higher interest rate for that because from the bank's perspective, it's riskier than a fully secured loan, but we were able to get that type of financing because our business cash flow was really strong and there's only certain lenders that are willing to do cash flow deals like that. So it's important to, you know, talk to her lenders, the various lenders that are out there and understand what type of banker you're working with because they're not all the same. You know, there are senior lenders that you cash flow loans like this, and there are a lot of them that don't.

Matt Boettner: So that's the senior level traunch. We'll call it or layer just to, you know, we could drill into any of these, but the next level is high-yield debt, mezzanine debt. And the reason we needed to mix in some of that into this deal in addition to the senior debt is that the senior lender is only willing to go so far. Because of the cash flow-based loan, meaning they're lending more money than the assets that are guaranteeing the loan would support, right? Uh, they're willing to do that, but up to a point. And they have a first secured interest in certain assets, that sort of thing typically. And then you get into the mezzanine traunch where those folks are, they're generally, they play a little bit more like equity. They dig a little deeper at a business that higher levels of due diligence, they take more risks and they charge higher interest rates, interest rates that are much higher than senior lenders, but it's not as expensive as giving up equity in the long run. So it's another layer to the cake, right? And then, you know, the, these are kind of being reverse order of nation meetings. The senior debt holder has the least amount of risk if there's something goes wrong with the business, the senior debt holders, you got to get their money back before everybody. The next line is your subordinated debt holders. And then the next in line is any seller financing, because that's typically subordinated to the mez. And the next in line after that is your equity partners. So either preferred equity would be first and then common equity is at the very bottom. So usually the entrepreneur is at that common equity layer or level. So you've got to believe in your capital stack and make sure everyone else is paying.

Ryan Tansom: You think you own your business, right? So I'm curious about aligning all these stars, which is interesting. Did you have any pushback from, because even going down to the seller financing that Joe or anybody else did, you know like you can write some crazy contracts and the terms and conditions. So like you have a lot of cooks in the kitchen that need you to succeed, but they also have to agree that there's that many cooks in the kitchen. Did you have any issues with the senior debtors, the commercial banks, you know, knowing that you were putting Mez financing seller financing on top of this?

Matt Boettner: You have these things called the inter-creditor arrangements or agreements or creditors or really any written agreements that are legal contracts between these various lenders. So all that has to be negotiated and managed. And that's where it's really important to pick lending partners that play well together. Typically a senior lender can refer you to mezzanine lenders or vice versa. That they've done deals with before, so from a process perspective that can make things a lot easier. In our case, we actually got introduced to our mezzanine lender before we met our senior lender. And the mezzanine and the lender said, hey, have you thought about working with these guys, uh, for your senior debt? Because they understand mezzanine, they work really well together. We know them, we've done deals, you know, we know how their contract negotiations are going to go, that sort of thing. And that can be very helpful so if you can key in on one or the other, they can usually refer you into, uh, other layers of the capital stack. And then of I had to negotiate with the seller in this case, my brother, to make that work, right? Because he was going to be at the bottom of that stack and taking the most risk from a debt perspective. For him, though, there was a balancing act. He was both at the bottom of the stack and at the top of the stack at the closing, because he's getting cash, right? He's taking a chunk of that purchase price off the table to kind of lock in his, his gain. So you know, he was willing to balance that out. I said okay, I'm taking a certain money amount of money off the table here. I'm willing to take some risk on the other end of this in order to make the deal happen.

