Podcast: The Silent Driver of the M&A Boom

Mike Langford:

Hi there. Welcome to the Silent Driver of the M&A Boom, a special webinar by SkyView Partners. My name is Mike Langford and with me today is Aaron Hasler, a managing partner at SkyView who focuses on helping firms and individual advisors navigate the mergers and acquisition process. One quick note before we get started, this webinar will also be available in audio and video podcast formats via the advisor financing forum feed. You can find the podcast on Apple podcast, Spotify, Google play, and YouTube. We'll also have a recording on skyview.com as well. Lastly, if you have questions about anything we cover in today's webinar, please feel free to reach out via skyview.com or give us a call 866-567-6282 and someone will be glad to assist you. Okay. Let's get to it. Hi Aaron. It's great to see you today.

Aaron Hasler:

Hey Mike.

Mike Langford:

Hey.

Aaron Hasler:

It's good. See you as well. Glad to be here.

Mike Langford:

I know. It feels like it's been a while so I'm thrilled that we get an opportunity to record this webinar today. You and I always have fantastic chemistry and we always get great response from the audience. So I'm looking forward to diving into this bad boy.

Aaron Hasler:

I agree. I think there was snow on the ground the last time you and I were talking. So it's been a while.

Mike Langford:

This is true. Exactly.

Aaron Hasler:

It's been at least-

Mike Langford:

It's funny. Before we-

Aaron Hasler:

Yeah.

Mike Langford:

Before we jumped on today, we were kind of, both of us, commiserating about extreme weather and so forth. And we both live in some extreme areas of the country, you up there in Minneapolis and I'm down here in Austin, Texas and they can both be extreme in their own right. We're just big babies.

Aaron Hasler:

For sure-

Mike Langford:

Who complain.

Aaron Hasler:

For sure. But it keeps it interesting, right?

Mike Langford:

Exactly. Exactly, right? Well very cool. I'm excited about this. I thought a great way to kick this off before we dive into the meat of the presentation would be if you wouldn't mind giving the audience a bit of an overview of SkyView because some of the people who are tuning in today for this might not be familiar with SkyView Partners and the process for securing lending and so forth. So if you could just give a quick overview of SkyView, that'd be great.

Aaron Hasler:

Sure. Yeah. Absolutely. So SkyView is a commercial finance company that's expanded into the solutions that we offer, but essentially what we are is we are all veterans of the wealth management industry says partners at SkyView and we knew that there was a real challenge of bringing commercial capital into the wealth management industry. It just hadn't been readily accessible. So what we did was we brought a commercial financing loan program into this space where financial advisors can go get a loan from us to acquire business. And what's unique about us is that we typically do 100% financing of most of the deals we work with and we do them on a conventional commercial basis instead of the SBA loan basis, which is we think more creative to creative deal structures. A lot of flexibility for buyer and seller to partner together for a little bit longer is really just the maturation of this space. It finally has the lending product that this industry has deserved for a long time.

Aaron Hasler:

It's been really fun to bring this to the marketplace. And the other thing that we did, Mike, was we added in an investment banking solution. We purchased a broker dealer in late 2020 with the idea that we could provide some investment banking resources to our financial advisor base that's out there. And so we work with mostly sellers and we represent sellers as they want to look at a succession plan and be acquired by a larger business.

Mike Langford:

You know what's really exciting about this, and I actually get kind of amped every single time we have conversations you and I get together to talk about this is, this is a relatively new phenomenon for this industry. Like for a long time, if an advisor was going to buy or sell a business, it was probably going to be seller finance, right? That the seller was going to take back a note or something like that. And so because commercial financing of any kind really just wasn't available. So this is really exciting to me. Anytime I get to chat with you, I'm like, "This is awesome. This is changing the industry." And it's really, well frankly, led in part to changing the landscape. And so I thought maybe we could dive into that a bit here because the landscape has changed dramatically. Let's start with I guess maybe the fundamental here. If I'm thinking about buying or selling a business, what drives practice value for that business?

Aaron Hasler:

Well, it's a super interesting question especially because, Mike, I feel like it's changed a lot since our inception. Right? And I think practices, I mean, I feel like this industry has really matured in the 20 years that I've been into it in that you started out with businesses that were just a practice. There were a financial advisor that had a base of clients. They might have had a couple of staff people, but to see a multi advisor, multi staff business in the early 2000s was unusual, right? And so what we've seen is that there's been a maturation of this industry. Technology has allowed financial advisors to be more efficient with their time. They're servicing more people. Social media has obviously changed the landscape in terms of how advisors can cross borders and work with a wider variety of people across a larger geographic area, right?

Aaron Hasler:

And so what we're seeing is that practices have value not only in the financials, but because it's still such a relationship driven business, there's a lot of just intangible value in an enterprise based on the staff, based on the technology used, the client relationships and demographics that go into it. So I find that these are really fascinating businesses to look at because you're not just looking at the analytical perspective of it and the dollars and cents. You are really looking at the soft features of the business, the personalities and the things that go into making that enterprise transferable from one enterprise to another.

Mike Langford:

Want to know what's really exciting about like, I was talking about how excited I am that the lending business for financial advisors and RIAs and so forth is new, but every once in a while we have to stop and remember that this business, the wealth management business as we know, our financial advisory business as we know it, is relatively new as well, right? For the longest time, they were called stock brokers, right? There weren't independent financial advisors out there. There weren't these multi advisory shops and RIAs approaching business in a certain way with comprehensive financial planning and so forth. That stuff didn't exist until frankly only recently, a very short period of time.

Mike Langford:

So the M&A deals you're starting to see are kind of the result of like, "Hey. The [businessification 00:06:54]," I guess we want to call it that, "Of this industry." Whereas before, people had jobs as stock brokers. I worked for X, Y, Z brokerage firm and I'm a stock broker. And now you have people who own their business and have the ability to either continue to grow through acquisition or to sell the business at some point in time.

