How to prepare your business for Private Equity w/Mike Palm of Charter Capital Partners

Mike Palm (00:00)
Why open a Detroit office? Forget it. You’re doing fine

You’ve got good earnings, get everyone happy. you have an outside partner, it brings, might give you the gumption to say, why not? Let’s go open a Detroit office. Let’s go do an acquisition. Let’s go hire some salespeople. They’re all risky things that upset the apple cart of a family owned business that with, that gumption from outside capital, I literally using the outside capital to be that at risk capital, of course, because you’ve gotten money off the table and the deal you got done. That’s how you get out there and in private equity can bring you ways to grow.

Chris Tanke (01:21)
Welcome back to Navigating in Abundance. I’m Chris Tankey and today I’m delighted to have back yet again from Charter Capital Partners, Mike Palm. Welcome back, position.

Mike Palm (01:31)
Chris. Excited to be back

and join in the conversation.

Chris Tanke (01:37)
Yes, and I’ve got to tell you now we laid down a podcast with Mike about maybe two or three months ago. And we were focusing really on the investor and their consideration for should they be adding private equity to their portfolio as an alternative. And it’s becoming, ⁓ you know, much more of a common thing than it was maybe 10 or 15 years ago. And ⁓ it was it was a really good podcast. I encourage you all to watch it if you’re considering to do that.

It was the number one podcast we had ever done by far. So, uh, Michael, you’re a rock star. appreciate you back again.

Mike Palm (02:13)
Either it’s we were that compelling or we kept the AI bots enough engaged that they didn’t click off the stream. So it’s good. We’ll take the views over. Whatever it counts. That is good. There’s a lot of this podcast stuff out there. So if it’s stuff that people actually listening to, always happy to help and just pass along to bits of information and stories.

Chris Tanke (02:22)
Well, there you go. You know, I have to, I’m sorry.

Now appreciate that very much. Today we’re flipping the script. We are not laying down this podcast for investors. We’re laying down this podcast for business owners and entitling this how to prepare your business for a private private equity acquisition. Right. So you’re thinking gee maybe three four or five years from now or whatever I might want to sell a part of my practice or all of my business. I have different options of course but

Maybe private equity would make sense. And how should I go about preparing myself to do that? And what better way to have that question answered by talking to a PE guy that is in the business of acquiring the right firm? So I think that ⁓ your knowledge on this and your experience, some of your successes, maybe some of your failures, some of your worst stories, this would be good for us today, Mike, as we talk about how to prepare a business for private equity.

acquisition. thank you for ⁓ willing to have a chat with us. So I jotted down three questions. Again, we can get off these questions. I have no problem doing that. I jotted them down because I well, I just can’t seem to remember three questions at the same time. So I wanted to read some of these to you hand over the mic and let’s have a back and forth about three things that a business owner might want to be asking if ⁓ PE is for them.

Mike Palm (03:40)
Absolutely.

Chris Tanke (04:04)
in regards to a sale. And the first question is, obviously, at some point, every business is going to be sold. Why should an owner consider arranging with a PE group versus other types of suitors? Because I can sell it to my competitor. I can sell it ⁓ to ⁓ my employees, the staff. They might want to buy it. I can sell it to my children.

or whatever. mean, there’s a lot of different ways that you can, ⁓ liquidate your, your life’s work, but what does P E bring to the table? Why should a business owner consider maybe P E is another suitor.

Mike Palm (04:43)
Yeah, absolutely. And frankly, there’s the way you phrase the question that the concept of for some individuals, just even the concept that their business someday might be sold is a foreign topic. And some that’s just that no way this is going to get passed on. mean, that of course was the priority. A lot of family businesses. That’s what I’m thinking. Ideally, this is like a family owned second or third generation business. ⁓ You know, where do we go with it next? ⁓

Chris Tanke (05:01)
All right.

Mike Palm (05:09)
And so to answer your question, think the reason you think about private equity has what it is. It’s a capital source and it’s a partner. ⁓

But ways that individuals normally think about it, absent hearing from say this podcast or others that they might know who have done, who made investments or partnered with private equity is that it really is not black and white. It doesn’t mean a black and white binary sell or not sell your company. It’s usually looks much more partial. It’s very gray. And it’s just, that’s the way that most deals are done where you might sell minority, I’m going to minority piece of your business, less than 50%. You might sell majority, might sell 60 or 70%.

