Episode Transcript
[00:00:01] Speaker A: Welcome to the Dealmaker Uncut podcast where we speak to some of the UK's most exciting entrepreneurs and hear their investment journeys. We'll discuss the challenges, successes and lessons.
[00:00:11] Speaker B: They'Ve learned along the way with expert.
[00:00:13] Speaker A: Deals commentary from Jonathan Boyers, head of Alvarez and Marcel Corporate Finance, and me, Chris McGuire, executive editor at Business Cloud.
[00:00:22] Speaker B: Welcome everyone to the Dealmaker Uncut podcast, powered by Alvarez and Marcel Corporate Finance. My name is Chris McGuire, I'm the executive editor of Business Cloud and TechBlast. And as always, I'm joined by the Dealmaker himself, Jonathan Boyers. Tell us a bit about yourself, Jonathan.
[00:00:36] Speaker C: Hi, Chris. Well, I'm a managing director and the European head of Alvarez and Marcel Corporate Finance.
I've spent all my career, 35 years working in corporate finance and I've been involved in hundreds of deals worth billions of pounds.
[00:00:54] Speaker B: Now, before we introduce our very, very special guest, a quick shout out to WattMedia who produce the Dealmaker Uncut podcast. They are without doubt the kings of video creation and we're delighted to be working with them. Now, today we're joined by a legend, a living legend of the deal making world and somebody, Jonathan, that you've worked with quite a lot.
[00:01:16] Speaker C: Yeah, so Barry Nightingale, immensely experienced, has worked some of the biggest companies in the uk, including Air Tours, We Buy Any Car, bet, Fred, Monarch Airlines and more recently we.
[00:01:31] Speaker B: Joe, you've only got to look at some of the personalities that Barry's worked with to realise what a legend he is. He's worked with the brothers Noel and Darren McKee, the co founders of Webuycar.com, fred Doane, owner and founder of BET, Fred and Sestalius Hajiwanu, founder of EasyJet and Stallius. If I've mispronounced your name, I apologize. He is super connected. You did a deal with Barry, didn't you, when he was the non exec chairman of Yearly Group?
[00:01:55] Speaker C: Yeah, back in 2018. Actually, I advised Barry and the board and shareholders of Yearsly Group when we sold that business to a US company called Linage Logistics holdings, which was a pretty big deal. It was certainly one of the biggest deals in Rochdale that year.
[00:02:16] Speaker B: It's a big claim to fame, that is, and a huge podcast. Welcome to Barry Nightingale, Dealmaker of the year in 2011 for his role in the landmark 265 million pounds deal to buy the tote. You were the first deal maker, Barry. I think I might, in saying, outside of the professional services community, to win that prestigious award. And between you, Jonathan and me, we have five dealmaker of the year awards between us. I think that's right, isn't it Jonathan?
[00:02:44] Speaker C: Yeah, that's right.
[00:02:45] Speaker B: What he didn't say you've got four, Barry's got one, I haven't got any. So big welcome to you, Barry.
[00:02:52] Speaker D: Thanks a lot for inviting me along today, Chris.
[00:02:55] Speaker B: Yeah. Now you two know each other really well. Jonathan, what would you say about Barry in terms of his, his, his reputation?
[00:03:01] Speaker C: So, so Barry is, is shrewd, direct, very experienced and behind his craggy bolton exterior is a warm hearted and kind and empathetic guy.
[00:03:16] Speaker B: And how would you, Barry, describe Jonathan? Because he's far too modest to describe himself.
[00:03:21] Speaker D: I'd say very much the same, except he's got Wigan rather than Bolt and his cragginess.
[00:03:25] Speaker B: Okay, absolutely. Got two, two craggy legends around me. Before we look at the yearly deal, I want to take you back to the beginning, Barry. You cut your teeth at air Tours for 11 years before joining the McKee brothers at We Buy Nikhal, who famous for that awful jingle. You also work with Sostalios, founder of EasyJet. Just give us a potted history of your early career.
