Transcript of Efficiencies Expert Jason Helfenbaum On How To Increase Your ROI Through Training And Efficiencies
Former Investment Banker Now Business Owner Peter Gudmundsson On Little Known Secrets To Maximize Your Liquidity Event (#024)

Jeffrey Feldberg: [00:00:00] Welcome to episode 24 of the Sell My Business podcast is both a privilege and a pleasure to welcome Peter Gudmundsson. Peter is the managing director of Longship Partners, a personal investment and management entity. Until recently, Peter was the CEO of the Pet Loss Center, a fast-growing leader in pets, memorialization and cremation services.

Previously, Peter was the president and CEO of RecruitMilitary, the leading veteran hiring solutions company that he bought with an investor group in 2013.

RecruitMilitary helps companies attract and retain high quality veteran employees and students. Peter sold the company for a 34% IRR. Most of Peter's career has been dedicated to leadership in media, education, and intellectual property intensive businesses. He has purchased and or sold about 30 businesses during his career.

Peter is a regular media contributor. He has appeared on CSPAN, multiple local television and radio programs and has published opinion pieces in Forbes, the Washington Post, US News and World Report, The Hill, the Christian Monitor, and many other periodicals.

Peter is also the author of Not Done Yet: A College to Career Transition Guide for Parents and The Veteran Hiring Leaders Handbook. He has also served on the board of a 20,000-student charter school system, International Leadership Texas.  A former US Marine field artillery and intelligence officer Peter is a graduate of Harvard Business School and Brown university.

Peter serves as the honorary Consul for the Republic of Iceland in Texas, and is a member of the Young President's Organization, Gold Maverick chapter. He's married to the former Kathleen Vouté of Bronxville, New York. They reside in Dallas and have four adult children. 

Peter, welcome to the podcast. We're delighted to have you with us and thank you so much for taking time out of your schedule. Peter, before we start, it'd be terrific to hear your business background and what got you to where you are today.

Peter Gudmundsson: [00:02:18] Well, great. My pleasure to be here. I've spent about a 30-year business career running, buying and selling companies. Coming out of business school at about 1990, I worked with the M&A department at Morgan Stanley in New York.

I've worked for KKR's media company. It used to be called K3 communications. and then throughout, later in my career buying and selling companies, buying companies to run, grow and then sell. Buy, grow, and sell is what I call it, so I've been on both sides of the table, both buying and selling.

I estimate I've probably bought about 20 different companies and sold 10 or 12. Sometimes to run them myself, sometimes in a corporate environment where I was working for others who would end up running them.

Jeffrey Feldberg: [00:02:56] Peter that is amazing. At Deep Wealth, we focus exclusively with sellers and on the sell side. And so, for the community, here we go. We have someone who's been where we are on the sell side, but also on the buy side. What a treat that is because when you can understand what the buyer is going through and what their perspective is, it makes your exit even that much more effective.

Peter, maybe we can start with that when you are on the buy side, it'd be interesting to hear from your perspective, what did you see as some of the top mistakes that sellers were making that were to your advantage and you probably said to yourself, thank you very much, I'll take that . You did what you were supposed to do as a buyer. That perhaps the sellers could have done differently or better to keep the value higher. 

Peter Gudmundsson: [00:03:39] Yeah. There are a lot of topics, but the one that comes to mind that I've seen most often that should be avoided, is letting ego get in the way.

So, sometimes the seller will say, this is my business. This is my baby. I built it. It can't run without me. I'm so critical that it can't run without me. And that's the exact opposite of what a buyer wants to hear. I call it buying an ATM machine. You're buying a box that produces cash.

And if that box only operates with the, one-of-a-kind business owner or seller involved, then it's worthless. Frankly, maybe it's not worth buying at all. In fact, one of the techniques on the buy side is to get the seller to talk about what they do on a daily basis. And you say started flattering things like, wow, it sounds like you're pretty critical to the business.

And many of them can't resist saying, Oh yeah, I'm critical. All the customers love me personally. Oh. So, if you weren't here, some of those customers might go, Oh, well I didn't say that, you know, necessarily. So, ego is the number one thing. The number two thing, that sellers need to pay attention to is what is their story?

Understanding the narrative of what is the nature of this business? What makes it good? Frankly, what makes it not good or what are its liabilities, but really understanding and being able to articulate why there's value in the business. So, no one understands this particular customer like our organization does our system is designed for delivering value to those customers. And that's why it's worth a lot. And that's why you should pay a lot when you buy it. And the final, big picture item I would mention is organization. Having, document whether it's corporate documents, accounting records, customer records, tax returns, all those things being in very good shape.

