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Welcome back to Count Me In,

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the podcast focused on management
accountants driving business forward.

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I'm Adam Larson.

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Coming up I speak with Ryan Goral about
unlocking the full potential of small

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businesses through
mergers and acquisitions.

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Ryan is the founder of G-Spire Group,

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a consultancy focused on companies
often overlooked and underserved when it

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comes to corporate development
services. When it comes to M & A,

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big companies all get the headlines.
The reason is pretty simple.

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A deal worth billions of dollars will
always draw more attention than a deal

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that's only worth millions.

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This focus has contributed to the
perception among many business owners that

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they're simply too small or
inexperienced to participate in M & A.

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Ryan explains why M & A is a strategic
option relevant to virtually every

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business and highlights the critical
role management accountants play in

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corporate development success.
Let's start the conversation.

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So Ryan, I just wanna thank you so
much for coming on the podcast today.

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We are gonna be talking about
mergers and acquisitions today,

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and I was looking at the recent Bain
and Company Global Report from 2021,

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and they were saying that the total
transaction value for M & A was an

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unmatched $5.9 trillion in 2021.

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So it seems that M & A is on its way back.

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The last conversation I had about this
was back in 2019 and it was much under

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that number. So maybe to start
off you talk a lot about,

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in your business about the benefits of
growing your business through mergers and

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acquisitions. So maybe you can start
by covering what are the benefits?

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Sure. Thanks for having
me. Yeah, the, you know,

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companies can grow through acquisitions
for a number of reasons and it's

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strategic, you know,

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really what is their strategic reason
for growing through acquisitions?

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Yeah, trillions of dollars. I
think the M & A market's been real,

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really red hot. You know,
the market that I serve,

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I serve privately held companies
that are on the, you know,

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10 to 50 million in revenue range.

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So my transactions I'm
typically working on is way,

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does not have a B or a T in the title.

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But I think that, you know,

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the last couple years we've seen a
couple things that are driving M & A

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activity. One has been the
historically low interest rates.

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So the cost of capital has
been, you know, really,

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really attractive for a
buyer to go out and secure

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debt and even equity for
that matter to engage in

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transactions.

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That would involve buying a company
as part of their growth strategy.

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You know,

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and the various strategic reasons
or I guess categories if you wanna

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call it that,

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that a company would really wanna
look at as part of a growth plan

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that would involve M & A. You know,

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you see companies you know
that I think talent is

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one, you know,

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that I've seen companies
wanting additional talent
and maybe the labor force

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right now, which it is, it's constrained.

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So a lot of these companies have all
the work that they ever would want,

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but they'll have people in the
labor to satisfy it. So, you know,

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growing through an acquisition to pick
up key talent is kind of one strategic

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motivation. There's other
kinda strategic reasons.

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One being size and scale from a cash flow

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perspective allows the
company to, you know,

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invest more into other
certain strategic initiatives.

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So size also equates to
sometimes more value.

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So if your company is trying to
improve shareholder value, you know,

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size does impact that value.

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So you'll see kind of
acquisitions as part of,

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I just want to get bigger and
grow. I try in my practice,

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try to hone in the strategy a little bit
more than just let's grow because you

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wanna make sure the acquisitions are
aligned with that strategic importance.

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But the types of acquisitions typically
see are you're buying a competitor.

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So that's kind of market share strategy.

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You see acquisitions that
are maybe of a supplier,

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so you call that vertical.
You're trying to, you know,

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own the supplier so you can
enhance your own margins. You know,

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sometimes you'll see a geographic
strategy where a company wants to

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grow into other geographic areas
that are strategic for them.

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And making an acquisition in those kind
of geographies is sometimes the right

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strategy. And then, you know,

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really the last one that
there's a number of reasons,

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but the other one that
comes to mind is, you know,

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expanding your product and services
to your customer base. So if you're,

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you know you've got one product,
one service that you're offering,

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maybe your customer's constantly
asking you for, Hey, do you do X, Y, Z?

