Investment Banking Explained: How Private Equity & Venture Capitalists Sell Companies for a Premium!

Jonathan Brabrand, Jonathan is the managing director at TransAct Capital. It's a boutique investment banking advisory firm that helps founders to sell their businesses for top dollar. Jonathan has done over $750 million in deals of which he wrote all about it in his new book 100 million dollar exit your roadmap to the ultimate payday. So what this means is Jonathan is the guy you call when you're ready to sell your business and right off to the sunset and that shiny new Lambo in your pursuit of Making Billions.

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[THE GUEST]:  Jonathan is a Managing Director with Transact Capital Partners. He is passionate about helping businesses prosper and maximize value to their employees, customers, communities, and owners. Instilled with a spirit of entrepreneurism from a young age, Jonathan draws on his experience as a business owner, trusted strategic advisor, and investment banker to identify and overcome the challenges clients face. Jonathan’s humility and easy

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• 21:17 (Cont.) Investment Banking Explained: How Private Equity & Venture Capitalists Sell Companies for a Premium!

Transcript

Ryan Miller  
Hi, my name is Ryan Miller and for the past 15 years have helped hundreds of people to raise millions of dollars for their funds, and for their startups. If you're serious about raising money, launching your business or taking your life to the next level, in the show will give you the answers so that you too can enjoy your pursuit of making billions, millions. Let's get into it. 

If you've ever wondered how to sell a business, or how to build one the right way that gets you a massive valuation, then you're gonna want to tune into this show where my dear friend Jonathan Brabrand and I talk about investment banking and how to optimize your company's valuation and sale. Let's get into it. 

Hey, welcome to another episode of making billions. I'm your host, Ryan Miller. And today I have my dear friend Jonathan Brabrand, Jonathan is the managing director at TranzAct capital. It's a boutique investment banking advisory firm that helps founders to sell their businesses for top dollar. See, Jonathan has done over $750 million in deals of which he wrote all about it in his new book $100 million dollar exit your roadmap to the ultimate payday. So what this means is Jonathan is the guy you call when you're ready to sell your business and right off to the sunset and that shiny new Lambo. So Jonathan, welcome to the show, man.

Jonathan Brabrand  
Thank you so much for having me, right. I'm loving the show and the community you've built. I'm excited to be here with you.

Ryan Miller  
Yeah, it's awesome. It's been a wonderful community here in the over 100 countries. And we're certainly honored to have someone with your caliber and your background and your wisdom to come on the show and talk about selling a business which is a subset of private equity. But it's really a big part of all businesses. You don't have to be a private equity carnivore to do this, like Jonathan, but he is here to support people and he's agreed to share some of his cheat codes. You don't want hanging out at the end, where we really open it up as long as I'm nice. Maybe I'll say pretty pleased to see if he'll he'll open up on some of the secret sauce on how he's able to get it done. But before we get into that, maybe you can help me understand how did you even become an expert in this area.

Jonathan Brabrand  
So this is what I've done my entire career, Ryan, I got into investment banking right out of college, but had a taste of the m&a blog even before that, and back in high school, I started a small business, had a few employees, a few different crews. And when it came time to go to college, rather than just shut it down and sell off the equipment actually sold the business itself. I had my first m&a deal, really before I knew what that meant, but found a buyer for the overall business sold to one of my employees and was able to take that by my first car actually. So the m&a Bug early as to the entrepreneurial spirit. And I took that into undergrad got a degree in finance and went to work as a first year analyst at a boutique Avenue firm and Richmond cohere swains and company back in the late 90s. We were a crappy, small firm fighting against the much larger firms out there and learn the trade from the best of the business. I ended up moving from couple large firms, a couple smaller firms. But this is all I've done for over 25 years has helped business owners when it comes time to sell.

Ryan Miller  
Wow, that is phenomenal. And so we're 27 years. And I think you mentioned before offline, you've done over $750 million in transactions. Is that right?

Jonathan Brabrand  
Yeah, I think that's a pretty good estimate.

Ryan Miller  
Yeah, it's up over time. Yeah, exactly. So So doing that, no doubt, you definitely learned a few lessons along the way. Some of you, I'm sure you enjoyed others, you probably want to forget about your asthma correct. But you know, with that being said, just looking forward to what we're doing today. So that was a wonderful start. And many of you listening are just starting to mess with anger or aspire to be or maybe not at all. But it's good to know, it's one day you'll be working with them exactly. How does it start in the DNA of some of these people, which I like to call carnivores? All right. So that being said, That's a compliment. By the way, I consider myself in the audience with you. So let's talk about some of the stuff that you're doing today just talking about transact, what it does and where you add value.