It's very common for a multimillion-dollar EBITDA or profit business to have a shoe box full of receipts. And, that doesn't build much confidence on behalf of the buyer. Some buyers can extract value if they can get comfortable with those shoddy records, they'll pay less and they'll modernize or professionalize the business and reap the benefits of that. But those are the three major things that come to mind. 

Steve Wells: [00:05:45] Peter you sound like you've taken Deep Wealth before I hear you're covering all those things that we try to preach so diligently to our people. And you’ve lived it.

Excellent, excellent points. What kind of buyer have you been when you've been purchasing companies?

Peter Gudmundsson: [00:06:01] I, quote, Ronald Reagan trust, but verify it’s the starting point, I believe a much more collaborative approach is important.

First, understand the story as presented. That's what I meant on the sell side of understanding your narrative. So, really understand that narrative. Why do customers buy, do customers not buy? Why is the business successful? 

In fact, I had a boss years ago in the nineties who said, when you buy a company, take the first six months, figure out what they do right. And then the next six months to fix what they do wrong.  I think that's humility, and open-mindedness is very important. 

Now, having said that, once you think you understand the positive side, now you've got to turn it around and poke holes in it. All right. So, what could go wrong? There are various different models approaches to it. In business school years ago, I was taught by Michael Porter the five forces model, for example, to understand competition and strategy.

What is the relative power of vendors or suppliers? What is the relative power of customers? All those types of things. Really understand that systematically. I often use the phrase heart and head, make sure your head logically understands the business but every now and then check with your gut, check with your heart.

Does this make sense? That's how I approach it. 

Jeffrey Feldberg: [00:07:12] Peter, before we dive into some of your own experiences with your companies, I'd like to go back to your days in mergers and acquisitions. Advisors may have conflicts of interest with the sellers that the sellers aren't aware of. What would be some of the conflicts that a seller should be aware of when walking into a situation with an investment banker as an example?

 Peter Gudmundsson: [00:07:34] Whether it's an investment banker or a broker and people often ask what's the difference. And I say, I think it's about a million in EBITDA, if it's below that, it's a broker. If it's above that, it's an investment banker.

On the buy side, the buyers be will back time and time again, or the, the third strategic investors. And they're rolling up a given space. They're going to be back time and time again. Whereas the seller typically is going to sell, buy a boat and sail off into the sunset.

You do need to be mindful that advisers do have, an incentive to make sure that the buy side is happy.

Jeffrey Feldberg: [00:08:04] And what we found that one of the things that we talk a lot about in the Deep Wealth Experience when it comes to investment bankers, most sellers say, well, listen, I've hired the investment banker. I'm writing a big commission check. I may be paying other advisory fees.

If the investment banker has a deal that's worth $100 million or a deal that's worth 140 million. I know the investment bank was going to really push hard for the $140 million deal. Even if it doesn't happen, they're still going to push hard to get it because wow, that's a lot of money for me, and that's a lot of money for the investment banker.

So, Peter is that fact or fiction? 

Peter Gudmundsson: [00:08:39] I remember the Freakonomics book a few years ago, 10 or 15 years ago, highlighted that with real estate brokers that a real estate broker typically wants to get the deal done. And if it's a million dollars or $950,000, Yeah, it's true. The commission's a little smaller, but its commission on $950 is better than no commission at all.

So, yeah, so there's almost going to be a little bit of downward pressure. Those are sort of the negotiation’s realities, the interpersonal realities. It depends on the size of the business. If the banker is truly expert in the space, and can show data. They could say, look, the buyer is offering.

I'm making easy numbers, 10 times. EBITDA for the business and that's where businesses trade of this type in your industry. Then it's probably pretty valid. but if it's just sort of smoke and mirrors, Hey, it just feels to me like it's more like eight times and by the way, multiples are not absolute, they're all relative to the industry and then the characteristics of the business.

Yeah, the, the seller does have to be very much aware of those incentives. 

Steve Wells: [00:09:41] So, Peter, let's talk a little bit about valuation. You were talking about and 10 times or eight times or 15 times, I mean, how hard and fast is that for any particular industry? If I'm in some tech industry and I see other sales going around me that are in the eight to nine, does that mean I'm stuck there? 

Peter Gudmundsson: [00:10:00] It really varies. I mean, all you need is one buyer willing to pay the price that you have and actually follow through to closing. And so, cocktail party chatter, it's kind of like buying individual stocks. We all have friends with the cocktail party and let you know that they bought Google at $10 or something.