[00:03:48] Speaker D: So I've always been involved in deal making, but always from the side of the client. So working alongside colleagues on acquisitions financing has been very much my key strength and focus. So whether it be new businesses, whether it be aircraft, ships, hotels, I financed them all. So that's where I've cut my teeth very much in the days at Airtours, which was a deal making machine for most of my 11 years there. So I learned a great deal about how to construct deals, most importantly how to negotiate deals and finance them.
And that's where I've then taken those skills into the other businesses I've worked with, some of which very much were only able to succeed because of the acquisitions they achieved along the way. Acquisitions and also disposals, as we talked about with the yearly deal.
[00:04:51] Speaker C: You've not picked an easy set of companies to work for, every one of them. They're impressive companies, but they all had challenges, didn't they?
[00:04:58] Speaker D: They certainly did. They picked me though. So I think it's very much down to my, certainly the latter days, my reputation for being able to cut through the mess and sort out solutions. So as well as doing all the deal making, I've been CFO for most of those businesses and without exception they've required a lot of reconstruction, a lot of organizational change and you know, so I do pride myself on a lot of the successes there. And we've had a Few failures. And I always view failures as an opportunity to learn and take it on to the next challenge.
[00:05:40] Speaker C: You've been willing to grasp the challenges or you've not been risk averse in the things you've worked with?
[00:05:47] Speaker D: Certainly the case. Yeah. And I hopefully, I've certainly no personal regrets along the way and hopefully the many different entrepreneurs I've worked for, they genuinely are grateful for what I've delivered to them for them.
[00:06:03] Speaker B: You're like the Fred Adair of dealmaking, I think, Jonathan, you've identified three deals, haven't you, that we're going to.
[00:06:09] Speaker C: Yeah. So I think the first one that I was really interested to hear a bit more about and I think when we first met was when you were at Betfred.
[00:06:18] Speaker D: That's right.
[00:06:19] Speaker C: And you oversaw the, the 265 million pound deal to buy the tote, which because the tote was based in Wigan. So I was sort of very interested to see that happen. And I think that was the deal that got you crowned the 2011 deal maker of the Year that I was hoping to win.
[00:06:40] Speaker D: No, no, sorry for not giving you the opportunity to work on it.
[00:06:43] Speaker B: No, no, no.
[00:06:44] Speaker D: But a lot of your former colleagues were involved in that deal and it was a super strike for the Doan brothers. And to succeed with that acquisition against enormous challenges, unbelievable pressure was put on us. This was a political hot potato of some magnitude. The tote was actually owned by the UK government.
It was the third or fourth attempt that the government had had to sell their betting and gaming business and it put in place enormous challenges to get that deal done. And yeah, not only was I Deal Maker of the Year, it was actually deal of the year that year. 2011, as you'll recall. Well, 2010, when the deal was consummated, was a very, very quiet deal making year. So we were quite lucky to be the standout deal that year. And it wasn't a Northwest deal because most of the parties involved were national and most of the negotiations took place with counterparties in London. So I spent Most of the 18 months that process took camped out in town.
[00:08:00] Speaker C: Yeah, I mean it completely transformed the gaming industry really, didn't it, in the UK and it must have been, there must have been a lot of emotion behind the scenes with the various parties involved in that for fascinated to hear how you manage that.
[00:08:17] Speaker D: Well, you talked about grit and tenacity and that was the only way, but most important to ensure that we were dealt with integrity all the way through the process. There were a lot of other people that weren't acting with integrity and leveraging their positions through their network. Because not only were the government the sellers of the business, there were also huge vested interests that we called very much the horse racing industry.
The press called them the top hats. And we very much became the flat caps on the deal because of our northern roots, perhaps not because of Peaky Blinders that didn't exist at that stage. But so those parties were all determined to ensure that their aims were met and their objectives were met, whereas the government were in a very prickly situation because they got huge vested interests, pressures from the Marquis of X, the owners of Ascot who have connected to the Royal Family, you've got real power players all pointing at us and saying, this isn't the right deal, that racing technically didn't own the tote, but they believed they did.
