Webinar Replay: Tools & Strategies Every M&A Firm Should Use in 2021

What tools and strategies are working for M&A firms in 2021?

More importantly, how can M&A firms utilize an origination campaign/strategy to grow their client base this year?

We partnered with M&A Source to give an exclusive 1-hour presentation on how we are working with M&A firms of all sizes to add new clients.

Watch a replay of the presentation, given by our Co-Founder/CEO Gabe Galvez.

TRANSCRIPT:

‍Kara (00:00:07):

Hello everyone and thank you all for joining us today. We are very excited to have Captarget here with us and we're going to have Gabe who is the CEO and co-founder kind of talking with you all about what exactly they are with they do and how they work with us at M&A Source. I just have a few intro housekeeping sides as usual and then we will get things rolling. See if my side jack will move here. There we go.

Gabe Galvez (00:05:07):

Perfect. Okay. Hi guys and gals, everybody. Thanks for the intro there, Kara. So step one, shout out to the at-home t-shirt crew holding it down strong 11 months into our team working remote. So, coming to you live from my living room.

Gabe Galvez (00:05:26):

I think this is the 10th year that we have participated with M&A Source. Obviously we've seen both the format of the organization and the membership change I think commensurate to some changes we're seeing in the industry. But also we've changed quite a bit in that time, as far as both our service offering and some of the economics of our business model. So rather than just being straight off the deck overview today, I wanted to give a little context to kind of where we all came from both I think the organization in relation to working with us and vice versa and where we're at now.

Gabe Galvez (00:06:09):

So Captarget now I guess I should say has two operating divisions. One that provides an on demand analyst solution, primarily the middle market intermediaries. Just folks on the sell side, regardless of what you call yourself. And then on the other side, a deal origination service offering that is primarily used by buyers of businesses, private equity, corporate development, to a lesser extent, search folks, sponsor folks. But as of late has become quite popular with sell side advisors sort of an extension of their marketing to find their next client.

Gabe Galvez (00:06:53):

So we'll talk a bit about both of those things and how everything's working but first let's kind of parallel where we started and where we're at. So when we started working with theM&A Source a decade ago, something very specific was happening in the intermediary and sell side space. And that was the drastic change in the average size of a firm.

Gabe Galvez (00:07:21):

So about 10 years ago, a little bit before we were able to see that the average M&A firm or investment bank, like the one I came from, was quite a bit bigger than the average firm size that we started seeing decrease about 10 years ago. So we kind of started this business and started working with M&A Source at this time where firms and MDs and analysts, whoever, who were leaving their firm and looking to start their own, we're really focused on variable cost solutions and just mitigating costs across the board.

Gabe Galvez (00:08:01):

It was kind of the start of this period in time where we all started thinking, wait, do we need to pay whatever 30 grand for a CAP-IQ license when I only do two deals a year? Or do I really need an analyst who to sit a butt in a seat in a physical location considering how volatile our deal flow is? Keep in mind, this was coming out of kind of great recession era time. And so this question of lean and only buying what we need was really, really relevant.

Gabe Galvez (00:08:37):

Today that conversation has changed quite a bit. And we've really moved into an era of M&A firms accepting this idea that unless you are really large or technically very specialized, that old structure of terminal with data, analyst or two, research director or whatever guy or gal binding Sims like I used to have to, is really not only no longer the standard, but it's really not required anymore to prep a deal to market or maybe even to find a new customer. So that's where we find ourselves today in our service offering.

Gabe Galvez (00:09:24):

So some of you who've worked with us historically, recently, or years and years ago will possibly remember that we have offered kind of a full-time employee FTE style analyst solutions over the years. And we've [sunsetted 00:16:03] that. We sunsetted that a few years ago in place of a straight up ad hoc analyst support solution. Really to answer the call from our clients. We want the most flexible opportunity to engage with a professional back office as possible.

Gabe Galvez (00:09:59):

So now the 2021 version of cap target on the sell side is strictly project-based only analyst fulfillment all priced and paid on an ad hoc basis with no recurring expenses. We think about recurring revenue here a lot. So what that means is we maintain a fully domestic, fully internal team of analysts here. We have an office in San Diego where I'm talking to you from and some staff in Houston, Texas. And they're available to do just about anything you would need them to do on an ad hoc basis. We like to say, we buy the tools, we staff the team, so you don't have to.

Gabe Galvez (00:10:47):

So really we take that cost. We take that risk and you can use it on a variable use basis. This is a butts in seats play in some respect. So you can kind of ask an analyst or ask somebody like Alex who leads our business development effort who's on the screen-share somewhere as well to do anything, but the core competency fits into a few specific buckets on that sell side support.

Gabe Galvez (00:11:14):

We do a tremendous amount of good old fashioned prospect list building, data proofing, finding emails, larger data management projects. We do a fair amount of valuation work, comp work, some of the modeling that can be consistent with answering a question, what's this asset worth. And we do a lot of SIM, whatever you want to call them, CBR, PitchBook development, more so now than probably ever before.

