In this action-packed episode, Coran talks with his colleague Mark about raising debt and capital, working with entrepreneurs and acquiring business for growth versus building from scratch.
- Who is Mark & his Career
- Debt raising & Raising equity
- Working with Entrepreneurs
- The Operations side of a business
- Acquisition v Building
Mentioned in this episode:
We are live today. I'm joined by my good friend, colleague and partner in crime Mark Sancrant. Mark, thanks for jumping on the call.
Thanks Coran. Glad to be here and look forward to our chat today.
I have been trying to get ahold of Mark for a while. Our schedules haven't quite lined up but I'm super excited to bring Mike on to Truth about Exits as we'll be doing a weekly show talking about more of the nuance of dealmaking and even some of the deals we're working on for what we can disclose publicly. Obviously there is non disclosure agreements in play in a lot of these deals. We can't talk about everything. The things we can talk about we'll definitely go into some detail but today by way of introduction I'd like to introduce you to Mark to you the listener. You can get a sense of where Mark's background is, where his, where you might want to be listening or why you might want to be listening to Mark and some of the experience that he has as well. Let's jump in Mark how would you when people ask you what do you do, how do you answer that?
That's a great question. After 20 years, I'm still trying to figure that one out but generally what I say is I am a kind of career M&A professional focused on mergers and acquisitions but with an eye towards strategies. What's the reason behind the deal, not just doing deals. Typically, depending on the person I'm speaking with that might get translated into I do finance work. I don't think of M&A is purely finance. I think of it as encompassing all aspects of the business from the operational side to the strategy side to the finance side of course. But then also I spend a lot of time on the psychology side when you're working with the business owner that's about to sell their business. Psychology certainly comes into play and understanding how to communicate is an important factor of that.
Absolutely. We'll definitely do some deep dives on that. For sure. I say that more and more actually a little larger the more psychology is involved. The more how would you put it that relationships matter is what I'm finding and I've learnt a lot of that and working with you as well. Awesome. Okay. Well, you mentioned 20 years of background, that's obviously a lot to go with. Could you take us through what maybe some high points of that career maybe starting back in your investment banking days and just walk us through what you did there and then we can kind of skip forward a little bit.
Yeah, absolutely. As I mentioned all 20 years have had an MNA component to them. I started my career in kind of traditional investment banking in New York with prudential securities. Within that role that was working with very large in most cases, public companies on a variety of financial needs, whether it was raising debt, raising the equity both from the public and private markets. But also a lot on the M&A side that could have entailed sell side advisory work ,buy side advisory work, opinions and general valuation work. Things of that nature of from Prudential. I moved to a boutique called Blue Stone Capital. That's where I kinda got my first taste of technology. That was right around the burst of the bubble in 2000 and 2001 but again that role was still traditional investment banking but with earlier stage businesses. In that case it was a lot of capital raising for businesses that were maybe looking for the round prior to going public and in some cases of public offerings. Then again a lot of sell side M&A work.
Sorry. Just before you go, jumping forward I'd love to highlight two things that I get asked quite a lot and we've even talked a little bit about this but I'll play newbie in this call to break it down for people a little bit more. But could you in your experience and understanding could you break down capital raising into you mentioned debt, raising debt and raising equity. Could you explain the differences between those and maybe a quick example of when one would make more sense than the other?
Yeah, absolutely. You can always think of debt is no different than going to the bank and borrowing money to buy a house. There's an expectation that the borrowing is going to be repaid at some point in the future. Typically that is also secured by some asset as a result generally debt is the cheapest form of capital that a business could use on the equity side. There's no guarantee that you'll get your capital back if you were an investor, just like in the stock market. At that equity it tends to be much more expensive than debt and it's capital that's a little bit more permanent. Since there's no expectation that the capital can be returned to the investor in a certain timeframe tends to be more expensive and kind of concerned more permanent capital. Does that kind of answer your question.
