Webinar: Mergers & Acquisitions with Matt Danner GM of iThemes



Cory Miller and Jeff Meziere were joined by Matt Danner to discuss mergers and acquisitions.

Matt is the General Manager of iThemes and is a master at mergers and acquisitions after being heavily involved in the acquisition of iThemes by Liquid Web in 2018 and the acquisition of The Events Calendar and Kadence WP, among others.

Matt talked about M&A's from BOTH sides of the table. He is very experienced in leading M&A discussions including getting deals ready for closing.

About Matt Danner

Matt Danner

Matt took over the GM role from Cory Miller in January 2019 when Cory left iThemes. Matt has experience leading technical teams in product development, customer support, and strategic planning.

Matt has been a core contributor to WordPress, as well as a plugin and theme developer.

You can find Matt on LinkedIn, Twitter, WordPress, Instagram, Facebook, and on his website MattDanner.net.


Machine Transcript


Cory Miller: Hey everybody welcome back to the Business Value Academy. I've got my partner and cohost Jeff Meziere. We call him the Mez behind his back sometimes. But no, the man is Jeff Meziere and myself Cory Miller. And we've got a special guest. This one is like selfish on multiple levels. I get to talk to my buddy, Matt Danner, who is now GM General Manager of, iThemes, Liquid Web.

[00:00:28]Hey, actually man I should say, what is your title nowadays? I think it's changed.

[00:00:33] Matt Danner: No, you nailed it. I'm the GM of iThemes, which. I feel like I either run a baseball team or a grocery store with that title, but,

[00:00:41] Cory Miller: I dig it. Well Jeff and I wanted to have Matt on because if you not familiar with the background with me and Matt...

[00:00:49] so for over 10 years, Matt and I work side by side building this awesome company called iThemes. In 2018, we were acquired by Liquid Web. And I left in 2019 and Matt he didn't step into my shoes. He like crushed them and said, whatever Cory was doing in the past is like this, what I'm going to do is here.

[00:01:08] And for the last couple of years, Matt has led a ton of behind the scenes and public mergers and acquisitions for Liquid Web particularly in the WordPress space. I'm super proud to call him one of my best friends in life and also to see what he's doing in the field. During our acquisition, Jeff you know the story cause you're with me, I'll tell you this, we couldn't have gotten the deal done to be acquired by, Liquid Web without Matt. Matt led a lot of iThemes a lot of people that know me know Matt was running the show for a long time at iThemes, but Matt really shepherded that deal from the being acquired side of it.

[00:01:47]He was in all the due diligence means leading all the, everything from security audits to, oh, wait, what's this random why is the three pennies on the balance sheet here, and trying to figure all that out too. High-level negotiations and conversations. And then when he was part of now Liquid Web, he shifted to the other side of the table and help people go. It was really painful for Cory and I, let me make it less painful for you as you go. And so I wanted to have Matt on today and share his takeaways and tips and just talk through the M&A, from both sides of the table. Cause he's got a very unique position and has helped broker some big deals in the last couple months.

[00:02:23] So without further ado, Matt Danner buddy,

[00:02:27] Matt Danner: I have no idea how to live up to that introduction.

[00:02:32] Cory Miller: Good And Jeff you butt in here. Okay. And ask things that you're curious about too, but Matt's been on both sides of the table very recently with some really big deals. And I know his attention to detail too, has helped on all of that.

[00:02:46]If you look back, let's start maybe from the being acquired side. And then I want to shift to the, on the other side of the table too. If you look back what are some things that stand out that would have made our process better? If having been through all these deals, now I'll ask the big question.

[00:03:03] Matt Danner: Oh man. That's an interesting question. No, I think that a big thing, it's no secret that there, you and I were partners in what we were doing and there was not a CFO partner necessarily in what we were in. It was back then. And things like budgets or, I'm not saying we didn't adequately do our taxes cause we did.

[00:03:23] We had a lot of really great financial help through the other partners at iThemes. But what we didn't really have was like financial leadership necessarily baked in. We had some really great people who were helping us out. And man, my memories of our due diligence process was they were that wow. Our financial stuff. While it was all good. Hey, we had to deep dive into some of that stuff. And we had to reconcile things that we had never tried to reconcile before. And every day was like a terrifying learning process of oh my gosh, what are they going to ask?

[00:04:00] And we never didn't get to the answer, but it was oftentimes really hard to get there. And that's one of the things I try when I'm working with folks that we're acquiring. It's one of the first things. I also try to set their mind at ease that Hey, this isn't going to reconcile by the way we're going to deep dive into this stuff and it's not going to add up.

[00:04:20] It doesn't. Even the very best deals that I've been a part of it, everything doesn't reconcile and that's okay. But just like really, if you know your eCommerce system, and everything I've dealt with is eCommerce and that's what we did. That was what the benefit we had is between you and me and some other folks.

[00:04:39] We knew our eCommerce system really well. And we were eventually able to figure it all out. But gosh, yeah, those are some of my most painful memories of our deal.

[00:04:48] Cory Miller: I'm so glad you started with finances. Because when we boil deals down to the essence, they're financial deals there. I don't know of an acquisition where you may not want to, maybe there's outlines, but do a deep dive into what the books look like to know cash. So Jeff and I talk about Matt that, you know what you're really buying, it may have all these little tags and categories and labels outside, but what you really want to buy is a predictable, sustainable past generating money.

[00:05:19]Is it pushing out, most deals in any way is unless they're like a strategic or an acqui-hire, if we go down to the bare essence, like when Liquid Web was looking at it iThemes or you look at other deals is your most times it's what's that cash up. But there's some engine that they have built over time that might be labeled software.

