Are you planning to sell your small or big business? If yes, finding the right people to help you out in this tedious process is essential. Today, Bob Roark is joined by Jude David, a Senior Broker with Raincatcher, to talk about how Jude helped the company and what they’re doing to help investors. Having seen deals that didn’t work, Jude ensures their clients that they can find quality buyers and shares the key ingredients to hiring a good brokerage firm and getting the right buyers. He also talks about the questions that business owners should ask before considering anyone to help them sell their company. Know more about what makes a good and bad business broker as Jude gives an analogy between brokerage and brain surgery.

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Hiring A Good Brokerage Firm With Jude David

We will be speaking with Jude David. He is out of Louisiana. He a Senior Broker with Raincatcher. It is a national M&A brokerage firm based in Denver, although he is in their Lafayette, Louisiana office. As a Louisiana native turned corporate attorney and investment banker, he is a passionate devotee professionally to corporate development through organic growth, business consulting, strategic planning, merger & acquisition negotiation acquisition, integration and other partnership or venture structures. Although Raincatcher is designed to operate in a team environment, his primary role is negotiating deals to closing in the back half of the transaction. Jude, welcome to the show. Thanks for having me. I'm excited to be here. Bring us up to speed. How did you get to where are you now as far as your background and your journey? I was born and raised in South Louisiana, in a town called Lafayette. It's about 120,000 people. It is big for Louisiana, but small by big-city standards. It is a good Catholic community. I learned to love God and family first and always work hard, but work to live and not live to work. That's good community values that we have. I find some of the most successful people in life or some of the hardest workers I know, but they always find ways to put family first. Be good role models to their kids and that allows them to have the energy and the drive to be good at what they do. I've always tried to emulate that. I practiced merger and acquisition law for a long time after graduating from MBA school and law school. I was very fortunate. I got in with some great people and had tremendous success. The right people, right place, right time and a whole lot of hard work added up to a ton of success in very early along in my career. I was put in a position where I had to swim or else I was going to sink. You got thrown in the deep end early and there's nothing like experience when it comes to mergers and acquisitions. I've been very fortunate to have clients with tremendous character and talent to help form me along the way. They probably put way too much confidence in me early along and it allowed me to succeed. By happenstance over the years, I've represented tremendously successful companies and business owners and celebrities. Over my time of being a lawyer, my firm represented Nick Saban. I was his primary point of contact. My colleague, Hank, handled all of his stuff and I don't think you wanted me too close to that situation. Other ones I've represented were Jack Nicklaus and his family and some other sports celebrities as well. I represented J. Howard Marshall’s family estate. He was a billionaire oil tycoon. He married Anna Nicole Smith. His family owned 20% of Koch Industries. They are one of the wealthiest families in the world. By happenstance, a lot of these things came to me and I got tremendous experience early along. Even more than that, I got to represent private equity groups, politicians, large companies, big-time developers and having all of that exposure allowed me to have some success. My favorite was representing humble and small business owners who are trying to grow their companies in the right way. They put the confidence in the people around them and anything else is gravy on top of that. How did I get here? In 2016, I got into a car accident. I got a neck and arm injury that left me feeling like I wasn't able to do desk work day after day as I did before. Whenever you practice corporate law, it means on a very slow day, I might sit at my desk for eight hours. On the busy days, it's a lot more than that. Over the years, I'd had several private equity groups and independent companies asked me to leave practicing law to go work with them. I'd never given any credence to that because I didn't have any reason to. After I had my injury and surgery trying to repair it, I decided that I probably needed to make a switch and started putting some feelers out. How did you and Raincatcher run across each other? I was very fortunate that Marla and Jason found me. I'd put out some feelers mostly on LinkedIn. I considered a few private equity group positions, but most of those would have required a move. We don't have much in the way of private equity in South Louisiana. The closest would be Baton Rouge and I had an offer there as well as New Orleans, but we love Lafayette. We want to stay here. I contemplated starting my own private equity group or even a brokerage, which is probably what I would've done if I hadn't connected with Marla and Jason. Fortunately, they saw what I was looking for and they reached out to me. It was a tremendous happenstance for me that I got to come in and be a part of their team. Whenever I talk to them at first, Raincatcher almost seemed like a startup at that point. I don't mean that it was brand new, but it had a different vision before. It was a boutique business brokerage. Marla is our CEO. She purchased the company from the founder not long before I came on board. She had a different vision. She brought Jason on as well as an owner. The two of them together wanted a much larger scale, national business brokerage, much less of a boutique than it had been. They also saw the vision for adding a mid-market side as well to get into a little bit bigger deal. One of the things I didn't like is that small business brokerage has a very well-earned reputation that's worse than a used car salesman. That's coming from a lawyer. I was concerned about leaving the practice of law because my reputation would get worse. [bctt tweet="There's