Making M&A Boring (And Why That's a Good Thing) with Leon Brujis

25:59That goes all the way back to Darwin. Not the strongest, the most intelligent, I'm not the one that survived, the ones that are more adaptable to change. So that flexibility that has enabled me to connect with founders and have them accept investments from the firms I work for is some of the things that I look for in founders. Are they flexible? Do they have the flexibility and the humility and the accountability, We should talk about that in a moment around saying, you know what? This strategy didn't work. We need to pivot. So to answer your question, that's what I want to see in people. Their ability to make a decision, execute on it.

26:35And if it doesn't work, pivot and try something else. Flexibility, humility, accountability. How do you test for this? Do you come up with a scenario? Do you get to know them long enough to see them deal with it? So I wish I could give you a three-point plan on how I test for it. The way I do it is through a number of conversations, hearing their stories, telling my stories, and trying to, through conversations, trying to understand how these behaviors manifest. If you talk to someone, you can rehearse for an hour time. But when you talk to someone for three hours, four hours, or 10, 30 hours over a long period of time, it's very hard to be rehearsed.

27:11So it's very difficult to be a completely different person than the person who you really are. over time, you're able to tease out this. We have passed on many great companies because we didn't think that the relationship with the founder was there. There was a great company that we looked at last year that we loved it. We would have loved to make the investment, but we had a conversation with the founder and just, we felt that we didn't see eye to eye and that the partnership wasn't going to be there. And we decided to pass solely on the basis that relationship was not there. That makes sense.

27:43I feel like the older I get, the more I lean into that. You've heard this a million times. Life is too short. And you want to work with people that you actually like. I agree. In your model, I take it you do both. You come across companies that are completely bootstrapped versus they've raised money. And just looking at the spectrum of those companies that you've seen, where's your best opportunities? It's a great question. I should say that for 65 specifically, so far, the majority of the investments that we have made have had some form of institutional capital before we came in. That's because these companies are generally very large.

28:21And companies that are this large and this tenured have usually already have needed capital at some point and they brought up a partner. So these are companies that have done like maybe series A, B, C type of thing? Or they had a smaller minority investor in there. One of the firms I talked about earlier. They came in and gave a$40,$50 million check. And originally, the only exit was a majority buyer. And we are the new game in town, which allows for the minority ownership to continue. Would you take out the... Yes. So generally, we like to be the lead minority investor. So we wouldn't sit behind another minority investor.

29:00Yes. So you take them off and add some additional capital. Yeah. But I just wanted to address something that you said before. I actually love bootstrap companies. A bootstrap company is a great example of what I mentioned earlier about the passion and the accountability and the fire that these founders have. Because when you have a bootstrap company, you turn nothing into something. I'm always fascinated by those stories. Let me share an example in our portfolio. In 2024, we made a large investment into Kendra Scott, the maker of jewelry. Yeah. Kendra's story is really fascinating. You know, I learned this quite well because my daughter at nine years old got into selling jewelry.

29:39She'd make it at home. And it was amazing. I set up a Shopify, just opened the account and she did everything. That's awesome. And I would go to the Kendra Scott store and tell her my daughter about it. Oh, that's awesome. I love that. She got really familiar with her. There you go. Big, great success story. Yeah, I mean, it's actually, it's funny enough that Kendra's story is not that dissimilar. She started with$500. She created this beautiful jewelry and she started selling it to department stores. It started to catch on and she started selling more and more. And then she opened her first store, started selling online.

30:12And over the last two decades, she built this into a$600 million top-line business, which is amazing. There was a lot of bootstrapping tied to doing that because she started working out of her house and now she has a huge, beautiful headquarters in Austin. And I love those stories. One of the things I love about my job is learning these great American entrepreneurial stories and learning about new industries and new markets and what their story is. Kendra is a great example of a company that was bootstrapped well into its development before it took outside capital. Yeah, it was really mature. then you came in, what was the motives for them to work with you?