[00:09:42] Speaker B: Barry, you dealt with one Prime Minister, albeit not directly, David Cameron, 1 Chancellor George Osborne, 2 Marquises, 3 Lord of the Rings, sorry, Lord of the Realm. Maybe he should have been Lord of the Rings and a partridge in a pear tree. I mean, this was a complicated deal, wasn't it?
[00:09:59] Speaker D: It was, yeah. And a few nights on horseback as well along the way. So it was a hugely complicated deal. It was a very well structured process. You know, the government hired Lazards to, to, to drive the sales, so they had the top team from Lazards working on it. They also had Slaughter in May acting for it, so we had to partner up with people who could counter the skills and the network of those individuals.
Yeah, and it was a two round process that then extended to three rounds and we had to not only demonstrate our financial capability and our financial standing, but also had to demonstrate that our objectives were good for the sport and good for government.
[00:10:48] Speaker B: When you won that award on the night, Because I was the editor of the Northwest Business Insider at the time, and Austin Healey interviewed you and you famously came up with this fantastic quote that it was a victory for the flat caps over the top hats. Did you make that quote up on the night or did you have that up your sleeve?
[00:11:04] Speaker D: No, it was, it was, it had been you. The victory for the top hats was. Was my quote. But they had talked in the press about the top hats versus the flat caps previously, so. And I, I famously wore a flat cap when I was interviewed by the BBC on the morning after the deal was completed. Unfortunately, it was on BBC Radio 4, not on the TV, so nobody got to see it.
[00:11:30] Speaker C: So. So Fred do is a really impressive character and one of the, you know, the major figures in certainly in the northwest business community and in the gaming industry over the last decades.
Fascinated to know how it was working together with him.
[00:11:47] Speaker D: So yeah it's, it was a. Having my, with my background by the time I got to Fred I'd all. I'd already worked with some pretty hot entrepreneurs including Stella, including the McKee brothers and David Crossland who was a hugely.
And David Crossland who was very much on top of his game in those early 90s when he was building air tools. So, so going to work with Fred was very much me being comfortable that I could get into the stride with him and move at his pace and with his, his objectives and aims very clearly in my, in focus.
So and that's what I, that's what I did. I impressed on, on him the importance I had in being his, effectively his, his right hand. He called me the helicopter and sorting and sorting out a lot of things that he didn't have the time or inclination to sort out. And when it came to the tope deal, you know I was, I was really truly honored. For him to say I'm confident in your ability, I trust your instinct. Go and get it to true or.
[00:13:07] Speaker B: False Barry Is it true that Fred Doane used to get up at 5 o'clock in the morning, jump on his treadmill and look at the figures for.
[00:13:15] Speaker D: Every single bet Fred shop correct Sometimes earlier as well but he would, he would do it on his treadmill. Phenomenal attention to detail.
He's a bookmaker by trade so he's going to be numerate. Yeah but he's, he's exceptionally sharp in terms of identifying where problems exist, where successes are and he's, he's always applied that skill and I wouldn't be at all surprised if he's not still showing a little bit of interest even even though he's handed over the day to day executive reigns at Fred Barry.
[00:13:51] Speaker C: So you working with all those entrepreneurs, they're all strong minded entrepreneurs. Is there anything that you've learned about just dealing with entrepreneurs that might be consistent across all of them?
[00:14:03] Speaker D: Yeah.
The most important facet is ability to listen. Yeah. Because they all have a voice generally speaking a very powerful voice, often a dictatorial approach. So I've always been a great listener. I take on board the situation and I always try and find empathy with the individuals and once you've established that, built up the trust, mutual understanding of strong points and weak points, generally speaking I can make it a success and you know that has carried me through my career really it's more about the personality than the numbers, which for a CFO to say that is slightly unusual perhaps.
[00:14:50] Speaker C: No, that's really, really interesting.
