Peterson Partners Transcript

 JR De Agostini & Max Artz, Peterson Partners – Transcript

I’m really glad you guys were able to join. I wanted some more strategy or search specific episodes that weren’t necessarily the full picture, but really zoomed in on one in particular. So for me, owner outreach was really interesting. I’m glad you guys are able to join and talk about it. Do you want to first, taking turn by turn, go through your career so far and how you got interested in search and then how you decided to focus on owner outreach at Peterson?

JR: I was in the military for a lot of years, and then I went from the Navy to undergrad and then business school directly. And Joel was one of my professors at the GSB, Joel Peterson, the founder of our firm. And that’s where I met Max. We actually met in Joel’s class. From there, I don’t know how it is for most veterans, but I found that a lot of veterans kind of got pushed into consulting or investment banking just to get some of that formal professional training in the private sector and highbrow business. And so I went to JP Morgan, I went to the healthcare group, the investment banking division in San Francisco. And I was there for just over a year before Joel and the Peterson Partners team recruited me to actually do an in house search at Peterson Partners. And I don’t want to steal any of Max’s thunder, but the team was looking at Max to run a portfolio company simultaneously.

And so Max and I started talking because we’d become friends in business school, and we talked about the prospect of doing the search together. I was able to talk him into, and this is a huge point of pride for me, that I was able to talk Max arts into moving from New York City to Utah, to work with me. And I think Park City had something to do with that. But he came out and we started doing a search. We sold half our units. So Peterson Partners owned half of our search, then we sold the other half of our units to some of the usual suspects in the search world in terms of investors. Simultaneously, what was happening is that Peterson Partners private equity was raising a larger fund and it wouldn’t be able to write search size checks anymore. There was some conversation in the office about raising a new micro-cap/search fund so that they could continue that strategy that they’d been doing for 20 plus years.

And Max and I had a lot of success in sourcing at that point in a short time and kind of earned enough street credit to be a part of that conversation, and they asked us to raise the search fund, a micro-cap fund, and to kind of head those efforts for Peterson. So that’s kind of how I got to where we are.

Max: Yeah. Zero stealing of the thunder, JR. Yeah. So a very different kind of background experience. I started out at the Royal Bank of Scotland in banking and international banking there. I say international because they ended up going to China and working for the bank in Shanghai for about six months, fell in love with China and out of love with banking. So I kind of was in China. I was learning the language a bit and in the meantime, looking for a job. I ended up getting hired by a New Zealand home goods company to run their factory about an hour outside of Shanghai, making home goods like candles and scent diffusers and room sprays, things like that, which I didn’t know much about. But I was there for about two years, wanted to come back to America. I missed my friends and family and thought business school was a good route for that.

I applied and got it, and that’s where I met JR. Right after business school, I joined a startup for about half a year. And then I got the call from JR and I think he kind of explained the rest of the story.

I’ve seen that there’s a lot of former military searchers. Is there something about the military that prepares potential searchers for running a search? Is there something unique about that experience that helps them a lot. JR, I’m sure you can speak to that.

JR: Definitively, I don’t know. I can tell you that as investors at this point, we like to think that it shows some grit, which I think universally is thought of as a prerequisite to being a good searcher. Whenever you can look at a searcher’s background and find evidence of leadership, especially leadership in ambiguous situations where people don’t know exactly how things are going to go, I think that makes investors feel safe. And I think a lot of the personalities that go into the military, depending on what you do in the military, kind of look for opportunities to be a leader in those environments. And so I think it’s the same mentality that led them to join the military to lead in those situations is probably the mindset that they used when they decided whether or not to do a search is what I would guess.

So did you find it useful when you and Max did your own search fund for a little while? Did you feel like it prepared you and you had a certain skill set that was pretty handy then?

JR: Yeah. Look, I mean, in some ways, I think tremendously. In other ways, you’re way behind. Max and I used to talk about this a lot more a couple years ago. But I think for military veterans, if they haven’t had a lot of experience in the private sector, it’s like going to work in a new country where you don’t understand the culture quite the same. None of it’s insurmountable, but it takes a minute to figure out the way people communicate differently and what they communicate about and how the conversations are had and what the goals are. And so I think they’re at a disadvantage in that way. But I think in terms of raw leadership skills, if they were a decent leader in the military, I think that translates pretty well. I also think when it comes to sourcing, which I think we’re going to talk about more, I think it helps quite a bit. And I think if you’re buying a mom pop business in the Midwest, I think there’s some comfort around talking to a veteran sometimes and I think it helps quite a bit to talk to people like that.

