David Ogurek: M&A Due Diligence and Analysis

Craig Castelli (00:06):

Welcome to The Close M&A Podcast with Caber Hill Advisors. I’m your host, Craig Castelli, and today my guest is my good friend Dave Ogurek. Dave is a Director here with us at Caber Hill. He is also our resident, boots on the ground in the Phoenix market. And I think Dave’s greatest distinction is you are our first real full-time hire joining us about five months [00:00:30] into the launch of the firm. So I’ll ask you the big question on everyone’s mind. Why are you still here?

Dave Ogurek (00:37):

Great question to start, Craig, and thank you for having me. It just boils down to, I’ll just be blunt. I love what I do and I love what we built, and if you can remember that first day of me and you sitting shorts and shorts and T-shirt and flip flops in your kitchen with our laptops. And that’s where this evolution began. [00:01:00] And we were doing one or two practice audiology groups and now look what we’re doing. Built out a huge team, doing really big deals with private equity and large strategics, and we really just grown. And frankly, working with the business owners, we’re providing them a service that they really can’t do themselves. It’s very rewarding to help them out, to transition their business, protect their legacies, [00:01:30] and give them anything else they need. Coming from corporate, there’s no turning back at this point. I just love what we do and love what we built.

Craig Castelli (01:42):

Yeah, I can second all of that. And your corporate comment is interesting because I wouldn’t trade my corporate experience for very much. It gave me a lot and it really helped me in many ways get me where I am today. But this path is a lot more [00:02:00] exciting and rewarding. It’d be tough to go back.

Dave Ogurek (02:03):

Right? I’m not going anywhere. We’re good as long as you have me.

Craig Castelli (02:08):

Yeah. Hey, you’re not going anywhere if I can control it. So in seriousness though, you have led our support team from the inception. You’re the guy who really sees how the sausage is made here at Caber Hill. Tell us and tell the audience what’s the key to your and your team’s success?

Dave Ogurek (02:27):

Well, I think it’s two things. One [00:02:30] is consistency and the other one is evolution. So first off, I have a wonderful team. I have a senior associate and two associates. A couple of them have been with me for four years now. And really training them and watching them grow has been just a value add for the firm. And so on the consistency side, as you may know, all of our managing directors have different personalities and different work styles, [00:03:00] but we try to keep the process consistent from that beginning of an engagement all the way through launch, all the way through diligence, everything. We try to keep that consistent at least, and there’s going to be some nuances to every deal, as we all know, but trying to keep everyone on the same page. So not that it’s exactly cookie cutter, but we at least can follow a same process for each deal.

(03:30):

[00:03:30] And then the evolution part is, one thing I stress to the team is we’re not a firm that’s, “Oh, this is the way we’ve always done it. We have to do it this way.” It’s like we learn from every single deal that we engage in and we take best practices from every deal that we engage in and we apply that to our process. So we feel like while we think we’re good and we feel like we’re good with our process, we’re always willing to learn and adapt and add new things [00:04:00] to just even make us better and more consistent.

Craig Castelli (04:04):

And I think that last part is it is crucial. It’s crucial for our growth. It is crucial for new hires who are considering coming here or someone else—take Kendall, our newest hire, for example, she’s been with us all of six weeks at this point, but she came from Barclays. There has to be something that she learned working there that they did, whether it was just structurally or in training or in delivery or [00:04:30] some aspect of what a large global investment bank does that’s better than what we do that we can replicate and apply to our business. If you didn’t take that approach and how you led your team welcoming that feedback. And we might miss out on some of those opportunities.

Dave Ogurek (04:46):

And I told that, I told her that before she even started. You have experience in the bulge bracket. Anything you see, anything during any of our [00:05:00] files, templates, process, anything, feel free to speak up. And she’s been great so far. She’s, she’s fit right in with the team and as you know, Sam and Marty are cranking away as well. So yeah, we have a great team and looking forward to continuing supporting the firm and growing with the firm.

Craig Castelli (05:21):

Yeah. So let’s talk about you a little bit more. So you started off, you’re in corporate finance for a small local manufacturing business, then you move [00:05:30] on to a very large bottler for PepsiCo that ends up getting acquired. From there, you move into due diligence and an M&A team for a large publicly traded strategic putting a roll up together in the audiology space. How do you think all these various roles prepared you for what you are doing here today?