Ryan Tansom: Yup, Yup. And what's based on all the other interviews I've, it's like you kind of hit your target nut to crack when you do that and then the rest is, you know, it's like you said you're getting paid for the risk and so Matt, for you it's like, okay, so I'm just getting flashbacks of my old capital structure and the challenges of making sure you're paying all these people. What was your mentality and your, your, where was your head at is like, okay, like, yeah, I don't know how much, you know, razor thin margins, you had to make sure that you're paying all these people and having capital to invest in the business to grow. So what was your strategy to pay these people off and then continue to grow? What was your comfort level

Matt Boettner: Great question, and out of the gate? I mean, the strategy, the strategy was there was still enough cash flow left over to reinvest in the business, um, so that we could continue to grow. My goal going into it was growth mode. I am at growth entrepreneur. My mindset, my skill set is designed toward and directioned at business development and getting new customers, gaining market share, building the business. And that was always the mindset going into it. And not every entrepreneur's that way, some people are looking for more of a lifestyle business or they're looking for some other arrangement. But that wasn't my view going into this. I'm a growth CEO and knowing that about myself and about the prospects of the business, I had to design the capital structure to, allow for enough dry powder to grow the company. Now even the best way plans, you know, can sometimes go right. And I'll tell you that first 18 months out of the gate, we ended up with one of our key product lines ended up having some problems.

Matt Boettner: You were, uh, not generating quite as much cash flow as had projected. So everybody was getting paid and that wasn't a problem, but there wasn't as much growth capital as I had originally thought there would be in the business. So after being in the desert, so we had to slog through that to rebuild parts of the business to generate that, uh, additional cash flow to then reinvest back into the business. And then subsequently just this last, this last fall here, September 2018, I ended up recapitalizing the business again to provide even more growth capital for the company. So I brought in equity partners to take out some of that debt which has now been paid down personally and so on and so forth. So there was a different calculus that went into that transaction. And uh, um, I have a lot of dry powder now in order to both grow organically and through acquisition. So. And we really grew along the way. So it was, this has been a successful growth story under different capital structures, but always with an eye toward making sure there was some cushion because you have to have cushion, particularly if you're going to layer in debt into a deal. And arguably at one point or another we were a little bit over-leveraged. So you feel uncomfortable when that is happening.

Ryan Tansom: Uncomfortable is one word for it!

Matt Boettner: You'd like to avoid that.

Ryan Tansom: Um, you know, maybe sharing with the listeners, okay, so now you're, you know, when you bought that from Joe and you're marching towards first 18 months and then you know, you recapitalize the business in a nutshell, that's refinancing, right? So you've got high, you've got senior debt, high-yield debt, you have that seller financing and all that stuff. Like, and explain to the list. Because when Brandon had told me, this is why I was excited to have know this whole story on the show is because like most people don't realize that there's 6,000 private equity firms, right? So you've seen one, you've seen one, because everybody has different needs, wants what they're willing to do, not do majority, minority, all that kind of stuff. So what were you looking for in, in this partner? What did they provide you? What was the process you went through to go to find them? And then how did that actually impact like your, your, your debt structure? I mean like as far as like how much, uh, you know, additional room you had?

Matt Boettner: You're right, there's a lot of different types of pe firms and investment firms out there just like there are lenders. It's important. You know, at the surface, lenders all look the same. They lend money and they collateralize it, right? That's how it works. Well, when you really dig down where the rubber meets the road, find out that there are huge differences not only in lenders but with PE firms, so that's a great important point. The criteria that I use, um, when looking for a partner to do my recap was I was primarily looking to achieve two things. One, to align myself with a group that has significantly larger amounts of capital that would allow me to do add-on acquisitions because there's a huge growth opportunity in my industry to do that. So I wanted to take advantage of that. And the best way to do that was to bring in equity partners with deeper pockets. So that was important to me because it was successful. As safe as been, and as much cash flow as it spins off, it's still not enough to do, to roll out a rapid acquisition strategy, you know, over let's say a five year time horizon. So you need outside capital to do that. Uh, so that was an important criteria. Maybe the most important come through is the people you're going to be working with. I know that sounds kind of maybe simple, but we're going to meet a lot of people when you talk to these private, you don't like these people and they don't. Maybe they don't like you.

