Feb 20, 2016
Summary:
In this episode, Dave interviews Devin Matthews of Parker-Gale Capital—a private equity firm based out of Chicago that focuses on buy-out investments. Listen as Dave and Devin do a DEEP dive into the intricate processes surrounding successful business valuation and acquisition.
Time Stamped Show Notes:
- 00:30 – Dave welcomes Devin
- 00:45 – Parker-Gale Capital—private equity fund out of Chicago
- 01:07 – PEFuncast
- 02:19 – Went to Tuck to obtain an MBA
- 03:52 – Devin is the guy with the answer key for entrepreneurs
- 05:03 – Build a business that’s sustainable and drives profit
- 06:04 – Devin ONLY buys companies from founders
- 07:52 – How Parker Gale came to be and how it works
- 10:18 -- Most founders sell to Parker Gale because they want out
- 15:25 – The different flavors of venture capital
- 16:52 – Is the venture capital world looking for the one unicorn?
- 17:50 – Most venture guys are willing to take some pretty sizeable losses
- 18:29 – A typical venture fund might have 30 businesses in its portfolio, a buy-out fund might have 10
- 19:33 – Private equity aims to make money on every deal—3 to 4X their money over a 10 year fund life
- 21:16 – Where do Private Equity funds get their money versus Venture funds?
- 24:04 – The leveraged buyout
- 26:48 – Standardizing the business—getting to a recurring revenue format
- 27:30 – The Three P’s: Profitability, Predictability, and Prospects
- 29:43 – Accrual-based accounting is a necessity if you’re going to get acquired
- 30:28 – Cash is king and it always will be
- 32:31 – The relationship between profitability and growth
- 33:14 – If you’re not profitable, it’s hard to invest in a business
- 35:15 – If you started a business and now intention of selling it—extract as much profit as possible
- 38:09 – Are expenses added into EBIDA?
- 40:20 – The importance of having quality representation (advisors) in the negotiation process
- 43:25 – The auditing process of an acquisition by a Private Equity firm is BRUTAL
- 44:24 – If the due diligence process doesn’t go smoothly the deal is doomed
- 48:08 – Devin defines the value of a GREAT lawyer
- 51:23 – The danger of over-valuing and under-valuing your business
- 55:15 – The TV show Silicon Valley?—Shockingly accurate
3 Key Points:
- The three keys to having a successful business (regardless if you want to sell it)?—The three P’s: Profitability, Predictability, and Profits.
- Cash is king—it always has been and it always will be.
- Get mentally and physically prepared to endure the auditing process if you’re selling your business—it’s grueling and private equity firms spare no expense to cross the t’s and dot it i’s.
Resources Mentioned:
- Entrepreneur's Organization – The EO Network
- Tuck – The business school at Dartmouth
- EBIDA – Earnings before interest, depreciation, and amortization
- PEFuncast – Devin’s podcast on Private Equity
- Parker Gale Capital – Devin’s PE Firm
Credits:
Show Notes provided by Mallard Creatives