But you also, and I’m saying you, Chris, as the business owner here in this case, you might roll over as well for that other piece. So you might be recapping the business, paying off some debt, maybe buying out some other family members in the business, and then also rolling over with that new partner to go forward. So that’s the first concept I’d say is like, don’t think about it being black and white.

Chris Tanke (06:03)
Mm-hmm.

Mike Palm (06:10)
It’s just kind of like a do or die kind of mentality because it’s not, it’s usually a very great thing. But why you’d want to do something like that is because nothing against you, Chris, and all that you’ve built with your business, but there’s other outside sources of influence, help, expertise, just your ability to just multiply yourself by parting with someone like Pride Equity. They’re going to bring…

a different type of a growth mindset. They’re going to bring ideas to upgrade different systems or things in your business. They’re going to bring ideas to help upgrade your team, hire new people. And again, I’m thinking most from our market. We’re a lower middle market, you know, investors. We parted with companies, rewrite two to eight million dollar checks. We’re doing total deal sizes, we call it 10 to 50 million dollars. We’re not doing multi-billion dollar deals. Yes, in the multi-billion dollar deal world, which I don’t think is our audience here today.

There of course there’s private equity firms that do come in and instead of hiring tons of employees there They could be trying to rationalize things or streamline the business in our world We’re getting out there trying to find ways to hire people expand your I refuse those things in different than what you Chris I’m gonna keep using you as example. This is easy You know Chris might be thinking you when you go you’ve got a good business. It’s running. It’s fine Why do you have to worry about expanding say, know, we’re in we’re in West Michigan. Why open a Detroit office? Forget it. You’re doing fine

You’ve got good earnings, get everyone happy. But when you have an outside partner, it brings, might give you the gumption to say, why not? Let’s go open a Detroit office. Let’s go do an acquisition. Let’s go hire some salespeople. They’re all risky things that upset the apple cart of a family owned business that with, that gumption from outside capital, I literally using the outside capital to be that at risk capital, of course, because you’ve gotten money off the table and the deal you got done. That’s how you get out there and in private equity can bring you ways to grow.

Chris Tanke (08:00)
Wow, that’s, that’s a lot to unpack. There’s a lot of opportunity there. Can I ask you this question, Mike, in the deals that you guys do, ⁓ how many of these are basically total buyouts versus you’re buying into some partnership? How much is the no, no cut me a check, I’m out or do a structured settlement. I’m out in five years, but it’s all yours. So therefore a lot of what you just discussed is not so much my concern as a business owner. I’m just looking for a way out.

What percentage of your acquisitions are those kind of things versus no, actually it’s more of a relationship we’re entering into because we’re only partial owners or what the case might be.

Mike Palm (08:38)
Because the businesses we’re investing in are smaller compared to the huge say half a billion dollar billion dollar plus deals I Would say zero are hundred percent exits. There’s very few ⁓ Roll over and Sellers having some skin in the game going forward also means that having these conversations and thinking about exit It should start earlier earlier and earlier because when you come to market or go find a partner

they’re going to say, Chris, you’re great and we like your team. But if you’re saying you want to work just part time, that’s fine. We can do that. But we got to stage it out. You can go to part time after we close, but then to go fully out of the business, it’s going to take a few years. You’ve got to help us with that transition. And so that’s where you get your, quote, second bite of the apple. It’s one of our favorite phrases in private equity space where we’re selling the business again down the road. And then that kind of becomes your full exit.

Chris Tanke (09:23)
Right.

That’s right.

Mike Palm (09:34)
Which is a wild concept and there is our ways that you know, people can say, know, that’s and sellers do do that. They put a line in his hand and say, that’s it. I will not. I am not doing anything. We’re going to close on Friday and I’m not showing up on Monday, but I’ll tell those sellers that either business is going to be worth less to buyers because we’re going to wonder what do you what do know that you’re not willing to tell us? ⁓ So it’s usually, you know, it’s very typical that there’s some rollover.

Chris Tanke (09:54)
for sure.

Yeah, I certainly think that would be critical. ⁓ You’re going to be selling at a discount if you want out quickly. And even if everything is totally fine, there’s nothing nefarious going on. It’s your relationships, it’s your team, it’s your processes for all of your clientele to get a letter saying, hey, I’m in the Bahamas now. Talk to Mike. It’s going to be like, So retention is going to be a serious problem in that kind of a thing.

Mike Palm (10:27)
⁓ We, you know.

