Considerations for Sell-Side Transactions

Cameron Wood: 

It's good to be here, Elana. Thank you for having me. 

Elana Margulies-Snyderman: 

Absolutely, Cameron. So, to kick off the conversation, tell us about your background at Northborne Partners. 

Cameron Wood: 

Sure. I come at this a little bit from a little bit different perspective than most investment bankers. I spent the first 10 years of my career as an M&A lawyer before joining Northborne in 2021. So, I started out at a larger firm in New York called Cleary Gottlieb, where I kind of started in corporate transactional law, and by the time I left there I was doing mergers and acquisitions exclusively. I moved back to Minnesota in 2014 to continue my legal career at Dorsey & Whitney in Minneapolis where I became Partner in the M&A group there. And that's where I met a number of the folks who started Northborne when they were at Greene Holcomb Fisher, which was a boutique sell side investment bank similar to what Northborne is that existed in the early 2000s until they sold to BMO Capital and became a larger part of that bank. And a group of those bankers decided to move back to the boutique investment banking model and that's when they started Northborne in 2021 and that's when I joined them. So, what's interesting is for the five founding partners were also M&A lawyers. So, for me it was a good transition, it was a good opportunity to join a group of folks who had a similar background as me. And I really think it's an interesting aspect of our bank generally. We have folks from different backgrounds, lawyers, accountants, and those experiences are really beneficial to us when we represent our clients in an M&A process. Those clients are mostly founder, family-owned businesses, so it's useful for them to have an advisor that understands all aspects of a deal. I'm no longer a lawyer or providing legal advice, but the fact that I've been there and done that can be very helpful to our clients when we get to that point of a process. So that's Northborne in a nutshell in my experience. 

Elana Margulies-Snyderman: 

Cameron, as we're recording this podcast, it's definitely a very interesting time for what the landscape for dealmaking looks like amid the recent news of Trump's tariffs. So, I would love to hear your top-of-mind thoughts. 

Cameron Wood: 

Interesting is one way to put it. A few weeks ago, I think my answer would've been different than it is now, and it might be even different from the time this airs, but it's definitely a dynamic situation. And bottom line is no one really knows what's going to happen. In M&A generally, one of the hardest things to deal with is uncertainty. And I think right now there is a lot of uncertainty. Going into this year, there were a lot of positive trends in M&A. I think 2024 was a tough year to get deals done. I think a lot of those factors behind that have been lifting, interest rates that were lowering, access to capital is improving. From our perspective buyers, particularly financial buyers, private equity seemed to have growing appetite to acquire new platforms. So, all those were very positive. And obviously the current geopolitical situation, tariffs included it makes it a little tougher. But when we think about when is the right time to sell your company, which is often a question we have and a discussion we have with our clients, we boil that down to four distinct sub-questions. The first is, what is the right time for the owners? The second is, what is the right time for the company itself? The third is, what is the right time for the economy? And the fourth is, what is the right time for buyers? And three or four weeks ago, I would've said the impact of tariffs is really limited to that second question, the right time for the company. And what I mean by that is as long as it doesn't have a direct negative effect on you, you're sourcing things domestically, you're a service provider, then I would suspect it won't impact the M&A process. Now it's a little harder to tell. As the impact of this grows, you're starting to see the breadth of those tariffs and what's happening in the global market impact the third and fourth questions, which is it the right time in the economy? Are things just generally becoming sluggish? And really the final question, is it the right time for buyers? Is there an impact on capital? Are lenders going to start pulling back just generally because of uncertainty? Will that impact valuations? So those are questions that are really starting to come up over the last week or two and not quite sure where that's going to end up yet. What I will say is we're not pulling back on any of our deals. Our clients whose companies are still performing well, those transactions are still moving forward and I expect that to continue to be the case. 

Elana Margulies-Snyderman: 

Cameron, more specifically, given your focus on food deals and asset light industrial transactions, I wanted to hear your outlook on dealmaking in these sectors going forward. 

Cameron Wood: 

Yeah, food is interesting because that's an area that is continuing to grow. It's not, for the most part, discretionary depending on the company. And so I think it can be seen by a lot of buyers as a safer investment. So, if things really go south with the economy, you might see even more interest in certain food companies. Over COVID, food had a lot of swings because there were restrictions in place. For a while, the food service industry that supplied restaurants and people eating out was heavily impacted because people couldn't do that and then that rebounded and things switched over. But food in and of itself has always been a category where people are interested in investing, even if there's uncertainty in the economy. And I think, I expect that will continue to be the case and it might shift based on the type of company it is. Setting aside the current market environment, I would say we have been seeing a shift toward a lot of interest in private label manufacturing, for example. Not just branded products, but people who make co-manufacture or make private label goods for larger companies. And anyone who kind of services the food industry, whether it's food equipment, transportation, logistics around food, especially things that are kind of asset light in nature where buyers will see less risk in it and margin compression. So those are the type of trends I think will continue. Again, it's hard to tell where things are going, but of all the industries we do, I do think food will continue to be an area of interest for buyers, particularly certain sectors of it. 

Elana Margulies-Snyderman: 

Cameron, where you sit in Minneapolis, obviously that's a unique place for dealmaking and would love to hear your thoughts and some trends you see where you sit. 