Dave Ogurek (05:52):

Well, in the first two roles, I mean, I think that gives me that financial base because how [00:06:00] I view the businesses is through the financial eyes. I look at the financial statements and I, instead of just A minus B equals C, it’s more of what story do these numbers tell? And that is essentially my value add to the firm and having that financial base and frankly working in corporate and just understanding [00:06:30] how that goes. I had multiple different roles at Pepsi, probably about four or five roles in about eight years. But taking that transitioning to phone act, connect hearing in the audiology space, doing more modeling diligence, learning more of the operational side that kind of was filling in, keeping that financial base, but then filling in some other areas where you get [00:07:00] to learn more about really the nuts and bolts of a business.

(07:03):

And then taking all of that and transitioning over here to Caber Hill. I mean, I use all of that every day, whether it’s looking at financials, doing evaluation, leading diligence, really anything else, doing some ad hoc modeling when something comes up, reading purchase agreements and LOIs and how they’re structuring [00:07:30] things. And so it is just really, and I feel that having that it’s easier to learn the deal side of things and having that financial base than doing the other way of knowing the deal and sales side of things and then trying to learn the financial piece. So doing it in that progression has really helped me understand more about these businesses and being able to assist by telling the story through financial glasses.

Craig Castelli (08:00):

[00:08:00] Yeah, I mean there’s no question that you have to know at all in order to do this job at a high level, you have to understand industries and trends. You have to know how to sell, but you also have to have that financial acumen, which gets harder and harder to learn if you don’t have that base that you’ve built. But I also think you bring up something interesting, which is the experience in the buy side and your ability to then translate that to the sell side. One thing we talk to sellers about all the time is you have to think about, [00:08:30] you have to be willing and able to look at your business through the lens of a buyer. That’s going to be critical to preparing your business for sale if you really want to maximize the outcome in a transaction. But it’s also going to be critical to making it through that transaction. You don’t have to necessarily agree with the buyer’s perspective every step of the way. You can still present yourself in the best light and sell the hell out of what you have to offer. But if you don’t have any glimpse or any appreciation for [00:09:00] as a perspective too, then it just creates a lot of challenges.

Dave Ogurek (09:04):

No, that’s spot on. Exactly.

Craig Castelli (09:08):

So let’s just double click on the due diligence element a bit here. You’ve talked about that a few times, and obviously it’s one of the more painful parts of transactions for everybody involved, but especially the sellers who may be going through this for the first and only time in their entire lives. So what recommendations would you make to business owners to make this [00:09:30] process and this whole experience less painful? We know it’s not going to be pain-free, but what can you do to make it less painful?

Dave Ogurek (09:38):

I mean, if we can get in there early and have those first conversations even well before an engagement starts, we kind of lay out some things to prep for. This isn’t just financial related too, it’s like start gathering. They’re going to ask for some contracts. They’re going to ask for your leases. They’re [00:10:00] going to ask for the employee handbook, your articles of incorporation, just anything that you may have in a file cabinet that hasn’t been touched since 1992.

Craig Castelli (10:11):

A literal file cabinet depending on the age of the business.

Dave Ogurek (10:12):

A physical file cabinet. Yes. So we try to get them prepared well ahead of time. And since we’ve gone through this process so many times, we prep them even before diligence happens, even before [00:10:30] they sign that LOI. And the buyer is just like, Hey, here’s a list of 200 things we need. We already know a majority of what they’re going to ask for. So we work with them over time and we kind of break it into pieces so that it doesn’t get overwhelming because guess what, they still have a business to run too. They can’t just stop what they’re doing and pull leases for days on end. So we try to break it up for them to make it easy so that when we do get that diligence list, we’re [00:11:00] like, Hey, guess what? 75% of it’s already done. It’s in our data room. It’s all organized. We’re ready to go and whatever’s left, let’s just knock it out and go from there.

Craig Castelli (11:13):

Yeah, well, that point about still having a business to run is critical. It’s a critical aspect of why they need help, but it’s also a critical aspect of why they need to be organized and advanced and well prepared for what they’re getting into.

Dave Ogurek (11:26):

Right.