[00:05:38] They sell software to the enterprise or whatever, but at the end it's spitting out cash. And the deals that I've been involved in, and I'd love your input too Jeff, is it all comes back down, no matter what you do, you gotta do this first thing. So I'm really glad you shared that. And one other thing is you and I had a CFO for hire back early in our company history that walked with this, and I've said this, but I don't know what you think, Matt.

[00:06:02] I wish we had somebody in that role, CFO for hire, at least to help us shepherd some of it. Details for, because I know you did a great job helping. We had some help from our partners, but it was a little daunting for sure. I can imagine

[00:06:16] Jeff Meziere: Hi Matt. I'm gonna put you on the spot and ask you a question.

[00:06:19]What was the most surprising thing during that process that came about the acquiring side asked you for, that you weren't necessarily prepared for? So Cory, you mentioned and say here that, it's really, every deal is a financial deal. And I like to think of that in terms of a comment that always resonates with me is: nobody goes into a marriage expecting to get divorced, right?

[00:06:42] Like you don't go get married thinking I'm going to one day get divorced. I don't think anybody buys a company thinking that they're going to lose money or that it goes out of business. And so it has to make financial sense. And for me, going through my deal, I was not prepared, even as a CPA, I was not prepared on the acquiring, on the seller side for all the things and the document requests.

[00:07:05] When I first got, when I got that first due diligence list, that, talking about Matt, right? Like the list of requested documents, that is two pages. And you're like, oh yeah we have that. We have that, which means we're going to go put that together tonight at midnight, burning midnight oil for the next three months.

[00:07:20] That's what we did. Putting together all these lists of requests. But what was the most surprising thing that was on that list to you?

[00:07:27] Cory Miller: And when you say put together, Jeff, you mean creatively creating,

[00:07:33] Jeff Meziere: oh yes, it wasn't there such as the minutes to all of our board meetings for the last 12 years.

[00:07:40] We absolutely had those. We just had to go find those.

[00:07:44] Matt Danner: Let me go get those out of the file. Yeah. Oh the, oh, here it is. Oh, that's a short meeting that day looks like. No, so I think oh man, I could go on forever on the due diligence checklist, like the document checklist. Cause that's an area I've spent a ton of time.

[00:08:01] Now that I'm on the other side of the table, like really trying to refine. But go to your question. The biggest surprise, I think it was, if I'm being honest, I think it was how we didn't have to have the answer to so many things. They ask some very deep, very probing questions. And my instinct is that we have to figure out the answer to all of that or have a good answer to why we don't know that.

[00:08:28] And. I don't even remember where in the process, the first time Cory and I were just like, we don't have that, nor do we know what you want here. And they're just like, okay. And it's wait, that was okay, hold on. I want to change my answer on the board meeting notes. Then I, we just wrote those a minute ago.

[00:08:44] I don't actually, not having something to that's from the list or not being able to produce something or not knowing something, it may lead to other questions, but like ultimately our deal didn't fall apart when we didn't have the answers to, what's your sales tax strategy in South Africa.

[00:09:02] And it's you know what? Our sales tax practices in South Africa where we just really hope that no one ever figures out where don't have one Is this being recorded?

[00:09:11] Cory Miller: No, it's we have a censor button. You're absolutely right. I think, and I'm so glad you said that, man, because I think for us, it was like, we gotta, every, i has to be dotted and every t has to be crossed and one of the best tips we got you, and I got, and now I share it very regularly is when you're in the middle of the day or getting close to a letter of intent or starting the deal, ask for their due diligence checklist.

[00:09:36] And that was so good. And what kind of freaked us out? I think I've told you this, Jeff. I don't even know what this term is. We try to Google we're like, holy crap. And also admittedly, it was not for specific to an acquisition like ours, but what it did was give us a heads up thing. But I think to your point Matt is we thought we had to have every single thing to the penny or backup documentation. When it sounds like from both sides of the table for you, Matt is that's not always the case.

[00:10:09] Matt Danner: Yeah. If you don't have something like now that I've been on the other side, I look at it much more of don't make up the board meeting minute, don't make up whatever these things are. You don't have them.

[00:10:19] And that may lead me to additional questions that now I need to answer because you don't have this thing, but that's fine. And it's honestly going to probably be less stressful for both of us. If sales tax is always a good one. Nobody charged like very few people are correctly charging sales tax because you need a full-time person.

[00:10:35] Like we're super lucky at Liquid Web we're at a scale where we have a team, that's all they do is figure that out for all of us. But at iThemes we didn't have that. We didn't know. And so I remember that part of due diligence, sweating so hard of I don't know, we're not doing it in a lot of cases and the things we are doing, I think we're doing right related to that. And the right answer might just be like, Hey, we don't know. Here's what we're doing. Do you have any other questions about that? Okay. And they may have other tough questions, but yeah.

[00:11:06] Cory Miller: I'll tell you, I'm curious what your thought is being on both sides too, is I went into it and I just go, for some reason, my head just goes, it's gotta be antagonistic or it's going to be antagonistic, which was, and I've said this over and over, it was not that way. There were rough points for sure on all sides of it. But from being acquired side, like they wanted, at the end of the day, I felt like they wanted to get the deal done. Now that doesn't mean that we're not going to be tough in negotiations, but I didn't feel like, I think this kind of maybe comes to that point of not every dot thing is for me, I was like, oh, they're going to try to come at us every single way and I gotta be prepared. And just thinking it was antagonistic. And I know having talked to you on the other side is like, I know you personally, and it's just not your MO to be that way, but it's just trying to make it, like we understand you're selling your baby here and in trying to make it as less antagonistic, emotional, I dunno, whatever that is, but like less of a pain and suffering thing than it needs to be.

