Mind Your Business

Sheldon Brickman on Mergers and Acquisitions

This column features business insights from a recent “Mind Your Business with Yitzchok Saftlas” radio show. The weekly “Mind Your Business” show – broadcasting since 2015 – features interviews with Fortune 500 executives, business leaders and marketing gurus. Prominent guests include John Sculley, former CEO of Apple and Pepsi; Dick Schulze, founder and Chairman Emeritus of Best Buy; and Beth Comstock, former Vice Chair of GE; among over 400+ senior-level executives and business celebrities. Yitzchok Saftlas, president of Bottom Line Marketing Group, hosts the weekly “Mind Your Business” show, which airs at 10pm every Sunday night on 710 WOR and throughout America on the iHeartRadio Network.

On a recent 710 WOR “Mind Your Business” broadcast, Yitzchok Saftlas (YS) spoke with guest Sheldon Brickman (SB), president of Rockshore Advisors, on the topic of Mergers and Acquisitions.

YS: For those out there that are not familiar with M&A, what’s the simple definition of Mergers and Acquisitions?

SB: Well, in the simplest way, someone owns a company, let’s say Coca Cola. If Coca Cola’s owners decided one day, “Hey, we want to sell,” then they would engage investment bankers, like myself, to sort of get them ready for a sale. What does that mean? They would put together a dynamic financial model that shows the historical financial performance, current financial performance, and projected financial performance, as well as put together what’s called a CIM (Confidential Information Memorandum). A CIM is a PowerPoint presentation that gives the history of the company. It shows both qualitative and quantitative, what the company is, talks about the owners, talks about their product, etc.

Then, we take the financial information, we take the qualitative information, and we have proprietary databases at our disposal for that specific industry. We can target potential buyers that would have an interest in acquiring this business. We approach them on a no-names basis first, tell them about the company, and if they think, “Hey, this is something that I’m interested in,” they would sign a nondisclosure agreement. We’d share the information, have management meetings with them, and then ultimately, what would come out of the process is, potential buyers would shower our buyers with Letters of Intent (LOIs). Then, my client would have to choose among a couple of Letters of Intent, and say, “Hey, we’re gonna go with them,” and sign an exclusive Letter of Intent.

The potential buyer does due diligence at the same time they are negotiating a purchase agreement, and hopefully 60 days out, the transaction is consummated, and everybody’s happy.

One thing that I’ve definitely picked up is that you love M&A. How important is it for someone to be passionate about what they do?

To go to work every day, you really have to like what you do. From early in life, I always enjoyed finance. I knew when I started in college, and even when I came out of college, I wanted to do something in finance. What that was, I didn’t really know. But I figured, G-d put me on the path. And starting in public accounting and being exposed to those things, then going to work for Japanese investment company and being exposed to some of the investment world, was a really good foundation for then joining AIG and doing Mergers and Acquisitions.

You know, the interesting thing about M&A in my role is that you work with a client, you get to know their business, you find a buyer for them, you get a deal done, and then it’s off to the next transaction. And it’s just different industries, different transactions, different people…I find that to be very self-fulfilling.

Perhaps you could talk about the biggest deal you’ve ever been involved in?

So, obviously, when I was working for AIG, those transactions were astronomical. We made an acquisition north of $18 billion in the insurance and wealth management space. But, focusing more on Rockshore, since I’ve been on my own, the largest deal we did was north of $200 million. It was actually something in the healthcare space, that’s quite hot now. But we’ve done deals as small as $2-3 million, lot of deals in the $40 million space.

pen during a Merger and Acquisition deal?

When we’re engaged by a seller to represent them, the first thing that we’re going to do is work with them in a very confidential way. Confidentiality is very important to sellers, because A) they don’t want their customers to know what’s going on; and B) they don’t want their competition to know what’s going on. If the competition finds out, they go to the customers and say, “Hey, you don’t want to be a customer for this guy.”

Once potential buyers get involved, they sign a very tight nondisclosure agreement. And people can say, “But do people really honor them?” Yeah, people really do. History has shown that if someone signs a nondisclosure, they know they’re liable if they leak it.

The first thing, from a financial information standpoint, is we either get with their CFO or their outside accountant to get a significant amount of financial related information; historicals, revenues, expenses. We focus on getting a really good understanding of the business from a financial statement standpoint. What is driving revenue growth? What is driving profit margins? How do they compare to their competitors? We’re getting a handle over the financial information to be able to tell the story quantitatively, to show the company’s strengths from a financial standpoint. Every company has a unique story in terms of “how we got to where we are,” in terms of its unique products or services. So, we’re crafting the confidential information memorandum to be able to really tell the owner’s story the right way. And also, to be able to show that the financial performance of the of the company is something that’s desirable. We prepare the information, they review it, give us comments, and once things are done, we’re ready to go out to market.

