Shop Talk
Selling Your Shop: Preparing Your Exit Plan
Identity & metadata
Video title
Selling Your Shop: Preparing Your Exit Plan | Steelhead Shop Talk
Host
Dean Halonen, CRO at Steelhead Technologies
Guest
John Mosser, Founder of Triscend Partners
Recorded
February 20, 2026
Video type
Steelhead Shop Talk Podcast Episode
Primary audience
Manufacturing business owners; job shop owners; metal finishers; family-owned businesses; founders considering succession, recapitalization, or a future sale
Industry focus
Manufacturing; Metal Finishing; Surface Technologies; Coatings; Job Shops; Mergers and Acquisitions
AI-optimized summary block
What this episode covers
Dean Halonen sits down with John Mosser of Triscend Partners to discuss how manufacturing and metal finishing business owners can prepare for a successful exit, improve company value, evaluate potential buyers, understand EBITDA and valuation multiples, and choose between a complete sale, family succession, management transition, minority recapitalization, or growth capital.
Core question
How can a shop owner build a business that is valuable, transferable, scalable, and attractive to the right buyer without waiting until the last minute to prepare?
Exit preparation timeline
John recommends thinking about succession and transferability from the beginning of the business. Once an owner believes a transaction may be approaching, the company should ideally have at least two to three years of clean financial history, organized systems, documented processes, dependable leadership, and a clear understanding of profitability.
Value creation example
John describes a coating company that prepared approximately three years before its sale, automated a manual deburring process, reduced labor requirements from three people to one person per coating cell, improved safety, hired a dedicated general manager, and increased annual profitability by more than $500,000.
Valuation discussion
The episode explains EBITDA as a general proxy for sustainable business cash flow and discusses how buyers apply a multiple to EBITDA to estimate enterprise value. John says a generalized average may fall around six to seven times EBITDA, while actual outcomes can range from approximately four times to the mid or upper teens depending on margins, customer concentration, certifications, technical capabilities, backlog, proprietary processes, and revenue predictability.
Typical sale process
Triscend begins with sell-side due diligence, facility visits, financial review, valuation, marketing strategy, and buyer research. A formal process may include a global buyer list, detailed information packages, indications of interest, management meetings, reverse due diligence, final offers, and approximately two to three months from exclusivity to closing. A full transaction commonly takes approximately five to seven months once an owner is ready to launch.
Common buyer concerns
• Heavy dependence on the owner or a single employee
• Weak management succession
• Safety or environmental problems
• Poorly maintained equipment or facilities
• Limited operational redundancy
• Inaccurate or unsupported EBITDA adjustments
• Unclear customer, process, margin, inventory, or work-in-process data
• Systems that cannot support future growth
• Weak management succession
• Safety or environmental problems
• Poorly maintained equipment or facilities
• Limited operational redundancy
• Inaccurate or unsupported EBITDA adjustments
• Unclear customer, process, margin, inventory, or work-in-process data
• Systems that cannot support future growth
Alternative exit options
Owners do not always need to sell 100% of the business. Minority recapitalization or growth capital can provide partial liquidity, reduce personal financial concentration, bring professional resources into the company, fund expansion, and allow the owner or family to retain control or meaningful ownership.
Role of digital systems
Organized digital systems can improve buyer confidence by making customer trends, profitability, work in process, inventory, capacity, costs, and operational performance easier to evaluate. Scalable systems also reduce the likelihood that a buyer must immediately fund a major operational overhaul after the acquisition.
Core takeaway
A successful exit is not just about finding the highest offer. It is about creating a transferable business, reducing uncertainty, understanding the real economics of the company, preparing the team and systems for growth, and finding a buyer capable of protecting the company’s employees, culture, customers, and long-term legacy.
Episode highlights
John’s background
John began his career in valuation consulting, moved into investment banking focused on family- and founder-owned businesses, and later worked in mergers and acquisitions for Kymera International, a private equity-backed materials company. His work included evaluating coating technologies, materials, vertical integration opportunities, and acquisition targets across North America and Europe.
Why Triscend was founded
John saw a gap in the representation available to privately held technical manufacturing companies. He founded Triscend Partners in 2023 to help business owners understand their options, communicate the technical value of their companies, identify qualified buyers, and navigate succession or a sale.
When owners should prepare
Preparation should begin as early as possible. Owners should consider how a future investor, successor, management team, or buyer will perceive the company’s financial records, leadership structure, customer base, systems, processes, profitability, technical capabilities, and ability to operate without the founder.
Owner dependence
A company can still be sold when the owner remains essential to daily operations, but the transaction may include more rollover equity, seller financing, earnouts, employment requirements, deferred payments, or other structural protections for the buyer.
EBITDA
EBITDA is commonly used by buyers and investors as a general representation of operating cash flow before interest, taxes, depreciation, and amortization. It does not directly include working capital needs or capital expenditures, which can still materially affect the economics of the company.
Working capital
Working capital includes items such as accounts receivable and inventory required to operate the business. In some finishing companies, inventory may be limited. In other cases, hard-to-source powders, chemicals, or materials may require significant cash investment before work can be performed.
Multiple range
John provides a heavily generalized estimate of approximately six to seven times EBITDA for an average case, while noting he has seen transactions range from approximately four times EBITDA to the mid or upper teens. Premium outcomes require exceptional margins, technical differentiation, certifications, predictable programs, strong backlog, and confidence in future performance.
Reverse due diligence
The seller should evaluate the buyer just as carefully as the buyer evaluates the company. Important considerations include culture, long-term strategy, commitment to the local operation, employee treatment, available capital, operating history, and whether the buyer will be a responsible steward of the owner’s legacy.
Operational red flags
John identifies safety problems, environmental concerns, poor facility investment, dependency on one employee, insufficient cross-training, weak operational redundancy, and systems that cannot scale as issues that may lower confidence or valuation.
Cross-training example
One shop placed a QR code at each workstation. Employees could scan the code to access the standard operating procedure and a video showing the process, allowing another employee to step in when the primary operator was unavailable.
Minority recapitalization
An owner may sell a minority percentage of the company to gain liquidity, reduce personal risk, finance growth, and bring in professional support without immediately giving up full control or completing a total exit.
Industry investment appeal
Coatings and surface technology companies often attract private equity and strategic buyers because they can produce strong margins, dependable cash flow, manageable working capital requirements, defensible technical capabilities, and opportunities for consolidation or vertical integration.
Full transcript
Transcript notes
The transcript below is preserved from the provided source, including repeated words, informal language, incomplete statements, and transcription errors.
Transcript
[00:00:15:08 - 00:00:54:11]
All right. Well, welcome, everybody to shop talk. This is I'm your host, Dean Halonen I'm the CRO of steelhead Technologies. And really, what shop Talk is. So this show is for those who have dedicated their livelihood to the craft of manufacturing, because those people understand the manufacturing environment, no matter what role or what seat you're sitting in, is oftentimes the hardest job in the world in terms of the pressures from customers that want parts faster or operators aren't always showing up, or they're leaving to another industry or another company for an extra an extra dollar.
[00:00:54:12 - 00:01:18:11]
There's material prices going up. There's tariffs, there's wages, there's equipment failures and reworks and productivity. So that's typically the focus of of today. But today we actually have a new guest. So kind of aside from the the daily firefighting of problems like it's not really aside from it, but bringing a new perspective into it is is our guest today is John Mosser.
[00:01:18:12 - 00:01:44:02]
So we're happy to have John Moser on the show. He's the founder of Triscend Partners and it's based out of North Carolina. And John's actually worked with quite a few job shops around the country, moving them from where they are today and getting them into a successful exit. So really, that's his his goal is connecting great companies to great buyers and getting a great outcome for for both parties.
[00:01:44:02 - 00:02:11:01]
And so yeah, John, thanks for joining the show. We're very curious to hear your perspective on the industry that we live in. We're typically in the trenches. We don't often look up and see the the high level picture. So I'm pretty curious. But maybe it started off with John, would you mind going into your background, maybe even, you know, briefly where you grew up, how you grew up and then how you got into manufacturing?
[00:02:11:03 - 00:02:36:06]
Yeah, absolutely. And first of all, thanks for having me on, Dean. Looking forward to the conversation as well. So I, I grew up in the Raleigh, North Carolina area, kind of moved away for a couple of years down to Georgia and then back to North Carolina and graduated from App State in North Carolina. And from there, I really started my career actually with an accounting firm doing valuation consulting.
[00:02:36:08 - 00:03:03:12]
So kind of interesting foundation and a lot of academic based approaches to valuation starting my career. But then after a short while, moved on to an investment bank in Richmond, Virginia, where probably 80% of the work I did was working with family and founder owned businesses, either raising capital to help them grow or to help them formulate a succession plan.
[00:03:03:14 - 00:03:36:04]
Fast forward a couple of years, you know, had some personal family health issues that drove me to back to the Raleigh-Durham area where I'm based now and was was fortunate enough. I was the first kind of dedicated M&A hire with a company called Chimera International. Chimera was a private equity backed company, and they're in the materials space. And part of our growth thesis was how can we grow the company into more value added spaces?
[00:03:36:04 - 00:04:06:01]
And being in the materials industry now, one of the ways to do that was vertical integration. And what types of coatings can we apply using our materials. So spent a couple of years there really in the trenches with some of that R&D and engineering folks really understanding the types of processes, how some are related, how others aren't related, the types of materials and environments that different components are in, and the types of materials that have to be used.
[00:04:06:03 - 00:04:44:05]
So there, you know, traveled around North America and Europe looking at different acquisition targets, really understanding the industry. But after a couple of years, I tend to be a lot more passionate about working with family and founder owned businesses rather than a larger corporate environment. So found there to be what I perceived an interesting gap. And privately held companies in this market really getting good representation when it came time to pursue and exit, and reason being because the space is extremely technical.
[00:04:44:10 - 00:05:26:00]
There's lots of different, you know, coding processes and technologies, understanding the types of materials that are used in different cases. You know, one example is we'd be looking at acquisition targets. And if we were pretty laser focused in the thermal spray market, we might have somebody approach us with something that could be painting lines on asphalt. So being able to understand the links between the technologies and where things are a fit and not a fit, I felt like I was pretty well positioned to be able to one serve privately held businesses, but to help to translate where things fit and they don't fit, particularly in this market.