[00:12:07] Matt Danner: Yeah. But if you back that up a little bit. That's a conscious decision. And honestly, part of the strategy, because, think about if you look at the acquisitions that we've done at Liquid Web, we've done very few acquisitions where we're not bringing the leadership and the entire team over as part of the deal.

[00:12:26] It's really hard. I can't imagine being adversaries during the deal process and then suddenly the ink dries and now we're teammates. That's not going to happen. And so I don't want to be an adversary during the deal. I want to work together, to find a fair deal. And by the way, for every deal that we've done at Liquid Web, I've been a part of 12 deals we didn't get done.

[00:12:50]Because it just wasn't right. And it's not because something went wrong or not, because it was it was wrong or it was bad, or it just wasn't the right deal at the right time. We've had deals that we started, got along way in the process, decided it wasn't the right time, come back and it's been the right time later.

[00:13:05]That's actually happened multiple times now. Where we said it's not the right time. But if we were doing that from this position of we're trying to win this negotiation or whatever, we wouldn't have those opportunities to come back to the plate later when it is the right time for a deal.

[00:13:19] And also I have to work with all of these people. Joe Oesterling who our deal, who's my boss now, by the way, like he has to work with me. He has to work with all of the other folks that we've done this with. So that's really something that has started at the top at Liquid Web that like, we're looking for a fair deal.

[00:13:37] We always say, you've got to have, there's a couple of things that have to be a part of every deal and that's a willing buyer and a willing seller. Like it's not, we're not trying to like stiff arm someone into to selling their business for some deal that's not a good deal for them. We're looking for the wins for them. And the wins for us. And when there's a deal, that's a win-win, those are the ones that get done. And oftentimes by no fault of the buyer, the seller or whatever, there's not a win-win and those are deals that we happily walk away from.

[00:14:10]Jeff Meziere:  So Matt, you bring up a really good point there is that something that, that may need to get hammered out or is a best practice hammered out early on in the deal to figure out what does transition look like?

[00:14:20] Because I can definitely see when you say the words adversary, right? As, as opposed to. Let's just do a fair deal. And when we say fair deal, let me just be honest here. That means both parties are going to walk away a little bit upset. You paid a little bit more than you wanted to. And the seller probably accepted a little bit less than they wanted to.

[00:14:37]But in a fair deal, when you think through that, is that a point of transition that you try to hammer out like you on your side? Liquid Web it sounds like you are making acquisitions where you're bringing on the leadership team. So that's one of the points for you guys. If that's, what you're looking at is to transition and bring them on as part of the family, but for somebody who might just want to sell and walk away, that's a different tactic through negotiations. Would you agree?

[00:15:03] Matt Danner: Oh, yeah. And we've done both success, like we've had success in both types of deals. I think I think that's where setting expectations early is a good part of life, but also of deals is you've got to understand so as a lot of them by recent experiences are more on the buying side.

[00:15:23] So I tend to lean that way. Cory's dredging up the terrible memories of being on the selling side. It's important for me to understand why does this person like very early in the conversation, why is this person wants to sell their business? What's their motivation? Are they looking for an exit?

[00:15:39] Are they just looking for a cash infusion into their business? Are they looking for, and every one of those is an acceptable thing. But how we approach the deal based on, what it, what are we acquiring? Our approach is likely going to be different. But if we don't understand up front what the expectations are, what the intent is, then we could get months down the road and be in a really bad place.

[00:16:03] And then you could really end up adversaries. But I would say one of the least adversarial deals I've ever been a part of leadership didn't come, the leadership didn't come in that deal. But it was we knew that from the very first conversation we had we knew they were not a part of the deal and they were not interested.

[00:16:24]And we still came to something that we both, we still talk about how we feel like we felt like we were on the same team working against the paperwork was the adversary. And we were just trying to get through the paperwork that had to get done to get to the right.

[00:16:38]Cory Miller: For my experience, I had done my due diligence and, or I should say I had talked to enough people and probably got some bad stories.

[00:16:48] Jeff and I have friends that, they had pretty tough, bad, hostile story and went into the courts and stuff. And actually in Jeff's went great, the normal negotiation process and all that kind of stuff. But Jeff's business. He sold his before we were acquired by, and so I think I went into that going.

[00:17:09] I had heard these bad stories and thought that the only stories and, to Matt, like a lot of the deals you're doing, you've been friends with these people for a long time, too, them. And we had the benefit of a liquid web working with Joe and Terry flood, the CFO at the time and Chris Lima and different people like we, and in fact, we had an inside person, if my wife was working at like a web.

[00:17:31]So that, that probably helped too, but I went into it. I think I just checked it off and go, it's gonna be hard. And it wasn't from the liquor website at all. It got, tough at some points for sure, but more so probably for me going okay. Both of us we'd been there a long time and it was an emotional thing for sure.

[00:17:50] Okay. I am curious as you've now worked on the other side with, you said even 12 deals. I want to know your advice for founders.

[00:17:58] Matt Danner: Oh, go ahead. Go ahead. I think it's quite a few more than that. Probably. I would say for every one we succeed, which I probably should have made a list of all of the successful ones that we've done in the last 18 or 24 months.

[00:18:10] But I think for every one we succeed at, there's 12 that don't succeed in some phase or maybe it's the early, like we've had a conversation now it's not going to happen, but some that are all the way, like deep into the process. So, yeah it's a very low success rate game which is discouraging sometimes.

[00:18:27]Cory Miller: But then I also know you and I know I've talked to CYA, different people that worked on deals for years, like you said, and I encourage our people at business value academy post-test and otherwise to say it doesn't have to be no forever. No for right now. But I'm curious particularly trying to keep my head above water on our deal.