30:51It's a two-part question. Number one is why were they looking for capital? And the reason they were looking for capital is they had an investor there already that needed an exit. So that was a catalyzing aspect that led to a transaction. The reason they did it with us goes back to what we spoke about earlier, which is Kendra was very focused on returning control. Her name is on the door. And not only she wanted to retain control, she wanted to increase her ownership. after this transaction. So we were able to put a package for her that enabled her to grow her ownership. And in addition to it, give an exit to the existing institutional shareholder that wasn't there.

31:31Wow. I should say our partnership approach really resonated with her and with the management team. And that was an investment that took over eight months. Again, we saw the company perform. They got to know us. We got to know them. To me, Kendra Scott is a great example or exhibit A, if you will, of what 65 can do for founders. Quick break and a reminder that the M &A Science founding member presale is now live for December only at mascience.com. We open just 250 seats and founding members lock in 50 % for life. that's$497 instead of$995, plus early access to the new intelligence hub, members-only events, and a real voice in shaping what's coming next.

32:23If you've ever wished all the best insights from this podcast were searchable and structured in one place, that's exactly what we're building. The presale ends December 31st, and once the seats are gone, they're gone. Join at mascience.com. Now let's get back to the interview.

32:45When we talked about push versus pull, more of the company's sort of philosophy that you're allowing the organizations to pull for help versus pushing these agendas on them. Is that one where you have an example that you could talk through of maybe like a success story of a company that really was a creative and value creation without this push effort that was more of a pull effort, but you were able to really contribute significant value add? So we made this investment. Part of the success of that investment will be rooted in our ability to build this management services organization within the company.

33:19And to do that, part of our thesis was that we were going to help the company build that function. And to do that, they need to recruit several C-level individuals to help execute on our strategy. That was around the time that we hired this gentleman I referenced earlier to help us with our human capital needs. And I spoke with the CEO and said, look, you don't have to talk to this guy, but this guy has hired and fired a lot of C-suite employees in his tenure as CHRO at a Fortune 500 company. He might be helpful in helping lead the recruiting process for these executives. That was a situation where I didn't say, hey, you should definitely talk to the guy.

34:04In fact, that's not my approach. I would never say that. I just said, this is the guy. This is his background. He can be helpful to you. And really, we don't charge the companies for that. Those folks are available to them whenever they want to use them. That is going to bring tremendous value because that's a resource that Allied probably wouldn't have been able to access without us. Right. So it came in a form as a friendly introduction as opposed to we're executing this playbook. Exactly. And it's a person that has worked with much larger enterprises and is better trained and brings more data-driven rigor to the process, which I think Allied could benefit from.

34:42You mentioned before we talked this concept of crisis of comfort. Can you talk to me about what that means, how it comes to play in our investing world? earlier in my career. In fact, when I was at Lehman interviewing, one of the interviews I had, I was told that in finance in particular, one needs to be comfortable being uncomfortable. And the reason for that is there's so many things that are number one, outside of your control. Number two, there's so many unknowns that you have to be prepared for change. Goes back to what we've been talking about. The problem, Kizon, is that encoded in our DNA, there is an inherent laziness to us, okay?

35:27We generally try to stay away from discomfort. It's inherent to us. The reason is fascinating is that our cave membranes are designed to save energy because calories were not abundant in the past. And therefore, if you're going to hunt, you better bring something back because if not, you overspend yourself and you can die. Fast forward to modern day, calories are abundant. You don't need to go out hunting. But still, our caveman brains are still wanting us to conserve energy, which is why people don't like working out and like to stay on the couch and whatever. It's very interesting that this, and I think the majority of people have this tendency, and it's very normal.

36:10And you can think about on an idle Sunday, you probably, instead of going for a run, you want to just stay home and do nothing. Now, the reality is that if you want to grow in your relationships, in your career, or in any field, you have to be willing to be uncomfortable. If you want to lift, you have to be willing to feel weak in order to feel strong. If you want to learn something new, you have to be willing to look like an idiot for a time until you learn. and this discipline goes against how our brains are hardwired. But at the same time, it is the key to success. Success is outside of your comfort zone.

