Brent Beshore is the CEO of Adventur.es which went from acquiring companies using debt and equity, to raising a $50M fund. Now they look at over 2,000 deals per year for their Direct to Consumer (DTC) fund.
- About Adventur.es
- Buying criteria & diversification
- Financing deals
- Messy Marketplace - Buyer types
- Competing on Price versus competing on terms
- Seller motivation
- Good & bad of acquiring businesses
- Resources from Adventur.es
Mentioned in this episode:
- Patrick O'Shaughnessy
- Messy Marketplace
- The fish that ate the whale
- Stanford Search Fund report
- Harvard University
We are live today on Truths About Exits. I'm very excited to present to you and introduce you to Brent Beshore from Adventur.es. Brent thanks for coming on the show.
Hey thank you for having me on. I appreciate it.
Awesome. I've mentioned just briefly as we were pre-recording this I'm a bit of a fan of yours over the last couple of years. I've enjoyed listening to your stories on different podcasts and also see how Adventur.es has evolved over time. For people that don't know what Adventur.es is could you give us like quick overview of what the company is and what you guys do?
Absolutely. Yeah. Well again thank you so much for having me on. We describe ourselves as a family of companies that acquire family companies. Well that means in practice is we're private equity groups we acquire a majority stake in family owned family operated companies. We do it in such a way that it's almost the opposite of traditional private equity. We buy with no intention of ever selling the company we keep leadership in place and really help augments skill sets. We help if we can be helpful and then we use almost no debt if any debt transactions. We really are taking a family run company and keeping it the same way has been run in the past. Really just trying to augment that with a layer of expertise and skill sets that maybe you're unusual for family run businesses.
Absolutely. Having been in this space as an advisor that's definitely against the grain of what most private equity firms are looking to do. Most of the private equity guys I've spoken to they really get their payday when they sell the portfolio not when they're running the business and typically they're raising capital to do that. As you likely mentioned you rarely use debt. You've only just started really utilising the fund model. We'll get into that in a minute but could we back up a little bit and could you tell us what you were doing before Adventur.es and then maybe we could go into how Adventur.es came about?
Yeah. Well I'm kind of before scump of private equity if you want to think about it that way. I've kind of fallen backwards into it. I did my first private equity deal before I knew there was an industry called private equity, very unusual background story. I was an entrepreneur, an operator in fact that's kind of a hallmark of Adventur.es employees. We all come from an operating background. We consider ourselves operators and we certainly are not operating the portfolio companies per say but we come from the mindset and really try to optimise for the leadership team or the operators that are in the companies and certainly have a lot of empathy for how difficult it is. I mean it is an incredibly brutal thing to operate companies. The very beginning sorry a couple marketing companies and then had a mutual acquaintance who said hey you should talk to this guy.
He got left at the altar for the second time. I took that to mean I should buy this business because why would you tell me he had been left at the altar for the second time? This guy who had no idea I was gonna try to go buy the business. I sat down with this owner gosh this is over 10 years ago now. If you ever seen a picture of me I look about 23 now. I looked about 14 then. I told them I wanted to buy the business. He laughed and said two grown men have tried to buy my business. How in the world are you going to do it? I said I don't know I'll figure it out. We tried to come to terms that day and it didn't work out.
About seven months later he called me up and said okay look we just renewed our largest accounts businesses in great shape. I'm exhausted, I'll sell it to you for the price you asked but it's gotta be all cash 60 days from now. Got an SBA loan and off to the races. That was the first acquisition. That was almost 10 years ago now. We still own that company today called MediaCross. Wonderful company longtime CEO Jenny Molly has just a gem of a human being does a fantastic job. It's doing great.
Wow, that's quite the story Brad. Do your friends often advise you to go do things and you just jump straight in or was there a I'm joking of course but what was the real turning point. You heard that someone was trying to sell that business. It didn't fulfil twice. You must have been thinking about acquiring businesses at that point. Was that an expansion play because they have a media marketing angle as well or what was that first thing that got you moving in that direction?
Yeah I mean this is gonna sound terrible but honestly I had never really thought about acquiring another company. I fancy myself an entrepreneur and a kind of a starter of businesses. Until this came along. I mean it really hadn't crossed my mind to do an acquisition and I didn't know anything about it. I'd never diligence the company. I knew nothing about negotiating for a transaction or what people work was involved. I mean I literally can't remember sitting on legal calls and like googling terms. I think I owe most of my career to Google just trying to figure it out. I mean it was truly just there was an opportunity. I saw it I did the math on well gosh if I can buy it for x and you can do y with it that would be a creative and I think that would make sense. I did it.I'd love to tell you there was some grand plan but it really was very organic how it came about.