There are,

we had one,

sellers, they literally did the post-clos… This is before Zoom. This was 10 plus years ago. And they did it down in Hilton Head at their new ocean house or something. And that deal didn’t end up going very well, unfortunately. ⁓ The point being is that they had already checked out, that was part of the deal. so I said zero, but the vast majority, if not almost all, every now and there might be some reason for it, but most times there’s some sort of roll over.

Chris Tanke (11:03)
So it’s really best to start this process, this consideration years before you lose your heart for the business or you become a lame duck. Because at some point there is a life cycle of a business, a life cycle of everything. And you’re going to go from building to just maintaining. And then after a while, that’s going to demoralize you and you just want out.

If you want out, that’s fine, but I’m hearing to say that we might want to have conversation eight to 10 years even before you’re thinking about doing that. So we can help with the glide path. You can get the highest value for your firm, your business, because it’s still vibrant, you’re still involved, and then let’s work together on a transition phase.

Mike Palm (11:49)
Yeah, exactly. so ⁓ some of those conversations, because making assumptions about where you’re going to go with an exit or if you’re going to exit, again, like to even start the question was like the if is the first question. But then once the decision to exit is there, where it goes is a question. There’s lots of alternatives. The fact that again, we’re thinking of just the example kind of being a family owned business that might be second, third generation.

You know, the family businesses don’t always just get passed down to kind of the next generation. And that kind of was historically the case. I mean, I’m speaking in wide generalizations, but if you think back to say the 1980s, it’s a different landscape right now. The world has changed massively in the last 40 to 50 years with what children as they’re coming up, what they see, what they can do. Just the.

mobility in this country in general. I live here today, I could go live someplace else. mean, people are very free to move out the country as Southwest has encouraged us. But the idea is that, know, just growing up in the 60s, 70s and 80s, oh, okay, that’s mom and dad’s business. I’m going to just go do that. Now it’s look at the whole world’s in front of me. This is before the internet. This is before you mentioned YouTubers and all that kind of stuff. Don’t even start me with what 12 year olds want to go and do with their lives when they see all that.

YouTube crazy stuff. So that just changes people’s opinions and mom and dad might feel sad at first that that’s just not what their their offspring want to do. But oftentimes there’s still other great homes for the business.

Chris Tanke (13:25)
Yeah, definitely a lot easier to get off the farm nowadays than was 50 years ago. A lot more options.

Mike Palm (13:28)
Yeah, that’s exactly my point. There’s a lot of options

and they’re all right there. They’re a click away. You can see them.

Chris Tanke (13:35)
Mike, this is sort of a side conversation here, but I do want to spend a few minutes on this because the power of the second bite of the apple. Again, ⁓ this goes to bat for the idea of start eight, 10, 12 years before you think you might want to be totally out. Talk about that. Let’s stroke that a little bit because it’s such a powerful thing. Mike Walters of USA Financial Securities when he had him on, he talked about that. Can you lay that out?

why PE guys get so excited and what some of the real value of working with PE produces. The second bite of the apple.

Mike Palm (14:13)
I would say to benefit my own position and role, would say the second body of the apple to your point is so important and you know, blah, blah, blah, Chris, we’re going to make you just as much money, if not more at the next exit. And, you know, despite my blah, blah, blah there, that actually kind of is almost true.

There’s a lot of sellers that make more money on that second because it gets invested with a private firm that is going, they’re taking swings. You know, they’re trying to load the bases and then just crank one sometimes. Sometimes it doesn’t work out well. ⁓ But you know, they are, they’re taking over. So it is actually impressive to see and hear about how those things work. ⁓ However, against my role and where I sit, but to the benefit of your listeners and your clients.

get all the money you need in the first bite. And almost every seller I know that didn’t do a deal with me necessarily because they’re not gonna, they don’t wanna laugh at me and be that honest, but other people I know that have sold businesses or family members that have sold businesses or extended family, they’ve always said, yeah, I don’t know, they had me roll over some stuff, but I don’t need that. If that works, that’s just gravy.

So, you know, and that usually is the case. you know, defend yourself, defend your balance sheet, get what you need in that initial transaction. ⁓ And then everything else from there is just gravy. Not that it’s at risk and go away, but that is just kind of like the real, the secret advice I would give is that most people I talk to, you know, get what they need at that first deal. And they say, I don’t need anything else on the road.

Chris Tanke (15:30)
Hmm.