[00:18:46] But now that you've talked with dozens and dozens of founders and entrepreneurs, that it's a highly chosen, the marsh, it's a highly charged emotional thing for us. What advice do you have or what thoughts do you have for founders as they start? Right now it is red, hot MNA is red, hot and WordPress.

[00:19:07] Lot of founders on here in post says thinking, is it time for me to sell to what advice would you have for them to help manage the whole process, get ready for the whole process?

[00:19:19] Matt Danner: So, I think very first thing is being honest with yourself about what do you want out of this? What's your intention? And that sounds super easy, but I feel like I asked that question. That's a lead off question for me in a lot of the very first meetings we have and we broke the subject of a sales. So, what are you wanting to get at? And you hear, I want to be part of something bigger or you hear, yeah, there's a lot of different answers.

[00:19:47] And again, none of these are not, there's no wrong answer that we can do a deal with any of these answers. But I, I think it's important to like, to be really honest with yourself about what do you want to get out of it? What do you need or what's driving finger, your sale? Is it just, is it that you just want a cash infusion?

[00:20:06] Is it that you're wanting to de-risk this thing for your team? Is it that you're not a CEO and you don't want to be a CEO, but you've been thrown into this role of leadership and CEO. That was fun for a second, but I'm good at these things like taking a step back and being honest with what do you want to get out of the deal and why are you selling?

[00:20:26]And then I think the once you've nailed those down, and you're honest with yourself about them, it's figuring out what your core values are and making sure that the folks you're talking to share those core values. I really think that's been a, I know I'm sitting on the inside.

[00:20:41] So my opinion of how well our deals is slightly biased, but I think we've had, you could ask folks we've done deals with they've gone really well. The ongoing integration and operational side of bringing these acquisitions into our team and building bigger and bigger, I think it's gone really well.

[00:21:00] And I think it's because at the core of it, we share core values. We do very different things across these, but the that's you and I liked Joe and Terry, when we started talking to liquid web is it was like, oh, as an organization, this, they share our core values from I themes, liquid web and themes are so different.

[00:21:21]Like culturally what we do there, they like stack up servers and screw them into the racks and run network cables between them. And yeah, we like play type II, W we're different, but our core values are very aligned. We're customer first people, we love to solve problems for customers.

[00:21:40] And we saw that their passion for that, and that I think was a big part of why we felt like I could succeed here. And after you know what you want after, you know why you're selling take a really good look at who you're having these conversations with and look at their core values. Do they align with yours?

[00:22:01]Cory Miller:  I want to make sure Jeff we come back to due diligence and spend enough time on that. But go ahead. I cut you off

[00:22:08] Jeff Meziere: Jeff. Oh, no. The only thing that came to mind right now when we were talking is we hear this question a lot. We get a lot of people within the Business Value Academy asks. How does one start a conversation. So as an agency owner, being in this community, I'm thinking about selling and I just want to kick some tires if the number's right. I might be interested. I'm sure that you are both actively pursuing as well as fielding conversations that are coming to you about interest.

[00:22:38] Which of those are you doing more? And how does one start a conversation if I'm out there with a business that says, I just want to maybe throw my name in the hat.

[00:22:48] Matt Danner: Yeah. So the scales have tipped there on what we're doing more of just volume, with every acquisition you, it, it seems like more folks, once they know that we're doing acquisitions, we get more inquiries Hey, buy my business, which has not generally been the way most of them turned successful. And I guess that's not true. Some of the like cold, Hey, buy my business. But I really we've had both sides work successfully.

[00:23:15] We've had even recently, we've had some that have come to us and said, Hey, let's have a conversation about what you're doing and what we're doing. And does this make sense for it to be something bigger? I feel like oftentimes that's brought up in a way that's Hey, it could be partnership or acquisition or what, when really we all know that 90% of the time you probably mean acquisition when you say that, but maybe you really mean partnership and, we've explored a lot.

[00:23:40] I think this was a partner of liquid webs for gosh, almost two years before we were ready to do an acquisition with them. But I, when we are reaching out to folks, those conversations generally start with tell me what you're doing that you're excited about, and then tell me what you want to be doing.

[00:24:00] And then tell me if there's a way that us doing that together could get you where you want to go or if we're heading the same place we can get there together faster. That's generally how our reach outs happen. But if, I would say if you're reaching out to whether it be a larger business that you're interested in being acquired by, or even like a peer that you're interested in a more of a merger situation, I think, again, it goes back to starting with asking the right questions of what are you trying to do?

[00:24:28] And here's what I'm trying to do. Find out if there's alignment before you start the conversation of Hey, you're going to buy this. Because generally that's. I don't know. I think my assumption when somebody starts a conversation with, Hey, do you wanna buy this? It's why don't you want it?

[00:24:41]Whereas when I started out, when the conversation starts with here's where things are going and here's what's happening, I want to know more about what you're doing and where you're going. And then it's oh, look, there's this clear alignment. Now the conversation of why someone would want to sell is really clear.

[00:24:55]We align on something so we could be better. This can be more, it could be greater than the sum of our parts. We could be one and one makes three, whichever of the synergized cliches you'd like to use. I use them all on a weekly basis.

[00:25:08] Cory Miller: He's collecting the book, Jeff. Yeah. He's got the book I'll be publishing.

[00:25:12]Yeah I dig all that. So if we think through, okay. So when we talk about that particular question, that Jeff posts I typically go Hey, it's under the bit, it's it's scary for a founder to go, oh, what if I reach out to Matt or somebody that's doing MNA and you feel like, again, maybe you're going to get I'm coming to them.

