Podcast: A Day In A Canoe With Nathan Mersereau

Think of the people you interact with every day.  Would you want to spend a day in a canoe with them?  This show is all about creating the life that you want.  One filled with wealth, wisdom, meaning and purpose.  And that starts with surrounding yourself with the right people.  People you’d want to spend a day with in a canoe.  Now, here’s your host, Nathan Mersereau.

Nathan: I’m excited today to welcome Rob Follows, founder and CEO of STS Capital Partners, to The Day In A Canoe podcast.  Rob has a wide range of success in his career, and STS focuses on mergers and acquisitions, specifically to strategics.

Welcome, Rob.  And if you wouldn’t mind sharing with listeners what you focus on in your role, and a little bit more about STS.

Rob: Sure.  Thanks a million, Nathan.

STS Capital Partners stands for – STS stands for Success To Significance through Selling To Strategics.  So what the firm focuses on, and myself as its founder and leader helps develop and scale, is helping families and entrepreneurs that are interested in selling their businesses understand that they, too – the headline is they, too can sell to strategics.  And that is strategic buyers, not middlemen financial buyers.

So the way the financial markets are set up is about 75 to 98% of businesses are private businesses and family owned businesses.  And you wouldn’t understand that’s the case by reading the Wall Street Journal or The Financial Times because it focuses on all the large companies.  But the vast majority of companies are private around the world.  And when they have something happen to them – they talk about the 6 D’s: death, disease, divorce, disability, disenchantment or disintermediation (or something unfortunate happening), then they are forced to look at options, and sometimes the sale.  But more and more now, as people get into life planning, and planning ahead in their lives, they think, well maybe selling my business can help me achieve my goals in my life, and maybe my kids don’t want to do what I’ve been doing all of my life, or our family has been doing, so maybe we’ll look at considering selling.

And when they do that, they look out to the world and see a lot of financial buyers, venture capital, private equity, special purpose acquisition companies they call SPACs, and other financial entities that are interested in buying companies low to sell them high to strategic buyers.  And the message we simply say again and again is you, too, can sell to strategics.

So STS focuses on the values of Success To Significance.  We hope we can help people achieve the highest valuation possible so they can help make the world a better place in their own way through overachievement in the valuation of the company in its sale through, and the how is, Selling To Strategics.

So that’s our work.

Nathan: Now you have a personal story about one of the businesses you started in the marketing field.  What is that story about?

Rob: Thank you.  I didn’t realize this, but my father had expected me to take over the family business that he was leading, that he started, which was a packaging machinery business.  And I guess I fuelled that by doing my homework in the offices because they were quiet on weekends.  And I had no interest in the family business.  I literally – as he and I had many conversations about it, explained to my dad, I don’t know how to turn one of these complicated machines on, or check if it’s even plugged in.  I would never – you should give that to my younger brother.  He’s very interested in engineering and all that.  I love people and I love marketing and strategy.

So he, to be really open, cut me off and said, you’re not going to get a cent from me, you’re now paying for all of your own school.  And I said, fine, I’ll be happy to do that.  Let’s just be friends then, dad.  And I realize now, after many years, I was a bit tough on myself by setting it up that way.  But I had then to pay for my school, and started a marketing service’s firm because I love marketing.  It grew to be the largest independent in Canada.  I’m originally from Canada.  And when I started doing life planning, and decided that selling the business would be the best option for me, especially as the free trade agreement was coming in at that time, and we stood to be potentially disintermediated, selling to a big American group that would leverage our ability to do all the fulfillment in Canada seemed like a smart thing to do at the time.  And it was really a survival move.