nothing like experience when it comes to mergers and acquisitions. " via="no"] Marla and Jason had a tremendous vision for how to do it better. They saw that investment bankers and mid-market advisors have good practices and procedures in place on how to treat clients well and how to have a very successful business that is aimed at closing companies with the right buyers at the right price. They wanted to bring those same processes and procedures into small business brokerage. Given all of my experience with investment bankers in that M&A advisory space, it seemed like a great fit that I could come in and both help implement those procedures and build out the M&A vision for Raincatcher. The other thing I love is that Marla and Jason wanted to do this right. They wanted to make sure that they took about six months off from even bringing in new leads for sales so they could build out those processes and procedures. You have to have something built so that as soon as it caught fire and we'd build out the team, then we can scale it and grow it into a large-scale national broker. For me, it allows me to use my entrepreneurial mind to grow a subset of the business in the merger and acquisition advisory space while having a perfect team to support me from the business brokerage side space as well. It is a perfect marriage for us. It gives me everything that I need and all the support that I need. Hopefully, I'm a good fit for them as well. The thing that struck me and I've had coffee with Marla a couple of times. Her focus is on the business owners and she wants to make sure that they are properly taken care of. That’s been a repetitive refrain every time I talk to her and the same thing with Jason. I think about that as a core culture you bring to the table. As you look across your previous experiences and exposure to all of these other entities and individuals, athletes and so on. You always look at that it is not the age, it’s the mileage. You sound like you got a lot of mileage early on. What do you think your key takeaways and benefits to Raincatcher of all the mileage you have before? There is nothing like experience in this game. If you've seen a lot of deals and you've seen all the games that people play, the gimmicks and everything else, it gives you a lot of experience to draw on. I don't think there are any new situations that will ever arise in your career in merger and acquisition work. It's only recycled situations that have happened before, either to you or to somebody else. Being able to draw on a lot of that experience I think helps. A lot of the people on the team will come and talk to me about what do you think about this situation or that one. Instead of having to wing it, a lot of times I can tell an anecdote and they can promptly start snoring. They realize and their eyes are glazing over because I'm telling another war story, but those war stories have a lot of impact. Whenever you can draw on them, it helps to be able to paint a picture. As a business owner, I got some offers. One is more cash, one is an earnout and there is this discussion going back and forth. For you, having seen more than one of both of those. You can talk to them at length, “Here are the pros and cons of either approach I’m thinking.” Earnouts are second nature for me. I've done so many of them over the years and every type of deal structure fits a particular need. I never think that we should allow buyers to dictate what the deal terms are going to be. A lot of brokers do it that way. Buyers will come to them with a listing that they saw and they'll dictate what they think ought to be a reasonable deal. What I've found as long as I've been doing this is that the seller's broker is in the position of dictating to the buyer what the deal terms ought to be. I never saw that aspect of the deal before I started this. If we can't find a deal structure that makes sense because the price is off, earnout or equity can be a great discussion to have, but there are other reasons as well that you might look at the various deal structures. For instance, if somebody is excited about the buyer and they think that there's a lot of opportunity for a second exit, that's when I want to make sure that my client is going to stay on with the business and is going to have equity rolling forward in the company. I can't tell you and I can't emphasize enough how many times I've seen this. A buyer will come along and talk constantly about how the seller's an idiot. This seller built a business and it's an exciting business that the buyer now wants to buy. The seller is an idiot because they've been doing 8 to 10 things the wrong way for many years. The buyers, the first one to tell you how they're going to change everything and it's going to be a good situation after closing. You'd expect the seller doesn't like that. They hear from a buyer, “You're an idiot and you've been doing things the wrong way.” The seller's sitting back going, “This guy's going to figure out how hard it is as soon as he closes the transaction.” I can help a seller in that circumstance, either find a new buyer or to figure out a deal structure that makes sense. Regardless of whether this guy is a jerk, you can get the deal closed and then not have to deal with them anymore. In that type of situation, I'm going to try to make sure that the seller and the buyer have as little contact as possible. After closing it, there's an all-cash deal and, knowing how the deal structures work and being able to bend the deal. Those dynamics have helped us have some success. You have the benefit of seeing deals that didn’t work. I’ve got to tell you, over the years, I've done hundreds of these deals. I've got to say that the ones that didn't work, I can count on one hand. The ones that did work and it turns out the seller was unsatisfied after closing is really small. You mentioned The Value Builder. We do work with them and they said 75% of sellers tend to be unsatisfied after closing with the deal that they did and that hasn't been my experience at all over the years. [caption id="attachment_5054" align="aligncenter" width="600"] Hiring A Brokerage Firm: Buyers should be allowed to dictate what the deal terms are going to be.