[00:05:26:00 - 00:05:49:05]
So I started try send back in 2023, spent a little bit of time getting our systems in place, so that way we can adequately serve our clients. And kind of fast forward to today and we're, you know, we're growing very quickly now up to a team of three folks and, you know, pretty passionate about the space that we're in.
[00:05:49:07 - 00:06:20:18]
Yeah. That's interesting. So just to go a little deeper on the Chimaira area. So that was they they were a chemical provider and they wanted to vertically integrate with a coatings applicator by is that is that the is that the idea. Yeah. That was certainly one of the thesis that we had. So they make metal powders that are often times used in particularly, you know, thermal spray, laser cladding, some types of welded processes as well.
[00:06:20:20 - 00:06:45:05]
So those after we spent a lot of time looking and built, looked at building out really a coatings platform underneath Chimaira, that's when you kind of branch out into other types of coding processes that, you know, that's when you get into plating and, you know, anodizing, powder coating and the other things that you're your customer base that Steelheads also involved in.
[00:06:45:07 - 00:07:18:08]
Yeah. Cool. Yeah. It's one thing I didn't realize before getting into this industry is like there is like the need for integration is is so strong, like manufacturing is a team sport. No matter if you're a supplier to a chemical or a powder or you're the applicator or you're the machine shop or the fab shop or the OEM, like everybody has to work together quickly and efficiently in order for the to justify the supply chain being here versus being in Mexico or China or somewhere else.
[00:07:18:08 - 00:07:51:22]
So that's cool to see. Like that vertical integration component coming through in your in your background. And then why the why the family business versus the the more you know, private equity typical private equity approach of or maybe more corporate approach that take that said that answer is probably pretty simple. I tend to just be much more interested in the story and the relationships, building relationships with folks.
[00:07:51:22 - 00:08:16:10]
We take a very educational approach, and I think it oftentimes takes a lot of handholding. When folks work with us, it's oftentimes the first and only time they'll go through a succession plan or a potential exit. And the, you know, the private equity space can sometimes be a little bit more, you know, transactional rather than what we typically find with our clients.
[00:08:16:10 - 00:08:47:24]
And personally, I tend to enjoy that a little bit more. Yeah. And on that side. So say I often think these family businesses passed down generation to generation. And in many cases it feels like the American dream, right where they started with nothing, maybe a one booth or in their garage. And you hear it all the time working 100 hour weeks, brick by brick, building up something that's that's like their it's their livelihood.
[00:08:47:24 - 00:09:15:07]
It's their maybe their generational source of income. And then maybe the next generation doesn't want to take it on. So maybe that's when they reach out to John and say, hey, John, it's time for me to to gracefully exit. In your experience, John one is the right time for a shop owner to start, say, preparing their business for a sale.
[00:09:15:09 - 00:09:34:10]
I tend to say it's never early. It's never too early. There's always things that you can do from day one. And I think, you know, having a perspective of that one point, I will want to pass my business on and need to pass my business on. And that can take a variety of forms, not necessarily just selling it.
[00:09:34:11 - 00:09:54:02]
Maybe there's a member of the management team that would love to carry on the business, and that's where we can also help pair them with a capital provider. But really, I think very early on when you're formulating the strategy, just having a conscious thought of how is this going to be perceived by an acquirer or an investor down the line?
[00:09:54:02 - 00:10:15:09]
And oftentimes that's, you know, doesn't take a lot of energy to really think about, because generally if you're making moves, you're trying to add value to the business to begin with. But sometimes, you know, there's ways that you set up the systems and policies that can potentially scale a little bit more. So thinking about those things as early as possible certainly helps.
[00:10:15:09 - 00:10:41:19]
But, you know, trying to make sure that you have a couple of clean years, typically 2 to 3 of, you know, pretty clean operating history, financials that are in order, making sure you really understand your business as well. Can't tell you how many times, you know, we talk with folks and they're not always aware of exactly where they're making the most money or what's profitable and not profitable.
[00:10:41:19 - 00:11:05:10]
So, you know, having I think in some ways it's somewhat simple, but, you know, taking the 2 to 3 years before you think you might be ready to pull the trigger. And I think the timing is another thing that can play into that fact, because sometimes it's really emotional and there's never a right time until potentially it's too late.
[00:11:05:10 - 00:11:29:16]
So I'd say never too early. But when you think you're getting closer to ready. I'd strongly advise, you know, a couple of years, 2 to 3 ahead of time, at least 2 to 3 to make sure the books are clean and in order. And there's systems and processes in place. So I guess there's two things there. I like to say that the systems and processes side and then the profitability side.
[00:11:29:18 - 00:11:52:05]
Do you have an example that come to mind of like, like like what is that? What does that actually mean in real life? Maybe we'll start on systems and processes. Are you saying like the owner or the operator has to walk away and the business has to perform, you know, just as good without the the lead owner in the trenches?
[00:11:52:06 - 00:12:10:01]
Is that what you mean? Or is it like we actually need, like a documented process for how we handle every potential workflow or what does that what is like great systems and processes look like from your perspective? Yeah. So.
[00:12:10:03 - 00:12:36:17]
To answer the last part of that, first, a really good case study that I don't really want to name names, but we worked with a company that was in the coding space. They knew, okay, we want to pursue other interests. It was a father son combo and they wanted to do something else. So they made a conscious effort about three years in advance of when they thought they'd be ready to sell the business to.
[00:12:36:23 - 00:12:53:24]
They implemented the system. They made a couple really interesting investments to vertically integrate on their side. So not only non performing the coatings but also you know, the post-process finishing. So as an example.
[00:12:54:01 - 00:13:22:19]
Implementing technology, they did a very simple but effective development for their post finishing and DBR process where typically every coding cell had to go through a very manual DBR. And it had three people, you know, per coding. So they made the conscious investment to try to automate that on the front end. That was going to significantly improve their margins.
[00:13:22:19 - 00:13:52:02]
And it wound up being, you know, it wasn't a super expensive development. They used kind of existing technologies that are out there, but integrated into their process to where each each coding cell could then operate with a COBOL and only required one person. They also got the benefit of okay, we drastically improved our safety profile from an insurance perspective, and now we don't have the risk of people cutting themselves on the sharp edges.
[00:13:52:03 - 00:14:24:12]
This this part is automated. So it was a good, you know, example of an area where they identified a couple key things that they can really execute on within a 1218 month timeframe and improve their profitability by more than $500,000 a year. That was one piece. The other piece was they went out and found a dedicated general manager that could kind of come in and really understand the business, be hired to, to replace themselves.
[00:14:24:14 - 00:14:47:00]
So that way the business, you know, it's got a good management team in place that continues on. I think that that's a great success story of someone who, you know, they had a plan in place and they executed to that plan. But I will say, you know, that's not always required. And, you know, circumstances come up and people feel like they need to to sell earlier.
[00:14:47:00 - 00:15:12:03]
And when that happens, you know, there's also very successful use cases where people can still exit, even if they're still very integral to the business. But when that happens, you typically find those are instances where they'll see offers that have a bit more structure to them, where it's tied to. They ask you to roll over significant amounts of equity.
[00:15:12:05 - 00:15:46:02]
They ask you to finance part of the business. They'll hold certain amounts of money back to make sure that the key person is still employed for several amounts or for several years. So I would say the first instance I shared very successful use case where I think, you know, they maximize value and cash up front. The other end of the spectrum, it's not to say you won't always be, you can't still be successful in going through a sale process, but that's probably realistic to expect a little bit more structure to what your transaction might look like.
[00:15:46:04 - 00:16:20:03]
Yeah, it's super interesting. And the also, even just even without selling the company, your example of using clever automation to to boost your margin profile and reduce your safety exposure is, is fantastic even without some in the business. So that's that's the one thing that I wouldn't say I necessarily obsess over. But probably half of what I obsess over is, is just profit, pure like because it takes it takes everything coming together.
[00:16:20:04 - 00:16:47:01]
Right. Great hires on the GM side, great automation, great ideas, great execution, great customer service. Great. You know, like everything truly has to come together for the for the profit. And on the profit side, maybe if you could explain to our listeners, John, like there's profit obviously has a lot of different form factors of like net right profit or gross net margin or gross margin.
[00:16:47:02 - 00:17:10:07]
You also have the EBITDA, which whenever I read like a a merger or acquisition, it seems like there's a bit of multiple. So maybe if you could pretend we're all first graders here and you could explain like the the whole profit scenario and how it translates to EBITDA and how that translates to a to a valuation. Yeah, absolutely.
[00:17:10:07 - 00:17:47:20]
So I would say first of all, this is pretty generalized. And there's always caveats and complexities for each situation. But you know is that tends to be how most businesses are valued and spoken about with with a multiple. And EBITDA is used sort of interchangeably by investors and acquirers to represent the cash flow of a business. And really what investors inquire is, are pricing the business off of is what are the sustainable, what is the sustainable cash flow of the business now?
[00:17:47:20 - 00:18:27:07]
But even more importantly, going forward when we potentially take over. So the the components to cash flow that you know, are missing from that are CapEx and investment that's not factored into EBITDA or working capital. And oftentimes those can be significant parts for for business in this space as well. But as a general rule of thumb, you know, EBITDA is generally can be thought of of the cash flow that people are pricing and using some kind of multiple to get to the enterprise value.
[00:18:27:08 - 00:19:00:05]
And what is working capital exactly. So working capital, when I say that, I mean, you know, your your receivables. So sales and customers haven't paid you yet. The, the inventory oftentimes we don't see inventory as necessarily being a huge component of the working capital, unless you're in a much more materials intensive piece and you have to carry some of those materials on your balance sheet, like let's say you have a really important chemical that's hard to get your hands on, but it's required for a coating that you're performing.
[00:19:00:07 - 00:19:20:19]
In that case, we could see it being a much larger component. And maybe you have to, you know, it's not necessarily profit, but you have to spend sometimes hundreds of thousands, if not millions of dollars to secure that inventory up front, to even be able to perform the work in the first place. So those are really the two things I'm referencing when it comes to working capital.
[00:19:20:21 - 00:19:47:16]
Got it. And so in a way, EBITDA and net profit are for our customers, for the is for the metal finishing job shops out there. They should be as long as they're not making any massive investments in capital or they have massive amounts of inventory. The EBITDA in their in their net profit or net margin should be pretty similar then for a given year.