Matt Boettner: We're not going to work well together, you know, going to board meetings and talking to people that I don't like to work with. So it was really important for me to get to know the teams and I interviewed, I hired, I hired him actually out of Milwaukee, Wisconsin, who did a great job for us. And they looked at a combination of mezzanine lenders and PE funds that did the type of deal that I wanted to do a. So they helped me narrow the universe now. So that made sense. You know, in our case with our scale that of course you pay them a fee to do that and you know that that was well worth it. I'm, I'm a big believer in using intermediaries when they're good and they know what they're doing and you've got a targeted vision and set of criteria.

Ryan Tansom: One of the things you're going to just say it, but was it majority stake or a minority stake that the PE firm bought?

Matt Boettner: Well, in this case it's interesting. It's a layered cake of equity, so a whole nother layer of complexity there, but early on the economic, it's a preferred equity deal. So the economic returns are weighted toward the, the invest — the PE firm that came into the deal. They're going to get a certain preferred return before the common equity holders get theirs, but when it comes to managing the company and, and operations and things like that, uh, I retained control in that sense. So it's a bit more complicated than just, you know, majority or minority. But that's another way you can structure deals in order to get everybody what they need. Right. So in this case, you know, I found a partner that, you know, met some of the criteria I've already mentioned, but that also put enough capital in initially in order to basically take out an additional chunk of debt, know beyond what we had already paid down in order to free up current cash flow. So I not only have current cash flow that I can reinvest now, but I also have a partner with deep pockets that can help us do add-on acquisitions.

Ryan Tansom: So then did it actually free up your actually — did you actually refinance or do you still have the same annual payment? Like debt service payments?

Matt Boettner: The debt service payments changed completely. So my, we still work with. We actually switched. We still have a lender, a senior lender in the deal, there's no more mezzanine financing, so it was just a senior leader and preferred and common equity. So we simplified the cap structure, which is another one of my goals, because of the complexity of the previous, excuse me, cap structure worked well at the time, but in order to achieve what I want to do now for the next stage of growth, it made sense to simplify. And the payments went down substantially. But that comes at a cost we had to give up a meaningful chunk of equity to get there.

Ryan Tansom: Which I think, you know, the moral, that whole story you can so many people met don't understand kind of what you've gone through and trying to build a house with like one tool belt instead of an entire enclosed trailer like you need people don't know what all the tools are that are available to them. And so with the eye on the future, Matt, like what is the, what are the big things that you're accomplishing, you know, if you got any secrets to the, you know, with the growth entrepreneur that you are, that you're trying to accomplish, the things that are working well, what's kind of the, what's the strategy for the pedal to the metal?

Matt Boettner: Having just completed this recap, we finished up 2018 really strong and we're positioned really well to both grow organically and through acquisition and really the vision for All Safe is to bring it from, we're primarily a regional player now from the services perspective that we provide, we want to take that and grow it nationally, coast-to-coast, and become a premier servicer and wholesale distributor for the larger and mid-size customers that are in this gas industry. So part of what I'm doing now is I'm on the hunt for investment opportunities, acquisitions, and we're investing internally building out our sales force, entering new markets both geographically and end user customers. There's a lot of opportunity to, well the ad product lines and new markets. I'm depending on, you know, the part of the country that you're talking about. So we're, we're in a really good position to take advantage of that right now. And the economy's really strong so there's demand for various types of uh, products and services in our industry.

Matt Boettner: So, you know, timing is important and I want to take advantage of that here. Well, well things are going good, you know, as far as kind of words of wisdom on the growth side and being a growth CEO. One of the things I'm always, I'm thinking about is how to connect the vision of what I want, you know, the strategy and the long-term vision to day-to-day actions. That's hard to do and it's even harder to I think communicate that. But I, I look at, you know, one of my primary roles is coaching people like my team to help them understand how their day to day actions play a role in that bigger vision and you know, connecting those dots is just so key to having any organization, you know, be successful in the long run. You know, we all get up in the morning and you know, we have our reoutine and we do what we do. It's important to have those big goals, those long-term visions and to know that, hey, what I'm doing right now is leading towards that and here's how, here's how those things are connected. So I spent a lot of time thinking about that.

