The Seller Whisperer: Empathetic M&A Strategies to Drive Hyper-Rewarding Hypergrowth

Preface

As a business owner and entrepreneur, you may have a crackerjack team that is hitting all the marks …

• allocating capital resources with discipline

• fostering a company culture that encourages continuous improvement

• constantly whittling down the costs of doing business

• keeping focused on customer success/satisfaction

… and yet, despite hitting all the marks, your company may be growing only 5 percent to 15 percent a year.

Your team may be faithfully adhering to all the best practice ideas—the Rockefeller habits, the Traction books, FranklinCovey’s 7 habits, Maslow’s hierarchy, Jim Collins’s hedgehog principle, Michael Porter’s five forces, Drucker’s rules, Deming’s rules, and so on and still only be growing 5 percent to 15 percent a year.

Your great line of products and services may be out there in the marketplace killing it, and you’re devoting 100 percent of your resources to that product line. No wasted energy. But still the company is only growing 5 percent to 15 percent a year.

If you can see your own company performance in the above, answer this question, if you will …

What if, instead of what you’re doing now, you took 20 percent of your resources and allocated them to mergers and acquisitions, M&A, beginning in your operating region and in time expanding onto the international stage? And not just allocating resources, but approaching the whole M&A process entirely differently? What might happen then?

Not only will you achieve exponential growth, but you will also reach the size of business you’ve always dreamed of. On top of that and even more interesting, the valuation of your company will also grow exponentially. In this book you will learn how to implement hypergrowth through M&A, flipping the script.

You will also find some real experience learnings in each stage of the buying process that will allow you to hopefully save and make millions of dollars.

Shifting from Organic Growth to Hypergrowth Mode

This book is all about taking a truly transformational approach to M&A, and it’s done very simply by flipping the script. That’s all, really.

We’re all familiar with the popular script of M&A as told in stories such as Wall Street and Pretty Woman. Corporate chieftains tearing apart companies for fun and profit. Pompous CEOs recklessly hatching grandiose schemes and betting it all solely in hopes of landing their name in bold print in the financial pages and making their peers just sick with jealousy and astonishment. Hungering for a deal so badly they conjure up forecasts and structure deals that make no sense to anybody. Convincing themselves that they alone can breathe and swallow at the same time, only to leave those around them suffocating. All as if in a Mel Brooks stage play where producers Bialystock and Bloom scheme to get rich by deceitfully overselling interests in a Broadway musical that’s destined to fail.

This is surely a script worth flipping.

And one look at the financial pages tells you that M&A has a rather rotten track record, performance-wise. Few deals ever achieve their intended goal or expected value, with many failing rather spectacularly. In the lower middle market, the failure rate is often higher because smaller companies often lack the expertise, time, and resources needed. And the consequences of a failed M&A effort are always severe, from the slashing of shareholder value to the shuttering of the company or companies involved.

This, too, is a script worth flipping.

Then there is the less visible rending of the human spirit when an entrepreneur goes to sell the business and is put through a meat grinder. This grueling process was captured movingly by Bo Burlingham in his book Finish Big. In interviewing one hundred–plus entrepreneurs who had exited their companies, Burlingham found more than 50 percent dissatisfied with both the process and the outcome. A lot of them were plain miserable. By his count, only 20 percent of businesses for sale will successfully transfer to another owner.¹

All-around dismal.

But What If We Flipped the Script?

What if we approach an M&A deal from the perspective of the seller, and not the buyer, like is usually done? That is, what if the buyer enters into a deal with the seller’s best interests in mind and, in doing it right, actually comes away with a better deal for both parties?

Both?

This script flipping means the buyer first considers all the concerns of the seller in a genuinely empathic way, so that the buyer understands what matters most to the seller who has built something worthy of sale—so fully understanding all the energy the seller expended to arrive at this sale …

It means appraising a company to be acquired in such a way that it fully takes into account the blood, sweat, and tears that have spilled along the way to the valuation—because that’s what’s also being acquired …

It means trying to acquire assets that can be strengthened, actively strengthened at each step in the M&A process—so both parties net a greater gain …

It means elevating the simple ideal of empathy to the first tool you grab from your M&A toolbox. Empathy, heartful concern for your deal partners, going the extra mile to honor the other party’s interests … these are all descriptors of a seller whisperer, someone who knows how to nurture a mutually rewarding relationship.