Aaron Hasler:

Yeah. And it's funny. I have a client right now that he started his business in 1983 and went fee only in 1986. And that was so wildly unheard of at the time. I think he had to spend a lot of time explaining to his clients what he even did, right? "Hey. This is financial planning. This is what it does." Because everybody was familiar with a stock broker. And back then as a stock broker, you didn't own your clients per se. They were beholden to the firm. So this is a completely different landscape where people are offering financial planning, they're offering relationship management advice for these families, and ultimately it's a much deeper, more integrated relationship than it's ever been, which makes it stickier.

Mike Langford:

Yeah.

Aaron Hasler:

And obviously gives it a lot more enterprise value.

Mike Langford:

Yeah. Yeah. While we're still on this what drives practice values, this slide here, I want to dive into a couple of things that just, they kind of pop off the page to me. One is it's a seller's market, right? So in the demand component, it's a seller's market. What, in your view, makes it a seller's market today?

Aaron Hasler:

You know, it's complex and I think it's super fascinating and there are a few factors involved. One is just simply the demographics play, right? We have an aging population. We have a large presence of, I guess they're still considered baby boomers, maybe slightly younger than baby boomers, that are moving towards retirement. In part because, as the landscape changed, as we moved more to fee based or fee only enterprises, the idea of coming in as a 24 year old kid out of college and selling annuities or selling insurance products on a commission basis to survive to the next payday is really been gone.

Aaron Hasler:

And so we've lost out on that funnel of people that we were bringing into this industry. And so we still have a place where we have more people retiring every year than we do new people coming into the industry and as a result, and as based on the age of these owners, they're ready to sell, they're ready to transition into retirement and-

Mike Langford:

Makes a lot of sense.

Aaron Hasler:

We've seen consolidation too, right, Mike? So we have seen a lot of consolidation in this industry in firms partnering up and merging. And so they're just simply less buyers out there than there are sellers currently.

Mike Langford:

Yeah. Yeah. And the other thing that really pops out at me that I guess is if I was a buyer, I would find this like really encouraging. I mean, I get it. There's probably some anxiety from some buyers who are thinking, "Well I see prices going up. There's a lot of competition for deals." But one thing that I would find very exciting if I were buying a practice or seeking to buy a practice is some of the changes that have happened over the last few years in terms of my ability to reach beyond my own individual location. You have here listed like the pandemic and the impact of Zoom that location doesn't matter anymore. So in other words, if I was buying a business, I don't have to just think about Austin and only being able to service clients in the Austin area. I could service clients all over the place. What impact are you seeing there at SkyView of kind of this changing ability to serve clients?

Aaron Hasler:

Yeah. Yeah. I agree. I think it's been super interesting to see is that we saw several acquisitions during the pandemic where buyer and seller never actually met in person. And so what we're seeing is that it's more about a cultural fit and a cultural identity and merger of like minds and that you can reach beyond those geographic borders of state or city or a region of the country. If you have two parties that really respect each other, the buyer and seller like each other, you can merge together some really interesting enterprises, right? And you can do that with the idea that they're supporting personnel at the founder's business. And so what we're seeing all the time is wealth management firms that have advisors all over the country. They've purchased practices in different locations, but they can apply their same systems and processes and make some slight geographic modifications probably to just fit within cultural nuances.

Aaron Hasler:

But for the most part, this has become a business where you really have technology that's allowed for consistent replication, or as somebody said to me this morning, consistency is key in the business. If you can deliver the same client experience for, each client, for every meeting, and for every client across the board, then you really have an enterprise that provides a valuable service. And that's what technology has allowed us to do, which I think has erased some of the need to be right next door. There's still that fantastic human element that we're slowly starting to get back to conferences and travel and I was just traveling a few weeks ago and gosh, was it fun to be able to go and see people in person.

Mike Langford:

Yeah.

Aaron Hasler:

And might have taken a slight helicopter tour as an aside, just as an opportunity. If your client has access to a helicopter, take the ride, right?

Mike Langford:

Yeah.

Aaron Hasler:

But it's fun to be able to do those things and bond over those things that you can't do via Zoom, but-

Mike Langford:

Yeah.

Aaron Hasler:

You can get a lot done via Zoom and it's been a fantastic resource for our, I think, business model, which is serviceable from almost any-

Mike Langford:

Yeah.

Aaron Hasler:

Geographic location.

Mike Langford:

That's fantastic. It really has I think ... what I love the most about that is folks who might have resisted this type of remote, digital communication face-to-face via Zoom or any other type of communication mechanism had to embrace it. And once you embrace it, you're like, "Wow. This does open up a lot of other possibilities, right? I don't have to waste a whole day of travel just to have a one hour conversation with somebody." Some conversations will warrant being in the same room, but occasionally look, people actually like this type of stuff to be able to fire these types of communications up. It kind of leads me to the other details. As a buyer, if you're thinking about acquiring a business, it's one thing to look at, "Okay. Well how many clients do they have? And what's the AUM of that business and so forth and what's the business structure in terms of the fee base or do they have financial planning and so forth."

Mike Langford:

But there's some other elements too, right. As we see here on the screen, we have employees, historical growth, compliance, service model, and technology. All of those add a level of, I don't know, complexity, if you will, if not handled correctly. So how do you walk a buyer and seller through evaluating these concepts?

Aaron Hasler:

Yeah. That's a great question. So for us, the big thing, and just before you and I got on this webinar, I was talking to a client and he's like, "Well, do we need another intake call?" And I said, "Yes, we need another intake call. I want to know your business forward and backward." Right? "I want to know the personality of this business. I want to be able to identify what types of enterprises are going to be a good match." But what we find is that a proper intake, proper due diligence on a seller is really critical to understanding it and really asking the questions of that seller because quite honestly, a lot of these sellers don't know what the possibilities are out there for their firm, right? They've been head down in the business. They've been interacting with clients every day. They've been managing the staff. The idea that they can look up and sit down with them and think about what they want in a succession plan is foreign to most.

