DealQuest Podcast with Corey Kupfer Corey Kupfer

DealQuest Community - just recently news of a failed merger surfaced, piquing the interest of my team, and ignited a thorough analysis. The culprits? First Horizon and TD Bank.I want to dive into the specifics of this particular deal, explore its implications for First Horizon and broader market conditions, and extract lessons that could be vital for you, our audience, who are constantly navigating the M&A landscape. 

 

THE DEAL

TD Bank and First Horizon announced plans to merge not too long ago. As the proposed blueprint suggested, TD Bank would essentially take over First Horizon. Fast forward, however, to the early days of May, a twist unraveled: The much-anticipated merger fell through.

 

This merger agreement was initially anchored at an offer price of $25 a share. Usually, the logic in public deals such as this is that the offer price exceeds the current trading value of the seller's shares. Therefore, it's likely that First Horizon's shares were trading below the $25 mark when TD Bank made its offer.

 

The original offer from TD Bank occurred before significant shifts in the industry, including the unfortunate incidents with Signature Bank and First Republic. These events and others contributed to a decline in bank valuations and a surge in market concerns. While it seems that we've avoided major industry contagion for now, the share prices of banks have been under pressure. 

 

THE “BREAKUP CLAUSE”

This situation points to the presence of a "breakup clause." In essence, a “breakup clause” is a safeguard for the selling party. If the buying party decides to walk away from the deal after an agreement is signed, they need to compensate the seller, barring any significant issues or breaches of covenant by the selling party.

 

In the context of this failed merger, the $200 million in cash and $25 million reimbursement likely stems from a breakup clause. The intent behind such a clause is to protect the selling party, which, in a public deal, can face severe repercussions if a deal falls through. 

 

THE AFTERMATH

The aftermath of a failed merger isn’t always as simple as one might think; it’s not just a cut-your-losses-and-move-on, there can be some serious implications after a failed merger or acquisitions.

 

In the case of TD Bank and First Horizon, what’s even more startling about the fallout from this failed merger is First Horizon’s share price. Post-announcement of the broken deal, First Horizon's shares plummeted by 40%, from $15 to just below $9. It's not certain if the share price decreased due to the failed merger or was influenced by recent events in the banking industry.

 

Despite this failed merger having proved to be a roller coaster for First Horizon and TD Bank, it serves as a crucial learning experience for all of us in the deal-making business. It's a stark reminder of how quickly market landscapes can change and how important it is to embed protective measures within agreements to safeguard against unforeseen circumstances.

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Corey Kupfer is an expert strategist, negotiator, and dealmaker. He has more than 35 years of professional deal-making and negotiating experience. Corey is a successful entrepreneur, attorney, consultant, author, and professional speaker. He is deeply passionate about deal-driven growth. He is also the creator and host of the DealQuest Podcast.

 

If you want to find out how deal-ready you are, take the Deal-Ready Assessment today!

DealQuest Community, in this series, we've seen a wide range of models that have evolved to fit different types of advisors and firms, from those that want to maintain their independence while gaining the support of a larger entity, to those that see the value in fully integrating into a larger firm for more support, resources, and potential for growth.

 

In fact, this evolution and variety of models is a testament to the maturation and dynamism of the RIA industry. As the industry grows, so too do the options for RIA firms. While this abundance of choice can be confusing, it also means that there is likely a model out there that fits your firm's needs and goals.

 

 

THE NUANCES IN THE RIA M&A INDUSTRY

Even if you are not currently in the RIA space, my hope is that this series has offered valuable insights into the mechanics of mergers and acquisitions, deal structuring, and the evolution of business models - knowledge that can be applied in other industries, as well.

 

In the world of financial services, there are a variety of models that firms can adopt, ranging from fully integrated ones to those that are far less so. This blog post will delve into these models, discuss the evolution of firms, and offer insights into their unique strategies and philosophies.

 

What is crucial for potential sellers and buyers alike is to understand the nuances of these different models and to critically examine how well they align with their own objectives. This is where our special series comes in - by providing insights straight from the horse's mouth, we aim to shed light on the different aggregator and integrator models, the types of firms they are looking to attract, and their unique value propositions.

 

 

THE FUTURE OF M&A

While future predictions are always uncertain, it is clear that the industry will continue to grow and evolve. Firms will continue to adapt their models and strategies, deal structures will change, and new players will enter the space. Despite the challenges, the industry remains a promising space for growth, consolidation, and development.

 

Overall, the financial industry is an exciting space to watch. With the industry's increased sophistication, more options are available for deal-making, and financing is more accessible than ever before. These firms are not only successful in attracting the right advisors but also offer a variety of options that cater to different needs and preferences.



