Latest / Exit Algorithms / 2 Exits, $3B in Deal Flow & the M&A Playbook with John MacInnes (#38)
Transcript
- speaker-0: Welcome to Exit Algorithms, the podcast where we decode what it really takes to unlock growth, streamline operations, and prepare your business for a high value exit. I'm your host, Pete Vera, and today, John McKines is in the building. He's a lifelong entrepreneur, MIT trained, and a YPO member who has built and sold two major fintech and software companies and has built several other business ventures. I was researching too many to list here. Now he's channeling everything he's learned from those exits into SimAmplify, a platform connecting ⁓ &A advisors with qualified buyers that attracted already, or facilitated over $3 billion in deal flow in just its first year. John, super to have you on the show today. Welcome to the podcast. speaker-1: Thank you. Appreciate it. speaker-0: Yeah, I'd love to start, if you don't mind, just sharing a bit about your background, you know, from building your first company or you can go even earlier than that if you want. And maybe some key inflection points in your career. speaker-1: Sure. I may, I've been lucky enough to be a serial entrepreneur. It's been, it's been my passion since I was a kid. I didn't really understand, of course, when I was a kid, the word wasn't a thing, but I'm that guy that I sold books, my parents' books to secondhand bookstores. I had painting companies and window washing companies through college and university. And all of those things were more driven by, just, like doing it. And then I got serious with it when I got a little bit older in my 20s, a couple of companies that ⁓ great and they morphed into other things over time. the big one that took about 20 years with a company called Print Audit, and ⁓ built Audit from ⁓ in basement, truly in my basement to a global powerhouse of of monitoring and controlling printers around the world. 20 to the day after starting it, we sold it to a big firm down in the US. And I'm Canadian, by the way. ⁓ We it to a big firm down in the US. And that was sort of ⁓ the of that journey. We had also acquired several companies while we were building it. ⁓ And was one of those great things while I was getting older and going through. my life, we had these wonderful offices around the world and kind of cool places that I get to go and visit. And so that was a lot of fun. Also started while I was there, we started another company called payroll by credit card, which had eventually turned into payroll rewards and Amex bought that from us as well. So two great exits, lots of acquisitions and we enjoyed it. And then I became an investor. for a while and man did I hate it. I was a venture capital investor. I couldn't play. wasn't in the middle of it. My, as you mentioned, YPO, my forum group, would hear me lamenting about how I didn't actually get to play with any of these companies that we were putting money into. ⁓ ⁓ became pretty clear that I needed to start again ⁓ build something else. We did build one company that unfortunately failed. The first company I've had fail. It was a very local, hyper local company where we were trying to start a service of creating reusable takeout containers. ⁓ some the rules around here changed around ⁓ single use containers and it made it impossible for us to continue. So that was too bad. But at the same time, we started building SimAmplify ⁓ and I'm on team founder ⁓ and trying find founders who want to exit the best exit that they possibly could. And there's just so many players nowadays, both on the sell side, helping people to sell their companies, but the buyers, there's something like 19,000 private equity firms in the U S and probably that many of us, something called independent sponsors, which are backed typically by founder, by family offices and private equity companies. the, the universe of buyers for people wanting to sell their companies is huge. And that's where we are today with SimAmplify. And it's been a ton of fun. speaker-0: Awesome. Yeah, what an amazing journey. You can tell business is really in your blood going way back. speaker-1: It's my favorite. It's tough starting a company it takes a lot of work and we've got a great team and some people that I've worked with for years, but it gets easier, but it's my passion. speaker-0: Yeah, definitely. I'd love to hear if you don't mind sharing a little bit more detail about your business, print audit and how that process was scaling it, like from, know, from, you said, in your basement, was it just yourself first and then hiring employees and eventually selling? speaker-1: Yeah, it was the process was great. I was like you said, I was a little bit lucky that I had had with previous stuff out of university and college I had, I had people working with me and the I think probably one of my favorite things and it was at the bottom of so I was it was a franchise a painting company franchise for college students. And it was really, really intense learning how to run a business and learning about paint and all those sorts of things. But the one thing that I'd remember, couldn't tell you anything about paint today, but at the bottom of each page of all of these super thick manuals to learn how to do this, it said, take good care of your employees and they'll take good care of you. And that has been my mantra ever since. I'm one of those maybe rare entrepreneurs that the people part is actually my favorite. And lean towards the windshield of my car as I'm going into work. I love the people. I love joking around. think that the one of the big keys to a great business or at least enjoying your business ⁓ the people are the funnest part. And once you start to get that correct and right, and it really comes down to values, which I learned in my, took a MIT entrepreneurial masters. And values was really the