But they never mentioned is that they also bought, American Airlines at that price too. And then yeah, they lost it all. it's the same way with multiples. I've laughed over the years you’ll overhear or catch later on the buyer and the seller describing the same deal, will quote, different multiples. A seller should understand how does the buyer approach valuation? There are different methodologies.

Is it, proforma, EBITDA, meaning what profit will that ATM machine, produce when the buyer has bought and integrated it? Understand what that is? others it's pure discounted cashflow over five or 10 years. Others, it is premiums paid and similar, transactions.

You have to understand what that comes from. If, some sellers are not as sophisticated with finance or accounting. So, having your CPA or your accounting firm or investment bank walk through the different types of methodology, don't get too wrapped up prevailing multiple, because like I said, people throw that around, as sort of bragging rights when sometimes they're not all that precise.

Jeffrey Feldberg: [00:11:17] Peter you have built and become involved in a number of companies which have later sold. And I was curious for your methodology when you're buying a company or starting a company. What is it for you? Is there a particular problem that's fascinating to you that you're looking to solve?

Peter Gudmundsson: [00:11:33] Yeah, for me. I've been drawn primarily, although there are, there are exceptions that prove the rule, to businesses that have some sort of intellectual property, which is a fancy way of saying publishing.

I don't like to say publishing anymore because it's been a, battered industry over most of my career, but I like intellectual property rich businesses where there's a, a body of knowledge being sold in some form, whether it's print, online video, whatever. And so that appeals to me, another thing that appeals to me is very well-defined niches or niches, depending on where you are in the, in the continent. And that is, some little group that can't live without this information or this insight. Those are the types of businesses I like best and where the markets are very well defined. Those are the characteristics of the business. Then in terms of where they are in the life cycle. and this is advice I would have for sellers as well is where there's still some growth left.

Some sellers want to squeeze out every last little bit. And it's really important, especially the niche businesses where they totally dominate the niche. And then they only way they can articulate growth is either through price increases in the product or service if that's possible, or moving into an allied space, which has all sorts of risks. So, it's always good to have a little bit of growth left in your primary story, that gets a buyer excited about how much further they can take it. 

Steve Wells: [00:12:53] I'd be interested to know what you think and what your experiences are in an auction process.

As a seller, you probably really liked the auction process. As a buyer. Maybe not so much. I don't know. 

Peter Gudmundsson: [00:13:06] Yes, an auction should produce the best value if it's well run. although I kind of like adding a step before the auction process, which is a preemptive bid. So, especially if there's a strategic buyer, you let them know that they're going to get a shot at this, it better be good because if it's not good, we're going to go out to auction.

So, the obvious benefits of auction are you getting more voices ascribing value. The downside of an auction is, the confidentiality for information you're sharing your information with more people, which may be a competitive threat in the future. And it's also, you might find yourself with someone who is either unscrupulous or not fully informed, and they may bid the best price upfront, but turns out they're not the best buyer because they whittle it down in due diligence and the negotiation that attends due diligence. And that's really painful when that occurs. And then you have to decide whether you walk from the table and then you're back to the auction. And your kind of wounded at that point. Not irreparably in some situations, but you're going back out to the others, the runners up in the auction process to say, hey, the original winner turns out they flaked on us.

Are you still good at that secondary price that was almost as good? They may be, maybe not now. They think they have the power. So, they may say, nah, I'm a little bit lower. You're back to multilateral negotiation, even though you thought the elegance of the auction process would save you.

Jeffrey Feldberg: [00:14:35] And it goes back Peter, to one of the principles that we talk at Deep Wealth. And you're spot on with what you're saying. Firstly, when you're prepared and you've done your diligence, your data room is there, you have your team. Yeah. In place, maybe you sell the business. Maybe you don't, you always have choices.

And whether it was a preemptive bid or whether it's an auction, maybe you don't like either of where it's coming in at. You keep on running the business and if you've done your job, right that's okay. That's a terrific thing. You're going to have a continued growth. Now speaking of growth, let's circle back to what you're saying earlier, because one of the things that we stress with sellers is you can't just get into business or into a new segment to make money for the sake of making money. So, in your case, you had different passions, you were, focused on certain areas that just drove you. 

Have you been in situations where you just jumped into something for the sake of jumping into something or has it always been focused on, you know, I. Like the publishing space. I like the focused markets. I'm just going to stay there or I'm going to go outside that center. 