[00:19:47:18 - 00:20:24:16]
Yes. Assuming there's no investment in the working capital is pretty steady, then. Yes, absolutely. On the capital investment piece. That's why, you know, I think it's interesting when you prepare a couple of years in advance because you can really drill down on that investment and say, well, what's the return I'm going to get from this in the value I'm going to add to the business, because automation is a pretty popular word right now, and you see a lot in the news about it and AI, but we tend to see in this business, sometimes that can seem daunting because then you think, oh, it's going to take a lot of time and millions of dollars to
[00:20:24:17 - 00:20:52:22]
implement something. But, you know, we see a lot of companies doing really interesting things that add automation, but it doesn't take months and years of investment to implement a realize a return. So, you know, I think that that CapEx can really be tied into to valuations when you prepare in advance, because we can make some pretty drastic improvements to our business in that short timeframe.
[00:20:52:24 - 00:21:19:07]
Awesome. And then as far as the EBITDA margin or the EBITDA multiple, say, say for example, we're just a hypothetical. We'll say we're a $10 million per year revenue business, and we're roughly like 20% on the EBITDA margin for like a $2 million of EBITDA per year. What is a what would you say the multiple would be, say, just a an average company?
[00:21:19:07 - 00:21:43:19]
I know that that probably doesn't exist or say it's like a company where they have their systems, their processes, their margins. Everything's just crisp, crisp, crisp. Again, like a $10 million business, $2 million of of EBITDA. What's like the the multiple spread that you could see like, you know, maybe best case, worst case or best case. Good case that you would expect John.
[00:21:43:21 - 00:22:06:05]
Yeah that's a yeah. You really put me in a tough spot with that question. But I'd say don't hold me to this. Just just generally like what is the I'd say on average like 6 to 7 times is what I would see. And that's like really generalizing a lot of use cases. I've seen it range as low as four times and as high to the mid to upper teens.
[00:22:06:07 - 00:22:33:05]
And it's always tough because like the mid to upper teens, that what that looks like is a company that is probably above 40% EBITDA margins and they're specked in to a very particular program, have lots of quality certifications, and you can see backlog and performance that gets you really comfortable out many, many years into the future. So that's a rare instance is what I'm trying to say.
[00:22:33:07 - 00:22:55:08]
But it's good to know like that does exist so people can shoot at that. Right. Getting that I think winning business where you have a proprietary chemical or process and you get specked into the in this case, I think aerospace workers or military works. The only time I've seen it, it becomes sticky and predictable, and then people are willing to pay more for predictable revenue than, than than uncertain revenue.
[00:22:55:08 - 00:23:28:14]
So then most businesses do not look like that, I will say. And that doesn't mean that they're any worse off than than the other business. It's just it kind of purely comes down to how our acquirers and investors going to underwrite this. So perfect. Yeah. The conversation is always tough because it's so, so situational, incredibly situational. But it's helpful to know, like what is possible now say say I own a job shop.
[00:23:28:15 - 00:23:58:10]
Right. And I come to you, John, and say, hey, John, I'm looking to sell in, you know, in five years. What does that typical process, what does it actually look like for a for a job shop owner. Yeah. So on the front end we go through a pretty robust what I call sell side due diligence which we you know we want to come out, visit the facility, sit down, really understand the technologies that you have, go through the financial history, understand where you're at.
[00:23:58:10 - 00:24:28:09]
From a systems perspective, we do a pretty robust valuation as well as a marketing strategy, and the valuation includes very academic based approaches like a formal accounting based valuation. But we tend to try to focus more on a, you know, what we think from a market perspective as that I'm a big believer in that's what truly matters when someone's going to go through a sell side process rather than a than a more academic based valuation.
[00:24:28:11 - 00:24:49:18]
And then two, from a marketing strategy that what I really mean by that is helping folks understand, well, where are we at today? What what can we do between now and when you think you're ready to pull the trigger? And really, what are all your options? Because like I said earlier, it's not just as simple as well. It could be as simple as I just want to sell and walk away.
[00:24:49:18 - 00:25:06:13]
But there's a whole variety of other options and things that they can pursue. And sometimes it's, well, I do want to pass it on to my family, but I don't necessarily want them to just pay me back with the cash flow over the next couple of years is that's going to be really restrictive on the growth they can experience.
[00:25:06:13 - 00:25:25:20]
So that's where we help them, help to pair them with a capital provider that can support the existing team and also provide a more realistic liquidity event for somebody. So on the very early end, that's what we do to give them a sense and an accurate read of where they're at, where we think they could get to and to.
[00:25:25:21 - 00:25:48:08]
That's also a little bit self-serving for us because we, you know, we're we're not a huge volume shop. We work pretty, you know, in lockstep with the clients that we work with. And it also helps to establish alignment. We want to make sure that what we're confident we can actually do for our clients is something that they're open to, and that will meet their expectations.
[00:25:48:08 - 00:26:23:03]
Most importantly, once they get a little bit closer, though, that's when we go through, you know, we we prepare a prospective buyers and acquirers list that spans globally. We write a very detailed information package that sometimes custom tailored to different use cases. As an example of that, you know, we could be approaching somebody where the coding processes could be very really attractive to somebody and, you know, provide more capacity to somebody.
[00:26:23:09 - 00:26:47:07]
But it could also be positioned a little bit differently if it's an adjacent coding process, something that somebody doesn't have. So we go through that, spend some time preparing. Then once we launch the deal, we we kind of, you know, go through a two step offer process. The first is what we call an indication of interest. It's a first round offer that really helps us to understand.
[00:26:47:08 - 00:26:59:19]
Okay. Who who do we think are the best fits and who should we spend more time with then we go through? Sit down. Meet the folks across the table that are really interested in the business.
[00:26:59:21 - 00:27:22:10]
Get to know them a little bit. We also do some reverse due diligence, make sure we're really finding the right partner, and then we kind of do a second round offer that folks have now learned a lot more about the business, and we expect to be what I call fully due diligence, fully diligence, or, you know, all the factors that they could potentially need to understand to make an offer about the business.
[00:27:22:11 - 00:27:59:06]
We should have done a good job of educating them at that point. And then from there, it takes typically 2 to 3 months to closing. So if someone's ready to closing, I typically tell them the standard process is probably five to 5 to 7 months is typical. Okay. And then on on in the early stages, like say we're five years out and you're kind of telling people the the levers they can pull to is there any very common like hey, A, B and C are the common things you got to consider.
[00:27:59:08 - 00:28:28:09]
Like, like maybe it is the cap. You know, cleaning up the books is one of them and understanding the business is another. But what are the common levers that you're always maybe telling people that they should do to help get ready for that five year exit? Yeah, those are those are definitely two. The other big one is sort of what I touched on earlier about how integral is is the owner to the business, and do they have a successor in place.
[00:28:28:11 - 00:28:57:14]
Another probably the other big point I would want to mention is, you know, thinking about five years from now, is the business growing or was it flattened, declining? Like, have we done things to invest in the business? And sometimes that can be a challenging trade off, as we've sometimes seen, you know, private business owners enjoy the benefits of being a private business owner and the cash flow generation.
[00:28:57:14 - 00:29:21:08]
And other times, you know, they're very focused on driving maximum value for the business. And that's that's sometimes an interesting trade off. And so we help them to think through, well, growing businesses are more valuable than flat and declining businesses. So you know, we try to help them weigh the trade offs, assess different projects that they're thinking about.
[00:29:21:08 - 00:29:50:04]
How is that going to translate to value for the business. So that and then just the successor that I mentioned and making sure your team is well built out and dependable. Nice. And then on the reverse deed or the reverse due diligence side, what are you looking for there in terms of or do you have an example of like a great buyer versus a not great buyer?
[00:29:50:06 - 00:30:14:03]
Yeah. And maybe rather than a great buyer versus a great buyer, that's even more commonly it's understanding the culture of the business. And where where is that team going to perform the best with. And that doesn't always mean it's the highest valuation either. Actually the one of our most recent transactions. This is a good case study of this with with Horace Noble.
[00:30:14:03 - 00:30:49:11]
They don't actually do coding, but they do a lot of recycling from anodes, predominantly from the plating industry. And that's a that was a good example where, you know, it's a it was a private, small, privately held business, and the family culture was very important to them. And finding the right partner was very important. So as we got further down the chain, you know, we actually took a little bit more time in that process to have several meetings with folks and the buyer of who ultimately bought them.
[00:30:49:11 - 00:31:19:10]
We planned a last minute trip to, and it just felt like we didn't spend enough time together. So before Christmas last year, we flew out to to Germany and we sat down with our client and them just nothing more than spending more time together. So, you know, I oftentimes think it's really a better fit, but it's to make sure that you're really comfortable with the party that you're going to be partnering with and selling your business to, and where your legacy is going to be.
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That's not sometimes people care about that more than others, but it's typically rewarding when we have clients that want to take that extra effort and make sure they understand who they're working with on the other side of the table. Yeah, it makes sense. I think a lot of times these owners or the people in the shop are spending 20, 30, 40, pretty much a lifetime with with their employees.
[00:31:46:12 - 00:32:19:17]
And I would say that there's probably some concern that a, you know, some cutthroat whatever person corporation comes in and cuts half the staff and, you know, moves the tanks to, you know, whatever, a different, a different state or country, right? There's probably some, some, you know, fear. That's typically a fear when people hear private equity. Private equity can be a bad word sometimes, but especially for this industry, we've seen a lot of folks that, you know, we we think really highly of and truly invest behind businesses and, you know, don't take that approach.
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So that's why I think it's really important to understand who you're working with before you transact.
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I agree. And then the last question I have here is.
[00:32:38:09 - 00:33:01:00]
Actually two more questions. What do you see as the biggest challenges that owners face during that? Say they are going through that sales process or that sale process? Is there any common themes that owners like, oh, I didn't think about this then, and now they're faced with some emotional or psychological or financial decision that they weren't aware of when they started.
[00:33:01:02 - 00:33:11:01]
Well, so so definitely you touched on one. Just the emotions in general going into the process, I think is.
[00:33:11:03 - 00:33:38:19]
This is sometimes been multi generation businesses been their baby for the last 20 years. And it's a roller coaster, you know, and sometimes we're you know it's not uncommon to get calls at midnight like oh my gosh am I thinking about this the right way. And it's it's very common. We see it I'd say with more with more clients than not.