Gabe Galvez (00:11:50):

Again, interestingly enough, 10 years ago having somebody outsourced, we didn't use the word at the time now it's a little bit less of a scary word, outsource their SIM development was totally a crazy ask. But now with good people, a good team, good resources like us, you can pretty much send over your client questionnaire and have a SIM delivered to you in some weeks time and with a little bit of iterating can get you there at some real attractive savings over the cost of either staffing somebody internally, or just taking you off the deal line to go through a 40 page PowerPoint deck that may or may not be something that you're even great at doing depending on what your own skillset is.

Gabe Galvez (00:12:40):

So three kind of primary buckets there, data, prospect list development, valuation modeling, and SIM. And just long form content development, whether that's a deck or a traditional Word or PDF based document or something that's a little more dynamic. And again, all of that is now available on a straight up ad hoc basis. Some of that pricing may be on our site still, but most of it is priced to order.

Gabe Galvez (00:13:08):

Obviously using Sims as an example, if you were to have it's five business units, it's a $500 million deal, it's fairly complex, that's going to carry a much more significant cost than if you were looking for a 20 page PowerPoint on a 500K [inaudible 00:13:32] HVAC company in your hometown. So those Sims can range from on our website, we have a published price of $5,000, but they can range from a bit less than that and sort of scale up to whatever you need to have accomplished based on the scope of work.

Gabe Galvez (00:13:48):

Similar with some of the other sell side support products, prospect lists usually start around a couple of grand, but again, it depends a little bit on what you're trying to accomplish. Certainly if you were to call us and say, I want to talk to every CEO of a tech enabled company in America with revenues over $5 million or whatever, that's a big old project. But most of the time the requests are as they are I think in most of your offices. They're regional, they're driven by a pretty specific mandate or pretty specific company that's informing the overall criteria and we do that work.

Gabe Galvez (00:14:31):

So again, all this work is done by real people. It's an internal team, so it's not like an Uber situation, a variable use model or an independent marketplace. Everybody's internally in our team. And the folks that lead that effort it's CFA or MBA team, depending on who you end up working with. So we literally and figuratively speak this deal language.

Gabe Galvez (00:15:00):

So as you think about outsourcing opportunities on that side of the business, on your deal prep side, I think the takeaways are we're fully domestic. We were first movers in the space. We have a tremendous amount of access and have made some really big investments for a company of our size in data and data access. And we want to make this experience feel and look as close to working with your own analyst internally, except of course you don't have to hire them, train them, give them the tools, give them the direction, give them the protocol and the frameworks of what a good output looks like for you since we've developed all of that internally already.

Gabe Galvez (00:15:48):

So that's kind of one side of the business, that deal prep sell side what we used to call research side of the business most often used by all you sell side folks. But as I mentioned, when we started chatting, the vast majority.

Gabe Galvez (00:16:03):

... we started chatting, the vast majority of our business now, by a pretty significant margin, is in providing what we call deal origination services to buyers of businesses, primarily, to a lesser extent, intermediaries brokering the sale, or possibly the acquisition of businesses as well.

Gabe Galvez (00:16:23):

And that model is something that we've really, I think, become pretty well known for, and is pretty unique. If there happens to be anybody doing buy side work, or representing a buyer, this first little piece of the puzzle will make more sense to you. But I will circle back in two minutes to how this applies to sell side folks.

Gabe Galvez (00:16:48):

For buyers of businesses, we are, in effect, a buy side firm that doesn't charge success fees, or finder's fees, or variable fees contingent on close. We do the prospecting, we develop the content strategies, we maintain the systems to do best in class outreach. And when somebody raises their hand and says, "This mandate resonates with me," or "I'm looking to exit," or whatever the response is, that's where we stop managing the relationship.

Gabe Galvez (00:17:23):

We're really the top of the funnel when it comes to sourcing acquisition opportunities. And in staying just in that top of the funnel, we can mitigate potential conflicts, because we're not hoping somebody closes a deal that maybe pays us more, or has a higher probability of close. It allows us to, by turn, work at some really nice scale. But it also allows us to just focus on delivering some really attractive ROI metrics, because our average customer closes a couple deals a year that we source.

Gabe Galvez (00:18:02):

But since they're not paying any sort of variable compensation, we can look at a couple hundred thousand dollars, minimum savings per deal close, over working with a conventional buy side firm. So big, big ROI there.

Gabe Galvez (00:18:19):

Now that's a weird thing to say to a bunch of intermediaries who maybe are doing buy side work right now. But there is a takeaway in there somewhere. And that's that, last year was a wacky year, so I'm going to use a couple of year old number.

Gabe Galvez (00:18:33):

But a couple of years ago, two years ago, we had something like four of the top 10 most productive ranked buy side firms white labeling our service. So if you are pivoting to Dubai side because the market's commanding it, or if you're a dedicated buy side firm, we can be a great white sourced opportunity for you to scale those efforts, where your client pays you a retainer, you pay us some portion of that retainer. Most likely, we do the prospecting, the outreach, that digital qualification that happens with the initial emails and communication, report, have a nicely accountable body for that level of productivity on a daily or weekly basis.