Craig Castelli (11:27):

So you’ve been doing [00:11:30] diligence now for what, close to two decades. I don’t want to age you, but long time here.

Dave Ogurek (11:36):

Let’s split the difference. 15 years.

Craig Castelli (11:38):

Fair enough, fair enough. Any horror stories to share beyond just the usual, oh, the numbers change or this and that, but anything really crazy that is appropriate to share with this audience?

Dave Ogurek (11:51):

I got a good one. I’ll try to make it age appropriate here. So my first solo diligence trip when [00:12:00] I was at the audiology company had to go down to a state in the southeast. I’ll try not to be very specific. I had to go down to a state in the southeast and was performing my normal diligence. I was in the back room going through papers and financials and bank statements and just noticed the owner was acting a little odd, very nice individual, but was just acting odd. And he disappeared multiple times into the bathroom throughout the day, like upwards [00:12:30] of 10 to 12 times and would come out just acting a little weird. So warning bells are going off in my head, and I’m like, God. So then I get to the bank statement, and if you look at the balance sheet, they had over 200,000 in cash on the balance sheet, looked at the bank statement, and I was finding withdrawals of 5,000, 10,000, 10,000. And then it hit me. I’m like, that money is going up the individual’s nose. [00:13:00] Oh boy. Yeah, that was a quick, Hey, I need to go make a phone call. I stepped out, called the head of business development at the company, explained to him what I suspect, and he’s just like, just kindly pack yourself up and leave. And we did not move forward with that purchase of that location.

(13:28):

Pray to God the guy’s okay to this day. [00:13:30] But yeah, that was how I started my onsite diligence career. So let’s just say everything was better after that.

Craig Castelli (13:41):

It is, I don’t want to say it’s funny because it’s a horrible experience to have to go through and terrible reason for a deal to fall apart would be putting it very, very lightly. But when we talk with sellers about the reasons they could potentially be terminated [00:14:00] for cause post-sale, let’s assume it’s a business when they’re critical to the business, like healthcare, they’re a doctor, they’re seeing patients, they’re staying on for the long-term. Post-sale and termination is always a big part of the negotiation process. What can I and can I not be terminated for? And what happens if I am? I always literally use the line, as long as you’re not doing drugs in the office or these handful of two or three or four really, really egregious things, you’re going to be fine. Nothing’s going to happen. And [00:14:30] lo and behold, you were the one example of seeing somebody when that was actually happening.

Dave Ogurek (14:35):

Yeah, it was an interesting visit. Let’s just say I took an early flight home.

Craig Castelli (14:43):

So another part of your role involves valuation work. So we have a valuation practice, small part of our business, but still an important part for those that have the need that we serve. And a few years ago, you became accredited as a CVA. So [00:15:00] tell everybody what does it mean to be a CVA and why should somebody who’s seeking evaluation care, why should they care about A CVA performing it versus someone else?

Dave Ogurek (15:10):

Well, it was actually a great program and great experience to go through. So CVA is a certified valuation analyst and it’s sponsored by the N-A-C-B-A, which is the National Association of Certified Evaluators Analysts. So essentially, in theory, anyone with [00:15:30] a financial background that understands valuation methods can do a valuation, but this gives it that extra stamp of approval that you have an accredited individual who has performed this valuation for your business. And we’re not exactly out there seeking valuations that may end in litigation or arbitration or whatever, but if that came to fruition, having [00:16:00] an accredited CBA, I’m allowed to move forward and defend the valuation if I had to go to court or if I have to fight with other lawyers, which I’ve had to do on certain a handful of occasions so far. But it kind of gives that additional value add to the firm here where if you’re talking with that business owner for the first time, they may not [00:16:30] know what their business is worth.

(16:33):

Sure, we can do quick and dirty valuation for them, which is easy, but they may want something a little more tangible that they can take to their wealth manager, their estate planning attorney, or whomever else where I can put together an actual N-A-C-V-A certified report for them where they can be like, Hey, Caber Hill said my business is worth X. Hey, wealth manager, [00:17:00] can I retire on this? What does my plan look like if I get this? It gives them that extra sense of satisfaction and comfort that they have something from a certified individual that they can use to make informed decisions about the future of their business.

