Dealquest 284 - Stephen Speer - FINAL AUDIO EDIT
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Corey Kupfer: [00:00:00] Stephen Spear is the founder and CEO of e commerce lending, a firm specializing in financing acquisitions, advisory and search services in the online space. With a lending career spanning decades, Stephen and his team have utilized their expertise in assisting hundreds of entrepreneurs in achieving business acquisition success.
As an e commerce lender, guest speaker, and M& A instructor, he and his firm have funded over 500 transactions totaling over a billion dollars, making them the top lender in the country in this very specialized niche. Stephen, welcome to the DealQuest podcast. Rory, thanks for having me. So listen, I definitely want to get into the, all this, conversation that you buy raises around, financing, lending and acquisitions and the niche that you're in.
But before we do that, I want to take you back to when you were a little kid growing up, maybe 10, 12 years old. What did you want to be? Because I'm guessing that, a specialty niche lender and an M& A guy wasn't it back [00:01:00] then, but you tell me.
Stephen Speer: I wanted to be third baseman for the LA Dodgers.
I grew up in Southern California and, I was in the Dodgers fan club and that's what I wanted to be. But, and then reality set in, I wasn't necessarily very good at baseball, although I have a strong passion for it, to this very day. But, I always enjoyed business and especially marketing and really and I guess for lack of better term sales and helping other people.
Corey Kupfer: Love it. Yeah, it's interesting how many of us had sports dreams at that young age, isn't it? Quickly, realized that wasn't, it wasn't going to be through it. Good stuff. One other question, looking back, what was your first deal of any type? It could have been something, you know, when you were younger as a kid or could be early in your career.
Anything that's a deal that you remember.
Stephen Speer: Interesting question. You know, a very young age. I always liked cars from very young age and I, and I'm kind of a neat freak. So I always liked clean cars. Okay. So way [00:02:00] back in the early 80s, I started my own car washing business and I would wash all the neighbors cars.
And That kind of evolved to, to detailing in the early days before anybody even knew what that was. So, that helped, have my pocketbook a little bit through high school, even in college to, to detail people's cars. So that was, again, very much, I come from a very, entrepreneurial family. So I think that would be the first, you know, deal.
Yeah. Specifically to establish my own car detailing business.
Corey Kupfer: Love it. It's so interesting how You know, many of my guests do have this sort of entrepreneurial background, but then many, including myself, I mean, my parents were not entrepreneurial at all, they weren't, they worked for somebody for their entire lives.
And I'm always interested in how we all come to, that world and that interest. So, it's, interesting that you have that background. What kind of businesses was your family in, if you don't mind
sharing?
Stephen Speer: My father was, he had his own CPA practice in, Newport Beach.
My mother, she was also an accountant. [00:03:00] And, my sister, my oldest sister, became a tax accountant up in Marin County. And, my older sister, is a employment attorney in San Francisco.
Corey Kupfer: A lot of professionals in the family.
Stephen Speer: They all have their own practices. Like, although my father has passed away, we're all very, we all have our own businesses and, very much, again, back to the entrepreneurial fabric of my existence.
Corey Kupfer: Love it, love it. So let's talk about how you got, I mean, even before now, being in, the niche you're in. how did you even get into the lending, and financing space, originally?
Stephen Speer: Well, I started, off like many of us and kind of brick and mortar financing. And I had a client, approach me and say, listen, you know, I'm not really looking for, brick and mortar type acquisition opportunity.
I'm kind of looking in the online space. And this was nearly a decade ago and it was like, okay, and he, you know, can you finance a business that sells its wares on [00:04:00] Amazon and some of the other platforms? I'm like, I don't know. Let me see. I don't see why not. So that kind of, that discussion with underwriting and other people involved kind of evolved to me being at that time, the only, the only lender in the space.
And obviously we have evolved over time and done over a billion dollars. So it was by accident in short, it was by accident.
Corey Kupfer: I love it. Hey, listen, I have an, it's interesting to me in those early days, right? Because obviously doing brick and mortar businesses, The underwriting, the collateral, the, you know, just the whole basis for, you know, for a loan, the security for it, all that kind of stuff is totally different, right?
And I guess, there's a, you know, when e commerce was newer, it's like anything else. I mean, people are, doesn't fit a lot of this criteria, whether that's whatever, aspect of the criteria, they tend to walk away from it. So, what was that evolution like, in terms of, like, how did you, were you at a place then where they were?
