The Art of the Deal

Christine (00:04):
Bill, we are back for our second podcast and I'm very excited about this week's topic. For the purpose of this week, we're going to be talking about the deal process and the art of the deal, and I think it would be very beneficial when we work with our clients, we break it down into a couple of different steps. So maybe we could start on essentially the first two topics of the deal process, which initially is an exploratory conversation, an NDA. And then if that looks well, then we go onto an engagement letter. So maybe we could walk through the first two to start.

Bill (00:37):
How I like to see our process run is to have an exploratory call. Usually jump on a video call shortly after that if we think that there are some things that we could fulfill and fill in the gaps that they might want or need for their growth of their practice or their own personal financial goals. And then at that point, I always like to ask the question, what's your goal? Because people who are goal-driven and know what their goals are and able to articulate them in a punchy short way, that is extremely valuable because you can manifest that so much more easily for them. And usually at that point I would migrate and have one of our team meet in person.

(01:40):
You just can't replicate getting eyeball to eyeball with someone in person. It lets you appreciate a little more of the indicators of what is important to them and what's not, versus just what's being said on a phone call or even on a video call. And so what we like to do is get out, get in front of our clients, have those meaningful conversations in person where they feel that there's like, okay, this is a trusted advisor. This is somebody who I've migrated from exploring opportunities and options for myself, to getting advice, to essentially having a partner that sits like a copilot with you for what may end up being a lengthy transaction process that can add value to your future goals.

Christine (02:36):
Yeah, it's kind of like a first date. No strings attached, just kind of explore.

Bill (02:39):
Yeah, there you go. Yeah, so that's a great example. You mentioned NDA, I think, so a nondisclosure agreement. What that, really that purpose is for is to protect people in kind of a boilerplate template and those types of things that you'll see in the market is just saying, Hey listen, we're going to protect your data. We're going to protect your information, just like you would protect any advice that I would give you. It's kind of a two-way street to protect everyone. And so signing an NDA, it's just codifying a handshake agreement of respect for people's information. So typically after the first call, if we think that there's something there to pursue a little bit further in a video call or something, that's usually when I'll say, Hey, why don't I send you an NDA? So anything that you tell me going forward, it's kind of like client privilege.

Christine (03:49):
And then from there, NDA signed, you continue on in some further conversations. The next step technically in the deal process is what we call an engagement letter. So what's that exactly?

Bill (04:01):
So engagement letter that is kind of an industry standard that you sign an engagement letter when you want somebody to represent you, right? And so typically I would say that when we sit down face-to-face, I always want to see the practice for the client that we're representing. It's so important to get out there and get boots on ground, see what they've created, understand what you've put into building up this practice. We pride ourselves on really understanding the firsthand knowledge. It's not just a widget in and a widget out with us, because there is so much more to the operational and the culture that I can put a value on that other people can't.

(04:53):
That is difficult to do unless you get in person with people. And so at that point in the game, if it makes sense to go down the path of pursuing what private investments or private equity backed portfolio companies that want to invest in your company and you need us to take you to market to facilitate that, then we sign an engagement letter together. Typical in the market, it'll be a commission base. So we make it very straightforward. It's a flat fee and really it's just if you do a deal, then we would get paid. And I like doing it that way because there's so much of a hesitance already for people not knowing if they're getting quality representation or not, that I've seen in the past, that I just think it's the right way to do business. So I'm willing to put forth the effort and do the in good faith part on our part to build trust and goodwill. And I think that goes a long way with our clients and I think they appreciate that type of approach.

Christine (06:10):
It's a little bit of a better way to enter the relationship, if you will. Okay then, so let's say everything in the process is feeling good. They sign an engagement letter. Next step is kind of what we call the data analysis and collection phase. So what does that look like and then perhaps a timeline for that?