You’ll have to search deep to find books or even articles homing in on this idea of empathic M&A … because few exist. Only a few practitioners—the people we work with and will introduce you to in these pages—take this kind of approach to M&A. Only a few prove in deal after deal that it is more financially rewarding, more personally fulfilling, and all-around better business.

For those open to this empathic approach, there has never been a more yeasty time to be investing. So many successful business owners are on the threshold of retirement. There were 660,000 businesses in the United States alone with annual sales in the $5 to $100 million range in 2023, according to NAICS.² As for companies actually up for sale, Dealstream tallied up 13,199 companies.³ Most of these businesses are owned by baby boomers—seven in ten of whom will retire in the next ten years.⁴

But unlike in years past, boomers’ succession plans are uncertain. In one study only 19 percent of small business owners expect to hand their companies over to family.⁵ And in another study, 52 percent of business owners said they do not want their children to inherit or run the business.⁶ A PwC study probably hit the nail closest to the head in finding that 41 percent of family-owned businesses will pass the business on to the next generation to run, 11 percent will pass it on to own but not run, and 30 percent will sell to a third party.⁷

This syncs with the views of a younger generation loudly disclaiming the path their parents took. They’ve been to university and are likely to become doctors, lawyers, engineers, and scientists or drop out of the career track altogether. Few want to return to Des Moines or Durango to take the reins of the family business.

So a great many entrepreneurs are now looking at all they’ve built and wondering about the next steps. Of course, they’d like to receive top dollar from an investor when they choose to sell, but that is only a single measure of a deal that represents a scorecard on a lifetime of achievement. These entrepreneurs are emotionally tied to their businesses. They’ve poured their hearts and souls into creating them. What happens for them next, and how it happens, matters.

It certainly matters to us, and we’ve long had thoughts on this …

Ideas about M&A Going Back to Business School

The two of us, Ignacio and Carlos, first met twenty years ago across the negotiation table on a deal involving billions in army supplies—from tanks and ammunition to fighter jet spare parts. If this feels high stakes, it was only because we were negotiating a practice case at IESE, the graduate business school at the University of Navarra in Spain. (While not as well known as Harvard or Yale to Americans, the school’s MBA program was ranked higher—third best in the world in 2023—by the Financial Times.⁸)

Despite the class professor saying we had negotiated to a tie—displeasing us both—we soon discovered a shared passion for the personal side of dealmaking and high-stakes negotiation. We launched into a friendship that has endured to the present—so much so that our families are now neighbors on the same street in south Florida!

CARLOS

A few years out of school, my friend Ignacio started a company from scratch, Healthcare Management Consultancy, to help big pharma launch drugs into the marketplace. The company grew to lead the space in Spain before selling to the German multinational Psyma for a sweet forty-times exit. The accolades rolled in, but Ignacio couldn’t wait to get out of it … since the business model was awful.

The company billed on the clock in the complex healthcare sector and had to fight for every order. There were no diversified product lines and no recurring revenue. These two things, among others, were essential for success. So in selling the company to Psyma, Ignacio knew two things with certainty. He knew the healthcare market—at least in Europe. And despite having enjoyed a big payday, he knew the business model to avoid going forward …

Low Diversification +

Zero Recurring Revenue ≠

Entrepreneurial Happiness

But what could Ignacio say of the future and what he’d do next? He knew the Spanish and even the European markets were not as robust and challenging as the big fish—the US healthcare market. He knew that market could be an exciting and compelling opportunity. But only if he could figure out a different business model. So that’s where he turned his attention …

IGNACIO

While a footloose entrepreneurial life of some sort suited my temperament, my friend Carlos went another way—the buttoned-down corporate way. Soon he had joined one of Spain’s largest companies, Telefónica, to manage sales and marketing operations for over 7,500 stores nationwide. And then on to Microsoft to manage one multibillion-dollar operation after another, beginning with online advertising, then hosting services, then software services, then cloud partners across Spain, Canada, and the United States. Most recently he moved to Google to manage a big part of the company’s massive cloud services group, focusing on deepening Google’s relationships with its many independent software vendor (ISV) partners around the world, and now leading Google Cloud’s business development with venture capital and private equity partners across Europe, the Middle East, and Africa.

I just lost track of how many times the word manage slipped into Carlos’s brief bio above, and that’s the point. But the word partners? That only appeared twice, and it has bearing on this book.

Since Carlos comes from the big company world, how can his experiences bear on the rough and tumble of lower-middle-market partnering and dealmaking?

As it turns out, the differences between entrepreneurial and corporate dealmaking are mostly ones of scale. In the corporate space, business requires innovative growth solutions on the daily menu to accelerate performance beyond market expectations. This thinking will resonate with every entrepreneur as well, right?