Right, and the value that we’ve all backed into as business owners is our equity. mean, cash flow is great. That’s lovely. But it’s the equity piece, which is the payday for most business owners. And sometimes that payday is 20 or 30 years in coming. So if I just sell a portion off initially 40 % or whatever, 30%, whatever it is,

as I’m having partnership, new ideas with a PE group, and I’m just really actually enjoying life, frankly, ⁓ because of all the the synergy and stuff I’m being energized again, when it comes time to sell my other 60%, seven or eight years down the road, it’s going to be worth more than the firm was hopefully, you know, in total 100%, seven or eight years previous, there’s a second bite of the apple, right? So ⁓

You know, the idea is hold on to your equity as long as you can, generally, as long as the world works the way it should, because that’s where your value is. that’s where the second bite of the apple really can be an amazing, wonderful thing ⁓ that is, I said, all the sweeter when you’re dealing with folks that can actually prod you or…

provide you opportunities for the business to grow just by the nature of what they bring to the table as partners with you as it were. guess I’d, gumption?

Mike Palm (17:25)
Dumpster is what I call it. Nothing

against Chris and Chris running his business and having a simple and having enough, you know, which is great. That’s awesome. But a lot of business owners just, and I don’t blame them. They’re just lifestyle businesses. don’t, and there’s nothing wrong with that. That’s amazing. That’s an awesome feat of success. It’s the epitome of capitalism and the American dream to have a lifestyle business like that.

Chris Tanke (17:50)
Mm-hmm.

Mike Palm (17:50)
But when someone comes in and wants to bring their own capital, amen, because they’re risking their money, not yours. Yes, I get it, the rollover, but still, again, I just told you, get everything at your first deal. But they’re going to pour gasoline on the fire. That’s the button. And the odds are it’s not a 50-50. is, know, give me experience where they’re trying to go with things. They’re backing you and your company because there’s things about it that they really like. ⁓ The chances are that it could…

might not shoot the moon, it could at least double or triple in value.

Chris Tanke (18:22)
Right. That’s right. So this brings into the next question, right? ⁓ What can business owners do to make their businesses more attractive One of the things is, and I hadn’t thought about this, we could talk about some of the other ones, of course, but I hadn’t thought about this one. One of the ways to make myself attractive is to make sure that my attitude is right.

in wanting to be prodded a bit. If this is something that’s there’s a there’s a 10 year sunset, I’m going to sell 40 % of it now. I better be ready to kind of reinvent the way I look at things because now there are other folks in the family. Right? Yeah. Well, you you all I mean, you you buy 40 % of Yeah, all of a sudden it’s like gee whiz.

Mike Palm (19:07)
Sorry, what do you mean other folks in the family? Oh, around the table. Yeah. Got it.

Chris Tanke (19:15)
You might want to talk to me every once in a while, or you might have some ideas or whatever. So if I’m going to make myself attractive to you guys to purchase a certain part of my firm, my attitude better be right that I have enough time and I have enough interest to actually work with other people to improve versus, no, no, this is the way it’s always been done before. I don’t want to have conversation with people. I mean, I would think that would be a super red flag for you to work with somebody like

Mike Palm (19:41)
So I would flip it a little bit. would just say, pretend you’re selling 60 % versus 40. There’s definitely firms that do 40 minority deals, but just more when we’re gonna do 60, because they’ll just want majority. So they can control the dusting and go do things. Again, they have your rollover capital for the other 40 % or whatever you do roll. And that’s just as exciting. But yeah, there’s definitely a changing of thinking about how…

Well, even when you say prodding, just getting prodded for due diligence. mean, that’s a whole nother mentality shift where people have you haven’t had to answer these annoying questions. You you just run your business and I tell you, it’s never ending. As I say, we ask endless questions. And then the final one is what’s your wiring instructions? And then we close and we send you a nice big wire, you know, usually at that day. And so that that’s exciting. But ⁓ what it takes to get there in what?

Chris Tanke (20:14)
That’s right.

Mike Palm (20:31)
you know, what private firms are looking for is all over the map. There’s some very generic, simple things I can get to in a second, but the odd thing also is that there’s different private equity firms. There’s different firms with different strategies, everything you can imagine. ⁓ One of my favorite firms has their strategy is to buy literally the number one or number two company in a space in a completely.

overlooked industry and I can’t recall exactly how they determine overlooked but for example there’s a company that church bulletins so it’s Sunday morning there’s a church bulletin there’s different companies that program and put all that together and they go to the different churches and they you know there’s it’s a content system but they help print all those and get them all kicked out and it’s some sort of a software and printing company

Chris Tanke (21:00)
Hmm.

