Middle Market Mergers and Acquisitions by Colonnade Advisors By cover art

Middle Market Mergers and Acquisitions by Colonnade Advisors

By: Gina Cocking and Jeff Guylay
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  • Summary

  • Get the insiders’ take on mergers and acquisitions. M&A investment bankers Gina Cocking and Jeff Guylay of Colonnade Advisors discuss the technical aspects of and tactics used in middle market deals. This podcast offers actionable advice and strategies for selling your company and is aimed at owners of middle market companies in the financial services and business services sectors. Middle market companies are generally valued between $20 million and $500 million.
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Episodes
  • MM M&A - 028: Strategic Exit Planning for Equipment Leasing and Finance Companies

    MM M&A - 028: Strategic Exit Planning for Equipment Leasing and Finance Companies
    Oct 10 2022
    In this episode, we discuss strategic steps for Equipment Leasing and Finance companies as they grow and evolve. The leadership of some of these businesses may decide to remain a certain size and complexity and be “ lifestyle businesses”, providing healthy cash flow to the owner(s) while they continue to run the business. However, other options exist, and exiting the business for a favorable multiple to a bank or other buyer can be an excellent strategy, the dream plan for many entrepreneurs.  In this interview, we interview Bob Rinaldi and discuss the potential to grow and leverage a business to realize a win-win exit strategy.  This episode is a great follow-up to our previous show, Start Early & Exit Right, as we dive deep into many of the concepts of M&A rationale. What’s unique about this episode is that it is geared toward a specific target audience, our friends in the Equipment Leasing and Finance (ELF) industry. In this episode we cover: How partners such as Rinaldi Advisory Services (RAS) and Colonnade work with Equipment Leasing & Finance (ELF) companies to prepare for a successful sale (1:00)What are the biggest challenges for the independents as they look to be “bank ready” for an acquisition? (4:00) What are some of the biggest challenges for banks pursuing an acquisition of an equipment leasing company? (9:30)What determines the level of a premium in the sale price that an ELF company can expect? (20:00)What has M&A activity looked like in recent years and what are the prospects? (23:00)What about Private Equity buyers in this space? (26:30) How partners such as Rinaldi Advisory Services (RAS) and Colonnade work with Equipment Leasing & Finance (ELF) companies to prepare for a successful sale (1:00) Bob: My practice has evolved around three target audiences in the equipment leasing space. About 60% of my clients are independent leasing (ELF) companies that I work with through the Confidential CEO Resource℠ model. This is multi-year exit strategy planning. Whether the company exits or not is not important. The idea is to get them from point A to point B so they’re prepared if that time comes. The second part of my practice is working with banks, predominantly community banks who are looking to get into the ELF space. Third, I work with a handful of service providers in the industry, as well. Rinaldi Advisory Services (RAS) offers the Confidential CEO Resource℠ (CCR) as a robust, full-scope advisory service that provides clients with a broad base of support for long-term strategic management. RAS works with CEOs and Principals to provide meaningful analysis and actionable insights. The aim is to help ELF senior management arrive at strategic and tactical decisions geared toward managing growth as well as operational and financial efficiencies. Colonnade has deep experience in the ELF industry. Colonnade is a leading investment banking firm that has completed over $9 billion in M&A transactions for clients in the business and financial services industries. Colonnade has advised many companies in the EFL sector on strategic transactions. Please see our Quarterly Updates on the ELF industry here. What are the biggest challenges for the independents as they look to be “bank ready” for an acquisition? (4:00) Bob: The biggest challenge is predominantly that these founders/owners are very much entrepreneurs. They started the business. They’re very much involved in the everyday transactional nature of their business. They don’t have the time to gain the perspective to look at their company objectively and determine what needs to happen to be a better company from a non-transactional standpoint or to be a better company for the purpose of acquisition. Jeff:  Let’s drill down a little bit on some of the biggest challenges for the independents. There’s size and scale, where are you today and where are you going? Banks are the natural resting home for specialty finance companies, and ELF companies are such a great asset class for banks in particular. Obviously, they’re a number of large independents, but from the bank’s perspective, what are the other things you see where companies need to focus? Is it finance and accounting? Is it operations? Is it servicing? Bob: Yes. Yes. And yes. It’s really all those things. But even before you get to that, let’s look at the business and find components within the business that definitely will never, ever fit in a bank. I’m able to identify those things. You then have to decide what to do with those things. Do I jettison those things completely? Do I sell those off? Do I break it outside of the company and put it in a separate entity so that what is left is sellable and simple to understand? Compare that to a buyer looking at the company and thinking, “I like this, I like this. I hate that. Therefore, I’m not doing it [the acquisition].” For example, say that there is a heavy services component of the (ELF) business;...
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    30 mins
  • MM M&A 027: Start Early & Exit Right with Mark Achler and Mert Iseri