When I reflect on the deal, the yearly deal which we worked on together, I observed that in action that you were the chairman in that business, but there was a lot of listening needed to bring stakeholders, holders together. So this is a Greater Manchester based family owned logistics business, a big business in that sector.
What was your brief, Barry, on that then? Just to give a bit of background.
[00:15:23] Speaker D: So I was the first non executive, non family member on the board. I was brought in first and foremost to establish some governance around the shareholdings and the structure of the business it was going through. Hugely successful, but going through change with some of the key stakeholders wanting to back down a little bit, take a back seat and others wanting to push forward. So first and foremost was getting that structure right.
But in the background they were all looking for some kind of realization event so that whether it be an exit or an ipo, a number of potential routes we could go down. So it was again listening, understanding what each of the stakeholders was seeking from that and then putting in place a plan and it became fairly clear that the most likely outcome was some kind of a sale or potential ipo. And we, my job was then to corral and put in place the advisors to take us through that process.
[00:16:36] Speaker B: Can I ask you a quick question, Jonathan? We're going to talk about beauty parade because there's a beauty parade. I'm very mindful that not all our listeners like me are going to be award winning deal makers like you. What's a beauty parade? Just describe it in the deal making context.
[00:16:53] Speaker C: So I think that's just the process to appoint the corporate finance advisors and other advisors actually. And it will normally involve a bit of information given to people and then people are invited in to pitch and talk about what they think about the business and if it's a sale, who the buyers might be, what the valuation might be and what the issues will be and the process to run.
And in this one it was a very memorable beauty parade I think, I think I, I was, I think I was last on. You would normally want to be the last on in a, in a beauty parade because people remember the last person that, that they, they see maybe a bit more.
But this one we turned up, I think the manager, Barry had had the management team in a hotel room for two full days and they'd listened to pitches from I think four lawyers and seven other corporate finance houses. So we were the Eighth corporate finance. Corporate finance pitch that they'd listened to after probably about eight hours of sat there and it was six o'clock in the afternoon and, and I, I remember I walked in the room and thought I think I need to put my, my pitch back to one side and just have a conversation with these guys. So we, it was definitely a memorable one.
[00:18:08] Speaker B: Do you remember that Barry? Do you remember?
[00:18:09] Speaker D: Of course I do, yeah. Because I, I was really nervous that Jonathan wasn't going to turn up because it was very late in the day and we'd moved it around to give Jonathan the opportunity to attend. I think you're coming up from London or he might have been in Paris. So that all slotted into place and when Jonathan arrived I was very keen for Jonathan to be there. He had a really strong team around him but I'd already primed the guys to say that if we're going with kpmg, we're going to go with Jonathan. Yeah, it's got to be Jonathan or they're not in the play and because.
[00:18:51] Speaker B: Obviously you know Jonathan was at KPMG for a long time.
[00:18:54] Speaker D: Yeah.
[00:18:54] Speaker B: Prior to his move.
I need to ask you a question. If this story isn't true I will absolutely start crying. I heard a whisper that Gately secured their place in the deal because they bought a tray on of slatteries for our listeners across the UK and the world. They're a Northwest based legend, make chocolate cakes and cream cakes. They brought a tray of slattery cream cakes into the room. That's how they got their place on the deal. True or false?
[00:19:22] Speaker D: It was very, very important. It's absolutely true. Yeah. There were, there were other factors that got Gately's assigned but that was what they were legendary. Always remembered for us the, the team that turned up with the cream cakes and the worst latter is. So you're factually correct, there were no.
[00:19:41] Speaker C: Cream cakes left when we turned up 6:00 in the evening.
[00:19:45] Speaker B: Can I ask you a question, Jonathan and Barry as well? Just describe what it's like in those final hours and moments when you're trying to get that deal over the line. The deal size for years wasn't disclosed but it was significant. All those late evenings, late phone calls, what was that like? I'll start with you Jonathan.
[00:20:02] Speaker C: So there's a point at which deals do need to close and we spent a long time with the buyer, the ultimate buyer on this business and actually the buyer who we thought at the outset would buy it did end up buying it.
