Episode 89 – How an Investment Bank Generates a List of Potential Buyers for Your Firm  – Member Case with David Jorgenson

Supply and demand will impact your ability to sell your boutique.  On this episode, David Jorgenson, CEO at Equiteq, shares how the leading global investment bank for professional services firms has uniquely positioned themselves to understand acquisition needs, and how they are able to add value to founders who want to sell their businesses. 


Greg Alexander [00:00:16] Welcome to the Boutique with Collective 54, a podcast for founders and leaders of boutique professional services firms. For those that aren’t familiar with us, Collective 54 is the first mastermind community to help you grow, scale and exit your firm bigger and faster. My name is Greg Alexander. I’m the founder and I’ll be your host today. And on this episode, we’re going to address our members who would like to sell their firm some day. I want to talk to them about the concept of developing a deep universe of buyers, really understanding who might be interested in acquiring your firm and how to go about doing that. And we’ve got a great guest, David Jorgenson, and he is the CEO of Equitq and he’s a member of Collective 54. And for those that aren’t familiar with Equitq, as they’re really the leader in the space, they probably do more transactions for professional services firms than anybody else. And they’ve developed a way to really develop a deep and broad set of potential buyers. So with that, David, if you wouldn’t mind, please give yourself an introduction to the audience. 

David Jorgenson [00:01:20] Great. I appreciate it, Greg, and happy to be here. And thanks for thanks for inviting me to this conversation. It’s a very interesting topic. So as far as as far as an intro to me and Equitq, I’ve been doing this for about 25 years in various and various forms. And when I say this, I mean helping founder owners and other owners of of knowledge, economy businesses understand and approach the market for their firms. And so we always do this in the context of knowledge economy firms, which are and what I mean by that is firms that are delivering expertize to the to the marketplace. Equitq is a firm that does this globally. So we we have about 70 professionals doing this work in North America, Europe and Asia. And we’ve been doing it for about 15 years now. As you said, we do we consider ourselves a leader in the space and we consider ourselves to be specialists in helping founder owners, entrepreneurs understand and address the community of potential buyers out there. 

Greg Alexander [00:02:30] Okay, fantastic. And thanks for that. So this idea of developing a universe of buyers, most of our members are first time founders and they’re so good at what they do because they’re very, very, very focused. However, when it comes to selling your firm, there’s such a thing as too much focus. You can be it can know a little tunnel vision and opening yourself up to exploring, you know, people that might be interested in you that that they didn’t normally think about. This is a foreign concept to them. It was to me when I sold my firm and I now have the power of retrospection. And thank goodness I did throw a wide net because the firm that ended up buying me was someone I never knew before. And that was because the investment banker did a fantastic job. So could you maybe start at, I don’t know, 30,000 feet and explain to our audience why this is so important and your experience 25 years doing this, what normally happens as a result of throwing a wider net, so to speak? 

David Jorgenson [00:03:30] Yeah, I think it’s a good point that you started with to talk about tunnel vision because, you know, when we say that, we don’t mean it in a negative way because there’s a lot of focus that is required for for successfully, you know, growing a business. It’s difficult to do. It’s hard to do. And it requires a lot of laser focus. And so what that means is that you typically understand, you know, a narrow slice of the market in which you compete. And so when you think when the first thought about who might be interested in my company is probably the firms that you compete with or that you know or that do what you do. And we always think about it and sort of try and think about it in exactly the opposite way, which is you can’t do it. You do want to. And so that is typically where our best deals come from. It’s it comes from a combination of of two firms that can’t do what, you know, can’t can execute the strategy separately. They need each other to do it. And the reality is that nobody knows who that is or you wouldn’t have to run the process. You wouldn’t have to go ask the market what they think, if you know who, if you know who the only buyer is and you just call them. So we always think about starting with, you know, call it whatever cliche you want to say, call it a blank sheet of paper. But you as a as a market participant, the the point is that focus helps you grow, but it doesn’t help you sell because there are the best deals are built from putting two to pieces together that may not seem like they fit right off the bat, but they make a. To make a bigger strategy possible in the future. Hmm. 