Then, we’re also preparing a list of potential buyers who would be a good fit. There are two types of buyers: financial buyers and strategic buyers. Financial buyers are private equity firms that want to make an acquisition. They have a lot of money to put to work, and they want to buy companies. What we have found is your strategic buyers can pay even more because they can unlock synergies. It can be in introducing the seller’s products through their sales representatives. There are so many ways a true strategic acquirer can unlock value. So, we focus both on financial and straNow, let’s swing back to the other direction. What is the smallest deal that makes sense for someone who built a company to entertain selling or being acquired by another company?

Something that’s at least $5 million in revenue is something that would get the buyer interested. A buyer wants to acquire something that’s going to make a meaningful impact to their business. Obviously, there are definite industries that even make acquisitions with companies with $1 million in revenue; for example, we’ve done a lot of transactions with insurance brokers. Insurance of profit with the snap of a finger.” So, we do that on their behalf.

Very often also, we will be engaged by companies to help them, because they know that we’ve looked at the company from an M&A standpoint. They’ll want to engage and say, “Can you help us specifically identify additional synergies?” So that happens as well, where we’re representing the sellers, but the buyers will engage us because they like the work that we’ve done, and they know that we have insight that we can provide them.

Sheldon, you’ve worked in M&A around the world. Perhaps you could talk about some differences in approach. What interests a Japanese

“To go to work every day, you really have to like what you do.”

brokerages are an extremely hot market. If there was an insurance broker, even with a million and a half of revenue, you would have 10 potential buyers within a week of going out to market. But, generally speaking, things need to be bigger.

You’ve said that a company looking to acquire another company should look for ways that the new acquisition could help them in a greater capacity out in the marketplace. Is that something that Rockshore works on when you pair companies, to make sure that there isn’t duplicity?

What you’re touching upon is what we call “expense synergies” to strategic buyers more so than financial buyers. So, for strategic buyers that have other locations, we try to identify potential expense savings that a strategic buyer would look at and say, “Hey, we don’t need those expenses anymore.” Whether it be locations, whether it be warehouses, etc. We identify these expenses and go out to the strategic buyer and say, “This company has $10 million of sales, and is making $1 million right now. But if you own this thing, you have excess capacity. You have these different things, so ultimately you can make this go from $1 million of profit to $4 million firm to acquire an American firm or vice versa?

Let’s take it first from dealing with equity in acquisition outside the United States. There’s this specific challenge, because the beauty of our financial companies in the U.S. is that they’re governed by accounting rules. When a company is audited, a buyer has a certain comfort that the numbers are what the company is saying they are. When you go outside the United States and start dealing with companies in some of the Eastern European countries, when a company that’s for sale presents you with their financial statements, you really have to do your due diligence to understand and get a good feel. Are they really showing us reality? And it’s not necessarily because someone’s being dishonest. It’s just that they don’t necessarily know how to account for certain things and things aren’t done right. So, it’s really desirable to do deals in the U.S. because if the company has a reputable accounting firm, what you see is usually what you get. emotional attachment to a business. So, it’s not just about getting top dollar in selling their business. They want to make sure that, first, their baby, the company that they’ve built over all these years, is in the right hands.

Second, and just as important, is very often they have employees that have been working for them for 20-30 years, and they want to make sure that the new buyer is going to be a place where they’ll be comfortable. So, there’s a lot of emotion that goes into deciding, “Okay, it’s time.” What I would say, is that the very first thing is, mentally, an owner of a business needs to make a decision that it’s time, because you can’t be half pregnant and going into a sale. It’s a time-consuming process. We make it as easy as we can, but nonetheless, it’s very much an intense process.

Approaching retirement is a popular reason for selling in this day and age. There are a lot of buyers out there constantly calling companies and saying, “We want to buy you.” And that gets them thinking, “Hey, maybe I should consider selling.” So, it’s ultimately going to be a combination of being mentally prepared that “I want to do a transaction,” but also that the company is ready. Obviously, if a company is on downtrend and they’re not very profitable, it’s not going to be a good time to sell.

If someone has a company with healthy growth, healthy margins, and they’re ready to retire, they should definitely consider a transaction.