[00:33:39:00 - 00:34:06:11]
That's typically something that comes up. I'd say we try to avoid surprises, and that's why we take a little bit more time upfront preparing to really understand, like, what are the things that could derail something later in the process, but the emotions in of itself, and we try to do a good job of, you know, connecting our clients with prior clients or other people that sold their business because they're going through the exact same thing that other folks have went through.
[00:34:06:11 - 00:34:45:13]
And it can sometimes be challenging to talk about because it's also confidential. But connecting people together that can hear about, you know, way the trade offs know that somebody else has been there before can oftentimes be pretty comforting, super comforting. And that's one thing. So I work for steelhead and we're an ERP software for job shops. And that's the one thing I love about my job is that, I mean, I had a customer call from northern Minnesota and just before they committed to using steelhead, he's like, Dean, you have to understand, this is my baby, right?
[00:34:45:13 - 00:35:04:02]
And and you better not let my baby fall. It's pretty much what he told me. So I mean, it's it's it's it's it's cool. You know, it's not like we're selling paperclips and nobody cares. It's just a commodity. Like it is more than just a spreadsheet. And it is a it's a cool thing to be a part of.
[00:35:04:03 - 00:35:29:14]
Yeah. You're contributing to that story and the value creation for them. Yeah. So and on that last front, as far as customers that maybe have a digital system in their profits, in their in their costs and their whip and their inventory and their predictability, say they have a system that is entirely documented and and all the key data is readily available.
[00:35:29:15 - 00:36:01:12]
Have you seen that have a a measurable impact on the the buyer in terms of what they're willing to underwrite or how they're able to consider the valuation of a company? Yeah, absolutely. I think it helps with something as simple as just understanding the true trends of the business, not having to. I've seen instances where everything's just kind of lumped into one bucket, and you have no idea what the trends might be in there, what customers are increasing, which ones are declining?
[00:36:01:12 - 00:36:45:19]
Where do we have a competing technology or someone that's stealing business from us? So just being able to have a good sense of the business mix and profitability? Absolutely. But I think sometimes even more importantly, having the systems in place that oftentimes and acquirers going to want to grow. So something that can scale and withstand that growth, I think is is extremely important and a huge positive, rather than having to come in and immediately having to spend a pretty big capital investment for a potential system overhaul that erodes value, that is value that an owner is not going to realize.
[00:36:45:21 - 00:37:15:09]
Not to say that they can't still sell their business, but having that already in place to allow somebody to scale quickly is, I think, a huge difference. Yep. It seems like it's a game of reducing as much uncertainty as possible, whether that's with people or processes or systems or margin or customers or or finishes or Specht. In anything we can do to lock things down seems to be a good concept at the at the exit juncture.
[00:37:15:11 - 00:37:39:13]
Absolutely awesome. Well, John, we do have some questions from our from our from our live audience here. This will be published wherever you can. You get your podcast as well. But Andrew mentioned day one is a good time to think, thinking about selling your business. So he's absolutely right. And oftentimes ahead of the game. We do have a question here from Sandy Kaplan to John.
[00:37:39:13 - 00:38:07:18]
And she says says from your experience, what are the top operational red flags that immediately lower evaluation and finishing shop, even if like the revenue is strong or maybe the growth is strong. Say you pop the hood on the business. Is there any like common red flags that buyers are are looking for? I think a lot of those things come out in a in a tour of the facility.
[00:38:07:22 - 00:38:30:21]
Kind of seeing how well invested is the operation and how, you know, does does the operation really break down if Bob takes off work today, like, is this one person really critical? And then if he's out for a week sick with the flu, like can can we not produce. And now our month is going to be down the tubes and we're having to play catch up.
[00:38:30:21 - 00:39:00:10]
So is there dependency within the process somewhere. And then I'd say I've seen where safety issues certainly throw a red flag that we need to take a much deeper look. And I'd say safety and environmental can be two flags on visits that really spark. Okay. We've probably got some concerns here. Things looked great on paper to start out.
[00:39:00:10 - 00:39:26:00]
But you know, we really need to dig in a couple of these spots where it's clear they might not be as buttoned up. So I'd say those three things between environmental safety issues but then operational redundancy capacity and you know, just limitations or maybe cogs in the wheel so to say. Yeah, that's one thing that I don't see a lot of people talking about is the operational redundancy.
[00:39:26:01 - 00:39:50:13]
Say we miss our plant manager leaves or some key operator leaves. I actually used to work at General Motors, and whenever you're designing a component of a vehicle, there has to be redundancy, right? If if you if one thing breaks and the car cannot crash. So I've seen some good examples of folks that handle a cross training really interestingly, there's one shop that I've seen.
[00:39:50:13 - 00:40:11:07]
They have a QR code at every station so people can scan with their phone, and then the SOP pops up and there's a video of somebody performing the work at that station. So if someone needs to step in, even if they might not have, you know, that's not a station that they typically man, they have everything they need there to pick up and run with it.
[00:40:11:09 - 00:40:34:19]
That's a good point. I didn't even think of that. We have a question here from Gabby. Say you owned a shop, John, that $10 million shop we mentioned earlier. What would you do outside of the things we maybe previously discussed? Is there anything you would do to maximize value before selling that goes beyond what we already discussed?
[00:40:34:21 - 00:40:51:16]
It's a tough question I wasn't prepared for. I would say that not so much. That top of mind would be anything that I haven't already touched on. Definitely. Maybe the.
[00:40:51:18 - 00:41:36:07]
The thing I tend to see adding a lot of value is the more value that you can provide your customers, and when there's the technical capability to solve new problems, develop new coatings that go from a development or conceptual phase to something that's commercialized is really, really special. And when people see that shops have that capability and that kind of depth from a technology perspective, you know, that's something that's not, you know, growth can come from a new avenue now of developing new work and creating a new market rather than, you know, can we add capacity and do more of this work?
[00:41:36:07 - 00:42:10:17]
Because we can always do that. But I when I see businesses like that, I tend to think it's extremely special. And I would need another team to do that because I'm not the person that is often capable to do that. Yeah, a chemist, great answer. James asked. Do you find owners understand EBITDA, or do they typically work with external advisors or yourself to help understand this and prepare their their financial reporting to make it reflective of reality?
[00:42:10:19 - 00:42:27:21]
It's I'd say it's all over the map. Sometimes we have people that have never heard the word EBITDA before, and then we've worked with folks that have been involved in M&A before and are pretty well versed in it, but but usually.
[00:42:27:23 - 00:42:50:05]
I'd say, you know, we go through a pretty robust process there. And I've one thing I think to be aware of with, with EBITDA is you also want to present a credible business. I've seen plenty of times when people present when I was on the buy side present, you know, adjustments and add backs to get to that are not credible.
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And that can be a flag to acquire. Is that okay? Now, you know, the profitability is not what they indicate it is. And we really need to look a little bit closer. So I'd say typically we do a lot of education around EBITDA kind of what's normal. We look at things at a pretty granular level there to make sure that what we're presenting will will hold up in the eyes of an acquirer or an investor.
[00:43:20:08 - 00:43:52:01]
Awesome. And then Mark had a question. Can you talk a bit about minority recapitalization or growth capital as an alternative to an outright exit, and curious to know what options are available for an owner to consider? Like, say, they don't want to fully step away, but they want to maybe reduce their exposure or ownership in the business. Yeah, that's a that's another interesting one that when owners are open to that, we we love to work with them in that capacity.
[00:43:52:03 - 00:44:08:02]
It's just another option that they can pursue, whether they go forth it or not. But it's interesting because if maybe they don't want to sell or they want to keep the business, or they want to keep the business in the family name.
[00:44:08:04 - 00:44:48:01]
You know, you don't have to wait to get liquidity. Oftentimes, most of an owner's personal wealth is tied up in the business. And that doesn't mean you just have to sell the business to get liquidity. You can take on capital partners that have varying degrees of how passive or active they might be in the business, but they can provide liquidity to you earlier on, and then you're also taking some risk out of some of your own personal risk of all of your money being tied up in the business off the off the table, which can sometimes be pretty interesting, and also a way that can help.
[00:44:48:03 - 00:45:22:20]
You know, not necessarily strap the business. If when you are ready to transition, the excess cash flow goes to providing the owner liquidity. So I think another positive of minority position is there's a lot of interesting partners out there that can still bring professionalism to the business and additional capital for growth. That's not always giving up control. Now taking on another partner is still taking on another partner, and they're going to have certain rights to bringing on a minority, somebody in a minority position.
[00:45:22:20 - 00:45:35:22]
But it's a it's an alternative to where you don't have to sell 100% today, but say you sell 40% and can get that 40% liquidity today versus.
[00:45:35:24 - 00:45:56:15]
You know, full exit. Yep. And then James had a question on is there a shift that you've noticed from your early days, maybe 5 or 10 years ago to today, in terms of what buyers are looking for in, in, in the market right now?
[00:45:56:17 - 00:46:40:04]
I'd say I wouldn't necessarily say a shift from, from a buyer perspective, but because there's a lot of acquirers all around the world that are interested in surface technologies, businesses, and they all some of them have very different strategies. So, you know, I'd say from an interest perspective, you know, that the type of buyer may shift depending on someone's particular niche, but maybe some of the other factors that I think have been playing on, like a, like a big factor right now with, with the tariffs and particularly with, with tungsten carbide.
[00:46:40:04 - 00:47:00:07]
And I saw there was some news on this today as well that I'm sure it will impact things some more. But, you know, those shops that spray toxic carbide and the price has shot up tremendously to where it's been like kind of a new reset. And our company is able to secure that supply or the chemical to be able to code it.
[00:47:00:07 - 00:47:29:04]
And our customers, are they accepting the cost increase or our coding companies having to eat some of that margin there? So I'd say not so much as like a broader shift from an acquirer perspective as there is being conscious of just certain general market conditions and how they're influencing particular businesses. Okay. And then this one's from Dean myself.
[00:47:29:04 - 00:47:51:11]
I feel like, John, what I hear is there's I mean, I have a brother now that works in HVAC and like the HVAC world is just getting gobbled up by private equity, private equities. And it feels like every industry is having a lot of roll up action, if you will. Why is that? Like why is over the last maybe a couple of years?
[00:47:51:13 - 00:48:17:24]
Is it because there's like all the baby boomers are now retiring and there's no one to buy them? Or is there something else at play? That's that's a that's definitely a general theme in M&A overall, but particularly in the in the coatings businesses at a high level, they're typically pretty attractive to investors because, you know they have good cash flow.