36:52So whatever you want to do in your career, in your personal life, in your personal relationships, you have to be willing to have the hard conversations. You have to be willing to, instead of waking up at 7, waking up at 5.30 and going out for a run, and you have to be willing to, at work, do things that you're uncomfortable doing because that's where the learning is and that's where the growth is. A lot of us are trapped in this modern life is so comfortable that has the paradoxic effect of letting us be stuck because we're comfortable so we don't push ourselves to do things that are uncomfortable and therefore we can grow.

37:28One of my mantras is to convince, I try to do this with my kids and do it with people I mentor, is push them to do things that are uncomfortable, to take risks and to learn something new, because that's how you grow. You grow by putting yourself in situations where things can go wrong. And we have a very closely related subject with this, which is fascinating to me, is that we have a huge stigma against failure in our society. Okay. Failure is really frowned upon. But over the past few years, I've reframed failure, not as the opposite of success, but as a stepping stone to success. The more reps you can do, the better you become at it and the closer you get to success.

38:15So if you're in sales and you get really disheartened by no's, you're not going to be a good salesperson. But if instead you say, I am 20 no's for my yes, then you're going to be motivated to get as many no's as possible quickly so you can get to the yes. Do you see how it's all a matter of reframing and how I'm sure you've seen that in your career. I'm sure in many instances in the various jobs that you've had, there's been situations that haven't worked your way and you may have felt bad about it. And it's human nature to feel bad about it. But paradoxically, that's the moment when you are learning and growing the most.

38:52Most people miss that. I wholeheartedly agree with you. I think it's like the fundamental discipline is their ability to get comfortable being uncomfortable. I always tell my kids, my mantra for them is learn to suffer. Yes. That's something I picked up from my immigrant dad. Absolutely. When I look back in my life, my career, my successes, stories I like to tell are not the stories when I did a great deal and everything went well. I like to tell the stories where things didn't go well when I struggled. because that's when I really saw the growth and the learning and the forging of my character and of me as a person.

39:26It's meaningful. You learned something that was impactful and that's a story that others can learn from versus... It really stays with you. It really stays with you. Yeah, I like that a lot. I think that's a good philosophy and that's a good thing to embody culturally. On this crisis of comfort, there are stories that you can tell people, but is there any other ways that you encourage it with others? Because I feel like even with my kids, using them as an example, I keep telling them to learn to suffer, but they just look at me blankly. You know, even when I push them to do things, like I'll get up in the morning and try to get them to go right out in the cold and they really don't like it.

39:56The way I would answer that is that when you try to distill the suffering, one way to reframe it is you want to put yourself in a position where you do hard things. So my son, for example, he loves to play basketball and like many nine-year-olds dreams of playing in the NBA. I don't know if he will or he won't, but that doesn't matter. What matters is like I said, look, If you want to play in the NBA, you know what it takes? You have to every day practice for three hours a day. It's the consistency, the reps that creates mastery and excellence. Okay? And that's the only way to do it. The way that you create that suffering without actually pushing your kids to do something that they don't want to do is to put them in a situation where they can only achieve excellence through discipline and consistency.

40:44creating habits of consistency and discipline is what leads to excellence and success. And all discipline and consistency is little failings that compound our time to a massive success. But you need to spark it. You need to have some motivation or there's a burning desire for it. I feel like that's what drives out all the effort in enduring this. See, I actually want to disagree with you on that. And yes, if you have the motivation, that's great. Relying solely on motivation is not a good thing because it's easy to do things when you're motivated. It's very hard to do things when you're not motivated.

41:25And that's where consistency and discipline come in. Your view is like essentially building this as a muscle around this enduring the suffering or the discomfort and that your ability to endure that discomfort is what sets you apart over everybody else. Exactly. Because you could have less motivation, but you actually have higher endurance over discomfort that you ultimately do better. I think motivation comes and goes. You cannot necessarily control your motivation, or at least most people that I know cannot motivate themselves on a win because motivation is an emotion at the end of the day. Discipline and consistency is a choice.