Mm hmm. That's interesting. A lot of the people I deal with on a day to day basis in the lower middle market and range of businesses as far as advisors and people in private equity have similar stories. I don't think there's too many people that go through and say I want to do this as a career. Of course there are a percentage but it sounds like it was a it was a good move. You acquired that first company about 10 years ago being MediaCross what happens next after that?
Yeah. Well I mean after that just when to work and started trying to improve the business helping try to grow it. Then it really opened our eyes. I mean we did well with it the business really was on a great trajectory and it opened our eyes to the possibilities. I started doing research and you can think back nine years ago the Stanford Search Fund report was not out. The guys at Harvard really weren't producing any of their research yet. There really wasn't anybody out there beating the door on small company acquisitions. I just again thank God for Google went to work and tried to put together kind of a thesis around okay are there other companies out there? Well turns out there are a lot of companies out there. Turns out that most of them are owned by baby boomers. It turns out that baby boomers are ageing and I'm going to need to transition their businesses. It turns out that most of them don't have an exit strategy.
I certainly identified the opportunity that was just ripe for the picking. Then I really tried to figure out okay if that's the target we want to go after and we want to make a career of acquiring small companies how do you find them? I mean I couldn't rely on my friends to randomly bring me businesses. I mean what was I going to do to find these companies? You started looking at different private equity websites and everyone says the same thing. We're a value added partners. I was like Gosh this doesn't seem very seller friendly. I'm really devised the plan to become the first kind of direct to consumer private equity brand said okay well how do you do that?
Well if I was in their shoes I'd want to first of all be able to find y'all when I needed y'all. I'd want to be able to read a lot about you.I'd love to understand you get to know you through your writings through various media forms. That's what we did. I mean we felt like we shouted into the darkness for the better part of five years and then before long the darkness started shouting back and we started having really healthy deal flow. If you fast forward to gosh two years ago we owned a group of five companies at that time and just have tremendous opportunity. I mean we have people knocking on our door. We've really never we haven't gone to outbound. It'd all been just inbound deal flow for the past my four or five years at that point. We just had more opportunity than we had capital and that's what we decided to raise the fund.
Excellent. Okay. Well let's let's step back. I've got a couple of questions before we get into the fund as I've found that to be a really interesting story from watching from the sidelines. The one question I did want to ask with Adventur.es I liked that a turn by the way the first direct to consumer private equity brand. I think that's great. When you were building up this deal flow did you ever consider I typically see with the private equity model a couple of different approaches.one is going down the vertical play they acquire a platform business in a in a vertical and then have some add on acquisitions to that. Others do more of a shotgun approach or others again look for multiple platforms and add ons. Did you specifically go out with a vertical in mind first or did you once you started looking and seeing how much how big of an opportunity this actually is? Was it more about the numbers and the sustainability that the profile of each business that made it interesting as opposed to a vertical integration play?
Yeah we intentionally went broad. We had experienced in the marketing and advertising fields but really that was kind of it. We didn't have experience in manufacturing or business services or anything like that. We intentionally went broad because we wanted to say okay if we the thesis would be we want about the highest quality businesses. We can find that are still small and really understand why they're small. That requires a bottoms up underwriting as opposed to and sort of a top down thesis. Look there are plenty of investors that do it differently and it certainly had done really well with it. That's just wasn't our style. Because of the wide net that we were going to try to task it made a lot more sense to be more agnostic from a business type and really underwrite the individual deals.
Okay. That makes sense. Is there any comfort in diversification as well being across many verticals and different market cycles or the like or is it literally just looking for a specific type of business?
Yeah I mean I would say it's all related to the individual deals in the price compared to the quality. But yeah I mean diversification is something we think about. I mean we certainly don't want to put all of our proverbial eggs into one basket. I mean I would say the downside of being a generalist is you can get out bid and not really understand what you're looking at. If you buy a specialist the upside is yeah you just naturally get diversification.
Mm. Yeah. Interesting. Okay cool. Well yeah let's jump into own capital verse fund. In the first few interviews I heard and first few writings of yours I read that you were very much bullish on using your own capital leveraging some debt maybe but keeping it all in the house and not raising a fund. If anyone listening to this hasn't heard your interviews on it that's like the best it's kind of like a story arc of this transforming over time. What was the shift that made you move from using your own capital that you're generating from these acquisitions to acquire more into going into the fund model?
