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 The Value Advantage™ that helps in exit planning, value building and financial management.

About the Guest

Mr. Kingsbury joined MCM in February 2008. His responsibilities include the execution of investment transactions and management of portfolio companies. Mr. Kingsbury is also responsible for the sourcing of investment opportunities, leading the partnership’s e-marketing strategy, web-site design and managing and developing Limited Partner relationships.

Prior to joining MCM, Mr. Kingsbury was drafted by the Pittsburgh Pirates in the 8th round of the 2002 Major League Baseball Draft. He spent six years playing professional baseball as an outfielder in the Pirates organization, participated in the 2004 Summer Olympic Games in Athens, Greece, and was a 2008 inductee into the Fordham University Athletic Hall of Fame.

Mr. Kingsbury graduated from Fordham University with a Bachelor of Science degree in Finance.


If you listen, you will learn:

  • How private equity groups (PEGs) are structured
  • Where private equity groups get their money
  • What it could be like to partner / sell to a PEG
  • How PEGs value companies
  • Understand how PEGS look at potential deals
  • Why a private equity group WOULDN’T buy you

Full Transcript

Ryan:

[00:00:30]

[00:01:00] Welcome to Life After Business, the podcast where I bring you all the information you need to exit your company and explore what life can be like on the other side. This Ryan Tansom your host and I hope you enjoy this episode. Welcome back to the Life After Business podcast. This is Ryan Tansom your host. I appreciate you tune back in. Today, we've got a guest. His name is Bobby Kingsbury. Bobby is a partner at MCM Capital Partners. They are a private equity group out of Ohio and Bobby is on the show today to help us demystify what private equity is, explain their point of view, what works, what doesn't work, how great partnerships work, and then what you should be looking out for as a business owner when you're in the process of looking and vetting out private equities.

There's a lot of confusing things in that industry and in that market and our goal today is to hopefully debunk it or give you the ammunition that you need to go and have a good conversation and start vetting the market. With that said, I hope you enjoy the podcast and if you got any questions or anything you want us to elaborate on, please let us know. How you doing, Bobby?

Bobby: Good, Ryan. How are you, man?

[00:01:30]

Ryan:

Good. Good. Thank you very much for coming on the Life After Business podcast.

Bobby: No problem. Happy to do it. Happy to be here.

Ryan: I'm excited for today because I think private equity is a world that is very mystical to a lot of our listeners and a lot of people out in the marketplace. Why don't you give our listeners a little bit of a backdrop on where you came from and how you got into your firm and then a little bit of an overview of your firm?

[00:02:00]

Bobby:

[00:02:30]

Sure. My background story is probably a bit unique, especially for private equity. I went to Fordham University in New York City. I graduated with a degree in finance, but in the intervening period while I was at school, I was drafted by the Pittsburgh Pirates. I played professional baseball for six years. I was fortunate enough to play in the Olympics in 2004 and unfortunately a shoulder injury derailed my career and was able to meet the founder of MCM Capital, Mark Mansour. I was able to meet him while giving his son hitting lessons and had a life decision to make, whether or not I was going to have another surgery or I was going to "go into the real world." Obviously, I ended up at MCM Capital. I think I made the right decision, although watching the Indians last night and a couple of my teammates really makes me question that decision sometimes.

[00:03:00]

[00:03:30] In any case, MCM Capital's been around since 1992 and principally from 1992 to 1998 we were what some people in our industry refer to as a fundless sponsor. As we look for investment opportunities, as we look for private companies to buy or management teams to partner with, we really didn't have a direct source for the equity. What we did to buy the companies is a company would be under letter of intent and Mark and one of his cohorts would go around in Cleveland to high net worth individuals and ask if they had an interest in investing in this company. They raised capital and then bought the businesses that way.

Ryan: What year did you get involved in the firm?

[00:04:00]

Bobby:

I got started in 2008 so I've been doing it now for eight and a half years.

Ryan: Nice. From baseball to private equity. Like you said, there's not a lot of people that can put that on their resume.

Bobby: It's a little different and nice segue at times to really put your foot in the door and differentiate yourself.

Ryan: Put people at ease. You're not walking in in a big old three piece suit all the time and saying, "Hey. By the way, I went to every single school in the United States."