key part of that. And once I started to understand how to source bond values and hire people based on the values of the company, it just made life easier. So I don't know if that answers your question, but so that was that hiring people based off of values. And we were super lucky that we all worked together and had a great time. And then as it grew, it seemed while it was intentional and we knew what we wanted to do, built great products and the great people ⁓ it morphed over the years, over 20 years of course. And we what I think every company should try and find. And I still haven't found it for SimAmplify, but we will. Something that we call the hook. And the hook was that we, because it was a software as a service or became a software as a service company, we needed to make sure that ⁓ our were not the only piece that was keeping the customers on. so this is a key thing, I think, for anybody that's building a business right now, if you can find a hook, it's great. And so what our hook was, was we had a monthly fee for office equipment dealers around the world and office equipment manufacturers. But we also had this software that they would go out and deploy amongst their customers that was super valuable. So we had the monitoring software that worked well for them to see what was going on with their printers that were in the field, knowing when they're out of toner, those sorts of things. But then we had these great software products that we had built over the years that we bundled in for end users, like secure printing, charging back for your printing, those sorts of things. And we would give that away as part of the service. And so what would happen is if an office equipment dealer had maybe found somebody cheaper for some of the other stuff or whatever, they'd come back to us and say, we're looking at this other company and our hook was, well, then you gotta go and install that software at all your customers that we gave you for free. And that was it. We never had those discussions again. In fact, they'd usually double down and we took care of them really well. So while it may sound a little bit underhanded, it wasn't meant to be, but it did certainly work to keep people on board and build up faster and faster and faster. And the wonderful thing about recurring revenue is it just builds on itself. And so every month you're not starting at zero, which we did when we were selling it per user, you have this wonderful building that all of a sudden, well, maybe not all of a sudden, over 20 years turned super valuable. And I think for anybody that's looking at valuation for their company, recurring revenue is just the most valuable piece you could ever have. speaker-0: Yeah, I love that. Yeah, making ⁓ extremely sticky through really just excellent service, ultimately. speaker-1: Yeah, that's a service something that they would have had to buy somewhere else that we were giving them as part of the service. Amazon is really good at that, right? They've got a whole bunch of things that are included in their ⁓ monthly or yearly service that you really don't want to get rid of. If you want to buy through the May more, but you're watching their TV channels, well, you still got to pay for their TV channel. Right. speaker-0: Yeah, exactly. brilliant. Was any ⁓ lessons through that sale process, through the exit? speaker-1: Yeah, quite a few. we hired advisors ⁓ that was a really, really smart thing to do was have an advisor ⁓ we one in Canada, one in the US, both YPO guys that I knew. ⁓ And ⁓ I certainly say as I've been watching a lot of transactions lately, I would certainly say that business owners don't know how to sell their companies. They certainly know how to run their business and they know everything about it, but like anything else, go get a professional. So that was big. And it was less the buyers because we kind of knew who was going to buy the company. But once we got into due diligence and that 2,500 line item came across that said, this is the information that we want to know about your company. We wouldn't have been able to do it without a great set of advisors who were experts at due diligence. So. ⁓ That's one of the big things that I learned going through is you're never going to get a good deal doing it on your own. speaker-0: Sure, yeah, that's huge. you mentioned that a lot of business owners are great at running the business, but then, yeah, the sale process is a whole other Yeah. And experience people you know, have you seen maybe some main mistakes business owners make when they're selling their company? speaker-1: Yeah. So business owners make, don't know. think the number one is, is finding an advisor. think less the mistakes that they'd make when they're selling it. It's more having a company that's ready to sell. And there's a, there's a few keys that we hear from buyers all the time, because we're working with them. There's a few keys that just are universal. And one of them, and I'm sure you've talked about this on the podcast before. The first one is customer concentration. If you've got one big customer, you're not gonna get the value that you're hoping. if you ⁓ a good way to diversify, you should be thinking about that. And thinking about selling your company, the best time to do it was five years ago. The next best time is today. So are big. The other one is that I don't think does anybody or any justice is the whole idea of... seller's discretionary earning or adjusted EBITDA. You'll hear this a lot as a term in the marketplace. But if I were, we did do this very early on with the companies that we had, all of your personal spending, those sorts of things, the things that you're running through your company, maybe as a smaller, start to put them into a holding company, get paid correctly, get paid what you should as the CEO. Don't use your company as a piggy bank and