Gabe Galvez (00:19:21):

And when lead comes in, that lead goes to you. And you get to go to your client and say, "My team found us this." And then you can add all the value that you would add through managing the process, negotiating, wrangling, all those cats that our buyers and sellers, that we are absolutely not in the business of doing.

Gabe Galvez (00:19:42):

For anybody looking to scale their buy side effort, it's a great opportunity to plug into a whole team that's really, I mean, pretty partial party because this is one of my babies, but we do outsourced sourcing at a scale that I think one could argue nobody else really does in the US right now, by outreach volume.

Gabe Galvez (00:20:07):

So great opportunity there if you want to plug into a team and just ramp up your buy side. And in a best case scenario, have your clients pay us and in turn, some margin to you while we manage all of that and you just see leads show up at your desk.

Gabe Galvez (00:20:25):

Just a note, not only for buyers, absolutely for intermediaries working with, or on behalf of, buyers as well.

Gabe Galvez (00:20:33):

But there's another angle to this origination service offering that has become really popular in this last, I don't know, six months or so. In fact, just as a little aside, we're in California, and the start of our COVID experience was a pretty significant lockdown. It kind of still supposedly exists, who knows. We don't need to talk about that.

Gabe Galvez (00:21:03):

But along with that lockdown came a huge contraction in our M&Aa research business, because nobody was prepping a deal to go to market, right? They were working on deals. They were pivoting to the buy side. They were pivoting to maybe turnaround work, management consulting for folks with those types of management backgrounds. And we lost all kinds of business. It was a total shit show for whatever, a couple of months, March, April of last year. But we lived through a recovery that actually ended up being a significant growth event for us over the course of the whole year that included a lot of sell-side folks pivoting from using us on the research side, prepping deals, because they didn't have any new deals coming down the pipeline, and using our origination service as a mechanism to find new client leads.

Gabe Galvez (00:21:52):

Because in the end, look, it's still research, an informed content strategy, a good technology platform, and a team that understands that nuanced conversation of asking somebody if they want to sell their business, which is not surprising to this audience, probably, but surprising to a lay person. It's not as simple as sending an email saying, "Hey, are you for sale?" Because we all get those emails. And we all know what happens to those emails.

Gabe Galvez (00:22:17):

So sell-side advisors have started coming to us in droves, saying help us communicate, help us tell stories, help us originate sell-side opportunities for our firms. And again, the process is essentially the same. And depending on your scope, often the pricing is the same as well. So, excuse me, now you can look at origination, cap targets origination, through the lens of a sell-side advisor as almost a growth support strategy, or a marketing strategy that exists in this managed service box that can provide some still really attractive ROI figures, similar to the buy sided application.

Gabe Galvez (00:23:05):

You pay us a couple of grand a month, depends on your scope of course. We find you a client or two that turn into a deal that closes. And all of a sudden, you paid a couple grand, whatever, to generate some real success fees.

Gabe Galvez (00:23:22):

And it also takes this burden off the sell-side advisor of, should we hire a marketing firm? Do they understand M&A? Do we actually need marketing? Or do we need a more direct approach? And I feel that what we're offering to sell-side folks on the origination side at this point is really that kind of laser focus that they need.

Gabe Galvez (00:23:47):

Should you be doing other work to market your business? Absolutely. Have a great website. Do paid marketing. Do retargeting. Develop content, of which some M&A source members I know have been really successful with content development, including a couple of podcasts that have broken out through this universe, which I think have been really great for a few businesses. You should consider doing all of that.

Gabe Galvez (00:24:11):

But step one is, I need to tell my story to my local business or verticalized audience on a deliberate, consistent basis with best in class tools and get conversations started. And we can do that now for fairly modest pricing. So we've come kind of full circle in that sense, where we started folks on the prep side, deal prep side, although we still do some of that work. It's less now, I'm into that buy side work. And now reapplying that buy side work back to the sell-side folks to grow their businesses.

Gabe Galvez (00:24:48):

And it's our hope long-term, that as we help all these sell-side advisors grow their businesses, we will probably see some resurgence in the research side of fulfillment as more new deals go to market. But those are a couple of examples, and really our primary use case on what we do on the day to day for folks like you all. But as I mentioned earlier, just as a little aside, and we don't need to spend any time on this, because we're just a bunch of people in a bunch of rooms, you can also just give us a call.

Gabe Galvez (00:25:23):

Obviously, there's no commitment to chat with us. And say, "Hey, I have this opportunity," or "I'm considering making this staffing change," or "We're considering moving into this new vertical. Do you have any expertise? Do you have any process support? Do you have any potential solutions for us there?"

Gabe Galvez (00:25:42):

And while we don't say yes to every request, either for fit, or just because it deviates too much from what we do on the day to day, we do say yes a lot. So I always want to encourage folks, especially ones in network groups like this that are pretty tight and share resources and share feedback, just to include us in that conversation, even if we never ended up working with you.

Gabe Galvez (00:26:07):

We've worked with more than a thousand firms in a fairly short period of time. Have touched something crazy, like 70,000 transactions, in that time. And that's really allowed us to make an argument that we have a decent sense of what a best practice is when it comes to developing any of these outputs, just since we've repped it out so many times a year over year.