[00:04:30]

Bobby:

Right. I'm not that smart, so they'll figure it out rather quickly.

Ryan: Before we even get into a little bit more of the history of your firm, why don't you give our listeners a super basic backdrop on what private equity is?

Bobby:

[00:05:00] Private equity is really there's a few different forms that it can take but generally speaking, it is a liquidation option for a private business owner. It's a way to diversify his portfolio by selling all or a portion of his business to a private equity fund. There's different ways that that can happen and maybe we'll go into more specifics later on in the conversation but generally speaking, private equity is a way for a business owner to get liquidity for his or her business.

[00:05:30]

Ryan:

With that being said, is the private equity firm, is it just a bunch of people sitting around with a bunch of money or is it a bunch of suits that are willing to make a bunch of deals? Explain to our listeners exactly what it is that your firm or a firm like yours does and how the whole exchange interaction works.

Bobby:

[00:06:00]

[00:06:30] There's firms that have a lot of different strategies so I can really only speak to ours in more detail. We have eight professionals here. We have what we call deal teams. There's three individuals, myself included, who run transactions which means when we have an investment opportunity, we are the ones in charge of the investment. We're in charge of the equity that goes into that investment. We are all sitting at desks. We're certainly not wearing suits. Here in Cleveland, we're a little bit more laid back and most of the times we wear jeans, quite frankly.

Ryan: No baseball jerseys.

Bobby:

[00:07:00]

[00:07:30] No baseball jerseys. We have our limited partners so where our money comes from, we have limited partners whether they be endowments, universities, pension funds, high net worth individuals, and our own money. We pull that money together so people are giving us their money just like you would a wealth manager and trusting us to make the right investment decisions on their behalf and instead of buying stocks or bonds, we're buying privately held businesses. Our limited partners expect a return on their investment and that's really incumbent upon our judgment and most importantly since we like to focus on partnering with incumbent ownership is choosing the right management team and the right business to really back and put the money behind.

Ryan: How do you find the money that is in this pool of money?

Bobby:

[00:08:00]

[00:08:30] You can hire a placement agent. A placement agent is somebody that will have relationships with all these endowments, with these what people call fund to fund vehicles, with high net worth individuals, and they will go around the country and really tout MCM. "Look at their track record. This is what they've done. This is type of investments that they make," and if it fits with that pension fund, if it fits with their strategy, then they might be a fit for MCM. They would come in and meet with us. They would interview us, really do a lot of diligence on us. Typically, people are committing anywhere from one to 10 million dollars into our fund. In larger private equity funds, some of those check sizes are 100 to 200 million so people are investing significant dollars into private equity funds and again, trusting them with a large number.

Ryan: I think you hit on a couple interesting things that I think is maybe a little bit more ambiguous for business owners where your fund, you're going to the big pension, just for an example, like Chicago Police Department and their pension fund or Allianz Insurance or something like that and you're pooling that all together along with a bunch of other stuff, right?

Bobby: Yes. Exactly.

[00:09:00]

Ryan:

When you guys are having conversations with those people because I think it all kind of trickles down, what are the expectations that you give them for returns for length of their portfolio, how they can liquidate it, and what kind of control that they have versus you have of the money?

Bobby:

[00:09:30]

[00:10:00] When you make a commitment to a private equity fund, they, generally speaking, will lose control over that money so they're trusting it to us. We have a period of four or five years, depending on what you negotiate to deploy that capital. To make numbers easy, you raise 100 million dollars, you have a 100 million dollar fund, generally speaking, anywhere from 10 to 12% of that fund will go into one company and generally speaking, you typically buy between eight and 10 businesses per fund. Ryan, I'm sorry. I lost [inaudible 00:10:03].

Ryan:

[00:10:30] No. I think it's great because just understanding where the money flows is in my world or business owners know it too because the banks are giving them checks. Who holds the funds holds the power, in a very plain English way of putting it. Just understanding who is giving you the money and why and what the expectations are and then how you then deploy it which I think is an interesting word. Why don't you walk us through a scenario of how you guys deploy it? Are you using those funds in that 100 million dollar fund?