Yeah that's a great question. There were really two driving driving forces. One is the deal flow that we had just dramatically outpaced the capitol and the rebuilding of capital. I mean once you deploy into a deal if you're not selling that deal and harvesting that if you can tend to keep it you're really just relying on this free cash flows which as pass through entities were tax to what feels like a high rate. I mean we can make that debate but you're paying a lot in taxes and of course growing businesses which we've been blessed to have increased working capital requirements and increased know equipment purchases. When you sort of net it down even if you keep expenses very low which being in the middle of Missouri we were able to do I mean you're you're not able to build that much cash that quickly.
We just frequently saw deals that we were getting gosh we just wish we had x amount of dollars on hands that we can do that deal. I mean that's a perfect deal for us. We just don't have the resources and we don't want to go out and lever the heck out of these companies and put them in peril. It was really a philosophy kind of clash between the reality that we were experiencing and the style of investments that we wanted to make. Then say the sort of the secondary driving factor was it's very odd tension between some philanthropic efforts that my wife and I feel strongly about and having less bullets to shoot at the office right? Every dollar we would give away would be one less dollar we would be able to use to make a new investment.
In general it was kind of this tension that we just kept feeling and ultimately we found the right people in the right structure to be able to allow us to continue doing what we're doing as opposed to having to go more of a traditional route with a traditional fund and cycles and all that stuff. We were able to get a group that I believe in the mission and want us to continue doing what we're doing and supporting us in that when we raised the first one.
Absolutely. I think that really puts it in perspective that it's it's based on the deal flow and opportunities. You can only like you said there's only so many bullets right when you're using your own capital or even amongst yourself and reinvesting the cash flow from those businesses while they're growing. Was it a tough one Was it a tough decision to move to the fund model and secondly was it was it tough to never sell approach to business acquisitions?
Yeah well I would say it should have been a lot harder than it was and in fact we had danced with a number of family offices that wanted us to put together a Holdco structure and very similar to kind of like a Berkshire approach and we could just never get comfortable with valuing the current asset base and how that would work long term. Everyone always came to us and said okay here's our model you go fit into our mode. Until Patrick and his family Patrick O'Shaughnessy came along and he asked a question that no one ever asked. It was kind of the key that unlocked the door. He said to me that I'll never forget exactly where we were when he said all right well what would it take for you to take outside capital? I said well gosh I don't know. I'd never really thought about it that way. He said well why don't you figure that out let me know. I worked on it for probably two three weeks and came back and I said here's exactly the model that I think we would we would want here's the way the fees would work here's how everything would happen. He said all right that sounds good, my family will be your first investor let's go do this. I mean the relationship with him and he has been a a a Godsend and just an incredible partner.
Awesome. That's that's really good. Okay. That sometimes those connections that you made along the way can really unlock the next level of what you're planning to do. That's awesome.
Yeah for sure. I mean I joke that I'd monetize Twitter better than Twitter who knows.
Exactly. Awesome. Let's let's switch gears now and talk a little bit about a book that anyone definitely all of our listeners should read but anyone thinking about either thinking to sell their business looking to acquire a business or just advising either side of these transactions should definitely pick up your book called the Messy Marketplace. I read this in one sitting and was just I'm amazed at how simple and easy it was to read on some really complex topics. I think you've done a really good job of writing that book but I want to talk about two specific pieces of that of the book that actually one I put to work straight away. Another I'd just like to talk about in general. One of the really great things you did was you've managed to explain or define buyer types really well. You've probably bumped up a lot against a lot of other investors and business acquirers along the way, could you explain just a high level view of the different buyer types and how you look at buyers in the small business market?
Yeah absolutely. Well in general kind of four broad buyer types and of course there's different flavours of each one of these. I'm going to talk about sort of broad generalisations and there's a lot of nuance. Of course if you're curious, again Google it there's a lot of information that's out there or better yet buy the book as a plug.
Exactly, shameless plug.
In terms of buyer types I mean I would say traditional private equity is what everyone thinks about. It's interesting because in the lower end of the lower middle market the terminology we're using is kind of businesses that are under $15- 20 million of earnings kind of in that range. It's really difficult for private equity firms by the nature of the fund structure and how they're designed.
Then the leverage they use to be able to dip below kind of $10 million of earnings. They can't opportunistically if they're going to do some roll ups and combined some businesses to go under that. What sort of naturally there's kind of a $10 million breaker point in which going underneath that creek sustainability issues that most private equity funds. When you think about buyers mostly private equity is operating kind of up market occasionally coming down opportunistically down into the very low end or the lower middle market. Most of the competition for us is in the form of kind of search funds on the low end, the average search fund deal was about $2 million I think of EBITDA does is the terminology they use for that metric. These are little bit smaller deals and they are kind of low end.