41:59And you can decide to wake up at 5.30 in the morning to go work out instead of sleeping an hour and a half more and then go to the office without working out. You can decide whether you eat the cupcake or you don't. You can decide whether you read a book or you don't, or you just doomscroll on Instagram. So those are all choices that are completely in your control. And if you are able to overcome your passions and your proclivity to procrastinate, and when it comes to eating, when it comes to work, when it comes to working out, that to me is what separates the greats. If you look at any of the famous Kobe Bryant or Michael Jordan or any of the people on any of the great Wall Street Titans, they all had these traits.

42:37They are extremely disciplined and extremely consistent. I want to do a tie-in with what I just said and investing. When it comes to investing, what you really want to focus on is consistency in outcomes and discipline in execution. And what that means is that at heart, investing should be very boring. Learning about the industries is exciting, but you want a company that is a well-oiled machine that has repeatable processes and a management team that is relentless on execution and is underpinned by consistency and discipline. And that creates exciting outcomes, okay? Right. But investing itself is very boring.

43:22You always hear of the stories of the person that invested in NVIDIA or in Google or in Yahoo, depending on what decade you invest in. And those are great outcomes, and that's great. But there's no investment strategy where you can just invest in one of those companies. That's a terrible investing advice. Really, to me, good investing advice is put your money in the SIP 500 and let it ride. That's very boring. But over time, you're going to outperform most money managers if you just do that. And that's boring, but it leads to the best outcome. That can be translated into private equity. You find a company with a management team where there's consistency in outcomes, discipline, and execution, and then you create the great outcomes.

44:03Because that's what investors at heart want. In private equity, you want that consistency. It's different than in venture capital when you want that sort of max outcome where you can do 40 times your investment. In private equity, if you can generate two to three times your money consistently, it's much better than having a 10 and a 4x and then a 1x and a 0x. Consistency is key. We always talk about being excited about an investment. And I get excited about investments that are inherently boring. Financially, on the quantitative part. Investments that have repeatable processes, where there is a playbook that they can consistently follow.

44:40The greatest example of this is McDonald's. You have a 17-year-old kid that doesn't need a lot of skill to cook those burgers and those fries because the processes are so simple, prescriptive, that you don't need a PhD to run them. That's an example of what I'm talking about. The process is so simple that anyone can do it. But to get it to that point, there was a lot of people and a lot of science and a lot of money invested to get those machines and those processes to that point. There's a level of predictability. Exactly. Versus me promising you a big hockey stick in the future. That's exactly it.

45:18She teach me how to negotiate terms. sheet. Teach you how to negotiate a term sheet. Yeah, let's just make up something right now. I want to learn this stuff from you because you're on the other side of the table oftentimes where I'm talking to. So I want to take the opportunity to learn from your experience. And a lot of times some of the early conversations when I was working with Deal Room and thinking about the growth equity, which makes sense. You're a company, we're growing very nicely organically. The business is still like right at 40 % year over year growth. And then inorganics on the horizon.

45:46I'm still supporting the business and looking at some of the inorganic opportunity. I want to learn from you from your side of how do you really structure these deals? And even if we make up some general terms, I want to get a sense of there's always consideration of, I guess, even the terms. Here's capital coming as primary versus capital coming in a secondary. How is somebody like me should think about that? Sure, sure. I feel like too, founders, we're thinking about near-term control, long-term control, but control isn't just number of shares, board seats and those things. Can we talk through that a little bit?

46:18We're riffing now. No script, nothing. I want some real... Absolutely. Absolutely. Let's call it my four-point plan. Okay. Let's do it. Number one, when it comes to negotiating a term sheet, you can spend two or three or more time negotiating a term sheet, but I believe that you can always distill the key items of a term sheet to four or five things that really drive the majority of the decisions. So when it comes to a term sheet, the way you're describing, there's going to be, to me, five things that matter. Number one, what is the value that you're going in? Number two, what is the structure?