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And you're like, no, we don't
do that. Go talk to ABC company.

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Maybe it's a good strategy.

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Go buy ABC company so you can have another
product service to offer your current

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customer base. So those are some of
the strategic reasons that drive M & A.

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But I think the trend that you mentioned
to start off here was you've got cheap

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capital and you know, as you
get into bigger transactions,

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you see, you know, if a
public company has, you know,

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a stock price that is
historically, you know,

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very high, sometimes they're
using that stock as currency,

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which is another driver of
the activity. So there's,

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there's a number of reasons, the amount
of M & A activity that we've seen.

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And the last one that I've seen and more
that's more in my market is you've got,

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you know, kind of an unprecedented
amount of baby boomers retiring and

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their business is typically
their biggest asset.

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So you're seeing kind of a transfer
of wealth from one generation to the

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next that's occurring cuz there's a good
amount of baby boomers that actually

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own privately held companies.

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So you're starting to see that
activity happen and I think that's

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driving the market too.

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Yeah, so there's a lot of great benefits
out there as you've just described.

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And so with somebody
looking into, get into that,

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one term that I've heard is corporate
development. So why would that,

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why would that matter?

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Maybe you can start by defining
corporate development in terms of M & A

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and then why is that
beneficial to develop to,

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to why does it matter as a small to
medium size business in your getting into

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mergers and acquisitions?

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Yeah,

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so corporate development is really more
of a term that you'll see in larger

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companies.

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These are companies that
have entire departments,

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corporate development departments,
and they're these departments,

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sole responsibility is getting the
company ready and then sourcing,

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closing and integrating
acquisitions on behalf of the

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entire organization.

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So they are the M & A team
of these larger companies.

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They're just called corporate development
department. In my work I've seen,

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you know,

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that that service doesn't
really exist for those smaller

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privately held businesses for
a couple reasons. One, it's,

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you know, you can't,

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typically there's not enough
resources to hire a full

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time corporate development
executive, you know

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so, and then the other,

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the other reason why you
don't see it much in the the

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smaller privately held company spaces,
they're usually run by owner/operators.

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And these are folks that are really
good at running their business.

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They're really good at managing
their employees and customers,

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and they tend not to have time
or capacity to think about M & A

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and how other, you know,

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partnerships and alliances could
be beneficial to them growing.

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So that's just a capacity challenge.

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And then there's a lot of these
privately held businesses have never gone

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through like a substantial
transaction before.

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So there's a lack of capacity and
there's a lack of really kind of,

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maybe we know how of going
through a process of going out and

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acquiring a business
and making sure that it,

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you do all the things that need
to go into that transaction.

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So why does it matter? It, you know,

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I think there's a big opportunity for
these smaller businesses and I define 'em

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as, you know, five to 10,

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up to 50 million in revenue is kind of
the companies I typically am working

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with. And the couple things that I see,

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and it gets me really excited about
bringing corporate development down to

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lower middle market is one,

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the amount of value that can be
enhanced with an acquisition is

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pretty substantial for a
smaller business. You know,

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if you're, you know,

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running a flooring company that is
a $10 million revenue, you know,

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maybe you're doing roughly, you know,
a million bucks of EBITDA or cash flow,

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you might be worth four or $5 million.

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What happens as you get
bigger from this size

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is, let's say we go out and make a couple
acquisitions that involve, you know,

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you know, half a million
dollar cash flow businesses.

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So let's say we do two and we get the
2 million of annual regular cash flow.

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Well, that multiple just went
from four or five to six or seven,

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and the multiple goes up due
to a couple reasons. One,

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there's a lot of buyers looking for
those bigger cash flowing businesses.

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Two,

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the size of your organization
requires you to professionalize the

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business.

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Which a lot of times these transactions
will remove the owner operator from

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being the business being so reliant
on the owner operator and moving them.