Peter Gudmundsson: [00:15:35] Yeah. I've been opportunistic as well and sometimes to good effect sometimes not.

Sometimes it was a Crosby, Stills, Nash, and Young, if you can't be with one, you love, love the one you're with. And sometimes you could talk yourself into a deal because it's been so long. Again, sellers should be aware of with buyers, especially younger, smaller, private equity firms very often are eager to buy something because they're investors did not give them money not to buy things.

If you do with thorough research on the potential buyer, that's very valuable information to know. You have to have humility on the way in, through due diligence and also when you come in to step in on day one, one and say, all right, step back, you savage. I went to Harvard business school. I have the answers. That is a recipe for disaster.

Every day come in with a spirit of humility.  Apply what you know, but ask good questions and listen to the people on the ground on the front line. It's always my practice. When I take over a company. Again, whether I buy it or I work for investors who bought it, is to meet with every single employee and spend an hour with each one.

I mean, truck drivers, loading dock people, everybody, because they have the answers. You just have to listen to them, and, and sort it out and prioritize of course, because you can't do everything. But I have a very populist approach to running businesses. 

Steve Wells: [00:16:51] I wonder if you could give our listeners from the buy side, particularly there's all kinds of different buyers and what the buyer is looking for.

For instance, we know you could be a strategic buyer or a financial buyer, or do they have funds they need to invest, or are they going to have to leverage this? Do they need to borrow money or get cash somehow? 

Peter Gudmundsson: [00:17:09] Yeah. There's, there's a lot there to that question, Steve, number one. Yeah. Understanding your buyers. financing sources is important because generally in a letter of intent and there will be a financing contingency or not, it's just like buying a house or selling your house for that matter, where there is a contingency and most private equity firms use some level of debt. Debt sounds like a terrible evil word. No one wants to be in debt on the other hand. And most people buy houses with mortgages. It's essentially, mortgaging the purchase of the business. 

In fact, that's how most things operate. Private equity will almost always have some form of debt. and depending on the reputation of the firm and where they are in their cycle, some of them do over commit. And that's a problem. If you're truly walking away financially, you may not care, emotional, you may still care.

I hope you still care about your employees that you're selling with the business. And, it's almost a stereotype of eighties, excess, or even, all the decades since of, private equity firms, barbarians at the gate and that sort of thing, that overdue debts. And that is a risk.

But yeah, so it's a risk to closing. It's a risk to, your employees, moving forward. but it also goes back to a point which is it’s very important that sellers know what they're looking for. I know it sounds obvious, but it's not just the biggest price sometimes. Sometimes it's a fit that makes sense for your employees. Maybe a $10 million purchase price from a rapacious buyer, are you already disliked from the first meeting is not as good as a $9 million price from a company that you feel is good. That has values that match yours. Remember you don't have to stand in front of your employees and say, Hey, by the way, I remember I told you we were a family and we were conquering the world.

Well, I just sold you. But I feel good about the buyer for these reasons. And you can say that with a straight face, because it's true. That's worth a million dollars for a lot of people, what's the price of sleep well on that new boat that you're going to buy.

Jeffrey Feldberg: [00:19:05] Peter speaking of the process, and again, being on both the buy side and the sell side, you have this unique perspective. For many sellers, they'll mistakenly think the LOI letter of intent, that's the end of the process. You know, here we go. I got the letter of intent. Terrific. I've done off to the races.

 So, what's that fine line in your experience of how do you get an LOI to a reasonable point for you as a seller?

Peter Gudmundsson: [00:19:31] Yeah, a couple of things. One is a technical point or a procedural point. Remember the first one is just the first draft. You can mark it up and send it back. That's perfectly fine. Some people think a letter of intent is like piece of correspondence between friends that it would be rude to mark it up and send it back.

It's not. but it ties back to what's important to you? What are the absolutely non-negotiable key issues, and maybe that's price, maybe that's the, a form of price. Some are so eager for a high price, and multiple that they can brag to their friends about that they're willing to take part of it in the form of an earnout or a delayed payment of some sort. Others are, I'd rather a smaller number, but all up front because I just want cash. On the barrel and I can walk away. Others want certain treatment of their employees guarantees maybe some contracts, key employees, things like that. So, knowing what you really are looking for notionally before it starts, and then once you have in your letter of intent, are these key issues there?

Don't just think that all right.  For my top three vice presidents, I want a one-year severance agreements. don't think you can just slide that in when you're doing the asset purchase agreement or stock purchase agreement, two months from now, get that upfront in the letter of intent. So, there's no confusion later on about that.