THE DEALQUEST PODCAST RIA SERIES

It's been an honor to explore the intricate world of M&A with leading RIA aggregators and integrators throughout this series. The insights, experiences, and perspectives shared by these industry trailblazers have been invaluable.

 

If you're new to the DealQuest Community or even if you haven’t listened to the series, I invite you to dive in and learn from these experts as they discuss their unique models, strategies, and visions for the future. For those of you who've been on this journey with me, I encourage you to revisit these episodes, as there's always something new to discover. Each conversation is a gold mine of knowledge that can greatly influence your understanding of this dynamic industry.

 

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Corey Kupfer is an expert strategist, negotiator, and dealmaker. He has more than 35 years of professional deal-making and negotiating experience. Corey is a successful entrepreneur, attorney, consultant, author, and professional speaker. He is deeply passionate about deal-driven growth. He is also the creator and host of the DealQuest Podcast.

 

If you want to find out how deal-ready you are, take the Deal-Ready Assessment today!

In the world of private equity, few individuals possess the depth of experience and insight that Ace Chapman brings to the table. Ace, a veteran in Private Equity with over 20 years of experience, made his mark by acquiring an online stock market simulator in the early days of the Internet. Through strategic changes, he grew the user base from 10,000 to 250,000, generating a remarkable 100x cash on cash return. This achievement laid the foundation for Ace's illustrious career, during which he built systems to streamline the process of creating private equity funds, completed close to 200 deals, and served as a General Partner for 8 funds.

 

Ace's leadership and strategic acumen have not only yielded impressive returns but also fostered trust and loyalty among his partners, who continue to collaborate with him fund after fund. His expertise and track record have earned him a reputation as a deal maker extraordinaire.

 

 

THE PHILOSOPHY OF DEAL-DRIVEN GROWTH

At the heart of Ace's approach lies the philosophy of deal-driven growth. He recognizes that organic growth and sales are valuable components of business success. Ace's focus is on seeking and capitalizing on deals that can catapult his businesses to new heights. Whether it's acquiring new assets, purchasing underperforming businesses to turn them around, or partnering with strategic investors, Ace views deals as a primary driver of growth and profitability.

 

Ace's deal-first mindset translates into a systematic approach to deal making. He leverages his extensive network, industry expertise, and financial acumen to identify potential deals and assess their viability. With a focus on strategic alignment and value creation, Ace navigates the complexities of negotiations, due diligence, and deal structuring.

 

 

THE PRACTICAL APPLICATION

Ace's deal-first philosophy starts with examining every aspect of the profit and loss (P&L) statement to identify opportunities for ownership. By acquiring businesses that align with his existing operations, he converts expenses into assets. For example, purchasing a bookkeeping company allowed Ace to consolidate expenses, increase profitability, and position the business for future growth. This approach transforms previously incurred costs into revenue-generating entities and amplifies the return on investment.

 

The second aspect of Ace's philosophy revolves around capitalizing on businesses that have already built the necessary infrastructure. Rather than reinventing the wheel, Ace seeks out companies with complementary offerings, allowing him to instantly access talent, systems, and operational efficiencies. For instance, acquiring a virtual assistant (VA) company eliminated the need to continually hire and train VAs, significantly reducing costs and streamlining operations. By leveraging existing infrastructure, Ace accelerates growth and mitigates common challenges associated with scaling businesses.

 

Ace's deal-first philosophy provides a refreshing perspective on business growth and ownership. By converting expenses into assets, leveraging existing infrastructure, and strategically acquiring businesses, Ace maximizes value creation opportunities and builds a diverse and profitable portfolio. While challenges exist in managing disparate businesses, Ace's exit-focused mindset ensures long-term success and creates a pathway for consistent growth. Entrepreneurs and business owners can learn valuable lessons from Ace's approach and explore the potential.

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FOR MORE ON ACE CHAPMAN:https://www.linkedin.com/in/ace-chapman/https://www.youtube.com/channel/UCaNlGb8yu09Pvp-kUsyeW-w/videoshttps://www.acechapman.com

Corey Kupfer is an expert strategist, negotiator, and dealmaker. He has more than 35 years of professional deal-making and negotiating experience. Corey is a successful entrepreneur, attorney, consultant, author, and professional speaker. He is deeply passionate about deal-driven growth. He is al

Channing Hamlet is the Co-Owner and Managing Director of Objective Capital Partners, a prestigious investment banking and valuation firm with an impressive track record of executing over 500 M&A transactions worth $1 billion and more than 1,000 business valuations.

