Ep. 205: Ryan Goral - M&A Strategy for SMBs

Count Me In®

Connect with Ryan: https://www.linkedin.com/in/ryan-goral/
https://www.gspiregroup.com/

Full Episode Transcript:
Adam:

Welcome back to Count Me In, the podcast focused on management accountants driving business forward. I'm Adam Larson. Coming up I speak with Ryan Goral about unlocking the full potential of small businesses through mergers and acquisitions. Ryan is the founder of G-Spire Group, a consultancy focused on companies often overlooked and underserved when it comes to corporate development services. When it comes to M & A, big companies all get the headlines. The reason is pretty simple. A deal worth billions of dollars will always draw more attention than a deal that's only worth millions. This focus has contributed to the perception among many business owners that they're simply too small or inexperienced to participate in M & A. Ryan explains why M & A is a strategic option relevant to virtually every business and highlights the critical role management accountants play in corporate development success. Let's start the conversation.

Adam:

So Ryan, I just wanna thank you so much for coming on the podcast today. We are gonna be talking about mergers and acquisitions today, and I was looking at the recent Bain and Company Global Report from 2021, and they were saying that the total transaction value for M & A was an unmatched $5.9 trillion in 2021. So it seems that M & A is on its way back. The last conversation I had about this was back in 2019 and it was much under that number. So maybe to start off you talk a lot about, in your business about the benefits of growing your business through mergers and acquisitions. So maybe you can start by covering what are the benefits?

Ryan:

Sure. Thanks for having me. Yeah, the, you know, companies can grow through acquisitions for a number of reasons and it's strategic, you know, really what is their strategic reason for growing through acquisitions? Yeah, trillions of dollars. I think the M & A market's been real, really red hot. You know, the market that I serve, I serve privately held companies that are on the, you know, 10 to 50 million in revenue range. So my transactions I'm typically working on is way, does not have a B or a T in the title. But I think that, you know, the last couple years we've seen a couple things that are driving M & A activity. One has been the historically low interest rates. So the cost of capital has been, you know, really, really attractive for a buyer to go out and secure debt and even equity for that matter to engage in transactions.

Ryan:

That would involve buying a company as part of their growth strategy. You know, and the various strategic reasons or I guess categories if you wanna call it that, that a company would really wanna look at as part of a growth plan that would involve M & A. You know, you see companies you know that I think talent is one, you know, that I've seen companies wanting additional talent and maybe the labor force right now, which it is, it's constrained. So a lot of these companies have all the work that they ever would want, but they'll have people in the labor to satisfy it. So, you know, growing through an acquisition to pick up key talent is kind of one strategic motivation. There's other kinda strategic reasons. One being size and scale from a cash flow perspective allows the company to, you know, invest more into other certain strategic initiatives.

Ryan:

So size also equates to sometimes more value. So if your company is trying to improve shareholder value, you know, size does impact that value. So you'll see kind of acquisitions as part of, I just want to get bigger and grow. I try in my practice, try to hone in the strategy a little bit more than just let's grow because you wanna make sure the acquisitions are aligned with that strategic importance. But the types of acquisitions typically see are you're buying a competitor. So that's kind of market share strategy. You see acquisitions that are maybe of a supplier, so you call that vertical. You're trying to, you know, own the supplier so you can enhance your own margins. You know, sometimes you'll see a geographic strategy where a company wants to grow into other geographic areas that are strategic for them. And making an acquisition in those kind of geographies is sometimes the right strategy.

Ryan:

And then, you know, really the last one that there's a number of reasons, but the other one that comes to mind is, you know, expanding your product and services to your customer base. So if you're, you know you've got one product, one service that you're offering, maybe your customer's constantly asking you for, Hey, do you do X, Y, Z? And you're like, no, we don't do that. Go talk to ABC company. Maybe it's a good strategy. Go buy ABC company so you can have another product service to offer your current customer base. So those are some of the strategic reasons that drive M & A. But I think the trend that you mentioned to start off here was you've got cheap capital and you know, as you get into bigger transactions, you see, you know, if a public company has, you know, a stock price that is historically, you know, very high, sometimes they're using that stock as currency, which is another driver of the activity.

Ryan:

So there's, there's a number of reasons, the amount of M & A activity that we've seen. And the last one that I've seen and more that's more in my market is you've got, you know, kind of an unprecedented amount of baby boomers retiring and their business is typically their biggest asset. So you're seeing kind of a transfer of wealth from one generation to the next that's occurring cuz there's a good amount of baby boomers that actually own privately held companies. So you're starting to see that activity happen and I think that's driving the market too.

Adam:

Yeah, so there's a lot of great benefits out there as you've just described. And so with somebody looking into, get into that, one term that I've heard is corporate development. So why would that, why would that matter? Maybe you can start by defining corporate development in terms of M & A and then why is that beneficial to develop to, to why does it matter as a small to medium size business in your getting into mergers and acquisitions?

Ryan:

Yeah, so corporate development is really more of a term that you'll see in larger companies. These are companies that have entire departments, corporate development departments, and they're these departments, sole responsibility is getting the company ready and then sourcing, closing and integrating acquisitions on behalf of the entire organization. So they are the M & A team of these larger companies. They're just called corporate development department. In my work I've seen, you know, that that service doesn't really exist for those smaller privately held businesses for a couple reasons. One, it's, you know, you can't, typically there's not enough resources to hire a full time corporate development executive, you know so, and then the other, the other reason why you don't see it much in the the smaller privately held company spaces, they're usually run by owner/operators. And these are folks that are really good at running their business.

Ryan:

They're really good at managing their employees and customers, and they tend not to have time or capacity to think about M & A and how other, you know, partnerships and alliances could be beneficial to them growing. So that's just a capacity challenge. And then there's a lot of these privately held businesse...