I think people in businesses in the micro-cap space can be intimidated by a suit from Wall Street, and you hear the exact opposite of that coming out of the military.

Yeah. That military respect can be a powerful ally for you. So then in your search, specifically talking about owner outreach, how did you guys first go about doing it and then just within your own search before Peterson Partners, how did you guys approach it and then how did your experience evolve as your search went on?

Max: Do you mean in terms of sourcing?

Yeah, yeah. Sourcing, excuse me.

Max: Yeah. I mean, I think we really didn’t know a specific vertical or industry that we wanted to get into and we were very well aware of that. And so our whole kind of thesis was, well, there’s probably verticals and niches out there that we don’t know exist today, let’s go try to find those and sort of cross the river by feeling the stones. We started with some wide criteria. So maybe it was commercial building compliance, or maybe it was some type of servicing business and we would go out. Find targets and start to reach out to them. I think the key there is that we try to sort of have an angle in these owners are getting approached by buyers all the time. So we really try to figure out a way to differentiate ourselves, but the strategy and kind of… I guess, let’s say we didn’t have a specific vertical or strategy in mind. It was more, the process was the strategy.

I don’t know if you have anything to add, JR.

JR: No, I think that’s right. I think this is distilled at this point and we can talk about it more clearly now, but I think it’s about converting a cold lead into a relationship. We were decent at that. It’s a bit of a sales job. We always say that sales in business school is kind of a dirty word. People associate it with a used car salesman or something along those lines. But it really is. Search is a sales job in the beginning, especially the sourcing piece. So we put a lot of thought around the process and around, how do we put people in a position where we can convert this into a relationship and how do we get people to open up and how do we connect with people on a more human level in the hopes that they’ll want to sell to us because we have a relationship with them as opposed to the structure of the deal?

I think if you’re competing against PE for a deal, for example, that’s the only way searcher is going to win.

Max, in that first outreach to an owner, whether it’s an email or a phone call, what do you tell searchers about how to differentiate themselves and how should they come across? How do they describe what they’re doing? Do you want them to use the word search fund or not? And what are your guidelines for that first contact with an owner?

Max: Well, I’ll answer one of your questions that you had in the middle of their first. We don’t advise using the word search fund in the initial outreach. It’s just another thing to explain and can get a little complicated and lose sight of the goal. Our whole kind of thought is break it down into steps. The point of the initial outreach is to just get on the phone with the person. And so with that goal in mind, what is it about you that actually makes you special, or you, you, I guess? These owners, and we know this, anecdotally a bit from other searchers, but we’ve reached out to thousands of owners at this point. They get approached all the time every week. And if your email is just, I’m looking for a business with one to three of EBITDA, looking for a graceful exit to carry on your legacy, it just gets buried.

So you need to be a little bit differentiated in the beginning, but also not overwhelmingly kind of cocky where you sort of start to sound braggish if you start to talk about your accomplishments or what makes you special. It’s a fine line and searcher is different.

Yeah. JR, do you have anything to add there?

JR: Yeah. I think the only thing I would add is, we encourage our searchers and we try to do this, we encourage our searchers to spend a lot of time in the beginning and figure out what their pitch is. We have some searchers who they’re geographically focused and their pitch is that they’re from Texas and they they’re that kind of guy and they’re talking to that kind of business owner and it works really well, and they get along. We have other searchers that are veterans and they’re going after veteran-owned businesses, et cetera, et cetera, you can pick a category. And the more that they focus on their pitch and their story and who they are, the easier it’s going to be to connect with the right kind of seller.

And the other thing I would say is tone. Tone is a big deal in the email, especially in the beginning. Have a human touch to your email and don’t make it about the financial metrics. We did a lot of AB testing and we found that the right tone for the right industry goes a long way.

So JR, do you have an example of what an initial email might sound like?