Craig Castelli (17:21):

I don’t need a CVA to tell you what a private equity firm may pay for your business. If I know your market and you tell me your financials [00:17:30] or we dig into the financials, if we’re taking a step further, we can give you that verbal valuation range. Here’s roughly what it sells for. Here’s roughly how the deal is structured. But if you’re going through an estate planning exercise, you’re transferring shares or could be transferring shares to family members, could be selling shares to employees. It’s that air of credibility, especially if [00:18:00] anything’s being presented to a lender or a potential investor, but also that defense in the case of the state planning against anything that the IRS might look into.

Dave Ogurek (18:10):

Right? I mean, as you know, I’m working on one now where eventually the owner is going to exit the business, but it’s someone local here in Phoenix and they’re also wanting to gift some of the shares of the business. So doing this, kind of looking at this in two sets of stages here, stage one is just let’s do a valuation [00:18:30] for the business for the purpose of gifting shares. That is one bucket. And then eventually when the owner is ready, hopefully we’ll transition to the second stage and work on the actual business piece. But the valuation’s going to be different because like you said, we don’t put list prices on our engagements When we take someone to market, we let the market determine and we do our homework and we know [00:19:00] what the range is that businesses are going transact for.

Craig Castelli (19:05):

Different points in time, different purposes, single valuator determining value versus market forces determining value, wildly, wildly different approaches. And I’ll make sure at the end you give your contact information if anybody wants to unpack even further all the different nuances in valuation because it really is an art and a science, [00:19:30] but there are stages of business ownership when it can be crucial to have the company value. So let’s kind of fast forward to the other part of your job today, which is you relocated to Phoenix a couple of years ago. You are helping Caber Hill build out a presence in that market, which we really hadn’t covered prior to you moving there. What excites you the most about the opportunity?

Dave Ogurek (19:57):

It’s purely organic for us. And [00:20:00] I mean, one thing about this area, there’s been just such a population explosion from other states. So the fun part is when you meet people, I learned very early on, you always ask, so where are you originally from? And very rarely you’re going to get a native Phoenician at this point, but just in the business world, people have come here over the last anywhere from two to 10 years, or you’ll get the folks from the Midwest that went to U of A or ASU [00:20:30] and just never left. And that’s a common story we get here. But really this is a prime market for that lower middle market where we sit and a lot of healthcare, I mean, there’s a lot of retired individuals out here that need healthcare. So the amount of healthcare out here is insane. And plus you’re not going to have your multi-billion dollar public companies based [00:21:00] here.

(21:00):

You have a lot of businesses in the industrials, construction facility services space that are in that lower middle market anywhere from $20 to $300 million in revenue. And that is right in our wheelhouse. And just really getting to know those folks out here, I say, I always say the folks that are one degree away from a business owner, so those will be your wealth advisors, financial [00:21:30] planners, M&A attorneys, fractional COOs and CFOs, anyone who gets in the weeds with that business, and I brand us as the liquidity folks, where say a wealth manager has a business owner client. And that conversation finally comes up where it’s like, what do I do? How do I get out? Having me as a resource for them? [00:22:00] I may not have that client on a silver platter for that wealth manager, but I can assist them and their client by helping them sell it.

Craig Castelli (22:09):

And it seems like the market’s been underserved by investment bankers, which is a little counterintuitive. I mean, it’s a hot market for investment and growth that you have a lot of these lower middle market and middle market companies that make up what we call the real economy of the U.S. Yet you [00:22:30] meet people all the time that say, I don’t know anybody locally who does what you do. Why do you think that is?

Dave Ogurek (22:37):

It’s interesting. I mean, years ago, a lot of people here made their money in real estate, and I just bought a house earlier this year and definitely feel that a little bit, but the real estate market boom here. So there’s a lot of people sitting on money. But when it comes to an underserved market, it’s interesting because you’ll see in [00:23:00] the bigger cities like LA, Seattle, Chicago, New York, Atlanta, there’s going to be a lot of competition because there’s just a lot more businesses. There’s still a lot of businesses here, but there’s very few. I have very few competitors here. I know who they are. They’re great people. They do some great work, but at the same time, there’s just not a lot of ’em. And I do meet a lot of people where they’re like, oh yeah, I know a lot of business brokers [00:23:30] and I love business brokers. I have some great ones out here I referred to for some deals that just may be a little too small for us, but I get some M&A attorneys and be like, oh, I don’t know anyone in your space. And I’m thinking, I’m like, okay, well, I must be doing the right thing. And we’re here to serve that market.