Greg Alexander [00:05:17] That’s interesting, you know. One plus one equals three. Another cliche for you. You know, one thing that I’ve learned from Equifax research in particular, which I think you guys do a great job of, is this concept of adjacencies, which is maybe an expanded explanation of what we’re just talking about. So like, in my case, SBI, my old firm, we were in the sales consulting space, but they were marketing agencies, which was an adjacency that we interested in us. There were product development firms, that was an adjacency that were interested in us and so on and so on. And sometimes these boutique providers in and of themselves want to expand their business by expanding into an adjacency, and therefore you become more attractive. And we use well, my banker use this thing called a market map as a way to identify who those adjacencies are, because you do use a tool like that or something similar to it to try to identify who these buyers are. And if so, would you would you mind explaining to our audience kind of what that tool is and how it works? 

David Jorgenson [00:06:17] Yeah, I think we do. And the way we think about it is in sort of axis of of customer relationship and then service. And so there’s, there’s two, two ways in a very, very simple framework to think about adjacencies. One is doing something different for the same customer and the other is doing the same for a different customer. Hmm. So if you can think about, you know, a two dimensional chart showing how those things interrelate. And so adjacencies can be in either one of those axes and they can be taken equally or either of them or both can drive transactional interests. But if you think about the, the, the easiest way to start a conversation with potential buyers on one of those two dimensions, which is that, which is to say we can help you do more to your current client base. Or on the other hand, we can help you access new clients. And if you dig down deep into the most, you know, sort of immediate buyer interest, when we’re selling a business, a lot of times it comes down to one of those two things, which is I want to I want to be in those logos or I want to do what you do with my clients. Yeah, because if I can do what you do, well, then I can double my revenue per client. Yeah. Just in this category. So the, I think the simplest way to think about adjacencies in mapping a market is, is, are those two dimensions do you expand my clients yet or do you expand my my product set at current clients? Is that is that kind of thing you would say? 

Greg Alexander [00:07:56] Yeah, that’s a great way to frame it. What I love about it’s easy to understand and it makes common sense. Let’s let’s stay on that for a moment. Our members are boutiques, which we define as 25 to 250 employees when they get bought by a larger firm market leader. Usually the reason the rationale for the deal anyways is I don’t own pick a company, Accenture or somebody like that. They’re their pitch to the founder. Entrepreneur is we don’t do what you do, but if we had you inside our firm, we could walk you into all our clients, which due to our size, we have a lot more reach than you do. You know, we could 2x3x, four x or business or whatever it is over a period of time. That’s usually what happens when they get approach. That way, our founders get a little intimidated by that. They they love being an entrepreneurs and founders. So the idea of working for a mega company and having a boss and things like that is, is a little unattractive. But they balance that out with, my goodness, imagine if I had access to those clients, you know, that many more people would get exposure to my brilliance, my expertize. So for the founder, that’s a little hesitant to go there. What counsel would you give him or her? 

David Jorgenson [00:09:13] Well, you know, a lot of our clients reach that stage. It’s a very common stage to get to in I call it distribution. So what you’re looking at, what you need is, is better distribution. So you hit a ceiling and the ceiling is comprised of the who you know, who your network is, you know where your offices are. You know, you need if only more like you said, if only more people could learn about what we know and what we do, you know, our opportunity is unlimited and that’s distribution. And so Accenture’s a good example. It’s a it’s a it’s an incredibly powerful distribution platform. And so I think what we counsel our clients to think through very carefully is if that’s what you need, then that’s how you get it, you know, need it. And it’s it becomes a less of an emotional conversation when it is seen, you know, in the framework of, well, it’s just a necessary step. Every company goes through it. And it’s it’s a it is an absolutely universal developmental step in professional services. There’s no people business that can’t that doesn’t have to find a way to break through that. Now, they don’t they don’t all need to be bought by Accenture. That’s not the solution to everybody’s distribution challenges. But there’s no there’s no there’s no quicker way to increase your. Your distribution network. And there’s lots of different there are lots of different scales to that. So there are lots of distribution solutions that can be a lot less intimidating than an acquisition by Accenture. Yeah, that is a that is a an easy and easy example to, to, to contemplate. But it is also quite an extreme. Malcolm, if you think about the universe of potential acquirers, there are distribution networks out there that are much less. Less intimidating. Less. Less extensive, maybe. But also maybe a better custom fit. And that gets back to the question of finding, you know, building violence. You know, you can you can build a list that has a company like Accenture on it and then a much more user friendly middle market, you know, slightly smaller firm that that can offer a choice. Mm hmm. 