46:54What is the character of the capital going in? Number three, what governance rights are going to be involved? Number four, are we aligned on the strategy and on the value creation plan? And number five, how are we going to exit this investment? How are we going to create a return for the shareholders? The first lesson on negotiating a term sheet is distilling it to the essential components and making sure that there is a framework that you and I can align on. Really, what you want to do is start peeling the onion from the grand and high level to the minutia. So starting with the minutiae, to me, is a waste of time.

47:38Because if you don't have alignment on the ground themes, then diving into a minutiae makes no sense. In a way, the way I negotiate, when you're talking about the minutiae, is because there's already a broad framework that has been agreed to execute a term sheet. And the reason I divided into those five buckets is because in each bucket, you may be willing to give certain things or not, depending on what happens at other buckets. So these conversations are reflexive. So it's not like value. Let's take that as an example. Yeah. Right. Because price, enterprise value. Is that what we're talking about?

48:14Yeah. Well, value, the equity, the enterprise value, whatever. Yeah. So it's like, hey, how do we value this business? How do we value this business? This is just my concern on this. I talked to you. You seem like a super nice guy. And I'm not going to pick on you, but let's make up some person in Boston or whatever. I always give you the nice, hey, this business looks great. I can see this being like eight to 10 next. Yeah, yeah, yeah. They run through diligence and they come back and say, oh, we think we're a 6X. Then I get pissed off. I'll go run a competitive process and we can play this game if we don't play the game.

48:43That's one little thing on value where I get a little question mark on. How would you manage that? Number one, there's this sort of good is the enemy of great. you always have to balance the full package, not just focus on one. So I would not encourage you to just focus on value. I agree. Number one. Number two, the way I would approach that in putting myself in your shoes is you can always supply a certain amount of information that should give the potential investor enough to give you a reasonable range or point estimate on the value before you spend too much time. The whole theme of my advice, Kizon, is going to be centered around small and consistent movements in the term sheet versus going deep so much.

49:32So I can have the multiple conversations. So your suggestion is essentially it's okay to keep it competitive. I can talk to multiple people. It's okay to be competitive. But structure that process a little bit. So instead of me, like an example where I go so deep with one person, I'm like entertaining a lot of diligence. And that's probably why you get more frustrated where you're like, I spent all this time. But if we structure the process where it's, okay, here's a little splenery information, kind of like a banker would, and say, let's gauge your interest. Let's see high level, what do you think enterprise value is?

50:00And then if you at least have that high level, like we're on the same page, then you move into it or is it? Yeah, so I will give them enough information, more what I would call off-the-shelf information that is not really difficult for you to pull. I'll give them an hour or two on the phone to answer questions. We're talking like last three years of financials, maybe a customer waterfall. Last three years of financials, customer waterfall, go-to-market model. They're really basic things that through conversations and some data, an investor can give you a pretty good range of where they will be in value.

50:35But when it comes to investments versus buyouts, the structure is almost as important as the value. In many, particularly in series A, B, and C deals, there is a 1x liquidation preference, and there's preferreds, there's convertible prefers, and there's a whole flavor of equity that is not necessarily common equity that is usually, it has some structure attached to it. Okay. And the structure sometimes can render the valuation less meaningful, which is why you, as I mentioned earlier, you have to look at the package and not just at one thing. And sometimes founders tend to focus a lot on value and value is just one piece of the puzzle.

51:22So when it comes to structure is, what promises are you making to the investor? As a founder, what you want is your investor to come in pari-passu with you, meaning he's in the same class of equity. But when you're doing minority investments, particularly the ones where you're involved in, those investments rarely come in pari-passu with you. They usually come senior to you. And it makes sense because investors usually want some sort of protection because they're not calling the shots. So I would weigh the value against the structure. And sometimes you may get seduced by the value, but the structure is very onerous and you may take maybe a lesser value but lesser structure.

