GHA Founder, Eric Seifert, interviewed by Axial

M&A Advisor Eric Seifert on the Modern Way to Market Deals By Meghan Daniels Axial | May 3, 2017

Eric Seifert is the Executive Director of Business Development at Good Hope Advisors, an M&A advisor specializing in the HVAC and plumbing industries. Eric and Good Hope Advisors uses Axial to market deals to a niche audience of buyers and investors. We talked to Eric about the biggest challenges of his role, the best piece of advice he has for business owners, and what we might find him doing when he’s not at work.

What challenges do you have in finding your clients the right buyer?

The HVAC and plumbing sector has become very hot — no pun intended — over the last 24 months. Private equity has taken a shine to the space but not all private equity groups are created equal, nor are they the right fit for all home services businesses. Eric Seifert (Exec. Dir. Bus Development) The biggest challenge is matching our clients with buyers who understand the space but also, even more importantly, know what they don’t understand about the space. Larger private equity groups are normally only willing to step into an HVAC or plumbing business when that business has reached $5M+ EBITDA or more. In almost all cases ownership has been able reach that level without help because they know what they are doing. We want to help our clients find PE guys who, as new partner or majority owner, will let the existing management’s strengths lead, while their team serves as support to the experts in the space.

What value do you see in marketing these deals on Axial?

It sure beats the “smile and dial” method! In all seriousness, getting deals in front of a captive audience, tailored to that particular type of deal, is incredibly valuable to us. Marketing a deal on Axial eliminates some heavy-lifting for us, creates a situation where buyers are calling us and freeing us up to focus attention on other tasks.

What are some of the biggest challenges you face day-to-day in your role as director of Business Development? How do you measure success?

As I mentioned earlier, the space is very active right now. This can make it hard to separate the signal from the noise. With only so many hours in the day, the challenge is to spend the bulk of those hours focused on the high-probability situations. There will always be a percentage of buyers who are just kicking tires — and while that can build relationships that lead to deals down the road, the challenge is always to identify parties that can get deals done now.

The process is a lot like dating. My mother always told me, “If someone wants to spend time with you, they’re going to make time to spend with you.” We will always get a certain amount of bites on a posted deal. But it’s only when a buyer makes time by responding to emails, phone calls, signing and returning documents, peppering us with smart follow-up questions/requests, etc., that it becomes apparent who is in it for the long haul and who is just keeping the door open until something better comes along. Identifying serious buyers creates better outcomes and a smoother transaction process for our clients.

What’s one of the best pieces of advice you’ve ever given a business owner seeking an exit?

Just one? We have quite a few! In fact, we present full seminars at HVAC and plumber conferences (like Nexstar, ACCA, and ComfortTech) on this subject. My old partner would say “Get your books in order!” And that is very good advice. It makes any exit exponentially easier on all sides. I would say “Know your value — and understand why it is what it is.” We have seen too many sellers — this won’t shock anybody — who have an overinflated idea of their company’s value. This is usually more of a factor in add-on businesses, though we do see it at all levels. A business that is worthy of being a private equity platform in the space will likely have a solid accounting department either in or out of house. This will help them be clearer on valuations than a smaller add-on business ($1M-$10M) where there is more emotion involved. We do our best to set our client’s expectations appropriately. No one wants to hear that their baby isn’t as smart, popular, or good looking as they think, or in this case, not worth as much. As far as upsetting clients, we aren’t going to do them any good by blowing smoke up their ducts (awful HVAC joke) so we run the numbers, explain to them what the temperature of the market is, and straightforwardly present our view and what they can expect. On most occasions we present conservative estimates only to over-deliver in the end. And that is how we like it.

How did you find your way into your current role? What other jobs have you had in your career?

SF&P founder Fred Silberstein and I have known each other since the first day of our tenure at the University of Arizona (Go Wildcats!). We’ve been great friends ever since but our career paths never crossed up until a few years ago. In my former life, I was on the banking side but Fred and I had discussed opportunities over the years and eventually the time was right to pursue it. An interesting job Eric on the road, meeting HVAC and plumbing contractors all across the country, from way back in my past was running radio promotion for a small independent record label as well as a stint as a production assistant at MTV.