Yeah, absolutely. With the debt raising specifically, just one more question on that and then we'll jump forward with everyone or most people would understand equity raising through VCs or private private investors but with that raising specifically I have had a couple of people recently actually asked me about raising debt. I'm keen to get these answers from you as well. Who would you typically reach out to if you are other than yourself, obviously getting help from a from an advisor, who are you typically reaching out to to go and raise debt? You mentioned banks, are you going out to banks for commercial loans or is that other channels and obviously it depends on the size of the business too.
Yeah, absolutely. Banks are certainly one of the first places you might contact. If we're looking to raise some debt. Typically banks are going to be the most conservative, meaning they're really gonna want to understand the borrowing entities business and make sure that it's clear that there's a way that they'll be repaid. Generally they look for more than one form of repayment. Right? It might be one form of repayment, might be cash flow from the business but in other cases it might be assets that are securing it such as a equipment loan. Then in other cases the bank also some might require a personal guarantee. In that case there might be three ways the bank gets paid but the bank is going to do everything they can to ensure that they get paid.
That's also why they're capital's generally the cheapest. There are a number of non bank kind of financial institutions that have been well I was about to say popping up but in reality it's been going on for about 20 years. But a number of non bank financial institutions that lend money as well those could be mezzanine lenders. They could be equipment finance companies it could be commercial lenders as well but non bank. Typically with those they might be a little less restrictive with who they will lend to. But as a result they're taking on additional risk and generally speaking they're capital will be a little bit more expensive than a banks. And then there's always private individuals who are looking for a different asset class. In some cases private individuals might be interested in loaning money or lending money as opposed to looking at an equity investment. When I began my career, I was doing a lot of securitization work which kinda got a bad rap. Not unfairly by the way. But in the 2007-2008 timeframe people heard a lot about CDO’s and CMO’s, which are debt instruments and those cases you start looking at investors that are not banks. They're not necessarily in financial institutions that are just very large investors that are looking for that obligations again to spread out their assets across different investment classes.
Okay. Excellent. Yeah, I think that covers that point quite well. Let's jump forward from those two experiences in internet, I have ibanking written down. I read out internet banking of course meaning investment banking. Where did you go after Blue Stone?
Yeah, Blue Stone was where I first got my taste with working with the earlier stage businesses and I really liked that because I was dealing more with the entrepreneurs as opposed to kind of seasoned professionals. I just found it more exciting because they were not necessarily sure where they were going, as many entrepreneurs are but they had a vision and they in some cases needed some help pursuing that vision or executing on that vision. After I left blue stone I actually went to work for myself and I was doing a lot of advisory work with a earlier stage businesses, whether it was helping them think through their strategy on how to grow their business or helping them develop financial models or business plans, things of that nature. But at the same time was doing a lot of M&A work predominantly on the buy side. Throughout my career I've done a lot of buy side M&A work helping businesses acquire other businesses as opposed to selling.
I spent the next seven or so years on my own both in New York and then I relocated back to Ohio during that time frame. Continued to work with these earlier stage businesses which I started to find a niche and more of a passion for it because again it's pretty exciting when you're sitting across the table from an entrepreneur who has the screen vision and just need some help putting all the puzzle pieces in place. I found that a lot more fulfilling than working with $1 billion company that at the end of the day I wasn't going to really provide the main insight that was going to move the needle at all anyway.
Yeah, absolutely. It's kind of soulless at that point. They trade trade businesses like it's a chips on the table kind of. I'm right there with you on the working with founders and entrepreneurs there's a different energy there. From there you went into corporate development, could you explain what corporate development is?
Yeah, that I was kind of talking about that. I might talk a little bit about why I made that decision at that point in my career I had about 10 years of advisory experience working with clients on a variety of matters and I looked at my career and I liked the experience that I had gained but I also realized I was missing a key component which was the operational side. I've always been the guy that would make recommendations but I didn't have to live with them and didn't know what it meant to go actually execute. I thought it would be pretty interesting to gain operational experience. I came across an opportunity to build out the corporate development capability for an online media company called iNet interactive. To get back to your question about what exactly corporate development is the way that I see corporate development is it's really focused on a number of issues but the primary one is around strategy and growth.