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Really, I call it, you know,

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it's a transforming business
owners into more of a CEO.

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And that process also improves
the value of the business

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cuz a buyer typically wants to
see the organization be, you know,

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efficiently run, no reliances things
that they would if the seller,

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the main owner goes away, they still
wanna see the asset performing.

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So bringing corporate
development or helping companies
grow through acquisitions

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is both a value enhancer. It's a
lifestyle enhancer to a lot of my clients.

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You know,

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they do want to get out of the weeds and
move into more of a CEO strategic role.

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And those are, you know, a lot of times
the main drivers. And then the third,

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it's, it's a risk management. You
know, if you're on the smaller end,

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then a Covid hits and you, you
know, stuff comes to a halt,

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you know, business is at risk of
going under the bigger you are.

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The thought would be hopefully you're
got a more diversified customer base,

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you've got more cash flow, hopefully
you've done some more retainer.

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If you've done a good job retaining
earnings and maybe you've got some cash,

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something like Covid hits,

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the risk of you going down
is perceived to be less.

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And so those are the main reasons why
it is relevant to these privately held

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companies.

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So where does the accounting and finance
professional play into this? You know,

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it sounds like they would be be part of
that corporate development team in the

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bigger organizations, but if you get
down to the smaller organizations,

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sometimes your accounting a
finance team is one or two people,

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is your CFO who wears a number of hats,

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can maybe we talk about where the
accounting finance team comes into play

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because mergers and acquisitions have
to do with transactions and money,

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and that's your accounting and finance
team is helping analyze that, you know,

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making sure everything's in place.

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And so maybe we could
discuss that a little bit.

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Absolutely.

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So corporate development
supplements and helps the

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accounting finance function. You know,

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and there has to be a
lot of collaboration.

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So a lot of the strategy and
the growth and the projections

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that go into creating a
good M & A plan largely

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is coming out of the financial
side of the business.

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And when I first start kind
of onboarding a new client,

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the first thing I start
with is understanding their
vision and their strategy.

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But also, you know,

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are there areas within the business that
really need to be shored up before we

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actually go out and combine company A and
company B, you know, and that largely,

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and this has happened, you know,
the financial function is not,

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you know,

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maybe it's understaffed or
there's certain things about

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the finance function that isn't ready,
you know, reporting what have you,

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you know,

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those are things that are hugely
valuable and needed as part of

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growing through an acquisition.

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So having a good accounting and
finance team already in place,

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having good management
controls good reporting,

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all of those things are
super helpful and needed to,

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for me to jump off and go do my work
and go find a company to buy and do all

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that stuff. The other places, you know,

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once you do locate a company
and you have a conversation,

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you go under a letter of interest,

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there's a due diligence
process on the target company,

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and a big chunk of the due
diligence is financial.

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There's plenty of other stuff
that goes into due diligence,

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but the financial piece is big.

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So having a strong accounting and finance
team that has the capacity as well,

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so fully built out to
not only continue to run,

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you know,

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the accounting and finance
controls of the business ongoing,

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now they're asked to, to help
with some due diligence process.

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So you know, having folks
that are strong both,

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you know, on the reporting,
but also the finance side,

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the projections and understanding
how to talk to capital

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is a huge component. And then the
last part is, you know, now we've,

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we combine companies, the
accounting and finance team,

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maybe there were combining departments,
so now we have to create new processes,

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new procedures, new reporting, everything
kind of has to get pulled into one.

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And again, I think, you know,

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having strong accounting finance
function is probably one of the

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most important things you can have
if your company is growing through an

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acquisition.

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So that really makes sense of where you've
shown how the accounting and finance

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team kind of fit into that.

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But when you have the smaller
organizations and you know,

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what you do in your organization,

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how do you kind of fit in the midst of
all of the accounting and finance team,

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you know, their corporate development?

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Where do you fit into that as
you're helping organizations?