Greg Alexander [00:11:40] Yeah, you’re right. There are scales to distribution, and then you correct that in the evolutionary cycle of a boutique, eventually you get to that point and you can build that yourself, which is going to cost a lot of money, take a lot of time, or you can partner by selling all or part of your company to somebody that has a distribution network already in place. You guys have done so many deals and if if the hypothesis of doing a deal is distribution and these founders and members are deciding whether to sell or not to sell based in part on what life will be like as part of a new firm, a larger firm. You know, looking back on all the deals you’ve done right now, the founders happy inside these larger distribution networks. I mean, how is it working out for them? 

David Jorgenson [00:12:30] Most of the time, if it’s set up properly, there is satisfaction. Hmm. It when we see when we see a founders owners, sellers become unhappy. It’s when they there was a misunderstanding or miscommunication about what life was like. You know, it’s that it’s that this isn’t what you said it was. And you know, that, you know, that has happened. It’s rare. It has happened. Where where a buyer will paint a picture that turns out not to be accurate. And so, you know, our job is to provide a range of options in a range of choices so that, you know, a seller or a founder knows what they’re stepping into. Mm hmm. And as long as it doesn’t have to be a, you know, a situation that they want to be in permanently. Mm hmm. But it has to match up with what they thought. Mm hmm. And really, the issues come in, and they’re quite rare, actually, but they. They happen when. When the expectations don’t meet the promise or the reality doesn’t meet the promise. And so the. The point of a process. The point of a buyer’s list is. One to provide certainty of an outcome, casting a wide net, as you say. And the other is to provide choice and to provide alternatives. And so you as a seller should be able to balance and match up multiple options that include all of the variables that drive a deal price structure. But also, what does this company like to work for? You know what? What are the do I want to work with these people for three, five, ten years into the future? Do I want my team to work here? Is is this a place where my team and I think that’s part of the part of the process. But really, it doesn’t have to be the kind of company you would build. It doesn’t have to be the kind of company you already built. But it has. But it has to be what you expect. Yeah, it has to be accurately described. 

Greg Alexander [00:14:47] Yeah, that’s good advice. You know, one of the things that you’ve helped bring, as well as your peers in your industry is a whole new universe of buyers known as the private equity buyer. For the longest time, professional services, most of the buyers in the activity was in the area of a strategic buyer, but lots of deal activity is in the private equity space now, and our members are constantly getting called by these people with, you know, big promises, etc.. And there’s confusion around one particular thing that I’d love to get your perspective on. Maybe this is the last topic we can talk about today, and that is there’s the platform. You know, a PE firm comes to you and says, I’m going to back you and want you to be the platform, and then we’re going to go do a bunch of acquisitions underneath you as a platform provider or platform, the platform, I should say. And then there’s the other scenario where there already is a platform, and that platform is now coming to you as a smaller firm. And they’re trying to use you as a as a token, so to speak, this this difference between a platform and a tuck in and getting these inbound inquiries from private equity investors. Could you help maybe bring some clarity to this confusing thing? You know, who are these private equity people? Why are they now all of a sudden interested in professional services when you might you consider being a platform when it might be okay to be a token? 

David Jorgenson [00:16:11] Yeah, it’s a it’s a great topic. It’s a big topic. So I think what’s important to recognize about private equity is that it has changed a lot in the last ten, 20, 30 years. So it isn’t at all like it was in the eighties and nineties with leveraged cap, leveraged financing, corporate raiding, kind of, you know, buying and restructuring inefficiently run companies. It just isn’t like that anymore, particularly in this market. So what private equity firms are that are interested in professional services are is they’re very experienced professional business owners. They’re not completely different from founder entrepreneurs themselves. So private equity firms care about the same things that founders care about, and they want their companies to be healthy and growing and they want their companies to be excellent places to work that attract talent. That’s the first thing to recognize is they’re not a different species. They approach the world slightly differently. They think about different things. They’re they’re they’re unique as individuals often, but they’re not a different species. 