Jonathan Brabrand  
Absolutely. So I'm the Managing Director, as you mentioned, at transact capital, where an m&a advisory firm based in Richmond, Virginia, highly transactions for the firm, we deal with clients with between 10 and 75 million in revenue. So we're on the sell side. So we have clients who own their businesses and are looking for an exit, they come to us and we help them through that process. And so we're about 20 of us in the firm, and we do transactions all over the country, and all different industries as well.

Ryan Miller  
Brilliant, you take those 27 years and all that MD experience that you've gotten maybe some of that added those early analyst days to and you've pushed it all together in a book called under million dollar exit your roadmap to the ultimate payday, maybe you can walk me through a little bit on such a cool title of a book and maybe walk us through like kind of person would even want to read the book like this, maybe just tell her that out of it.

Jonathan Brabrand  
Absolutely. So I'd say the primary audience for business owners anywhere in their corporate lifecycle, whether it's early on, they're just starting a business, whether it's later on, they're thinking about actually getting serious about an exit or taking on, you know, an investor. I think it's also pretty helpful, though, or young professionals who are looking to get into investment banking attorneys and other people who interact with investment bankers, because there's a fair bit in there about around sort of the process that investment bankers run for their clients some of the pitfalls that I've seen over my career, but the main gist of it is taking a hard look at large transactions 100 million dollars and above that have been really successful for those sellers, and pulling from them key success factors, things that made those transactions particularly successful, and distilling them down to hopefully very valuable advice that can be applied to business owners of any size business owners that have startup have, you know, five or 10 million in revenue, 50 million revenue, whatever it might be. Can you glean some of these insights from two to $300 billion transactions that I've been involved with? There really aren't in the public sphere. There's these are not things that are reported on it all kind of happens behind closed conference room doors, and so I thought it'd be helpful to share that the book,

Ryan Miller  
I love that. One of the key things for those of you that are listening to conversation with Jonathan and I, a lot of people aren't really sure like when do I contact an investment bank? When is it good time to sell my business? There's a lot of questions when you're looking to retire, do I pass it off to my kids? If that's even a possibility for you? Do you know? Is there a succession plan? Do I sell it? Do I go public? Do it? Like how do I? Where do I even find people that can cut a check for, you know, 10 times EBITDA or two time, whatever your multiples are, there's a lot involved in exiting your company, which I'm not telling you anything you don't know. But I'm speaking to the rest of the world. This can feel like a daunting task. But Jonathan is here screaming from the top of his investment banking mountain, Mount Olympus is to say, You know what, you don't have to do all this alone. There are a lot of companies, the other methods out there is to say, Well, yeah, like investment banks only work with like, you know, these might like SpaceX and buying Twitter. And you know, that while that is true, likely, I don't know who was involved in those deals. But it's not just those deals, there are smaller areas that you can still get that investment banking experience and have someone literally hold your hand through this whole thing, handle it and really be a champion and advocate for you. And that's a big part of the sell side part of investment banking, would you agree?

Jonathan Brabrand  
Absolutely, I would, whether it's me or someone else, like me, it's gonna sound a little self serving, but business owners should not sell their business on their own, there's just too much at risk. It's a one time you know, typically, it's a once in a lifetime type event, most of us would use a realtor to sell our house and businesses are much, much larger, much more valuable and much more complex than a house to try and to go in alone and negotiate particularly with a sophisticated serial acquirer on the side of the table without advice, an advisor on your side of the table is not recommended. And to your point, there are m&a advisors of all kinds for all different sized businesses. And so there's not a situation where there you know, there isn't one that can help you, someone can help you for sure,

Ryan Miller  
nice. So on that full spectrum, whether you're a smaller business all the way up to as big as you want to go, this industry can help you, you just need to know where to contact them. And so with that being said, I'd love to just let's really start chopping it up on some of these cheat codes. There are this is investment banking, making billions exclusive here where we're really going to talk to a very experienced investment banker, nearly three decades of working in this industry and helping people to sell their companies you can walk us through, let's just start with the basic like, how do you even know when the right time is to sell your business? Because I know there's a lot of people out there that are thinking about sales, but they're like, is anyone gonna like this, they're gonna buy Can you maybe can share with us? How do you know when the right time to sell your business is