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So what I do with my clients is I
come in as a fractional executive,

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and it's a fractional corporate
development executive,

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if you wanna call it that.

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But I'm coming in as part of the
management team to specifically drive

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the strategy and execution
of their M & A strategy.

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I'm not coming in and, you know,

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doing accounting and finance,
it's, that's not my role.

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I work closely with accounting and
finance and there has to be a good

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partnership there. Of course,

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there's a large chunk of
accounting and finance that

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I don't do, and it's just not,
it's not my lane, if you will.

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So as a fractional executive,

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it's really important as I come in
to understand everyone's roles and

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responsibilities, who's doing what.

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There is a little bit of a overlap
with the work that I do initially

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with my clients, which is really more
of a strategy and projection exercise.

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It's a where are we going,
how are we gonna get there,

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what's the projections look like? A lot
of times that's being done by the CFO,

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sometimes I'm being asked to help
the CFO prepare those projections.

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So if there's a capacity
challenge with the existing team.

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So it's really a collaborative
arrangement across not just

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accounting and finance,

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but all the other executives that are
involved in management that are involved

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in my clients. It's a team based approach.

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And you know,

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there's a lot of the corporate development
work that I'm doing that I think most

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accountants and CFOs
don't wanna do. You know,

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it's building the corporate
development plan, the target list,

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doing the outreach, you know,
negotiating structures, you know,

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some of the real kind of heavy lifting
on going out and finding companies to

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buy.

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So it's very complimentary and that's
how I typically work with my clients.

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That's great. So something that
came to mind as you were talking,

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how important are strong internal
controls within our organization as you're

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going looking to do mergers and
acquisitions? I know as you know,

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as IMA members know,

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internal controls are hugely
important within an organization,

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but I can only imagine they can be even
more important as you're going into a

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merger and acquisition.

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Yeah, it's,

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it's imperative because as you and your,

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you know, listeners know that it
is super valuable and it's a risk,

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it's a risk management thing of the
business, and you don't have it, Right.

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You've got gaps, you're not, you know,

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there's a systemic risk
to the organization. Yeah.

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And when I, as I come
in and I look at that,

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if there's systemic risk
of internal controls

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there,

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it doesn't make any sense to go out and
find a company and put 'em together when

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there's that big of risk
and holes to be filled.

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So a lot of times what I will do is
as I start my process moving down the

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road of executing an M & A strategy,

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I'm working with leadership teams and
management teams and financing and

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accounting,

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if there are risks such as internal
controls that we need to shore it up

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before we actually transact.

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And there's usually a long runway between
when I engage with a client and we

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actually close on a deal.
There can be up to, you know,

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6, 9, 12 months sometimes
before we actually get there.

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So we have time to shore up some
of that stuff. And a lot of times,

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you know, even if we, let's
say I work with a client,

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we don't find something to buy right
away. Some of this work is still valuable.

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It's like, hey, let's shore this
up to get ready for an acquisition,

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but this probably should already
be done anyway. So it, you know,

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me coming in initially is, you know,

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some of my clients will say it's just
a third set of eyes just to, you know,

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what kind of questions am I asking?

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And it can be valuable just
to have an objective onlooker

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to make sure everything's, you know,

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being done and operating the
way it the way it should be.

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Yeah. So regardless of the benefits,

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you need to make sure your house is
in order before you can start looking

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basically.

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Exactly. Exactly.

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This has been Count Me in IMA's podcast,

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00:19:47,770 --> 00:19:51,410
providing you with the latest
perspectives of thought leaders from the

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00:19:51,411 --> 00:19:52,850
accounting and finance profession.

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00:19:52,851 --> 00:19:56,250
If you like what you heard and you'd
like to be counted in for more relevant

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00:19:56,251 --> 00:19:59,170
accounting and finance
education, visit IMA's website at

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00:19:59,171 --> 00:20:02,850
www.imanet.org.