What might we find you doing when you’re not at work?

There don’t seem to be enough hours in the day anymore, but when I’m not at work you’ll find me trying to teach Sammy & Syd (my 10 & 12-year-old daughters) about rock & roll, coaching their basketball/softball teams, snowboarding, seeing Phish live, and occasionally blogging about craft beer. That takes a lot of research but somebody has to do it. Additionally, every day I spend time trying to make my wife Caroline laugh.

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A working definition of working capital is imperative

So you’ve finally made the decision: You’re going to sell your business. No more breaking your back, dealing with the brutal winters and worrying about everything from personnel to accounting and more. Now is your chance to enjoy some time in the sun – or maybe take on that other challenge you’ve had your sights set on for a while. Either way, you’ve probably heard something about the multiples being paid for businesses like yours and you have a rough idea of the fair market value you could achieve. Before you start booking your retirement cruise, though, there are a few other factors you should also be aware of to get a real sense of what your business is worth. Right at the top of that list is working capital. If you’re not familiar with the concept of working capital, don’t let that worry you – in our experience, many sellers are unaware of what it is or how it can influence their selling price. Fortunately, the concept itself is fairly straightforward – though do keep in mind that the exact definition can be somewhat fluid and specifics are usually agreed upon by the buyer and seller:

Working capital is your business’s operating liquidity, which is simply your current assets minus your current liabilities.

  • Current Assets: Cash or other items expected to be turned into cash within one year, including accounts receivable, inventory and prepaid expenses
  • Current Liabilities: Debts and obligations due within one year, including accounts payable, accrued expenses, payroll obligations and current portion of debt.

To put this in layman’s terms, as a seller, you can’t just clear out all the accounts, leave all the debts and hand over the keys! Many acquisitions are structured on a cash-free, debt-free basis. However, buyers often expect a certain amount of working capital be left in the business to meet short-term obligations and run day-to-day operations. Buyers will want to be assured that on Day 1 they are not required to invest additional money just to turn on the lights.

How do you choose a working capital target? The most common method is to calculate a 12- month historical average. With help from your accountant or advisor, you can analyze historical monthly balance sheets and determine rolling averages going back about 24 months. This is a process that SF&P Advisors has specialized in for many years. We can help you determine the highest (least favorable) and lowest (most favorable) working capital average, preparing you to negotiate properly. Keep in mind, the number you ultimately negotiate is a target that is subject to change at closing based on several factors, including things like seasonality, change in demand, change in payment terms, etc. The adjustment is called the “true up.”

But I earned that money! It’s mine! It’s important for sellers to adjust their perception of working capital and understand that it’s a fair amount of money to run operations is one of the assets they’re selling with the business. Ask yourself, “Is my business worth the same amount if I take away all the money it needs to run tomorrow?”

Working capital is a critical part of the transaction and it’s essential that both parties understand it and agree upon it. Typically, buyers don’t mind placing working capital language right up front, in the letter of intent. It allows sellers to be more combined to the deal before the actual impact is known. Failure to understand working capital and its implications on a transaction could result in you leaving real money on the table or even losing the deal in the 11th hour.

Our opinion is that it is best to address working capital in the initial negotiations. It’s in everyone’s best interests to have it included in the leber of intent or deal summary and detailed in the purchase and sale agreement. And if working capital is a foreign concept to you, you can probably benefit from using a trusted advisor to help navigate the complexities of the transaction and negotiate a deal that’s as favorable to you as possible.

GHA Named To Axial's Top 20 Lower Middle Market Investment Banks

We are thrilled to announce that GHA was recently ranked in the top 20 of Axial’s lower middle market investment banks.

Axial’s investment banking league tables take into account three core M&A advisory characteristics: client quality, buy-side targeting, and process effectiveness (for detailed methodology, see the end of this feature).

For CEOs and dealmakers in the lower middle market, these league tables are a useful barometer to measure how an investment bank ranks against its peers, and how effective they are in financing and selling lower middle market businesses in various sectors.

Read the article on Axial