Aaron Hasler:

And I would say, it's not just this industry, it's probably any industry, right? And so the idea that we spend a lot of time coaching and helping our clients understand what are the possibilities? What makes sense based on your individual needs, your drive to continue to stay engaged, whether it's in other ventures or whether it's this industry. And you really have to understand self and what the client wants, right? And then you have to go out and say, "Okay. Now we know what the client wants. How is this going to match up?" So we can look at the basics of financial planning, process, technology, investment strategy, but the bigger things is really it's how you manage the staff, how you interact with each of your clients. What's the preferences for that and what's the growth potential or replication of that enterprise? And so what I find is that it takes a deep understanding on both sides, both buyer and seller, to really understand how does this business run and what are the needs of that individual that I'm working with all the time to help put together a fantastic merger?

Mike Langford:

It sounds so quaint and cliche to say it's a people business, but it's a people business, right? Like this whole business.

Aaron Hasler:

There's no denying it. Right.

Mike Langford:

It's based on your relationships that you have with your clients and the prospects and the heirs of those clients and the extended family and your employees, right. Like how comfortable are they? And so if you're going to acquire that set of relationships, that has to be a really good fit, right? It sounds, again, so quaint and cliche, but it's like it really, really matter is that you're buying a business that you're going to be having a connection with their clients and be able to relate to the employees and the rest of the staff that's there because otherwise it can be disastrous.

Aaron Hasler:

And that's the difference between our industry and say like an accountant. Accounting business, it might go for one, one and a half times revenue because that's more of a transaction relationship business, right. I mean, do I have a relationship with my CPA as a business owner? Sure. But I'm somebody that interacts more heavily with them over the course of a year. And so I have a close contact there. But in this business where it really is such a personal investigation of people's lives and what goes on with their lives and all the aspects around money, it is a deep relationship and clients trust their individual advisor with great intensity. And so you do really have to say, "Okay. If I'm going to hand my clients over to a new generation, they're going to have to be able to replicate that in some capacity or another and I'm never going to make a perfect match because that's almost impossible as you deal with different personalities."

Aaron Hasler:

But if I can match eight or nine out of 10 items for my clients, I know my clients are going to be really happy. And at the end of the day, there are different ways to attack this business and achieve the same result. And so there are going to be those differences and we manage each party through that, but understanding those differences, embracing those differences, and being open to those differences I think is really the critical difference in understanding the value of a business that you're looking at buying and is it the right fit? And I really find is that people need to focus less on the numbers aspect of this business and more on the interconnectedness of it, the client service model, the management of the staff because these businesses do have such an awesome opportunity for growth and we've seen such a historical growth rate over the course of these mergers that I think that these factors are more important sometimes than just the dollars and cents.

Mike Langford:

Yeah. It really is so critical that you understand those elements and it's really interesting because it has the opportunity, if we think about it this way, to give you an edge as a buyer because when we look at who are the buyers, as you've categorized them, you got three major categories of buyers here. You could really set yourself apart from the big private equity backed aggregators, if you're coming in with a plan for like, "Let me talk to you about these relationships," and so forth. Now, there's probably a price point in which you need to get to because if somebody comes in and offers somebody twice what you're going to pay, I'm sure, but like let's talk a little bit about that because you spend so much time at SkyView really walking hand in hand with buyers and sellers through these types of processes. How do you talk to them about the different types of buyers that are out there and then how they can stand out?

Aaron Hasler:

Right. Well, it is funny. We kind of joke all the time that it's never about the money until it's all about the money. There are some aspects that are hard to overcome. And if the price is double, I've got to look at a client and say, "Well, let's discuss this and let's look at every angle here." But no. I think what we find is that as we talk about here on this slide, we have a number of different strategic types of buyers. The ones that SkyView interacts with the most are these strategic acquirers or these private companies where they're doing maybe one acquisition a year, maybe once every couple of years, right? So it's a meaningful transition. It's a lot of work. But at the end of the day, in some instances, these firms are doubling their size and they're getting themselves into an upper echelon category.

Aaron Hasler:

And so I really enjoy these transactions because it's life changing for both parties. It's life changing for your seller, but it's life changing for that buyer to take their business to the next level. But one of the things that we see is that people have had this expectation that I can just go out and buy a business and I don't really need to do anything other than go find somebody who's ready to sell me the business and then I just go buy their business and I'm done. Right? And at the end of the day, when you're competing against all of the factors that are out there, we've got these private equity backed aggregators. We've got people that are strategic acquirers who are buying a business or two a year, sometimes even a quarter. Right? And so what buyers really need to do is, I think, communicate who they are.

Aaron Hasler:

And I think you don't get information until you give information in this business. And so for me it's always a factor of what things are you doing within your own enterprise that are going to help you integrate in that new business? So are you staffed appropriately? Are you willing to share and do you have all the financials on your business so that you can demonstrate that information to your seller, right? You're building up that trust, you're opening up your doors, you're inviting them in and you're saying, "Here. Investigate my house. Let's learn about each other and see if this is a good fit." Right? So that's something that I think we probably see lacking the most in our industry is that buyer preparedness. And I really like to see that if you're a private financed buyer and you're making one acquisition every few years or if you're a strategic acquirer, having a dedicated process to your acquisition strategy makes a lot of sense, right?

Aaron Hasler:

So it's marketing materials on my firm. It's having a sense of who are going to make those initial presentations. What members of the executive team need to be present in order to evaluate that merger opportunity? And I always say, lead with what you want to get or inspect what you expect. So go out there and provide the financials of your company, be prepared to show them what you do, how you're managing your business, what that budget means to you, how often you hit your growth goals and your historical statistics because all of that is information that a seller is saying, "This person knows what they're talking about. This person is willing to share information with me and build trust, which I can then turn around and feel like I can incorporate in and start to provide access to that buyer." Right?

Aaron Hasler:

And so a seller is always going to be guarded until they've really started to see information about that buyer, build that trust, and then they start to become excited about it, which is, I think, the real difference. You're still kind of selling that seller on why they want to work with you on a strategic acquisition.

Mike Langford:

Well and that's-

Aaron Hasler:

It's a bit of a salesmanship.

Mike Langford:

Yeah. I mean, that's an outgrowth of it being a seller's market, right? And I think it-

Aaron Hasler:

That's right.