start to... ⁓ start to get the finances more aligned. When you think about a buyer who's going to be buying something versus what you're doing, imagine what you're doing today is kind of like the Japanese subway map. If you've ever been in the Japanese subway, it looks like a bunch of spaghetti. Once you figure it out, it's okay. But if you can start to straighten out those ⁓ with a good accountant or whatever to try and match. what the buyer is going to be looking at and any accountant knows that where your strings start to match their strengths, then everything gets a little bit easier and it's really hard for a buyer to contest information and bring down your price if you've got it all sort of lined up with what they're looking already. And the third, so that was the second thing was the accounting strings. The third thing is for any CEO or founder, would say delegate, delegate, delegate. Figure out how to get yourself out of the day to day ⁓ be the engine within your company because quite frankly, that's if you're the linchpin, you're gonna either not be able to sell it or you're going to be able to get the great, the value that you're hoping for. And also quite frankly, it's good for a founder to be working strategically instead of tactically. because your company will grow much faster once you're not responsible for anything. there you go. speaker-0: Yeah, great. Yeah, eliminating that key man risk. Yeah, concentration, even above 20 % can decrease the value significantly. I love when you said, oh, sorry. speaker-1: And it's a huge risk for a buyer. Imagine on the buyer side, you're thinking, ⁓ this is a great customer. They've been fabulous for years. But if they pay you all that money and something does happen with the buyer, now you as the seller, you're thinking the business, nothing's ever going to happen, but it does. And so as the buyer, me give you an example, print audit, ⁓ was our biggest customer in the world by far. And they bought a company ⁓ had another product like ours. We weren't ready. It almost shut down the company. the good thing was that we lucked out, we diversified, we actually got into recurring revenue ⁓ and went from one big customer to hundreds and hundreds of smaller customers. ⁓ And value went through the roof. But before that, weren't worth anything. speaker-0: Yeah, wow, that's an excellent example. Right. All it takes is just a change of in CEO at a big company. They decide to insource instead of outsource. Like things happen. speaker-1: Yeah. And you're so busy with your biggest customer that you're not diversifying. you're always talking about every, every year we'd say, we've got to diversify. And then Rico would throw 20 more huge deals at us. And so anybody feel free to take ⁓ loss as your example of fixed it. speaker-0: Yeah, that's awesome. Yeah, I love what you said. You know, the best time to start preparing for your sale was five years ago. That's like the best is today. Those practices though to gear up for a good sale are just general good practices in a business, I feel, right? Would you agree with that? speaker-1: Absolutely. Everything that you do to get your business ready for sale will 100 % help the business anyway. So if it never sells, you're probably turning it into more of a profit machine. And, but then of course, when it turns into more of a profit machine, it will sell and you'll get a higher valuation. The third thing is, I guess it's the fourth bonus. If you can figure out some sort of recurrent reoccurring revenue, it is the highest valued product. But that's not always possible with service companies that are project-based or asset-heavy companies that are doing rentals and things like that. It's just not always possible, but it is the highest value for sale. speaker-0: Gotcha. Great insight. I appreciate that. Yeah. And you mentioned always hire an advisor for the sale. What in your opinion is the right process as an advisor? What would you like to see them do to properly sell a business? speaker-1: Yeah, a really good question. And I think the number one question that we get every day from people that are through that want to sell it, they say, what advisors do you suggest? Now, I'm promoting this, but not promoting it. We have a website called AdvisorChooser where we are trying to help people find advisors. And ⁓ just going. And so it allows you to find advisors in your industry. I think the other thing about advisors is, ⁓ and this does it's determined by the size of your company. So there's kind of three main places that the size of your company determines who the seller might be. Number one is we call them main streets. So things that are, that you'd walk down the street and see restaurants ⁓ nail or whatever, typically ⁓ revenue the ⁓ a dollar range or below. Those are usually really well serviced by brokers because they are smaller and brokers, and lots of broker organizations that can look at that. They're well serviced by those. It's less transactional and more, ⁓ well, they're all So that's not exactly right, but it's more people in your town or in your city are gonna buy it. Then ⁓ once you get level with it and they, Again, this sort of tracks revenue really well. Once you're in the two ⁓ million revenue range, you'll be looking for more of an &A type. ⁓ And &A advisors, they typically will charge some sort of fee to go through all of your data, build a really good product and presentation, and go out and find you buyers and take you through the process. And that's what we hired at Print Audit. We're ⁓ &A advisors. And those guys stand. So they're anywhere from five million typically in revenue to hundreds and hundreds of millions. And then you get the really, really big companies, the billions and the multiple hundreds where investment bankers and banks are typically involved they're offering a bunch of different services. The