    MM M&A 027: Start Early & Exit Right with Mark Achler and Mert Iseri
    Jun 1 2022
    Before you sell your company, even the odds. This episode features guests Mark Achler and Mert Iseri, authors of the recent book, Exit Right: How to Sell Your Startup, Maximize Your Return and Build Your Legacy. Exit Right demystifies how to conclude the startup journey, a perfect complement to our podcast, which focuses more on the exits of larger middle-market companies. As Brad Feld states in the Foreword, “Mert and Mark set the roadmap for how entrepreneurs and business owners can proactively manage the process of getting to a successful exit along the way”. As Jeff says at the start of the interview: Mark and Mert cover so many great informative topics in the book. There is a wealth of tips to guide business owners through what can be a tumultuous process, getting through the exit. There are also so many topics we align with: relationships matter most, planning for wealth, time kills all deals, and the importance of following a best-practice process.  In this podcast episode, we focus on three topics with a lot of meat to each:  FAIR, Mert and Mark’s framework for a successful exit, (3:00) The“Exit Talk” and how we suggest that all companies adopt this practice with their board (15:00), andWho is involved in the Exit Talk and why? (28:00) What is FAIR? Why does it lead to the best transactions? (3:00) Mert: What we realized as we started to gather stories and experiences from M&A bankers, lawyers, serial entrepreneurs, etc is that the real question isn’t, “Let’s find out who’s going to pay the most.” The real question is, “What’s the right home for this business? What’s the right home for my people? What’s the right home for the vision? Who is going to serve our customers the best?” Our view of an exit went from being a short-term transaction to a long-term partnership. The term “exit” is a poor word choice.  You’re not really exiting anything. If anything, it’s the beginning of a brand new relationship. So when we ask ourselves, “What makes a great home for a startup?” we focus on these four elements that make exits great. FAIR. Fit, Alignment, Integration, and Rationale.  If you have all four of those, it just so happens that you’ve also found the person who’s willing to pay the most for your business, because they will realize the long-term value and they’ll price the deal accordingly. Fit is the cultural fit between the two companies. Amazon and Zappos are a great fit. Time Warner and AOL, are probably not a great fit. It’s easily described. Can you sit next to this person for four hours and not want to kill them by the end of the meeting? Can you actually make decisions without written rules? Are cultural values aligned? Are the DNAs sort of similar, cousins to each other between those two companies? Alignment is about being aligned with your co-founders, board, and shareholders in terms of the direction of where you want to go. The acquiring company also must be aligned.  We almost always dismiss the alignment that we need from all sides of the table. This isn’t two sides looking at each other. This is two sides looking in the same direction. Integration has to do with the plan for how these two companies will come together. We’ve seen so many examples of this plan of integration being done as an afterthought. It’s not just product and sales integration but people integration, finance integration; many, many layers. And all of these stakeholders have different agendas that need to be individually managed.  Rationale. Can you explain to your grandmother why this acquisition makes sense? How are we going to deliver more value to our customers as a result of this partnership? How is two plus two equal to 100 in this context? Mark: There are profound financial implications to the FAIR framework. Let’s take Integration. Integration is the ugly stepchild. People always say, “Oh yeah, we’ll deal with integration afterward.”  Turns out that in many transactions, it’s not always 100% cash. Sometimes there’s an earn-out for future performance. If you’re not integrated well (you don’t have the resources you need to execute your plan), there are some significant financial implications to the earn-out. Then there are the financial implications to Rationale. Transactions are typically based on looking backward using a multiple. When you create a rationale that says one plus one equals a hundred, if it’s a strategic investment, you take your product and we plug it into the larger company’s sales force or the larger company’s customer base. What could we do inside the larger company? What’s the impact of your product on the larger company? The way to maximize value is not looking backward as a multiple, but looking forward using the rationale. Strategically, why is the combination so valuable? If you can get everybody aligned around the rationale and the financial implications of that rationale, that’s how you’re ...
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    41 mins
  • MM M&A 026: Industry spotlight – F&I Agencies & Payment Plans

