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Business Leaders Podcast - Bob Roark 24th September 2020
Business Acquisition Criteria: From The Buyer’s Perspective With Nick Seger
00:00:00 00:45:10

Business Acquisition Criteria: From The Buyer’s Perspective With Nick Seger

BLP Nick | Business Acquisition Criteria

 

What are potential buyers looking for in a business? While there is no such thing as perfect acquisition criteria, different buyers do have their preferences in terms of what industry the company is in, what its corporate structure and company culture looks like, and what the reason for the owner’s exit is. Taking a break from the usual format, Bob Roark interviews someone who is looking to acquire a business. Nick Seger is the president of Parkland Field Management, a search fund that intends to become the succession plan for a business inColorado or the surrounding states. Coming from a family business background, Nick has deep respect for business and is not looking for a quick flip as private equities tend to do. He plans to hold on to the business to see it grow and provide long-term value to its employees, customers, shareholders and community. What is his criteria for acquisition? What does a handoff transition period look like? What does he think business owners have to do to make their company attractive to search funds if they’re planning to sell? Nick shares all of these in this episode.

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Business Acquisition Criteria: From The Buyer’s Perspective With Nick Seger

We have Nick Seger. He's the President of Parkland Field Management. Nick is a recent arrival to Denver. He's in search of a company to acquire. This show is a little different and many times we talk to business owners that have an existing business. They may be looking to transition their business or they may be looking at some point to sell. In this case, what we have is a potential buyer of a business. We're going to explore some of Nick's thoughts and also the view from the buyer's eyes when you're looking at a business. Nick, thank you for taking the time to be on the show.

Thanks for having me, Bob.

Nick, tell me a little bit about your business and a little bit backstory on you.

I moved out to Denver over the 4th of July 2020 weekend. My significant other and I were living in Chicago before this. We were trying to figure out where we wanted to start that next phase of our lives and I had gone out and raised a little bit of money from some investors, which I'm sure we'll touch on here in a little bit. She was graduating from a Master's program and we figured Denver was a great place. She's from San Diego, I'm from Indiana and we picked up and drove the U-Haul out here and brought our puppy out. I've been searching for a company out here in Colorado. I appreciate you giving me some space here to talk about it.

For you, people go, “You raised some money from some investors but you didn't just start.” You come from a family business background.

I do. I grew up back in Indiana. My family still runs a third-generation agriculture business, turkeys and chickens. My grandfather started the business decades ago. My father has seven brothers, grew up in a large German Catholic family and large agriculture community back in Indiana. My dad and his five living brothers still run that business. People ask me all the time, “Why did I do this?” I tell them all the time that I had never seen the path to success being anything other than being a business owner.

Where I grew up, it was the largest town within 60, 70 miles. I tell people the nearest Starbucks was 60 miles away. There were no consultants, bankers, lawyers, accountants or tech companies. That didn't exist in my hometown. What I saw as success in business was being a small business owner. That's always what I grew up wanting to do. I had always thought I'd go back and help run my family's business one day but they have strict rules. You have to go out and prove yourself in the world before and so I did.

I went out and worked in finance and sales marketing for ten years. I was at Wells Fargo for a number of years and towards the latter half of my career was in more of a business development sales type role. I had a few offers to go back to the family business in the past several years or so. Some of them I turned down because I was still young and not ready to move back to a small farm town in Indiana. I was getting my Master's degree and had started dating my significant other who I live with here in Denver. I got another offer to go back and she wasn't willing to move back to the farm town.

[bctt tweet="Business acquisition starts with finding the right type of seller." username=""]

For many of the business owners, they go, “People don't get what we do.” I always chuckle when somebody says, “I'd like to own my own business.” I said, “I don't know that you know what you're asking for.” For you, the folks that you're potentially looking at, they may well have the same or similar backgrounds. They grew up in business or they've cut their teeth on their own business for years. The difference for you where you're different from some of the other folks is not only have you seen it and grown up in a family business, but you also worked in the industry that served small businesses. You've also worked on the side of the acquisition side of the house. That's something I wanted to dive into because we talked about you're in search of a business to purchase. Let's talk about what your ideal business might look like.

Hitting on one of the points you mentioned, I do come from a similar background as a lot of these business owners. I grew up in a blue-collar town, in a family business, third generation. I knew the names of all the employees at the company. It was run like a family. It had an eye on the long-term. There weren't any short-term decisions made. I did go out and cut my teeth in the professional world. I worked in lending for a little while doing a lot of these types of small businesses. I learned what worked and what didn't work. I worked on the investing side of the house for a little bit. Now I have these investors who are going to help me and guide me and advise me along the way as I'm acquiring and operating these businesses. You asked what type of business am I looking for? What's the perfect acquisition criteria? I always start by saying, it's looking for the right type of seller. I do care about what type of business it is. I care what size it is. I care what the characteristics are.