[00:25:31] I'm asking them to prom kind of thing. And then also there's a strategically. You don't want to. Upset the cart with your team to think they're just going to sell and all that kind of stuff. I typically do this under the banner of business development. Like it's good for me to reach out and have a conversation with Matt dinner regularly.

[00:25:50] It's good for me to reach out and have a conversation on a business level with side and or whoever might be doing those types of things. And I often give Matt and our field like Josh at Paisley. He knew knows everybody. He was always having conversation. Does that mean he's selling today or tomorrow now?

[00:26:06]But I saw him really effectively do that. And I encourage a lot of our entrepreneurs just to say Hey, why not? From a career side? I always thought if I went to a job interview, I know I can get an assessment of where I'm at in the market. And if we labeled this under business development, just having those conversations and seeing what, ham just curious, maybe we're not ready to sell today and know it's not a no or a yes, forever, but just brokering those kinds of conversations.

[00:26:32] I think. To me a good thing for entrepreneurs, particularly in our space course.

[00:26:37] Jeff Meziere: So Cory, that's also some of the things we talked about within the academy though, too, right? I that's a very offensive, right? You and I think my, my situation for sure, during my deal was very much reactive, right?

[00:26:47] Like a hope and a promise and kind of a strategic plan. And next thing, it actually came to fruition, which is we executed and it happened. And now we had somebody knocking on our door, which is exactly the person we wanted knocking on our door, and then we weren't prepared and ready. But that's a very offensive and strategic position to be in, which is to go knock on someone's door and be prepared. Right?

[00:27:10] Cory Miller: Yeah. Always be prepared. Okay. I want to get to due diligence, but I want to keep on this route for a second about advice to founders. So if we tweak this question a bit. If you could finish the sentence for me, Matt, I wish entrepreneurs slash businesses that I'm talking to had did were blank.

[00:27:31] How would you finish that? If you could just say every business I could conceivably talk to you in the M and a conversation would have some of these things done in place. It could be mindset. It could be whatever it is. If you just go of all the deals I've talked through and everything, I wish they would blank.

[00:27:49] Jeff Meziere: I'm on the edge of my seat. I can't wait for this answer.

[00:27:51] Matt Danner: Okay so this is going to seem like you gave this to me ahead of time because we're, I'm on the Business Value Academy, but realistic expectations of how they valued their business is absolutely the number one thing that I wish more folks had earlier in the conversation grounding the way they value their business in some sort of data, which I say this all the time, when we're at this phase of a conversation, everybody's going to value your business differently.

[00:28:20]Liquid Web is not the correct, our way of valuing is not the correct way of valuing businesses, it's the correct way for us. You may take your business to X, Y, or Z seller, if you're shopping at across, and you may get vastly different values and that's fine. How do you value your business? And what does that what's that based on it like really what's it based on, is it, did you pull a number out of thin air?

[00:28:50] Did somebody start the conversation and you knew that no matter what they started at, you were going to add 10%? That's what I feel like happens often is everybody seems scared in conversations to be the first to throw out a number. I'm always happy to be the first to throw out a number.

[00:29:08] We are never making up the numbers that we offer. Folks. We have a very systemized it's a data-driven valuation process. That's the same every time it's not the same. There, there are the same levers to pull every time the levers could be pulled in totally different ways based on the deal. And they regularly are.

[00:29:28] But, get when folks don't want to throw out numbers. I, my first thing is, give me three years worth of your financial data and I'll throw out the first number. All I need is three years of your financial data and I'll have 90% of what I need to come up with. At least a first pass at a value.

[00:29:44]There are so many other factors and I'm not trying to say that there's not a lot of other factors in business value, but you said it at the beginning, like it, at the end of the day, it's a cash in cash out type of Folks are buying value and yes, there's perceived value.

[00:30:01] There's the additional value that can be made by the part. There are other things that bolt on to help create the number, but three years worth of financial data is really all. You need to get most of the way there

[00:30:12]Jeff Meziere: Did I just hear you though Matt and say that you totally removed the emotion from the transaction by saying, just give me the numbers, right?

[00:30:20] Matt Danner: Sure. Yeah. Like I said, we, there's a lot of deals that don't work out because the amount of money that would be a good deal for someone is not a number that would be a good deal for us. And that's totally fine. We're where that deal is not supposed to happen for us. We're we are never going to strong arm somebody into a dollar amount, because I'm not, I don't want to work with that person.

[00:30:43] I don't want to work with the person who feels like they lost. And I one, like you said, we both got to lose a little bit. But we also both got to win a little bit and that comes back to that you fare is such a subjective term. But what I'm looking for is if I'm doing a deal with you, I want you to feel like it was fair.

[00:30:59] And I want to feel like it was fair. That's what, that's, how I'm defining fair in that situation. But yeah, there's no need for emotion and value. Like it's a spreadsheet.

[00:31:11] Cory Miller: So let me push down one layer or get more specific. What about the books? What would you hope? So if we talk about grounding the numbers, which I love that and realistic valuations, when you see somebody's books, how would you finish that sentence

[00:31:24] I wish they had...

[00:31:25]Matt Danner: cleaner organized honestly, more raw.

[00:31:28] Jeff Meziere: Do you not like shoe boxes, Matt is that what you're saying?

[00:31:31] Matt Danner: Yeah. I will say, the further, the more of these I've done, like the more raw the data I can have, the better. Like your PDF P&L that someone prepared for you is significantly less valuable to me than your transaction data.

[00:31:50] Raw line item, transaction data. For three years, I can do my own pivot table. Like I would rather have the most raw data you could give me, but that's where I, what we talked about at the very beginning of getting your financial house in order is that raw transaction data to me.