JR: We are very quick in the beginning of the email to say, hey, this is who I am. I just want to get on the phone with you. And then we usually throw out a brand or two. We have an advantage of Peterson Partners now because we have a portfolio of companies that have been invested in over the years. But we’ll throw out a couple of brands so they take us seriously, investments that they might’ve heard of. And then we’re very casual in our tone. We’re very, hey, we’d love to talk to you on Thursday or Friday if you’re available. And it’s really not much more to it than that. We just try not to sell them on the idea of search in the first email. I think that’s a mistake a lot of searchers make, they try to explain the entire concept and propose on the first date, if you will.

And we’re just very upfront with the idea that we just want to get on the phone with you and start a conversation.

Which searchers should conduct an owner outreach strategy? And what kinds of searchers should just stick to brokers?

JR: I don’t know. What I will say is, what we have found is we like searchers that have that charisma, that ability to sell. We think that’s a crucial component to being a successful searcher. But we’ve also found, and I’m going to kind of talk out of both sides of my mouth here, we have one searcher, for example. Non-traditional background, he actually went to law school and then he was a consultant for a lot of years. This guy is so steeped and so knowledgeable in the healthcare sector. He’s actually a bad example because he’s actually very personable and charismatic as well. But there are searchers who are so, so deep in one vertical and one industry. They know it so intimately that I don’t know if that charisma matters as much because they’re able to connect with people within the industry because they actually know what they’re talking about in a way that most searchers can’t replicate with a few months of research.

So those are kind of the two buckets, at least I think of them. The charismatic sales searcher, and intellectual horsepower and all that aside, they’ve got to have that variable. And then that engineer who’s so, so knowledgeable in one specific vertical usually does well, if that’s the thesis they’re going after as well.

Anything to add, Max?

Max: No, I don’t think that who the searcher is really should determine proprietary who’s broker. The answer really is both.

What about geographic focus or industry focus, should that dictate whether they do an owner outreach strategy? I could see a searcher focusing on one specific region doing great with owner outreach, but one with the resources to do more nationwide searching and more of a generalist approach, maybe they don’t have that specific healthcare focus like that one searcher you talked about, but they just want to find a great business somewhere. Could that person perhaps be a better fit for the broker strategy? Or is there an element there that I’m missing?

Max: Yeah, I actually don’t think that it really matters that much. I think if you do have a geographical focus, sometimes it does help to engage brokers just because their networks are generally… I’m so not sure, but can be localized. But I really don’t think it should impact the types of outreach that you do.

Once they have an owner on the phone and they schedule that first phone call, what should be the two or maybe three things that they want to accomplish in that one phone call?

JR: Yeah. I think what we always say is the point of the phone call is again, not to convert them to the idea of search, but just to get the NDA in place. And the point of the NDA is just to get a peak of the financials and then you can make a more informed decision about the specific business you’re looking at. The first phone call for us is just establishing rapport, that’s 90% of it. And then answering the obvious questions. If you can get revenue and EBITDA, typically they don’t know what EBITDA is, but if you can get revenue and cash flow out of them and a basic understanding of what the business is and why they win, and if you still think it’s worth asking for the idea in the financials, then move forward from there. But it really is just about that rapport.

And we usually end our first phone call by saying, hey, let me send this on the ADU. Let’s red line it back and forth, and I’ll bring you a few options in a week or two after I get a peek at your books. And if it’s worth talking, we can do that, or we’ll part as friends.

And Max, in our phone call, we talked about how a lot of the times in that first phone call, the owner is pretty much willing to share a lot of stuff if they’re even somewhat interested. What kinds of stories have you heard from searchers about that first phone call and how well do they usually go? And then how do you build that rapport with the business owner so that they’re comfortable during that phone call with you and perhaps it’s a matter of just ask short questions and let them just let them go and not be so worried about jumping in with a question, if there’s a pause in the conversation. Just going from tactics, how should they think through that phone call while it’s going on?