For me, first and foremost is who is selling the business. I'm looking for that person who has run the business for 30, 40 years. It's either a 1st, 2nd, 3rd generation family business and has a great relationship with their employees, customers and suppliers. They're not just willing to pass the torch on to anyone. I think the perfect scenario is one where the business owner maybe doesn't have a son or daughter who wants to take over the business even though that would be their primary choice. If they don’t have a son or daughter who wants to take over the business, perhaps they don't want to sell to a big private equity firm or to a competitor or a strategic.

Private equity tends to have a much more short-term view. They make short-term decisions to cut costs and grow revenues in the short-term, which isn't always the best thing for the employees and the customers of that business. Competitors, or strategics as you may call them. A lot of times they already have a lot of the employees doing the things that your employees are doing. There's a lot of redundancy there and they might come in and cut some of your employees and fold you into that house. I'm looking for one person who is looking for a succession plan that's going to carry on the vision, the values, and the legacy of their company. I think I'm uniquely positioned because I come from a family business multigenerational that has those characteristics. That's what I'm looking for in terms of the seller. You need to have that connection with me. I'm not an ordinary buyer.

When it comes to characteristics of the business, this is more of what my investors and I have decided on that's going to position me for the best opportunity for my growth and for the company's growth in the future. We've decided that I'm best suited to find a company that’s in this lower middle market where we define is about $5 million to $50 million in revenue or in finance speak, more like $1 million to $5 million in EBITDA or seller discretionary earnings. I like recurring or reoccurring revenue. You have a lot of foresight into what's going to come down the pipeline in the next 6, 12, 18 months. I’m looking to minimize my risk as I'm coming into a new business that I probably don't understand that well. It provides some insight into the revenue going forward while I formulate my strategies and get to know the employees and the customers and move this forward.

That's the size and the characteristics of the business I'm looking for. I'm trying to stay away from things that are largely cyclical. I have no way to predict the financial markets or the economy. I'll try and stay away from real estate and construction and oil and gas, those things that haven't flowed throughout the course of many years. I don't have a crystal ball so I can’t see that. I try to stay away from those things.

I don't have expertise in healthcare. Outside of that, I love business to business and service-type businesses. I like software technology-related to those industries. I have looked at anything from commercial landscaping to elevator maintenance and repair to call centers to veterinary software platforms. I’ve looked at any number of things. It doesn't matter to me what the industry is as long as I can understand it relatively quickly and it's something that I think I can sink my teeth into and grow over the next 5, 10, 15 years.

As you're out there looking for businesses, you describe yourself potentially as a search fund. I think that most business owners will know about the local buyer. They'll know about the private equity folks and so on. I don't know that they're familiar with the term search fund. How did you get involved with the search fund side of the house?

[caption id="attachment_5485" align="aligncenter" width="600"]BLP Nick | Business Acquisition Criteria Business Acquisition Criteria: The search fund community wants to invest in the buyer’s personal growth so that they can continue doing it in the future.[/caption]

 

The search fund world started in the late 1980s.And up until the mid-2000s, there were maybe 2 or 3 to 5, maybe 10 search funders or searchers out there in the country at any given time searching for a company to acquire. Over the past 10 or 15 years, there has been anywhere from 20 to 50 per year going in and raising search funds. Many business owners that I talk to have been contacted by many search funds often. A lot of them are either confused or they're wondering why the heck they've been contacted by so many people looking for the exact same thing with similar messaging over the past few years. The way I got tied into the search fund community is I grew up in this family business. I always saw my path to success one day being a business owner. When I finally realized I wasn't going to be able to go back to my family's business or that wasn't an option, I started talking to other business leaders who had similar backgrounds as mine.

I started talking to business owners. I started talking to people in my hometown. I have nearly 30 cousins on my father's side. I had a few cousins who were in similar situations. Their wife didn't want to move back to Jasper, Indiana and they always had the same goal as I did, which was to run a small business and they were working in Corporate America. It's fine to learn there and that was great for us but it's not exactly what we always wanted to do. A few of them had started acquiring businesses in the Midwest from people who have similar characteristics of what I mentioned before. I started talking to them and they're 10, 15 years older than me. They were having the time of their life. They love it. They were providing a great liquidity event, solution, legacy, and leadership for someone they acquired a company from and they were doing what they always wanted to do in life.