Jonathan Brabrand  
absolutely a great question. That's one that we get very often. And so to boil it down, I do try to take some pretty complex topics in my world. And in speaking to business owners who haven't been through a business through a sales process before I do try to make them pretty accessible and basic. And so there's three things to look out for when you're thinking about the right time to sell your business. And that is the health of the m&a market itself, the health of your industry, and where how your company is performing. And I'll circle back to those very briefly. So just like you'd want to sell your house in a hot real estate market, you want to sell your business in a hot m&a market. And that is better for worse, the m&a market has been hot, with a few minor exceptions, 2008 2009, maybe like three weeks during the beginning of COVID, where things took a pause. But for a lot of fundamental reasons around the private equity capital has been raised around the pressures on strategic buyers to grow faster than they can organically, there is a ton of capital out there looking for good companies to buy. And so the m&a market, the first three markers is pretty much a check plus most of the time, and you know, interest rate increases, like we've been seeing recently really don't slow that down. And that's the overwhelming demand is more stronger than the interest rate environment. So the second one is the health of your industry. And so you want to be you want to sell your company, when your industry is on an upturn, there's a general feeling that the industry that you're participating in, and the drivers of it at a macro level or over time are going to sort of win out over any one individual performer. And so it's a lot easier to sell an average company in a hot industry than it is to sell a plus superstar company in an out of favor industry. Because buyers are assuming this at some point that the industry dynamics are gonna catch up with that, with that high flyer. And so you can think about, you know, typical cyclical industries like oil and gas is a great example where when oil is high, any business that touches the oil fields and delivers, you know, people to and from the anything that can that can tie into oil and gas, when when that market is hot, is going to get a better multiple, but when oil prices are low, you can't give away an oil and gas related business. And so most of my clients aren't in industries that are that cyclical. But I use that as an example where you want to take a look at your industry and make sure there are no lurking big threats on the horizon, no big environment or legislation changes that are around the corner, something that's going to really disrupt to, you know, on a negative side your industry. And if if the foreseeable future seems positive and strong and and your industry is generally healthy and growing. And that's what you're looking for, from the industry perspective. And so the thing to remember with your company is you want to come off with a period of strength, but you've got to leave something on the table for the for the next buyer, they're buying the future, not the past. So we can't sell businesses for outsize multiples when they've peaked and have started to decline. Like if you've if you've run it out, and now it's starting to plateau or decline, then it's great that you made all that capital and all that cash during those years, but you're not going to get a strong multiple for it because buyers have got to figure out a way to get it back on a growth trajectory. You know, using a baseball analogy, we'd like to sell businesses and like the seventh thing we got to we got to have something left in the tank for the buyer to get excited about to give them give them a reason to want to pay up for that business. And so that's probably the one that that business owners miss the most is it They kind of hold on too long, and the business starts to plateau, they start to lose focus, or maybe they start to slow down in their excitement for the business or their ability to to put in the hours like they did before business starts to suffer a little bit, and then you're kind of selling off your back. But you want to be in a much stronger position with growth ahead of

Ryan Miller  
man, I love that question that I hear a lot, and I'm hoping you can help me out is there's a lot of players you alluded to that early on in this conversation I'd love to unpack that is there's a lot of players and a lot of people who can help entrepreneurs, business owners, or even fund managers to sell companies. Now, on one side, we have investment bankers at many different ranges that they can support you. But you also have this group of business brokers who claim they can help and I'm sure they do. I've never worked with one. But there's a lot of them, I assume they're quite good at what they do as well. What's the difference? And like, how would people kind of gauge? Should I work with an investment banking firm versus a business broker to help me sell a company? Hey, if you can unpack the difference between those two really helper fence? Absolutely. Great question.

