Scott Weavil Podcast Transcript
Scott Weavil joins host Brian Thomas on The Digital Executive Podcast.
Welcome to Coruzant Technologies, home of the Digital Executive Podcast.
Brian Thomas: Welcome to the Digital Executive. Today’s guest is Scott Weavil. Scott Weavil is the founder of Sierra Pacific Partners, a lower middle market investment bank focused on sell side mergers and acquisitions, advisory services. Sierra Pacific Partners functions like a real estate agent, but in a complex world of selling businesses rather than buildings.
Drawing upon a deep understanding of the complexities of business transactions, Sierra Pacific Partners acts as a trusted advisor guiding business owners through the intricacies of selling their companies. Scott began his career as a Wall Street M& A attorney working on multi billion dollar public company transactions and started Sierra Pacific Partners to provide expert advice and high touch service to lower middle market companies throughout the United States.
Well, good afternoon, Scott. Welcome to the show.
Scott Weavil: Brian, thanks so much for having me. I appreciate it.
Brian Thomas: Absolutely. Love doing this. And Scott, appreciate you jumping on a podcast from beautiful Lake Tahoe today. I’m in that cold, dreary Kansas City because of the time of the year, but just really do appreciate that.
It’s a big deal to me when I get to go across the state here, multiple states. So, thank you. Scott, jumping into your first question, can you share your journey from working as a Wall Street M& A attorney to founding Sierra Pacific Partners? What motivated this transition?
Scott Weavil: Yeah, for sure. So I think I started my career like a lot of young lawyers doing corporate work, mainly MNA on wall street, working on big public company deals.
And I thought, you know, I got to work with some fantastic lawyers and really see how transactions are advised and how advisors work on transactions at the highest and sort of. Levels with the most states, I mean, a public company transaction, pretty much everybody’s going to be sued. That’s a given by the plaintiff’s bar.
And so this transactions really have to be buttoned up from both a legal and a financial perspective. So I think that was a great experience for me. And then I briefly worked in Silicon Valley, which was also a neat experience. Largely, some of the deals are relatively large, 5, 100 million, but definitely smaller companies, private companies, startups.
So moved a little bit smaller there because I knew I ultimately wanted to start my own firm. So I started a firm called Weavil Law and we sort of focused on lower middle market transactions. So, you know, I think most people define the lower middle market probably is like deals between five and 150 million, something like that.
So we focused on that space as lawyers. And then sort of throughout that, I ended up meeting a client that could not find an investment banker that was a good fit for him. And I ended up sort of running an M& A process for him as a lawyer, you know, working as a lawyer, but sort of with an investment maker’s hat on running the whole process.
Really enjoyed it, enjoyed being more central to the transaction. Noticed that there was a gap in the market, like for sure. If you have a smaller business, there’s tons of fantastic business brokers out there. We probably need more, but there are tons of great ones out there to serve this more main street businesses.
And as you move up market, there’s certainly tons of fantastic investment banks to help truly middle market companies. You know, we’re talking about companies typically above. 200 million or so, 200 million to 500 million in enterprise value. And that’s what led me to Sierra Pacific Partners. We concentrate, I would say, on sell side M& A.
We do some buy side work and we also do a little bit of capital raising, but that sell side M& A is sort of our bread and butter, whether it’s either representing founders or search funds or smaller private equity groups for the most part.
Brian Thomas: Thank you. I really like the story. You’ve got got your feet wet as an attorney, Wall Street doing some big deals and you literally had to dot your I’s cross your T’s in that space, which is interesting.
And then, of course, you got some exposure out on the West Coast with Silicon Valley and working with some capital there as well. So appreciate the story. Scott, Sierra Pacific Partners is described as functioning like a real estate agent, but in the complex world of selling businesses. Can you elaborate on this analogy and how it shapes your advisory services?
Scott Weavil: Sure, I think in a couple of ways. So, I mean, you get all these fancy jargon words thrown around M& A advisors, investment bankers, you know, sort of fancy sounding, unapproachable terms, but essentially, just like a real estate agent helps you sell your house or your commercial property. That’s essentially what we do.
We help our acceptance that houses their businesses. So we’re helping our clients either sell a business. Buy a business or raise capital for the business, similar to real estate agents. Most folks in my role, we do earn the lion’s share of our compensation upon a successful transaction closing, which is again, similar to real estate agents.
I will say we have to be careful in not taking the analogy too far as you would expect for a lot of founders. When they go to sell their business, the closest thing that they do analogize it to is selling their home or selling a property because those are the biggest transactions they’ve been involved in to date.
I do think it’s important to realize there’s a lot of differences. We’re not talking about, for the most part, a physical, tangible asset that you can have someone check the title on and go do a physical inspection and if it clears those hurdles. You’re pretty much good to go. I’m sure I’m totally oversimplifying both residential and commercial real estate.