I think There is a point where the passage of time doesn't really do any good. And so you do need to close. I think one of the points that Barry made earlier, you can negotiate the financial aspects of the deal and the numbers are really important and you can come up with lots of really strong arguments why to justify your position. But the point comes when it's all about politics and relationships and bringing people together.
Sometimes you'll end up having to negotiate hard with the buyer. But sometimes it's a case of corralling your own side to make sure that people understand why they want to do something. And there's a bit of give and take sometimes between a whole load of different stakeholders. And so I honestly believe sometimes you've got to be really firm and robust to get people to agree things. But a lot of it is politics and relationships and people often think it's all about arguing about numbers. And I'm not sure that that is the key to getting these deals over the line.
[00:21:23] Speaker D: Absolutely Played out in the yearly deal and probably all the deals I've done.
Deals don't often fail because the money's not right. They fail because the politics and the future of the business, bearing in mind these are, in the case of Yearsley, these are stakeholders who've grown up in the business, they're family work in the business. They've got to ensure that the future of the business is sound and secure. And that can play out in many different ways. But was vitally important in this particular deal.
[00:22:01] Speaker C: On that one, we had a really good management team. And actually the buyers, a lot of the people we were negotiating with were from the buyers, private equity investor Bay Grove. And they were great people to deal with. So everyone was professional and people were driving a hard bargain. But they were good people as well. They were good collaborative and it was more of a win win style negotiation. And my memory of that, I mean, it's a while ago now, but my memory of that deal was it was actually a good deal to do and it did achieve a future for that business that took it on to another level.
[00:22:38] Speaker B: Yeah, Barry, you left years after that deal. I think at the time he did that deal, 2018, Jonathan hadn't had any of his hip replacement operations as so a lot has happened since then. You remind me a bit of the, you know, that probationary angel played by the actor Michael Landon in a program called highway to Heaven. He died in about 1991. Absolute legend. Your job in life seems to be to help people on earth in order to get a Deal over the line to or to. To earn your metaphorical wings before going on to the next troubled soul. Is that the way you see your role?
[00:23:13] Speaker D: Very much so. Although troubled soul is not always, has not always been the case. Sometimes they've approached me because they're flying.
But yeah, a lot of the, in the latter years a lot of the roles have been because people are looking for some kind of shift in their business whether, whether it be through financing, whether it be through restructuring. So yeah, I've tended to attract those opportunities.
[00:23:41] Speaker C: Right, should we finish, we move on to look at the last deal that we're going to chat about which is one that I don't know as much about, which was the data analytics company wejo.
[00:23:53] Speaker D: I was actually working with wejo as well as with Yearsly at the latter stages of the yearly acquisition because it became clear that when Linage acquired, completed the acquisition of years later, there would be no role for me as non exec chairman, which was totally fine because that wasn't what I was brought in to do. So I was clearly moving on. I'd hooked up with Richard Barlow who was the founder and CEO of wejo and I'd been working in the background with him, effectively raising the seed capital or the early stage capital. It had already been seeded the early stage capital Series B that was going to take the business through to monetization.
And we worked on a deal that concluded six weeks after the yearly deal concluded, which was to bring in General Motors as strategic investor in wego. Not only did we bring General Motors in as investor, we also signed a lucrative game changing contract to manage their data, their connected vehicle data across the whole of the US So little. We joined Chester managing the data for this huge multinational, but in their US heartland. So. And we took on 12 million connected vehicles in very short period of time. So that was a good segue. And when General Motors came in, Richard asked me to go full time into wego and I obviously went on the board and was CFO and took it through that transitional period.
[00:25:48] Speaker B: This won't happen very often, Barry, but I know more about this deal than the four times deal maker of the year, Jonathan Boyers. Yeah, this is a great or Ouija was a fantastic business. You know, if you think about the data that cars generate, accidents, potholes, they can tell you what music you're listening to. I mean this was a really good business. Got the GM investment which was a game changer. I remember interviewing you and you, you said that, you know, we're looking at potentially an ipo.