Gabe Galvez (00:26:35):

So feel free to use us as a resource, just to call us and say, "Hey, does this make sense? Should I do this? Can you help me do this?" And we can get you some good feedback. We can get feedback from our analyst team. And at least help you have, especially M&A source members of course, have some benefit derived from all that high repetition experience we've had working in the lower middle market for all these years.

Gabe Galvez (00:27:02):

Quick note on that, because I kind of skipped over it, we'll work with everybody, but we, like, I think most of you find the sweet spot is this lower middle market sweet spot. We've been lucky to have, and still have, some really great, huge upmarket awesome clients with strong budgets, big appetites. And we love those guys, but the reality is we came from the lower middle market, and we're really more interested in working with folks that are a little above main street, but they're not looking for $20 million [inaudible 00:27:37] deals, because they're harder to find, and there's less clients doing that work, of course.

Gabe Galvez (00:27:43):

So a little self-serving, but a note nonetheless, that we are probably a little more sophisticated than the need for a classic business broker. But if you're an independent guy or gal, a small team that wants to have some sophisticated resources, or a larger team that's looking to maybe augment their process for cost savings or for capacity, maybe to move yourself away from contracted tooling, whatever, that's really the sweet spot, I think, in which we shine.

Gabe Galvez (00:28:17):

So that said, only because we're at 30 minutes, I know we have allocated an hour, but you only want to hear me talk for so long, especially since we're a little more freeform today and not going through a deck, I'll just leave you all with that. And we can Q&A if there's any Q&A, Alex Carlson, who I mentioned, is also on this call somewhere in the background and is available to do follow up, or answer questions, there he is, as well.

Gabe Galvez (00:28:46):

But why don't we just hang out on the line here. If anybody wants to get technical, throw use case questions, ask me how the weather is in San Diego, whatever. Newsflash, it's beautiful. We will hang on the line and be available to go down whatever little path you all want us to go down.

Gabe Galvez (00:29:06):

And in the meantime, I'm going to drink some water and sit quietly.

Kara (00:29:11):

Thanks, Gabe. That was great.

Alex (00:29:14):

I just wanted to introduce myself.

Alex (00:29:14):

Hello.

Gabe Galvez (00:29:15):

There's Alex.

Alex (00:29:18):

I'll publish my email. I'm already getting a few emails from folks as Gabe's talking. Great job, Gabe. Sorry, Tiara, I think you were saying something?

Kara (00:29:27):

No, no, that's okay. I was just going to say, we do have the question section open. And it does look like we have a question coming in. And if y'all want to talk directly to Alex or Gabe, please just say, "Hey, unmute me." And I can do that for sure.

Kara (00:29:41):

The first question we have here says, what does a buy side office often charge as a retainer when white labeling your office?

Gabe Galvez (00:29:51):

So no perfect answer here because we all know the rule book is written in pretty light pencil for a lot of this type of work, but buy side firms tend to come categorically in two iterations. Folks that work purely on a success fee basis, for better or for worse, meaning a lot of really unproductive firms that work that way. And also a lot of really productive firms work that way. But it's still fairly uncommon. It's an extreme model.

Gabe Galvez (00:30:23):

Those folks charge nothing. They keep all the fees, they carry the risk of paying us. Again, less common, but still worth mentioning. But more common, your classic retainer based buy side firm. There's going to be a few variables that influence pricing, the size of buyer they're working with, and generally where they put themselves in the spectrum of deal size and sophistication, and how involved they are in the deal. Are they a classic finder who gets paid whether they support the deal or not simply by ear marking the lead? Or are they really acting as the buyer liaison and transacting in a more conventional sense?

Gabe Galvez (00:31:09):

But that said, if anybody is paying us and receiving some retainers, I just always want to make sure there's a healthy margin in it for somebody so they're making money while we work.

Gabe Galvez (00:31:23):

Again, for solely selfish reasons, right? Because if you, whoever asked the question, are making a couple grand every time you write me a check for a couple of grand, we all tend to be pretty happy.

Gabe Galvez (00:31:38):

That all said, really long answer to a pretty basic question, those firms that do charge for buy side work and pay us, commonly are going to be in that, and Alex, you can chime in here, but I would say that maybe three to $6,000 a month kind of retainer, big caveat being geography. You're in downtown LA, you're in Manhattan, you're in the loop-

Gabe Galvez (00:32:03):

...LA, you're in Manhattan, you're in the Loop in Chicago, you might be charging a premium, you might also be doing premium work. But if you're in San Diego, Austin, Phoenix, Tampa, whatever, that three to six, if you're doing deals that are... Maybe they're 20, 30, $50 million deals should be, I think kind of the norm, and just to note on term for us that goes hand in hand with that, doing buy side work, regardless of who we're doing it for, it's a pipeline building exercise of course, and it's not a bandaid solution. Meaning if you need to see a deal tomorrow, you called us too late, right? And we can get you going, but the service works best for folks that... They've just onboarded a new client, let's say, and that client just signed a six month contract, we'll probably ask you for something similar. And we want to make sure that we have the needed runway to really build a mature audience.