And I, I don’t mean to do that at all, but just, it is very different here because we’re largely dealing with an in something that’s intangible as opposed to a physical structure.
Brian Thomas: Thank you. And the analogy does help, believe it or not. I know you’d mentioned you kind of oversimplified things, but a lot of times we’ve got a
very diverse audience here. Some are technologists, engineers, and we’ve got physicians. So do appreciate that to simplify it really do appreciate. So Scott, you’ve emphasized that MNA is a process. And if you own the process, you’ll get results. Can you discuss the key components of this process and why they are crucial for a successful transaction?
Scott Weavil: Yeah, for sure. I think, you know, most of us involved in an M and a, whether it’s lawyers, we’re lawyers or list prone process driven people, I think at root anyway, but whether it’s lawyers or investment bankers, we’re big fans of checklists and sort of moving things through repeatable steps to hopefully get to a repeatable result that everyone is happy with.
So I think some of the key processes, you know, from where I sit. are years out from selling your business, right? You know, anything from five, five years out to six months, the more runway you have, the more you can do. But it’s time to sort of pull some key levers before taking your business to market. In other words, we need to clean up the financials.
You know, if you’re a larger company, perhaps consider them having them done at a reviewed level by the accountant instead of just a compiled level. If consider moving to GAP, generally accepted accounting principles, if that’s something that Whatever type of industry you’re in sort of admits if you’re a smaller business, tell your CPA, Hey, it’s time to start moving those tax returns from tax minimization to profit maximization, because that’s one of the first things buyers going to look at is say, Hey, you’re T you told me you made 2 million last year with a tax return shows a 10, 000 loss.
What’s going on. So that’s something to look at. Other things with runway. If you got some runway, obviously you’re looking to grow a buyer and the buyer’s financial backers are looking to see growth, not a decline. No over, we call it customer concentration. Generally speaking, you don’t want any more than 10 percent of your sales to be represented by a single customer.
So you want a diverse customer base. And one of the big ones for businesses of all sizes, honestly. Is you don’t want the business overly dependent upon the owner. If everything goes through the owner, some owners are actually very proud of that buyers are looking at this, like, Hey, you know, if I’m going to take that role as owner, first of all, that’s going to be a nightmare.
It’s going to be super stressful, but also. Post closing, am I going to be able to replicate what that owner did? So that’s sort of on the very early end. I think when somebody like me gets involved, we start sort of with the strategy. So we’re looking at, you know, how wide a net are we going to cast? Do you want me to reach out to 800 particular buyers?
Or is it, you know, you’re very concerned about confidentiality? And we want to reach out to buyers sort of in 10 buyer tiers at a time. So that’s one of the first things to look at. And often we’ll get called in, not just, Hey, I’m, you know, owner of XYZ incorporated and I want to sell, but also, Hey, I’m owner of XYZ incorporated.
And we just got an offer, Scott, can you go out and market test that? See if you can get us a better offer. And even if we do stay with the first potential buyer. Can you bring some competition into that process sort of to keep them honest. And so when we jump in with that, our first role is, you know, we, we develop marketing materials to sort of paint the story of the business and make it compelling to buyers.
We establish a data room with key information about the business, because the goal is when we go out to buyers. We want to do two things. We want to look super organized, like all the information that you would expect that a well run business would have. We want to have it. And we also want to have it so that we look like we’re being very transparent and not trying to hide anything.
Sort of quick overview. Once you go to market, typically what we would try to do is we’d reach out to buyers for a period. And then we would attempt them to get them on the same timeline, so they submit bids for the business at the same time. And then we would sort of pick among those bids who we would probably want to go further down the road with, sign an actual purchase agreement with to buy the business.
There’s all sorts of considerations there, right? Like, so there’s the purchase price. How is the purchase price paid? Is it up front? Is there stuff on the tail end that may or may not materialize is the highest purchase price from a buyer that we have doubts that they can actually line up financing and close the transaction that may say, hey, we should look at somebody else.
How are each of these buyers going to treat my employees? What are they going to do about my legacy post closing? So all those things sort of factor into that and sort of determine who we try to go down the road with the closing. And pretty frequently, especially with larger businesses, there’s going to be.
Stuff post-closing, meaning it’s pretty common that you may want the CEO to stay on. So the owner may, may stay on after closing, and they certainly may have some proceeds that are gonna be tied up and depend on post-closing results. So again, that’s stuff we sort of will talk about upfront because if you absolutely are only willing as the owner current CEO, to do a three month transition period.
