Welcome back to Count Me In,

the podcast focused on management
accountants driving business forward.

I'm Adam Larson.

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

businesses through
mergers and acquisitions.

Ryan is the founder of G-Spire Group,

a consultancy focused on companies
often overlooked and underserved when it

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

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

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

that's only worth millions.

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

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

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

business and highlights the critical
role management accountants play in

corporate development success.
Let's start the conversation.

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

We are gonna be talking about
mergers and acquisitions today,

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

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

unmatched $5.9 trillion in 2021.

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

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

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

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

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

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

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

strategic, you know,

really what is their strategic reason
for growing through acquisitions?

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

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

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

10 to 50 million in revenue range.

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

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

But I think that, you know,

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

activity. One has been the
historically low interest rates.

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

really attractive for a
buyer to go out and secure

debt and even equity for
that matter to engage in

transactions.

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

You know,

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

call it that,

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

that would involve M & A. You know,

you see companies you know
that I think talent is

one, you know,

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

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

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

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

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

motivation. There's other
kinda strategic reasons.

One being size and scale from a cash flow

perspective allows the
company to, you know,

invest more into other
certain strategic initiatives.

So size also equates to
sometimes more value.

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

size does impact that value.

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

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

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

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

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

So that's kind of market share strategy.

You see acquisitions that
are maybe of a supplier,

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

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

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

grow into other geographic areas
that are strategic for them.

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

strategy. And then, you know,

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

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

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

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

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

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

Maybe it's a good strategy.

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

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

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

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

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

a stock price that is
historically, you know,

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

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

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

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

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

their business is typically
their biggest asset.

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

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

own privately held companies.

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

driving the market too.

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

And so with somebody
looking into, get into that,

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

why would that matter?

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

and then why is that
beneficial to develop to,

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

mergers and acquisitions?

Yeah,

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

companies.

These are companies that
have entire departments,

corporate development departments,
and they're these departments,

sole responsibility is getting the
company ready and then sourcing,

closing and integrating
acquisitions on behalf of the

entire organization.

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

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

you know,

that that service doesn't
really exist for those smaller

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

you know, you can't,

typically there's not enough
resources to hire a full

time corporate development
executive, you know

so, and then the other,

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

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

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

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

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

and how other, you know,

partnerships and alliances could
be beneficial to them growing.

So that's just a capacity challenge.

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

through like a substantial
transaction before.

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

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

acquiring a business
and making sure that it,

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

So why does it matter? It, you know,

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

as, you know, five to 10,

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

with. And the couple things that I see,

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

lower middle market is one,

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

pretty substantial for a
smaller business. You know,

if you're, you know,

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

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

you might be worth four or $5 million.

What happens as you get
bigger from this size

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

you know, half a million
dollar cash flow businesses.

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

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

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

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

Two,

the size of your organization
requires you to professionalize the

business.

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

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

Really, I call it, you know,

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

And that process also improves
the value of the business

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

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

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

So bringing corporate
development or helping companies
grow through acquisitions

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

You know,

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

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

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

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

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

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

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

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

something like Covid hits,

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

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

companies.

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

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

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

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

is your CFO who wears a number of hats,

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

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

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

making sure everything's in place.

And so maybe we could
discuss that a little bit.

Absolutely.

So corporate development
supplements and helps the

accounting finance function. You know,

and there has to be a
lot of collaboration.

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

that go into creating a
good M & A plan largely

is coming out of the financial
side of the business.

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

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

But also, you know,

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

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

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

you know,

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

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

you know,

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

growing through an acquisition.

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

having good management
controls good reporting,

all of those things are
super helpful and needed to,

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

that stuff. The other places, you know,

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

you go under a letter of interest,

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

and a big chunk of the due
diligence is financial.

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

but the financial piece is big.

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

so fully built out to
not only continue to run,

you know,

the accounting and finance
controls of the business ongoing,

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

So you know, having folks
that are strong both,

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

the projections and understanding
how to talk to capital

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

we combine companies, the
accounting and finance team,

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

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

And again, I think, you know,

having strong accounting finance
function is probably one of the

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

acquisition.

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

team kind of fit into that.

But when you have the smaller
organizations and you know,

what you do in your organization,

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

you know, their corporate development?

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

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

and it's a fractional corporate
development executive,

if you wanna call it that.

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

the strategy and execution
of their M & A strategy.

I'm not coming in and, you know,

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

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

partnership there. Of course,

there's a large chunk of
accounting and finance that

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

So as a fractional executive,

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

responsibilities, who's doing what.

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

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

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

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

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

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

So it's really a collaborative
arrangement across not just

accounting and finance,

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

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

And you know,

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

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

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

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

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

buy.

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

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

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

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

as IMA members know,

internal controls are hugely
important within an organization,

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

merger and acquisition.

Yeah, it's,

it's imperative because as you and your,

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

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

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

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

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

if there's systemic risk
of internal controls

there,

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

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

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

road of executing an M & A strategy,

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

accounting,

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

before we actually transact.

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

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

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

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

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

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

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

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

me coming in initially is, you know,

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

what kind of questions am I asking?

And it can be valuable just
to have an objective onlooker

to make sure everything's, you know,

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

Yeah. So regardless of the benefits,

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

basically.

Exactly. Exactly.

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