Cameron Wood: 

Yeah, Minneapolis is, people on the coast view it as flyover country sometimes. They're surprised by the number of businesses that are here. You have a lot of large Fortune 100 businesses, Fortune 500 businesses headquartered here. But you also see a lot of dynamic small businesses, family-owned founder businesses that are based here across a variety of sectors. Food is obviously one of them. We have General Mills, Land O'Lakes, and then a lot of smaller companies. But then you also have one of the other areas our firm focuses on is health care. And so, you see a lot of really interesting health care companies based here and industrial and manufacturing generally. And I think investors like Midwest businesses. I don't know, I think maybe it's just the hardworking nature of, maybe that's a cliche, but I do think there's some truth to it. And the economy continues to be strong in Minnesota and in the surrounding states, so we feel really good about it. Our firm has a national focus, but we do do a lot of deals in this area just given, we just know a lot of people here and it's a great place to do business. 

Elana Margulies-Snyderman: 

Cameron, you have a unique focus with sell-side transactions, and I would love for you to share some best practices when it comes to sell-side transactions for clients. 

Cameron Wood: 

Absolutely. I think I have a unique perspective as a former M&A lawyer as well, and one of the common pitfalls I see with transactions is a lack of preparation. And that means not only when a deal starts, but even before a deal starts, I'd love to have conversations with business owners two, three years before they're even thinking about selling their company because there's a lot you can do in that period, whether it's estate planning, whether it's commercial things that might not look good to buyers that you can fix because you have enough lead time. It could be legal issues; it could be accounting issues. There's things that I think are handled very well if you do it far enough in advance rather than wait for a process to start. When we start a process, we usually tell our clients it's about six months and there's a lot you can fix in that time period, but there's a lot you cannot and that could impact deal value. So, preparation, starting to have conversations with advisors even before you begin the process, I think is critically important. And then once you start a process, I think it is getting out in front of any potential issue you can see whether those are legal issues, accounting issues, it's really your chance to do internal diligence before buyers do their diligence. Because if something is coming up for the first time when a buyer brings it up, you'll be on your heels, then that could potentially impact the process. Once you've started to reach out to buyers, what we like to say is you're on the clock and once you're on the clock, you don't want to slow down. You want to move efficiently and make sure things get done. And the more you can avoid something coming up that you're not aware of, the better for that reason. The other thing to really think about is who you're hiring as an advisor, not only as an investment bank, but the other critical advisors through a process are lawyers and accountants. From a legal perspective, you want to hire someone who is skilled in M&A, who's an expert in mergers and acquisitions, who's not just a general corporate attorney or the person who's been doing your contracts but does a lot of other things too. You really want someone who knows the M&A process in and out and in the same way an accountant, we're seeing it be almost standard these days for a seller to do a sell-side quality of earnings report for example. And you want to hire an accounting firm that specializes in that, that knows how to do that. It's very different than, for example, preparing an audited financial statement. And those types of advisors are critically important throughout a process in addition to your investment bankers. So those are things to just think about before going into a process and to know about. 

Elana Margulies-Snyderman: 

Cameron, let's touch upon the due diligence process and would love to hear some considerations from that end that people undergoing transactions need to think about. 

Cameron Wood: 

Absolutely. I think it goes to the previous answer I just gave, which is you really want to dig in early as you can and as thoroughly as you can before buyers are doing it themselves. You can't always avoid things coming up that you weren't aware of, but the more preparation you do in advance, the better you'll be able to handle those issues if there are any. What we normally like to do is to get lawyers involved early in the process, even while we are still preparing marketing materials before we've reached out to buyers and really identify any potential legal issues and think about if I were a buyer, what would I be concerned about here? The reason for that is you want to have those things negotiated before you've narrowed down your universe of buyers to one. We'll typically structure our deals as an auction, so we have multiple buyers at the table, and once you're down to one buyer, you lose a lot of your leverage. So, if there's a particular legal issue that's come up and a buyer wants to address that in some way, whether it's indemnification, whether it's a holdback from the purchase price, you have much more leverage in negotiating that before it becomes a one-on-one situation. The other thing I'll say is the advent of rep and warranty insurance has streamlined negotiation of purchase agreements quite a bit, but it does not eliminate the need to due diligence. What some owners don't realize is that insurance will ensure things that are unknown. If something becomes an unknown issue, it's not insured and buyers will tend to look for other ways of getting indemnification for that. In diligence, it is still very important for that reason, and you want to be able to get in front of those issues and negotiate them. 

Elana Margulies-Snyderman: 

Cameron, we've covered a lot of ground today and wanted to see if there are any final transaction recommendations you would like to share with us. 

Cameron Wood: 

Absolutely. So, we've talked about timing, we've talked about preparation, we've talked about hiring the right advisor. Those are all critically important. Another thing I'd just like to discuss with clients, especially founder and family-owned businesses before a process is to just keep perspective. I've never had a client tell me after a process is done, "Wow, that was a lot easier than I expected." It's generally much more challenging than they even anticipate and deal fatigue can set in and that's where you really have to lean on your advisors who've done this before, who know what is the real issue, what's not, who know when to lean in on something and when not to. So, to keep that perspective and really trust your advisors throughout a process is really important. Right now, from a timing perspective, we talked about the four questions of when is the right time to sell your business? Before the current situation, I would've said M&A market is getting much stronger. We'll just have to see how the next few months play out in the economy, but I'm hopeful there will be a soft landing, and we'll get some clear answers as to what the rules of the road will be moving forward. Like I said, uncertainty is one of the biggest issues in M&A, and once we see how things play out, I'm confident that business owners who want to sell their company, who are ready to sell and whose companies are doing well, that there will be a market for it. 

Elana Margulies-Snyderman: 

Cameron, I wanted to thank you so much for sharing your perspective with our listeners. 

Cameron Wood: 

Thank you for having me. 

Elana Margulies-Snyderman: 

And thank you for listening to the EisnerAmper podcast series. Visit eisneramper.com for more information on this and a host of other topics, and join us for our next EisnerAmper podcast, when we get down to business. 

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