You've spent years building your business, pouring every ounce of your energy into fostering its growth. But, it's time to move on. The decision to sell your business is a significant one, and it's crucial to understand the journey you're about to embark on. In this candid conversation with Brent Rippe, partner at RKCA, an investment banking firm in Cincinnati, OH, we delve into the intricate M&A process. From pre-planning to navigating the market, Brent guides us through the complex terrain of business transition.
Learn from Brent's detailed description of the build-to-sale process. He streamlines the path for owners and stakeholders to attain their objectives, breaking down the multi-step and multi-year process in preparation for a successful sale, and the importance of clarity in decision-making for optimal valuation.
We wrap up with an inspiring story of a business merger that resulted in a nine-figure outcome, a testament to the power of transparency and stakeholder involvement in facilitating a prosperous merger. Brent's insights are a treasure trove for business leaders and entrepreneurs.
This episode helps to demystify the process of selling a business and provides a roadmap for those considering the leap to a successful business transition.
You've spent years building your business, pouring every ounce of your energy into fostering its growth. But, it's time to move on. The decision to sell your business is a significant one, and it's crucial to understand the journey you're about to embark on. In this candid conversation with Brent Rippe, partner at RKCA, an investment banking firm in Cincinnati, OH, we delve into the intricate M&A process. From pre-planning to navigating the market, Brent guides us through the complex terrain of business transition.
Learn from Brent's detailed description of the build-to-sale process. He streamlines the path for owners and stakeholders to attain their objectives, breaking down the multi-step and multi-year process in preparation for a successful sale, and the importance of clarity in decision-making for optimal valuation.
We wrap up with an inspiring story of a business merger that resulted in a nine-figure outcome, a testament to the power of transparency and stakeholder involvement in facilitating a prosperous merger. Brent's insights are a treasure trove for business leaders and entrepreneurs.
This episode helps to demystify the process of selling a business and provides a roadmap for those considering the leap to a successful business transition.
Welcome to the third growth option podcast, where we talk with business leaders and innovators hungry to drive growth that can be faster than internal organic growth and less risky than acquisition. Your moderator is Bernal Dunke-Schpuller, chief Sherpa and CEO at Realign, who has led private equity owned distributors through turnarounds and growth. With battle proven leaders from all frontiers, we want to provoke thinking about business growth beyond conventional wisdom and binary choices.
Speaker 2:Hey, I'm Bernal, your host today, talking with Brent Rippy, partner at RKCA, an investment banking firm in Cincinnati, ohio. In my day job, we help companies grow profitably through what we call the third growth option. Right, there's organic growth, acquisition, and then the third growth option. Rkca helps companies to either grow through acquisition, which in my vernacular is the second growth option, or to sell some or all of their business to new shareholders. I want our listeners and clients to learn from this build to sale process that you guys have, so I'm pretty excited to have you on the podcast and, first of all, welcome to the third growth option podcast.
Speaker 3:Well, thank you for having me. We really appreciate the chance to talk to your audience.
Speaker 2:Yeah, so most owners and executives sort of spend their time perfecting how to run the business, how to grow the business, and then they don't really worry about how to transfer ownership to the next generation or to partners or to an outside buyer. That's sort of a down the road thing. But your company helps executives on both on the buy side to acquire new businesses and on the sell side to sell some or all of their business. But today I really want to focus on the sell side proposition and how you and your build to sale process helps companies sell the business. You shared with me this, what I thought was a really well done PowerPoint deck that kind of explains this build to sale process and it unfolds quite nicely between short term, long term, high level, digging down into details, individual, one-on-one sort of round table conversations. How do you explain the build to sale process in your words?