52:05What does the two extremes look like on structure? I get multiple X preferred. The extreme on the structure is a high watermark on the liquidation preference and convertibility into common where you're basically protected on the downside with uncapped upside. And then the other extreme, like I said earlier, is common equity, which you have no protections whatsoever. It's rare in the US to have, in the smaller end, to have no protections whatsoever. So those are the extremes. But then there's governance rights. Governance rights include things like board representation, changes to the business plan, changes to the management team, changes to the budget.

52:44Obviously, as a founder, you want that to be as skinny as possible. And as an investor, you want that to be as robust as possible. So there's always that tension. This is when I talk to the founders and they're like, oh, the board blocked this exit that I was trying to do. And then we drug things out, then went bankrupt a year later. And again, just like with value and structure, governance can create a lot of friction. So that's why the way I would do it is I would grab the menu of the most important things and make sure that you're getting, it's like the cathel. The best athlete is not the one that is amazing at 100 meters, but terrible at high jump.

53:25The best, the Catholic athlete is the one that gets second on all, not first and last on some. It's a little bit like that. You want to make sure that you're getting what you need, not what you want, such that you get combined you however you want. If that makes sense. Yeah, absolutely. Can I do a deal without giving off a word seat? My dad used to say you are what you negotiate. So yes, yes, you can. Yes, you can. Can you do it? Yes, you can. It depends on the market environment. It depends on the performance of the company and the leverage you have with investors. Generally, you do want to talk to more than one party to just get a sense of the market and what the market is allowing you to do.

54:00And from there, you'll get a sense that there are certain things that for this transaction at this time, you're not going to be able to not have a board seat. Other times when the market is more frothy, maybe you will. And then you have to balance that with the funding time. So can you do it? Yes. It just depends on what the market allows and your ability to negotiate. All this stuff comes up in the term sheet, all this value structure and the governance rights? Yes, for us, certainly. But what I'm giving you is very general and very customary things that come up. And then there's always, particularly in venture deals, oftentimes companies start doing something and they change to something completely different.

54:37You want to make sure that you have enough flexibility to do the pivot, but the investor wants to make sure that there's some guardrails. So you see how when you're negotiating this, there is a natural tension on you want the highest value. The investor wants the lowest value. You want the least governance. The investor wants the most governance. You want the least structure. They want the most structure. So you have to identify what can you live with, what you cannot live with, and play with those boundaries and see what you can get. Once you have that framework, then you can sign a term sheet and then you can get into the minutia.

55:08And that's how I would do it. The other things you mentioned was the strategy value creation plan. Is that more of alignment on the strategy value creation plan or sort of my impression of like, I can see how you as a partner is going to be accretive with your resources, connections. Is that sort of my factor is like the partner part? It's all of the above. The value creation plan, number one, it changes drastically between younger, smaller companies and bigger companies. But you always want investors that are going to bring more than just money. Okay. Because the right investors can create a lot of value for you with their networks and know-how and whatnot.

55:47Think about this. Investors have a much wider lens on the companies and what they do, what works, what doesn't. And you can leverage that if you have the right partners. You want to make sure you bring good partners that are going to be there for you when things are tough and can help you cover some of the gaps that you have as a founder. And then the exit part, I'm assuming your term is like a five-year sort of a target hold? At 65 in particular, we can go beyond five years, but the general investing life cycle is five years. So I have an idea, like five years, is it, we got the strategic, probably going to be a likely acquire or IPO or just another P firm.

56:24Yeah, I mean, all of these terms, she's have an outside day, which at some point you have to do something. And that because none of these investors or most investors are not permanent capital. And therefore they want to have at some point in time, a chance to redeem their investment. But if it's like the example we gave earlier with Kendra Scott, we'd do another recap down the road. Is that sort of a viable thing or is it better to put down something more? Again, you're where you negotiate. And in the case of Kendra, it could be a recap, it could be a sell, it could be an IPO. It's hard to know five years out.