Bobby:

[00:11:00] Sure. Typically, it's very similar to buying a house. Generally speaking, for a house you're going to put roughly 20% down, then you're going to borrow the other 80%. You're going to pay it down over 15 or 30 years. Buying a business with a private equity fund is not that different aside from the amount of equity that we put in. Some private equity funds like to maximize leverage which means they will take on as much debt as they possibly can to increase their return. If they're borrowing more money and the company does well, they have less money at risk but they're still going to generate the same returns so your IRR is going to increase.

[00:11:30]

Ryan:

I'm just thinking about the common examples that I've heard of in that scenario in the housing market where everybody was putting almost no money down and constantly using or renting or flipping with lots of leverage or lots of debt.

Bobby:

[00:12:00]

[00:12:30] Yes, which is really the reason why we don't do that. If everybody had a crystal ball, you would maximize leverage. You would take the largest loan possible and put in as little of your own money as you could. It's just based on a risk profile but from our perspective, we've been fortunate enough over 24 years to never lose money on any leveraged buyout we've ever done. The largest part is obviously partnering with the right management team, partnering with the right people and right business owners. The second part of that is also not maximizing leverage because we have imperfect information and we live in an imperfect world. What we like to do is put 50% of the purchase price in in terms of equity and then we would borrow the other 50% so if we're buying a company for 20 million dollars, we would put 10 million dollars of our own money in and then work with our banks to loan us the other 10 million dollars.

Ryan: That's if the business owner was wanting to just walk away, correct?

[00:13:00]

Bobby:

[00:13:30]

No. There's different capital structures in different situations but generally speaking, whether the business owner wants to stay or he or she wants completely out, that structure will hold up. Most private equity funds I would tell you would be anywhere between that 30 to 35% equity and they would borrow the rest. It's also a function to your point earlier of where the lending market is, where the financial market is. As banks' risk appetite increases, they're willing to provide more leverage to a specific business or to a specific transaction. I don't know if your listeners understand or not but we buy businesses based on multiples of EBITDA so your earnings before interest, taxes, depreciation, and amortization. We ascribe a multiple to that business to determine value.

[00:14:00]

Ryan:

Those multiples, I think this is a perfect segue into it because I think a lot of people are familiar with multiples. I think the big, huge, black boxes help people determine them. There's industry. Their buddy told them at the golf course what they got for their business. Why don't you walk us through how you guys go about determining what that multiple would be?

[00:14:30]

Bobby:

[00:15:00]

Yes. To your point, Ryan, it's always a very tough thing to do because one, you're offering a fair, in your opinion because it's obviously subjective, a fair value for a particular business and for most business owners and entrepreneurs that is his or her baby so you don't want to offend them by offering something low. You want to pay a fair value for your business. Like you mentioned, it's based on an industry. It's based on size of a particular business. Smaller businesses generally command a smaller multiple because it's much more risky.

[00:15:30]

[00:16:00] Larger businesses tend to command a higher multiple. Businesses that are serving the aerospace and defense markets, businesses that are life science, bio-pharma, those businesses tend to generate higher multiples but for what we do which is your brick and mortar, it's your niche manufacturing and value added distribution, those businesses, depending on your customer base. Is it diverse? Do you have customer concentration? Depending on your gross margin profile which we use to determine a company's competitive advantage or their competitive position, all those factors play in and generally speaking with manufacturing distribution, companies anywhere from two to eight million of EBITDA will trade from somewhere around five to eight times would be a good number.

Ryan: The rule of thumb as they like to call it.

Bobby:

[00:16:30] Yeah. There's going to be times where the market's overheated. I would not tell a business owner if he or she is not ready to try to time the markets, the same thing that you would do if you're looking at stocks. You don't want to time the market. You want to exit your business when you are ready and I think that's the most important thing. Exit the business when you're ready for a fair value and most importantly, if you are going to stay with the business, really understand who your partner is.

Ryan:

[00:17:00] I think you hit on a huge piece of crucial information right there which is when you're ready. I think there's this like, "When are you ready?" My dad and I experience which is we were burnt out, therefore we were ready which means you have a lot of stuff that you haven't done properly. There's this sweet spot where you can start doing certain things. I think I want to start with asking a question which is why do you see deals fall apart? You said all those factors relay into a higher multiple but how many deals do you guys see a year and what are the things that are happening that you just can't absorb for the risk or that results in a failure of a deal?