[/caption]   I heard those statistics as well. As you think about that dissatisfaction number, I wonder in your process, what are the key ingredients are that when you get the right buyer for the seller that it doesn’t occur as frequently for your client? What do you think that is? Structuring the deal to fit the relationship between the buyer and sellers is probably the most important item. Making sure that the seller is set up for success, but we have a lot of tools at Raincatcher that we use to make sure that there's no dissatisfaction after a deal closes. One of those is going to be making sure that we have the right financial advisor to help build out a vision for post-closing. What are you going to do with the money? What are you going to do with your time? Both of those are very valuable and a lot of people don't know the answer to that question. A big part of it as well as making sure that they're ready to sell before they go to market, that they're not trying to force a sale. Also, making sure that they're comfortable with what their life is going to be like after they get to a closing. Not being a business owner anymore, not being the person that gets reported to at the company. For some people, that's okay and for some people, it's not. That's not to say if it's not okay, you can still sell your company, but you might do it more like a partnership. Bring on a 60% owner and grow the thing together. It helps you take some chips off the table. It helps you up to your chances of growth and put a little liquidity into the company to help you grow the company, but also it allows you to slow down a little bit in life and see what the next stage brings. I think about the things that you’ve been talking about. I think about that business owner that has a pride of ownership. He has built this company. He thought, “I’ve done this all by myself. I am going to sell this and I don’t need a brokerage firm or an advisor to come and help me structure the business for sale.” You’re going to say, “There will be fees that you will be charged.” What are your thoughts around the business owner that is trying to do it themselves? That may be the only time they ever sold a business in their life. I can't even begin to tell you how wrong that is. It's a misconception that we see all the time. People feel that they're bringing in a broker to help them find a few leads. Those buyer leads will ultimately be somebody that they sell the company to. There is no trouble at all. They find these buyer leads, the company sells a month or two months later. That's something that we have to tell every client whenever they come in the door or a potential client. It's a very long process. It's a very intense process. If you're two or three years in advance of closing, you have a lot of runways to start exit planning now, start getting your company in shape to sell. That way it can hopefully speed up the process whenever you get there. Most people don't have that time. They've decided to hire a broker at the very last second. That's only after trying to do it themselves and figuring out that this is something way too complex for me to do on my own. They only began to realize their broker's value once they get towards the very end of this process and start realizing how complex it is. It's so much more than finding a few buyer leads and then connecting and finding the right personality fit. The things that you don't know in this game are what's going to kill you. From my lawyer days, I’ve seen clients all the time who come to me with a signed letter of intent in hand. They found a buyer on their own. They got completely taken advantage of and a signed letter of intent is in hand and you run into the risk of how do we undo this stuff without killing the relationship? Do we start over completely? Instead, do we try to renegotiate with this buyer and lose a little integrity in the process because we already have something in hand. I know it's not a binding agreement to purchase, but you've already come to an agreement on what the key deal terms would be. What you don't know is what kills you in the process. They try to hire a broker. I've had clients tell me that before, that it's hard to hire a broker. There's no definitive source out there that I can go to. I can't get on Yelp and figure out who's the best broker. It's not like you're trying to pick a restaurant for dinner. You're trying to find something where there's very little information. With your experience and Marla’s experience, you have 100 businesses behind you. I’m thinking about the analogy for surgery. You go, “I’ve got a brain tumor,” and they go, “Go to this doctor, he has done it twice or you can go to this doctor who has done it more than 100 times.” I find it curious that people don’t necessarily look at their business the same way. It's a great analogy for business brokerage. It's an even greater analogy for merger and acquisition lawyers. I use that one a lot. If somebody has a long-standing relationship with their corporate counsel, over time and that person has helped them with licensing in various states. They've helped them with lawsuits, defending frivolous matters and leases and whatever came up over the years, that was the lawyer they went to. They developed a great relationship. It's a lot like their general practitioner doctor that they go to once a year for a physical. They feel very comfortable with that person. You better believe if you need lifesaving brain surgery or open-heart surgery, you're going to find a specialist surgeon who does it every single day. What's amazing is with their lawyers, whenever they need a highly sophisticated merger and acquisition lawyer to navigate a very complex process that isn't going to have one or two contracts, it's going to have maybe 100 or 200 contracts that need to be negotiated. It's not going to have three or four items of diligence. It's going to have 1,000 items of diligence. They need somebody who's navigated this system every single day of their working careers. Instead, they fall back to that same general practitioner they've always gone to. You'd expect a lot of small corporate lawyers very frequently will say, “I've done contracts before. I can help you with that.” It's what they don't know that kills them. I can't tell you how many times that we've gotten two or three months into the process before the corporate counsel say, “I cry, uncle. I don't know how to do this. I don't know what I'm doing. I need help.” It's a lot harder at that point in the...