Mike Palm (21:19)
and completely overlooked industry as this private company, but they own the one company in this country that does that. That’s just like a funny example of you might be surprised there’s a home for every single business as nuanced as you think you might be. ⁓ There’s another group that they literally, they solely seek out blue collar owners as they call them. We want operators that are blue collar and we’re going to partner with them. That’s our specialty because their backgrounds are

Chris Tanke (21:34)
Hmm.

Mike Palm (21:49)
in the labor and blue collar space and they say, that’s us, we want to find them. And so there is very unique ways to go and find those kinds of buyers. Beyond those more unique strategies, the general things that make your business attractive. I’ll say, if I haven’t said it yet, guess, but when you talk to an advisor about valuing your business, they will help you look at these different things.

we put together a slide, our advisory group essentially would say, basically we call it value drivers and detractors. So here’s kind of your business across a bunch of different paradigms. Here’s things that are driving its value and here’s things that are detracting from its value. And not all those things you can fix. ⁓ Some of them will be things you can fix where maybe you have a real estate footprint that has a questionable environmental thing. Okay, great. Get the phase two finished, know, put that in a bow. Got it. ⁓

Chris Tanke (22:27)
Mm-hmm.

Mike Palm (22:40)
Maybe you have part of your organization where you’ve had an empty spot on HR for a number of years. Okay, let’s get it filled. Let’s check that box. Let’s move on. But other things that are harder to drive value at might be, harder to fix, lack of term, would be say a customer concentration. know, John Doe Company has been your biggest customer at 12 % of your revenue or 20 % of your revenue for, for, you know, 20 plus years. And it’s just, you know, to change that dynamic.

in a short period of time is very tough. So things that get firms excited are low customer concentration, are continuity and management teams, having a full team that runs the business, but then also a team of lieutenants, as we call them, the tier below. Obviously, like I said, I would say the generic things like decent, strong EBITDA margins, which is essentially a proxy for cash flow, some sort of a defendable product position.

Chris Tanke (23:35)
Mm-hmm.

Mike Palm (23:36)
an understanding of competitor status, where competitors are, how a company wins. We will ask that often of a management team. We say, how do you win? Tell us specifically what makes it a winning solution, a winning product, a winning team, a winning company, kind of thing. Ways to describe that is important. And so there’s a number of these things, and there’s a lot of ways to look at a company, again, it’s a very, there’s just all sorts of different fixtures. if you’re working with a divisor that help take you to market,

they will come up with these things. It’s again, like the drivers and detractors that you can think through and try to improve upon as you get out to go approach potential partners. honestly, those things I just described, they really go for any type of a buyer.

Chris Tanke (24:22)
That’s true too, right. Okay, let’s switch this a little bit here. Let’s say somebody is currently being corded. And they might be on the first or second date with a PE firm. And there’s a lot to consider, because a lot of the things that you laid out from your end, what you’re looking for, as you’re kicking the tires of a potential suitor.

Of course, so is the business owner kicking the tires of potential suitors. How do they begin evaluating whether or not I want to end up getting married with a PE firm? How do I determine, can you give us some pointers on how a business owner might determine whether or not this is a good relationship for me or this is a good culture for me to be involved with or?

To me, think that’s a very large decision to make on a business owner’s side.

Mike Palm (25:17)
the idea, so I’ll get to the reference track part of it, but before you there, I mean, just the initial point, are they really being courted? That’s the big thing. Are you really being courted? Because I’ll tell you the emails that are out there, they’re everywhere. They’re nuts. They’re drip campaigns. I’m sorry. I know you were flattered. They’re, they love you. They want you. That’s a drip campaign. And if you don’t respond to it, it’s just going to get another email following week. ⁓

Chris Tanke (25:32)
yeah.

Yeah, everybody.

Mike Palm (25:48)
I had a friend of mine, she forwarded an email and she sent it to me on a Wednesday. But the email had come on a Monday or something at like three in the morning Eastern time, which would technically, and the email came out of a group out of Europe. So it’s three in Eastern time, you’re backing into it. Okay, this technically would mean the email came at like,

Chris Tanke (26:09)
Hmm.