This will be a unicorn. It became briefly a unicorn. By the time you'd left, it had gone on the nasdaq. Being listed on the NASDAQ in the US as well last year, unfortunately, went into administration.
Why? How did a unicorn, that was that that you yourself heralded as a fantastic business and it was end up in administration so quickly?
[00:26:42] Speaker D: So obviously I wasn't playing any part in the business in the latter stages. I exited prior to the ipo. Well, it was a reverse takeover through a SPAC vehicle on nasdaq. So I left ahead of that, primarily because the business needed US management and the key team was the finance team, which needed to be set up in the us. So as soon as my successor was appointed, I exited stage left, which was fine. Again, job done. I had no intention of studying Sarbanes Oxley at my stage of my career. Sarbanes Oxley is the regulatory framework for a NASDAQ listed company.
[00:27:33] Speaker B: We all knew that.
[00:27:34] Speaker D: Yeah. So. And it's a completely different marketplace to the uk. So the businesses, the business has been sold. It achieved a market cap that gave it its unicorn status.
But put it quite simply, there were more sellers of stock than buyers of stock. And when that happens, there's only one way the stock price goes. This is a business that needed to generate cash from investors or other stakeholders, because it wasn't generating cash from its own business.
It needed to build out more platforms to bring on board more OEMs and motor manufacturers and bring on their data, which it was doing, but it was burning a lot of cash, which is fine. When investors support you. When investors don't support you, it becomes hugely problematic. And that's effectively what happened. If you look at what happened in 2022, tech stocks absolutely tanked right the way through most of half of last year. So there was a flight of fear away from tech stocks, particularly startups, particularly SPAC vehicle businesses that had listed on NASDAQ or even on the UK Stock Exchange. So they got caught up. Wejo got caught up in that very serious challenge and it was always going to be a problem, cutting cost whilst maintaining growth. Because if you can't build your team and you can't acquire data, you can't grow your business.
And once that vicious spiral effect happens, you get out of control. And we don't get out of control. The money isn't there just to see the business through on its business plan.
[00:29:32] Speaker C: The whole SPAC phenomenon has been amazing, really, hasn't it? Because it's effectively created quite a lot of Companies that are well backed that have an almost desperate need to find a deal to do. And so it can be great if you're trying to sell a business to them, but there's got to be question marks over that whole phenomena.
[00:29:54] Speaker B: Really just worth explaining the concept of the spac. I mean a US deal, but just explain the spac.
[00:30:00] Speaker D: So basically, public investors in Silicon Valley and across the US got very jealous of the venture capitalists who backed all the big names, your Googles, your Facebooks, the metas, Amazons of that era. It was all funded by private money through venture capital. Public money was jealous of that. So what was created were these shell companies that listed on New York Stock Exchange on NASDAQ with the purpose of going after these high growth startup businesses such as Wejo, such as WeWork, such as Kazoo Babylon, all names that pursued that route and most of them are struggling now as a consequence, some have failed along the way.
Unfortunately, when you're in the public marketplace, there is nowhere to hide.
If you've got private venture capital backers, they can make a call on taking a longer term view.
Institutional investors on the stock exchange can't do that because they're under massive pressure from the Penson funds, whoever is supplying them and that creates short term issues. It's great when the trajectory is the right way, but as soon as it turns against you, you've got a problem.
[00:31:40] Speaker C: Barry, this is the Dealmaker Uncut podcast.
You've had a wide experience, we've talked about those deals. You've been involved in sort of value realization for families, you've been involved in fundraising in various different types of scenario, you've been involved in restructuring and turnaround situations and major strategic plays. If you had almost the gamut of every type of deal that you could think of.
If you've got a tip or some tips about what it takes to be a successful deal maker, anything to add to what we've been discussing, I would.