[00:17:30]

Bobby:

[00:18:00]

[00:18:30]

It's a great question. How many deals do we see a year? We typically see between four to five hundred deals a year so businesses that come across our desk. The ones that actually fit within our criteria of two to eight million dollars of EBITDA and 15 to 75 million in annual revenue and are manufacturing and distribution businesses, that number then would get dwindled down probably to about 225. We go down the path, we become interested in roughly five to 10% of those. We'd be looking hard at maybe 10 to 20 companies a year and for one reason or another, maybe it's valuation expectations, we don't get to the letter of intent stage. When we get to the letter of intent stage, it goes from 225 down to 20 to probably about five businesses, four businesses a year, and we close two of them.

Ryan: That's a lot of work to get those two deals.

Bobby:

[00:19:00] It's certainly a lot of work to get those two deals which is why it's very important to develop a relationship with the business owner, entrepreneur, really understand his or her goals, what they're trying to accomplish, and if us as a private equity firm, if we can be value added to them from that perspective if they're willing to stay on. If they want to retire, that's a completely different scenario.

Ryan: Going from 10 to 20 deals down to two, what are the things that stick out? What are the skeletons in the closet? What are the major red flags that you guys are coming across that push them into the not interested category?

[00:19:30]

Bobby:

[00:20:00]

[00:20:30]

First and foremost, a lot of times it's purchase price. That's something that you have to get past. What we don't like to do is a retrade. If we bid a number or we present a number to the business owner, entrepreneur, we would like to stand by that number. Sometimes things happen during diligence where the numbers aren't what they were represented and obviously you have to take a look and really reevaluate your offer but purchase price is number one. Second is a lot of times it's cold feet. Some business owners or entrepreneurs after going through this process realize that maybe they weren't truly ready to sell. What are they going to do post-acquisition when they've been involved and working so hard in their business for 20, 25, 30 years? Now they have to go home to their spouse and then they just sit there and twiddle their thumbs. They don't know what to do. That's certainly an issue.

[00:21:00] When we get down that far, other times it's us really looking at the business. Can we pay that number for it and where can we take the business? Most importantly, where can we take the business? As we discussed at the beginning of the call, we have fiduciary responsibility to our limited partners. We have to provide a return. The historical numbers are exactly that, historical. We're not buying the past. What we're buying is the future and can we generate a great return, invest in the business, buy new equipment, invest in sales and marketing, operationally, new commercial development? Can we do these things to really increase the value of this particular business?

Ryan:

[00:21:30]

[00:22:00] I think that's a very interesting comment because from my experience, from people I know, when the business owner's getting ... I always relate it back to remember the last week of school and you're just like, "I'm done," and that's when finals are and I know that sounds like a super elementary analogy but it's the mindset and the business owners that I've experienced and worked with, they don't realize that someone else can take this. They've got bigger pockets, they've got more resources, and what will that do for them? Really having to get your mindset into their world to actually show you that. Do you see a lot of business owners that are showing you that or do you have to go in and figure that out for yourself?

Bobby:

[00:22:30]

[00:23:00] I would say it's a combination of both, Ryan. Some business owners have a clear idea of where they would like to take the business but the problem is is they feel like they're hamstrung. They've taken so much risk over so many years and they've really increased the value of their business. Do they want to sign the dotted line again, personally guaranteeing something, whether it's a new piece of equipment, whether it's investing in new commercial development for a new product, hiring a VP of sales, a CFO, an operations manager, making those HR investments, or do they want to continue to wear the same hat because they know the job's going to get done right? In our world, we see a lot of these business owners have the idea, they're just done taking that risk.

On the other side is a lot of times a business becomes of size where it really outgrows them and they don't know what to do and they feel like if they don't get help soon, bring on a partner or sell it, they may lose that value as well because the business just has become so large that they might not be able to handle it.