How is the organization going to both grow and create value but also what's the strategy behind that? How are they going to do that? In our case with iNet interactive, the strategy was heavily based on a kind of a buy and build strategy M&A focused. Then my role not only entailed developing that strategy and putting the processes in place to execute it but then it also got into more operational aspects such as integration. Once we made an acquisition actually integrating the acquired company into ours, it also entails things like partnerships. At the end of the day I look at corporate development. As I started off mentioning, heavily focused on strategy but I also really see corporate development is kind of the corporate relationship arms. I was the guy that was just kind of out there trying to develop new insights that would be helpful for our organization but also developing relationships that may or may not lead to something. Those relationships could potentially lead to acquisitions and some cases lead to partnerships or client relationships. Then other instances it might turn into a company that might have an interest in acquiring us. I looked at it very much as a relationship role but heavily focused on strategy. Then in our case that the mechanism to execute the strategy was M&A.
Awesome and I've only got about 200 questions from what you just said but I'll let the listeners know any of that. If like us deal nerds or budding deal nerds and what to know more about how all of that works. We are planning many episodes to talk and to break this down but also specifically a series on rollups in particular. We'll break down this in more details just hold five on that. We'll be back to that point. Yeah that's pretty exciting. You do a lot of this stuff that essentially in corporate development from my perspective is you do a lot of the things that entrepreneurs understand conceptually or maybe they've gone to college and get as a concept but you actually pull the trigger and make that happen. Like you said once you've got an exposure to the operations side as well, that was what you were chasing. Was there anything different once you were in operating with iNet Interactive as you said after the acquisitions happened and going through that whole process was there anything that was different say from a textbook or as a concept that you understood when you actually had to integrate these or work on the team integrating the acquisitions after the acquisition and then going to do the final sale as well?
Yeah, I'd say when you look at what you might learn via text books or whether it's a formal college level course or just things you might read online you're never really prepared for it until you actually get out there and do it. What I mean by that is you might have some preconceived notions on what the most important things to focus on are. Once you actually get into it particularly when you're an operator and not simply an advisor, you learn very quickly what really is important. A quick example of that as an advisor or maybe someone that just came out of a MBA program or even undergraduate level program that might have an interest in M&A. Immediately you start thinking about all the different financial formulas you've learned CAP and WHACK all these other great things and you're writing to put them into place and start utilizing them and then you get into a transaction.
Then you realize, okay yeah that stuff's kind of important and how much we ultimately are paying for this business is, it's not irrelevant, but what you learn real quickly is that things like culture and how the prior owner is going to transition out and how they're going to help the new employees or the new business transition in those, that's where deals get made or broken. Things that you don't really learn about from a deal making standpoint in school that that's where you lose money or you make money. Cultural fit is by far in my mind, one of the key aspects to any acquisition. If there's not a cultural fit it's going to be an uphill battle. I'd rather personally go in and buy a business that needs some fixing up. Maybe it's got products that need to be revamped or whatever. I'd rather do that then acquire a business that needs a culture to be worked on or reworked or take two different cultures and try to put them together. That's just that's a recipe for disaster.
Yeah, absolutely. I've seen that second hand in very large transaction myself. That's interesting mate. We see this even on small levels where there's maybe a first time investor coming into a business and a small team running a business that still plays a part in how long the staff stay on after the acquisition. Operations is definitely something different to just the acquisition side of things. Just one quick question on this and then we'll move on because obviously we'll be talking about in depth on the roll-off episodes but say you're talking to a founder who has had some entrepreneurial background. They have a business that's growing already organically and they're looking to get into the acquisition side of things to build that come to build their company into a larger business may be achieved growth faster or whatever the goal is. That's probably the first thing you would say. But what would be the next thing you would advise someone if they have a goal in place, what would the next step be? As far as the first step into looking at acquisitions?
Calling me that was a joke calling me and asking me what to do next.
Yes, sorry man. I literally thought you said someone was calling.