[00:48:18:00 - 00:48:49:07]
Most are generally pretty good margins. They're easy to finance from a banking perspective. Doesn't take a tremendous amount of working capital investment or capital investment. Some in a lot of cases. So just I think on the face of it, the coding industry has a lot of just good investment characteristics that tends to attract private equity. Awesome. And then question from Andrew here.
[00:48:49:07 - 00:49:19:13]
How much does existing debt impact or service of business. How does that existing debt impact the the the value or the view of a business when determining the valuation? So the from a buyers perspective, they typically don't care about the company that they're acquiring from from a debt perspective because they're going to be acquiring the business cash free, debt free.
[00:49:19:13 - 00:49:55:09]
And when they submit an offer, they're going to get a business enterprise value. And as part of that, you know, there's there's a purchase price. You keep the cash that the business has already generated, but they expect all of the debt to be paid off before they take over as the most common instance. So the one area where that can sort of get flipped is if the enterprise value is of course, less than the debt, because then the, you know, there's a negative equity value then and.
[00:49:55:11 - 00:50:21:22]
Conversations have to be had. Right. So and you keep taking out those loans and keep growing. And then then and then Gabby has the last question here, John and John, maybe you could type your email into the chat so people can find, oh sure. If job shop owners have more questions, they know precisely where to find you. But the last question here from Gabby is what what misconception.
[00:50:21:22 - 00:51:01:02]
So say you're new to the industry and you're like, hey, I want to, you know, I want to partake in the American dream, or I want to buy a job shop off, you know, Andrew or somebody else. What misconceptions do buyers often have about buying a certain business? Is there anything that maybe scares them off? It's just depending on what types of coatings coding processes, some can be pretty daunting to get into, depending on how technical it can be to where you have to have really tight knowledge and tolerances on the types of chemistry that are being used.
[00:51:01:04 - 00:51:27:18]
Because one, a huge risk would be coming in and you maybe lose the key person that was knowledgeable of that chemistry. And now all of a sudden all the parts you're providing are out of spec and you've got a major issue. So I think, like I said before, we this industry is oftentimes extremely technical in the types of coatings that have to be applied.
[00:51:27:20 - 00:51:55:23]
So I think it's probably being humble and making sure if someone doesn't have that knowledge, you've got the right team around you because it really is a team effort. I'd say that's a that's a big topic that I've seen come up. And when private equity looks at businesses, they oftentimes they don't have that support. They typically are looking externally for operating partners that do have backgrounds in those spaces.
[00:51:55:23 - 00:52:22:22]
So that's definitely a big point I would mention. Perfect. All right. Well thanks John for joining us today. And thanks everybody that joined live and for tuning in to shop talk and putting those questions in the chat. If you do have any more questions for John, or maybe you do want to want help in valuing or selling your business or buying a manufacturing business, please reach out to John at Tri.
[00:52:22:23 - 00:52:31:14]
Send partners and we appreciate you guys listening and we'll catch you next time. Thanks so much, Dean. Enjoyed it. Yep. Take care.
All right. Well, welcome, everybody to shop talk. This is I'm your host, Dean Halonen I'm the CRO of steelhead Technologies. And really, what shop Talk is. So this show is for those who have dedicated their livelihood to the craft of manufacturing, because those people understand the manufacturing environment, no matter what role or what seat you're sitting in, is oftentimes the hardest job in the world in terms of the pressures from customers that want parts faster or operators aren't always showing up, or they're leaving to another industry or another company for an extra an extra dollar.
[00:00:54:12 - 00:01:18:11]
There's material prices going up. There's tariffs, there's wages, there's equipment failures and reworks and productivity. So that's typically the focus of of today. But today we actually have a new guest. So kind of aside from the the daily firefighting of problems like it's not really aside from it, but bringing a new perspective into it is is our guest today is John Mosser.
[00:01:18:12 - 00:01:44:02]
So we're happy to have John Moser on the show. He's the founder of Triscend Partners and it's based out of North Carolina. And John's actually worked with quite a few job shops around the country, moving them from where they are today and getting them into a successful exit. So really, that's his his goal is connecting great companies to great buyers and getting a great outcome for for both parties.
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And so yeah, John, thanks for joining the show. We're very curious to hear your perspective on the industry that we live in. We're typically in the trenches. We don't often look up and see the the high level picture. So I'm pretty curious. But maybe it started off with John, would you mind going into your background, maybe even, you know, briefly where you grew up, how you grew up and then how you got into manufacturing?
[00:02:11:03 - 00:02:36:06]
Yeah, absolutely. And first of all, thanks for having me on, Dean. Looking forward to the conversation as well. So I, I grew up in the Raleigh, North Carolina area, kind of moved away for a couple of years down to Georgia and then back to North Carolina and graduated from App State in North Carolina. And from there, I really started my career actually with an accounting firm doing valuation consulting.
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So kind of interesting foundation and a lot of academic based approaches to valuation starting my career. But then after a short while, moved on to an investment bank in Richmond, Virginia, where probably 80% of the work I did was working with family and founder owned businesses, either raising capital to help them grow or to help them formulate a succession plan.
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Fast forward a couple of years, you know, had some personal family health issues that drove me to back to the Raleigh-Durham area where I'm based now and was was fortunate enough. I was the first kind of dedicated M&A hire with a company called Chimera International. Chimera was a private equity backed company, and they're in the materials space. And part of our growth thesis was how can we grow the company into more value added spaces?
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And being in the materials industry now, one of the ways to do that was vertical integration. And what types of coatings can we apply using our materials. So spent a couple of years there really in the trenches with some of that R&D and engineering folks really understanding the types of processes, how some are related, how others aren't related, the types of materials and environments that different components are in, and the types of materials that have to be used.
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So there, you know, traveled around North America and Europe looking at different acquisition targets, really understanding the industry. But after a couple of years, I tend to be a lot more passionate about working with family and founder owned businesses rather than a larger corporate environment. So found there to be what I perceived an interesting gap. And privately held companies in this market really getting good representation when it came time to pursue and exit, and reason being because the space is extremely technical.
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There's lots of different, you know, coding processes and technologies, understanding the types of materials that are used in different cases. You know, one example is we'd be looking at acquisition targets. And if we were pretty laser focused in the thermal spray market, we might have somebody approach us with something that could be painting lines on asphalt. So being able to understand the links between the technologies and where things are a fit and not a fit, I felt like I was pretty well positioned to be able to one serve privately held businesses, but to help to translate where things fit and they don't fit, particularly in this market.
[00:05:26:00 - 00:05:49:05]
So I started try send back in 2023, spent a little bit of time getting our systems in place, so that way we can adequately serve our clients. And kind of fast forward to today and we're, you know, we're growing very quickly now up to a team of three folks and, you know, pretty passionate about the space that we're in.
[00:05:49:07 - 00:06:20:18]
Yeah. That's interesting. So just to go a little deeper on the Chimaira area. So that was they they were a chemical provider and they wanted to vertically integrate with a coatings applicator by is that is that the is that the idea. Yeah. That was certainly one of the thesis that we had. So they make metal powders that are often times used in particularly, you know, thermal spray, laser cladding, some types of welded processes as well.
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So those after we spent a lot of time looking and built, looked at building out really a coatings platform underneath Chimaira, that's when you kind of branch out into other types of coding processes that, you know, that's when you get into plating and, you know, anodizing, powder coating and the other things that you're your customer base that Steelheads also involved in.
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Yeah. Cool. Yeah. It's one thing I didn't realize before getting into this industry is like there is like the need for integration is is so strong, like manufacturing is a team sport. No matter if you're a supplier to a chemical or a powder or you're the applicator or you're the machine shop or the fab shop or the OEM, like everybody has to work together quickly and efficiently in order for the to justify the supply chain being here versus being in Mexico or China or somewhere else.
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So that's cool to see. Like that vertical integration component coming through in your in your background. And then why the why the family business versus the the more you know, private equity typical private equity approach of or maybe more corporate approach that take that said that answer is probably pretty simple. I tend to just be much more interested in the story and the relationships, building relationships with folks.
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We take a very educational approach, and I think it oftentimes takes a lot of handholding. When folks work with us, it's oftentimes the first and only time they'll go through a succession plan or a potential exit. And the, you know, the private equity space can sometimes be a little bit more, you know, transactional rather than what we typically find with our clients.
[00:08:16:10 - 00:08:47:24]
And personally, I tend to enjoy that a little bit more. Yeah. And on that side. So say I often think these family businesses passed down generation to generation. And in many cases it feels like the American dream, right where they started with nothing, maybe a one booth or in their garage. And you hear it all the time working 100 hour weeks, brick by brick, building up something that's that's like their it's their livelihood.
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It's their maybe their generational source of income. And then maybe the next generation doesn't want to take it on. So maybe that's when they reach out to John and say, hey, John, it's time for me to to gracefully exit. In your experience, John one is the right time for a shop owner to start, say, preparing their business for a sale.
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I tend to say it's never early. It's never too early. There's always things that you can do from day one. And I think, you know, having a perspective of that one point, I will want to pass my business on and need to pass my business on. And that can take a variety of forms, not necessarily just selling it.
[00:09:34:11 - 00:09:54:02]
Maybe there's a member of the management team that would love to carry on the business, and that's where we can also help pair them with a capital provider. But really, I think very early on when you're formulating the strategy, just having a conscious thought of how is this going to be perceived by an acquirer or an investor down the line?
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And oftentimes that's, you know, doesn't take a lot of energy to really think about, because generally if you're making moves, you're trying to add value to the business to begin with. But sometimes, you know, there's ways that you set up the systems and policies that can potentially scale a little bit more. So thinking about those things as early as possible certainly helps.
[00:10:15:09 - 00:10:41:19]
But, you know, trying to make sure that you have a couple of clean years, typically 2 to 3 of, you know, pretty clean operating history, financials that are in order, making sure you really understand your business as well. Can't tell you how many times, you know, we talk with folks and they're not always aware of exactly where they're making the most money or what's profitable and not profitable.
[00:10:41:19 - 00:11:05:10]
So, you know, having I think in some ways it's somewhat simple, but, you know, taking the 2 to 3 years before you think you might be ready to pull the trigger. And I think the timing is another thing that can play into that fact, because sometimes it's really emotional and there's never a right time until potentially it's too late.