advisors and investment bankers, they certainly do fight the same deals. It's just investment that bankers usually aren't looking at anything that's not mid-market to upper market. And that's their professionalism and that's where they're geared, less of a buyer pool and, but way, way more complicated deals. so we try and do the span of that with advisor chooser. My number one piece of advice is interview least five advisors. questions. and questions you can find anywhere. You can ask chat GPT now, those sorts of things. Interview at least five advisors. Get references for stuff that they've done in your industry. And that's a big deal, because then they know you somewhat and they don't have to learn from scratch. And so if you can find somebody that knows your industry some, ⁓ the upfront, you do often have to... you do often have to pay fees upfront. I would just kind of get an idea of what their sell is. And I say there's definitely advisors there that they make more money off of the fees than actually selling the company. And that's not great. You want somebody that's going to, that's well-incented to sell the company and your price will be anywhere. If you're massive anywhere from 1 % down to about 10 % of your sale price. And that's what you see with advisors. Does that answer that question? speaker-0: Yeah, I love the breakdown by revenue range. It makes a ton of sense. Are there maybe some best practices that apply to all of those three categories you mentioned? speaker-1: Yeah, again, the number one I would say is try and make sure that they know your industry. Personally, I like advisors that specialize in industries because they do that. We've got a couple of advisors that look, we've got one that they only do lighting manufacturers, that sort of thing. So that's not bad. People that are doing only law firms or CPA or whatever. especially on the smaller side, once you get up to the larger side there, you're working with your bank, they will know your company and they probably, and you probably know who's going to take you out. but think number one is, trying to find somebody that knows, knows your business before, because they, they do ⁓ as a they have to learn almost as much about your business as you do. And that's their so that they are not caught off guard when a question comes that could affect your value. speaker-0: Brilliant. Yeah, I love that. ⁓ theme of this show is AI and technology. ⁓ especially curious with your background being ⁓ entrenched in software. How are you ⁓ leveraging most today, both in and maybe even your personal life? speaker-1: Great question. AI has become, and I think with most people, it's become part of my daily go-to. I use it in a bunch of different ways. And so I'm a fan of Claude. Out of all the ones, Claude seems to be the least likely to fake any data or things like that. But I'll give you a really good example of ⁓ something we did the other day that I've just recently done. We started posting listings under my under my profile and the company profile, ones that are public. SimAmplify, we've got two, just what I mean by public, we've got two paths that you can take when you add a deal to SimAmplify. You can invite buyers only and make it a private sale and just invite the buyers that are matched to you. ⁓ you can also put it on our marketplace, which means that all the buyers of SimAmplify can see it. So when I say public or whatever. So the... ⁓ public ones we are putting out onto LinkedIn now so that we can drive more people to SimAmplify. And that's 100 % happening through AI. So AI grabs the deal from our site on a daily basis. It's clawed. It throws it through something called, I don't know, it's Postbone, which will actually publish it, has a deal with LinkedIn where they can publish. And then once they've published, the deal that goes onto my profile and that just happens automatically. So the one thing that I'm terrible at and we're a small company right now, so I don't have my massive marketing team that I have with other ones is being consistent with posting and those sorts of things. So we worked with Gemini to figure out what we should post. And then Gemini went through all of the listings on the site, sorry, not Gemini, Claude, went through all the listings on the site and shortened the description to be more punchy under 400. under 400 characters so they'd look good on LinkedIn and then it posted on LinkedIn and I don't have to do anything. that's a beautiful way that that works. And I was able to set that up with a few hours of time. Other ways that we do it is we can run, we often ask AI about buyer profiles, those sorts of things, getting lists going forward to find new buyers and advisors. And that's been really good for us. And just it writes way better than I do. And so just asking it, give me your opinion on this paragraph. So those are on an everyday basis. And there's just, there's more we can do, but that's, those are kind of, ⁓ I do have one other place within SimAmplify. of the things that's complicated is taxonomy of industries. And so when you're choosing what industry to choose as an advisor putting a deal on. Sometimes you don't know. And so we've got a little AI thing hooked into cloud. can put, it'll grab the description and suggest the industry to you that you should use. And so little thing, but helpful along the way. And we'll be doing more and more of that for accessing data rooms and those sorts of being able to ask data rooms for information instead of. giving away the entire data room up front. So there's just lots of things. I think it's great. speaker-0: Yeah, oh, I love it. It could go on and on. I agree. I'm on it every day. I literally, I'm using a Comet Perplexities browser right now. Just almost everything I do has some AI element nowadays. speaker-1: Yeah. And there's no doubt. And I think the future is