Jonathan Brabrand  
So in one sense, they're all the same, they all help business owners sell their company. And that's where we are like an investment banking side. And then there's the business broker world that you mentioned, as well. Business Brokers help sell their clients businesses in a different way than investment bankers do. And they work with a different type of companies, specifically smaller companies. So Business Brokers typically work with businesses that are up to five or 6 million in revenue that typically are looking for an individual buyer. So someone to come in and buy the business and run it to like an individual buyer. And the process by which business workers find buyers with their type of business, these types of businesses is very similar to real estate listing. So they will take an engagement lucidly, they'll write a little summary about it. And then they'll post it on a website anonymously. In terms of the company name, and identifying details, like bizbuysell.com, this is probably one of the largest ones. But there's others as well, Empire Flippers or micro require, and we'll have a listing price that they've worked out with the with their client. And their process, then is to reach out, you know, to push that out to people that they know might be interested to feel inquiries from the internet. And that essentially the first buyer that's can be qualified, that comes close to meeting or exceeding that asking price, you sign them up, and you try to get the deal done. And so it's it's a very passive approach, you put it out there, and you see what what comes at you and you react on a one off basis based on the responses you get from that listing that is inexpensive, relative to investment banking is more an expensive process. And it works very, very well. For businesses in that size range. That is the best way to sell 3 4 5 million in revenue. Business. Investment bankers take a different approach. They work with larger companies, and they take a more proactive approach. So what when I work with a client, there's no listing price, there's no listing on bizbuysell.com, there's nothing out in the public domain, even anonymously, we write a much more in depth offering memorandum because they're our business are typically more complex, they're larger. And then we do research on the types of buyers that might be interested in this business, strategic buyers, financial buyers, product groups that already have a holding in the space and are looking for add ons to it. And we can unpack that a little bit more. But our our team comes up with a finite list, it could be 20 people, it could be 230 People can be to 200 names of companies or investment firms that would be interested in this particular client. Once the client is signed off on the book that we wrote on their behalf. And that list of buyers, we practically call each one of them and only them. So there's nothing that's out in the in the world beyond us one on one reaching out to each of those groups. And we simply run an auction process where those that are interested sign a nondisclosure agreement, they get the book that we've written into client approved, they all get the exact same version of that, at a certain date, they have to put in first round bits, we present those to the client, they decide which of the first round bits, they'd like to move on to the next level, which is in person meeting with the management team. And then those all happen within a very small period of time, they get access to additional information, but again, all the same information. And then ultimately, each of those finalists puts in a final bid, we negotiate amongst them on behalf of our client, we pick one and we help them close the deal. So the difference is you've got a big funnel process that we're running all based on the timeline based on everyone having the same amount of information, having the deadline set the same time so that at each point, our client is, is acting with as much feedback from the market as they possibly can. And you can really maximize the value that way. All that work, though, costs a little bit more from an advisory perspective than the business broker approach. But it makes sense for these larger transactions. And so they're both perfectly suited for the types of clients that we and they work with.

Ryan Miller  
I love that. So thank you for walking people through. So the difference between a business broker typically where the line is, according to what Jonathan sorry, Matt is saying, if your 5 million ish range or less probably Business Brokers fine. It's very light touch as far as the services you receive, but it gets the main thing done, which is selling your company, it likely couldn't get the main thing. That's where you guys converge, where you guys diverge is everything else almost. And so what are you diverge? You're saying, well, it might be a little bit more. But if you're above the 5 million for sure, then maybe investment banking might be a better thing for you. as your business grows, your revenue grows, things are a little bit more complex, and you're going to need some pros like Jonathan and his team to be able to get it done. I love that. What else have you found when people are seeking to sell their company? What other piece of advice maybe a second piece of advice that you can share with people understanding say like, how do you even arrive? So some people say your company is selling three times revenue or five times EBITDA? All of these different what we call valuation multiples can you speak on Anatomy. Walk us through just on a high level, how are companies even valued?