Speaker 3:Well, maybe the best place to start is the why behind it and how we arrived at wanting to really try to pursue this as a core function of how we think through the sale of a business. But I've been in the business since 2006, had an operating background at a furniture manufacturing company and had gained a great appreciation for the amount of effort that went into building an organization and building success in customers and employees that are driven at a mission, and how hard that really is for owners some cases entrepreneurs who had started the business and built it to something of relevance. In other cases people who had bought businesses and taken them through their second or third generation, if you will. But it shouldn't go understated the amount of effort that goes into that and in some cases it takes a little luck and sweat and tears and everything else that goes along with that. Well, as I entered into the M&A visory business, we were seeing clients come to us and want to sell their business and it was really predicated by sometimes unfortunate diagnosis. It was being overwhelmed with the amount of work that was coming their way in a growing business and a lack of capacity to meet that demand. Sometimes it was just I'm old enough and it's time for me to go sit on an island somewhere.
Speaker 3:And we were frustrated because we would end up in these processes and we'd end up pretty far down the road, you know, in the eighth or the ninth inning of a transaction, negotiating details of the transaction, and an owner you know who had really spent their life's work building an organization, and a lot of stakeholders around the organization that supported that owner, if you will, and achievement of those goals were constantly frustrated by components of deals that were things that they felt, had I known, or had I thought about this a little bit more, or had I been given this information with enough time to react to it, these were things that we could have drawn off the table and as a result of that, you know, people were compromising, sometimes in the terms of the deal or the valuation, or you know how money was paid, which were all hard intrinsic factors of the of oftentimes, of transactions.
Speaker 3:But then there were all these other saw factors that were driven around an organization that weren't ideally being met Retainment of key management and the people that otherwise drove the business to you know its most recent iteration of success, or you know, legacy or brand name or other key suppliers that you felt a responsibility to make sure that they, you know, survived what is the monetization of somebody's life's work? And so we were feeling frustrated, that the owners were frustrated, that these call less than ideal outcomes or these compromises were having to be made inside of the transaction, and we were sitting there saying, you know, frankly, a lot of these problems were not overcomerable. That's a word.
Speaker 2:Yeah, there you go I mean you got the point.
Speaker 3:Yeah, but but yeah, so I mean, we were just looking at and saying, look, you know, given enough time, if we, if we could work alongside of these individuals, we have a fighting shot at identifying these issues and starting to resolve them, which is where Bill to sale came about.
Speaker 2:That's a great introduction, you know, and in Simon cynics words right start with why I love that. So explain that bill to sale process a little bit, because they are like there's one page in that deck that it's almost like a process flow chart of the various stakeholders and you know what happens in the first meeting and then you have around table meeting and then you know a few months later and it's a process that it's not a short process, it's not. You know, it's not two steps, it's not two days, it's multiple steps and probably multiple months or years.
Speaker 3:Without a doubt. No, we were advocating that people start thinking about the transition of their business and working towards it up to five years prior to their decision to actually market the business for sale, and that's not a hard number per se. I mean, I think a year's worth of time is better than none, but ideally, if you're starting to work through this process, say you know, five years before your decision to sell, that probably creates the most optimal time of being able to address these relative issues, if it will. So our process, as we've been looking at trying to organize this in a very structured way again, starts with why, the word, the what of what we're trying to achieve, and so when we look at that, first off, we need to. All investment bankers will give you a kind of a current state analysis of the business and you know what multiples might be applied to the company, and it's really part of their Proposal to you as they're trying to get you know when an engagement convince you to allow them to be there, your service provider. But what I find is that not all service providers start with. What are we really trying to achieve here? Help me understand and it's not just from the senior, most stakeholder, somebody we would call a tier one stakeholder, which is the person with the ultimate decision making authority. It's the tier two or tier three stakeholders, in involving their voice in that discussion, to understand who else has influence on the deal that may, at the end of the day, not have the signing authority but could impact the transaction and really should have, you know, maybe a voice at that table.
Speaker 3:And so our process, what we're trying to do, is get people to take an initial position on what does good look like in their mind. You know some of these are hard components, like valuation or time. Again, some of these are. You know, I want you to force rate these soft factors to understand how do you prioritize the different soft factors that are important to you as an individual. And so you really out of that process, while it's written in pencil and rather than in double ink, out of that process, what we find is really two things.