[00:23:30]

Ryan:

We got a spectrum of personalities within the owners and I think it's a good representation of the people that are out there where you've got the guy that wants help and has a clear idea, then you got the guy that's just done and then there's the guy that just knows that he needs to take it somewhere else but doesn't know where. I think in my mind that represents the spectrum of financing too and how the deal is structured. Can you give the different ends of the spectrum of how you're dealing with those different situations?

[00:24:00]

Bobby:

[00:24:30]

Yes. For the person that is done, they want to roll up their sleeves and be finished, in those situations you structure something and it's 100% buyout. In the private equity world, you need to have either a really good number too that's already in place at the business or you need to have a CEO within your network that you know that you can go ahead and bring into the business and culturally it will align. He'll get along with the employees and he'll really drive growth. Generally speaking from a private equity standpoint, when somebody wants 100% out, it's a little bit tougher situation for us.

[00:25:00]

[00:25:30] We will capitalize the structure accordingly but what we like, especially at MCM, is something called a leverage recapitalization where the business owner is anywhere from, pick a number, 50 to 65 but still has a lot of gas in the tank. He or she loves what they are doing but again, they have this risk profile. They've built up a significant value in their business and they'd like to take some chips off the table, monetize some of that, so we would buy anywhere from 60 to 70% to 80, whatever the number is. From a private equity standpoint, that number, 60, 70, 80, 90%, we just need to know that that business owner is going to continue to be engaged.

[00:26:00] You brought up a point earlier about being the end of school, the finals, and done. You talk about giving a business owner 20 million dollars and do they really want to still run as hard as they did before? Some have that competitive spirit. I know you and your dad would compete against each other and continue to run as hard because that's the way you're wired. Some business owners, entrepreneurs, they're done. We call it something I don't want to repeat here but it's-

Ryan: We'll maybe put it in the show notes.

Bobby:

[00:26:30]

[00:27:00]

[00:27:30] It's called FU money. When somebody gets FU money and all of a sudden if things don't go according to Hoyle, they just don't want to run as hard and you can't blame somebody for doing that. What we like to do is have all of our interests aligned so whatever meaningful number, if we're buying 60% of the business and they're getting whatever the number is, say it's 10 million bucks for 60% of the business. When you look at that 10 million dollars of their net worth of their plans, what number would they like to reinvest into the business on a go forward basis? We have to look at that business owner and say, "Yes. That's meaningful to him," or ask that business owner. You kind of get a pretty good idea. If he's getting a check for 10 million dollars and he wants to invest 500,000 dollars back into the business, you have a feeling where they're about done but if they want to invest two and a half, three million dollars back into the transaction, you know you have something. That's a lot of money and meaningful dollars that you're going to get that person's 100%.

Ryan: I think that brings up to mind to me the analogy that everybody brings up which is two bites the apple. You want to crystallize what that means?

Bobby:

[00:28:00] It's an opportunity for a business owner in a leverage recapitalization situation where they can take some chips off the table. As the last example, you're taking that 10 million dollars off the table, you're reinvesting two and a half million dollars into that business on day one. Say that gets you 25% of the business going forward. Five years later, we continue to grow that business and instead of 10 million dollars, now you're getting a check for 40 million. The business is worth 40 million so now you're getting 25% of that 40 million bucks.

[00:28:30]

Ryan:

You're getting another 10 million bucks. That's a pretty good return.

Bobby:

[00:29:00]

[00:29:30] Sometimes it happens like that. It doesn't always happen like that. I don't know if this is too much detail but a structure that we use is if a business owner really wants to stay involved in a business going forward, it's generally not that two and a half million dollar reinvest. What we like to see and a structure that we do is if we paid somebody 10 million dollars and we wanted them to retain 30 or 40% of the business, they would get 30 or 40% of the common stock for 30 or 40,000 dollars. The difference being is if somebody offered 15 million dollars for a business and it required them to reinvest five million dollars so their net is 10. Do you follow me so far?

Ryan: Yep.