They were successful. I thought that was cool. I'd love to do that one day. I started talking to a number of business owners in my hometown and other parts of Indiana. I was living in Chicago at the time. I came across this hypothesis that there are a lot of 60, 70, 80-year-old business owners out there who don't have a succession plan that they're happy with. They don't feel comfortable with someone currently in the business, buying the business. They don't feel comfortable with the son or daughter taking it over or the son or daughter doesn't want to take it over. They don't want to sell out to private equity or to a competitor for any number of reasons.

I was in business school at the time and I started talking to some of my professors about, “I always wanted to be an entrepreneur. I always wanted to run a small business.” They kept throwing the idea of the high growth startups out there like, “Go work for Facebook or Google or these.” That never had any interest to me. I liked the salt of the earth businesses that I could sink my teeth into and something that I could grow. And thathigh growth stuff is fine. It's fantastic but it wasn't for me. One of my professors introduced me to the idea of a search fund. I had never heard of a search fund before and he introduced me to one of the search fund investors. There are about 30 of them out there in the country investing in search funds.

I talked to them and they pitched me on the idea that some MBA graduates, some 30-year-old business person with good background and also an entrepreneurial spirit behind him to go out there and acquire business from someone who wants to retire and he'd be successful doing this. I talked to them. I started talking to a number of people who had acquired companies and had been running them successfully and some not successfully and trying to figure out if this is something that I felt confident doing or that I wanted to do. I thought the risk-reward profile was for me and I spent about 1 and 1.5 years trying to figure that out and then I pulled the trigger and said, “This is the risk I want to take. This is the time I want to do it.” There’s no better time to do it.

I think about the business owner that gets hit up by any number of let’s say its search funds alone. What advice would you offer to the business owner that's approached by a search firm to discriminate the good ones from the moderate ones to the bad ones?

In terms of any business owner who wants to sell their business, there are search funders out there and they're probably getting hit up by wealthy individuals, by equity funds, whatever it may be. I try and guide potential sellers to think about things in three buckets. What are their personal goals for themselves and their business in retirement? What are the most important things to that person in life? Does that person have sufficient time to do those things? Do they want to stay in the business after they sell it? Do they want to move on? What would that person do with their time if they weren't working on the business now? Would they spend time with their grandkids? Would they spend time at the beach? Would they start dating their wife again? I hear that all the time because once they retire, people will start dating their wife again and it's true. You're married to your career at some point. What are the most important things for that person?

The second bucket I ask them to think about is in terms of operations of the business, what does your business need? This person has clearly been growing their business, whether it be 1% or 20% a year over the past 10, 15, 20 years. What would get their business to the next level? Do I bring those skills or not? My skills personally are in financial controls and sales and marketing. If there's a company that could benefit from having a sales team or a sales process or more financial controls, I could bring some value to that person's company. If there's a private equity firm involved or if there’s another potential buyer involved, does that person also bring those skills? Are they going to acquire the company and hope that it runs itself? Another thing to think about as they're thinking about these succession plans, is there someone in the business that they think is set up to take over the business after they retire or move on? Whether it be a son or daughter or whether it be an existing employee of the company.

[bctt tweet="Business acquisition is a relationship game. " username=""]

I think a lot of business owners that I talk to, in their mind, they have someone pegged to take over their business that's already involved. There are a lot of times where they have that conversation with that person and realize either that person's not equipped to do so or they frankly don't want to have that responsibility. That's something to think about and you and I were talking about this. What are the person's financial goals? That's the third bucket. What's the dollar amount that person will need to step away and retire? What do they need to hit their goals in the long-term? In that financial bucket, a search fund can be creative with how we structure this.

If someone maybe is not ready to solely retire or let go yet, they don't want a bucket of money and they don't want to walk away to Florida, Mexico or wherever they want to go. We can structure some potential sale where you get half of the sale price in cash and maybe half of the sale price in terms of equity rollover or in terms of if they want to provide a loan to the company. It's to earn a nice interest rate over the next 5, 10 years. There are a lot of different ways we can do it. I usually tell business owners to think about it in terms of three separate buckets. We've already hit on this on what type of person do they want to sell to. Private equity has a shorter-term time horizon and they make more short-term decisions that can be good and bad for the business. When they sell to a potential competitor, that competitor usually wants to create some synergies by replacing or moving some of their employees into that company. Maybe getting rid of some of those other employees. I ask them to do some reflection in terms of what exactly they're looking for.

You had this group of investors that you raise funds for. Let's say you go into company A and it filled the bill. It was exactly what you're looking for. What are the pros and cons for you in the fund with this group of investors? How much input or control or whatever do they have with you in the business?