Max: I’m wildly reluctant to keep this dating analogy going, but I will say one thing that we’ve learned in kind of establishing that rapport is being really honest, one, and being humble too. So I think when searcher phone calls, or even just any general outreach phone calls go poorly is when you try to overextend yourself and kind of prove or persuade the owner that you’re worthy. I know X amount about X industry, or this is why I’m capable. It’s mostly, I’m just trying to learn from you. I don’t know much. That’s why we’re on the phone. And when they say, well, how’d you find me? You just very honest, tell them how you found them. The second you start trying to create some sort of story of what you think they want to hear, it goes pretty poorly pretty quickly. JR, I think you’re particularly good. I don’t know if you want to weigh in on that point.

JR: Yeah. I think Max said it perfectly. I think we all grow up in the professional world, I mean, especially non-veterans. You’re taught that by not making a single mistake in an email or a PowerPoint slide and by never talking out of turn that that’s how you prove you belong at the grownup table. And along with that, we feel this pressure to show them we know about the industry and we’re smart and we understand their business. I think that they’re going to assume you understand M&A better than you probably do, and you don’t need to prove that you’re smart in their industry. I mean, do your research. Do your homework so that you’re knowledgeable and the conversation is productive. But don’t make it about proving to them that you understand the space. Just be honest and humble like Max said, I would say.

Obviously, there’s been lots of changes in the last few months with coronavirus throwing a lot of things out of whack. What have you been advising searchers to do? And then what are some interesting strategies that searchers have used to get ahold of owners? And perhaps even jumping before that, how did you advise searchers to either continue outreach as March and April went on, or should they stop outreach because it might seem like you’re out of touch? Or what have you been advising owners or… Not owners, excuse me. Advising searchers to do?

Max: Yeah. I mean, look, so when everything kind of hit the fan in mid March, all of our searchers stopped outreach entirely for pretty obvious reasons. You don’t want to go talk to a seller about selling their business when it’s on fire. So I’d say I reached off for about a month or so, and then probably about five, six weeks into it, we were advising our searchers to sort of go back to former outreach targets. So folks who they’ve already come in contact with and just sort of talk about how they were doing, if there was a way for them to help some time in advisory capacities, sometimes in, here, I put together all these resources about PPP funding or whatever it was, and just sort of try to stoke old flames, I guess. That actually worked pretty well for several of our searchers and actually including us, some of our old proprietary outreach contacts that it went pretty far. And then I’d say probably about June, early June, searchers started to do outreach back to full speed. And I’d say the reply rates are pretty much where they were before the pandemic.

If they’re going to be offering consulting type help, what are owners usually requesting or what kinds of help do they need the most right now?

Max: I mean, I think it’s more about the act of offering than it is about the actual help itself. I think you mentioned this on our first call about searchers actually going in as like consultants. I haven’t heard of that, but mostly it revolved around, here are some resources for PPP funding, here is a contact that I know at so-and-so bank, or that sort of thing. But it was more about the offer to help than it was about the help itself.

Do you think searching is going to change in any substantial manner from all of this? Or do you think old tactics are still going to be just as successful or is there perhaps a new one that’s emerged that you are particularly interested in?

JR: I think there’s this ongoing debate in the search community about whether to be super personalized or whether to kind of take a big numbers approach and to blast a ton of emails out and just kind of churn through contacts and leads. And pre-corona, post-corona, I think what’s always happening is depending on the target industry you’re looking at, you have to make an educated guess as to which approach you’re going to take for each industry. I think with corona, it was easy to slide down the scale towards being super personalized, very sensitive, very cautious. It’s a much slower approach. If you do it right, it can be effective, but you have fewer shots on goal. Pre-COVID, a lot of people were doing big numbers. So I think it depends on the industry, I think it depends on the personality of the searcher. I think there are a couple of variables that are different for everyone, but it’s always on that scale.

There was a call, I think it was a month ago, with much of the search community that Jay and Jason Pananos put together. And they had some of the assuring guys and a lot of the big name search investors on the call. And I can’t remember who was talking about this, but they were discussing how they found that even in the big numbers approach, you’ve got to spend some time on the personalization, especially in the current environment. But there is a point where it becomes unproductive. And again, the personality of the seller in a medical industry or medical vertical is very different from somebody in oil and gas. So I think you have to consider all of those variables and make a calculated choice for each industry you go after.