    MM M&A 026: Industry spotlight – F&I Agencies & Payment Plans
    May 2 2022
    This episode continues with our “industry spotlight series” where we focus on specific trends and opportunities in middle-market M&A transactions. Our previous episodes have covered four industries in which Colonnade has played a significant role as an M&A advisor to both buy-side and sell-side clients. We add F&I Agencies & Payment Plan Providers as industries where we deeply know the dynamics and players so as to provide exceptional service to clients who hire us to assist them in a transaction. Colonnade has studied the F&I Agencies and Payment Plan Provider markets for the last 20+ years. We have worked on nearly 30 M&A transactions on the buy-side and the sell-side. We have gotten to know the industry players and the buyers. We’ve identified some high-opportunity M&A plays that could help to drive even more value, scale, and customer satisfaction in the industry. Spotlight on F&I Agencies (1:00) In this first part of our episode, we answer the following questions: Where do F&I agencies sit in the F&I ecosystem? (1:00)What does a typical F&I agency look like? (7:00)What is going on in terms of M&A and what are the value drivers in the industry? (9:00)What is driving M&A transactions right now and what are some potential M&A plays? (12:00) Where do F&I agencies sit in the F&I ecosystem and what value do they provide? (1:00) Gina: Between the F&I administrators and the F&I office and the dealership, there are F&I agencies. They are independent agencies with independent agents. They are like insurance agents. They bring together the product administrators and the dealers.  Gina:  The agents have deep knowledge about the products they represent. They can train the F&I office on those products and how to sell the products. They also act as the middle man or the interface with the administrator. They are one distribution arm for the administrators, which makes them critical in the ecosystem. They are a valuable component of the overall F&I ecosystem. Jeff: The F&I agency is a particular point in the value chain. It’s a differentiator. Some administrators sell to dealers through a direct sales force, others use F&I agents.  Gina: There are administrators who go direct to dealers, but most administrators also use independent agents. They may have a direct sales force, but they have independent agents also. The only sector where that seems to not always be the case is selling into independent dealerships. You tend to see more direct agents that are employed by the administrators selling into the independent dealerships. Gina: An important component of what the agents do is help the dealership with reinsurance. Reinsurance is an important component of a dealership owner’s profits. For every contract, every F&I product that is sold, there is a reserve set aside for future claims. F&I agents are usually very fluid and educated in talking about reinsurance and making sure that the dealership has the right reinsurance programs. So they deal with reinsurance, they do training on products, they do training on how to sell products. They sometimes help with staffing in the F&I office, and they’ll help with some of the technology that is between the F&I office and the administrator. Gina: F&I represents a third of a dealership’s profits. Everybody within the organization and affiliated with the organization is going to make sure that F&I runs smoothly. What does a typical F&I agency look like? (7:00) Gina: There are well over 100 independent agencies, and approximately 75%-80% of F&I agencies are less than 10 employees. There are very few large agencies. There are a few that are scaling, but there really aren’t many. There is only one national agency that comes to mind and that’s Vanguard (owned by Spectrum Automotive). Vanguard has been very acquisitive in building out its agent network. We also see Brown & Brown, which is a P&C insurance brokerage. They’ve been acquiring F&I agencies over the last few years. I don’t know if they have a national footprint yet, but they’re probably getting pretty close. And then you have acquired a lot of small agencies. ​​Jeff: The Brown & Brown example is an interesting one that we’ve watched over the last five to six years as they’ve entered the industry. We’ve always thought their participation in the F&I agency world makes a lot of sense, given the parallels to the P&C distribution market. What is going on in terms of M&A and what are the value drivers in the industry? (9:00) Gina: We think that the M&A market for F&I agencies will continue to be hot in 2022. (See Gina’s cover article in Agent Entrepreneur, 2022 M&A Predictions for F&I Agents) Agent value is driven by a couple of different factors. One is diversification. One of the challenges for these small agencies, just like any small company, is having all of their eggs in one basket. An F&I agency may have one dealership group that represents 40% of sales. That is a gating factor to ...
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    35 mins
Management Economics
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Incredibly useful

The podcast presents immense value for anybody looking to sell their business or pursue a career in m&a consulting/brokerage.

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