Mike Langford:

That element would be there even if it weren't a seller's market because, again, we are transitioning relationships, relationships with clients and with the staff members, but in a seller's market where there is multiple buyers coming and saying, "I want to acquire your firm," you actually have to do some extra work to make sure that you stand out amongst them. And I know we're going to dive into that a little bit more later, but-

Aaron Hasler:

And I think it gives you, on that Mike, because I think it gives you an opportunity for due diligence, right?

Mike Langford:

Yeah.

Aaron Hasler:

And what I like about a buyer going out and saying, "Hey. Here are my cards. Let me put them on the table." Not that you're saying like, "This is my price. This is what I'm willing to pay." It's more of, "Hey, this is my business evolution. These are the hard decisions we've made along the way. Here are my success stories. Here are my failures. This is what I'm really good at as a buyer, as a company. And this is why we're doing this acquisition. What is the purpose of this? Is it just for me to make more income because I just want more assets? No. I want to have this strategic initiative. I have this 10 year goal. I have this 20 year vision."

Aaron Hasler:

And what that does is it really allows a seller to understand who you are as an organization and really start to think in their own mind, "What does a succession plan look like for them?" Because I think, again, as we talked about, most sellers haven't clearly identified and in part because there isn't a whole lot of experience or a lot of ability for them to go out and explore this. So they're learning as they go through each perspective buyer and they're learning more about themselves. They're learning more about what they want. They're learning more about what the other businesses out there provide and how they run their organizations. And so what I really enjoy about working with sellers is you bring on a new client and you talk about their business and you spend some time talking about it.

Aaron Hasler:

But what I think is really interesting is to introduce them to these buying businesses and help give them insight into what other enterprise owners do, how they run their organization. I think it's energizing for a seller because they can see the possibilities with their own business. "Hey, if I had more time in the day, if I had more energy, if I had more runway in my career."

Mike Langford:

Yeah.

Aaron Hasler:

"Here are the things that I would do."

Mike Langford:

Yeah.

Aaron Hasler:

And as a buyer, if you can get your seller excited and feel like this is a joint venture, hey, you're taking your client relationships and you're moving them into this momentum, into this excitement of what we're growing as an organization, then you really start to, I think, move beyond just absolute price for that seller and you start to build a relationship and you build the trust that in my opinion really takes that seller's initiative into completing a sale and creating a succession plan.

Mike Langford:

And that's so important because sellers are not a monolith, right? Not everybody's selling at the same time in their progression through their business, not everybody's selling for the same reasons. And you've done some work here to kind of identify who are the sellers and you've kind of broken it down to three high level categories and I'm sure there's a lot more subcategories or something, but I think you've done a great job here of like kind of structuring this of like, "Hey. Think through these different elements." Like not every person who's selling their business is doing so at the same age or for the same reason. So I wonder if we could kind of walk through these kind of high level three categories you have here to kind of just like, I don't know, lay it out there for a buyer so they can start thinking about this process.

Aaron Hasler:

And I think it's been super interesting to watch this, right. I mean, I spent a few years building up the financing side of the business. And so then getting back into representing sellers on a day-to-day-

Mike Langford:

Yeah.

Aaron Hasler:

Day-to-day basis, it was fun to see some of the changes that just happened in a few years away. But one of the most fascinating aspects of this has been this mid-career advisor that says, "Hey. I've been running this enterprise. I've made these decisions. I've grown to this point, but do I have enough gas left in the tank at age 56 with active teenagers or kids in college or a spouse that wants to go travel and do other things because we've made good income and we have a nice lifestyle." There are so many things to do. But, those people have typically been tied to these businesses all the time.

Aaron Hasler:

Be tied to the markets, you're responding to client inquiries, you're answering your phone sometimes on the weekends. Right. Taking care of clients' livelihoods and things happen, clients die. It seems like clients always die when you're on vacation, right? And so-

Mike Langford:

Yeah.

Aaron Hasler:

You have to take care of those aspects as a financial advisor. So a lot of advisors that are in their 50s are saying, "Hey. In order to continue to keep the scale, in order to keep continuing to add the services that I want to do, I've got to go hire that other personnel." And as we've talked about, talent is incredibly hard in this business right now. We really do see a huge shortcoming of not only client facing advisors, but probably our greater shortfall is licensed or unlicensed professionals that just understand this business and can interact and work within these enterprises.

Aaron Hasler:

And so I know that firms are really struggling to find talent in every aspect and every step along the corporate ladder. And so this idea that a mid career or mid 50s advisor says, "Okay. To take that next step or to further my development, let me sell and let me continue working with my clients, but I'm going to allow somebody else to manage the day-to-day infrastructure," is super fascinating. They're fun people to work with. They typically still have a lot of energy and passion around their clients, but other aspects of just managing these enterprises and these small businesses is super taxing. So for those bigger firms that want to bring in these individuals, that's fantastic. They're still in growth mode, they're in their prime asset gathering years, and they just have a lot of value to give to the industry. And I really enjoy working with them.

Mike Langford:

I love that you guys pointed this out that many of these advisors, they didn't start their career wanting to be a business owner necessarily. They did. They evolved into it. Again, some of them might've started as stock brokers. Some of them might've just started in a wire house type of environment and gone independent because they thought they could make more money or have a little more control over the services and the securities that they offer to their clients, but after a while, to your point, "Like wow. This is a lot of work and I'm not doing the things that I really enjoy doing. I'm not doing as much client facing stuff. I'm doing a lot of business operating stuff. And I might want to move out of that," or I've moved to a phase in my life that ... I love that you pointed out the whole teenager thing because I'm right in that wheelhouse right now.

Aaron Hasler:

Yeah. [crosstalk 00:29:40] Yeah.

Mike Langford:

Yeah. So I recognize like, "Oh, there's so much stuff going on and there's different things, different demands of my time and so forth so occasionally I have to work harder at balancing this." So it's really important that-

Aaron Hasler:

That's right.