Max: Yeah. I mean, the one kind of giant question mark here is, when you are looking to buy a business, a lot of the magic and rapport, whenever you want to call it, between you and the owner happens in the room, when you first meet that person or people. You get a feel for the business, you can kind of walk around and see if what they’ve said is actually holding up and also see how well you’re getting along with the owner. I’m not sure how that’s going to go given the environment today. And I’m not sure Zoom is actually a good replacement for that. That’s going to be a pretty big change. Not to say anything more of diligence too, right? That’s a whole another issue that searchers are going to bump into, which is how do you actually diligence of business onsite? How do you connect with an owner? How do you talk to the right employees? How do you get a feel for those intangible things if you’re not actually in the office?

And maybe that gets solved by the end of this year or next year. I think it’s fairly difficult to replicate on Zoom.

Max, on that point, I’ve heard from a lot of searchers who’ve tried the owner outreach strategy and they get to conversations with an owner and it goes on for six, eight, nine, 10 months and not a whole lot is happening or progressing. How do you filter through owners who aren’t particularly interested in selling immediately? And they may just tell you. How can you filter through the subtleties of the way the an owner describes their business or describe their plans to know whether someone is serious or not.

Max: Yeah. That’s really challenging. On the one hand, you kind of have… Our managing partner, Clint, says this all the time, but private equity investing is the art of wasting time efficiently. The problem is, is that if you’re a searcher, you have a time line, right? You have a certain amount of runway and it’s about a percent every week, and you feel that when it starts to click. I think you should just look for early flags. Does the owner take a long time to negotiate an NDA with you? How quick are they to get their books to you? Are they really, really caught up or being cagey about specific information? Have they made a reference to a family member, which by the way, that seems to kill more deals than anything else. And so you start to get a feel for these red flags like, he or she said I was super interested and then it took them four weeks to get me their financials, something’s not completely adding up.

So I guess generally just watch their feet more than just listen to their words.

JR: This is easier said than done, but I think you just assume that every deal is going to die as well. I mean, we have a search pair right now that we love. They just signed an LOI with a huge company, it’s going to be a really big deal. And we’re all excited about this and it feels like it has legs and it feels like it’s a real deal and it’s going to go, but they just signed another LOI with a second company because I think their mentality is, hey, we are just going to assume that the first deal is not going to work. And you just keep going at it until you hit a wall and you can’t go any further, and you don’t put all your eggs in one basket. I know it’s easier said than done. I always kind of cringe when people say, never stop sourcing, even when you’re deep into diligence, cause it’s really hard to do.

But I think you just assumed it’s not going to work.

Max: The optimist, JR De Agostini. It’s realistic though. I mean, I do agree. I do agree. And by the way, that’s just sort of how the math works too.

Yeah. So how do you stay optimistic during an outreach strategy? It seems like it could be really devastating, thoughts of roller coasters up and down. So how do you stay positive?

Max: I kind of want to say something cheesy like, if you lose, don’t lose the lesson type thing, but you kind of go into it knowing that you’re going to have bad days. So you’re sort of managing your own expectations. And to JR’s point, if you kind of go into it emotionless, but you’re still working hard, but you’re still more just sort of, look, if you drive a car, you’re probably going to get a flat tire some day. And how you react to that is what’s important. Trying to take a step back, trying to understand that it’s all just a part of this long lengthy process. Deals are going to die. I’m certain of that, right? Owners are going to send you really mean emails that say, don’t ever talk to me again, and insult you and all these things.

And you’re going to get really, really close to a deal and then some giant red flag or skeleton that’s been buried is going to come out. You just have to know that going in and try your best to react appropriately as it happens. JR and I had one really, really tough day. We thought we were going to close a deal on the doorstep and then the owner’s sons actually came in and kind of changed the whole thing, the valuation, and it basically died in a matter of two hours. And I remember that we just took a walk and we talked about how frustrating it was and how hard it was, but how could we have done that differently? How could we have managed the family better? And the answer is, we could have, and it won’t happen again.

JR: Alex, I think one thing that’s interesting, it doesn’t directly address your question, but it’s been interesting to be on the investor side at this point and to see the way individual searchers react versus pairs when the ups and downs happen. I think it’s much easier as a pair to be able to go on that walk with your partner and work it out and figure it out and kind of help each other out in that situation. It’s tougher for the individual searchers. They’re going through this rollercoaster by themselves and they don’t have a frame of reference because they don’t have anyone to talk to usually, as regularly as a team does. And it’s fascinating to watch the outcomes when those downs happen.