Speaker 3:We find out where there's misalignment between key stakeholders and allows us to have that general discussion about, you know, can we accomplish two people's goals here and or, you know, do we need to make some revisions otherwise Align to a singular goal and why, and have that discussion.
Speaker 3:And then the second thing is that now we know what our goal is, that we're trying to achieve is compared to the current state, and so you know. Really, from there it gets into kind of a gaps analysis, some of which I think are specific to the company in the industry and some of which I think are More general and their understanding of how you would transact a business. If you will and, like I said, this is something started five years before the transaction you can reprioritize these things or run these out, but what we find is that Most owners, the fear of the transaction is such a big event and a man keep many cases. A lot of these individuals don't have it enormous amount of experience and acquisitions to begin with, and so it's always the thing that gets kicked to tomorrow as a means to something new address.
Speaker 2:Well, it's a tomorrow problem because it's also emotional, right? Because owners thinking about selling their business, whether it's passing it on to the next generation or selling it to outside buyers. It's an emotional thing because you use the term your life's work and it's sort of like I don't want to give it up. I mean, this is my baby, I brought it up. I don't want to drop it off at college, right?
Speaker 3:Well, and that's 100% right. And what they find out is that, if those discussions aren't had earlier than later, what they don't start working on is, again, is the good that I think I desire, which again starts with money. They end up finding out that they end up in a scenario where they found a buyer or somebody else that just doesn't really fit what they're looking to achieve. And so you're 100% right. I think it's the old adage of eating an elephant. It's one of those scenes where it's such a big obstacle and it's such an emotionally charged item. There are so many, let's say, philosophical questions that individuals face when they're selling their life's work as an entrepreneur. Is it going to be in good hands? Are my people going to get taken care of? What are my wife and kids going to think? What is the community going to think? There's all these scenes that revolve around this discussion that it's just something that we find that owners are slow or sometimes never engage with until they've made the final decision.
Speaker 2:By the way, it could be my husband and kids too.
Speaker 3:Their husband and kids. That's right, that's exactly right.
Speaker 2:So, like I said, I love the way in which you describe the whole process that you say ideally would take place over a number of years. Maybe five years could be shorter, and it's almost impossible, I think, to describe this flowchart in a podcast format. People will certainly want to reach out to you and you can share that to them or maybe point them. I didn't check if it's on your website, it probably is. But people love process and people hate process. They always want to know well, what's your process. And then you give them the old 12 steps and usually five or 10 steps into it people become impatient Again. What's with all the process? There's all these meetings. It's too many meetings. It's too many pieces of paper. How do you nudge owners to stay patient throughout that process?
Speaker 3:Yeah, no, I mean again, I think a transaction is so big.
Speaker 3:I mean you think about the diligence process and you think about the effort that goes into marketing the business and the management meetings and those are happened regardless of this pre-planning process in and of itself.
Speaker 3:And then you add this to it it's just such a big involvement that we're competing with owners' time because they're focused on, more often than not, selling their next widget or hiring their next person or arranging for their next supplier to meet their needs, which is what they know and what they're good at and what they should be focused on.
Speaker 3:But to me, you've got to give them the big perspective of why we're doing what we're doing and what we're trying to achieve and how our process is most likely to lead them to that conclusion, so they can appreciate the effort and the reasons why they're giving the effort to this cause. Once you arrive there, then it comes down to I don't need you focused on the details 10 steps from now. Let's line on what the things are that we need to accomplish this week, this month, that align to the long-term goals, and we'll spoonfeed it to you and say, okay, what does it take to accomplish this next step, and so I think that's probably one of the most important things we do inside of the process. A lot of what we do is none of it is ultimately groundbreaking in and of itself, but it's parsing it out, bringing it all together as a complete solution and allowing us to help them walk through the individual steps that ultimately leads to the progression of the outcome.
Speaker 2:So it's really. I mean, two things stick out here. Number one you and your team keep going back to the why why do you want to sell the business? Why are we doing this? And then, number two, you help them eat the elephant one bite at a time by saying, hey, let's just worry about the next step, let's worry about this month, let's not worry about 12 months from now, let's not 12 months from now, there's something else that is going to happen. It's always good. I think it is important to always explain sort of that long-term vision of what's involved, but let's just worry about putting one foot in front of the other.