Mike Langford:

If you're a buyer and you're talking to other advisors, recognize where they are in their life because they might be more receptive to you talking about an M&A deal than you might think. It might not just be the 65 or 70 year old advisory. You might be talking to the 50 year old guy who's like, "Doesn't sound too bad."

Aaron Hasler:

Mike, what's been fascinating, as we go out and we build relationships across the country and we work with sellers, you're always prospecting, right?

Mike Langford:

Yeah.

Aaron Hasler:

You're always looking at, "Okay. Is this person a good client for me or not?" Almost everybody at some point or another entertains the idea of selling and what that brings to their enterprise, whether it's because it allows them to focus on just being a financial advisor and building client relationships or a gentleman I was talking to this morning had stepped away from client work to just be the de facto CEO. And that's a big enterprise change and shift for him and mentality. So he has to give up some of what he likes in order to invest in his business and his enterprise. And that's a hard step for people to take, to give up what you-

Mike Langford:

Yeah.

Aaron Hasler:

Spent years perfecting and then to just walk away into a completely different skill set, subset, of what you've been doing. So we really like to work with these advisors in that kind of I could even say almost the late '40s into the '50s. Still have our traditional sellers that are in their '60s and early '70s that are just finally hit their number and they're ready to retire. And I obviously love working with people that they've really spent their career building up that enterprise. They've done a fantastic job with it and helping walk them towards their retirements is a really gratifying aspect of it. And-

Mike Langford:

Yeah.

Aaron Hasler:

Part of why we've had to incorporate all of these aspects is obviously we're looking at young advisors too is that now that a lot of these businesses are multi-generational, many of our clients may be in their 60s ready to retire, but they've invested heavily in their staff and they want their team to remain in place and so we have really talented advisors in their 30s and 40s that are great role players in the business, great role players in the enterprise, and want to continue. And so we really spend a lot of time creatively thinking about how to have them remain involved, how to pave the way for them, and continue to have opportunities for those individuals so that they can remain involved with the clients because a lot of these founders see them as their family. It's closely held.

Mike Langford:

Yeah.

Aaron Hasler:

Sometimes it is family.

Mike Langford:

Yeah.

Aaron Hasler:

But ultimately they're closely held individuals in small enterprises and it goes back to the relationships. This is a relationship business and people really want to take care of those people that have employed for the last 10, 15, 20 years.

Mike Langford:

Absolutely. Fantastic.

Aaron Hasler:

Yeah.

Mike Langford:

So let's shift into, and I think we'll probably move through some of these fairly rapidly here, but-

Aaron Hasler:

Yeah.

Mike Langford:

Our next section is titled if you can fund it, they will come. More sellers are coming to market and it's really kind of talking about why are we seeing a boom in the M&A space and kind of going through structurally how some of this stuff works. And I think one of the first things to talk about is the evolution of financing options. And you mentioned it in passing at the very early onset of, or the beginning of this webinar, but maybe we can go into it just a tiny bit more detail. We talked about it used to be seller notes and now we're starting to see more traditional financing here, but let's walk through like what did it used to look like back in the old days like 10 years ago?

Aaron Hasler:

Yeah. Well, I mean, it's the whole, I always use the explanation of if you had a 15 year mortgage, your house would be a lot less expensive than if you had a 30 year mortgage, right? Because you have a lot shorter time frame to pay that off and you have a much bigger loan payment and we've applied the same concept here, which is the old way of doing things. If you're paying for it over a course of four or five years, you effectively have doubled your payment. What we did by bringing in the commercial financing was say, "Okay. You can pay this business off in 10 years."

Aaron Hasler:

That allows you a lot more cash flow in the short-term. Do I want you to pay a higher price if you're buying one of my client's business? Sure. Absolutely. That'd be fantastic. But really what it does is I think it's just structurally more beneficial to buyers and that it creates more cash flow for them in the short-term, which allows them to then do the things they want to do, which is retain the existing staff, perhaps go deeper into the client base and do some more marketing, and grow that enterprise because law of averages says they'll double the value of the business by the time they've paid it off in 10 years. So it's a fantastic investment.

Aaron Hasler:

So the SBA introduced that concept, but then what's interesting is if you bring traditional commercial financing into it like we have, it just allows you a lot more flexibility in that one, you can go higher price because the SBA has a cap on their structure. Two, you can keep the seller involved in that organization longer as a seller ambassador. So in the SBA it was designed to say, "Okay. Seller's got to be out in a year." With a conventional finance structure, you can keep that seller on board for as long as you really want to. So we sometimes see that a seller roll some of their existing equity into the new company and participates in some of that growth, whether it's on a referral capacity or in an active rainmaking asset gathering capacity. But it just allows for a lot more creativity and deal structure, which is ultimately what's required because it's just like financial planning.

Aaron Hasler:

There're so many needs out there for each individual. There's so many unique features of each business that I don't think there's any one cookie cutter option and I like that optionality. I like that flexibility to be able to design. So those aspects I think helped. And then when we're able to replicate this, Mike, meaning that we can have that strategic aggregator go out and buy a business or two every year and that loan size can go up, up, up, what that allowed to happen is that for a lot of these guys to build a really big enterprises, continue to grow their business, and continue to invest in some of the resources.

Mike Langford:

Yeah.

Aaron Hasler:

Which then ultimately makes them more attractive for future sellers, which then ultimately puts more sellers into their lap knocking on their door asking, "Hey. Have you thought about acquiring any more businesses you hear? I've heard good things about you. I've heard success with your last acquisition." All of this, I think, has accumulated towards increasing the prices and increasing the values of this business. I think we finally matured to a point that if you have commercial financing, you now start to see the true value of those businesses. And that's been really fun to see over the last four years. I mean, if you look at what the multiples were and some of the prices in 2018, I mean we thought a two, three, four million dollar deal on the commercial financing side was a really big deal. Now it kind of seems like every day, right?

Mike Langford:

Wow.

Aaron Hasler:

We're closing one of those a week. It's then getting deals that are done in the 10, 15, $20 million category that are really fun to do. So we've seen a lot of change just in the last four years.