With over 25 years of experience, Channing has built a solid reputation for his expertise in management advice, transaction execution, and business valuation. This has earned him multiple accolades, including three consecutive years as a Leader of Influence: Investment Bankers by the Los Angeles Business Journal (2020-2022).

 

SELLING AT A PREMIUM

As an investment banker, Channing stresses the importance of companies understanding what drives value in their sector, building predictability into their business, and having a clear differentiation or unique selling proposition.

Understanding the value drivers in your sector is paramount to preparing a sale. Every industry has different value drivers, and companies need to do their research and figure out what drives value in their industry. They should also be aware of who their potential buyers are and what they are looking for.

Building predictability into a business and having recurring revenue streams and systematizing operations are also a vital step in preparing for sale. This makes the business more attractive to potential buyers, as they can see that the business is predictable and has a solid foundation for growth.

There is also an increasing importance of having clean accounting and financial projections that are believable and achievable. Buyers are raising their standards, and companies need to be well-prepared to successfully sell their business at a premium.

 

CHANGING MARKET CIRCUMSTANCES

In an ever-growing market, the impact of fluctuating market conditions on company valuations cannot be overstated. As industries and sectors experience growth, disruption, and transformation, businesses must continually adapt to maintain their competitiveness and relevance.

These dynamic market forces have a direct bearing on the valuation of companies, necessitating that they stay vigilant and responsive to shifts in consumer preferences, technological advancements, and regulatory changes.

Channing explains that Objective Capital Partners provides valuation services in three areas:


  Financial reporting
  Tax compliance
  Advisory valuation

When embarking on advisory valuations, the key to success lies in actively listening to business owners and thoroughly comprehending their objectives. By establishing a strong rapport and fostering open communication, Channing and his team can effectively tailor their approach to meet the unique goals of each client. To ensure optimal decision-making, the team employs a rigorous methodology that involves modeling multiple scenarios and stress-testing financial projections.

 This comprehensive approach allows them to identify potential risks, opportunities, and growth drivers, providing business owners with the necessary insights to make well-informed decisions. Their unwavering commitment to understanding client needs and delivering accurate, actionable advice allows them to remain consistent and trustworthy resources for businesses seeking to maximize their potential.

The market for mergers and acquisitions can be impacted by changing circumstances, such as rising interest rates, but Channing believes that the market will eventually adjust and stabilize. He also notes that there may be opportunities for estate planning in the current market environment. 

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For my full discussion with Channing Hamlet, and more on this topic and others discussed:Listen to the Full DealQuest Podcast Episode Here• • •

FOR MORE ON CHANNING HAMLET:https://objectivecp.com/https://www.linkedin.com/in/channinghamlet/

Corey Kupfer is an expert strategist, negotiator, and dealmaker. He has more than 35 years of professional deal-making and negotiating experienc

Stephen Sacks is a successful entrepreneur who worked in the fashion industry for 30 years, creating a brand that was sold in over 30 countries, generating £30 million a year in revenue. His furniture business, however, struggled with millions of pounds in debt, which led him to found Funding Nav, a company that helps business owners with ambition but lack of funds.

 

To date, Funding Nav has provided over £100 million in funding for hundreds of businesses. Stephen is also an author of two books, Reboot Your Business and The Intelligent Investor's Handbook. His latest venture is a networking business called Fuck Up Nights, where entrepreneurs learn from each other's mistakes. 

 

THE IMPORTANCE OF FLEXIBILITY AND ADAPTABILITY

In the ever-changing world of business, the mindset of a dealmaker is important to keep sharp. It’s important for dealmakers to consistently be capable of flexibility and adaptability, lest they fall behind quickly. Dealmaker must be able to:


Recognize and evaluate emerging trends and opportunities
Think creatively
Navigate risks in a rapidly changing business landscape

 

By embracing adaptability, proactively seeking new opportunities, and actively engaging in continuous learning, dealmakers can effectively navigate the ever-evolving landscape of business transactions. This approach enables them to identify emerging trends, capitalize on innovative strategies, and forge partnerships that drive growth and create value for all parties involved. Ultimately, a forward-thinking mentality, coupled with effective communication and a keen understanding of stakeholders' needs, positions dealmakers to thrive in a dynamic and competitive marketplace.

 

UNLOVED ASSETS AND UNCONSCIOUS COMPETENCE

In today's rapidly changing business landscape, many companies and individuals are looking for opportunities to grow their wealth. One such strategy is recognizing and seizing undervalued assets or businesses, otherwise known as "unloved assets." These are businesses or assets that a company or individual wants to exit, often at a substantial discount. As value investors, we can take advantage of these opportunities to generate substantial returns.