Most people look me in the bucket of private equity because I do have private investors and I completely understand where that comes from, but we have different types of investors. Private equity funds are looking for a short-term return on their money and they only care about the financials of that company. They're only worried about the capital gain that we may potentially sell this company. My investors, although you might not believe it, they do care about the mentorship and the advisement and the growth of the search fund entrepreneur myself in terms of growing and operating this company. While my investors want some positive financial outcome from this, we have a much longer-term time horizon. They’re much more inclined to mentor and advise me but also get out of my way to help me or to allow me to run this company. We have sixteen investors and when we do find a company, on average 10 to 15 of those investors would say, “I would like to invest in this company. I would like to move forward with the process.”

I would work with those 10 to 15 investors. I would choose four of them to create a board of directors or a board of advisors alongside me. That would make up 1 of the 5-member board of directors’ team. It would largely be that they're extremely hands-off until I tell them that I need some advice maybe quarterly. I tell them what my strategies are for the company and I ask their input in terms of how we're going to grow this company, ask them how I need to pick it out making key hires and moving into different territories and things like that. They are there more as a sounding board for advice as a mentor-mentee relationship. I’d say half of my investors are on the pure investing side, meaning they only invest in search funders and they have been doing it for years. Some of them, 15, 20 years, some of them only about five years, but they have all the pattern recognition that they're going to know what folks like myself are going to do when we get into a business.

They know where I'm going to fail. They know where I’ll be successful. They know my blind spots and they've also seen much pattern recognition in specific industries and businesses like this that they know some of the blind spotsbut they largely are hands-off. They allow me to operate and grow the business as I need to then go back to them for advice when I need to. The other half of my investors are individuals who were me at one point have acquired the business and either is still running that business or have moved on or sold that business and were successful in doing so. They want to put some other liquidity to work and they want to mentor a young entrepreneur like myself. It's a pay it forward community. I keep using that word “community” because it truly is a community. I keep in touch regularly on a monthly basis with 5 to 10 search funders out there who are doing similar things for me in different parts of the country. I've talked to a number of people that were operating companies through this model and they lean heavily on other individuals who are in similar situations throughout the country.

As you think about the folks that are backing your search fund, you think about what are their expectations of you, let's say we're five years out. You found the ideal company were sitting a few years from now, their expectations are one thing and then your expectations for all the hard work are another. How do those two expectations join together or match up?

We've been on the same page from day one. We have written an agreement. I have an operating agreement with those 60 investors and expectations are laid out. The amount of equity we get and the amount of compensation we get are also laid out in that document. It's trying to minimize against that situation where we have misaligned incentives at some point in the future. The way equity split would work and the way the ownership split would work is upon acquisition of a company. I would receive up to 25% equity in that company. The investors would split the remaining 75%. It might seem like an unfair split or a split that a business owner wouldn’t like but no matter what the situation, I would be the single-largest shareholder of that company. My investors want equity. If there were a situation in which my investors, only 5 of them invested and 1 of them ended up getting or wanting to get 25% equity, the rest of my investors say no, misaligned incentives, investors for search fund opportunity should never have more equity than the actual search funder itself. You should make sure that a person has the right incentives going forward.

[caption id="attachment_5486" align="aligncenter" width="600"]BLP Nick | Business Acquisition Criteria Business Acquisition Criteria: The first six to 12 months of an acquisition is pure learning and listening for the buyer.[/caption]

 

Years from now, if on average we've grown the company 10% to 15%, which is the average of the growth expectations that we have to grow at 10% to 15% a year, everyone's going to be happy. My investors aren't private equity, they don't have this key number in the back of their mind saying, “I need to make ten times my money or I'm not going to be happy. We're going to get Nick out of there.” The search fund community is such that they want to invest in me for my personal growth and that company's personal growth so that we can continue to do this in the future and pay it forward. That we can invest in future searchers and I can invest in future searchers. They can be a mentor and advisor in the future. If I acquired a company in 5, 7 years from now, 10 years from now, we need to exit that company because my investors need a liquidity event or something. Take a pivot, then recap, and maybe get some of my investors out.

I can do this all over again and they want me to be set up for success that second time. We make sure we have aligned incentives here. I have a business owner asking me, “You're bringing on a board of directors, you have investors but what if they wake up one day and decided, ‘You're not hitting our goals and we're going to get you out of this company. We're going to replace you with someone else?’” I said, “That's not how they think about it. Although we could, at some point, get to that point.” The only time I've ever heard of that happening and the only time it would happen in a search fund investor community is if I was doing a terrible job.