Jonathan Brabrand  
Yeah, you're right, you're hitting on the these are the two questions that I get asked most often when's the right time to sell? We just covered it. And what's my company worth? Oh, there you go. Literally, that's that's what everyone wants to know all the time. So I'm glad we're tackling this. So the issue or the challenge is that private companies are difficult to value. And it's very subjective. There's an art and a science to it. Well, the companies are easy like you every day, every minute you can you know exactly what Apple was worth, you can look at what their stock prices, you can see how much debt they have, how many shares outstanding, the market is valuing that company daily, private companies is not does not have that type of transparency by design. And it doesn't have that kind of liquid market to create a daily precise value. And so that's where people like myself, and then there actually are, we do to transact, but they're also business valuation firms that specialize only in the business valuation side of it, and not the actual m&a process that I described, that can be helpful for estate planning or divorces, or partner buy ins or buyouts, where you need a precise dollar value for your business to affect some kind of transaction that you might be working on internally. So private company valuations, art and science, the science part of it was start there first. So that's, that's probably the most familiar to your listeners. So they're essentially the way I was taught, I think it's still true today, there's four main valuation models that buyers use to value private companies. And then there's a like an asterick. Fifth one that I'll mention, but the main four are comparison to public companies. So this is looking at what public companies that are in your in your industry or related to your business, what they're trading for revenue, multiple EBITDA, multiple other multiples and gleaning from that through a few adjustments. What business in your sector is trading for. The second one is comparison to previous transactions. So this is like looking at comps for a real estate transaction, what have houses like your sold for and your neighborhood, you know, in the last couple of years, or six to nine months, we do the same thing with businesses. So we can look at private company data that where they have transacted, they've sold the business, we have access to another investment banks have access to Facebook and other places that track what financial information you can glean, it's not perfectly transparent, but they track some key statistics that allow us to get a sense for what buyers are paying for private businesses in your space. That's only as relevant as how similar those targets are to your business. So we help maybe make some adjustments for size or other things. And then there's two more the discounted cash flow model, which we all may have learned in finance class and undergrad, it's just looking at a string of cash flows into the future that your business represents discount on the discounting the back at a risk adjusted rate based on how risky that set of cash flows is needed to be by the buyer. And that can give you a value of that essentially stream of cash flows. And then the last one is a leveraged buyout model, which uses the same projections from the DCF model, but looks at it in a different way, it looks at how much debt and equity could a private equity group put on a business to acquire it. And then assuming that that set of projections be able to repay the debt and exit the business to give them a return that they're targeting. And so you basically get back into if you know what the return that they're targeting, you've got a set set of projections, you can back into how much equity they can put in to make that all work that plus the debt that the market would put on that business at that time that it can sustain gives you the stack to make an enterprise value.

Ryan Miller  
I love that. So the fourth thing is on the science is comps or sometimes we call them comparables of public companies. How did the ones that are as close to your business? How are they trading on the public markets given you a private deal, it may not be quite one to one also the differences in your businesses. Were just saying, Hey, we gotta get a sense of the value of this company. The whole context of this part is how do you value a business? Now you mentioned I just want to touch on this because you mentioned it you with Paso I think our audience really liked this. So you mentioned one of the areas that you can go for information on either figuring out what recent transactions are were valued at as well as the comps those first two on the science mentioned PitchBook, which I love. I love the pitch book is great pre Quinn is another one that people can use sometimes where else can people find that type of information,

Jonathan Brabrand  
that's a good topic to start to develop relationships with an investment bank on a informal basis and start to get some feedback from them as you start thinking about, you know, kind of early pre interviewing of an advisor that you might use down the road. But on your own, you know, looking at public companies that have been acquisitive in your space, probably the easiest, most accessible way accessible way is to look at their investor presentations, which you can find on their websites. And it'll talk about if they've been acquisitive, go to their last annual investor presentation and skip to the sections usually PowerPoint easy, it's meant to be very easily digestible. There's a section on acquisitions and read about what acquisitions they made and why they made them. And they may talk about some general valuation metrics that they used in that business a more arcane way. But for those who are brave enough to do it, as you can delve into SEC filings and public companies have to file a number of reports with the SEC. The most common are probably the 10k, the annual report that they have to do every year and the 10 Q, which is their quarterly much shorter version, but an update on quarterly. Beyond that, though, there's one called the 8k dash k, that's the one that we look for, they typically need to file an 8k when they when something important from a transaction or business related standpoint happens in between Q, a large acquisition of public company would make they would file an 8k and you can download that and read all about the benefits of it the risk factors that they saw and financials of the target and if it's large enough how much they pay for it. So investor presentations, the easier kind of way to do it delving into SEC filings looking for eight KS is the other way,

Ryan Miller  
man, I love that. So you mentioned there's an art and a science to valuing your business when you're getting ready to sell, we went through, there's LBO models and whether you do it on your own, if that's you, or you hire Jonathan to do it, then there's also you got to know like, what's the market appetite? How's it tolerating this business? How much value does the market put on it because we all believe our company is worth an infinite amount. But unfortunately, we got to work with the market and let them dictate the price, at least to a certain degree. So that's great and all and that's the science that is literally how you dive in, you model this thing out, you get it valued. But what about the art, I'd love for you to just to touch a little bit on the art that you mentioned on valuing your company for a sale?