Speaker 3:They've got to trust that we have an understanding of why that's going to lead to the eventual outcome. I kind of equate it to I'm a big basketball fan, I love Xavier basketball, and I've heard a coach kind of carve the game up into four-minute sprints and so, because it can become more bite-sized, they can win a four-minute sprint rather than lose the focus needed over the course of the game. And so we've got to win more than not. We've got to win 10 four-minute sprints over the course of a relative game. And they measure it in that way and I think in our business it's similar, where it's saying, hey, let's win the next month and make sure we're taking the necessary step that is going to ultimately align to that bigger outcome.
Speaker 2:Live to fight another day. I'm sure you've had some owners, executive teams stick with you sort of all the way through and some probably dropped out right. There's some high school dropouts in that process, I would imagine. Have people not gone all the way through the process?
Speaker 3:Surprisingly, no. What we have found is that as people start consuming the process and start working through it, it actually results in more certainty and more commitment to the outcome, not less. So where we feel people fall out of the process is really at the start, in their failure to engage at the outset, which is something, frankly, we have to assess for on our side to determine, you know, is somebody ready to really ready to engage in the process? But once they start investing in it and they start working through the different steps, what we find is that, you know, more often than not, time frames shrink because things become more concrete in their understanding of how they're going to meet their goals and, frankly, they become more focused on the things that are necessary to achieve those goals. So things that they thought were going to become five-year goals end up, you know, getting achieved potentially in a quicker amount of time.
Speaker 2:Getting into place sooner, because as everybody's understanding of the process grows, things fall into place. People start answering questions sort of before you even ask them, because you explain, you know all 12 steps, and I'm saying 12 steps because I think there's a 12-step process for alcoholics, which is hopefully not the everyday occurrence here.
Speaker 3:But think of it like EOS or any other strategic planning that you do. You know you set the five-year goal and then you set the three-year goal and what that looks like to align to the five-year goal. And then you set the one-year goal what has to happen in one year for you to achieve your three-year goal? Then you're setting your quarterly rocks or your quarterly goals, and then you're focused on an individual basis to make sure you hit those that ultimately, you should tier all the way up the chain. And you do that on a business and managerial front inside of an organization, oftentimes with organizations that are very successful in hitting their goals. It's the same thing on a transaction. So it's, you know, just kind of diverting a lot of that core line methodology to again, how do we break this down into pieces that we understand and that we can communicate to our teams that ultimately result in the back-end outcome that we're really, really trying to achieve?
Speaker 2:for and then one other question in terms of the time intensity from the operator, owner, executive teams point of view, that the people that are running the business that you would help themselves right. You sort of drew the big picture. It could be five years, could you know, call it three to five years, and I would imagine within that time frame there's sort of a, you know, preparation before you go to market and then once you pull the ripcord and you go to market, then it takes on a whole different intensity and speed. So before you go to market, how much time involvement does it require from the operator, from the seller, and once you go to market, how does that change?
Speaker 3:On the build of sales side. It truly oscillates and it really is dependent upon the objectives in the position of the company. You know, sometimes it can be very light and it could be, you know, something along the lines of in the lightest approach, we're going to go ahead and start preparing materials and gathering information so that we can offload that from the transaction. And those would be stuff that you know, items that you would have to accomplish regardless of when you do it. So let's just do it in real time here and offload that workload from the transaction itself. And you know, sometimes that could be quarterly updates or quarterly meetings, just as a reminder to say you know, okay, are your organizational objectives, you know, aligned to the transactional objectives and are you resourcing against the organization as it means necessary to accomplish those outcomes? Other times it could be more intensive and it can oscillate through the process. So generally, as rule of thumb, what we find is the first couple of months we're trying to prepare a fair amount of analysis and information, as is necessary for them to gain a more clear picture of their scenario, and then from that it presents a series of, you know, let's say, tactical objectives that sometimes can get offloaded in the management team, or best owned by the management team. Sometimes they try to outsource to us, you know, or other consultants and strategic advisors like yourself, and as it means to try to help them run down certain objectives, and some of those can be specific to the business operations.