Not only was I not good for the company enough, I was being a hindrance to that company. I was declining that company. I was changing the performance from positive to negative. I was being a toxic person in the business environment. At that point, the business owner who owned it before would also probably think that I shouldn't be running that company. I don't think there's any situation that I've ever heard of where someone wasn't hitting their goals where the investor had said, “We're going to get you out of there and put you somewhere else and get someone that can do this.” It is a mentor and mentee relationship.

The thing that struck me is I’m the business owner and I had the ideal company. We came to terms and let's say I've got an office to come to hang my hat in, but I'm still out of the day-to-day. What does the first week or so look like when you step into that company after the deal is done?

I would even extend that a little bit more. I would say the first six months to a year, for someone in my position coming in as a young person who's probably younger, perhaps more educated and has more degrees than most people at that company. People are going to come in and look at me and say, “Who is this person? Who does he think he is coming in and going to be able to take over this business and be able to manage me? There's no way.” We immediately have an uphill battle in terms of building a rapport at that company. For the first six months to a year, I've never been in that industry before. I don't know that company. I don't know those employers. I don't know those employees. I don't know those customers. It is pure learning and listening. I'm coming in day one and I'm saying, “I'm here to learn and to listen. I'm not here to make any big changes. I'm here to make sure the lights stay on. I'm here to make sure everyone continues to get paid and the company continues to grow over the next year. Over the next year, I'm going to build relationships with the employees, the customers, suppliers and the previous owner. I'm going to be taking notes.”

In a year or two, that's when I might start making a key hire or promoting someone from within to a key hire so that we can start building on a sales team or building out a finance team. Even in 12 or 24 months, I'm still almost in that learning phase and then at year two I would say is when you start or when I would start throwing gas on the fire. I know everyone in the business. I know the customers. I'm confident that I can understand how to grow this company. In years 2 to 5 or 7 we're putting gas on the fire. We are promoting from within. We're hiring for outside employees underneath them. We're growing this company and creating opportunities for existing employees. That's what it looks like. There's also got to be at the beginning some overlapping transition with the existing business owner. We need a smooth handoff from that existing business owner to someone like myself.

What strikes me is many business owners, that's their job. They don't have a COO, they don't have a CFO. They may not have the infrastructure that allows you to come in without the business owner. Let's say the ideal business has the patriarch of the business that's all of those hats. He's the CFO, the CEO, the best salesman they have. Would that automatically disqualify that from a purchase because they don't have the team that would support you for the first year or so to get you up to speed?

It would not disqualify a company and I do run across that situation all the time. If that is the case where the owner holds all those hats right, I might request that business owner stay on board with me after acquisition for a little bit longer. Whereas some business owners want to sell the business and get out of there and go to their retirement home and spend time with their grandkids right away. In a business that's easily understood and a business that has a finance manager, a sales manager and operations manager already running the company, I'm much more okay with that business owner taking off after a month or three months, whatever it may be because I can come and learn from those people.

[bctt tweet="A community doesn’t thrive without successful businesses, and businesses don’t thrive without giving back to their community." username=""]

In the terms of the business you're talking about, where any business owner does sign all the checks and maintains operations, that sort of thing, I would request that person to stay on with me for a little bit longer to mentor whether it would be six months or a year or eighteen months. It would depend on how complicated it would be to understand those things and pick that up. I think over that transition period, we would look to maybe bring in a controller or something like that to take over some of the accounting stuff and bring in maybe a sales manager to train them with me at the same time. It would not disqualify the company. I might look for a little bit of longer of a transitional period.

As you're out looking and you have conversations, what's the typical 1 or 2 pushback items that you're hearing in the marketplace now?

I would say the biggest one is, “I know I need to sell, but I'm not ready to sell.” I've been searching for about a year now and before the pandemic, I was getting 2 to 3 conversations a week with a business owner saying, “You're the right type of person for my business. My business is the right type of person for you. I like you. I think you could run my business and you're the right type of buyer. The economy is doing well. My company’s doing great. I only work 2 or 3 days a week. Why don't you reach back out in 2 or 3 years and we'll have a conversation then?” During the pandemic, I shut down operations for a little while but June or July of 2020 when things started opening up a little bit more, I started reaching back out to business owners and now the conversation has largely transitioned to, “I've been through 2, 3 recessions over my career here for a recession. I don't have the energy or time to do this anymore. I don't want to bring my company back up again to pre-recession levels or even if the company is doing well.”