[00:11:05:10 - 00:11:29:16]
So I'd say never too early. But when you think you're getting closer to ready. I'd strongly advise, you know, a couple of years, 2 to 3 ahead of time, at least 2 to 3 to make sure the books are clean and in order. And there's systems and processes in place. So I guess there's two things there. I like to say that the systems and processes side and then the profitability side.
[00:11:29:18 - 00:11:52:05]
Do you have an example that come to mind of like, like like what is that? What does that actually mean in real life? Maybe we'll start on systems and processes. Are you saying like the owner or the operator has to walk away and the business has to perform, you know, just as good without the the lead owner in the trenches?
[00:11:52:06 - 00:12:10:01]
Is that what you mean? Or is it like we actually need, like a documented process for how we handle every potential workflow or what does that what is like great systems and processes look like from your perspective? Yeah. So.
[00:12:10:03 - 00:12:36:17]
To answer the last part of that, first, a really good case study that I don't really want to name names, but we worked with a company that was in the coding space. They knew, okay, we want to pursue other interests. It was a father son combo and they wanted to do something else. So they made a conscious effort about three years in advance of when they thought they'd be ready to sell the business to.
[00:12:36:23 - 00:12:53:24]
They implemented the system. They made a couple really interesting investments to vertically integrate on their side. So not only non performing the coatings but also you know, the post-process finishing. So as an example.
[00:12:54:01 - 00:13:22:19]
Implementing technology, they did a very simple but effective development for their post finishing and DBR process where typically every coding cell had to go through a very manual DBR. And it had three people, you know, per coding. So they made the conscious investment to try to automate that on the front end. That was going to significantly improve their margins.
[00:13:22:19 - 00:13:52:02]
And it wound up being, you know, it wasn't a super expensive development. They used kind of existing technologies that are out there, but integrated into their process to where each each coding cell could then operate with a COBOL and only required one person. They also got the benefit of okay, we drastically improved our safety profile from an insurance perspective, and now we don't have the risk of people cutting themselves on the sharp edges.
[00:13:52:03 - 00:14:24:12]
This this part is automated. So it was a good, you know, example of an area where they identified a couple key things that they can really execute on within a 1218 month timeframe and improve their profitability by more than $500,000 a year. That was one piece. The other piece was they went out and found a dedicated general manager that could kind of come in and really understand the business, be hired to, to replace themselves.
[00:14:24:14 - 00:14:47:00]
So that way the business, you know, it's got a good management team in place that continues on. I think that that's a great success story of someone who, you know, they had a plan in place and they executed to that plan. But I will say, you know, that's not always required. And, you know, circumstances come up and people feel like they need to to sell earlier.
[00:14:47:00 - 00:15:12:03]
And when that happens, you know, there's also very successful use cases where people can still exit, even if they're still very integral to the business. But when that happens, you typically find those are instances where they'll see offers that have a bit more structure to them, where it's tied to. They ask you to roll over significant amounts of equity.
[00:15:12:05 - 00:15:46:02]
They ask you to finance part of the business. They'll hold certain amounts of money back to make sure that the key person is still employed for several amounts or for several years. So I would say the first instance I shared very successful use case where I think, you know, they maximize value and cash up front. The other end of the spectrum, it's not to say you won't always be, you can't still be successful in going through a sale process, but that's probably realistic to expect a little bit more structure to what your transaction might look like.
[00:15:46:04 - 00:16:20:03]
Yeah, it's super interesting. And the also, even just even without selling the company, your example of using clever automation to to boost your margin profile and reduce your safety exposure is, is fantastic even without some in the business. So that's that's the one thing that I wouldn't say I necessarily obsess over. But probably half of what I obsess over is, is just profit, pure like because it takes it takes everything coming together.
[00:16:20:04 - 00:16:47:01]
Right. Great hires on the GM side, great automation, great ideas, great execution, great customer service. Great. You know, like everything truly has to come together for the for the profit. And on the profit side, maybe if you could explain to our listeners, John, like there's profit obviously has a lot of different form factors of like net right profit or gross net margin or gross margin.
[00:16:47:02 - 00:17:10:07]
You also have the EBITDA, which whenever I read like a a merger or acquisition, it seems like there's a bit of multiple. So maybe if you could pretend we're all first graders here and you could explain like the the whole profit scenario and how it translates to EBITDA and how that translates to a to a valuation. Yeah, absolutely.
[00:17:10:07 - 00:17:47:20]
So I would say first of all, this is pretty generalized. And there's always caveats and complexities for each situation. But you know is that tends to be how most businesses are valued and spoken about with with a multiple. And EBITDA is used sort of interchangeably by investors and acquirers to represent the cash flow of a business. And really what investors inquire is, are pricing the business off of is what are the sustainable, what is the sustainable cash flow of the business now?
[00:17:47:20 - 00:18:27:07]
But even more importantly, going forward when we potentially take over. So the the components to cash flow that you know, are missing from that are CapEx and investment that's not factored into EBITDA or working capital. And oftentimes those can be significant parts for for business in this space as well. But as a general rule of thumb, you know, EBITDA is generally can be thought of of the cash flow that people are pricing and using some kind of multiple to get to the enterprise value.
[00:18:27:08 - 00:19:00:05]
And what is working capital exactly. So working capital, when I say that, I mean, you know, your your receivables. So sales and customers haven't paid you yet. The, the inventory oftentimes we don't see inventory as necessarily being a huge component of the working capital, unless you're in a much more materials intensive piece and you have to carry some of those materials on your balance sheet, like let's say you have a really important chemical that's hard to get your hands on, but it's required for a coating that you're performing.
[00:19:00:07 - 00:19:20:19]
In that case, we could see it being a much larger component. And maybe you have to, you know, it's not necessarily profit, but you have to spend sometimes hundreds of thousands, if not millions of dollars to secure that inventory up front, to even be able to perform the work in the first place. So those are really the two things I'm referencing when it comes to working capital.
[00:19:20:21 - 00:19:47:16]
Got it. And so in a way, EBITDA and net profit are for our customers, for the is for the metal finishing job shops out there. They should be as long as they're not making any massive investments in capital or they have massive amounts of inventory. The EBITDA in their in their net profit or net margin should be pretty similar then for a given year.
[00:19:47:18 - 00:20:24:16]
Yes. Assuming there's no investment in the working capital is pretty steady, then. Yes, absolutely. On the capital investment piece. That's why, you know, I think it's interesting when you prepare a couple of years in advance because you can really drill down on that investment and say, well, what's the return I'm going to get from this in the value I'm going to add to the business, because automation is a pretty popular word right now, and you see a lot in the news about it and AI, but we tend to see in this business, sometimes that can seem daunting because then you think, oh, it's going to take a lot of time and millions of dollars to
[00:20:24:17 - 00:20:52:22]
implement something. But, you know, we see a lot of companies doing really interesting things that add automation, but it doesn't take months and years of investment to implement a realize a return. So, you know, I think that that CapEx can really be tied into to valuations when you prepare in advance, because we can make some pretty drastic improvements to our business in that short timeframe.
[00:20:52:24 - 00:21:19:07]
Awesome. And then as far as the EBITDA margin or the EBITDA multiple, say, say for example, we're just a hypothetical. We'll say we're a $10 million per year revenue business, and we're roughly like 20% on the EBITDA margin for like a $2 million of EBITDA per year. What is a what would you say the multiple would be, say, just a an average company?
[00:21:19:07 - 00:21:43:19]
I know that that probably doesn't exist or say it's like a company where they have their systems, their processes, their margins. Everything's just crisp, crisp, crisp. Again, like a $10 million business, $2 million of of EBITDA. What's like the the multiple spread that you could see like, you know, maybe best case, worst case or best case. Good case that you would expect John.
[00:21:43:21 - 00:22:06:05]
Yeah that's a yeah. You really put me in a tough spot with that question. But I'd say don't hold me to this. Just just generally like what is the I'd say on average like 6 to 7 times is what I would see. And that's like really generalizing a lot of use cases. I've seen it range as low as four times and as high to the mid to upper teens.
[00:22:06:07 - 00:22:33:05]
And it's always tough because like the mid to upper teens, that what that looks like is a company that is probably above 40% EBITDA margins and they're specked in to a very particular program, have lots of quality certifications, and you can see backlog and performance that gets you really comfortable out many, many years into the future. So that's a rare instance is what I'm trying to say.
[00:22:33:07 - 00:22:55:08]
But it's good to know like that does exist so people can shoot at that. Right. Getting that I think winning business where you have a proprietary chemical or process and you get specked into the in this case, I think aerospace workers or military works. The only time I've seen it, it becomes sticky and predictable, and then people are willing to pay more for predictable revenue than, than than uncertain revenue.
[00:22:55:08 - 00:23:28:14]
So then most businesses do not look like that, I will say. And that doesn't mean that they're any worse off than than the other business. It's just it kind of purely comes down to how our acquirers and investors going to underwrite this. So perfect. Yeah. The conversation is always tough because it's so, so situational, incredibly situational. But it's helpful to know, like what is possible now say say I own a job shop.
[00:23:28:15 - 00:23:58:10]
Right. And I come to you, John, and say, hey, John, I'm looking to sell in, you know, in five years. What does that typical process, what does it actually look like for a for a job shop owner. Yeah. So on the front end we go through a pretty robust what I call sell side due diligence which we you know we want to come out, visit the facility, sit down, really understand the technologies that you have, go through the financial history, understand where you're at.
[00:23:58:10 - 00:24:28:09]
From a systems perspective, we do a pretty robust valuation as well as a marketing strategy, and the valuation includes very academic based approaches like a formal accounting based valuation. But we tend to try to focus more on a, you know, what we think from a market perspective as that I'm a big believer in that's what truly matters when someone's going to go through a sell side process rather than a than a more academic based valuation.
[00:24:28:11 - 00:24:49:18]
And then two, from a marketing strategy that what I really mean by that is helping folks understand, well, where are we at today? What what can we do between now and when you think you're ready to pull the trigger? And really, what are all your options? Because like I said earlier, it's not just as simple as well. It could be as simple as I just want to sell and walk away.
[00:24:49:18 - 00:25:06:13]
But there's a whole variety of other options and things that they can pursue. And sometimes it's, well, I do want to pass it on to my family, but I don't necessarily want them to just pay me back with the cash flow over the next couple of years is that's going to be really restrictive on the growth they can experience.