My recommendation would be to have them call me. You bring up a great point because I kind of look at it is there's a lot of acquisition models out there and as you mentioned we'll be talking about rollups in a future podcast but you kind of nailed the hit the nail on the head with that, what is your ultimate goal? I think a lot of people see maybe the sex appeal around an acquisition and think that that's the way that they want to run their business. Or it's a way that they can create some value for themselves or their business. It's taken another step from just identifying the goal and really understanding what it means to do that. I think there's a couple ways to answer your question. Absolutely. I kind of joked a little bit but absolutely talking to an advisor someone that can help you navigate what it means to go out and actually acquire a business what that really means and what all it entails because it's actually a lot of work. If you're trying to operate a business at the same time, one of them you're going to be really good at and the other one's going to fail. It's not always the one that you think is going to happen but maybe you're really good at the search process and can go find a business to buy. But your but your core business might suffer at the same time. I would start with talking to advisors to really understand what the process entails and how to go about it. I would always consider or think, really think through the whole process of what the end goal is. Why is it that you want to make an acquisition or why is it that you feel that you need to make an acquisition? A lot of businesses, particularly larger ones, we'll go through buy versus build exercises. I'll give kind of a real world example, a software business that would like to go into a different market and their software doesn't serve that market well. They understand software. They could go out and build a new product that serves this new market or they could look at an acquisition as a way to kind of jumpstart that process. Again it is all goal oriented. What at the end of the day is your goal and then how's the easiest way that you can achieve your goal? I'd say start with talking to an advisor or doing any sort of reading that you can to just kind of learn the process and the nuances because every advisor is going to have different experiences. Some may have better experiences than others. I would take any advice you get with somewhat of a grain of salt and just do everything you can to educate yourself about the process.
Yeah, absolutely. It kind of narrows almost a lot of the conversations we have with people when they're thinking about selling their business or exiting the business it's also the same. What's your goal? What are the alternatives? It's kind of the same thing. This is just a bit of a loaded or maybe a strange question but have you ever seen an example? It's okay if you haven't I'm just kind of thinking out loud here. I'm just wondering if you've ever seen an example, where building would have been better or faster than acquiring because from the outside looking in it seems to me at least as a novice who hasn't done this personally, as you said the operator side of thing is there ever an example or in your mind there would be a case where building would probably be faster or better than acquisitions or vice versa?
Yeah, absolutely. The thing that as you're going through a buy and build exercise, the thing that you always kind of forget is how long things really take to do the work. I'll give a couple of examples on that. I'm actually have some very real life examples. I was a cofounder of a company called D2C brands, which was a buy and build strategy focused on ecommerce and consumer products. Our plan was to acquire five to seven businesses over a relatively short period of time. We made one acquisition and got into it and started doing a lot of the brand work like we had planned on doing and realized that it was a lot more difficult than we had initially thought to do some of that brand work. As we started looking at acquisition number two the question began to be asked of do we want to go through this process again of acquiring something and then taking what we acquired which from a time your question around timing. Yeah that can happen relatively quickly if you know what you're looking for and there's a ready seller that can happen pretty quickly. But how long does it take for you to retrofit that business into what it is that you actually want. Then in our case we looked at it as, hey we now have a supply chain. We have channels that we can sell products through. Does it make more sense to just launch a new brand as opposed to acquire one? We from the outset can have it be exactly what we want it to be. We actually can remove some of the risks because we're not going to have to tinker around with what we've acquired and maybe screw things up. That's one case where I think depending on what the overall outcome that you're seeking or the goal that you're seeking is there might be some real good reasons to build as opposed to buy. Unfortunately a lot of those things aren't real evident until you actually get in and make an acquisition and learn a little more about it.
Yeah for sure. I think if that's not coming through in this conversation, I'll just point it out. This is definitely the reason you and I do what we do because the nuance of each deal, I can hear your brain ticking as well. The cogs moving because it is such a puzzle piece and everything is unique. Every business is unique. Every founder, every operations team, even the acquisition opportunities can really dictate which route is the best way to go. Of course being advisors we'll always say this, honestly, that is the best way to go is to bring in an advisory team to help you with those decisions. Don't rely on just gut feel or assumptions because oftentimes those assumptions.