Gabe Galvez (00:33:05):

When you're doing outreach, particularly email outreach, we have so much data that supports, folks tend to not even engage or respond in depth, until you get pretty late in that communication cadence cycle. So if we're talking to a business owner, called say six times, you're very likely not going to hear from anybody until that third or fourth touch. And we don't want to send that third or fourth touch two weeks into working with you because it looks like we're spamming people, right? Both literally as a recipient of an email, it looks sort of aggressive, but also technically through the lens of Google, various mail servers, internet service providers, all these folks who are the arbiters of deciding what is and what isn't spam.

Gabe Galvez (00:33:46):

So we need to make sure we have enough time to really do good research, prime the pump, really start pumping, see what comes out, measure, augment the strategy and repeat. So as you think about retainer pricing, also think about retainer term because that's the first thing Alex or his team will say to you is, "Hey, how long do we have to actually accomplish this goal?" And if it's a really truncated timeframe, but we may still be able to help depends on the mandate and pricing, but you really want to look at these things holistically, both when you price and when you set terms. Alex, I saw you chime in there for a sec, did you want to... I mean, you may have totally different experience with retainers right now, but that's what I'm looking at.

Alex (00:34:34):

Yeah, no, I think that's spot on. And I think two observations there would be the size of the market, which you addressed to some degree, are we looking at 50 targets or 5,000 addressable, and then what I see a lot, and I talked to Russell Colon the other day, is people during this market really wanting to go up market, right? And get off main street and so this type of work is becoming more popular, and so just asking for retainers or not taking on engagements without that type of skin in the game, and however you define that, I think will separate you and grow your business. But that's commonly where we come in, where it's like even the sell side, "Hey, if you're going to use some of these research products, maybe we can sell it a few months faster for a half a turn, more kind of thing." And so we just professionalize that. But I think Gabe, you're thinking along the range the right way, and I want to get back to peoples' questions.

Gabe Galvez (00:35:36):

Yeah, yeah. Sure. We'll take the next one if there is one.

Kara (00:35:39):

Yep. We have a couple.

Gabe Galvez (00:35:41):

Sure.

Kara (00:35:41):

Okay, this next question. Can you quickly describe the deliverable you provide on a prospect research project and what we need to provide to get you started?

Gabe Galvez (00:35:56):

Sure. This is, awesome question. Just queuing up the salesman in me right here. Joking aside though, well-informed question. So ultimately say you were to buy a prospect list from us, let me just walk through the process, start to finish. So first of all, you would talk to Alex or someone on Alex's team, get a sense for scope, right? You don't need to tell us what the output needs to be, but we need to have some sense of the target company or the mandate or whatever. That's usually just a quick call, someone on Alex's team will say, " Here's the price point." They don't deviate too much, but again, if it's a huge data request, there's going to be some custom pricing consideration. Most of them cost, a couple of grand. And I think we have some M&A source discounts that Alex didn't touch on anyway. But once that's been committed to your invoice, you pay the invoice online, pretty basic process, and you're assigned an analyst who will have a kickoff call with you.

Gabe Galvez (00:36:53):

These kickoff calls don't need to be super involved, we know how to do our job, we just don't know at that moment what you need us to do quite yet, but you can utilize that analyst really however you'd like as far as letting them guide the process, giving them strict requirements, allowing for a couple of cycles of iteration, it's a pretty flexible model. So you have a kick-off call, that analyst is going to do a little bit deeper of a dive into who should be on this prospect list and why. And then we go through a process of the internal fulfillment work that usually takes about a week, where we want to deliver a draft prospect list to you that is, I would say maybe 80, 90% complete in the sense that we want to leave room for you to give us feedback so we can iterate on it, get the thing perfect.

Gabe Galvez (00:37:51):

Also, we don't want to do things like hand testing emails, which we're pretty well known for, we have a industry leading email accuracy rate when it comes to prospect list because we do the work very literally by hand. So we don't want to do a bunch of hand work on finding emails until you've blessed the companies on the list. So typically, you'll get a draft prospect list, you can review, share that feedback via email, you can always hop on a call with the analyst, if it involves more feedback. Once we get that list to a point, usually maybe one additional iteration, we then go through the process of testing and finding those emails. There are some server-based time restrictions as far as how quickly that can be done. You need to wait for bounce backs and stuff, so that usually takes, I would rather call it three to five business days and call it a couple of weeks later, if we're doing all the iterating and going through all the steps, you're going to end up most commonly with an Excel file that you own that will have whatever the scoped data points are.

Gabe Galvez (00:38:58):

Most commonly, it's the stuff we're all used to seeing company names and executive names and direct emails and phone numbers. And if revenue's available, if [inaudible 00:39:11] available and employee count, some of it depends on the value drivers specific to your company. Do we need to know square footage of each retail location, et cetera. Some of that also of course, impacts scope as well. So little dependent, as far as that Excel spreadsheet, what the actual columns are, depending on your scope, but we have plenty of flexibility there. And once we send it to you, you own it, you can commercialize it, you can sell it to your client, you can upload it into your CRM, certainly we can format it specific to a CRM upload depending on your system requirements. And then it's yours to go to market with.