There’re many headaches that maybe they're more willing to have a conversation now, but I'd say a lot of business owners are still a little uncertain with the pandemic and with the election coming out. They're willing to have conversations. They want to talk about it and start building a relationship, but they're not ready to pull that trigger yet. I'm okay with that. I'm not here to do a quick transaction. I have 1.5 years to 2 years left on my search horizon here and I know this is a relationship game. I wouldn't sell my business to someone I met two months ago. I need to make sure that I understand and truly do get to know that person. I'm trying to build a relationship with a lot of these business owners at this point because I want to get to know them. I want them to get to know me. I want them to feel comfortable passing their baby down to me. I don't want them to worry after they sell their company that it's not in the right hands. That's a big one that I get.

Number two, they do have this taste in their mouth that I am private equity and that I'm going to come in and make all these big changes. They think I’m going to makechanges with their company and I'm going to fire their accountant, get rid of their sales manager or get rid of their operations manager that's been there for 25 years. That cannot be further from the truth. If you think about me coming into that business in an industry that I've never been in before, for me to get rid of the people who've been doing it for 20, 30 years and to bring in my own people which don't exist, that would be suicide for me. I'm going to need those people not only for the next year or 2, but for the next 5, 10, 15 years. What better way to grow a company with the people who are already there and they know the ins and outs and grow alongside with me. It's an educational process. I'm trying to educate business owners on different unique solutions with their succession plan. Business owners are trying to educate me on how they think I can be a benefit to their company or who they're going to assign their company to. It's a relationship game and this process takes a bit of time.

What's the best way for them to find you on social media?

I created a website. You can go to ParklandField.com and it lists all sixteen of my investors, their websites, and bios. If you're thinking my investors were some black hole of capital that you're never going to know who they are, I always tell business owners that too, “If you want to speak to any of my investors at any given time, I'm an open book. I would love to have you talk to them. They'll tell you some of the same things that I'm telling you and they’ll elaborate on it much more eloquently than I would.” It has my investors listed on there and has a little bit of a bio on me and a picture of my dog. It's got a contact form. You can also reach me through my email, it's Nick@ParklandField.com. I'm not savvy to have Instagram and Twitter and all that business.

Why Parkland Field?

[caption id="attachment_5487" align="aligncenter" width="600"]BLP Nick | Business Acquisition Criteria Business Acquisition Criteria: There has to be an overlapping transition at the beginning to ensure a smooth handoff from the existing business owner to the buyer.[/caption]

 

Parkland Field does have a bit of meaning to me. My family runs a third-generation business and agriculture back in Indiana. It's a small community. It's got 10,000 people but it's the biggest town in 60 miles. It was one of those areas where everyone knows everyone in the community. I grew up with my cousins. I knew everyone that lived in the town and there was this country club in the middle of the town where everyone went during the summers. We all congregated at the pool growing up when we were little. Our fathers would go there and play cards. We would have company picnics there with the whole company and we grew up there essentially.

As many country clubs did in the early 2000s, it was going through some trouble and my father was the President of Jasper Parks and Rec Sport, much like Leslie Knope from Parks and Rec if you've seen the show. The show was based on my hometown. The country club was going under and the family didn't want to see the country club go under, so we tried to revive it. We acquired it from the previous owner. The family did and tried to revive it but there's no hope in saving some of these country clubs in small towns these days. After a few years, the city came in and wanted to buy the land back. It was a number of acres in the middle of town, a beautiful, healthy part of the city. The city wanted to turn it into commercial real estate so housing and shopping centers and all that sort of jazz. My family wasn't interested in that.

We're into community life feel and the family at that point struck a deal with the city and said, “We'll sell it to you for a dollar, but you’ve got to promise us that you're going to turn it into parklands for the city, for everyone to use and to make it still a community center where the community comes in and congregates all the time.” My family did that. We invested some of our money back into it. It's a 2.5-mile walking, biking loop around two lakes or ponds that had been built inside there. We put exercise equipment alongside the trail. There's a playground, there's a splash pad for little kids. It's dog friendly. There's a new restaurant at the top that overlooks the park.

It's a great place for the community to have it to congregate and we named it to Parklands. It was a way that I saw that a successful business in a tight-knit community could give back to the community. I'm of the mindset that a community doesn't thrive unless it has successful and thriving businesses. I don't think their businesses would thrive unless they decide to give back to their community and I think it's a holistic view of things and mentality. I want torun a company in a community I eventually acquire. It's important to give back to your community and the Field part of the name, it comes from my obsession with baseball. It’s a team sport and I think running a business is similar.

I think about the people reading goes, “I think I want to start a search fund. That must be simple.” I suspect likely not. If you were to look over your fundraising efforts and the folks that support you in forming this, what do you think the tipping point was where they trust you enough to trust you with their money and investment to pursue another company?