Max: And we’re going to give out JR’s number at the end of this. And anyone at any point can call him if they’re feeling sad or frustrated.

I’ll put it in the show notes, don’t worry. To the point about the individual searchers, is there some cohort dynamics you’ve built around Peterson Partners?Were there searchers that you back, get the chance to meet each other, maybe you have weekly or monthly, now it’s Zoom meetings or something like that, where they get to interact and bounce ideas off of each other? Or is there some other way that individuals can get that mentorship with each other, perhaps?

JR: I mean, we’re babies, right? We’re young in this. We’ve only been at this for a couple of years. But last year, we started a ski retreat. We do very few searches a year, and that’s very intentional because our objective is to be very, very involved in their sourcing efforts. So we have a small portfolio of searchers, relatively speaking. We did a ski retreat last winter at our founder’s place up here in Park City and it was awesome to see these people who most of them had never met each other and they come from different schools and different years, different classes and whatnot. And some of them are really close friends now. And I’ll talk to one on the phone on Monday and you’ll see that they’ve been talking to each other and sharing ideas and comparing notes, and it’s been really cool to see that happen.

And that’s a big part of our plans moving forward, is to keep small cohorts in the hopes that that’s what happens, that they continue to be friends and work together in ways that makes sense, even though they’re competing.

You mentioned wanting to add some more communication between searchers under Peterson. Are there certain things you’re going to do over the next year in proceeding classes of searchers to spur that a little more?

Max: Well, I think a lot of that depends on the way the world looks. We’re hoping to do a similar thing this winter that we did last year, which was great. If not, we’re going to have to find substitutes like everyone else. Maybe it is Zoom talking about kind of doing lunches and things like that, where we can door dash food to people’s places or something like that. It’s a funny line. In some ways, the searchers are competing for the same businesses, but there are a lot of businesses out there. Certain ones better fits for searchers than others and you do end up finding pretty collaborative effort there once the searchers get to know each other. So the answer is, I don’t know, and a lot of that just sort of depends on what the world looks like.

You kind of alluded to it a little bit, but what percent of businesses that a searcher reaches out to have heard of or heard from private equity firms or other search funds?

Max: 100%.

100%? It’s not even close?

Max: JR, it’s 100%, right?

JR: Yeah. I mean, the thing that’s funny about that is we did a NLP deck a year and a half ago when we started raising money to raise our fund. We looked up some census data and we found 5.9 million businesses with less than 30 million in revenue. And we did some math and try to figure out how many were owned by baby boomers and whatnot. And the long story short is we think that there are millions of businesses in the United States, but everybody’s using the same lists. They’re all using the same databases. So I think most have heard of private equity or even talked to other searchers because everyone’s working on the same list, but I don’t think that those lists cover all the businesses that are viable targets.

Max: Now, just anecdotally, I mean, you hear enough conversations with sellers like, oh, there must be something in the water. I’m getting someone’s interest. There’s just something in the water, all water everywhere, because it doesn’t really matter the geography or industry. I just think there’s a lot of capital out there. There’s a lot of firms. There’s a lot of firms who are moving downmarket into the micro-cap space. And there are also a lot of searchers, a lot of independent sponsors. And I have not heard in however many years of doing this of a seller saying, oh, I’ve never been approached before. If you do hear that, you probably shouldn’t be talking to them.

If everyone’s using the same lists, what are some interesting ways for a searcher to find companies that aren’t on most lists? Or is that pretty close to impossible at this point?

Max: Yeah, I think it’s pretty difficult. There are ways we’re starting to kind of experiment. And I think I found a couple of pretty interesting tactics, but really it’s like applying for a job or applying to school. There are people who are going to be applying for the same position as you. It’s not a matter of actually getting onto the stack of potential candidates, it’s what makes you different from everyone else? Oftentimes, we’ll hear, yes, there’s something in the water, yes, I’ve been approached by a ton of people, but I responded to you guys. Sometimes they say, I don’t even know why, which is kind of funny and flattering, but it’s about that second step. You just assume they’re going to be approached by probably 10 or so buyers a week or a month. And so why should they respond to you? That is the magic rub.