Steve Wells: [00:20:45] So, you mentioned earnout, again, there's probably two different perspectives on that from the buyer's perspective and the seller's perspective, what have you seen in your experience with the earn-outs and their success or failure? 

Peter Gudmundsson: [00:20:57] Nobody likes earnouts, it's one place to start. However, they are earnouts are a great tool for bridging a gap. So, I thought I was selling it for $10 million now based on some legitimate due diligence findings, we think it's only worth eight. well, I'll tell you what.

I'll take eight at closing, but the other two will come over two years, million dollars a year based on revenue targets or profit targets. That's very elegant. That sounds great. The challenge is papering it over.

And how do you document that? And then who's really in charge after closing? So, Again, I'm not giving the conspiracy theories. Some sellers think all you'll tank my business on purpose. So, you won't have to pay the earnout. Yes, that could happen, but it's pretty unlikely cause no one wants to tank their business.

If you think about the motivations inside of a private equity firm or strategic buyer, no one wants to be the guy that lost the ABC deal. Even if it means saving a little bit, in fact, what you should hear from the buyer is, look, I hope you get your earnout because if you get your earn-out, the business is doing better than we think at this moment, and we're all winners, you get more money and I'm a hero in my organization because it turns out it was a better deal than we even thought.  So, try to avoid earn-outs if you can, but keep them in your bag, pocket as a way to, bridge the gap, that might emerge and I call it sort of a handful of magic beans.

So, you've got $8 million and a handful of magic beans. Isn't that great. If that ends up being something wonderful. But if it's not, yeah, you're pretty ungrateful. If you think the 8 million wasn't a good start. 

 Jeffrey Feldberg: [00:22:25] Peter, the landscape has changed quite a bit from the buy side. At one point you had primarily strategic buyers and financial buyers. Recently, you've had family offices that have come onto the scene, which are a hybrid of both.

I'm curious from your perspective and for our listeners. Where do you see things right now from a buyer's point of view that as sellers, we should begin to understand and appreciate.

Peter Gudmundsson: [00:22:46] Yeah. One thing to think about is, and you mentioned the different types of buyers to which that I would add search funds. A lot of people haven't heard of search funds. With search funds are what I call micro private equity. It's usually a young man, sometimes a young woman a year or two out of business school.

So, they're 28, 30 years old. They raised half a million dollars from some investors and they go out looking for one business to buy. Generally, they'll have some private equity sounding name to their firm, you know, Apollo Ventures or something. And then you go to their website and the telltale sign is there's one person or maybe two people on the website as managers or the actual executives.

And then there's a big, they name drop a bunch of investors, to make it sound like they're backed by a lot of people, which they are. but, that's another type of private equity, especially for smaller businesses that you should be mindful of. But I guess that the overall conclusion is there's a lot of money out there.

That's the thing that sellers should take heart in. If you're. Business is halfway decent and you can articulate the value, and it is an ATM machine that pumps out cash. There is a buyer up here more than one. and so, yeah, and that's where an advisor, if you choose to use an advisor should have a very clear sense of the different types of buyers out there.

If you have two or 3 million in EBITDA, for example, you've got near infinite potentials to sell. There are a lot of people lined up to buy a business like that. Because they're all looking again to my original metaphor, they're looking for an ATM machine that will spit out cash at some sort of a predictable rate.

I would say it's a sellers’ market in the terms of the number of buyers that are out there.  As COVID itself is concerned, it ties back to your narrative as the seller, just really know how that affects you. It'll be in the numbers, if it has affected you, but if it really hasn't then been clear in your narrative on why it hasn't. for example, my last company that I just sold a couple of months ago was in the pet cremation business and we were not affected by the COVID situation.

You know, the old joke about death and taxes. And so, it would help that our buyer was strategic and said that it was a very short conversation because it was more curiosity. Hey, we haven't been affected. Have you? I'm like, no, we haven't either. And so, we were very lucky.

Again, knowing your story, knowing your facts, making sure it all fits together in a very neat narrative makes you seem more impressive, far more impressive than the ego comments I mentioned at the beginning, which is don't just brag about how important you are, show it in your level of articulation and understanding this business in terms of the buyer can understand.

Steve Wells: [00:25:10] So, what has been your experience, from the timeline, the beginning of when you decide you want to sell, how long would that take to prepare? And then once you've got some buyers, how long does it take to get through that whole due diligence process and close, 

Peter Gudmundsson: [00:25:27] The flippant answer, Steve is twice as long as you think.