So when I went to sell my own business, I went out to talk to PWC – well let’s just say the various accounting firms, and their advisory, and they were not interested, they didn’t understand the business.  And I went out to talk to others, and they said, well, you’re in your late 20s, you can’t have a business worth selling.  And I didn’t want to open up the books to somebody until I had an NDA signed, having been to law school.  So in the end, I had to do it myself.  There was nobody to help me.  So I’m very passionate about helping others sell their businesses because there was nobody there really to help me.  And we did end up selling that business for – I won’t go into what the profitability was, but for a very high multiple.  It was way over, I’d say, 800% of what people would have anticipated the value would be, and ultimately, when I ended up joining the company that bought mine, it was Maritz Inc. out of St. Louis, Missouri, who needed to support their General Motors business in Canada, that was what the valuation was based on, not whatever we thought, which was an EBITDA multiple.  And they could afford, under that analysis, to pay 100 times EBITDA for my business, and yet I didn’t come anywhere near to achieving that, obviously.

So that was the second commitment I made to myself in my own experience and process, is I’m going to help other people realize that it’s not what you think you’re worth as a seller, it’s what the buyer is going to do with your firm that really matters.  And that will drive high valuations.

And the third commitment I made to myself was to help people achieve those 100X EBITDA when they are available so they can help make the world a better place in a way they would think would create their own legacy and their own contribution.  Because nobody can take all that with them when they go.

Nathan: And for those listeners who may not be familiar with strategics, what’s a capsulation of strategics?

Rob: Sure.  Thank you for that question, Nathan.

Strategics are strategic buyers.  So they’re buyers, to boil it down, who can make more money owning the business that they are going to buy than the seller does.  So if they have a massive distribution platform, and the seller has a product, then the seller is only selling to their current distribution.  The buyer in that example, would make the profit on selling through their entire distribution network.  So that would make that strategic.  But also because they are bringing the business in to improve their own business, their own product mix, in that example, not because they are there to flip it in a couple of years and focus on the financial metrics.

Nathan: And the whole aspect of significance for a business owner, I know, is how you help catapult people through transactions to something that’s just much more significant, literally, in terms of a life purpose.  Can you share some examples of how you tie the philanthropy in the planning to the transaction and the integration with the strategic, as well?

Rob: Absolutely.  Thank you.

Philanthropy is something that often people traditionally think about in their last years of living.  And that’s changing now, where people are starting to think – Carnegie said, give while you live.  Don’t wait for others to support your legacy after you’ve passed away.  And that’s led, in the last generation, to many people thinking about the potential of creating their own legacy during their lifetime.  And the one area that we see a huge opportunity for that is when somebody is selling a business.  If somebody is interested in selling a business, and we have one example now, where the client has said, look, everything over $100 million that you achieve in this transaction, we are going to give to a charity.  Because you’ve asked that question, we’ve thought about it, and we don’t need more than 100 million ourselves.  In that particular case, that business should be worth approximate $200 million.  And they’ve picked a very specific charity, and that’s homeless.  And they’re going to focus their upside, everything over 100 million, in a pre-committed agreement.  And it’s up to them to honour that.  It’s not legal, it’s just a handshake agreement, but it will motivate us to really push the limit on getting as much as we can for that company because the upside is going to be going to charity.

I could give you another example of someone who is actually in a developing country.  It’s one of the African countries.  They have a bank, and the minimum they are looking for that bank is around $200 million.  And we do believe it will be worth between 300 and 400 million.  And they’ve committed all of the upside, and perhaps some of that 200 million as well, to educate youth in Africa, as they feel that is the number one lever to alleviated poverty in their country.  So that’s a couple of examples.

Smaller examples are where we’ve had clients sell their business and realize their parents went through a very difficult time, and have decided to give money to either the healthcare organizations that have supported them and could improve the support for others who are suffering the same, or to, in one case, a hospice that they could really improve.

When you are talking about millions of dollars of potential contributions, it’s very, very, meaningful to the charity.

Nathan: You have founded organizations to support the advancement of philanthropy and setting up tools and resources around governance.  What are some insights and take aways in that space of really helping philanthropy to be optimal?

Rob: I think all the intention in the charitable sector over the 20 years that we’ve worked with charities is very, very, positive.  People really want to give more to help make the world a better place.