Jonathan Brabrand  
Absolutely. So I think that's really where good investment bankers serve their clients is that is the art side of it. So that when I talk about art, I talk about how your advisor positions the business, how it describes the business how strong or compelling of an argument it can make on your behalf to each type of buyer around the fit that exists between your business, there's the really the one on one personalized selling that we do on behalf of our client that changes a little bit differently depending on the audience, the buyer audience that we have, for any given time, it's things like how important is your business to that acquirers growth strategy? Are they building a puzzle for which you are a missing piece. And if you're one of the last missing pieces of the puzzle they're trying to build from a corporate strategy standpoint, that can be really attractive for you and make your business very valuable, because they're trying to do something much larger, and they're willing to overpay for that last linchpin that makes it all work. So that's an exceptional position to be in how impactful would the eventual announcement of this acquisition be for that particular company's stakeholders, so are their shareholders looking for an acquisition and they haven't had one for a while they need to make one is it you know, geography a client base, the technology that they've been talking about wanting to get into that now they can finally check the box that they accomplish that by acquiring your business, these are all some of the special things that drive the art side. So the best way to think about it in wrapping up is if we were to run a broad processing call, you know, 100 different buyers, and get first round bids from all of them, and lay them out based on value, you'd have a bell curve, and you'd have at the smaller end value buyers kind of tire kickers that are hoping to get a good deal, those are dismissed, immediately, you have the meat of the bell curve that like where most of the quantity of buyers come back in. Those are all the people who are running those same four models I've talked about with largely the same assumptions, seeing the same public companies and coming up with basically the same market based valuation for your business, because that's sort of like the standard, this is what those models spit out. But then on the other end of the bell curve, you have spiked bidders, and they're the the groups that you really want to try to uncover and cater your message to and attract them into your process. Because they know those same four business valuation models, they've run them as well, but they have special, unique reasons why they're willing to pay more than that. And so our processes are designed to find those five bids, and pull them into the fold and help negotiate them off of each other to get sort of an outsize valuation and really go beyond the four business valuation models that everybody can run.

Ryan Miller  
Yeah, man, that that is phenomenal, is really the science is just modeling it out and saying what's going on? What do we think it's worth and the art is really, as Jonathan alluded to, is just how well are you or the investment bank or business or whoever it is that's really advocating to sell this business? How are they positioning the business, so you can have buyers that are positioned, who will love the business just because it's great cash flowing business, and that the other ones are saying, actually, there's a product here that we could use with our product. And so there could be a strategic alliance as well. They're not direct competitors to you, but they are a strategic buyer. So you just have cash interested buyers, right, which let's be honest, that's probably most, but then everyone's gonna, you're gonna have this category of people that will say, it just makes sense with our existing product ladder or product stack, acquiring this business and the revenues, but also the IP and all this stuff that makes sense for us. In fact, you might be able to unlock a premium, I don't know, maybe call me crazy, not everybody values at the same way. So someone who sees that your component will 10x their components, if they own yours, then yeah, the price they're willing to pay might be higher from a strategic investor. But the point is, is that working with a professional, they're able to position your company through the art of selling your business are able to position it so that even if you get evaluations say it's a billion dollars, you want unicorn, everyone's excited about this valuation, we got to pull it off, and somebody might be willing to pay $1.5B, because it's just a strategic fit. Other people will pay just under a billion because it's like, yeah, I kind of like it. You know, whatever it is, there's a lot of churn and a lot of things that you need to go through who better to have an investment bank on your side to help you in selling it. Now I mentioned we're going to talk maybe about three things. So I'm hoping you've got a third thing in the chamber, a third cheat code we can talk about, we talked about valuing the company selling the company, and knowing when to sell the company. But there's another thing. So that's all that's a lot of that is external. What about the internal factors specifically, when you're selling because when I was the CFO, we were literally going through this, we were selling the company and working with investment bank, and it was a phenomenal experience. So I highly recommend it for anybody. But this is the stuff that I focus on. How do the people who are operating the business now how do they increase the value? So they optimize their exit price? What are some of the things that you've seen to help companies to get ready to sell by increasing their value?