And so, I mean, it sounds like, a joke, but it's actually true. it takes always longer than you think. There's always something, after the holidays, whatever holidays it is, we'll do this or we'll do that. Bankers or brokers are optimistic. because they're trying to cram as many deals into a given year as they can.

It's not intentional lying. They're just overly optimistic and they will set that. I've seen 60-day processes, but that's rare. I mean, I would say four to six months, if it's taking a much longer than that, unless there is regulatory complexity or other things, there could be something wrong, make sure you're not being strung along.

It is perfectly okay as a seller to say, Hey, here's my process. I expect this to be done, by, you know, four months, hence or whatever. and then, hold the seller's feet to the fire to say, Hey, you said you were going to hire a consultant to do a market study. where are we on that? Because we got to get that done.

And don't let them string you out, because sometimes the buyer will use that and essentially the seller's leverage diminishes with time. For example, if you haven't told your employees, these things will leak out and now you may have a morale problem as people suspect. Why is the boss in there with the door closed a lot, talking to lawyers and bankers?

There must be something going on. So, time is not your friend as a seller. I think it's important to have that conversation up front. 

Maybe even mention it in the letter of intent. You know, we expect due diligence to be finished by this date on negotiation, by this date and closing on that date, knowing that it'll slip a little bit, but at least you have the, the moral high ground that the expectations were clear.

Steve Wells: [00:27:02] Now you’re a very seasoned buyer and seller, but think about this from maybe the first time to get ready to sell. Do you have your management team assembled or, do you really have  your financial records in place and have you begun a data room? You probably do that very quickly, but how long do you think someone really needs to prepare adequately. 

Peter Gudmundsson: [00:27:22] It depends how much work that needs to be done. I mean, if you're a reasonably well organized already moving to an online data room, I agree those are very key. In fact, sometimes when I take over a company, I start the online data room and day one. I mean, it sounds crazy, but knowing that I'm going to probably be a seller in, three to five years, with that in mind. Figure out the structure of your information, not just tax returns and financial statements, but what do we have all of our contracts in one place?

Do we have all of our, our, our nondisclosure agreements and so on, in one place, do we have a process internally? Whenever somebody signs a customer contract does a copy go into a certain electronic file. That'll save a lot of time down the road, but there's no real, special just don't come to market til you're ready.

Don't be rushed. I mean, occasionally there's going to be, out of left field a buyer that falls in your lap and then you just make it clear, Hey, we're not quite there yet on our records. I appreciate the offer, but why don't you come back six months? And then they may say, well, we can deal with bad records, so let’s keep going.

You know, they're pretty eager at that point. And that's a powerful thing. Keep the records very clear, but also tie the information, structure back to your narrative, what it is that you think you're selling.

And you mentioned also Steve, about, getting your management in place that may be very important. And usually is when you're dealing with financial buyers. If you're dealing with a strategic buyer, that's going to roll in your company and frankly, wipe out your senior management.

It's less important. In fact, it's good for them not to have to deal with that.  It's again, understanding as best you can, what is your buyer's plan? And they may not disclose all of it to you, but you can use your own common sense to say, is this a role in, or is this an expansion?

So, if they're in one State or Province and they're going to another. they're probably going to keep most of your people, but if it's two factories that make the same thing, one can be shut down and a lot of money saved. That's different 

Jeffrey Feldberg: [00:29:14] Peter, some terrific points there. I want to circle back on timing and the ability to make the process go quicker.

At Deep Wealth, one of the things that we can't stress enough for the business owners going through the process, is that in mergers and acquisitions, the currency isn't money. Like most people think, the currency is trust. So, as a seller, your investment banker has to absolutely trust you. And you must absolutely trust your investment banker, or it's not going to work. And it goes the same way from the seller to the buyer. If the trust isn't there on either side, it's just not going to happen. You might as well move on to find another buyer that trusts you or you trust the other buyer. So, I'm wondering from your perspective, again, having been on both sides of the table, as sellers, what can we do to get the trust going quicker than it otherwise would, and to build an absolute trust between the buyer and the seller.

Peter Gudmundsson: [00:30:09] I would say that having your story straight, as I've said earlier is very important. And when I say straight, it means one it's truthful. Two it hangs logically. It makes sense. And then in the context of that narrative, you have the data that proves it, whether that's subjective data like customer surveys and that sort of thing, or hard data like actual financial records and contracts, but also being frank about limitations or weaknesses. I think they're going to figure out the weaknesses anyway, if you're upfront about it, them, but put them in the context of the narrative. It makes sense. Take COVID or pandemics. Most people probably didn't even consider that, in their business risks.