Bill (06:31):
Well, to me, this is where success and failure gets created in the lab. We are extremely thorough in our analysis of the practices that we represent, and we do that as an added value for our client, the seller, and to attract the best buyers on the market because they appreciate that level of rigor and detail that we put into the analysis and the valuation, that we take the time to really uncover and turn over all the stones to make sure that you're clean, ready to go to market, and that the monetary value of your practice, the EBITDA, et cetera, is what you say it is. And what we think the value premium of that is for the open market. And typically for an individual practice, it could be a three, four week process for people, for a multi-practice, multi-state site, it can be a month and a half, two month process. You never know until you get into it. Some of that has to do with the fact that our clients are incredibly busy running a business, and so you just don't have time. That's why you hire us is one of the reasons you hire us, is you don't have time to do your own deal structure. So we really pride ourselves in customer service. If we need to come out on site to help you with that data collection and make it less stressful on you, then that's what we do.

Christine (08:22):
So then once we do that data collection and pull and we have that all cleaned up, if you will, then the next step would be to take to market. So maybe talk about the timeline of what that looks like, what that experience is for a customer. And then second to that is the indication of interests, and buyer vetting, what that whole little process would look like.

Bill (08:45):
One thing that I think is important to highlight here is the amount of time that we spend with our clients before we take them out on the open market is very, very thorough. And I really am proud of the team for how much time and energy into listening to what they need and what they want in their deal, how much time we put into that. And the reason why I think that's so important at that phase of the deal is until you can look at clean numbers and really know the operational footprint of a practice or a group of practices, you can't really start about strategy valuation of how much are you worth.

(09:34):
And so it's right at that critical juncture that we take uncommon measures that other organizations will not to sit down and do very thorough strategy sessions, coaching sessions, educating our clients on what are the true strengths of your practice? You thought this was a strength, this is a nice to have. You thought this was a nice to have, this is a must have. And so that moment is very, very important in the deal process from the seller representation side because the minute you fire that round out the chamber and you go to market, you need to be ready, you need to be poised, and you need to be informed because you can't take that round back. When we go to market, I find the best scenarios for our clients is to look for the organizations, look for the partners on the investment side that are best suited with a great track record and a clear vision on what they want to do with their organization and how our client would fit into that organization as a key partner member for them. And so we'll create that competitive bid process through reaching out to multiple suitors to get the best dowry basically for our seller.

(11:08):
And for them, I think what buyers appreciate is a really candid, clean look at the practice. I think it's always best to give the goods and the bads, and the art is knowing what are the goods that you need to emphasize the most to really create the most value? And that's something that we're very good at. At that point, once we go to the open market and we create this froth, this froth in the place over your practice, then we get these indications of interest. So these are the kind of indications of interest is like, okay, yeah, so we got your information, we got your numbers, we'd like to have a more meaningful conversation. And so they'll throw a number range out there. We think if your numbers are what you say they are, we think if your operational footprint, if your processes, if your staffing, and your production mix of which procedures you provide as a service to your clients, are what you say they are, we think you're in this range for us to make an offer on. And so again, it's another insertion point in the process where we pride ourselves on kneecap to kneecap service, custom customer care for our clients to really talk them through, okay, what do these indications of interest mean? Who are they backed by? What type of deal structures do they offer to help get them to the next phase?

Christine (12:52):
And you're touching on this a little bit, but maybe dive a little deeper into perhaps why it is so important and critical to have adequate representation in some of this due diligence process and in your experience, how that elevates a seller's opportunity in the market.

Bill (13:10):
Thank you. Yeah, good point. So if you're on the buy side of a deal, you've got specific goals for your organization that you're trying to achieve in order to have successful exits, successful growth both organically and inorganically. And there are going to be value adds that along the way, the maturation of your company, you're going to want. You want key opinion leaders. You're going to want practices that are steady, Eddie, straight up the middle, solid growth, year over year type practices. You can run the gamut and kind of let your imagination take you from there. If you're on the sell side, understanding where those companies are in their life cycle and what kind of hidden value you can add for them, that's one of the places where we like to coach our clients based on the indications of interest and say, Hey, this company, this is who they are, this is their leadership team. We give an executive overview to our client and then we dig in and give a prospectus on, this is our assessment of that company. This is the assessment of their financial backing. If they are private equity backed, who's the private equity sponsor? If they're an independent that wants to acquire their practice, what kind of funding resources are they saying that they have to ensure a successful and a smooth and a quick closing of the deal?