Mike Langford:

Yeah and as an observer here, it just makes sense, right? You're buying a recurring revenue stream, number one. And in many cases, if somebody is selling that recurring revenue stream, there's a reason why they're selling it. Either their energy's not there anymore or if they've kind of started tapering off or they've got their eyes on something else. So there's usually an opportunity to come in and grow that revenue stream relatively easily by increasing the share of wallet for the clients that you're acquiring, the business that you're acquiring, or maybe bringing on some of the heirs, right. Not as much work has been done to connect with the heir's-

Aaron Hasler:

That's right.

Mike Langford:

[inaudible 00:37:48].

Aaron Hasler:

There's a whole inheriting generation that has small assets now, but is going to have big assets pretty soon and we have far more, I think, actual interest in financial planning advice than we have financial planners to execute it. Right?

Mike Langford:

Wow.

Aaron Hasler:

And I think there is a lot of consumer demand. Consumers just haven't understood this industry and because this industry has been good at marketing and because enterprises are getting more creative with what they can do from a service standpoint, they are starting to reach this wider audience. And so we're starting to just see this, which is that more and more consumers are coming for professional advice. Those that have been using professional advice typically stick with it for a lifetime because once you realize the benefits of that professional advice, I think it's hard to do it yourself.

Mike Langford:

Yeah.

Aaron Hasler:

And so what we've seen is that at the end of the day, stickier relationships, technology that reaches and penetrates the clients more allows us to say, "Okay. These are stickier longer term clients that therefore they have more value. We have a longer payment stream, which ultimately has more value." And then, Mike, we've still seen pressure from private equity groups, right? Private equity-

Mike Langford:

Yeah.

Aaron Hasler:

Groups gobbled up a lot of the big stuff and then they start moving downstream to smaller and smaller businesses as they become those serial aggregators. And so you have all of these kind of factors that have percolated up into a, I think, really attractive deal structures and we're finally getting to a point where, I guess I would say sellers are coming to the table because deals and prices seem to be at the point where they say, "This is attractive enough to sell."

Mike Langford:

Yeah.

Aaron Hasler:

The old way, if you were doing this over four or five years and you had muted value, gosh, I might as well just keep working on my business, managing my staff, and still getting out to sneak in the occasional round of golf.

Mike Langford:

Yeah.

Aaron Hasler:

But now we're actually seeing enterprise value that's meaningful to sell.

Mike Langford:

Yeah. That's a fantastic point because some of the old, as you said, the old multiples, somebody just does a back of the envelope math and you're like, "Wait a minute. If I just work for two more years, I get that-

Aaron Hasler:

Just work two more years.

Mike Langford:

Yeah. Right. So why would I walk away from this? Like you say, 35, 40 hours a week I play a ton of golf. It's a relatively good lifestyle business. Why the heck would I sell this for-

Aaron Hasler:

That's right.

Mike Langford:

Just a tiny bit more than I make in a given year or so, why not to hold onto it? But what you're seeing, circling back to some of the stuff we're talking about here in the slide deck, is sellers are starting to see some new options available to them with the advent of commercial financing by providers like SkyView is that hey, look. It's not an all or nothing proposition anymore and with the increase in values that we're seeing, valuations that we're seeing, you can obviously take more money off the table, but you have some options as well, right. You have the, as we're-

Aaron Hasler:

Yeah.

Mike Langford:

Seeing here on the screen, sell it and remain, right. So meaning like they can actually stay on board with the company. That probably didn't enter the mind of many sellers and previous generations. How often are you seeing some of these other options being, obviously the complete sale is like, "Hey. I'm selling. I'm out," but

Aaron Hasler:

Yeah. Right.

Mike Langford:

How often-

Aaron Hasler:

Exactly.

Mike Langford:

Are you seeing some of these other deals? Are these really prominent, these seller remain or merge ins or what have you? Are you seeing these-

Aaron Hasler:

Oh yeah. I mean, without question, right. And I'll say this, the sell and remain in the complete sale can sometimes be a little bit interchangeable, right?

Mike Langford:

Yeah.

Aaron Hasler:

The client might come to me and say, "Hey. We're going to do a complete sale." But at the end of the day, they like the buyer so much that there's some renewed enthusiasm and it's a, "Hey. There's a role I can play in this enterprise." And is it going to be as involved as I have? No. Is it going to achieve the objectives of I want of stay engaged in being mentally active as I phase into retirement? Yes. And so complete sale and sell and remain, we spend a tremendous amount of time on. I think they could be somewhat interchangeable as you go through the process. But I really like obviously working with enterprise owners that want to stick around for an extra two, three, five years to just provide advice, provide intellectual capital, and sometimes just provide that experience that a senior financial advisory who's been in this industry for a long time can provide.

Aaron Hasler:

Now it has to be a smart buyer. A smart buyer is going to embrace that seller and those ideas. And that's part of what you do in this kind of investigation and due diligence phase is really collaborate on those ideas. But I think they're tremendously rewarding for all parties involved and I think anybody who's ever sympathized with or evaluated somebody nearing towards retirement, walking off that retirement cliff and just driving off into the sunset and walking away from a business you've spent so much time in is super difficult, right?

Mike Langford:

Yeah.

Aaron Hasler:

So sell and remain is a fantastic option to always keep on the table for any seller that a buyer is interacting with. And if you like each other, obviously that makes a big difference. If you don't like the person and you just don't see eye to eye many things, then obviously I would not get in a partnership together.

Mike Langford:

Yeah.

Aaron Hasler:

But we spend a lot of time on that. The merge in as we talked about is I think super interesting because this is more of our younger professional that is selling a business in order to, whether it's achieve scale, achieve a greater work life balance, or some other objective. And so you're really saying, "Okay. What are your pain points today? Can they be solved by continuing to own your business? If they can't be solved by continuing to own your own business outright, what are your options to merge in? So then you have all manner of different enterprises that people can look at, right? Publicly traded entities, privately owned businesses, and anything in between. And so then it's really a discussion of what are my goals and objectives or what is my personality? How do I interact with my clients?