Gabe Galvez (00:39:53):

As a little aside, this isn't something that we advertise really heavily, but M&A source folks who've been with us a long time, and I will mention, there are instances where, when we give you that prospect list, the client then says, "Hey, I don't have the means or the time or whatever to manage the distribution of this message, this email, whatever the teaser, to all these folks." And there are instances where we'll pick up that work as well on a project basis. It's something that's like, technically not on the menu anymore, but I know this audience it's resonated with historically, so if you want us to just give you the data, run with it, that's the most common. If you'd want us to do some additional outbound work, we can look at that as well.

Alex (00:40:40):

Yeah, I'll just add, I think on the research side, our prospect lists are something that we're the best at, we do a really good job there. Again, kind of opening up a market and all kinds of opportunities in there, right? For folks who may not be looking to sell, but want to be acquirers themselves. And then as Gabe mentioned, sort of the outreach portion, that's generally a nice step to work with us. But if you're doing outreach with us that can be, as Gabe mentioned on the recurring side, I mean, you could do some buy side work under an agreement, you could do some sell-side origination, it could be outreaching for one of your targets. So I've seen that kind of happen more and more, and that's all I wanted to say about that.

Gabe Galvez (00:41:35):

Thanks.

Kara (00:41:38):

All right. Thank you. Our next question asks what company databases do you subscribe to such as CapIQ, et cetera?

Gabe Galvez (00:41:50):

Great. So another really good question. I'll answer this one with a little asterisk. We tend to not lead with specifics here, although I'm happy to share them, only because they do change here and there. So just as a little housekeeping note, I never want to say, "Oh, we are using FactSet right now," although we are, we love FactSet by the way, because I don't want you to buy us because of that, and then next year we decide there's a better opportunity, and then you say, "Hey, but you told me you were going to use this database." So it is a little living and breathing for years and years as an example, we had a great partnership with CapIQ, We replaced that with FactSet who at the time had really, and they still are kind of the 800 pound gorilla. They have more market share, more revenue measurably than CapIQ by a pretty big margin.

Gabe Galvez (00:42:39):

So we love them for our Enterprise tool set, integrates into Excel and allows us to do some of that prospecting work, also some of that comp work, support some of that modeling work as well. A lot of the lower middle market folks ultimately end up with data that comes from sources that aren't inherently expensive, but not necessarily of the highest quality that we need to kind of overlay like Swiss cheese with a lot of holes in it until we can't see any light through all the cheese holes. So that might be Hoovers, being Hoovers datasets. That might be... Alex, who did we just partner with? We just bought a whole new data set at year end, it was driven by Robin Zoom's new enterprise set. Is that what that is?

Alex (00:43:30):

ZoomInfo, Yeah.

Gabe Galvez (00:43:31):

Yeah. Okay, so they have some kind of more expensive professionalized tools that we're using. Industry reporting platforms like first research we use, and I've had a long standing relationship with, and depending on the request, there are going to be some industry specific tooling that may not be super commonly known, but are great if you're going to one of these specific paths or another, but we always want to kind of hit this target of if you work with us on a project basis or otherwise, we want it to be... The ROI to be so compelling on not having to buy the tools if you're only doing a few deals a year or if you're not really tooling centric.

Gabe Galvez (00:44:14):

So if you look at a big system like FactSet or CapIQ, their pricing has changed a little, I think, driven by competition from PitchBook, which is another great system. We don't use PitchBook simply because their engagement model doesn't really reconcile with our terms of service, but really, really good system that I really like. We just want to make sure that you would have to pay them 20, 30, $50,000 a year to get access to what we can do incrementally for you if you need it three, five times a year for maybe 10 to 20% of that cost.

Alex (00:44:52):

I'd also add to that. A certain target, if it's good, it's going to be a deep dive on discovering facts that let's say, and then our analysts visiting the site, cross-matching some data with LinkedIn in terms of years of service, head count, decision-maker that type of thing. So when I first started, I've been here four years, Gabe just said we're kind of just doing the grunt work so these guys can do what they do best, which is go out and deal mix. So yes, we have a big data span and tooling, but a lot of times it's just, okay, I have X amount of time devoted to finishing this project where the opportunity cost of you doing that just doesn't kind of make sense.

Gabe Galvez (00:45:37):

Yeah. That's a really good point, thanks for bringing that up, Alex. So just to add to that, we are in some respects, kind of the domestic ditch diggers of M&A, right? There are instances where stuff's not in systems or you need more than any of the systems have. Even systems like FactSet, and to a lesser extent CapIQ, really good robust platforms, but they're not built for middle market bankers, right? It's a compromise by definition even when we buy them.

Gabe Galvez (00:46:04):

And we make plenty of good use out of them, but there are totally instances where you're just going to have an analyst who's going to have to grind it out, they're Googling, they're clicking links, they're taking notes, they're cross-referencing, as Alex said, maybe other work that we've done, et cetera, because we have a tremendous amount of data that we've warehoused over the last decade or so, but the goal is really to... First of all, hopefully I answered the question, but the goal is to focus less on where does the data come from and really focus more on it's our responsibility to answer the question. And we have a good track record of answering those questions again, not as a non-answer, but I think that perspective important to consider as well.