56:56It's very hard to know. The exit really depends on what is market, what the preferences of the founder are, what are your views about a potential exit for the business is. In Wall Street, the answer to all these questions is always it depends. Okay, now I'm going to flip it around and put you in my shoes. And then these are things that we talked about. The goal here is I want to create a competitive process and get the best terms. Do what's right for my interest in the company. And the big thing you emphasize is the relationship. And what I'm curious is if I look at this range, this past year, I've talked to like 60 growth equity firms.

57:28And some are folks I've known for years. They're just in the firm and they're partners there because I've known them for a long time. And then there's folks that, you know, you get the model, the biz dev model. Like you get the associates calling you. and then they push you up. Sometimes they push you up to VP. Sometimes they'll get you up to a partner and whatnot. So you have a sort of varying degree of who you're talking to at the firm. Given that you have all this kind of range of relationships and you're trying to keep the process competitive, how would you approach it so that you're not going so broad or you're trying to make it more targeted?

57:59A lot of it depends on what kind of deal you want and how much bandwidth you have. I spent years courting and tracking a company and then given early access to the materials, all to see something that we didn't talk about that makes it a non-viable investment to me. To me, ideally, you develop enough relationships. And if you ask me how many, I don't know if it's five or 10 or 20, but not 60 and not three, where you have enough people that over time have shown interest that want to try to dig deeper To me, if you're able to strike the balance of critical mass, which I think it is sort of that 10 plus or minus, it's not three and it's not 60.

58:47Then you can create the competitive tension without overextending yourself. Because if you run a process and you have 60 people, it's very difficult to manage and it becomes unwieldy. Let's say there's 60 and then I can tell like a lot of them are very just taking a quick peek. There's maybe 20 that are actually expressing some serious interest. You've had three plus phone calls with them, maybe some visits in person, things of that sort. There's five that are like, I would actually want to work with them. Like I would be super excited to go work with them, given their track record, what I've seen and just culture of their firm.

59:19Now what do you do? You sort of like have these five stars and still run it to 20 people. Investment bankers get a bad rep. I do think that when it comes to these kinds of situations, they can be helpful helping you tease out what's the right thing to do. And it has to do with where you are in the life cycle of the business. And certain businesses get more traction because they're in the right sectors, they have the right profile, and other businesses don't. It is not a terrible idea to have an advisor that does this for a living give you advice on how to find the right balance. What I would say is that I wouldn't rely only on five people.

59:55From where I sit, 20 people should be plenty to give you a sense. But look, there's a famous phrase, beggars can be choosers. And if you need the money and it has to happen, then you want to go more broad. Okay. What investment bankers can do is go out to 60 people and share information and see of those 60 people, how can you shrink that to a more manageable level? You cannot do diligence with 60 people. In fact, you cannot do diligence with 20 people, but you can do diligence with a handful. Investment bankers in many ways approach this process the way I mentioned it earlier. They start peeling the onion.

1:00:32There's stage gates at each point of the game, reduce the funnel and leave you with the ones that are really interested, have the word with all to do the deal. They are largely around the parameters and the value and the structure that you want. That's maybe how I will go about it. You can always make the process bespoke and give those five parties that you really want to work with early access to give them an unfair advantage to win the deal. But you will be remiss not to include a broader set of investors in case those falter. Because five is a low number when it comes to raising capital. What if you're like really cheap because you have those immigrant values instilled in you and you don't want to pay the banker fees?

1:01:12Is there scenarios that you would say, hey, I wholeheartedly believe like in this scenario, I wouldn't hire a banker. I understand if you're going broad auction, basically. I would say it comes down to how much conviction you have that there's five people that you really want to work with are going to get there for you. You have like that much conviction that this is like, I'm in love with this relationship. Or it's almost like a strategic acquisition. Man, this is such a good fit that it doesn't make sense for us to shop around. It's really both situationally dependent, market dependent, and company dependent.