(14:39):
So all of those things come into play and we provide a detailed analysis for each one of those deals, just off the indications. You need that kind of representation, you need that kind of experience because some people will have the extra 20 hours a week that it takes to put into a deal for six to eight months. Others do not. So we add value there. If you do have the 20 hours a week to put into one singular deal, the question still is to be brought up of are you really going to have the bandwidth or the knowledge of who your suitors could possibly be? And so we can add value in that regard too, which I think is really important about a broker, a quality broker. And so we'll take those indications of interest and then based off of the different deal structures that are available out there and based off of their track record and the culture fit, so critical.

Christine (15:39):
I mean we hear that all the time. It's obviously the financials and it's the offer in the end, but the culture fit that mixes in with that. And I think that's a key component also of your knowledge of the space to help guide people in the full deal that they're looking at to make sure that they're getting exactly what they want.

Bill (15:56):
Yeah, and I think, I can't tell you how many times, you just run across the full spectrum, full spectrum of, hey, I'm a business owner, I am not an injector, I'm not a care provider. I happen to just be the business owner of it. And so there's going to be different inflection points for them in a deal. Then there will be for, a founder owner, let's say. Somebody may have bought the practice and have held onto it for several years after a transaction and now they want to monetize it themselves. A founder owner, a lot of times a founder owner is going to be incredibly ingrained in that community. They're going to be incredibly bought in on the wellness and success of their staff, and they treat their staff like family. And so knowing that they're well taken care of, knowing the track record of the company that they're going to partner with, that's very important to them. And so when we get to that point, the goal is to really narrow all of those suitors down to your top two or three. That's how I think about it is who's my top two or three that we're looking at in the horse race?

(17:12):
Again, I go back to, I always like to push for in-person meetings, a sit-down dinner with the prospective buyer and with our client, and we'll be there with you every step of the way. And just give you a chance to openly ask questions and have them ask questions of you, to create that synergy and to find the perfect fit. And I think that's so important that in person aspect for those finalists that are coming to your door, wanting to partner with you.

Christine (17:43):
And then just to make sure I'm covering some of the timelines, for the indication of interest timeline, roughly what does that look like when it says, okay, here's some options and then maybe a week of dinners? What's that step look like? Is that a one week, two week?

Bill (17:58):
I think the key indicator is it all depends. You're a multi-site, multi-state group. Indications of interest could go for a month and a half, two months. A single practice location in a high demand area that people want to create density in. You could be a two week to four week timeframe of getting indications of interest. And one of the things I always tell people is don't ever judge the success rate of your deal off of how long you keep the window open for indications of interest. Short can be good or bad. Long can be good or bad. It just all depends. And I try to educate that in the space just to say, Hey, listen, buyers have investment boards that they answer to. They may not be able to get on their radar for another month, and then they may need another week after that to put something together. Somebody else might've already had a meeting that's scheduled for next week so they can get in front of their investors, get an indication approved and have it to you within a week and a half.

Christine (19:16):
Well, and that ties back into also just having a credible advisor who can walk you through each different unique situation depending on who's the buyer, what's your specific scenario, et cetera. One of the things that you talked a little bit about on, but I wanted to kind of highlight is potentially the importance of continuity within a deal and what that might mean with private equity and how they might value that within a deal. Maybe if you could retouch on that a little bit further.

Bill (19:45):
Well, so continuity and consistency are incredibly important to financiers. It's so funny, I can recall a scenario where somebody grew 28% in one year, and the comment from the executive team was, could you just grow at 12 or 14% a year? Because we have to explain why you're growing so much. So there are those funny scenarios where you're like, wait, you're telling me that my extra growth wasn't a good thing?

Christine (20:30):
I don't get a gold star for that?

Bill (20:30):
I don't get a gold star. And again, I'll say it all depends, right? If you're in a de novo phase, de novo being a new practice location, you had a first location, now you opened a second one because you're in such high demand and you've got this explosive growth. As long as there's a legitimized story behind excessive growth or an excessive contraction, if there's a reason for that, that's what people want to see is like, okay, what's the rationale? What's the reason?

Christine (21:02):
What's the story not in the number?