I did not have a tough time raising money, but it was only because I spent 1.5 years building a relationship with those investors beforehand where they knew exactly who I was. They knew exactly what my motivations were. They knew where my skillsets were and where my skillsets were not. We had a candid conversation when I was raising some money about what industries do you think that you would fit best in? You have a skillset in financial controls and sales and marketing. Once you acquire a business that already has a thriving sales process but maybe a little isn't as operationally efficient and there's no way I would acquire one of those businesses because it doesn't fit my skillset. They looked at my background and they looked at my skillset and they looked at my resume. It wasn't the deciding factor. They wanted to understand what my true skills were and what my motivation was.

My motivation wasn't coming from being an investment banker and wanting to make gobs of money. That's not where I'm coming from. They wanted someone who had a true desire to be an entrepreneur at a small and growth-stage business as opposed to running a big corporation or running a VC-backed company. I can say all of that, but they talked to my professors, my family, ex-employers of mine and got to understand who I was as a person and where my skillsets were. We congregated on the idea that, "We're going to find a business that fits Nick’s skillset and his motivation and that’s where he's going to be most successful.”

It was a long process and it was a slower process because it wasn't your typical interview process. These investors are taking quite a risk on me to invest in this type of company where they don't have any say how this company is run. They are making a bet on me. It's not a venture capital where they're not going to get 100 times their money. They might get 1 or 2 or 3 times their money. It's betting on me as a person and betting on us as a team because they're not just betting on me, they're betting on the fact that when they make advice, I'm going to listen to them. I'm going to take their advice into consideration. I'm going to do what's best for that company.

[bctt tweet="A good litmus test to know if you are ready to exit your business is to disappear for a week or two and see if it still runs fine." username=""]

I think about in my background when you talk to many of the business owners, I'll say, “What's your exit strategy for your business? Do you have one? What does it look like?” You’re in the, “I want to take, look, find the ideal company and I want to grow the company.” What does your exit from that company look like?

There are a couple of different ways that it can happen. My investors are going to want a return on their capital at some point. We've talked about the actual return they get. It doesn't matter as much as long as they get more than they put in. My goal has always been to grow a company and pass it on to my kids so they can pass it on to their kids but because I'm taking on investors, I don't have a pool of cash myself that I can acquire a company with. I needed to bring on investors and I'm going to need a liquidity event for them one day, probably in the next 5 to 10 years. Let's say I'm growing a company and things are doing well and it's 5 years, 7 years from now and they're saying, “You've done a great job with this. What's next? Do you want to keep growing this company? Do you want to move onto something else? What's your plan?” You might have a few different options at that point.

The first option is the easiest to understand and it's like, “We sell the company to either another search funder or to an equity fund or to institutional or to a competitor or to someone else who wants to take this company to even the next level from where I get to.” We take the proceeds of that capital and then I would go and do it all over again. I could do it with my capital and I can grow that company forever. That's important for my kids. That's option one. The other options are I find a way to pay out my investors on the capital they invested plus whatever they think their money has accrued to. I can do that in a couple of different ways either I can go out to the lender and say, “Here's what my company is worth. I have no debt on the company. I would like to get my investors. I don't even own a 100% of this thing. Could you provide some debt that I can take out my investors.?” It's possible.

If I have a few cash reserves in the company, which I probably wouldn't because I would like to reinvest all the cash from the company back into the company for growth, I could also take my investors out that way. I will say that those are my two options that are probably less of a probability because I would have to then agree on the valuation with my investors and different motives in that regard. There's probably or will be a liquidity event at some point in the next 7 to 10 years or so. It's flexible but my long-term goal has always been to own and operate a company. I don't plan on being a deal person. I'm not going to be a private equity firm that's got a portfolio of companies. I'm not going to buy companies over and over again.

You've been here for a while and you have a target timeframe. How are you doing? Are you finding what you're looking for? Are you still hot on the trail?

I was gaining some traction for the first 3 to 6 months. At that point, I'm still trying to figure out what's my message? How do I connect with these business owners? What questions are they going to have? How do I best alleviate some of their concerns? I would say as March 2020 was going around, I was starting to get a swing of things and get my pitch down, get the message to understand how this process was going to play out, and then the pandemic hit. Things shut off for a few months and I turned this back up in June or July of 2020 and I moved out here to Colorado. I've had some good success with business owners. I've put an offer on a few companies and didn't win them for a few different reasons. There were a couple of them that decided they wanted to sell to a bigger private equity firm and that was fine. A couple of them, certainly things that they told me prior to digging into the books and records weren't exactly truthful and probably the best that we didn't go forward with those anyways.