That’s going to take some kind of buyers out of the running for your business, but it’ll make other buyers a perfect fit. So that’s a very quick overview of sort of what the transaction process looks like.
Brian Thomas: Thank you unpack quite a bit there, but certainly appreciate that gives me a lot of more insight into what you do, Scott, but also our audience and quite a bit there.
Obviously you, you covered about that process, that checklist, and it’s different. You got more lead time. That’s better. And of course you hope that you have a business you’re buying, that the owner is just not the sole focal point. And we talked about that a podcast with some other entrepreneurs. So appreciate that.
And Scott, last question of the day, looking ahead, what are your predictions? For the M and a landscape in the lower middle market over the next few years, are there specific industries you believe we’ll see increased activity?
Scott Weavil: Yeah. I mean, I sort of feel bad saying this because I’ve been saying the same thing.
I think everybody in my shoes have been saying the same thing for the best two or three years, but it is looking like. The, you know, with the interest, the cost of capital coming down, interest rates coming down, TE firms do have tons of overhang. So committed capital that they need to deploy that, you know, or otherwise their investors don’t want to be tied up if they’re not using that capital.
So we think things do seem to be, deal activity does seem to be increasing. It was very low in Q4 of 2024, but there’s high hopes for the 2nd half of this year. That’s sort of, I think for the slightly larger businesses, although if you haven’t been following the market, I mean, the smaller PE firms will do deals, you know, close to a million dollars or even under in some cases.
So PE firms can be good buyers. I would say for main street businesses, there’s something called ETA. You may have spoken about that on the show before, but ETA is entrepreneurship through acquisition. So it’s becoming very popular for folks to buy main street businesses. Coming out of business school or coming out of a first job or something like that, instead of taking a W 2 position.
So both those forces are creating additional exit opportunities. I would say, you know, as far as industries, well, first let me, let me talk about interest, right? So I think. Buyers are typically looking for, I mean, you could probably enumerate hundreds of criteria, but they’re looking for a mix of a business that’s downturn resistant.
So in other words, if it’s a need, not a want, that’s a good thing. They’re clearly looking for recurring revenue. I mean, I have this conversation all the time, like, Hey, we’re going to productize this, turn it into a subscription service. Do we get that revenue? You can count on every month. Buyers are typically looking for high margins, whether it’s a service or a product business that sellers or buyers are looking for cross selling opportunities.
So if you have a product or they have a product that your product or service fits well with, and they can sell them both together, that’s great. Buyers are typically looking for asset light businesses, particularly. I think in the lower middle market asset heavy businesses tend to suffer. I think a little bit on the valuation end, just because you don’t get quite as bit of a return on that capital.
And then also as always, you know, workforce retention and recruitment are huge. So you can have the best business in the world. That’s really poised for growth. However, if you just cannot find. Employees to work for you, that’s really going to inhibit what you can do. And obviously with, you know, we could go on with this list, like I said, but with every business, you’re not going to check all whatever 25 magic criteria, but you’re looking for a balance that works for you.
And I think as we go, you know, we take that list of sort of what buyer interests are, and we look at industries. You’ll see things like business services, right? Like, for instance, you know, that we see a lot of activity right now in the accounting space. And I think it’s because, you know, everybody, particularly in tax prep, right?
Because every single business out there, you have to file a tax return. So that’s going to be recurring revenue that you’re going to see every year. Those businesses. Sometimes have staffing issues, but you typically can staff them and they’re downturn resistant because filing that tax return is, you know, compulsory by law.
So that’s an example. You know, if you follow private equity at all, you’re aware of all the interest in HVAC companies and other sort of home services businesses again. That’s predicated on the same things. Those are all needs rather than wants. You know, if your pipe bus in your house or something like that, it’s sort of non optional to get that fixed.
In other domains, we see things like healthcare, I think is always going to be popular for the same reason. Healthcare does have some workforce retention issues. You have a highly trained workforce that you’ve got a lot of competitors competing to potentially draw those folks away from you. So that’s something to consider.
And I think also things like SAS. You know, software as a service has always been popular just because the margins are great and you do get that recurring revenue. So those are some examples, but there’s lots of different specific, I think segments that can check a lot of those boxes.
Brian Thomas: Thank you, Scott. And I appreciate that.
It really do. We’ve got a lot of investor types and entrepreneurs in the audience that love this type of information. And I like how you kind of differentiated the two types versus need versus want, uh, when it comes to things that might maybe be more of a solid company to, to invest in. So I do appreciate that.
Scott, it was certainly a pleasure having you on today and I look forward to speaking with you real soon.
Scott Weavil: Thanks so much, Brian. I appreciate it.
Brian Thomas: Bye for now.
Scott Weavil Podcast Transcript. Listen to the audio on the guest’s Podcast Page.