Bill (21:04):
The other thing that I've seen is, well, we added another injector and we added two more treatment rooms and we picked up another laser, and that's why we have almost a 30% growth in the last year. Whereas my first four years, I had eight, 10, 11% growth each year. And so again, it's the story behind the numbers, just like you said. And that's one of the things that we really do put a lot of effort into narrating the story behind the numbers to the buyers to make it easy for them to be able to say yes, on your behalf, because you'll never be able to negotiate your own best deal. It's a fact, and that's what we're here for. We're here to be your extension into that room to get you the best deal possible.

Christine (21:56):
Well, and I've heard you say before, and we say it often is you could argue we're kind of the chief information officers of the deal, right? At the end of the day, it's our job to bring all the information to the table for our clients and buyers and just make sure that they adequately understand everything so that they can make the best decision. Okay, so then going from that suitor phase, then the next step would be essentially to accept an offer.

Bill (22:27):
The letter of intent.

Christine (22:28):
Yes. Yes. So what is that? Break that down for us, Bill.

Bill (22:32):
It's a big shiny engagement ring. It is a promise. You're walking to the altar, but you're not married yet, in nature, so you're not obligated. It's just simply, I think of it like an engagement letter with us as your representative. The letter of intent is that equivalent with the buyer, and you're making good on that good faith by signing a piece of paper that says, okay, I am going to go play outside linebacker for Ohio State this year. You can always walk away, go to University of Michigan. I don't know why anybody would want to go play for University of Michigan, being a former Buckeye myself

Christine (23:15):
Just lost some clients there.

Bill (23:18):
I'm smitten with the mitten, but maybe not the Wolverines. That being said, the letters of intent, you're picking one. You're like, this is the horse I'm going with. And when you sign that letter of intent, then you enter into the due diligence phase. So this is such a critical moment to have quality representation. Because I say this to our clients all the time, you only get one opportunity to sell your practice. Buyers look at 50, 70, 100 deals. And so that's why it's so valuable, I think, to have us on your team. And so that process takes about, different companies have different timelines to close. You want a swift, smooth experience in your diligence process. You should see it somewhere between 45 to 90 days. 60 to 75 days is pretty typical. Again, a bigger deal could reflect a longer period.

(24:34):
A smaller deal could reflect less time. And throughout that process, we offer opportunities for you to find a good legal fit. So if you have someone that you like that is a family member, or you've worked with that attorney in the past, we're happy to partner with them and we'll work with them on the business points of your legal documents step by step, week by week through the process on your behalf to make sure that you're properly protected and covered on your business points. Also too, it's very important to understand that just like anything else, if you have an attorney that's great at being a tax attorney, maybe they don't have the depth and breadth that they would like to represent you in a healthcare m and a transaction. And so that's where we can come in and add value as well to give you kind of a pick of the litter of who you think would be a good match for you as an attorney, as a fit. And we're happy to facilitate that for you as well. And we do it all the time. And ultimately it's about getting to the finish line in a credible way that protects you on your fundamental deal points that we craft ahead of time on the business points and make sure that the legal documents memorialize that.

(26:07):
It's important that I always say, look, legal is not meant to renegotiate the deal on the buyer's side and on our side. Legal is there to memorialize what we're put into the business points of that letter of intent. And that's kind of how we walk through it. And so I like to think that, again, the chief executive officer is the client, we're the chief information officer. Our job on that weekly basis, so that diligence process, is to collect data, be a single point of collection for you to gather that information that they need from you, from your team, get it to them, provide feedback, provide responses, answer questions, facilitate, and take a load off of your shoulders and make sure that they're following through on what they say, they're going to follow through on their letter of intent.

Christine (26:58):
Some accountability.

Bill (27:00):
And then you get to the closing day. And we work very hard to make sure that the buying company is providing all of the resources and the points of contact for day one of the partnership for our clients so that when you walk into that marriage the day after the transaction is completed and the money wires and all of the paperwork for shares are signed that you're well taken care of. And I tell our clients, if you're a client of Aesthetic Brokers, you're a client for life. I have people that will reach back to us and just ask a random question on a side venture that they're looking into, and we're here for you for life, and that's the way I want it. And I think that's how strong business relationships and friendships are made.