Ryan Tansom: It's important. It makes it all worth it. There's context to why you're doing what you're doing and makes things fun.

Matt Boettner: Yeah, absolutely. A lot more fun if you're focused ont getting somewhere.

Ryan Tansom: You can, you can take the punches during the day because you know there's a reason for them.

Matt Boettner: It's worth it, exactly.

Ryan Tansom: If there's one thing that any body that's in your industry that is looking at to, you know, potentially sell to someone like yourself. Any words of wisdom for you or for them and ways to contact you because I think this lends a, a big light into, and I want to make sure you can use this data. How you, how you look at things. Is there anything that you want to put out to the world?

Matt Boettner: Looking at companies, it's important that they understand their numbers and have, have good accounting. You know, we're uh, we're at a stage of growth where it's difficult for us to invest in a company that where we have to come in and build out a bunch of… we have to do a bunch of blocking and tackling or a bunch of infrastructure, basic infrastructure. So I would say anybody at any size, if you're thinking about selling your business to anybody you make yourself more marketable if you have a good set of financial statements that you can provide to people. And they don't have to be complex, but they have to be understandable. They, you know, having them prepared by an outside accountant is helpful. Um, sometimes that costs money and entrepreneurs – they always cost money – and they don't necessarily want to do it depending on the stage or the size of their company. But it can be a really important investment. So, you know, we look for that. I mean because otherwise I have to flip over a lot of reactions to figure out what the cash flow of the business is, and if that becomes too cumbersome, it kind of takes the opportunity out of it or, or I end up discounting the deal. So that's now the seller isn't feeling as good about the price there. That's an important nugget. As far as reaching out to me. I mean you can find me on Linkedin, you know, and my profile is mboettner. Mbo, e t t e n e r. and there's ways to contact me there.

Ryan Tansom: Matt, this has been a blast, man. I really appreciate the, uh, the creative words of wisdom.

Matt Boettner: Well, I hope listeners find it useful and helpful and I really appreciate the opportunity Ryan. It's been great to chat with you and get to know ya. This has been great.


Ryan Tansom: I hope you guys enjoyed that episode. I think it's crucial that if you're a buyer or seller of businesses, you understand the mechanisms and the tools that are available to you for financing because that's how the game is played. And you need to understand those kinds of tools because then you can wrap around the tax plan, the legal structures, the financial structures because you understand what you're trying to accomplish.

And like what Matt and I were saying, I don't know if it was on or off the show, but it's like going in as a carpenter. If all you know is an SBA loan, then all you have is a hammer. Or if you go into the different situations with an understanding like Matt and I were talking about, then you're going in as a carpenter with an entire enclosed trailer full of tools because you know what the outcome is that you want, and then you can use the right mechanisms to accomplish the things that you need to, and then you have the technical advice from the legal and the tax and the finance give you the understanding of how to make sure you're mitigating your risk using those tools.

So the really sophisticated structure that Matt put into place is not for everybody, especially depending on the deal size, but I think it's a good one-on-one crash course of the different things that are available to you. I really hope you enjoyed the episode. If you got any more questions, go to the GEXP Collaborative website. Reach out to me or my team if you want to have a chat about the different ways that you can structure your deal. Otherwise, share this episode. Give me a rating on itunes. Let me know if you have any guests that you think would be great for the show because we're always looking for good content. Other than that, I will see you next week.

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Written by Ryan Tansom

Ryan Tansom

Ryan runs industry-specific podcasts on his website which pertain to mergers and acquisitions, and all the life lessons he wish he had known then. He strives to bring this knowledge to his listeners in a way that is effective and engaging by providing new material each week from industry experts.

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