I’m in the process of building relationships. I've probably spoken to 5 to 10 business owners a week over the past few weeks. It’s about 1 to 2 people a week that we have a conversation with. It's the right company-type fit. They're looking to sell for the right reasons. They want to sell to someone like me and they like me as a person in terms of what I can bring to their company. It's moving to the next phases of things. It's not a quick process. I'm not saying, “We spoke on the phone for 30 minutes. Send me all the information you have and we'll be out tomorrow.” They're trying to get to know me.

They're trying to get comfortable with me. I'm trying to do the same with them. I'm in talks with 5 to 10 companies that are based here. Most of them are based here in Colorado and moving along nicely. We're trying to build a relationship. What I think is nice out in the search fund community too is we're not solely numbers-based. We're trying to build a relationship and the relationship is as important as the numbers are. I'm getting out to visit with business owners after the first 30-minute phone call to shake their hand and be with them in person so they can get a feel for who I am and know that I'm not some snake trying to come in and snatch their company from them.

[caption id="attachment_5488" align="aligncenter" width="600"]BLP Nick | Business Acquisition Criteria Business Acquisition Criteria: To come in and get rid of the people who have been doing their jobs inside the company for decades and replace them with your own would be suicide.[/caption]

 

  • I've been quizzing you to death now for some time. I think it's interesting that it's maybe a perspective that many of the business owners don't have an insight to necessarily where you're going, “These are the things I'm looking for and it's from the buyer's eyes.” For that business owner that perhaps is thinking about selling, what advice might you offer to them to make their business attractive to a search firm? What might they do? There are a lot of ways you can go about this. You can hire a third-party. You can bring in an accountant or a controller or you can bring in a consultant to come in and tell you what you probably need to do to get your books and records in order to get the company prepared to sell. The things that we're going to look for aren't that different than what most other potential buyers out there are going to look for. We're going to take a look at the books and records. We're going to want to see the cash collections from some of your customers. We're going to want to know who your customers are. We're going to want to know who your employees are and what they do at the company.
  • As you're trying to think about preparing your company for sale, you mentioned the business owner who wears all hats. I know it's tough for a lot of business owners to do, but if you can start delegating some of the management responsibilities at your company to some of your managers you already have and taking a step away from the company. I think a good litmus test is if you take a week off and you go up the mountains or you go on vacation and you leave your phone behind, is your company still going to be running when you get back? The more your answer weighs towards, “Yes, the company will be totally fine if I'm gone for a week or two,” the better off your business is. If there are business owners out there who aren't thinking of selling for 1, 2, 3, 5 years, start thinking about that now. You can start training people underneath you. You can start offloading some roles and responsibilities slowly but surely. You are not going to do it all day one, but I think the more you get to that point, the better off your business is going to be
  • I think about perspective and having the company where it can run without you. It sounds much like I'm former military and you'd have your unit run well whether you're there or not. That means that you teach everybody else well. It's a hallmark of a good leader and a good firm that it can run and you're not critical to day-to-day. I applaud your courage for coming and relocating to Denver and trying to be part of the community. I think picking up a company and taking care of the legacy of the company and the employees is admirable. In closing, is there anything that I should have asked you or a message that you would like to leave and close the episode out with?
  • I appreciate your time, Bob. I’ve got two closing things. One, you can visit my website ParklandField.com. It'll give you a lot of information. There's a one-pager on there for potential sellers. If you're looking to learn a little bit more, you can reach out to Nick@ParklandField.com. I want to leave you with one closing thought. It's the mantra that I have as a searcher and that business owners might be interested to hear it. I always tell business owners that I'm trying to provide the three elements to you as a business owner. I'm trying to provide leadership, legacy, and liquidity for your company. I'm trying to be that next-generation leader that you feel comfortable handing over your business to for the next generation.
  • I'm trying to be the legacy. I'm trying to be the right person for your business. I'm not trying to come in and wipe out your employees and grow this thing. I do want to carry on the vision, your values, and the legacy that you've created as a business owner and the liquidity. Every business owner is in it for some capital gains reason. I want to provide a nice bucket of cash for a seller to spend more time with their grandkids or spend more time with their wife or doing the things that they've always loved to do. I think the issue of legacy and equity are the three things that I'm trying to provide great potential to business owners.
  • Nick, I appreciate you taking the time to share your perspective and wisdom. I wish you the best of luck. It would be fun if somewhere in the future when you found that business and you've got the business transaction completed, to come back and say, “Why?” What was the trigger in what you do? That would be a nice way to close the loop. Thank you for sharing and for all of your time and expertise.
  • Thank you, Bob.
  • Important Links:
  • Parkland Field Management
  • Nick@ParklandField.com
  • https://ParklandField.com/
  •  

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