The Adventur.es are $3 million of earnings. They're a little bit below Adventur.es and size. I would say direct competing with us. It's like fundless sponsors and some operational family offices and we I mean we can go through those are kind of the four times private equity fundless sponsors search funds and operational family offices. We can go into sort of the inner workings of each one of those. It's kind of broadly that's the competition set. Then really it just depends on the individual situation right? Search funds can certainly yeah go higher up market but most of them stay in the lower end. Fundless sponsors, there are some really legit fundless sponsors out there that go up market but most of them are kind of on the lower end. We kind of group them together with like what we call country club deals right?
Guys that are deal guys that kind of pass the hat of the country club and roundup money that way. It just really depends to me happy to go into each one in detail. There's kind of various different forms they take but most of them whether it's search funds fundless sponsors or private equity firms have a defined time period. Usually it's seven to 10 years where they raise the capital and they'd have to return the capital back. They have to buy and sell companies pretty quickly. In that process they're used to using a lot of debt and they're used to changing up the leadership of the company either assuming the leadership positions for themselves or the leadership with hiring a new leadership. That's kind of the hallmarks of them. Then family offices are just the joke is once you've met one family office you've met one family office they're just all over the board. There's really no rhyme or reason to it just depends on the family. It depends on the pool of money their tolerance their background who's running the money and it's just kind of a hodgepodge.
Sure. Let's let's talk a little bit about those buyer types. Thanks for the overview. This is one of the pieces of the book I really liked was the depth that you went into on each buyer type. Let's let's pick one and go down the the two that we've seen most often in that 1 to 10 million of earnings or EBITDA range typically fundless sponsors and search funds. Let's talk about fundless sponsors a little bit. This is basically a person or a group that is actively looking for business to acquire but they don't have the cash like the title suggests. Now they won't call themselves a fundless sponsor by the way. It’s a little bit tricky to figure out on the front end. At least they might have a domain name that says something capital and they may have some investment partners. Exactly. Right exactly.
How do you view that if you were in a conversation with someone and they said I'm looking for a company here's my criteria. What's the next question you would ask to figure out if they are a fundless sponsor or another type of buyer?
I mean I think that the easiest and most straight forward is do you have a dedicated funds? That's the question to ask. Do you have dedicated funds? Of course, unfortunately some people lie and say they do have dedicated funds when they don't. But that's kind of a very bright line in the sand. If they say yes you can ask them say okay can I see your fund documents? Where's the source of capital and dig on that. The really good fundless sponsors and the ones that really do have access to resources we'll say yeah we've done yeah 22 deals over the last 15 years. We have these seven families that we always raise from and we just raised on a deal by deal basis. It's easier like oh well that's a very legit you can reference checking them.
You can they don't get prickly about when you ask them for those references on the other end of the spectrum. There are a joked about you can just literally throw up a private equity firm pick a pick a river nearby or a body of water nearby and slam it together with the street name and now you've got River Street capital right? It looks official and you can say it you can say you have capital and then really what you're doing is you're trying to create really three transactions at once which makes it nearly impossible to actually get a deal done. You're trying to raise the equity capital at the same time. You're trying to get a debt capital at the same time you're trying to the deal done with the seller right? It's really three transactions that all have to click together simultaneously and it virtually never happens. I think that just asking about the source of capital and if it's committed or not is really the first step.
Absolutely. Yeah with that street name website often if there's a portfolio that gives us an indication that hey maybe these guys have closed deals before and then you can kind of go down that rabbit hole. Then what type of businesses are you looking for that you can kind of take them more seriously. Okay that's that's fundless sponsors. Let's talk a little bit about search funds. There's a little bit of crossover between the two, a search fund is typically backed by a legitimate fund a private equity fund or group. They basically have these guys come out mostly out of MBAs or former operators and the mandate is to go find companies to acquire. You mentioned Stanford and Harvard. The Harvard business school has a great book on this topic buying a small business and it's all about the search fund model. Could you explain a little bit more about that and what you would want to know if you were dealing with a search fund?
Yeah I mean I think that the first question is the exact same question as fundless sponsors which is do you have dedicated capital or not? Now the interesting part is a search fund typically the way it works is the investors will put up call it $300000 to $600000 to fund the actual search. This will pay for the living expenses and travel costs and fees associated with finding a business acquiring it. I'm getting to close the investors in that fund though have the option they're not obligated to they have the option to be able to invest in the deal or not.oftentimes the best question to ask with us with a search fund is what are the what's the mandate that you've been given? Sort of what are the guardrails around the type of business you can buy? Does have to be recurring revenue what size range those types of things.