Speaker 3:Things like Guys, you say that you're very good at selling new customers, but we don't have a really good you know competent CRM in place, or we don't have good data understanding. You know conversion ratios or you know clear picture around your pipeline, so it's going to be very hard to communicate this to a prospective buyer. So how do we stand up? You know some of that information necessary to support those outcomes. Sometimes it's more general and transactional based. So, hey, what is our marketing process and how are we dripping onto the market to prospective buyers prior to the decision ultimately to sell, and how are we learning from them as a means to determine, like are the assumptions that we're making relative to the goals that we're trying to achieve? Are they the right ones, that they truly value, that are going to result in them those buyers, giving us what we ultimately want out of the deal, or are there adjustments that need to be made.
Speaker 3:And so what I find is, again, our job is to kind of create the exhaustive list on here, all the gaps and here all the compromises or outcomes that are, you know, essentially contingent upon these gaps being resolved, and then we really, you know, as a team, we really sit down and start to identify again who's in the best position to otherwise address this and who wants to be essentially the owner of these objectives and what timeframe.
Speaker 3:You know, what are we going to address and in some cases, what are we not going to address, like, hey, these are things that well, good to have, are just not going to reach the top of the priority list, and so you just start working through that and as those objectives fall more in the management's camp, as the advisor we can lean away and the time intensity on our part, you know, is really just checking in and making sure the management team has what they need. In other cases it's there's more intensity on our side where we're sitting here saying, hey, you know, this is actually a lift that we need to accomplish on their behalf and you know there's less work on their side. So it really just kind of depends on the specific situation.
Speaker 2:I love to listen to you describe how you help companies prepare for going to market and then you know how you work with them, who does what once you're going to market. And you know clearly you've been doing this for many, many years and with many, many companies and you know you've thought about it a lot and you've written it down and you love talking about it. We work with companies that hit some kind of growth ceiling. Maybe they've gone from, you know, zero to 30 million or $300 million of revenue, but you know the old what. What got you here ain't going to get you there.
Speaker 2:So you know I'm just as passionate about helping companies figure out how do you, what mountain do you go to and how do you climb it? And is it a Jason product category mountain or is it a new channel expansion mountain or is it just sort of fixing the current go to market process? And you're just as knowledgeable and passionate about you know how do you help a company prepare for going to market, selling the business to new investors, outside investors. Take me, you know through sort of your favorite success story of you. Know somebody that maybe you helped through that process and in the end you know it was one of those you know high five moments where you like, you know you and the owner seller were like yes, you know, we did it.
Speaker 3:Well, there's a one that comes to mind. There was a company that we had transacted roughly about three or four years ago. We had started working with a client when they were pre profit and or mildly, let's say, profitable, still in the very early genesis of the organization. They had a vision of building out some technology around the label printing industry and you know we had spent some time with them on the early going just building the relationship and kind of helping understand what they wanted to achieve. But we had some really exceptional owners there who have really bought into the idea that, hey, you know I can work along our KCA and really involve them in this, this transaction, in such a way that that you know we can accelerate what was going on. And so you know we were working with them I want to say seven or eight years so it is longer than even I've outlined as ideal prior to their decision to exit. And you know we had helped them with some of the you know the singles and doubles that you know we walk clients through on a regular recurring basis. But there were a couple very big, you know decisions two to three that I think really swayed their outcome in a dramatic way, first and foremost, as every owner is concerned about how the market, how employees, how my suppliers, how my customers are going to perceive the prospect that I might be ultimately for sale. You know we walk them through, you know, kind of turning that on its head and saying you know, look, every private equity owned company out there is for sale and people know it on a regular, recurring basis and those businesses sell for extreme valuations or you know a lot of, you know, hopefully a lot of growth over and above what they were ultimately purchased at. You know. So we had felt that it was fundamentally flawed, trying to keep this a secret, and so we had advocated with the owners to you know how are we going to step into involving key managers, you know, within the organization, and describing to them what we're trying to achieve, why we're trying to achieve it, why they should be excited about it and how they're going to benefit from it.