[00:32:23] Speaker D: Reiterate is identify not just the obvious open spoken narrative around the the entrepreneur you're working with. Because it's typically been entrepreneurs, family businesses, brothers in arms, quite often and making sure that you fully understand the nuances that sit below the surface. If you can get into that psyche, you're going to avoid a lot of the problems going forward.
On the other side is have clarity of vision around funding. Yeah, because and I often use this phrase, cash is king. And I've worked with some hugely successful, well funded businesses and I've worked with some that are on an absolute shoestring and it's always the cash that causes the problem or the lack of cash that causes the problem. So I've always given great focus to cash flow.
Less concerned about profitability, much more about cash flow.
But most importantly is understand the stakeholder, understand what are their priorities, get beneath the skin and understand the nuances around those priorities, and that will give you a chance of success.
[00:33:50] Speaker C: Great. Thanks, Barry, and thanks for. Thanks for coming along and sharing your thoughts.
Should we go for a quick break?
[00:34:00] Speaker D: Thank you.
[00:34:07] Speaker A: Welcome back to the Dealmaker Uncut podcast. We've just interviewed the legend that is Barry Nightingale, who's worked some of the biggest Companies in the UK, including Air Tools, WeBrainyCar.com, betfred and Monarch Airlines. Jonathan, I know you enjoy speaking to him.
[00:34:20] Speaker B: What was your take?
[00:34:22] Speaker C: So I really enjoyed that.
[00:34:24] Speaker E: I mean, obviously Barry's got such a wealth of experience. You know, all those different businesses all facing those different challenges. Really, really interesting.
But Barry's just. He's a kind bloke and he's just a really nice bloke, so. And that comes through and it will have been key to the way he's dealt with his business career as well.
[00:34:48] Speaker A: Yeah, I think he's unashamedly northern. He plays to his northern roots as well. And I think the thing about Barry and we swim in the same sort of seas, you won't find many people with a bad word to say about Barry Nightingale. He's all about relationships.
You get him talking about his grandkids, you literally have to do an extra hour on his grandkids. He's just a really nice guy and a perfect guest for the podcast. This next bit is going to be called Ask Jonathan. This is when we have an opportunity to pit your knowledge to the test and answer you some questions. It's proving really popular with the listeners. So this is the first question we've got. Jonathan. I'm preparing to go through a sales process, but I've been told the buyer has a reputation for price chipping. Is there anything I can do to avoid this? And I think you should probably start, Jonathan, by just explaining what price chipping is.
[00:35:36] Speaker C: Yeah.
[00:35:37] Speaker E: So what this means is when people are selling a business on day one, when they think about starting a sale process, they can take or leave the sale, but as the process goes on and they approach lots of buyers, buyers start doing due diligence and the ultimate buyer finds out a lot more about the business. The pendulum swings and the power switches towards the buyer. And what will often happen, literally the Week before completion, the buyer reduces the price when they think that the buyer's on the hook.
And so that's the basic concept of price chipping. And very often, particularly when selling a business to private equity investors who are professional buyers of businesses, there's a point late in the process where the seller is vulnerable to price chips. So how do you deal with that? Well, I suppose there's two fundamental things creating competitive tension in the process. So there are several bidders. Bidding will usually be the best way of protecting against competitive tension. If you ended up with an underbidder who, who was at a similar price to the person, the bidder that you're going to sell to, there's always the risk that if the buyer chips the price when they've in a period of exclusivity, you can go back to the underbidder and sell to them instead.
People don't do that very often, but the threat of that will often protect against a price chip.
The other thing about price chips is just making sure that the seller, the business is as prepared for sale as possible. So there's no surprises during the due diligence process which makes a, you know, surprise liabilities or unexpected dips in trading that can make the seller vulnerable to, to a reduction in the price.
[00:37:29] Speaker A: Yeah, I know an advisor and he said that if there's ever a price chip, he just walks out the room and everybody knows that that is his line in the sand. And also there are a couple of PE houses where they've got a reputation for chippy, so some people will warn them against using those PE houses.