I'm sure for the next 20 years, it'll be a section on every single selling document was, risks revolving around pandemics. But if you can get out ahead of the likely objections, you know, Hey, I know we have a customer concentration risk cause 25% of our revenue is with one customer, but here's why that's not an issue and really explain that, that can go a long way to building that trust. So, like I said, on the buy side earlier that I start with a trust, but verify mindset, the trust only grows if my verification is working both logically and, in the documents, I'm like, Oh, they said this and it's true.

They said, this customer would say that we talked to the customer. They said that. So, these people must be on the up and up. And then likewise, when problems emerge and they always do it at some point during due diligence, they'll say, Hey, we lost this customer, but it's not a big deal because you're probably right. It's probably not a big deal. As the buyer you're far more forgiving because the trust is high. 

Steve Wells: [00:31:41] I don't want the conversation to end, without asking your opinion. We've been asking a lot of questions, but you know, what are the two or three things that you think are really important for the seller to consider, when they're going to make this transaction, I mean, that really stand out for you and maybe you've touched on them, or maybe there's  some new things you'd like to make.

Peter Gudmundsson: [00:32:01] I would say, really know what you seek, what are you trying to get from this? And it’s, usually not something as simple as money, money is important and what form it takes and you know, the timing of the payments and all that. But what do you really seek?  For example, I'll tell you a frustration on the buy side.

 I call it crazy old man syndrome. I've been in very many situations where there is typically a seven something man, who is selling his business and he's not really selling this business. I mean, he's telling his wife that he's selling his business and unfortunately you only learn this later in the process, but he's going through the motions in good faith.

Maybe even in his consciousness, he thinks he's selling the business, but emotionally he's not ready. If I sell this business, I will die is literally the psychology and for a buyer, you can waste a lot of time. At first, the buyer thinks, Oh, this is great. This is a motivated seller. He's in his seventies.

He wants to retire. This is wonderful. But as you get into it, you look for the warning signs, that no, he just never going to let go. Better to cut and move on to the next deal in those circumstances. And then very often what happens, which is tragic is you end up with a widow who is selling a business that's not ready and that’s possibly someone's gain on the buy side. Maybe that resonates with some of the listeners don't be that guy is what I put it. Know what you want and if you embark on selling and you're getting what you want in the deal, I'm not saying to do a deal that's not good for you follow through on it or don't walk down that path in the first place. 

Jeffrey Feldberg: [00:33:27] Peter, you bring up an interesting point and we'll talk about this. And then I'd like to in the remaining few minutes, circle back and talk more about you and what you're doing, you know, in some ways for business owners talking about exiting is like talking about life insurance.

As business owners, we have to think of we're in the business today, but what's that business going to do for us for ourselves, for our family, for the legacy that we want to create and the preparation to be ready.

You hit that spot on. So, back to you, Peter, we've been all over the map of what you've been doing. Buyer, seller, mergers, and acquisitions.

I know the past few years, there's been quite a bit of change going on from 2018 onwards. So, what are you up to know that's been keeping you busy these days?

Peter Gudmundsson: [00:34:07] As I mentioned, I just sold a company called the Pet Loss Center, to a company out of Ontario called, Gateway Services.

And they are the leading provider of pet cremation in North America, a strategic buyer. And so, I've actually been taking some time off. I was horseback riding across Iceland where my family's from.  I'm actually getting ready to do a three-week walking pilgrimage to Rome, Italy, starting in the first day of October. 

After that and even before I go, I'm networking working around trying to find my next either business to buy or, a job as a CEO running a midsize or small business. So, that's really a matter of kissing frogs looking at opportunities. So, I'm back in buyer mode. If any of your listeners have a good business that, might fit, get in touch with me.

Selling is the point of one to many, buying is one to many, in the opposite direction. I've got to meet a lot of people. It's, it's networking with lawyers and accountants and bankers and, private equity people.

Very often it's, taking, crumbs from their table in the sense that something that didn't quite fit for some reason, but they can introduce me into the situation in terms of access to capital, whether it's my own money or, there are plenty of private equity firms that would back someone like me, for the right opportunity.

In fact, they have two limitations. It's quality deals and quality management. and so, if I can find the deal, find the acquisition candidate, and if I flatter myself to think that I'm a good manager, then the two things come together. 