Aaron Hasler:

And what's going to put me in a position to be able to continue to do that work and add value and continue to work with my clients? And so I really like working with merge ins and working with some of these kind of younger sellers. And then the part that I had passion around before we even started this business is the internal succession. I still like the idea of some of these privately held businesses where a founder might say, "Yeah. I can sell out to my junior advisors." And as these people become more mature and skilled in the business, you're almost structuring these like a law firm, right? You're continuing to grow, expand higher financial advisors. And so sometimes we see a combination of merge in in an internal succession, right? You're buying a practice, founder is also selling a portion of their practice, and you can continue to grow an enterprise.

Aaron Hasler:

Those are incredibly fun because you're really helping people construct a greater empire and enterprise.

Mike Langford:

Yeah.

Aaron Hasler:

And they can become complex transactions, but at the end of the day, I think they're very rewarding. And I obviously love founders being able to go out and reward their junior advisor team in some capacity or another. "Hey. Thanks for your loyalty. Thanks for your hard work and the sweat equity you put into it. Here. Let me figure out a way to help you continue your career in a fashion that's something that we both can agree is valuable for each of us."

Mike Langford:

That's fantastic. It's fantastic. And each one of these options, as we just talked about here, all have their own value to the business, to both businesses that are merging there and they're attractive to each type of person, right? Obviously if you work at a firm, you've been there for less to say 15, 20 years and the founder of the firm is thinking of retiring, succession really feels attractive to you, right? You'd like to find a way to acquire that business, right. So fantastic stuff.

Aaron Hasler:

And we use some of these concepts interchangeably. Like I said, I think for any of our clients, what we're really trying to do is we're saying, "Hey. You're going into and exploring something that's unknown to you. You haven't been through a business sale before or a succession plan. So let us help you identify all the different concepts that are out there."

Mike Langford:

Yeah.

Aaron Hasler:

"Let us work with you and provide our kind of strategic advice and planning and help you discover these things and see what's right for you." And ultimately-

Mike Langford:

Yeah.

Aaron Hasler:

Our clients are making that decision, but we're helping them do that process of self-discovery to identify what is the best succession plan for them. I really enjoy that aspect of it.

Mike Langford:

Awesome. Awesome. All right. So we're turning for home here. Nearing the end of our webinar slash podcast. I thought it would be a great idea to end with some big bang type stuff, I guess, is what I would call it. Like we talk about the real effect of bank financing and some of these numbers are going to be eye popping to those in attendance, whether you're listening, watching, or digesting this stuff after the effect. So let's dive right in here. These numbers, buyers can compete and the way that they can compete, these are some pretty big eye popping numbers. The average size of a buyer, is it really $598 million?

Aaron Hasler:

Yeah. It's crazy, isn't it because I mean, I remember in the beginning stages of my career, which would be in the early 2000s.

Mike Langford:

Yeah.

Aaron Hasler:

The idea of $100 million business seemed astronomical, right? And then we started talking about the billion dollar enterprise and everybody was the race of the billion and now I don't know where we're at at this point, 20 billion, 50 billion.

Aaron Hasler:

Yeah, no. What we generally see is that when it comes to commercial financing, a bigger business is generally buying a smaller business. That's the easier way these are financed. Sometimes smaller buyers do buy bigger buyers, but at the end of the day, why is somebody selling? They're selling because they want client continuity. They want the same kind of service or better. And so that typically requires a buyer that's of a little bit greater size. And so what we've seen is typically that $600 million advisor hasn't built it necessarily on their own client by client. They've typically added team members along the way, maybe they've made an acquisition or two. And so that's how they've gotten to that size.

Aaron Hasler:

But what has been really enjoyable to see on our commercial financing side is to take some of these clients that are even in this four, five, $600 million category when we started in 2018 and then they've purchased a couple of businesses through our financing and now seeing them push over the billion mark or the two billion mark or the three billion mark. So it's very interesting to see how some of these numbers stack up.

Mike Langford:

That's fascinating. So let's dive into the funding by the numbers because this is, to me, kind of eye opening here. You hinted at it earlier when you said, "Not too long ago, we thought like a two million dollar deal would be a big deal and now it's substantially higher than that." So just kind of walk through some of this here. What are you seeing?

Aaron Hasler:

So what we're seeing and what's been interesting to see is that we still get new buyers all the time, meaning that they haven't purchased an acquisition before and they're coming to us for commercial financing all the time. What I'm not sure we expected and maybe just because we were too head down and didn't think about it was the idea that people will be coming to us for their fourth, fifth, sixth acquisition. Right?

Mike Langford:

Interesting.

Aaron Hasler:

That seemed hard to believe at the time when we're kind of still getting banks to just take one deal after the next. Now that we've gotten into a systematic and kind of programmatic system, we're really good at the underwriting process and evaluating these businesses because we know the industry so well. So then to cross into some of these numbers, I mean, it feels like a lifetime ago that we started this business and it's only been four years, but then when you see these numbers it looks really satisfying to see how much we've been able to influence and impact the wealth management landscape. And so we're really proud of the fact that we're at this point approaching 600 million in loans funded, which I think is fantastic. What we're seeing is that it says this three B, this three billion plus of deals source. It does take a lot of work to fund a deal. Right? And so we'll see two or three deals before we'll fund one. And it typically has to do with either commercial underwriting factors or it's just simply a buyer loses out on the deal. Sellers don't always want to sell. Right?

Mike Langford:

Yeah.

Aaron Hasler:

So you really have to kiss a lot of frogs to find your right deal. Right? But then once you do what we have seen is obviously, in part because valuations have risen, we've seen our average loan size go up quite a bit and we've gotten very programmatic and systematic with our bank partners. So we've really been able to streamline this and create some efficiencies, which has allowed people to go buy a business and then go turn around four months later and buy another one.

Mike Langford:

Yeah. It's so important to I think for buyers to recognize this concept and I think even sellers too, right? So in the real estate investing market, they always talk about, "Look at it 100. Make an offer on 10. Buy one." Right. And that's an extreme number, but you're going to look at a lot of deals. You're going to make an offer on a couple maybe or a smaller percentage of that. And then you might end up buying one, right? So keep that in mind, especially if you're out there and you just see that one and you're like, "I really want that one." Well there might be some others out there that look very similar to that too. So keep that stuff in mind.