[00:25:06:13 - 00:25:25:20]
So that's where we help them, help to pair them with a capital provider that can support the existing team and also provide a more realistic liquidity event for somebody. So on the very early end, that's what we do to give them a sense and an accurate read of where they're at, where we think they could get to and to.
[00:25:25:21 - 00:25:48:08]
That's also a little bit self-serving for us because we, you know, we're we're not a huge volume shop. We work pretty, you know, in lockstep with the clients that we work with. And it also helps to establish alignment. We want to make sure that what we're confident we can actually do for our clients is something that they're open to, and that will meet their expectations.
[00:25:48:08 - 00:26:23:03]
Most importantly, once they get a little bit closer, though, that's when we go through, you know, we we prepare a prospective buyers and acquirers list that spans globally. We write a very detailed information package that sometimes custom tailored to different use cases. As an example of that, you know, we could be approaching somebody where the coding processes could be very really attractive to somebody and, you know, provide more capacity to somebody.
[00:26:23:09 - 00:26:47:07]
But it could also be positioned a little bit differently if it's an adjacent coding process, something that somebody doesn't have. So we go through that, spend some time preparing. Then once we launch the deal, we we kind of, you know, go through a two step offer process. The first is what we call an indication of interest. It's a first round offer that really helps us to understand.
[00:26:47:08 - 00:26:59:19]
Okay. Who who do we think are the best fits and who should we spend more time with then we go through? Sit down. Meet the folks across the table that are really interested in the business.
[00:26:59:21 - 00:27:22:10]
Get to know them a little bit. We also do some reverse due diligence, make sure we're really finding the right partner, and then we kind of do a second round offer that folks have now learned a lot more about the business, and we expect to be what I call fully due diligence, fully diligence, or, you know, all the factors that they could potentially need to understand to make an offer about the business.
[00:27:22:11 - 00:27:59:06]
We should have done a good job of educating them at that point. And then from there, it takes typically 2 to 3 months to closing. So if someone's ready to closing, I typically tell them the standard process is probably five to 5 to 7 months is typical. Okay. And then on on in the early stages, like say we're five years out and you're kind of telling people the the levers they can pull to is there any very common like hey, A, B and C are the common things you got to consider.
[00:27:59:08 - 00:28:28:09]
Like, like maybe it is the cap. You know, cleaning up the books is one of them and understanding the business is another. But what are the common levers that you're always maybe telling people that they should do to help get ready for that five year exit? Yeah, those are those are definitely two. The other big one is sort of what I touched on earlier about how integral is is the owner to the business, and do they have a successor in place.
[00:28:28:11 - 00:28:57:14]
Another probably the other big point I would want to mention is, you know, thinking about five years from now, is the business growing or was it flattened, declining? Like, have we done things to invest in the business? And sometimes that can be a challenging trade off, as we've sometimes seen, you know, private business owners enjoy the benefits of being a private business owner and the cash flow generation.
[00:28:57:14 - 00:29:21:08]
And other times, you know, they're very focused on driving maximum value for the business. And that's that's sometimes an interesting trade off. And so we help them to think through, well, growing businesses are more valuable than flat and declining businesses. So you know, we try to help them weigh the trade offs, assess different projects that they're thinking about.
[00:29:21:08 - 00:29:50:04]
How is that going to translate to value for the business. So that and then just the successor that I mentioned and making sure your team is well built out and dependable. Nice. And then on the reverse deed or the reverse due diligence side, what are you looking for there in terms of or do you have an example of like a great buyer versus a not great buyer?
[00:29:50:06 - 00:30:14:03]
Yeah. And maybe rather than a great buyer versus a great buyer, that's even more commonly it's understanding the culture of the business. And where where is that team going to perform the best with. And that doesn't always mean it's the highest valuation either. Actually the one of our most recent transactions. This is a good case study of this with with Horace Noble.
[00:30:14:03 - 00:30:49:11]
They don't actually do coding, but they do a lot of recycling from anodes, predominantly from the plating industry. And that's a that was a good example where, you know, it's a it was a private, small, privately held business, and the family culture was very important to them. And finding the right partner was very important. So as we got further down the chain, you know, we actually took a little bit more time in that process to have several meetings with folks and the buyer of who ultimately bought them.
[00:30:49:11 - 00:31:19:10]
We planned a last minute trip to, and it just felt like we didn't spend enough time together. So before Christmas last year, we flew out to to Germany and we sat down with our client and them just nothing more than spending more time together. So, you know, I oftentimes think it's really a better fit, but it's to make sure that you're really comfortable with the party that you're going to be partnering with and selling your business to, and where your legacy is going to be.
[00:31:19:12 - 00:31:46:12]
That's not sometimes people care about that more than others, but it's typically rewarding when we have clients that want to take that extra effort and make sure they understand who they're working with on the other side of the table. Yeah, it makes sense. I think a lot of times these owners or the people in the shop are spending 20, 30, 40, pretty much a lifetime with with their employees.
[00:31:46:12 - 00:32:19:17]
And I would say that there's probably some concern that a, you know, some cutthroat whatever person corporation comes in and cuts half the staff and, you know, moves the tanks to, you know, whatever, a different, a different state or country, right? There's probably some, some, you know, fear. That's typically a fear when people hear private equity. Private equity can be a bad word sometimes, but especially for this industry, we've seen a lot of folks that, you know, we we think really highly of and truly invest behind businesses and, you know, don't take that approach.
[00:32:19:17 - 00:32:31:11]
So that's why I think it's really important to understand who you're working with before you transact.
[00:32:31:13 - 00:32:38:07]
I agree. And then the last question I have here is.
[00:32:38:09 - 00:33:01:00]
Actually two more questions. What do you see as the biggest challenges that owners face during that? Say they are going through that sales process or that sale process? Is there any common themes that owners like, oh, I didn't think about this then, and now they're faced with some emotional or psychological or financial decision that they weren't aware of when they started.
[00:33:01:02 - 00:33:11:01]
Well, so so definitely you touched on one. Just the emotions in general going into the process, I think is.
[00:33:11:03 - 00:33:38:19]
This is sometimes been multi generation businesses been their baby for the last 20 years. And it's a roller coaster, you know, and sometimes we're you know it's not uncommon to get calls at midnight like oh my gosh am I thinking about this the right way. And it's it's very common. We see it I'd say with more with more clients than not.
[00:33:39:00 - 00:34:06:11]
That's typically something that comes up. I'd say we try to avoid surprises, and that's why we take a little bit more time upfront preparing to really understand, like, what are the things that could derail something later in the process, but the emotions in of itself, and we try to do a good job of, you know, connecting our clients with prior clients or other people that sold their business because they're going through the exact same thing that other folks have went through.
[00:34:06:11 - 00:34:45:13]
And it can sometimes be challenging to talk about because it's also confidential. But connecting people together that can hear about, you know, way the trade offs know that somebody else has been there before can oftentimes be pretty comforting, super comforting. And that's one thing. So I work for steelhead and we're an ERP software for job shops. And that's the one thing I love about my job is that, I mean, I had a customer call from northern Minnesota and just before they committed to using steelhead, he's like, Dean, you have to understand, this is my baby, right?
[00:34:45:13 - 00:35:04:02]
And and you better not let my baby fall. It's pretty much what he told me. So I mean, it's it's it's it's it's cool. You know, it's not like we're selling paperclips and nobody cares. It's just a commodity. Like it is more than just a spreadsheet. And it is a it's a cool thing to be a part of.
[00:35:04:03 - 00:35:29:14]
Yeah. You're contributing to that story and the value creation for them. Yeah. So and on that last front, as far as customers that maybe have a digital system in their profits, in their in their costs and their whip and their inventory and their predictability, say they have a system that is entirely documented and and all the key data is readily available.
[00:35:29:15 - 00:36:01:12]
Have you seen that have a a measurable impact on the the buyer in terms of what they're willing to underwrite or how they're able to consider the valuation of a company? Yeah, absolutely. I think it helps with something as simple as just understanding the true trends of the business, not having to. I've seen instances where everything's just kind of lumped into one bucket, and you have no idea what the trends might be in there, what customers are increasing, which ones are declining?
[00:36:01:12 - 00:36:45:19]
Where do we have a competing technology or someone that's stealing business from us? So just being able to have a good sense of the business mix and profitability? Absolutely. But I think sometimes even more importantly, having the systems in place that oftentimes and acquirers going to want to grow. So something that can scale and withstand that growth, I think is is extremely important and a huge positive, rather than having to come in and immediately having to spend a pretty big capital investment for a potential system overhaul that erodes value, that is value that an owner is not going to realize.
[00:36:45:21 - 00:37:15:09]
Not to say that they can't still sell their business, but having that already in place to allow somebody to scale quickly is, I think, a huge difference. Yep. It seems like it's a game of reducing as much uncertainty as possible, whether that's with people or processes or systems or margin or customers or or finishes or Specht. In anything we can do to lock things down seems to be a good concept at the at the exit juncture.
[00:37:15:11 - 00:37:39:13]
Absolutely awesome. Well, John, we do have some questions from our from our from our live audience here. This will be published wherever you can. You get your podcast as well. But Andrew mentioned day one is a good time to think, thinking about selling your business. So he's absolutely right. And oftentimes ahead of the game. We do have a question here from Sandy Kaplan to John.
[00:37:39:13 - 00:38:07:18]
And she says says from your experience, what are the top operational red flags that immediately lower evaluation and finishing shop, even if like the revenue is strong or maybe the growth is strong. Say you pop the hood on the business. Is there any like common red flags that buyers are are looking for? I think a lot of those things come out in a in a tour of the facility.
[00:38:07:22 - 00:38:30:21]
Kind of seeing how well invested is the operation and how, you know, does does the operation really break down if Bob takes off work today, like, is this one person really critical? And then if he's out for a week sick with the flu, like can can we not produce. And now our month is going to be down the tubes and we're having to play catch up.
[00:38:30:21 - 00:39:00:10]
So is there dependency within the process somewhere. And then I'd say I've seen where safety issues certainly throw a red flag that we need to take a much deeper look. And I'd say safety and environmental can be two flags on visits that really spark. Okay. We've probably got some concerns here. Things looked great on paper to start out.