David Jorgenson [00:17:27] Second thing to know is that they’re ten years ago. There weren’t as many private equity firms and there were a lot more companies to buy. And so they didn’t have to do anything. That was either it was seen as difficult. So ten years ago, there were, you know, professional services, people dominated business models, particularly those that didn’t have recurring revenue that sort of worked on the contract basis and had to sort of resell all their revenue every year like consults some consulting firms do. They didn’t need to worry about that part of the market because it was a lot of other markets to go, you know, build a business there. So we’ve seen in our business, we’ve seen private equities become much more interested in in professional services and knowledge economy businesses in the last five years. And I think that’s great for the market, is great for the participants and the entrepreneurs in this market. And so what that means is that private equities have started to make sense of people driven business models, and they’re not afraid of them, which is, I think, to their credit, because I don’t think there’s anything to be afraid of if you understand it. So we’ve gone from having two or three PE firms that kind of got it to, you know, a few more that get it and a whole lot more that are trying to get it. And so what that means is they’re flooding the market. They’re flooding entrepreneurs with outreach and with cold calls. And it’s very confusing as a business owner to make sense of it all. 

David Jorgenson [00:19:00] And I sympathize. And I think that’s it’s difficult to to break through that confusion. What I will say about private equity firms is the business model is to is to find companies at a reasonable price, grow them, combine them, make them bigger, and sell it as a larger entity that requires them as a core component of their business model to explore the lowest price at which you will sell your business. That’s what they’re doing. So when they’re when they’re reaching out to a business owner, they are prospecting for somebody who will be interested in the conversation and then they will be trying to explore. They’re not trying to cheat you. They’re not trying to to. They’re not trying to trick you because they want to work with you. They want to partner with you. But they are trying to understand at the lowest price at which you’ll sell their business, sell your business. And so you have to you have to just approach it in that spirit. As far as the the difference between a platform and a tuck in, it’s critical to the strategy. So when I say that they’re looking to acquire, grow and then sell a bit, you know, a business, they usually do that by buying one anchor anchor company so that what you call a platform, which is what we call it as well. So the platform company or the anchor companies, the first investment in a strategy. So if they say, for example, we want to build a company in Salesforce consulting, they will they will try and find a platform which is the first investment, which is the which is what they will then use as as the focal point for adding on to. 

David Jorgenson [00:20:41] And they will try to add on to that, to that first investment through organic growth, through, you know, business operations and strategy as as any as any owner would. And by buying other companies as tuck ins and combining it with that platform company, I tend to think that, yeah, it’s neither better to be the platform or the tuck in. Both can be very attractive and very reasonable exits for a founder entrepreneur. I think there’s a fair bit more pressure with with being the platform you’ll be asked to to work harder than you did when you were when you owned the company yourself, probably. And so you need to want to really dig in. You need to want to chase 30, 40, 80% growth per year. And so you have to be excited about. Yeah. If not, then, you know, potentially it’s better to to, you know, to if you were to sell your business, to sell it to a, to a platform business as a tuck in because you might, you know, it might allow you some more flexibility in what you do after the deal. 

Greg Alexander [00:21:49] Very educational. Thank you. Listen, we’re we’re out of time. I could go on and on with you here, but there’s a lot of confusion around this. And I think our members would benefit greatly by spending more time with Equitq. And David and his coworker, Greg, who is also a member. So if you have any interest in exiting your firm and you want to talk to them about building a universe of buyers, you can see them on the member portal and reach out to them directly. But David, on behalf of the membership, I appreciate you being here today and sharing what you’ve what you’ve learned over the years. It was very valuable and thanks for being here. 

David Jorgenson [00:22:23] Great. And thanks again. I enjoyed the conversation. 

Greg Alexander [00:22:25] Okay, great. And for those that are interested in this topic and others like it, pick up a copy of the book, The Boutique How to Start School and Sell a Professional Service. This firm. And if you are listening and you’re not a member and you want to meet exceptional people like David and learn more about these types of things, consider joining our mastermind community. You can find it at collective54.com. Thanks again. Take care.