1:01:45And there's an infinite number of factors that it's hard for me to generalize what works. And I'm trying to give you the best advice possible. Generally speaking, if you don't need the money in the spectrum of, I'm going to go bankrupt if I don't get the money versus I don't need the money, but I would like some investors, that drives a lot of the decision. If you really need the money, then I will go broader. If you can afford to say no and not do the transaction now, I will go to less people. It's much better. Yeah, hence how they will have those 60 firms they talked to over the course of a year.

1:02:16If you really need the money, then you need to go broad because you don't have an option. Fair enough. What I would say about paying a banker is that oftentimes, and I've seen this with companies many times, there is an inclination to be penny wise and pound foolish. My view is that an investment banker may be able to get you a much better deal that pays for their fee multiple times over. Make sure that you don't pay a huge retainer to them. But other than that, their fee pays for itself generally. Fair advice. I know we're getting close to time here. I got to ask you, what's the craziest thing you see in M &A?

1:02:52The craziest thing I see in M &A is when the market is incredibly frothy. And it's usually a great marker that we have peaked in the cycle is when people do deals, when they forego the discipline and the analysis and the due diligence because they get that irrational exuberance around doing deals. And I've seen people do deals without doing any of the work that a year before or two years before would have been absolutely out of the question not to do that type of stuff. That's how crisis start, bubbles get popped, and how you get burned. goes back to what we talked about earlier around the discipline and the consistency.

1:03:38The process needs to be followed always. You cannot skimp on that. And if you skimp on that, then I will be very skeptical about any investment where you're following your own process. So I would say the deals that we're getting done in 2021 in M &A, some of them follow that pattern. And my view is that many funds that made investments, a lot of investments in 2021 are going to have a tough time showing great returns. That's so true. People really get deal fever. And especially back then, he went straight to contract. People went straight to contract, very little work. And that's just not a recipe for success.

1:04:14You still see all these data shows funds are sitting on a lot of dry powder. They have like longest hold periods they've ever had in history. Is that still going to keep a pretty frothy market or have it come back to that state? It's just I just don't see how prices are going to go. I have a long-term view on finance that it's a survivorship business. Finance is inherently a cyclical business. And there was a report a few months ago where Hamilton Lane said many funds are investing their last fund and they don't know it yet. And that is my view. My view is that over the next few years, the industry will contract.

1:04:52and there's going to be a lot of funds that will not continue because I don't think that the amount of private equity money chasing deals and the amount of private equity funds is sustainable. Now, interestingly, people say that the cure for low oil prices is low oil prices and it's the same in M &A. And there will be another 2021 in our future. I cannot tell you when, but at some point, the pendulum will swing back into the buyer's favor and things are going to look better again. But right now, I think there's a glut of private equity firms with old portfolios trying to look for exits, which makes it for a very challenging environment because many of them went at the height of the market and multiples are just not where they were before.

1:05:44Makes it tough. That's where you're just seeing weird ranges in the market right now. Leon, this has been great. I appreciate you taking time from doing deals to have a conversation with me and helping me be a better M &A scientist. Excellent. Thank you so much for hiring me. I really enjoyed our conversation. You're still listening to this podcast. Fellow M &A scientists, I commend you. Love to hear from you, especially somebody dedicated to you to listen to this much content for this long. Reach out to me on LinkedIn. I welcome feedback. I welcome the criticism. So I learn to get better. And even topic ideas.

1:06:17Some of you probably know we're carving M &A science out from Deal Room. and a lot of new things that we're creating as initiatives. So look for more to come. Until next time, here's to the deal.

1:06:38Thank you for taking the time to explore the world of M &A with our podcast. We love hearing feedback. Tag us on a LinkedIn post, add a review on Apple Podcasts. We'd love to hear from you. If you need help standing up an M &A function or optimizing one that you already have, we're here to help. And if we can't help you, we probably know someone that can. You can reach out to me by email, Kisan, K-I-S-O-N, at mascience.com. Or you can text me directly at 312-857-3711. If you just want to keep learning at your own pace, visit mascience.com for a lot more content and resources. That's where you can also subscribe to our newsletter.

1:07:22Again, that's mascience.com. Here's to the deal.

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