Mike Palm (26:15)
You know, it was, it was a weekend hour situation where I’m like, this person was sending emails from Europe on Sunday. My understanding is that’s not normally a thing Europeans do. And then you go and look at the person’s name and you go to LinkedIn and you realize, okay, well, 10 years ago, they were a bartender. Now they’re working at this financial advisory firm and they’re just trying to find business targets. And this person said a lot of nice things about your industry. And I do feel like they know, I don’t know if they’ve done their homework, but they at least said it. They knew some key words to say.

but that was kind of about it. so sure enough, she kind of paused and as flattered as she was when she read my email, she’s like, that’s, yeah, that was it. I mean, this person, this doesn’t make any sense. ⁓ So the first thing is, are you really being courted?

Chris Tanke (27:01)
Yeah, and if I had a dollar for every

time someone emails me say, Chris, I’ve seen Strategic Financial Group’s website. I’m very impressed with your holistic approach. Sounds like you’re the perfect fit for us. Let’s talk. And I’m like, yeah, yeah, yeah, delete, you know, so, but, but if you do, right, if you do go on a date, ⁓ and then, well, you speed date at first, I guess, but they actually do go on a date and you’re starting to talk. ⁓

Mike Palm (27:19)
⁓

Chris Tanke (27:31)
And you’re saying, well, there may be some potential here, but still, wow, you’re there’s a law, a long road yet before you make that decision. How do I approach that? What are some things I’m looking for? I, or I should be looking for to make sure that, that our match is going to be made in heaven.

Mike Palm (27:49)
So first get things that when you’re courting, you want to get them to an offer. They might say things, ⁓ they want to do some diligence. They want to look at some things. You don’t need to give them the sun, the moon and the stars. You can just give them enough, even just hearsay. You can say, yeah, our revenue is X and our EBITDA profitability is Y. It’s this margin we’re growing this way. That takes care of the financial picture. Also subject to diligence. If you’re lying, of course, they’re going to peel back the eye and say, well, what the heck is this?

Chris Tanke (28:17)
course.

Mike Palm (28:19)
⁓ So don’t lock, ⁓ obviously. But the point is like, they don’t need to know your entire customer list. Like, well, yeah, okay. You know, we have one company that’s 12 % of our revenue. That’s our largest customer. Okay, great. They don’t need to peel into that stuff, especially because you do, you can’t just be given your, anyone can sign an NDA. And so you don’t need to just be giving your information out to everybody. So as things progress, pretty quickly say, like, you ready to offer or not? And it doesn’t have to be, it’s not a binding offer. It’s just,

Chris Tanke (28:20)
Right. Yeah.

Mike Palm (28:49)
This is what we think the business is worth. They need to put it on paper. A lot of times, ⁓ many, many times, we hear an organization or an investor say something like they’re going to pay accent value. And then when that letter is actually written, it comes back at a different number. It’s usually lower, of course. ⁓ So do get things in writing because sometimes people go on a couple of dates, a few dates, four dates, and then it goes nowhere. And it turns out it’s just because it was all for nothing. But with nothing on paper, you don’t know what you’re working towards. ⁓

Chris Tanke (29:04)
Mm-hmm.

Right.

Mike Palm (29:18)
As you get further and you have an offer and whether it’s signed up and they’re doing diligence on you and now it’s your turn to do diligence on them. You have to open out, try to ask them whatever questions you would like about their business, how they operate, who they are, who they work with, how they interact with their companies, reporting rhythm, reporting cycles, what they need, when they expect to have board meetings, all these things. But then what really, and you can take that for what it’s worth. And obviously again, they shouldn’t be lying either. So it should be.

a transparent conversation. But then if it is a private equity firm, their website will list all their portfolio companies. ⁓ Find ways to talk to those companies. LinkedIn is a great resource to find people that have worked with these people. Common connections on LinkedIn with the people that you’re talking to at the firm. Common connections with portfolio company CEOs. ⁓ And then if that doesn’t work, find other people you know or work with people through your own connections to get to those people.

⁓ then the two routes you go there, one would be, you know, for you, for Chris to just pick up the phone and say, Hey Joe, my name is Chris. I’m, and you could describe who you are real quick in 30 seconds. I’m talking to ABC private equity and they’ll freeze. And so we’re with Chris. What’s going on? I’m like, well, how’s it met? And you’ll be surprised as from one business owner to another, they will give you information. Now some business owners will say, Whoa, I don’t want to be telling anybody I’m talking to ABC private equity. Cause then that note, then they know I’m for sale.