Kara (00:46:54):

Awesome. Thank you. We have another question and it's kind of two parts. The first part asks if your research includes companies in Canada, and we do have members based in Canada and who operate in Canada. And the follow-up to that would be internationally, is it just searches based domestically slash Canadian, or do you leave the shores and go across the water?

Gabe Galvez (00:47:22):

I'll work backwards on that one. So with international clients... I guess there's two international answers, with international clients looking to deploy capital or to do deals in North America, we're fine with those folks, because the data is still here. When we see it the other way, either international folks that are doing international work or domestic folks that are doing international work, we can start depending on the country of focus, we can start flirting with being outside of our area of expertise. Data coverage in the U.S. is pretty good, but still totally imperfect than the lower middle market. So imagine if...

Gabe Galvez (00:48:03):

... or middle market. So imagine, if we can't perfect that system, let's talk about how good the Ukraine does it or whatever, not that well. Believe me, we've tried. So if you're in a modern... I don't know what the appropriate term would be, but call it a westernized economy, Australia, the UK, places like that, we can likely support some work. But if you're a West African development fund looking to deploy capital in Asia, I don't want to hear about it, honestly. It's so far outside of our norms.

Gabe Galvez (00:48:46):

To Canada specifically.

Gabe Galvez (00:48:47):

It is. We hear all kinds of wacky requests and I encourage them. It's great. There's always opportunity there. But when you ask the whole market globally for wacky requests, believe me, you get some wacky ass requests, and that's not what we're about. We need to be able to really provide some real tangible value and we have to feel confident about the work we're doing to do so.

Gabe Galvez (00:49:10):

Canada's a little easier. From a prospecting standpoint, from developing a CIM or a book or even doing biocide work. Canada is fine. The only challenge at times with Canada, depending on what we're being asked to do, comes with spam compliance laws. We've written opinions on it and had the reviewed and Canada is an interesting animal when it comes to, "Can I actually send you, the business owner, an email, even if I just want to give you money?" Let's say, as a buyer, or, "Can I tell you about a resource without asking you to give me money or information without being viewed as a solicitation?" These are some questions that are Canadian-centric that often get answered. That said, we do work in Canada, but it seems like it sometimes, at some point, the question becomes, "Hey, Mr. or Mrs. Canadian client, how comfortable are you doing this type of work?" We've never had any technical or legal or otherwise issue or complaint doing any type of work in Canada, but a strict interpretation of Canadian spam and solicitation laws could at times, depending on what we're doing, be interpreted as non-compliant.

Gabe Galvez (00:50:38):

So little grain of salt with Canada there. But again, that's an over explanation. We've had no issue with Canada. We're happy to work with Canadians on Canadian work, cross-border work, or really whoever you want to throw at us.

Kara (00:50:56):

Great. Thank you. All right. It is 1:53. We do have a few more minutes. If anybody would like to submit any more questions. Gentlemen, the floor is yours. Any final thoughts, wrap things up to see if anyone else comes through. As always, if you all would like to get in touch with Gabe or Alex, please reach out to them directly or reach out to us at M&A Source and we will put you in touch and I will give the floor back to you now.

Alex (00:51:29):

Yeah. I have a question for Gabe. Gabe, we didn't really get into the intro, but 10 years owning CapTarget, bought and sold a few businesses, family office, CFO, masters in accountancy, adjunct professor at San Diego State. So,

Gabe Galvez (00:51:47):

That's too much.

Gabe Galvez (00:51:50):

Got jacked over quarantine. That should be the lead on my resume.

Alex (00:51:56):

So a lot of different intersections. If you were sitting at, it looks like about 19 people left. If you were an M&A advisory right now, based on what you know, how would you be approaching this market during COVID and what are some observations that you see putting yourself in that seat?

Gabe Galvez (00:52:12):

This is a really good question to end with. And my answer is not particularly innovative, I think, but like running any good defensible business... Well, let me take a step back and say, investment bankers, M&A folks, and I was one of them, often end up in this like cobbler with children have no shoes, mechanic who can't change your own oil, kind of thing. They're great at identifying value, communicating value, finding good companies and uncovering all that value, but they do things that fundamentally inhibit the value of their practices, right? There's not a lot of M&A in M&A, and there's a reason for that. Because these companies aren't really worth anything once that MD with the great book retires. Obviously, there's exceptions to those rules, but little firms don't trade like little companies trade. Way easier for me to sell a 500 K EBITDA Roto-Rooter franchise than to sell a 500 K EBITDA M&A firm.

Gabe Galvez (00:53:11):

So we want to stay focused on doing things that keep our companies defensible, highly profitable and competitive. So the defensibility piece, I think, is the big takeaway is keep your costs low, keep your costs variable. M&A is such a volatile place to work. Conceptually, there's so many deals that don't make money, so much work that doesn't lead to revenue, sometimes huge amounts of revenue that aren't associated to tremendous amount of work. So we want to make sure that you're only carrying costs when you absolutely have to. And the rest of the time, don't worry about the pomp and circumstance that we were all raised with when we were in M&A some decades ago.