Bobby:

[00:30:00]

[00:30:30] If their net is 10, we would offer 12 million dollars for that same business and we would ask them to reinvest 40,000 dollars to get 40% of the business. The reason we do that structure is one, what we like to do is have everybody's interests aligned so that business owner didn't do it by their selves. They had a team of folks that helped grow that business. Again, we all like to be rolling in the same direction, have everybody on the boat and headed towards one goal, so what that allows somebody to do is that those key executive managers, those VP of sales, CFO, Chief Operations Officer, whomever the business owner deems very appropriate, it provides us a chance to give them some equity. We typically set aside eight to 12% of the equity for that key executive group and now giving a VP of sales 2% of the business, he only has to write a check for 2,000 dollars versus getting 2% of the business, having to write a check for, I don't know, call it 200,000 dollars.

[00:31:00] Generally, they don't have that kind of money in the bank to be able to write that check going forward so it's a way for one, us to really provide some liquidity for the business owner and have a significant equity ownership or upside second bite of the apple going forward for a small, a nominal amount, and also provide a way for the key executive team to get some equity as well.

Ryan: I love it. It's all a big old Rubik's cube of money and interests and getting everybody on the same page is just totally key.

[00:31:30]

Bobby:

[00:32:00]

Exactly right, and then we put together if somebody doesn't have it or a business owner doesn't have an incentive-based comp plan, we instill that as well. We will never take something away when we get involved in a business. We would only increment. You can't go into a business as a new owner and say, "Oh, yeah. By the way, that extra 1,000 dollars a month that you were getting as a bonus, no, we're taking that away." That certainly doesn't bode well for employee morale. If something isn't implemented into the business, we would instill an incentive-based comp plan on top of that key executive comp where the CEO gets a bonus, that person sweeping the shop floor gets a bonus. If the person sweeping the shop floor does not get a bonus, neither does the CEO.

Ryan: I like it. I like it a lot. It's commissions and incentives drive behavior.

Bobby: Yeah. Show me how I'm incented and I'll show you how I'll act.

Ryan:

[00:32:30] Now that we're discussing behavior, what are some of the challenges you've seen. I don't like to work for other people. I know that. I'm speaking on my own behalf. How do the owners and the key managers, how do you integrate the cultures and the management teams because I'm not speaking on your behalf but a lot of buyers that I've talked to, it's the culture fit. It's, "Can this guy work for us?" Yeah. The whole financial model might work together but how do you deal with the people factor?

Bobby:

[00:33:00]

[00:33:30] Ryan, you hit the nail on the head. Culture is extremely important. If I were to talk to business owners, first thing I would ask them is do you get along with this private equity fund because at the end of the day if you're staying on, it is a marriage. It is absolutely a marriage and, to your point, some people cannot work for anybody else. When we get involved with a business, yes, you will have a boss, maybe for some people the first time in their life, others, for the first time in a really long time but how we interact is we do not micromanage. We are more hands off. We look at a business as a stew. The management is the meat and potatoes and we are the salt and pepper. We add value where we can. We do not micromanage. We do not make HR decisions for the CEO. He or she will win or lose with their own management team.

[00:34:00] They will be held accountable. If the business is not performing, there has to be a change made but if the business is performing, generally speaking, you're not going to see a CEO get fired. Some private equity funds alternatively like to really be hands on.

Ryan: Rip and replace, I've heard. There's a lot of horror stories out there that you've heard.

[00:34:30]

Bobby:

[00:35:00]

Yes. There are certainly some that do that and that's why I would really stress and really understand the private equity fund that you're partnering with, who they are as people, get to know them. Do they have families? Do they have kids? Talk to prior CEOs that they've partnered with before in the past. Some will say, "Yes. We do leverage recapitalizations all the time with incumbent ownership," and then if you ask them to speak to some of their CEOs, every single one of them is replaced. That will give you a very good idea. In some cases, the CEO says, "I'm going to give you two years and I'm done," but you just don't talk to the private equity fund to say, "The business owner that you bought the business from and the current CEO, would you mind if I spoke with them?" If a private equity fund is worth their salt and they're good people and they believe in what they've done and helped add value to a business, you'd be happy to give them that contact information.