 

This brings up the topic of unconscious competence. Unconscious competence refers to people who are great at something but can't explain how or why they do it because it's just what they do. Stephen gives the example of football players who were great players but do not make great managers because they don't understand why they were great, while those who struggled and weren't great players often become phenomenal managers because they had to focus on what they did wrong and learn from it.This concept is particularly relevant in the world of deal-making and business acquisitions. It's the ability to identify undervalued assets or businesses and take advantage of them by either using one's own capital or having access to capital.

 

The mindset of a dealmaker is crucial in recognizing these opportunities. They have a love for the chase, the game, and the long-term view. These individuals are not afraid to take risks and are always looking forward, embracing change, and remaining flexible. This mindset allows them to recognize unloved assets and seize the opportunities they present.

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FOR MORE ON STEPHEN SACKS:www.fundingnav.comhttps://www.linkedin.com/in/stephensacks/

Corey Kupfer is an expert strategist, negotiator, and dealmaker. He has more than 35 years of professional deal-making and negotiating experience. Corey is a successful entrepreneur, attorney, consultant, author, and professional speaker. He is deeply passionate about deal-driven growth. He is also the creator and host of the DealQuest Podcast.

 

If you want to find out how deal-ready you are, take the Deal-Ready Assessment today!

The topic of due diligence is one we cover in some capacity frequently in the DealQuest Community and on the DealQuest Podcast. In light of recent news about startup CEOs being charged in fraud cases, I feel we should delve a little deeper into other aspects of due diligence. It’s essential to examine the significance of due diligence and how to avoid falling prey to fraud.

 

 

THE IMPORTANCE OF DUE DILIGENCE IN PREVENTING FRAUD

Performing due diligence can be challenging, especially when dealing with sophisticated fraud schemes or individuals actively trying to deceive others. Even without fraud, information can be misrepresented, and factors like deal flow, deal pace, and pressure to close deals can make it difficult to spot red flags.

 

As an investor or entrepreneur, the importance of due diligence cannot be overstated. In light of recent news about a startup CEO charged in a $175 million fraud case, it's crucial to examine how due diligence can help prevent such situations and ensure that your investments are sound.

 

There are various types of due diligence to consider. This can include, but is not limited to:

 


Financial
Legal
Regulatory
Cultural
Strategic Alignment

 

Despite the best efforts of investors and due diligence professionals, however, fraud can still slip through the cracks. Take the notorious Theranos scandal, for example. Despite significant investments from sophisticated venture capitalists, the company's fraudulent blood-testing technology went undetected for years. The question remains: How can investors avoid falling for fraudulent schemes?

 

 

PROTECTING YOURSELF AND YOUR BUSINESS WITH DUE DILIGENCE

One answer lies in the depth and thoroughness of due diligence. In the case of the $175 million fraud, the company's valuation seemed to be primarily based on the number of customers they claimed to have assisted. Yet, it appears that financial due diligence may not have been sufficient in uncovering the fabricated data.

 

For technology companies, particularly those that do not generate significant revenue initially, it can be challenging to determine the veracity of user numbers or the effectiveness of the technology. In such cases, it's essential to have an independent evaluation and to rely on the expertise of lead investors.

 

Even lead investors can be misled, however. As we've seen in cases like Enron, sophisticated fraud schemes can be difficult to detect. To minimize the risk of falling prey to fraudulent activities, investors should be vigilant in their due diligence efforts. This can include testing samples of a company's data or closely examining the cost of delivering services.

It's important to note that outright frauds in business deals are quite rare, and most deals that don't work out are due to other factors such as misaligned expectations or economic downturns. Nonetheless, the risk of a deal turning sour due to fraud can have significant consequences for a business, as evidenced by high-profile cases like Theranos.

 

Due diligence is not foolproof, but it is an essential tool in mitigating risk and making informed investment decisions. The key is to strike a balance between trusting the professionals and conducting your own thorough investigation. After all, it's better to be safe than sorry when it comes to investing your hard-earned money. 

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  Corey Kupfer is an expert strategist, negotiator, and dealmaker. He has more than 35 years of professional deal-making and negotiating experience. Corey is a successful entrepreneur, attorney, consultant, author, and professional speaker. He is deeply passionate about deal-driven growth. He is also the creator and host of the DealQuest Podcast.

 

If you want to find out how deal-ready you are, take the Deal-Ready Assessment today!