[00:32:06] Tends to be a really good source of truth, but it's a, there's a three-stage process with money in an e-commerce business. I have my shopping cart, the money that my shopping cart says I've made my eCommerce system WooCommerce, whatever it is. I have the money that my P&L says, I made that my accountant or my CFO put together for me, and then I have the money in the bank.

[00:32:27] And at some point during due diligence, I'm going to string all three of those together. And I hope that they look similar. And ultimately, I guess the money that's in the bank is the truth. Like the money that actually got exchanged, but I've, we often start with just a P&L someone sends us three years worth of PNLs and that's fine to, to start a conversation.

[00:32:50]But that's the due diligence processes when we dig in and validate that okay, great, your P&L said this. And we based a whole deal around that, but now we have to. Now we've got to make it real I can type up a P&L in Microsoft word right now and send it to you that says I made $87 billion yesterday.

[00:33:08]Now let's go tie all the systems together and that's 99% of financial due diligence.

[00:33:15] Cory Miller: So getting now getting into due diligence what are some thoughts about navigating that process from, let's say from the selling side, from the seller side, from the founder entrepreneur side.

[00:33:28] Matt Danner: Yeah. You already hit on my favorite thing, which is get the due diligence. Everybody has a due diligence checklist and yours is going to be specific to your business. There's going to be, but anyone who's done more than one who's if you're selling to somebody who's bought more than one thing, they already have a checklist that they're basing it off of.

[00:33:49] And there's no reason to wait until you have a signed LOI to see that for the first time. I have as a, as someone who's doing quite a few of these, I have this whole checklist framework of here is what I should be doing on day, whatever plus or minus LOI. And one of the super early things it's like, Hey, this might turn into a real thing.

[00:34:09] I should show them my raw due diligence checklist so that this stuff can float around in their mind for a week or two before we get to getting hot and heavy and asking for these. And so when you said that earlier, I may have forgotten that we got that as advice a long time ago, but that's the, so get that list as early as possible.

[00:34:29] Start floating it around. And then the other piece of diligence that the mistake I have seen folks make in the diligence process is, obviously you're going to be including legal and financial advisors, counsel. I hope you are in your deal that you're doing include them very early, because context is key and trying to bring in trying to, the LOI, the letter of interest is a very like business worded.

[00:34:55]It's not, legally is it's very business terms of what this deal is going to look like. And so I feel like folks feel like I'll save money on my lawyer. And I'll just talk through the LOI because it's just business terms. Like I, if I agree to the business terms and you may, I'm not saying you're going to get a bad deal because you do that.

[00:35:14] What I am saying is your lawyer is going to have to come in and base all of the conversations that led up to the LOI off of that couple of page doctors. And now when you get to starting to craft the purchase agreement, you're going to have to be perpetually giving them more and more context, same with your financial folks.

[00:35:32]Get them involved really early. You're not saving money by waiting to bring them in until you have I'm not going to bring them in until I've got that LOI. Once I got that signed LOI, then I'll start investing money in my lawyer or my accountant, like who, if you're having a semi-serious conversation your lawyer and your accountant should be, you should be talking to them like daily about that deal.

[00:35:56] Cory Miller: So, letter of intent, has some round numbers likely, has some confidentiality. What do you need to get to... there's a number that maybe you start with to say this conversation is worth it for both sides. What kind of information do you need to have in order to get there, for you to ballpark, before you do more of a deep dive into the, do you know, the finances and stuff like that?

[00:36:22]What kind of set of criteria would you want need in order to go, okay, this deal is this round number and it's worth going through whatever months of, legal and financial analysis.

[00:36:35] Matt Danner: Yeah. That's somewhat tough, like on a per deal basis, because really it's two contracts almost like you go through what is essentially hypothetical's at this point.

[00:36:48] How much money you make, the structure of your business, all of this stuff. We're all just assuming that it's all true. And we write it in the LOI, which is a very short, condensed, generally just in business terms. This is what the deal we want to look like. And the purchase agreement will later be modeled after the LOI.

[00:37:10]As a rule, we tend not to want to put anything in the purchase agreement. That's not in the spirit of the LOI, which we use that term a lot. Like in the spirit of it, doesn't have to be word for word, but what, okay. We miss worded it over here just a little bit in the LOI, but the spirit of what we were trying to say was this, and we agree you.

[00:37:30] And I agree on that before we start trying to ink it down. But yeah. There's this hypothetical's the wrong word, but this assumption phase where we have data, but none of it's real data. It's just, you told me this. I made a bunch of notes and that's generally the financial data, like I said, three years worth of three years worth of P&L is fine.

[00:37:50]Then we've got some basic understanding of the structure of the business, some basic understanding of what the business is selling. What's the product. What's the trying to broaden it and not make it like really specific, but what's the light, are you selling 1, 5, 10 and unlimited license?

[00:38:07] Are you selling lifetime licenses? Are getting an understanding of how, what the product is and the mechanism by which it's bought and sold. And then S generally there's some understanding pre LOI. What's the vision for this going forward between it if this is successful, if we do this why does this make sense for you and me?

[00:38:26]There's some strategy talk at that point to say why would we want to do this deal? And then we paper that up with an LOI. That's a really short, ideally really short, but sometimes they're not like just poster you hanging on the wall. That's here's the framework of what this should look like.

[00:38:42] And then you go into phase two, which is diligence, where we confirm all of those assumptions and hypotheticals that we set over here. We confirm them into we're all positive. That is all true information. And that any key parts of the deal that are predicated on that data are still accurate.

[00:38:59] If there are changes in that data, through the process. And then that is what we build our purchase agreement off of, which is not a one or two page simple document.