Where it was, finding, like, you know, brokering capital from other places, or were they [00:05:00] doing their own, you know, lending directly? How did that, transition happen?
Stephen Speer: Yeah, their own lending, and then I went out on my own. but very much like, I mean, they didn't know what Amazon FBA was, so I had to describe that Amazon isn't actually selling The goods, right?
There are Amazon resellers selling the goods. And I had to explain that I had to explain where there wasn't like a warehouse in one location. It was Amazon fulfillment center. So I had to learn that once I learned that I had to really train underwriting, train the underwriters. How to look at businesses like that.
And obviously now we all shop online, you know, it's almost second nature, but back then people had no idea. They actually thought Amazon was the one selling where's on, on, over, over the internet and it wasn't.
Corey Kupfer: So how are these deals on the right? And is it, you know, is it cashflow on the writing?
Is there any kind of hard collateral or any type, but what are those, what's the other rank criteria for deals in this space?
Stephen Speer: Oh it's strictly asset light. Cashflow underwriting and the [00:06:00] most part now on the SBA side, I mean the lower markets, you know, we do quite a bit of SBA financing.
There's not a collateral requirement, but they can take collateral. Typically a home like a second lien on a home or third lien on a home. Yep. So that's really what they're hanging their hat on and they're hanging their hat on us. Also the buyer injection. So the buyer has skid in the game and
that gives comfort on the lower middle market side. So deals typically with enterprise values above the SBA arena. there are no collateral requirements at all. And it's strictly cashflow.
Corey Kupfer: And they have enough, so what kind of cashflow, you know, levels are companies looking like to get to that point where there's no collateral, like what size businesses are eligible for that level of non
SBA finance?
Stephen Speer: Non SBA financing any business with an EBITDA or SDE of 2 million and above, and, you know, we're betting that it's a strong business, we're betting on a very strong, buyer, so it's not only about the horse, it's [00:07:00] about the jockey. Yep. And also that person is required to, to cut a fairly significant check size for the acquisition.
So, but we're comfortable with those types of loans and, you know, we're successful at it.
Corey Kupfer: That's great. And are you financing, you mainly focused on acquisition financing or do you also finance existing, just existing operating companies that need, whether it's, working capital or other, you know, for other purposes?
Stephen Speer: Now, Corey, we primarily focus on acquisition financing, but we also do some recapitalization or refinancing of existing debt, but our main bread and butter is acquisition financing. We just find that, we'd rather be a master one and not, or whatever the saying is, you know, know a little bit about a lot.
We rather know a lot about very little. So that's, that's what our focus is on.
Corey Kupfer: So. It makes sense. And listen those kind of, I mean. Any kind of lending is a deal, but certainly, on this podcast, we talk a lot about M& A, although I always stress that we don't only talk about M& A and capital raising, we talk about all kinds of deals.
But certainly, getting fined. So I, so listen, I'm sure, the question on [00:08:00] everybody's mind now, in any kind of, anybody that does financing of anything, is cost of capital and the increase in interest rates over the last, a couple of years. how has that affected, your particular market in terms of, the cost of capital around, financing acquisitions?
Stephen Speer: That's a really good question. I think a lot of it's been counterbalanced by the drop in multiples. Yep. So that has absorbed a tremendous amount. not all of it, candidly, but it has. I think the biggest challenges are tightening credit markets, especially with the lower middle market deals, lenders are a lot more conservative than they were maybe 18 months ago or 2 years ago.
So, from that standpoint, deals are harder to get done, but we are getting deals done. But the cost of capital is definitely, has had an impact, but not catastrophic by any means.
Corey Kupfer: Yeah, it's interesting because, one of the things I always talk about, you see this in business deals, you see this in the real estate market, you know, etc.
In these times, whether it's cost of capital going up, other economic factors, things like that, there's always an adjustment period, right? [00:09:00] Because it's often that sellers have yesterday's valuation in mind and buyers are very aware of today's valuations, including how they're impacted by cost of capital.
And, there's often a, just a period of time for those to remeet. and in some sectors it's slower. I mean, it sounds like in the e commerce sector, it's. Well, it's not a hundred percent. It has moved, more quickly in some of the sectors the sellers haven't quite, moved as quickly to get, to understand the new market.
Stephen Speer: Yeah we are even on the e commerce side, we are seeing, Businesses that have been out there a while, lower their prices, their price points. They're most recently a business, I think they're asking prices 8 million and change, and now it's down to 5 million and change, and there's a lot of buyer activity.