So in melding Carlos’s corporate views with my entrepreneurial views, we have forged a more complete 360-degree view and perspective on deals.

We look at M&A with the left eye of the tenacious entrepreneur and the right eye of the structured corporate guy. And it can bring a powerful focus.

While coming from different starting blocks, we share a belief in the relationships side of business and thus in the importance of flipping the script to fire up the hypergrowth engine. At the core of every deal, we believe, there is one constant: people.

We think people make the deals go round—whether they are yelled at or whispered to. The latter is better—much better.

And so, in joining for this book, we bring no pretense. This is less a how-to book and more of a why-not book. Why not share what we’ve discovered over our fifty combined professional years—bringing both the corporate and entrepreneurial to the seller whispering—and see what’s possible?!

The deals we’ve done over the years have focused on entrepreneurs whose enterprise value ranges from $10 million to $75 million, with earnings before interest, taxes, depreciation, and amortization (EBITDA) of $2 million to $10 million. Our objectives in each deal have been straightforward and transparent:

• to structure a deal that yields the highest growth potential for both parties,

• to make the business transition as worry-free as possible,

• to ensure the business continues to thrive after the transaction, and

• to properly recognize the legacy the entrepreneur so richly deserves.

You can call it seller whispering, if you will, and how we put it together for both buyers and sellers is the whole subject of this book.

—Ignacio Macias and Carlos de Torres

August 2024

Introduction

IGNACIO

When I sold my healthcare company in Spain for a forty-times exit, I should have enjoyed the accolades and planted a beach chair in the pearl sands of Palma de Mallorca. But I needed to run—to run from the business model I’d been saddled with (a low-diversification, no-recurring-revenue business model I was lucky to survive). What to do next?

As it happened I was at the time serving on the board of a technology company I had invested in. There I met a great businessman who had put together an optometry buying group in Europe. To date he had only done a few acquisitions, but I could see how his model could be used as starting point. Taking his basic structure and adding the flipped script approach I was still noodling out, we could begin focusing on the biggest fish in the pond—the US market. Such a partnership would benefit greatly from his deep domain expertise in the optometry vertical. And I could show him ways to multiply the value of his company that he had not yet considered. We decided to give it a try.

Soon we discovered that the smarter business model I was looking for was bubbling to life in his petri-dish organization. So I suggested that instead we partner but with a focus on the biggest fish in the pond—the US market. We could purchase companies there together using his business model and the flipped script approach I was still noodling out.

We could both benefit from his experiences in the optometry vertical. And I could show him how to multiply the value of his Madrid-based company as we moved forward together in the United States. We shook on it.

Next I hired an investment bank, the highly respected Dinan & Company in Phoenix, selecting them because they were crackerjacks in the consolidation space, and I felt simpatico (friendly) with their senior banker, Mohit Mehta.

Mohit set out at once to research companies to buy. After six months of around-the-clocks, Mohit had identified fifty-six companies operating in the fragmented US optometry market. We slotted these fifty-six companies into buckets.

One bucket included buying groups—my favorite kind of group! These buying groups gather up lots of mom-and-pop stores, in this case, optometrists, into a group. Then the buying group goes to all the manufacturers selling to optometrists and says, We’re doing the buying now. That saves you considerably not having to deal with all of them, right? The manufacturer gets it and offers the buying group a 20 percent discount. Of that, 17 percent is passed along to the merchants and 3 percent is kept for the buying group’s efforts. Everybody wins. It’s the start of an outstanding business model.

Next the buying group bundles in other services—such as digital marketing. This involves purchasing a digital marketing company and turning it into an exclusive supplier of digital marketing services to the group’s members on a profit-sharing basis. When group members need to buy digital marketing, they get it at a 40 percent discount. Again this works because the digital marketing company’s services can be offered more efficiently across similar businesses. The buying group can take 10 percent of the transaction.

This concept can continue to scale across the many services that optometrists need—such as continuing education training, insurance billing management, and on and on.

So when you analyze the value chain of these buying groups, you have some interesting synergies at work. You have opportunities to cross-sell and upsell. You have the members enjoying better cash flows in working with the buying group. And you have manufacturers less worried about churn. An all-around win.

And only the beginning.

With this buying group model, there is an opportunity to crack the value code for creating wealth in the new economy. One of the keys to that value code—the keystone, really—is the growth trajectory a buying group is capable of achieving.