Chris Tanke (30:39)
Mm-hmm.

Mike Palm (30:47)
That’s fine too. Then just find a friend, find someone that you trust to say, Hey Mike, could you call ABC private equity and just say, you know, just do see what you can find out and sure. No problem. Do that. And I’m in the space, but you don’t need them. I you could have, you know, really anyone could, your attorney could do it. Your accountant could do it. Your wealth manager could do it. But just the concept again is that you find someone say, Hey, I’m talking to, you know, one of a close colleague of mine is, talking to ABC co.

You’re one of their portfolio companies. You’ve been a CEO of one of their businesses for six years. How’s it been? And just see where it goes. And I’ve always said, you know, our website has our portfolio companies on it. People can know what companies, what boards I’m on and whatnot. should, if Chris, if I’m looking to partner with you, I should have no qualms if you say, hey, Mike, I’m going to call these three companies. Like, great, give them a call and I’ll get you the information. I mean, if you do then,

Chris Tanke (31:22)
Mm-hmm. Mm-hmm.

Mike Palm (31:43)
And of course, everything I just said basically is the unofficial route. But as we know, when it comes to references, the unofficial route usually is the best way to get the best information. But if you go the official route, yeah, they’ll probably have a list for you. If they don’t, that’s a huge red flag. Or if they’re squeamish about it, that’s also a red flag. So those are the ways that you want to vet things out by talking to the real people that have done a deal with this firm so you know what you’re getting into.

Chris Tanke (32:08)
Super good advice there, ladies and gentlemen. Super good advice. All right, coming in for a landing, Michael. ⁓ Is there anything that maybe we didn’t cover that you’re wondering about, or do you think that’s a good 101 for preparing your business for PE? Anything, any area we might want to stroke a little more?

Mike Palm (32:29)
I think, mean, hire, have an advisor. mean, whether your advisor is an investment banker or your advisor is your attorney, someone you’ve trusted for a while, ⁓ private equity firms and sell everyone. We, we on in the deal world, this is all we do 24 seven. So yeah, we know real quick to get up to speed and term sheets and legal documents. And you know what? You’re a brilliant.

business owner and you’ve grown in a fantastic operation. It’s fine to not know all the nuances of this term sheet, this LLI. It’s fine. Don’t, you know, fee, but do take it to your attorney that you trust. Do trust him to bill you for a couple hours to review it. It’s definitely boohoozy to do that and it’s worth the money, it’s money well spent. And have that advisor to bounce ideas off of. ⁓

Chris Tanke (33:07)
Mm-hmm.

No.

Mike Palm (33:19)
do at some point make sure it is an advisor that does a good amount of &A so they can go toe to toe with the other attorneys that will be in the room. But do get an advisor so you have help. But then behind the scenes, these are all the other things that you’re doing to either get the business ready to have real conversations, fared out fake conversations, and then do reference checks when you need them.

Chris Tanke (33:39)
Yes, rule number one is you do not know what you do not know. So make sure don’t go in there with bravado being the man being the woman. It’s like, you know. Yeah, yeah, yeah, you can’t pretend here, right? Bring people in that this is their space. ⁓ You need to become adept at understanding, but you cannot be the expert. You’re not bright enough to be the expert. You’re just not.

Mike Palm (33:55)
We.

Yeah.

Chris Tanke (34:09)
Uh, uh, you’re much more brilliant in other areas, but a little humility is going to go a long way, right? To first of all, work with people that can explain this to you and then you know enough, let them handle the minutia, the fine print of it. mean, that’s just, hopefully, you know, everybody’s listening to this is sort of like you’re preaching to the choir. Cause that’s how I got where I’m at. Right. Um, is that I don’t do everything because I’m not good at everything. So.

Mike Palm (34:37)
Yeah, yeah,

I’m not gonna, I’m not gonna run your business. That’s why I do what I do, okay? I have no interest in running your business to another. So that’s why I’m the expert in that little thing I do in the &A world and not your business. And that’s why we wanna retain you and have you roll over and be part of that going forward. But that’s also why you wanna have other people to help you. And to your point on knowing or not knowing, ⁓ we call it it’s Ronald Reagan 101, just trust but verify.

Chris Tanke (34:42)
That’s right.

Mm-hmm.