Aaron Hasler:

And there's so many variables, right? You can't control it. I mean, I always counsel buyers all the time as we're talking to them is you have to have multiple conversations going at once and you have to expect that a seller is going to be looking at multiple parties and I think you kind of want them to.

Mike Langford:

Yeah.

Aaron Hasler:

Again, I go back to the education piece. Educating a seller and helping them understand what is the landscape is ultimately going to make them come up with the best decision. I mean, generally when we go out and buy a house, we don't just go buy the first house we see.

Mike Langford:

Right.

Aaron Hasler:

We look at multiple houses. Same with cars, right? You're making a big investment. You want that seller to have looked at multiple enterprises to understand the value of your enterprise and how effective it is. And so we ask, think, for buyers, preparedness on the front end, that explanation of and that identity of who your firm is really helps you certainly increase your success rate. And then obviously we feel like being pre-approved for financing or having participated in some of the resources we have on our advisory practice board of exchange website make a difference in terms of that buyer preparedness. Buyer preparedness is a big part of this game.

Mike Langford:

Yeah. Awesome. So on our next slide here, we've got a beautiful map of the United States and of looking at it and I'm trying to figure out some trends here and first of all, I feel a little offended that so few borrowers are here in Texas and I don't know why, but are you seeing some trends here or is this just kind of the way that your business, the SkyView, has grown kind of organically here and you expect this to kind of level out by population size or whatever over time. What are we seeing here? Are you seeing any trends geographically?

Aaron Hasler:

You know, I wouldn't say we're seeing huge trends other than I guess my always surprising thing is the number of deals we've done in the Southeast. I don't know why that's been such frequency down there because if you look at it from a population perspective, it's a lot less than the Northeast. But I do think that is a good center of the country where it is living expenses, business expenses are cheaper. And certainly there's more ability to kind of merge buy and sell companies. Texas has always been an anomaly. You would think based on the size of Texas-

Mike Langford:

Yeah.

Aaron Hasler:

That we should have done a lot more deals. I couldn't tell you why that was. Maybe everybody in Texas is growing too big and they're having so much success with their own firm, right.

Mike Langford:

You need an Austin office. That's what it is. Come on down.

Aaron Hasler:

We do need an office. I would agree. I'll always agree on that in January, February. So no, we're really seeing is that this continues to be kind of a nationwide process, right. It's really about finding that best buyer and seller match and we're seeing deals come from all aspects of the country. So it's been fascinating to watch. You would think, again, California obviously is our biggest state by far based on size, but Texas should be up there too. It'll probably come around.

Mike Langford:

Yeah. Yeah. All right. So now let's get into the action space here. Like what the attendees, whether here in the webinar or listening to the podcast or watching us over on YouTube can do. So I think the first thing you'd recommend people do is they go to APBOE, right? So tell us a little bit about APBOE so that people can start thinking about deals.

Aaron Hasler:

Yeah. So what we did was, or just right into our first year of commercial financing at SkyView, we realized that there really needed to be a marketplace that we wanted people to participate in and have an easy gateway to commercial financing. So APBOE is a way that we post the deals that we work with on the investment banking side and allow people to investigate and see whether they'd be interested in those businesses. But we also put a lot of tools on there for buyers and buyer preparedness. And again, I can't emphasize that enough. And so we have a few sources that people can go to, but to go and get a purchasing power certificate, which is essentially just saying, "Hey, based on the underwriting that the SkyView team can do, I know that if I'm a business with half a billion dollars in assets under management, four and a half million in revenue, I generally can go out and buy a size business," right.

Aaron Hasler:

And so you're really defining what is your acquisition target? Because there are so many sellers out there and there are so many buyers that these sellers have to evaluate, to be able to go out as a buyer and understand who your target market is and hone in on that target market and ignore some of the rest of the noise, I think is really valuable. So the advisory practice board of exchange is that tool that you can go look at the deals, see some history of what deal structures have gone for, get pre-approved for bank financing, and then do some of the prepared steps, building out a business profile, building out some of the essentially buyer resources that we have available on the site.

Mike Langford:

Fantastic. Fantastic. Okay. Now, let's walk people through some steps here, specifically what they can do. So if they're getting ready, buyer should get pre-approved. Right. So like what's the process for getting pre-approved?

Aaron Hasler:

So getting pre-approved is pretty easy. It really takes about 30 minutes on the site. You go in and you set up a login and password on the advisory practice board of exchange A-P-B-O-E. It's a cool name and concept. It was a mouthful to say over the phone or the web, but that's okay.

Mike Langford:

Yeah.

Aaron Hasler:

We still like it and we're passionate about it. So check us out there. I also do always encourage people to go to skyview.com. We do keep a lot of information on the site, past articles, past webinars that we've done, buyer and seller education. But we always encourage people is that if you're speaking with a seller and you've had engaged in enough conversations, go to our site, skyview.com, get pre-approved for bank financing because the bank financing process and the pre-approval letter can help you work on closing that individual seller.

Aaron Hasler:

And so by going to that site, we can start the education process. So we have a couple of awesome relationship managers at SkyView that walk our clients all the way through the commercial finance process. And along the way we're providing them with a lot of advice on what it takes to get a deal done specifically within the parameters of bank financing. And then what we're seeing out there in terms of trends and resources and pointing people into the right direction to get everything that they need to make a successful acquisition.

Mike Langford:

Fantastic. Well, this has been a fantastic conversation. Aaron, I know I learned a lot today and I suspect all of our viewers and listeners did as well. If you have questions or would like to just kind of talk some things through, please do feel free to reach out, skyview.com as Aaron said or give us a ring 866-567-6282. We'd love to hear from you. Thank you very much, Aaron, for taking us through this. I really appreciate it. Another great webinar podcast in the can.

Aaron Hasler:

Thanks, Mike. I always enjoy talking to you. Appreciate your time.

Mike Langford:

Fantastic sell. Thank you guys. See you. Bye.