interesting though, because we've been able to do a lot of stuff that would have taken people and especially junior people. I don't know, we're actually helping to represent a friend of mine's company in Europe. And so we started to put things through, build a SIM, teaser, that sort of thing. And it was done, the research, And a lot of the suggestions and how we built that was in concert with AI. ⁓ I would say with lot of ⁓ &A shops and investment that's the junior analysts that used to do that stuff. ⁓ And now can be done pretty well without them. So that's, that's a bit of a problem. You need somebody that can run the AI. So that's the new business. is essentially running AI and becoming more productive. the actual research work and creation work is going to be done by AI in the future. speaker-0: Yeah, 100 % agree. that was kind of leading my next question, where you see it going. type of jobs where you're crunching a lot of data, looking at a lot of different sources, it just doesn't really make a lot of sense to have a person at the physical sources when you could just plug it into a model, right? speaker-1: Right. Which and bad for my 21 year old son that's about to finish university and business and start going out into the world, entry jobs are going to start disappearing. ⁓ And that's really tough. the, maybe ⁓ flow of on ⁓ is that if entry level jobs disappear, then how do they figure out how to do the senior level job? And because that's kind of how you work your way through the system is 10 years of experience and you get the 10,000 hours or whatever, and then you know it, but if you'd never get the chance. So I don't know how that shakes out, but that's the challenge with a great service is a great challenge, but there aren't many blacksmiths around anymore changing hoops, changing horseshoes. So the world does evolve and it'll figure its way out. speaker-0: Yeah, yeah, true. And more jobs will be created some point and yeah, just evolves, ⁓ right? speaker-1: The yeah. With the advent of the internet and computers, everybody thought that they were going to work less. That's not going to be it. Everybody's going to work just as hard. It's just going to be, you'll be more productive. speaker-0: Yeah, definitely. ⁓ I love that. And speaking of being productive, I'd love to dive in a little bit, John, on your, maybe some of your routines or like, how do you get, manage to get so much done? It's just impressive. I'd love to get some nuggets about your, your work life productivity. speaker-1: Well, I've got a great team behind me. So that always helps. got the, ⁓ once figure out the routines and the things that need to done as an entrepreneur, then I'll usually bring in somebody that can take it over and actually most, for the most I'm lucky that I hire smart people that can do it better than me. And so that's a big piece. AI is taking off some of the busy work. There's no doubt that the repetitive work, like on a weekly basis, we do a deal review of all the deals that we have on SimAmplify. And there's about $2 billion worth of deals that ain't given time on the site. AI goes in and grabs me some of the information that I need to know about that quad and ⁓ in the active buyers, the pending buyers and the buyers that have passed. And we can see the difference between that. I used to do that manually. Now I've taught AI and I would have taught an assistant before to do this, but now I've taught AI to do it. So those sorts of things make me productive. The other thing that I've always done is encourage people to come to me with solutions instead of questions. ⁓ that their solutions are better than what I can come up with and I can just tweak them a bit. So. those sorts of things really do make a big difference as to how much I take on. yeah, I like busy, but my days end not at 11 p.m. My days end at about 6 p.m. ⁓ and ⁓ got a great balance. I think delegation is the key to being able to get a lot of things done. So on the outside, looks like it's me, but it's really not. It's the balance of people behind me that are happy to help. speaker-0: Yeah, I love that. It ties back to what you said at the beginning of the show. Take care of your people, right? And business will take care of itself. speaker-1: Yeah. And I mean, my number one value is fun. And so I just, I really think that if you can joke around all the time, then think it just makes your day to day so much better. speaker-0: Yeah, definitely. well, we could probably talk all day, John, but I know we're coming up on time. I always ask guests this, you could give one piece of advice to listeners, what it be? speaker-1: it's funny. ⁓ you ⁓ I'll give you that, that, that question was asked of Conrad Hilton years ago, just before, actually just before he died. And he said, my number one piece of advice would be to put the liner inside the shower. ⁓ would always makes me laugh. So for me, if using SimAmplify on our site, especially as a buyer, my one of advice is ⁓ go to pending deals and take care of them, either move them to active or ask. So let's do other things. ⁓ For owners own their business, delegation, if you figure out delegation, everything will go. much better in the company and a sale. So it's the number one thing. Get the target off your back. speaker-0: Well said. Awesome, John. Well, thank you so much for all the insights today. Where can listeners find you easiest? speaker-1: So I'm on LinkedIn, can look up John McEnnis on LinkedIn and also the website for SimAmplify, which is probably the most interesting website that we have for your listeners. It's SimCIM, which stands for confidential information memorandum. So very nichey, but simamplify.com. speaker-0: Great, I'll leave that in the show notes. Thank you so much for your time, John. It's awesome having you. speaker-1: Yeah, thanks very much. It's been a lot of fun. Take care.