Speaker 3:And then you know how do we communicate key supply relationships and key customers. And there was one customer that they had been working with that was based out of Colorado, who was growing faster than all of their other customers combined and was growing, you know, was the largest customer was a call it a 20 to 30% customer concentration and growing, because the rest of the business just couldn't keep up with how fast this other customer was growing. And you know, in doing that, in working through that communication to these individuals, we were obviously very focused on how was a prospective buyer going to look at this key customer and their impact to the business doesn't present a lot of risk to the company. So in the conversation that we started having with that supplier because the owner really was forward thinking and their willingness to kind of approach the individual, the key stakeholders around the organization and they're involving that individual we found out that this individual's goals potentially align to our client's goals.
Speaker 3:And in doing so we started having the necessary discussions because we were given the proper amount of time on hey, what does this look like if we could do this together rather than doing this apart?
Speaker 3:And does it take two anchors around each of our individual companies and present something that, frankly, is a more ideal outcome that is going to get a better outcome for everybody involved in the deal. And so inside of that deal we you know both businesses kind of continue to grow. We got the shareholders aligned. There was essentially a cashless agreement where there was an agreed upon understanding on how they were going to present as a singular offering and how that offering was otherwise going to get split between parties. So we worked through the logistics of the tactical items behind the scenes of how this transaction was going to work and how people were going to get crossed up. But ultimately those two businesses went to market together and while I don't want to disclose the specific outcomes, I would say the outcome between what was achieved and what was expected was over double and in the nine digits.
Speaker 2:And it was a massive outcome. That's amazing. But that's a great story and that is taking, you know, a perceived weakness into an actual strength, right. I mean, the perceived weakness was oh my God, you know, we can't tell anybody, we have to stay secret. You know what if they find out to going? You know what? Let's just be out of the open about it and amazing things happen as a result.
Speaker 3:Well, the amazing part about it is because we had the management involved, because we had the necessary stakeholders around this, because we had the ownership really bought into it, because we had this third party, and the outcome was created. The financial benefit that ultimately resulted wasn't just a huge win for the shareholders of the original organization that decided to take us, engage with us on the adventure. It teared out all the way through the organization People who never thought that they were going to get a really significant check, a life changing type of wealth check inside of this transaction ended up with, you know, a stakeholder interest in the business that they never thought was even possible. And so when you see that kind of tear through the organization, you realize that the owner's willingness to engage with this, then building a really great business, and the work that we've done alongside of them, created this outcome. It just it gets you, you know so.
Speaker 2:That's the kind of stuff that gets you up in the morning right.
Speaker 3:Oh yeah, I mean it's just so pumped up because you know it's amazing.
Speaker 2:Hey Brent, if folks wanted to reach out to you just one-on-one, where's a good place for them to find you? Maybe website or email address or something like that?
Speaker 3:Sure they can reach me on LinkedIn. My name is Brent B-R-E-N-T RIPI-R-I-P-P-E. I'm based out of Cincinnati. Again, the firm's name is R-K-C-A, and so the website is wwwrkcacom, and my email address is just brippi at rkcacom.
Speaker 2:There you go. Awesome. This was a great pearls of wisdom I think that you shared, and also, again, the passion and the knowledge with which you approach the subject. I really appreciate you sharing with us, and I love all things growth-related, and what you shared here is a particular stage in the growth process that operators aren't that familiar with, and so I appreciate you sharing lots of great insights on that part of it.
Speaker 3:Oh, I really appreciate you having me on and love the business and we love to help people, so thank you.
Speaker 2:Awesome. Thank you very much, brent. Hey, if folks wanted to explore other growth topics, you can find me on our website, realignforresultscom, or just email Benno B-E-N-N-O at realignforresultscom. Thank you and keep growing.
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