[00:37:47] Speaker E: I think the reality is people do still want to sell their businesses and sometimes there is a good reason for a price chip. Sometimes the seller has over inflated the projections or sometimes a price chip is justified.
The problem comes when it's not.
And I think people do still want to get deals done. So it's solving those differences really are the key to a deal. Often they're differences in perspectives rather than actual differences.
[00:38:19] Speaker A: It's a bit like selling a house really. You'd expect them to come back with ten grand off what you asked for. Next question. Dear Jonathan, how sales multiples worked out and why do they vary so much?
[00:38:31] Speaker E: So the value of a business is simply the present value of the likely cash flows that the business will generate in the future, discounted at a discount rate there that's appropriate for the risk of the sector. So that is what the valuation of a business is. It's very hard often to get very accurate projections for A business cash flow projection for a business into the future for 20 years. Some businesses you can, but it's difficult for a lot of businesses. And so the approximation for that is a price earnings multiple which is applied to the latest earnings figure that's available for the business.
And really the multiples will vary based on whether there's expected growth in the sector, whether the sector, whether the business is perceived to be low risk. If it's got an income stream that is secure for the next 10 years, then the multiple will probably be higher than if it's, if it deals in one off trades. And so there are a range of factors, but often just running a sale process that is competitive will drive value up as well. And so sometimes a higher multiple is just a factor of a well sold business. But they can, they multiples vary from sector to sector and can be dramatic. And in some time, some, you know, with very fast growing tech businesses, they may not even be profitable. Sometimes multiples are based on multiples of turnover, but those are unique businesses. Oh, sorry, typical. Typically special businesses that are growing very rapidly and a strong future is clearly visible.
[00:40:13] Speaker A: I know that the tech space is an area that I work in and obviously traditionally it's got a higher multiple. And like I say, you don't necessarily need to be profitable. You do, I think you do. Now you need to be some sort of signs of evidence and customer traction. But you know, if you're a SaaS based product and you've got the word AI in it, that can increase the multiple. Last question Jonathan, before we finish, how long does the due diligence process take within the sales process? Because that seems to vary, doesn't it?
[00:40:39] Speaker E: So most businesses that are going to be sold, we would advocate they prepare vendor due diligence. So that's basically appointing a firm to do the financial due diligence upfront and often commercial due diligence as well. So when a vendor has instructed somebody to do the due diligence as vendor due diligence, they choose who to appoint. They agree the scope of work and they, they can then decide who gets the due diligence report.
That can reduce the length of time that a buyer will need to do on their own due diligence. So often a buyer will want to do a bit of their own additional due diligence as well.
The length of process will typically depend on is it a tightly run sale process where the timeframes can be dictated by the seller, in which case the periods, you know, second round of a sale process might last four or five, six weeks and there may be a two or three week period to completion or even shorter than that. When people are just in a bilateral sale negotiation, somebody's approached them to see if they want if they want to sell the business. So it's not in a wide sale process, but just a one to one negotiation between seller and buyer. Often those processes will take longer because the the seller might not have been prepared for sale and the buyer will have longer to do due diligence. And sometimes that can stretch out for quite a long time, even months.
So it does vary quite a lot.
[00:42:12] Speaker A: Okay, well, I think we've run out of time actually. So that's the end for this episode of the Dealmaker Uncut podcast, powered by Alvarez and Marcel, who really are powering. Ahead, a final shout out to what media? They're the stars of the show. They're the kings and the queens of content creation. So thank you to them and thank you as always to the main man next to me, Jonathan Boyers.
[00:42:34] Speaker E: Thanks, Chris.
[00:42:34] Speaker A: Don't forget to subscribe to the podcast, tell your friends and family and follow us on social media. It really does help with those rankings. Thanks very much. Thank you for tuning in to the Dealmaker Uncut podcast. We hope you enjoyed today's conversation and found it insightful.
[00:42:47] Speaker B: If you like what you heard, be.
[00:42:48] Speaker A: Sure to subscribe and tell your friends. We'll catch you in the next episode of the Dealmaker Uncut podcast.