[00:39:10] Jeff Meziere: You use the words in the spirit of the LOI. And I feel like Matt has been hanging around with attorneys way too much these days, but Hey, I did have a question, which is how many I'll lead off with the actual question.

[00:39:23] That is how many LOI guys match the actual end purchase agreement and I'll share an experience with you, which is mine. When I went through my deal, as soon as we got that LOI two page document, Hey, we're going to give you a big, nice round number, a bunch of zeros on it, a couple of commas, right?

[00:39:39] And you're like, oh, this is really sweet. And I wanted to go pop a bottle of champagne and I thought we had a deal done. And then we're going through what is due diligence, which I'm just like, man, if we just check off all these boxes, that was my experience or thought process at the time.

[00:39:53]Once we check off all these boxes, they're just going to write us this check. And at the end of the day, I remember very vividly being in the boardroom of the acquiring. And they said listen, we need to get these people an answer by Monday, whether this is up or down and I'm thinking, wait a second, I thought you already signed LOI.

[00:40:11] I thought this was a done deal. And it wasn't necessarily, so at the end of the day, how many deals matched the LOI? Is there a significant difference to that or just from your experience like that you've been through a number of them now. Just want to get that perspective.

[00:40:25] Matt Danner: Yeah. So I can say, honestly, the vast majority of ours are very close, if not exactly the same as the LOI number. But that's also that number was formula. Like I said our value process is pretty simple. It, our value was done off of your financial data. Generally, the only way that's going to change is if information comes out and due diligence, that changes that financial information that, think of it as cells in a spreadsheet, if something comes out and due diligence that invalidates one of the cells and we change that number.

[00:41:02] Yeah. The in number might change, but also it's a give and take, like we're not immediately going to be like, Hey, this changed. We want to, it changed this cell, there could be a give and take to say, are there other ways to make this still a win for both of us without us taking down the price?

[00:41:18]So, I guess our case is probably much simpler because the nature of the deals, the size of the deals that we're doing it. We can get to a pretty sure, as far as the financial number and like the intent of what's going to happen we try to be pretty it's not just a big round number.

[00:41:37]We're trying to get a fairly exact number based off of the data we have now. And we're not just gonna change it to change it. It's not oh, you don't collect sales tax in Alaska. According to my formula, that takes off 0.1% of the purchase price, and then we're just nickel and diming you down until we get to what we really wanted to pay

[00:41:53] Jeff Meziere: hey, I just had one last kind of follow up question on that, which is timing of the deal between initial conversation and maybe up to LOI and then LOI to finalization of purchase agreement and closing, if you will. What's a typical timeframe that I can expect as a seller. You're laughing. I know you're laughing,

[00:42:12] Matt Danner: I'm laughing because we have done we've had them that have lasted, frankly, way too long. I think. All the way to where we've been in conversation and, I'm lucky I get to lead a lot of these deals, but, Joe and Chris Lema, there are other people that look, who are super active in this process, this is not just me. And we have been a part of deals, big deals where we were like, Hey, I'm in these initial conversations, then I get a Slack that's Hey everybody's on board that we want to close this in 60 days. And it's we haven't signed an LOI yet. What? 60 days?

[00:42:45]I would say generally speaking, depending on how long the due diligence checklist is, I'll say that with a reasonable sized checklist you have 45 days for due diligence should be totally fair. Sixty days. Totally fine. If someone thinks that you're going to take three to six months to do due diligence on the size deals that we're working on with software companies, we're not dealing with a lot of real assets and things like, in fact half the time we forget, it's oh they probably bought those computers. We should find out how many computers they own, like we don't even think about a lot of that stuff in the types of deals we were doing. Whereas in another deal that the real assets may be a much bigger thing. And so I have no idea what diligence is like on something like that, but we've done diligence on a large deal in 30 days before.

[00:43:33]Cory Miller: During COVID,

[00:43:35]Matt Danner: But we use all 30 of them, meaning every weekend, most nights. But we were all in lockdown. We didn't have anything better to do. It seemed fun at the time. It did but I think realistic, like talking from the beginning the biggest unknown is that first conversation to an LOI we've had, those were like the first conversation made it really clear.

[00:43:54]Wow, we align on values. Wow. You fit with where we want to go. And we fit with where you want to go. Chuck us over some data and we'll work on it, we'll work up something. And that turns into an LOI, like weeks after the first conversation, a week, two weeks we've had others where those initial conversations, it's like dating, we're flirting for a while. We're just kinda talking about it and Hey, we're friends, I like chatting. But I don't know how serious we are yet. And so that's probably the biggest unknown. I think once you hit an LOI the due diligence process is extremely disruptive to your business. I don't want that as the buyer because I'm buying something that has momentum and I don't want the momentum to stop.

[00:44:36] And you don't want that because if something were to fall through, you don't want to have lost all of your momentum in this deal. Due diligence is a momentum killer. So I am very motivated and sellers should be very motivated to make diligence as quick as it can be. But realistically, like 60 days may be quick. We've done it in 30. I think 45 is a pretty good sweet spot for a lot of our deals.

[00:45:00] Cory Miller: And, before our deal, we asked a lot, like how have previous conversations happened. Previous M&A deals that they've done and just asking them very honestly about it. And we've talked to the BVA members about the same. Tell us about other deals. I've had a number of people ping me privately and go how'd it go?

[00:45:17] And I said what you've heard from me in public is what I share in private, which is, all things considered, it went really well. So doing that kind of conversation too, and this is why I go back to, it pays to know someone like you, Matt, if you're in the WordPress space, you got a product it pays to say, can we just have an introduction?