If they can't really give you a crystal clear answer the odds are that they're more of a fundless sponsor than a funded sponsor. The more crystal clear they can say hey look I'm I'm buying a business services company that has 80% or higher recurring revenue located in this geography. Okay great. I mean they know exactly what they're looking for and odds are they're going to be a lot more successful. I think it's like anything else you mean being respectful but just asking the hard questions and then it's almost it's even less about the information that they respond with and just really the tone and how defensive and sort of how much posturing is going on. It should be the warning signs.
Yeah absolutely. We love it when I when an investor or buyer comes through and they know exactly what they want. The clearer the criteria the more track record or the more they know about willing to share about the fund set up well the funding sources it gives you more confidence to move forward with that buyer. Yeah that's that's a great point. Now one thing that you've mentioned in the book and something we typically see on transactions is something that a novice or first time business seller may not be. You used to seeing is typically the highest price that you well not typically but not always the highest price wins. When you're going to sell your business you're not always looking for the highest sticker price on the offer. You really want to know who's potentially looking to acquire the business.
Like we've just talked about how they're going to fund the deal most importantly because if they can't close on the deal there's no point going through the pain of diligence and also the deal terms really matter. This kind of goes into the other side of your criteria I guess is you look at a lot of deals. How do you compete against someone who is maybe passing the hat at the country club and puts in a crazy high offer or maybe they are a legitimate search fund than they think they can get the deal done at a higher price. Are you typically competing on price or terms and how do you think about that?
Yeah I mean great question. I mean I would say there's an old adage in the deal world which is you set the price I set the terms right meaning the prices almost irrelevant to a point based on the terms. I mean you can throw out a crazy number one a lot of people throw out a crazy number and then have no intention of actually paying that. They try to whittle them down and do diligence and oh low and behold they found all these surprises that knocks half the price down right? The likelihood of getting the cash matters far more. For us I mean oftentimes we're just a completely different offer than everything else. Everyone else is competing on price. They're putting a ton of debt on the business and it's sort of more traditional deal structure. Then for us we say look we're the sure bet we have the cash on hand like literally in our bank account ready to roll. There is no financing risks. We're bringing in no senior lender or Mez lender right? There's no financing risk on the debt side. Usually there's no debt and here's our price and here's what we think is fair.
Now look you can always try to go out and find somebody who can tell you they'll get a deal done. But I think that us being the sure bet is usually the path we like to take. Sometimes we're the highest bid. I mean obviously we get quite a few deals done we're in the ballpark of reasonable. But often times we're not going to be the highest bid and for very good reasons. I mean if you're going to be able to lever up the company with a ton of debt you're almost always going to be able to put more cash and close and again you get into a heads win tails you lose type scenario.
Absolutely. I think the positioning that you've mentioned being the first direct consumer private equity brand comes into play. Do you do you go into a competitive environment? If there are competing buyers do you go in with here is you've kind of already mentioned this but do you leverage other things that you've you've put out that do send them your book to do send them a deck on who we are and here's how to think about some of the other offers you're seeing. How do you how do you leverage the resources that you've you've developed over time when it comes to winning a deal?
Yeah. Well I mean often times if it's a competitive situation there's usually an intermediary involved. Almost always and I'm as different intermediaries have different styles and some are very protective of the seller. A lot let very little information that sort of nonstandard slip by them. What we oftentimes do is we're certainly presenting a very clear straightforward offer but we're hoping that the seller does research on us right? We are hoping that they go on our website. We're hoping that they do their work and oftentimes that they are doing that work. That's a very positive signal. Inversely if they're not doing that work and they could care less who buys the business that's a really nice selection bias for us. Right. We certainly are leveraging all the different resources. I mean the book in particular with not written to necessarily be a thick business card. I mean certainly we've gotten deal flow from it but that's not the main purpose. The main purpose is once we're already in conversation with them we'd like to give them the book as a guidebook to sort of working with us. It's kind of like the first five to seven hours of conversations we'd like to have with them. I mean I don't know if that answers your question or not.