[00:35:30]

Ryan:

[00:36:00]

[00:36:30]

I think for our listeners too, it's a really refreshing strategy coming from you. You guys are true partners and just a little bit of a side note is there's a lot of horror stories out there but it's a lot of the rip and replace but if you think about as a business owner, you're still leveraged by your bank. Your bank still could pull your note and I've been on the sides of those conversations. You still technically have a boss and even people that have AR financing where they've got an asset-based lender who is collecting for them, that's even possibly more of a boss than in your situation where we never knew that the private equity world really existed. We did. We had some exposure to it. It was not great but if we would have found a partner and said, "Holy cow. Someone with bigger pockets that actually can accomplish my dreams," it allows that person to expand their horizon and not just go get a check from a bank because in essence, it's kind of the same thing.

Bobby:

[00:37:00] It's to help you. At least we would hope we're more involved than a bank from the standpoint that we want to help grow the business. Obviously, we've invested a lot of our money from our LP base and ours own personally into this business. We want to see it succeed. There's a lot of business owners that may not be able to handle, like we said, having a partner but really understanding who they are, how they're going to act is vitally important.

Ryan:

[00:37:30] I think you had mentioned that your niche is manufacturing and finding the right partner in the right industry too because I mentioned I don't ever like bosses but if I would have had the opportunity that someone could have slingshotted me into the industry and made the right contacts, you all sell more together and then that's more of a team so technically you don't "have a boss," you'd have a partner.

Bobby:

[00:38:00]

[00:38:30] Yes. That's the way that we look at it. Ultimately, is it our decision to hire or fire the CEO? Yes, but we really, really view our transactions as a partnership with incumbent management. We realized long ago and I said it at the beginning is that we're not that smart. We did not build that business from the ground up. We did not run it for the last 20 to 25 years so what makes us think after doing 75 days of due diligence and maybe owning a few other portfolio companies that we would know how to run it better than he or she did for the last 20 years? Because we're exposed to so many different companies that a lot of companies share the same growing pains and issues and can we bring things to the table? Absolutely, but I'm not pretending to be an engineer. I'm not pretending to be a VP of sales or marketing. I'm not pretending to be the CEO. It's more from a board level and really trusting that person to run the business.

Ryan:

[00:39:00] Which I think just to put an exclamation point on this is the key management team and the number two, if a person wants to walk away a little bit more a little sooner than they wanted to, having that key management because that'll be the glue that interlocks you guys.

Bobby:

[00:39:30] Yes. If you think four or five years down the road, you have to when you're working with a ... Take the old adage, you always want to hire people smarter than you. At some point, you're going to be done and you want to see that organization continue to thrive so grooming a number two is not just a good idea for the business owner now but it's a good idea for the business owner after they've partnered with a private equity fund because most of the time that business owner it's they're getting that second bite of the apple. We've had a few business owners who were younger at 50 and they've gotten two, three, and four bites at the apple.

Ryan: They're nice and full.

Bobby: Yeah. Generally speaking, it's going to be that one bite of the apple and you really want to make sure, again, who you partner with is key.

[00:40:00]

Ryan:

To leave our listeners with one bit of advice or something we haven't covered, what would it be?

Bobby:

[00:40:30]

[00:41:00] That's a very good question. Really understand what your business is worth. Take emotions aside. Take conversations that you have with others that have sold their business before in context and really do your diligence upfront. For most owners and entrepreneurs, this is a once in a lifetime event. You do not want to have regrets. I know money on paper, somebody's looking at your business, "Well, this person offered me 25 million dollars for my business. Well, this person offered me 20 million dollars. I'm going with 25." Now that 25 million dollar experience may not be the best of choices. Really understand who that partner is. If you're going to sail of into the sunset, God bless you, take the money and run, but if you're really serious about staying with the business, diversifying your risk, getting that second bite of the apple, really understand who your partner is and all those questions should be addressed before the transaction happens, people want to say, "Before you become pregnant."

[00:41:30] Do not go so far down the path that you feel that you can't pull yourself out and at the end of the day, if you do feel that way, you can always say no. You can pull back. Don't feel like you've gone too far down that path and, "Oh. We've spent a couple hundred thousand dollars on all this and we're really close." Don't do that. Don't make that mistake. This is a once in a lifetime event in your life. Make it right and have no regrets.

Ryan: Absolutely fantastic advice. Bobby, where can our listeners get ahold of you?

[00:42:00]

Bobby:

At Bobby@MCMCapital.com

Ryan: Thanks for coming on the show.

Bobby: No problem.