But with that said, there are a lot of buyers in the marketplace, so it's not, there hasn't been a total, decline. Because there are a lot of buyers looking for those that, you know, that acquisition to happen. So, we've been fairly, resilient.
Corey Kupfer: So let's talk about who those buyers are, right?
Are we talking about, are they, are most of the [00:10:00] deals being done by serial buyers who, let's say, are PD backed or have capital? For example, we do a lot in and financial services and, especially in the investment advisor space. And that market has stayed super strong because there's so much PE capital and there are so many serial buyers.
And sure, have the old terms adjusted, have multiples come down a little bit, but the market is, I mean, there was a first quarter of last year, it slowed and then it picked up again second quarter and the rest of the year was crazy. Or, you know, are there more strategic buyers or, are some of these at the low, maybe the lower level, searchers or, things like that.
Who are the buyers?
Stephen Speer: So in the lower middle market, there are more strategics, involved there and you're right. I mean, they're still very active, and we, but again, we've seen prices drop on a lot of these businesses. And I think that has more of a reflection of what earnings came in at for 2023, especially if we're here, in February.
A lot of, buyers are seeing their, or a lot of sellers are seeing their year over year growth, very much diminish, due to the softening of the [00:11:00] economy. So that's brought, a little bit more, buyers seem to, or sellers seem to be a lot more realistic right now than they were, let's say 18 months ago.
So in a lower market, so those buyers are more strategic, typically group, wanting to buy, maybe a roll up strategy of some sort. And then the lower markets, which is more SBA financing, those tend to be, typically with us, they're not necessarily one and dones, meaning they're not just buying one business.
Typically, they're buying multiple businesses over time. so we see a lot of, you know, they're, it's very, active right now in that segment.
Corey Kupfer: Okay. And so obviously, e commerce is a huge, you know, I mean, it's a sector, but it's such a broad sector, especially in the economy these days and how much business is done through e commerce.
Let's break that down a little bit, are there particular, sub, areas within e commerce, that are, more active, that are doing better, that where there are more buyers, around, break that down a little bit into the types of business within e commerce.
Stephen Speer: Right.
So
[00:12:00] When at least we use the word e commerce, it's kind of like Kleenex for tissues, but it also encompasses SaaS businesses, so service based businesses, be it ed tech that's a real big one. you know, anything educational technology wise is really a growing segment. So we see a lot of growth there and the multiples are still sky high in that segment, because also you have to factor in there's, Recurring revenue.
So it does keep the multiples higher. So, we haven't seen those price points drop very much So there's that segment and then the you know, the e commerce where it's a tangible product Where it's sold over, shopify and amazon and also through a company's own website So we're seeing a lot more softening in that segment.
Then we are on the, you know, the SaaS side, that's the software as a service side, you know,
Corey Kupfer: and then even within those, obviously, even though those categories break down a lot, are there any particular, types of products or industries or SaaS businesses [00:13:00] that, you're saying now that, people are particularly looking at it in the marketplace.
Stephen Speer: Yeah. Again, educational technologies is a very large segment. I think there is a little bit of a, shadow cast over SAS businesses right now, candidly is AI. I think that's a big, that could be a big threat to, I'll call it a more traditional SAS business. We're starting to see a lot more concern about AI and how it'll affect these SAS businesses.
So we're just now starting to see that. And, we've actually had a situation where we've had a buyer walk away from a opportunity because of that fear of what AI is all about. So that would be, that would be something that just has come into, into play most recently.
Corey Kupfer: Yes, and it's interesting, obviously, you mentioned AI, that's the hot topic in all, the publications, everybody's talking about it.
People, I know, I mean, you know, I'm in a entrepreneurial organization lawyers group. And everybody's either trying to figure out how an AI may affect their particular legal [00:14:00] practice, right? CPAs are certainly talking about it. Others are actually proactively helping to create AI solutions, within their particular field.
But it's such a relatively early and, you know, AI is another word that who knows what it means, right? Like it covers so many things these days. And, And, everybody speculates about the impact and there's definitely a lot of investment capital, whether it's angel money, venture money, going into various things.
But you know, has there been, we haven't seen, and I'm not saying we're like, the lawyers for AI. So we would know we're not on the cutting edge of that in terms of deals, to be honest with you. But, usually when you're relatively early on, more of the deals that are done in that sector are, investment, right, raising capital, that kind of stuff, as opposed to M& A.