Yeah absolutely. I guess I assumed that was the reason or what you would do but it's it's interesting just hearing that from your perspective. I think mostly with novice or newer business buyers oftentimes they come into the space thinking I've got the cash I'll set all the terms. Sometimes when it's their first or second deal they are looking at sometimes they can get a little bit angry with the process or not really understand that it is a competitive environment. And for the most part when there is an intermediary involved and advisors there's there is some sort of competition happening for that business. It's really important to understand what is happening and present your opportunity in the best light possible. What your planning to do with the business and getting to know the business owner as well which I think is something that you guys do really well and having a book to hand over we'll definitely provide some points for sure.
This actually leads into the second part of the book I really liked which was seller motivations. Obviously step one is to figure out why the seller is selling and some of these especially in the company you're looking for that a family hold for maybe generations or its the end of one generation coming to the end of one generation and that that's why they're needing to sell. What are the common motivations and do often find you need to go a couple layers deeper to really figure out what's going on and why they're looking to sell.
Yeah it's a great question. I mean often times we'll ask the seller what do you want to get out of the transaction? They're like mmm that's a dumb question, money. Like why are you even what else would there be? We'll sure and obviously the finances matter but the way we think about I mean there's personality and skill set gaps right? That you can fill with a transaction. There's just purely exhaustion, freedom, health, different obligations that you would have been risking the situation and then obviously leaving a legacy that hasn't really all those are intertwined with money the difference. We really try to understand why the person selling and it tells a lot about what the company they build how they're motivated and really how they motivated the team.
Not to say there's any right or wrong answer. We just want to understand what kind of a 3D view of that we talked a lot about motivations with the sellers and tried to go on the same page. I mean I would say the only motivation that really I mean absolutely turns us off is when people say well it seems like now's a good time to sell my business right? Which means is opportunistic right? The seller is always going to be in a far superior position of knowledge to any buyer. If somebody comes to us and says I'm trying to time the market right? Like people have told me at the country club that now's a good time to sell. I agree and I want to sell and cash in it's like well what that really means is you're trying to time the market you're trying to screw over a buyer right? Like we want to create win-win transactions and when somebody comes in from a very zero game I'm very transactional basis. It's just hard to create a win-win situation.
Hmm. Yeah that's that's been our experience too. That's often as scary often a scary position to go out into the market with if someone thinks they're at the peak. I often advise clients that it's you'll never sell at the peak. It's impossible. To actually time that exit to be the perfect peak is impossible. But also if it's clear that the business is at the peak or the cycle is at a peak and you're selling fidget spinners and you think okay this is definitely a fad let's say that's coming to an end or it's already on the way down. The only way to think about that is what's the future as an investor you want a return on your capital and you always want to foster return than the list price. Why wouldn't you? I mean that's the whole game. Like you said it's gotta be a win win. It needs to be the number that that seller needs and the terms that suit them. But also for you as the investor it's really important that you get a return on capital to continue doing what you're doing. In your case now that you have a fund as well you need to provide a return to your investors. It is really a holistic approach. Yeah
For sure and I would say too though that it's not a fixed set of rules meaning that who the buyer is can affect the structure of the transaction both positively and negatively. Oftentimes we're able to get terms that other buyers can get because we have a long track record of treating people really really well. Always doing what we say we're going to do never missing a payment. Just being really faithful and forthright. No oftentimes we'll have provisions in there where delayed payments or some earnout structure in which most people would say well no wait a minute. There were 10000 ways you can try to screw me over. We say well of course there's always going to be ways in business that you could try to screw somebody over. We would never do that to you and by the way, here's a long laundry list of people that you can call and reference check us and ask us if that's something that something that we've ever done and people will say oh wow. They get comfort level with who we are how we do business and it allows us to create a more optimal structure where long-term we can get them more money. Right? It just has to be earned out over a period of time or some sort of delay. Make sure we're sharing in that risk.
Mm absolutely. Partnering on the future. I talk a lot about this publicly but also with clients advising on deal structures deal structures. Oh it's really important who's making that offer and what the offer or what the deal structure is. If someone I put out a video on this that I'm the traditional private equity model of rolling over 20% of equity and we'll build this up and sell it in five years for the second bite of the apple. That's the standard approach for the private equity model. The main reason that that's done is to reduce risk. It's not to give you the second bite of the apple as the seller and also how what are the chances of that actually coming through? Have the have the buyers done that before if that is game plan who else like you said can you reference check that?
Is there anyone else you can talk to about that success? There's a holistic approach to this. Yeah that's important to know. But I know we are coming up to the top of the hour here. I've got a few more things I want to move into. This show is called Truth About Exits. I wouldn't be doing my job if we didn't talk about some deals specifics. Have you have you got a deal example or a couple of deals scenarios that were that you would say were the hardest deals to get done? Could you walk us through what made that hard and what made you still want to do that deal?