Jonathan Brabrand  
Absolutely. So that's, that's the goal of most of my clients is to try to maximize value and those that are smart enough to get in touch with me early on when they're still several years before they want to exit. They have a window there where they can really have a significant impact on increasing the value of their business before they come back to me and we go to go to market with it and You'd think probably the simplest way to think about it is that DCF model a business, even for people that are even for buyers that are strategic in nature as you represented, as you mentioned, it's still essentially a stream of cash flows discounted back at some type of risk adjusted rate. Now, synergies play into that with a strategic buyer, so their cash flow for the same business could be higher because of the value that what they bring to the table. And what your business brings to the table creates one plus one equals three, but it's still a stream of cash flows, it could be only what you've projected or additional synergies that the buyer brings to the table, the main way that most clients think about increasing the value of their business, it's just making the cash flow streams bigger. So that's an easy one, the bigger we get the more valuable companies and not only is the earnings, the size of the earnings itself directly related irrelevant to valuation, larger businesses typically get slightly higher multiples, because they're seen as safer. So a 10 million than EBIT, da business is going to get a higher multiple than a 5 million EBIT da business, in addition to the fact that you got twice as much earnings, if that makes sense. What I think clients often overlook is the second piece is that risk adjusted rate, the thing that I try to work with clients on is to understand that if they can reduce perceived risk in their business that a buyer would see that buyer will put a lower risk adjusted discount rate on that stream of same stream of cash flows, and the business will be worth more two sets of cash flow one very risky, one very safe, the more of the safer, one will be valued higher. And so what are risks? What are perceived risks that buyers may see in your business, and how can you address them. So this is things like the easiest one is recurring revenue. So people talk about recurring revenue has been very valuable, it's because it's see is perceived as being less risky, because you've got a recurring basis subscribers, in many cases, or other types of recurring revenue, where you don't have to start from scratch each month, each quarter each year looking for new project based revenue, you've got a built in engine that is driving recurring revenue. So that's where recurring revenue businesses because they're less risky, have a higher multiple didn't even hear about revenue multiples for software related businesses, SAS businesses that have high degrees of recurring revenue, even for businesses that don't have that though other areas of risk involved diversification of customers. So customer concentration is a negative thing, and is seen as risky, from a buyer's perspective, even if the customer that you know has been there for 20 years will be there for the next 20 years, you think they're great, if they're like half of your revenue, it's gonna be tough for a buyer to get comfortable with that, because there's a chance that when they walk out the door, half of your business goes with it, if that were to ever happen to diversification of customers, same with suppliers, making sure that you've got a diversified supplier base, a lot of our customers will have clients will have a primary and a secondary supplier that they work, you know, maybe 60% from one 4% up on the other. So there's always a backup supplier on key materials that are maybe more difficult or have longer lead times in the market depth of leadership team. So this is one that business owners sometimes struggle with where so much of the business still rests on the entrepreneur shoulders, and they don't have a team that has responsibility right out across multiple individuals. And that can be seen as risky for a buyer to buy a business and put a bunch of money into the pockets of the person who still, you know, does a lot with the business and one day may say, I've got it, I've got all the money I need. I'm gonna walk out the door. And what does that buyer left with, you know, not as much. And so working with your leadership team, developing a good leadership team and having a succession plan in place for business owners who want to exit is vital to getting a good multiple. So you know, having a we talked about industry dynamics, having earlier having positive interview dynamics, having a compelling value proposition and being able to articulate that to buyers of your business, why do customers love you and keep coming back to you why they liked the product or service you offer? Those are all types of things, the more you can make the business feel like it not dependent on any person, customer product, individual product, all these areas of diversification around all these different angles. It'll be seen as less risky, more valuable.

Ryan Miller  
I love that as we wrap things up. Is there any final closing remarks like how people can reach out to you anything at all that you'd like to mention to our fans?

Jonathan Brabrand  
Absolutely. So I'm on LinkedIn, Jonathan Bray brand you can search for me there transit capital is our firm I'm on the website there. The book you were kind enough to mention is that on Amazon and Barnes and Noble, but $100 million exit available in paperback and Kindle wherever you are in the world.

Ryan Miller  
Perfect. So as we wrap things up, just to synthesize just know when the right time to sell your businesses. The second thing that Jonathan left this cheat code is just learned the art and science of how your company is valued. And then finally, we talked about where we unpack is learn how to increase the value of your company before the sale, you do these things, and you too will be well on your way in your pursuit of making billions.

Wow, what a show. I hope you enjoyed this episode as much as I did. Now, if you haven't done so already, be sure to leave a comment and review on new ideas and guests you want me to bring on for future episodes. Plus, why don you head over to YouTube and see extra takes awhile, you get to know our guests even better. And make sure to come back for our next episode where we dive even deeper into the people the process and the perspectives of both investors and founders. Until then, my friends stay hungry. Focus on your goals and keep grinding towards your dream of making billions