But have you seen anything, going on M& A wise in the AI, space yet?
Stephen Speer: Not yet, but it's definitely going to be coming. So, I wouldn't see it yet. I mean, those are mostly, right now, it's kind of at its infancy, so it's mostly [00:15:00] You know, looking for startup capital or in anything, venture capital is are involved with all that so it really hasn't hit the business acquisition segment yet, but it will I mean it undoubtedly
Corey Kupfer: well Yeah, no, listen, no question.
I mean first of all, there's so many startups there. There'll be consolidation of some of those and then also I can certainly see existing companies, buying up AI, successful startups in their particular niche. If they create solutions that will be helpful for some core operating business.
So yeah, no it's definitely coming. Yeah. I haven't seen much on it yet, either.
Stephen Speer: Corey, I think a little bit, it's the fear of the unknown. It's like when the internet came out, what does that mean? Like, what, how's it going to affect us? I think it's a little bit of that, I, just the fear of the unknown.
I mean, AI could be really great moving forward or it could be, a negative impact to society. And we'll soon, we'll find out here in the coming years. So I think it's that fear of the unknown.
Corey Kupfer: So you also do some [00:16:00] M& A advisory and buyer representation, right? In addition to providing financing in the space.
Talk to us a little bit about that end of your business.
Stephen Speer: So, you know, on the advisory side, we have clients actively looking for opportunities and, but they don't necessarily have the expertise of putting a deal together, be it the D the cap capitalization stack or the, or the debt piece or whatever, and also negotiating.
You know, a lot of them, are really good at running businesses, but they don't, perhaps haven't crafted the ability to negotiate. So we get in there and help negotiate with them. We, we help with the deal structure and, and spin. Honestly, it was kind of a, we weren't really set on doing that, but it's worked out really well for not only our clients, but ourselves.
Corey Kupfer: And do you do that only on deals? You were, you're also involved in the financing or is that a separate line of business, totally, even if you're not providing any finance.
Stephen Speer: It's a separate line of business, but ultimately they're signing up for both engagements. [00:17:00] So, yeah so we're helping them negotiate, then we're helping them on a.
On a finance side, but it's definitely, it's siloed they're separate. We don't force them to get financing with us by any means. So we do, provide quite a bit of advisory. And again, I mean, it's just, you know, we've done hundreds and hundreds of deals. So, and on the advisory front, I need to say that it's specifically for lower metal market deals.
It's not for lower market deals. Yeah, but, been successful at it. We know a lot of the players. So we, I think we have a keen sense of how to negotiate deals.
Corey Kupfer: That's great.
So listen, I'm sure, there are differences amongst deals and even in subcategories, whatever, but. Generally in structuring these deals for e commerce, companies, I mean, we already talked about the fact that, on the lending side, it's, the financing side, it's really cashflow is not on our assets.
So, obviously that comes into structure on M& A deals as well because, it's not like, a seller is going to get security, or [00:18:00] there's no hard asset security at least, that you get, to back up any kind of, deferred payments on notes or whatever.
So talk to us a little bit about generally what these deals look like, how much is paid up front, over time and their earn outs are there any, kind of retention, callbacks or things, requirements like that, touch a little bit. And I know, again, it varies, but.
Stephen Speer: So I'm going to kind of backtrack a little bit on the advisory front. One thing on the advisory front is we're able to, when we do look at a deal, we're able to advise not only how to structure the offer, but to make sure the offer, mirrors the available financing for that given business piece where we try to avoid our clients doing is going out on our own, putting in an offer, getting an accepted, they're coming to us for financing, and then there there's not.
There's no cohesiveness there's, you know, they're not, on the same level. So that's one good thing about having us do both pieces is that we're able to put those pieces together and not have to re trade on a [00:19:00] deal. Yeah. Yeah. That's right. So I just wanted to mention that. And what was your question?
Corey Kupfer: I'm sorry. Yeah, that was fine. It was just, in general, what a deal structure is looking like, in terms of from money back, over the back end, earn outs, that kind of stuff.
Stephen Speer: It depends on the deal, it depends on the conversations we have with a seller and or the seller's, broker, if we look at EBITDA, obviously, and we look at, what couldn't happen with this business, the opportunities within the business, and that kind of all the answers to those questions helps us Our client craft the right offer.