Gabe Galvez (00:53:57):

I also think we should always specialize. Boiling the ocean is expensive. It takes a lot of firewood. So when you say you're truly agnostic, you're essentially saying, I am opting in to competing with every single other firm in the market. And maybe you're okay with that, I don't know. But to me that seems like a step outside of what a really, a defensible competitive business should look like. So in this marketplace, being able to focus and being able to say... My business partner, [Paul Woods 00:06:33], who was the M&A manager at Constellation Group, some of you may have come across him over the years. His father is like the prolific, he's like 90 years old now, but was the prolific carwash salesman of the last 30, 40 years. Awesome, old school deal guy. He was one of these guys who you could say, "Look, nobody knows car washes better than Leon." He didn't know anything else, anything else. But he knows how to do one of these deals.

Gabe Galvez (00:55:02):

It's a great example of how specialization can build brand equity, can reduce the cost of processes because you're not tooling to do many things, better affect the use of your marketing spend because you have a finite audience, et cetera. So specialization is key. Keeping your costs low is key. And then specific to a tail end of COVID or even mid-COVID time from a little while ago, being able to service the buy and the sell side in a way that doesn't create resource conflict in your firm. You can still focus, but still work on both sides of that table. The buy side universe, which co-founded the buy side from that it's still very, very productive, has been for many years. It can be so lucrative when done right, but it's very hard to run a buy side firm unless you have a sell-side practice attached to it that's also productive because there's some opposing forces there. So try to eat both sides of the cookie, try to do it finite marketplace and try to do it with the least amount of cost commitments as possible to maintain a professionalized process and approach.

Gabe Galvez (00:56:25):

And lastly, just to wrap it up here, obviously you all can visit us captarget.com, plenty of information about the scope of services, plenty of opportunities for us to connect there, also a lot of content, a lot of best practices stuff, a lot of case study stuff, a lot of social proof from our customers who are really proud to work with. So feel free to dig in there if you have any questions. You can always reach out to Alex and his team at any point. They're very responsive. It's a very consultative process. So we are absolutely here to help and appreciate everybody's time. 10 years working with M&A Source has been awesome. Any of you guys who are new to the organization, you got a good crew here. There's some great resources that are available to you. Use them. Use us if there's a need and we thank you all for the time.

Kara (00:57:16):

Wonderful. Thank you. All right. I see it's wrapping up to two o'clock everyone. Gabe, if you have just a minute, we do have one more question that I'd like to make sure we're getting answered while I have everyone on. The question asks, what inputs do you need to prepare a CIM?

Gabe Galvez (00:57:35):

Got it. So our CIMs are largely questionnaire driven. So when we onboard you to write long form content, whatever we want to call it, not dissimilar to probably what you have your clients fill out, we have you fill out a questionnaire. By the way, if your clients have already filled out one, just give it to us. If you don't have a good questionnaire, white label ours, send it to your client, have them do the work and then send it to your ends. But we do need some structure of course to the storytelling, some fundamental data. If we have a data room set up, having access to that would be ideal, depending on the scope, editable financials are great if we're building a model in defense of a value or if we're doing a recast or something of that effect. Otherwise, they can be fairly simple, but most everything is driven off of that questionnaire.

Gabe Galvez (00:58:29):

And then what's typically a two or three iteration process over the course of building out that CIM where we'll design it, we'll get the questionnaire data in, we'll fill in the holes as far as industry, some of the storytelling. We'll ship that to you, obviously not complete. Get some feedback as to the data presented, the tone, the direction, the story, tighten that up. Do that one more time. The last one is usually more about design and small presentation elements, notes, et cetera. And then we ship it to you in editable format. You own it. You can change it. You can use the template if you want. Do whatever you want to do with it. You own it. But the data initial source will come from an onboarding call, a questionnaire that's mission critical, sort of a garbage-in garbage-out situation. So we need to make sure there's value in that questionnaire. And then an iterative relationship with an analyst that on a CIM could last two to four weeks, depending on the complexity of the output.

Kara (00:59:35):

Wonderful. Thank you. And thank you, Gabe and Alex, so much for joining us today. We really appreciate it. I know our members really appreciate it. I really appreciate these Tools of the Trade webinar also. It helps me to better answer our member questions. So thank you for talking in layman terms for most of this presentation as well.

Kara (00:59:57):

With that, we are going to wrap up our February Tools of the Trade webinar. Gentlemen, thank you. Thank you so much again. If anyone would like a copy of this presentation, we will have it converted in a few days and that will be up on the member portal and you can also reach out to us directly. If you have any questions for Alex or Gabe, please reach out to them or reach out to us and we will put you all in touch. With that we're going to-

Gabe Galvez (01:00:22):

Thank you, guys.

Kara (01:00:23):

Thank you guys so much.

Gabe Galvez (01:00:25):

Thank you so much.

Kara (01:00:26):

Have a great day, everyone. Stay safe. Bye, bye.

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