Oh, absolutely. Yeah. And I'm a big fan of education and not necessarily in kind of a formal setting but any sort of thing you can do as an entrepreneur to learn more about business whether it's talking to advisors and giving free advice or reading or taking classes, whatever it might be the education process should never ever stop because there are many nuances to operating and building businesses. I'm a big advocate of doing a lot of reading and talking to people and learning from others.
Yeah, absolutely. Hopefully this show will help between our conversations and some of the other interviews we'll be doing, hopefully that'll give another lens for people to use. Okay, cool. Well that's awesome. That's a nice little intro into corporate development and why people might be interested in learning more about corporate development now they know what it is. Is there any other pieces of interesting tips or things, examples you'd like to talk about specifically once you jumped into the operations side. Is there anything else before we go into the rollup conversation of course, which I'm kind of itching to go into but is there anything else that you'd like to mention just on this brief intro?
Yeah, it may be just kind of a quick segue into what I'm doing today. After gaining that operational experience it was quite honestly eye opening as an advisor, helping clients in the past get from point A to point B, whether it's capital raising or helping them buy or sell a business. Once the transaction closed I kind of felt like I always move onto the next client or next deal. Then when you actually have to live with it gives you a whole new appreciation of how to structure transactions. It gives you I think for me it put me into a better position to better advise others now that I have that operational experience and can kind of empathize with the founder or an entrepreneur about what it might mean to sell the business or buy a business or raise capital.
Having gone through that experience, I think prepared me better for that. Now I kind of the segue into where I am now after doing the corporate development and kind of strategy side of things for about 10 years. About the same amount that I've been an advisor I realized that my personality, let me take a quick step back. I went through the process at 46 of taking a step back and trying to figure out what I wanted to be when I grew up and I had the benefit of having 20 years of experience behind me to really help kind of guide that process. But as much as I liked the being on the kind of the corporate side or the internal side the thing that stood out for me is I'm a more of a natural networker and relationship person and I saw a better opportunity for me to appease that side of my personality as an advisor.
I also realized now that I've have about 10 years of advisory experience but also 10 years of operational experience that it put me into a pretty unique position to as I mentioned before, better advise. I made the decision a little less than a year ago to return to the advisory side of the world and kind of leverage my experience not only as an advisor but also my experiences as someone that's acquired businesses, operated businesses and then ultimately sold businesses.I kind of see it as I'm coming full circle and bringing that full solution to my clients now.
Yeah, absolutely. I mean we, we started out, I started out as a client of yours I guess who would say and now moving more into a colleague type arrangement and I can 100% as I say that your depth of knowledge is impressive and super valuable when it comes to the nuances of dealmaking. It's as you and I both know but as some of the listeners may or may not realize is once you get a deal on the table, whether you're buying something, whether your business is up for sale, that's really just getting someone to be interested. I'll put an offer on the table is literally step one. It's everything that happens after that to get you through to that finish line. That really is what we'll be talking about on this show and you're a master at that point. I'd highly recommend anyone to reach out to you and seek your advice in any of those areas. Very, very valuable. Thank you. Awesome. I think that's a great first episode. I guess the natural next question Mark is how can people reach out to if they do want to, to seek some of your advice?
Easiest, probably a couple of these ways. Linkedin always a good path. I'm on there quite a bit sharing content is as I come across interesting content. I can be mail emailed directly firstname.lastname@example.org. those are probably the two most efficient ways to get to me and I'm a generally responsive. If anyone should ever have any questions, feel free to reach out. I'm happy to share some advice and some insights and help where I can.
Awesome. All right, we'll put that in the show notes. You'll be a regular on this podcast, there'll be lots of opportunity for people to reach out to you as well. As I said, earlier highly recommend reaching out to Mark and at least having a conversation of if you're looking for solid advice in any of these areas definitely reach out to Mark. Awesome. Well, thanks for agreeing to come on the podcast and being a regular guests, I really appreciate it.
Yeah, we're gonna have a lot of fun and explore some pretty interesting topics and maybe a think about things and a little bit differently than others might be.
Absolutely. That's the goal. All right, mate. I'll talk to you again soon. Take care. Bye. Bye