If the seller's like, well, we're at too many, but I'm certain that we're going to be at four next year or four at the end of this year, whatever, then we're definitely including a sizable earn out component to that. so that's one thing. And then, so that's, earn house one component, seller equity role is another component, especially on the larger deals.
It's very much part and parcel with those deals. seller note, that's also, part of that. So it might be where it's a [00:20:00] 20 million all in where we're offering, I don't know, 16 at close. Cash at close, plus an earn out component, plus maybe a seller note or a seller roll. So those, that's kind of the cap stack of those types of deals.
And then on the lower, you know, the lower market deals, those are SBA deals. We really. We help a little bit in terms of helping our clients put together a letter of intent, but we don't negotiate or anything. We're not really involved in, in helping our clients in that respect.
Corey Kupfer: No, that makes sense.
You know, in terms of, Those.
Stephen Speer: We're just the cap stacks is a lot cleaner on SBA deals. You can't have, you know, there are announced, typically there are seller notes and rarely are there seller rolls now that they're most recently allowed. So this is a lot cleaner. Whereas. The lower middle market type segment, there's a lot more complexities involved.
Corey Kupfer: Sure. Now, most of the, most of the sellers, again, this could vary as well, but, in some industries, the theory at least is. With e commerce [00:21:00] businesses, there's this theory that, oh, they're less, they're easily, much more easy to have, be less dependent upon any particular individual, founder, etc.
Right? Unlike professional services, for example, lawyers, accountants, we were talking about, or financial advisors, or whatever, where it's, you know, you're not Yeah, I mean, the old classic extreme joke, you're not selling widgets, right? So it's very hard to do a deal where you exit right away, right?
In fact, some deals are done where you're staying on for a long time and it's just a way to, roll into a bigger place, get more capacity, take some chips off the table. Even in the retirement or transition, succession deals. People are staying on, off in a year or two, or at least six months in the consulting if they have a strong management team underneath them.
But, at least in theory, the word is, oh, no, you can sell an e commerce company, because nobody knows who you are and, it's less dependent upon you. How true is that?
Stephen Speer: it's not necessarily true because that person, and often is the case that, they've been running the business for a very long time.
And, they must have, and on a lot of cases [00:22:00] must, they have a secret sauce to running that business. So if a business is heavily reliant on the persona, especially of a given seller, we definitely recommend having that, that seller equity role and keeping that person on and still being the face of the company, especially lower middle market deals.
We have, I could think of a few that we're working on right now where there is a seller equity role and that seller is the face of the company. And, on e commerce where it's product based, there's less of that, but definitely on more, I'm thinking of one business in particular where it's, I don't want to give out too much information, but where the business is very much the persona of the seller.
We insisted on the seller note because I'm sorry, on a seller equity role because we knew we'd run into, resistance on the underwriting side without that person staying on and continuing to be the face of that business.
Corey Kupfer: When did these deals go wrong? Do you have any, obviously without any names or [00:23:00] whatever, but you know, any horror stories? No matter how many successful deals any of us in the business have done, there's always, you know, none of us are 100%. When do they go wrong and do you have a particular story or two that would be illustrative?
Stephen Speer: I think it starts off sometimes, not always. I think buyers have a, not necessarily a, keen sense of what it's really like buying a business. Yeah. And they do get deal fatigue. So I think that's one thing. It does take a while, especially in a larger deals to, to close. It's not where you're buying a house and you close and.
60 days. Generally deals take a lot longer than that. So I think a deal fatigue and the buyer's ability to hang in there as well as the seller's I think that's where deals go wrong the seller, you know becomes impatient on the buyer's ability to close so that's, I think that's one of the main areas and then, buyer's expectation, they start looking under the hood and realize that this is, is it perfect?
And [00:24:00] they, you know, gosh, I thought the business was, 10 out of 10, now it's like a seven out of 10. I want to retrade. My offer, you know, oftentimes those deals fall apart. I'd say those two things. One thing that doesn't happen to us because we do a lot of heavy vetting up front on both the buyer and in the business is that deals fall apart because we're unable to short financing for our clients.
We last two years running, we got 100 percent of our deals approved and, but unfortunately my industry has a bad reputation of starting the process and not getting the client across the finish line. So. I think we've done a very good job at doing that.