[00:45:35] So you're not going into cold lead. You and I had a year or two years with Joe, for instance, who really bird dogged the deal and help shepherd it, and in many ways to its financial, its conclusion. And that was nice. We'd had dinner with them. We've spent time with them to just say, what is what you get with him. And I spoke highly about Joe. I think he's a fantastic guy and a leader in the space.

[00:45:59]Okay. So we're getting toward our time here, what I want. I'm curious, unless you have some questions, Jeff, for Matt that we haven't hit. What things do you really want to say that we haven't asked or just things on your mind about the whole M&A process?

[00:46:13]Matt Danner: Granted I get to be around it a lot. And so there's like exposure therapy or whatever. It doesn't have to be a bad process. And I joke that, like my role is often like the Sherpa in deals that we're working on is I like, I'm not going to lie to you and pretend that I'm on your side of the deal.

[00:46:30]If we're, but at the same time, like I've been through it. And I know on our deal, I mentioned earlier, like our diligence checklist when Cory and I got that list, there were hundreds of items on our diligence checklist through doing quite a few deals. Now I have figured out what do we really look at in the diligence process?

[00:46:52] And I have cut that list to it's sub a hundred and for a lot of deals, I can get a sub 75 items that we need. So it M&A doesn't have to be a painful process. It's an emotional process. It's a lot of things, but it doesn't have to be bad. And I think like what both of you said earlier, you hear all of these horror stories and everybody just puts their armor on, that like, all right, we're going into battle. And maybe I'm biased by the deals that I've gotten to do, but it's enough now to where I feel like the common trend is if you're doing, if you're working with people that you're aligned with, if you're doing the deal with folks that you should be doing this deal with it doesn't have to be painful.

[00:47:32] That doesn't mean it won't be contentious at times. It doesn't mean that it won't be. Nobody wants to lose. But I don't know. I think we, I went into ours and even the first ones that I did from the buying side as like here we go. Got to buckle up and get... Now it's much more, think about how great this is going to be some day. Let's figure this part out and let's do this part. But let's also remember what we're trying to do. What's the big picture. What's the big picture for our employees together. And get your finances in order.

[00:48:04] Cory Miller: There we go. So one thing, Jeff being a CPA by background and trade and credentials today we talked about. The shoe box mess, and he's dealt with clients way back when he was exited doing that work every single day, that would literally bring in the shoe box.

[00:48:19] And can't stress it enough. I talk a lot, Matt that like in the early days of iThemes we had CFO for hire and that's what Jeff does now. And the value of having someone to just not accountant. Accountants sometimes will look, they're just doing this job, but someone that comes up a step and looks at your books and your business in a different way has been so valuable.

[00:48:41] That's why, when Jeff rolled that out as a service, I was like, he has you get we more entrepreneurs need this. We could have used it in our latter days that we just didn't have somebody that could help us through that. Navigate that process just a little bit easier and better

[00:48:56] Jeff Meziere: Cory I would've made more money in my deal had I just been able to watch this webinar before the deal. Like literally,

[00:49:02] Matt Danner: Yeah. To Cory's point, there's a huge difference between financial leadership and accounting. And I think we're all super quick to use accountants. I look back at our time with the CFO for hire that we worked with.

[00:49:15] And, at some point we didn't feel like we were taking as much away, but now when I look back on. Oh, man. He did a lot for us. Like a lot. He didn't help us like balance our books. He helped us with financial leadership. And so yeah, it's a big advantage that I think a lot of businesses at a smaller size aren't taking advantage of.

[00:49:37] And especially if you think, all businesses come to an end at some point, there's just, how does it come to an end? Is it an exit? Is it a sale? Is it a closing up the doors? Everything's going to end someday? I guess there's like a mom and pop shop. That's five generations deep over here next to me, for the most part.

[00:49:51] And so being prepared for that, by investing in a little bit of financial leadership, it doesn't have to be your skillset. It doesn't have to be your partner. It's like there are resources out there. But just keep in mind that it's not your accountant is not serving that purpose. It's totally different thing.

[00:50:10] Cory Miller: It's such good, good marketing message. Jeff. Now I need to switch your page to say like marketing leadership, because that's really, that's such a good thing. And what I love about Jeff is that he's been an operator, is an operator too. So he comes from both sides with an analytical mindset, but I love those for that phrase financial leadership, because you're absolutely right.

[00:50:28] Helping think through budget. Helping think through strategically, like our person back in the day did have M&A experience. And all those types of things would have been helpful as we did the deal.

[00:50:39] Matt Danner: Although all that advice we didn't take that he gave. But now I look at things that he told us that we should be doing. I was like, oh yeah he saw that. All right. Yeah. He gets a little credit now.

[00:50:51] Cory Miller: Matt Danner. Thanks my friend. It's good to see you. Thank you for sharing your experiences on both sides of the table now. So more, really hunting down and brokering and getting deals to the finish line, to know the companies that you touch are better for it because everybody knows.

[00:51:06]You've got a stellar reputation that's earned over years for doing all this, but thanks for sharing your wisdom and your experiences. They, and it's good to see you, my friend,

[00:51:14]Matt Danner: It was great to see y'all. I appreciate y'all having me.

[00:51:16] Cory Miller: All right. We're going to have you back, right? Jeff. We're going to have him back.

[00:51:19] Jeff Meziere: Matt always good spending time with you my friend.

[00:51:22] Matt Danner: Yeah. Appreciate it.

[00:51:23]Cory Miller: Hey, thanks everybody for being here. Be sure and go say thanks to Matt Danner @mattdanner on Twitter that he checks once every month. And I think somebody else does that for him, but go and say thanks for Matt Danner @mattdanner for being on the webinar today.

[00:51:37] And thanks for being here and we'll see you next time at the BusinessValueAcademy.com.




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