I mean I would say we've never done a deal with not hard. In fact I would say it's just natural that anytime you're you're talking about setting up a long-term partnership which is the way it's the only way we do deals. It should take a lot of time and and honestly it should be painful in hopefully some good ways. I mean lots of conversations lots of tough conversations lots of I'm sort of soul searching on both sides about what we want and making sure we're on the same page. I mean not to be too generic about it but I would say every deal is hard. I mean certainly deals are differently hard and we've I mean experienced everything from seller's being outright fraudulent to people pulling the rug out from underneath.
It's on the finish line to personality conflicts. I mean they just sort of if you've been around it as long as we haven't seen as many deals that we have you're going to have a lot of horror stories. But the nice thing is that the businesses the transactions that we have gotten done we've been incredibly blessed. I mean the people we've partnered with are faithful kind of generous people that are hardworking and we've really enjoyed the partnership with are there going to be issues? Of course there's always going to be issues or the book is called a Messy Marketplace right? Because people are messy us included right? No one escapes messiness. I think that just understanding your own messiness and understanding what you can always be growing in. It's super important.
Mm absolutely. That's a really good point. You kind of mentioned one of these but what are the what are the typical reasons that a deal will fall out of diligence? Once you've gone through seeing the initial information got excited about the deal of course you're a disciplined investor you don't get excited but once you like the deal and you're you're going through the deal what typically other than outright fraud which is obvious if something doesn't match up that needs to be discussed. But what are the typical reasons once you get into that is a red flag enough for you to pull the deal? Has that changed over time?
Yeah I mean I would say the two major buckets our reality is different than what we were told reality was. Some of this is intentional sort of deception and some of it's unintentional. I mean oftentimes we're doing a level of a research on the business that they're frankly the business owner never done. We'll often times say hey by the way we found this what do you think? They'll say we had no idea that lean was out there. We had no idea that that had actually been filed against us. Right. Things that are very unusual that that seemingly pop up in almost every deal. If you've been operating for 30, 40, 50 years I mean there are going to be skeletons even if you don't know about them. Right and I would say that's kind of one bucket is just the things that we discover and look we try to build in a margin of safety where we know that a business is not going to be clean no businesses is right?
We priced that into the deal and we have a no margin of safety to work with. When we find bad news. The deal doesn't ever get better in due diligence let's put it that way. Right. At the same time if it reaches a critical level or something really pops up that gives us pause. We tried to bring that up immediately and address it just very dispassionately and in a straightforward manner and just try to make sure that everyone's on the same page about what reality is and then we can address it. Then sometimes we'll offer a solution. I mean we don't we don't like to renegotiate deals. In fact we've only done it one time in the history of the firm literally one time. Oftentimes if it gets to the point where we feel like we need to renegotiate we just say hey let's just call it quits and move on.
We will go back and say okay maybe we can change tweak the deal structure a little bit maybe put a little bit more on the earnout or on the note something like that to to to accomplish sort of the risk sharing that we found. The other bucket I would say is just personalities and vision for the company. I mean this is one of the things that it's easy to talk at a very high level. When there's nothing at stake and you're kind of in broad discussions early on and you talk about strategy talk about how you like to do things but the look when it comes down to it you got to make sure you're on the same page about how to operate the business. If that can't happen or if there's just really personality conflicts. That's another thing we've we've got to all model is predicated on finding great partners people to partner with.
If we don't think that we can be good partners to them or vice versa, it's just not going to work.
I like it. That makes a ton of sense. Brent thanks for sharing that. That insight and I've been talking a little bit about this but I guess I'll just come straight out and ask in the start of the middle market you mentioned that you've had the good fortune to see behind the curtain on about 10000 businesses at the target of writing the book. In a typical year how many deals do typically look at and how many of those do progress with and how many would even close out of those deals that you typically look at in a year?
Yeah I mean we see a ton and most of them are quick passes right? Our segment of the market our kind of sweet spot that 3 to 8 million of owner earnings range most of the businesses that are in that range can't be transitioned. We are looking for sort of hallmarks of a business that can be transitioned right? Kind of decentralized decision making a lack of reliance on any one person or small group of people and of course all the other sort of factors around that.