(23:51):

And you do get a lot of, it may look like some businesses have presences out here, but they’re really [00:24:00] based in another state and they’re founding partner bought a house here in Scottsdale, and they say they have a Scottsdale presence, but they really, really don’t. Just someone is physically here. Whereas in the last few years since I moved here, we’ve really created a brand out here of Caber Hill is where we’re now getting recognized and we are getting a lot of inbound referrals at this point in the local Phoenix market.

Craig Castelli (24:30):

[00:24:30] Well, we built the firm to fill a void in the market, and that wasn’t really with a geographic intent at the time, but if this is another way that we can fill a gap, then we provide an necessary service. So Dave, last question here. Give us a piece of advice for the business owners and the audience that they may not hear somewhere else.

Dave Ogurek (24:55):

I mean, it’s really hard, but I can’t emphasize [00:25:00] the be prepared and get ready for the ride. And a lot of people do not think of that stem the sale. Two questions I like to ask business owners early on is one, assuming they’re not a Hawaii based company, if we send you to Hawaii for two weeks and we take away your cell phone and you can’t contact your business, will your business still be there when you get back? And with that, you get two answers. You get the No, [00:25:30] I’m the business. I do everything. I’m this, I’m that. I wouldn’t say, I don’t want to use the word problem, but it kind of is a problem. They need to kind of peel that back a little bit. Give the reins to someone else because you can’t be the business and then sell the business. Then you get the other answer and be like, oh yeah, I have a great management team.

(25:49):

They’re fabulous. I check in once a week. Maybe I’ll have lunch with a client every so often. But no, I have a great team that runs the business. Those are [00:26:00] the ones we like to hear because those are more easy to sell. But the other question I ask is, okay, you’re going to sell your business. You started this business when you were 28 years old, you’re now 65. This is what you’ve done every single day for your entire life. You’re going to stay on maybe for about six months to help transition. On day six month and one day you wake up, what are you doing? You will 99% of the time get deer at headlights because they have not thought about that [00:26:30] next step after retirement events. And we see a lot of ex-business owners become fractional individuals where they still want to be involved.

(26:42):

They’ll do some consulting. They may take a six-month role at a business here and there. I mean, I just went to my local HOA board meeting. These are all retired ex-business owners who sit on the board. I mean, just random things like that to keep themselves occupied. But [00:27:00] I think that’s so important for business owners is what are you going to do when you transition your business? And it’s scary to think about, but if they wrap their head around it, if they get their family involved in that decision too, and really have that plan for what happens after the sale that will make this process more comfortable. Not that it’s not going to be scary to them to sell the business, but it’ll make it a [00:27:30] lot more smoother at the end of the day.

Craig Castelli (27:33):

Yeah, and you’re right. These are things that business owners aren’t thinking about that often as they’re in the weeds running their business, the answers are always telling. There’s usually something there. And I think on the first question, it’s interesting too because business owners these days are used to being coached certain things, and one of those things that they’re being coached on is it’s more valuable to be less directly responsible for the success of your company. [00:28:00] So they may at the outset come out and say that, oh yeah, the business can run without me. It’s fine. But you can pressure test that with a few questions pretty easily.

Dave Ogurek (28:09):

Right? Yeah, you get a lot from those two questions just to start the conversation.

Craig Castelli (28:14):

For sure. Well, Dave, this has been a lot of fun. I think we’re going to wrap here, but before we go, if anybody listening wants to get ahold of you, where would you send them?

Dave Ogurek (28:23):

Well, caberhill.com to start to learn about the firm. But my email is David@caberhill.com [00:28:30] and I kept the 8 4 7 number and my number is 8 4 7 6 5 1 8 7 2 0. Give me a call, shoot me an email, and we’ll talk valuation and business.

Craig Castelli (28:42):

You can hit up on LinkedIn as well. So Dave, thanks a lot for joining here and thanks everyone for listening to us on The Close.