JR: Max is actually really good at coming up with creative ways to find people that are not on the list everybody’s using. He clearly doesn’t want to share that here because he doesn’t want to tell the world.

Max: Come on. The first compliment in four years, it’s great.

JR: But I think he’s right on his latter point, which is back to that sales personality, that charisma, that’s a big part of what we screen for in our searchers, is someone that is going to stand apart because of their people skills when they talk to sellers.

It seems like a core assumption of owner outreach is that by bypassing a broker in a standard process, you can get a deal that has better terms or you can find businesses for lower multiples. Have you found that to be true or is there very little price difference between a deal that is found via outreach or brokers?

JR: I mean, this is anecdotal because I don’t have the data behind this, but we have found that it’s true. Unfortunately, this deal didn’t close, but a pair of searchers that we’re working with got a handwritten note from a seller last year, or was actually early this year, and the note said, “Hey, I’ve got multiple offers from private equity firms for quite a bit more money, but I’m selling to you guys because of the relationship we’ve built. I want to sell it to you. I trust you with my legacy.” And I think that’s the secret sauce to search. I think if you can do that, even if a broker’s involved or other bidders are involved, I think that’s how you win. The problem when you go through a broker, it’s harder to develop that relationship. You know what I mean? And it’s all about the highest bidder and we all know how a process works.

So that’s tough to do that. It’s tough to have that kind of rapport with someone and to put them in a position where they want to decide to sell to you because of your character and they want you to carry on their legacy. It’s hard to do that with a broker involved. That being said, there are a lot of searchers who have had tremendous success with broker deals. So I think it’s just opportunistic either way.

Max: Yeah. I mean, I guess the other side of that coin to your point earlier, Alex, on seller motivation is you might be paying more, but at least you know that the owner isn’t going to spend nine months dragging you along and then not sell. If an owner goes out and hires a banker to go sell his or her business, there is motivation. So at least you filter for that early. And for some searchers, that might be worth the extra penny.

What’s something that I haven’t asked about yet that you guys are just dying to talk about?

JR: Max’s dating life, mostly.

Max: God, no. What’s it like being a Steelers fan, I guess? Alex?

It’s been historically fun. But the last year…

Max: Yeah. Well, I’m from Cleveland. So not historically fun.

Not fun today or historically. That’s a rough place to be in.

Max: Yeah.

My former roommate in college is some a Ducks fan and a Steelers fan, and my roommate is a Washington Huskies and then a Cincinnati Bengals fan.

Max: Oh my God.

I mean, I’ve been winning those two battles for quite a while. So it’s been fun, but it’s interesting to see that there’s some optimism for Bengals, whereas the Steelers, I don’t really see a reason to be optimistic. I mean, Ben Roethlisberger is done. He throws two picks a game when he’s healthy and after a season gone, I can’t imagine he’s going to be any better. We need to tank for Trevor Lawrence or something because I think as a team, you should either be running for the Super Bowl or going for a tank. There shouldn’t be any middle ground. Going 8-8 and missing the playoffs or losing in the wildcard and then not getting draft picks is a terrible place to be. You want to be one or the other. And the Steelers, we have just enough talent to be decent without tanking, but also without making the playoffs and it’s not a fun or enjoyable place to be.

I’d much rather just laugh on my couch as we lose horribly, 16 games in a row, than see us just kind of win, but idle along and not go anywhere.

Max: I have experience doing that exact thing. And I have zero empathy for you complaining about quarterbacks, so we can leave it at that.

No, I believe you. Are people pretty high on Baker Mayfield over there?

Max: Yeah, yeah, yeah. For sure. I mean, we’ve been saying, this is our year, for a couple of years now, but I mean, look, it would be perfect, perfect. It would make all the too much sense that if it is our year, that the season got canceled, it would just be perfect.

No, they’re not going to cancel the season. NFL has way too much at stake to cancel. College is going to do whatever they want, but we’ll see about NFL. JR, starting with you, what class would you teach in college if you could teach one on anything you wanted? Any subject?