Christine (28:03):
Good business approach. So just to kind of put a bow on it, from start to finish, from the beginning of, Hey, we just jumped on a discovery zoom call, to potentially that closing phase. On average, what's a range that potential clients could be looking at just for the entire deal process? Just in case no one's doing math in their head for each of

Bill (28:26):
Oh, good point.

Christine (28:26):
The bullet points. What does the whole timeline look like?

Bill (28:31):
So this is a generic timeline. I would say also too, we don't really represent distressed assets. We don't represent distressed clients. Our clients, they're doing great. They don't have to do a deal. They want to do a deal because they see the value in that of where the aesthetic industry is headed. And usually that's a really big differentiator, is the quality and caliber of the clients that we represent. And so in those deals, I would say you're looking at a four to eight month process.

(29:12):
If you think about a couple weeks of conversations in a month of evaluation analysis, and another month of taking you to market, and then two or three months of closing phase, you're already bleeding over into the four to eight month process. So it's something to understand, I think, important to your point, that this timeline is something that's methodical. It should be well run and kept on a timeline of sorts. Once we get to the point where we say, let's look at the data together and see what some deal structures would look like and if they make sense. When you get to that point, I like to see it run with a process to keep everybody on track. And I think our clients appreciate that. And that being said, that's kind of, if you're hitting the five or six or seven month mark, you're probably doing a very efficient and effective process without putting the cart before the horse.

Christine (30:13):
And we're keeping you on that timeline. That's also kind of part of our job to make sure that we are doing everything we can to make sure that it's continuing on a smooth process for you and alleviating pain points.

Bill (30:24):
I guess as I think about it too, in a little more detail, I mean, we've got some clients that they like this opportunity, they're interested by it, but they're in a growth phase, where they just open up doors. And so maybe they're looking to us for advice and guidance on, well, when is the right time to go to market? And so we have clients that are clients of ours that won't even go to market for four or five months, six months. So that process in and of itself, begats a 9, 10, 11, 12 month process. And I'm happy to do that with our clients, is strategically planning nine, 10 months a year out for when they're ready to go to market. That's just, if it doesn't make sense to go to market, you don't go to market.

Christine (31:22):
I think that's part of the advisory process, right? What's customized and best for you.

Bill (31:26):
Yeah. So give me a call and we'll talk about an exploratory conversation.

Christine (31:33):
I mean, anything else in the entire deal process just that you'd like to add on in the end? I mean, we've covered a lot. I think we went into some decent detail.

Bill (31:41):
I mean, there's so many things that we could probably do an entire podcast episode on that people would fall asleep at the wheel and be like, oh my gosh, Bill, you're bombarding me with all this stuff. I'm not an attorney. I wouldn't dare give legal advice to any of our clients. But there's things like callback considerations of for cause, not for cause, when it comes to damages that you could talk about in depth. And what I would say is let's jump on a call about if it makes sense or not to make sense to go to market deal points. And then when we get to the phase when it's the right time to introduce sage legal counsel and we bring in and talk about all the what ifs for that, and that's what that part of it's for. But yeah, I just think that it's an incredible time in the aesthetic space for people who have, by and large created from scratch their own business out of nothing. And it's such an incredible American story, of creating your own business, the entrepreneurial spirit, the pioneering frontier spirit of capital enterprise. And it's just such a cool era to be in the aesthetic space where you can see people be able to unlock the value of what they built.

Christine (33:11):
It's a lot of opportunity. And I think, again, just to kind of wrap this up, what's nice about our business model is just the step one of our deal process is a discovery call. And there's no harm in that. There's no strings attached. So I think right now, given the newness of private equity entering this space, there's a lot of questions out there. So I just encourage anybody who has a curiosity, maybe they're not even considering it yet, is to give us a call. Give us a chance to give you a consultation on your business, and then from there you kind of see what works. And I like that about us.

Bill (33:44):
I do too.

Christine (33:45):
Cool. All right. Well thank you, Bill.

Bill (33:47):
Thanks, Christine.

Christine (33:48):
I appreciate your time.

Bill (33:49):
I appreciate your time.

Christine (33:49):
Until next time.