Yeah yeah absolutely. Sorry about that. Yeah we on an annual basis we look at a lot of deals. We look at probably close to 2000 maybe a little over 2000 deals a year which is still actually a very small percentage of the overall market. We'll get serious about maybe a couple hundred of those on an annual basis call it one every day or two that we're really do some work on. Then we'll probably make 30 to 35 site visits a year get serious enough to go on site and then we'll get down to kind of three to five deals a year that we'll call that we'll close. It is a very small number. I mean once we go on site we are serious about it and it's really just a matter of making sure that all those things match up that we talked about before.
Wow. Why do you keep doing this if the numbers are low that you need to see 2000 deals a year may be closed three to five?
I mean it's just it's gotta be you gotta have a wide funnel of just based on the type of market we're in. I mean most of the businesses like I said can't be transitioned. You're looking for all those hallmarks and why we do it. I mean I think it's actually pretty good odds. I mean when you look at the grand scheme of things about how difficult it is to transition of business I mean we are I think by a mile the largest team in our segment of the market and do the most deals of anybody in our segment of the market and it just requires a tremendous volume of opportunities to be able to hone in on those that you really get serious about.
Yeah absolutely. I was hoping you would say that it's fun but I'm sure at some level it's a blast.
We love what we do. Yeah no I mean absolutely. We absolutely love what we do. I mean I like we stopped doing it for the money a long time ago. Fortunately, I mean we just we think that we can serve in the way we truly look at as we can serve companies. When there are businesses that need to be transitioned. The alternative is they go to fund and people lose their jobs and a lot of values wasted. We take our jobs very seriously when we have a blast doing it. I mean I think I have the best job in the world.
I love it. Well like coming up to the top of the hour here I've got way more questions to go with but I'll just mention one thing and then we'll into wrapping up the interview here. This thanks for coming on the show again. This has been amazing. And one thing I wanted to highlight I wanted to talk a little bit about this but I just I'll mention it now is one thing that I've been really impressed with Adventur.es as a whole is as an advisor and intermediary. I often have groups that are actively acquiring businesses reach out and and put information out. But it's typically oh we've done this deal or something like that. You've gone a complete 100 steps beyond that. The Messy Marketplaces is one version of that but also the middle ground which is an open legal resource on negotiating purchase agreements for the professionals. I've been using the middle ground. I love all of the stuff that you're putting out. It seems like you're genuinely trying to make this this space better.I just wanted to take the opportunity to say thank you for doing that. I think you guys are doing a great job.
Well thank you for saying that. I mean truly we do try to give back. I mean I think that I'm leaving the world a little bit better place than when you found it is the only way to go. We try to be helpful and generous to the whole ecosystem. I appreciate you saying that. Thank you.
Awesome. Well one more question before I leave. How people can find out more about you and do you have any other than the Messy Marketplace of course do you have any books that you'd really like to recommend to either people looking to sell or go into buying companies like yourself?
Okay. Boy I mean this may be an unusual suggestion but I I love this book called the fish that ate the whale. And I've recommended this book in the past but it really describes how you can start with nothing. You can build an empire just based on continuing to sort of lever up and execute know well and it shows you how messy and weird and just odd businesses in general. The gentleman that is described in the book is by no means of the utmost ethics. I'm not endorsing his ethics are glorifying the way he went about it. But I think that that book is a really interesting snapshot in the sort of the belly of the beast. I've always been a huge fan of the investors like to keep things at a high level. Look at everything as just being a number and businesses people. It's weird and it's messy as I said. I think the more that you can get exposed to what it's really like to operate a company the better.
Absolutely. I actually read that book. I'm on listen to it on audible I should say after I heard you speak about this book and I gotta be honest tonight this really made me question my long held belief in capitalism. I really questioned if I was on the right path. Am I doing the right thing? Do I do I really want to move forward with these huge plans I have. I snapped out of it pretty quickly but like you said it it really that's the best way to describe that focus. It's the belly of the beast. That's the good and the bad. It's a real story. It's yeah. I'd highly recommend that as well. Brent I appreciate your time. I know we're up on our hour here. What's the best way for people to learn more about Adventur.es and yourself?
Yeah I mean I would say go on our website. I mean the web address is just our name Adventur.es with and I'm available on Twitter. I try to be very accessible linkedin, twitter, email I mean kind of whatever way you want to get in touch with me. I'm happy to help if I can help.
Perfect. Well Brent thank so much for coming on the show. I'll definitely have to hit you up for a second interview to get through some of these other questions but I'm like I said at the top I'm definitely go check out the Messy Marketplace as well and there's a ton of resources on the Adventur.es sites that definitely check that out but thank you once again for coming on the show. Brad this has been fun.
Hey thank you so much. I really appreciate it. Have a great day.
You too. Cheers.