Jeffrey Feldberg: [00:35:30] Congratulations on your recent exit. As you're going to look at companies to either invest in or to buy. What would be, the top three to five factors that are going to have you raise your eyebrows and say, yes, that's the company.

Peter Gudmundsson: [00:35:44] I would say, it's again, back to the heart and head thing. So, on the head side, the analytical side is, something that has at least a half a million, but preferably more. in profitability, solid financials, solid growth opportunities. That's number one, two, you mentioned it earlier the trust factor where there's a good rapport with the seller. I understand the narrative, but intuitively makes sense to me. Then three, an area where I think I can add value, not just myself, but with my own contacts and the teams that I can bring in of leaders I've worked with in the past. Knowing what the path to growth is.

and sometimes, I really hate the term professionalized, because it sounds condescending and that's not what I mean, but a lot of sellers have a. grounded world view that, Hey, I make a million dollars a year in life is good. Why should I push it harder? I would come in a little more or aggressively.

All right, great. You've made a million dollars a year. I'll pay you X for that, but I think I can take it to $3 million a year or $5 million a year and here's my four- or five-year plan to get there. So, if I see that sort of a track record in front of me, that's what will get me very excited as well. 

Jeffrey Feldberg: [00:36:48] Peter, the one question that we ask every guest on the show, and it's a wide-ranging question, is this, it could go to your personal experience, your business experience, or both.

Given where you are right now

 and what got you here. If you could go back to your younger self and tell yourself anything, one, two, or three things, what would that be? 

Peter Gudmundsson: [00:37:09] Trust in the path you're on. So, in my case, back in the nineties, I was doing corporate, acquisitions, for the KKRs media company.

And a lot of my peers who did similar functions, went into the private equity world as investors. I went on the path of operating businesses and I do confess that I've looked over the hedge to see if the grass is greener a lot over the years to think, man would the private equity guys smarter than I was, to be fighting it out in the trenches of operations.

The big advantage of being a private equity person rather than a single manager is your eggs are not all in one basket. I run one company at a time. And so, there's additional risk. If I could travel back and counsel myself say 25 years ago, I would say, have confidence stick with where your skills are, which is a deal-oriented executive. A lot of these pure deal people, they think they can run stuff, but they never really run anything. And they deal in a world of analytical certainty, which actual business management is a part of, but there's also, operating or general management is a game of compromise.

If you're doing one thing, you're not doing another. And so, you have to be comfortable with gray, not ethically, of course, but I mean, in terms of making decisions in a business, you have to emphasize certain things at the cost of something else. Whereas in the elegance of a spreadsheet, private equity people think they can optimize everything and it's very often not the case. So, in other words, a long-winded answer, but I would say, to trust myself in this grounded approach of being an operator who understands the financial side, as opposed to a financial person, pure financial person.

Jeffrey Feldberg: [00:38:46] Words to the wise, Peter. And last question for you. If someone would like to find you what's the best way to reach you.

Peter Gudmundsson: [00:38:53] Probably email is the best or LinkedIn. If you could figure out how to spell my name, which is not easy, but Peter Gudmundsson. Look for me on LinkedIn in Dallas and you'll find me. 

Jeffrey Feldberg: [00:39:14] Terrific. And we'll put all that in the show notes to make it easier for everyone.

Well, Peter, this has been a wealth of information from both the buyer side and the seller side and mergers and acquisitions in general. Thank you so much for taking the time out to be with us today. 

Peter Gudmundsson: [00:39:28] My pleasure. I enjoyed it. 

Steve Wells: [00:39:30] Thank you, Peter. 

Peter Gudmundsson: [00:39:30] My pleasure. 

This podcast is brought to you by the Deep Wealth Experience. In the world of mergers and acquisitions, 90% of deals fail. Of the successful deals, business owners leave millions of dollars on the deal table.

Who are we and how do we know? We're the 9-figure exit guys. We said "no" to a 7-figure offer based on 3-times, EBITDA. Two years later, we said "yes" to a 9-figure offer based on 13-times EBITDA.  In the process we increased the value of our company 10X.

During our liquidity event journey, we created a 9-step preparation process. It's the quality and depth of your preparation that increases your business value.

After our 9-figure exit we committed ourselves to leveling the playing field. The Deep Wealth Experience helps you create a launch plan in 90-days. Our solution is resilient, relentless, and gets results. Enjoy the certainty that you'll capture the maximum value on your liquidity event.
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Former Investment Banker Now Business Owner Peter Gudmundsson On Little Known Secrets To Maximize Your Liquidity Event (#024)