JR: It’s a good question, man. I thought about this and I don’t want you to think that I think I’m good at doing this at all with my answer, but if I could teach a class, I think it would be a class about how to have a difficult conversation. Business school has all these soft skill courses and, how do you fire someone? How do you handle the press in an interview? Et cetera, et cetera. I think it would be a class about difficult conversations because I think it’s critical. You look at our society today and I don’t know if enough people have that skill. Or a sales class, to be honest.

Max: Yeah. I had the same reaction when you sent that question, which was embedded in the question is the assumption that I’m capable of teaching a class. Definitely not. So moving that aside and saying, let’s say I could teach, JR’s probably going to laugh at this, but I would love to kind of dig deeper into stoicism or teach a class on that. I just love reading that stuff and I think it’s pretty applicable to our world today or even more applicable than it’s ever been. And also helps ironically a lot with kind of the stuff we’re talking about, controlling what you can control and kind of letting go of the things you can’t.

Max, I’ll start with you on this one. What’s a belief of yours you used to hold really strongly that you’ve since changed your mind on?

Max: Defense wins championships. No, I thought about this one as well. I think when I first started working in the real world, I was pretty nervous about saying, I don’t know. I thought it was a sign that you’re stupid or didn’t work hard or you just weren’t competent or something. And what I’ve realized is actually the smartest people I’ve come in contact with over the course of my career are the ones who are not afraid to say those words and so I’ve changed my mind a lot. I mean, I’m not talking about saying, I don’t know, over the course of a whole meeting, but just being honest and not trying to skirt around or talk around something that you may not even have the information yet. So I’ve kind of changed my mind on that phrase.

JR: I’m going to hedge as I answer this one, but in the military and when I was younger, I had this attitude of, I’m not even going to question whether or not I’m good or bad at this, I’m just going to go and get it done. I’m going to achieve results, I’m going to make it happen one way or another. That served me well in the military and I think there’s a lot of benefit to thinking that way. But now as I’m getting older and my career is developing, I see the value in saying, no, what are you naturally good at? What are your strengths? And play to those strengths. Acknowledge what you’re not naturally suited for and play to your strengths if you want to win. There’s still value to the prior thought, but I think that’s an important thing that I’ve learned recently.

JR, what’s the best business you’ve ever come across?

JR: It’s not the best business I’ve ever seen, but it will be the best business, in my opinion, in a number of years. I’ve been looking at these biobanks for stem cells and cord blood, and the science is not there yet. The medicine is not there yet. We don’t have enough procedures where this is in high demand yet, but we’re very close. And what’s interesting about these biobanks is they will store stem cells for a family or for a donor for up to 20 years. It’s fascinating, it’s on the cutting edge of science and medicine. It can do a lot of good for people and it’s 20 year recurring revenue. It’s something that has tremendous far reaching benefits for people in their personal lives and I think it’s really interesting. So I think in 10 years, that’ll be the best business out there, or one of them.

Wow. Nice. What are the costs for running that? Is it just keeping a special medical fridge going or what else is involved there?

JR: Where it gets a little bit complex, and I’m not even well-informed enough to explain it to you, but you can store it at various stages of processing. So you can just take the cord blood and put it in a bag and freeze it, or you can process it and make it ready for different procedures. So as the medicine evolves and they know where to use these stem cells and how to use them, we will know better how to store them and what state we should store them in, and that’ll answer your question.

That’s awesome. I love it. Max, what about you?

Max: I mean, I know JR’s going to laugh at me for this one because I’ve sort of been on this crusade to find a software around seafood or fishing since I saw this business. It was a software that commercial fishermen use to sort of report the weights of the catch that they had. And this company sort of had a mini monopoly. It was all kind of state regulated and the fishermen had to report the exact weights and prices and things like that. All recurring, very consistent, just a software that was sort of stood up and didn’t need a ton of re-investment captive audience, all that. It’s a really nice reminder of the million different ways that people can make money and the types of businesses that you don’t know exist until you find out about them. But that was awesome business.

Thank you both for sharing your time. I’ve really been looking forward to having a outreach focused podcast episode and you guys were the top recommendation by Justin who introed us. So thank you for sharing your time. Well, I’m looking forward to having you guys again soon.

Max: Awesome. Thanks, Alex.

JR: Thanks for having us. It was great.

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