[00:39:00:10 - 00:39:26:00]
But you know, we really need to dig in a couple of these spots where it's clear they might not be as buttoned up. So I'd say those three things between environmental safety issues but then operational redundancy capacity and you know, just limitations or maybe cogs in the wheel so to say. Yeah, that's one thing that I don't see a lot of people talking about is the operational redundancy.
[00:39:26:01 - 00:39:50:13]
Say we miss our plant manager leaves or some key operator leaves. I actually used to work at General Motors, and whenever you're designing a component of a vehicle, there has to be redundancy, right? If if you if one thing breaks and the car cannot crash. So I've seen some good examples of folks that handle a cross training really interestingly, there's one shop that I've seen.
[00:39:50:13 - 00:40:11:07]
They have a QR code at every station so people can scan with their phone, and then the SOP pops up and there's a video of somebody performing the work at that station. So if someone needs to step in, even if they might not have, you know, that's not a station that they typically man, they have everything they need there to pick up and run with it.
[00:40:11:09 - 00:40:34:19]
That's a good point. I didn't even think of that. We have a question here from Gabby. Say you owned a shop, John, that $10 million shop we mentioned earlier. What would you do outside of the things we maybe previously discussed? Is there anything you would do to maximize value before selling that goes beyond what we already discussed?
[00:40:34:21 - 00:40:51:16]
It's a tough question I wasn't prepared for. I would say that not so much. That top of mind would be anything that I haven't already touched on. Definitely. Maybe the.
[00:40:51:18 - 00:41:36:07]
The thing I tend to see adding a lot of value is the more value that you can provide your customers, and when there's the technical capability to solve new problems, develop new coatings that go from a development or conceptual phase to something that's commercialized is really, really special. And when people see that shops have that capability and that kind of depth from a technology perspective, you know, that's something that's not, you know, growth can come from a new avenue now of developing new work and creating a new market rather than, you know, can we add capacity and do more of this work?
[00:41:36:07 - 00:42:10:17]
Because we can always do that. But I when I see businesses like that, I tend to think it's extremely special. And I would need another team to do that because I'm not the person that is often capable to do that. Yeah, a chemist, great answer. James asked. Do you find owners understand EBITDA, or do they typically work with external advisors or yourself to help understand this and prepare their their financial reporting to make it reflective of reality?
[00:42:10:19 - 00:42:27:21]
It's I'd say it's all over the map. Sometimes we have people that have never heard the word EBITDA before, and then we've worked with folks that have been involved in M&A before and are pretty well versed in it, but but usually.
[00:42:27:23 - 00:42:50:05]
I'd say, you know, we go through a pretty robust process there. And I've one thing I think to be aware of with, with EBITDA is you also want to present a credible business. I've seen plenty of times when people present when I was on the buy side present, you know, adjustments and add backs to get to that are not credible.
[00:42:50:05 - 00:43:20:06]
And that can be a flag to acquire. Is that okay? Now, you know, the profitability is not what they indicate it is. And we really need to look a little bit closer. So I'd say typically we do a lot of education around EBITDA kind of what's normal. We look at things at a pretty granular level there to make sure that what we're presenting will will hold up in the eyes of an acquirer or an investor.
[00:43:20:08 - 00:43:52:01]
Awesome. And then Mark had a question. Can you talk a bit about minority recapitalization or growth capital as an alternative to an outright exit, and curious to know what options are available for an owner to consider? Like, say, they don't want to fully step away, but they want to maybe reduce their exposure or ownership in the business. Yeah, that's a that's another interesting one that when owners are open to that, we we love to work with them in that capacity.
[00:43:52:03 - 00:44:08:02]
It's just another option that they can pursue, whether they go forth it or not. But it's interesting because if maybe they don't want to sell or they want to keep the business, or they want to keep the business in the family name.
[00:44:08:04 - 00:44:48:01]
You know, you don't have to wait to get liquidity. Oftentimes, most of an owner's personal wealth is tied up in the business. And that doesn't mean you just have to sell the business to get liquidity. You can take on capital partners that have varying degrees of how passive or active they might be in the business, but they can provide liquidity to you earlier on, and then you're also taking some risk out of some of your own personal risk of all of your money being tied up in the business off the off the table, which can sometimes be pretty interesting, and also a way that can help.
[00:44:48:03 - 00:45:22:20]
You know, not necessarily strap the business. If when you are ready to transition, the excess cash flow goes to providing the owner liquidity. So I think another positive of minority position is there's a lot of interesting partners out there that can still bring professionalism to the business and additional capital for growth. That's not always giving up control. Now taking on another partner is still taking on another partner, and they're going to have certain rights to bringing on a minority, somebody in a minority position.
[00:45:22:20 - 00:45:35:22]
But it's a it's an alternative to where you don't have to sell 100% today, but say you sell 40% and can get that 40% liquidity today versus.
[00:45:35:24 - 00:45:56:15]
You know, full exit. Yep. And then James had a question on is there a shift that you've noticed from your early days, maybe 5 or 10 years ago to today, in terms of what buyers are looking for in, in, in the market right now?
[00:45:56:17 - 00:46:40:04]
I'd say I wouldn't necessarily say a shift from, from a buyer perspective, but because there's a lot of acquirers all around the world that are interested in surface technologies, businesses, and they all some of them have very different strategies. So, you know, I'd say from an interest perspective, you know, that the type of buyer may shift depending on someone's particular niche, but maybe some of the other factors that I think have been playing on, like a, like a big factor right now with, with the tariffs and particularly with, with tungsten carbide.
[00:46:40:04 - 00:47:00:07]
And I saw there was some news on this today as well that I'm sure it will impact things some more. But, you know, those shops that spray toxic carbide and the price has shot up tremendously to where it's been like kind of a new reset. And our company is able to secure that supply or the chemical to be able to code it.
[00:47:00:07 - 00:47:29:04]
And our customers, are they accepting the cost increase or our coding companies having to eat some of that margin there? So I'd say not so much as like a broader shift from an acquirer perspective as there is being conscious of just certain general market conditions and how they're influencing particular businesses. Okay. And then this one's from Dean myself.
[00:47:29:04 - 00:47:51:11]
I feel like, John, what I hear is there's I mean, I have a brother now that works in HVAC and like the HVAC world is just getting gobbled up by private equity, private equities. And it feels like every industry is having a lot of roll up action, if you will. Why is that? Like why is over the last maybe a couple of years?
[00:47:51:13 - 00:48:17:24]
Is it because there's like all the baby boomers are now retiring and there's no one to buy them? Or is there something else at play? That's that's a that's definitely a general theme in M&A overall, but particularly in the in the coatings businesses at a high level, they're typically pretty attractive to investors because, you know they have good cash flow.
[00:48:18:00 - 00:48:49:07]
Most are generally pretty good margins. They're easy to finance from a banking perspective. Doesn't take a tremendous amount of working capital investment or capital investment. Some in a lot of cases. So just I think on the face of it, the coding industry has a lot of just good investment characteristics that tends to attract private equity. Awesome. And then question from Andrew here.
[00:48:49:07 - 00:49:19:13]
How much does existing debt impact or service of business. How does that existing debt impact the the the value or the view of a business when determining the valuation? So the from a buyers perspective, they typically don't care about the company that they're acquiring from from a debt perspective because they're going to be acquiring the business cash free, debt free.
[00:49:19:13 - 00:49:55:09]
And when they submit an offer, they're going to get a business enterprise value. And as part of that, you know, there's there's a purchase price. You keep the cash that the business has already generated, but they expect all of the debt to be paid off before they take over as the most common instance. So the one area where that can sort of get flipped is if the enterprise value is of course, less than the debt, because then the, you know, there's a negative equity value then and.
[00:49:55:11 - 00:50:21:22]
Conversations have to be had. Right. So and you keep taking out those loans and keep growing. And then then and then Gabby has the last question here, John and John, maybe you could type your email into the chat so people can find, oh sure. If job shop owners have more questions, they know precisely where to find you. But the last question here from Gabby is what what misconception.
[00:50:21:22 - 00:51:01:02]
So say you're new to the industry and you're like, hey, I want to, you know, I want to partake in the American dream, or I want to buy a job shop off, you know, Andrew or somebody else. What misconceptions do buyers often have about buying a certain business? Is there anything that maybe scares them off? It's just depending on what types of coatings coding processes, some can be pretty daunting to get into, depending on how technical it can be to where you have to have really tight knowledge and tolerances on the types of chemistry that are being used.
[00:51:01:04 - 00:51:27:18]
Because one, a huge risk would be coming in and you maybe lose the key person that was knowledgeable of that chemistry. And now all of a sudden all the parts you're providing are out of spec and you've got a major issue. So I think, like I said before, we this industry is oftentimes extremely technical in the types of coatings that have to be applied.
[00:51:27:20 - 00:51:55:23]
So I think it's probably being humble and making sure if someone doesn't have that knowledge, you've got the right team around you because it really is a team effort. I'd say that's a that's a big topic that I've seen come up. And when private equity looks at businesses, they oftentimes they don't have that support. They typically are looking externally for operating partners that do have backgrounds in those spaces.
[00:51:55:23 - 00:52:22:22]
So that's definitely a big point I would mention. Perfect. All right. Well thanks John for joining us today. And thanks everybody that joined live and for tuning in to shop talk and putting those questions in the chat. If you do have any more questions for John, or maybe you do want to want help in valuing or selling your business or buying a manufacturing business, please reach out to John at Tri.
[00:52:22:23 - 00:52:31:14]
Send partners and we appreciate you guys listening and we'll catch you next time. Thanks so much, Dean. Enjoyed it. Yep. Take care.
Taxonomy tags
Industry
Manufacturing; Metal Finishing; Surface Technologies; Coatings; Thermal Spray; Plating; Anodizing; Powder Coating
Business topic
Selling a Business; Exit Planning; Succession Planning; Mergers and Acquisitions; Private Equity; Valuation; EBITDA; Minority Recapitalization
Operational topic
Systems and Processes; Job Costing; Profitability; Automation; Cross-Training; Safety; Environmental Compliance; Management Succession; Digital Transformation
Use case
Preparing a manufacturing company for sale; increasing enterprise value; reducing buyer uncertainty; choosing the right acquisition partner; funding growth; transferring ownership
Theme
Legacy; Transferability; Profitability; Scalability; Leadership; Growth; Risk Reduction; Operational Visibility
Stage of journey
Education / Thought Leadership