Mike Palm (35:02)
No

one should ever be putting you in like a pressure situation, but you know, you’ve got a letter, an OLY and Joe private equity saying, yeah, no, no, don’t worry, Chris, it’s this and this. And that’s how the earn out works. And this is how the role of equity is going to work. You say, oh, hey, hold on, Joe, I got you. I got to run up past my attorney, Gary. And obviously he’s not going to problem with that. So just, just make sure you, you trust but verify. If he does run away. Yeah.

Chris Tanke (35:27)
And if he does run away, right? So there

you go, right?

Mike Palm (35:31)
And then you save yourself so much time you back to running your business.

Chris Tanke (35:34)
Yeah. Yeah. There is a, there still is. It’s a dangerous thing to say as I come in for a closing, but there still is a, uh, an amount of handshake to this. Even as you said before, before you, you, you’ve, know, you get anything official, you probably should have a pretty good feel, uh, for the individual, for the organization, both as a seller and a buyer. Um,

Obviously, you’re going to substantiate these things, but ⁓ you’re probably going to have a pretty good feel before you get way deep in this, whether or not it’s going to work, kind of a handshake kind of feel to things, which I think is is refreshing because in the end, it’s still people. ⁓ And ⁓ it’s still about if especially if you’re going to get married in such a fashion like this, it’s about respect and trust.

And a lot of that is determined ⁓ before the lawyers are heavily involved with producing the documents. And I think that that’s great. And I would say ⁓ if that creeps out a PE firm, ⁓ that they want to be far more formal than that, I’d be like, yeah, well, not you. There’s other suitors for me. ⁓ Honestly. Yeah.

Mike Palm (36:57)
Yeah, it’s important to get to know them for sure. And

as we say, break bread, have dinners, ⁓ meet multiple times, understand how they operate, who they are. Get the dinners. When we have dinners, we like to talk about not business. That’s the rule. I want to hear about families and hobbies and kids and… ⁓

Chris Tanke (37:14)
Mm-hmm.

Mike Palm (37:21)
There is a notion of someone who’s selling their business where as much as we want them to be involved still to transition or roll over and help us with some exit or I’m sorry, some growth planning. ⁓

We do love sometimes to know that you’ve got some hobbies, that maybe you’ve got some grandkids or you’re trying to work on your handicap or you can’t wait till, you know, it’s fly-efficient season, that kind of thing. So it’s, it’s always good to know. And then we have those things too. We’re also human. So you got to have that connectivity. Sometimes you will deal firms that are sitting in a big, right. Where I used to live in Chicago where, yeah, Chris knows, we’ll email you letter and let’s hop on a zoom. And you never meet them in person. They don’t come to visit. It’s like, well, then they’re just kind of doing a drive.

And that’s never going to be good. And then you’re meeting them at the very, towards the end. And that’s no fun. Meet them on the front.

Chris Tanke (38:10)
Well, it doesn’t, it doesn’t,

yeah, it doesn’t pave a path for, ⁓ for, ongoing relationships and communications. Cause essentially, and it’s just like any marriage, everyone’s well, ⁓ something might go wrong and you got to fix it. sure want to have a relationship before you’re involved with that process. I’ll tell you that. So how about that? ⁓ for all the high tech and advancement we made, lot of this still is, ⁓ you know, a handshake world. I would suggest.

again to a degree ⁓ that’s the way you begin to assess so that’s that’s really good. Michael people can contact you we’ll put your contact information up I should say is it okay if they contact you if they want to talk any further? ⁓

Mike Palm (38:51)
Yeah, Drop a line

and happy to provide quick and free and unsolicited advice. mean, that’s what this is. Everybody needs people in their corner, especially if we’re talking about people that are local to us here and always happy to help. And then really anywhere though.

Chris Tanke (39:06)
Yeah. No,

I appreciate that. I appreciate you. Appreciate you investing some time in our audience. Ladies and gentlemen, again, thank you for listening to this episode of Navigating Abundance, all about preparing your business for private equity acquisition. And until we meet again, remember, your family is worth it.

Strategic Financial Group (39:29)
Thank you for joining us for today’s episode of Navigating Abundance. If you found this information useful or helpful in any way, let us know in the comment section below. If you’d like to see more content like this and follow our podcast, you can find us on all major podcast platforms. If you’re interested in working with today’s guests, you can find their information in the description of this podcast. If you’d like to know more about Navigating Abundance and how we may help you or find more resources related to what we do, you can find those at navigatingabundance.com.