Market conditions have led to considerable uncertainty in the deal market. Long Road Partners Founder and CEO Jeremy Kane knows this too well. At this year's Nashville Smart Business Dealmakers Conference, he talked about two deals that he closed when the firm went out to market six weeks before the interest rates changes that ultimately both died.
"We were under LOI, deal looked good, partners look good and then those deals fell apart," Kane says. "We put them back together. We had a real estate partner walk away day of closing; we were able to put that back together."
While the stability seems to be coming back now, there are still market elements that create uncertainty, such as unpredictable insurance rates and inflation. So, in addition to working with an attorney to try to better predict insurance markets, he says he's doing more due diligence with potential capital partners.
"There's a lot of cautious capital out there," he says. "And so, we want to move fast when we put an LOI in; we want to close. And so, we're looking at all of the different partners that we've got to put together."
Also key to his strategy in this market is talking to owners and building relationships with them over time.
"Any deal takes that time," he says. "It's a partnership. But we're able to move quickly when we got that LOI, we've gotten an agreement going forward now, we've got the insurance piece in place, we got the legal piece in place, we can move a lot faster and with a lot more confidence."
Building those relationships with owners helps his firm stand out among other potential buyers.
"I tell owners all the time, we have that conversation with investment bankers, brokers, whoever we're talking to, that we might not be the highest value, we're not going to be the biggest price tag, but you're going to be comfortable, confident, and excited that we're going to be your owner long term," Kane says. "And now we have a track record. And I put our current team and our current employees on the phone a lot of times, and so we're building that reputation in the market. But we've lost a ton of deals because we don't want to move that quickly. And we're honest about that. And we've had two deals come back to us that they were homeruns and they were going to pay 10x and they came back and said, 'Can we talk again about your offer?' And so, I think this market is a lot more about relationships and then having those things buttoned up so when we do have that time, you have built that relationship, we move quickly."
Part of building that relationship involves being as transparent as possible, sending his due diligence checklist immediately, even before an LOI, in an effort to be clear about who he is.
"We've had folks walk away," he says. "I don't want to waste your time, I don't want to waste our time. So, if they react to probably a 30-page Excel document, of all the documents we're going to be requesting, and I walk through with everybody in the beginning — this is not all at once — but we want to be transparent. This is a serious process, we're going to be a serious buyer, we're going to be a serious partner, we take your business seriously. And like I said, we've had plenty of people that say, 'Hey, I think we're going go with someone else.' And that saved us a lot of time."
In an effort to elongate the transaction and keep an owner around and tied to the business, he says he uses earn outs or seller financing.
"Deal structure is often overlooked. Too often you go into a deal and it's, I'm going to win or I'm going to screw over the other guy or I got one turn higher, look at this. And you forget about the relationship long-term that you're dealing with employees that that was their boss, that was their founder, that was the person there every day. It's just that relationships matter. And that emotional piece I think gets lost in deal structure. And we really try to look at that from the very beginning so it's baked into it, so not only are we successful, but then employers are successful. And, man, those ownership checks, I hate right now. But I love it when they call up and say, 'Hey, we're excited. This has been great. I'm glad we went with you.'"