Corey Kupfer: And that certainly relates back to what you said earlier, while you don't require people to work on, both sides, obviously, when, especially when you're providing the M& A advisory, when part of that, advisory is based upon what you know you can get financed and you know the underwriting criteria.
That it, really reduces the risk of that [00:25:00] disconnect, which can, listen, we've certainly had that with deals where, client, says, yep, got the financing in place. And, we obviously, as lawyers trying to coordinate with the banks to know what they want, but, with depending upon how much the client wants us involved in that or whatever, sometimes you find that there are disconnects and they thought, client says, Oh yeah, yeah, the bank will be fine with that.
Right. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Next thing you know, they've got a problem with, whatever it is, you know, in terms of structure and in terms of, their own due diligence or things like that. So yeah, I really get the value of that modeling out.
Stephen Speer: Yeah. I think the key, another key to our success is that we really take, our clients come to us before they start their search.
Yeah. I think that's a huge component because we could literally lay out the roadmap map to acquisition success. And unfortunately, Let's say 80 to 90 percent of the buyers out there don't do that. They don't have their team in
place.
They haven't been pre qualified. The businesses that they are looking at wouldn't qualify for financing in 100 years.
And they're really just, they don't have a [00:26:00] clear pathway to crossing the finish line. And we've been fortunate enough to really, tweak our business model to the fact that vast majority, 99 percent of our clients come to us, before even starting that, that journey.
Corey Kupfer: Yeah. So let's talk about that.
So nobody comes to you, let's say, what are the things that have them not be financeable at that time? And then what, I'm sure you give them some advice on how to get there if they're not there yet. So what are the things that come up in that industry, in regard to being finance ready?
Stephen Speer: Yeah. Depending on the segment, either lower or lower middle market and a lower market, just Lack of personal equity. Yeah, you know, we have clients come to us most recently a client wanted to buy a five million dollar business And he literally had no personal equity. He was gonna raise his entire Fire equity piece or injection and it's just I don't know what Seminars the guy went to but that's just not gonna happen So, no disrespect to that individual nor, but [00:27:00] that's, that would be one, a lack of, pretty darn either strong indirect or definitely direct, business acumen on the given business that he or she's trying to buy, that's the other piece, that definitely comes into play and oftentimes people come to us Initially, and think it's like buying a house, well, no, the lender's going to look at the buyer as much as the business and bet on the jockey as much as the horse.
So we try to instill that in them that you, if you don't have that really strong skillset, you're not going to be approved. So we've helped guide the client that way.
Corey Kupfer: Love it. And how does somebody show that it's based upon past history that they need to be out your doors before if they were executives at, a company's with a good track record.
I mean, yeah, that was that.
Stephen Speer: So we haven't completed questionnaire, but a questionnaire and then we have a subsequent phone call with them and really dive deep. And we want to make sure if they're looking for a SAS business [00:28:00] that they have some sort of experience. And we do look at, depending on the price point, especially the higher price points, we look for direct experience, not, hey, I was one person in a department of 1800 that got and did this little thing.
We're looking for someone with experience, not only direct experience, but also some sort of experience running a business. So we do look for that.
Corey Kupfer: So we use terms, lower middle market, middle market, things like that. Just so the audience and, I mean, those different people have different ranges that they put those, terms into, just so the audience understands.
Talk, talk to us about the sectors you work with and how you define them in terms of, you know, whether it's EBITDA revenue or whatever you look at.
Stephen Speer: Yeah. I mean, lower market would be typically businesses with less than 2 million in EBITDA or SDE. So maybe a business that's, running at, let's say sub 8 million enterprise value acquisition.
And below that would be [00:29:00] lower market anything above that would be lower middle market up to about I mean depending on definition We look at it on lower middle market up to about 50 million. It's probably lower than a market but you know, depending on the day
Corey Kupfer: Exactly I anything else going on generally in your space that I haven't specifically asked about that.
You know, that that's interesting right now or challenging or we see opportunities coming up this year, I know we don't have a crystal ball, but just, you
Stephen Speer: know, we don't have a crystal ball. There is a lot of uncertainty, especially election wise. so that's held a few people back.
But for the most part, I think it's going to be better than 2023. 2023 is more of a transitional year from a really hot market to something a little bit more, normal, let's call it, and I think this year is going to continue that to, you know, more normalcy, we're not going to see crazy multiples, I think we're going to continue to see multiples, come down, at least a little bit, and, and hopefully, I think by year's end, perhaps a [00:30:00] lower cost of capital, I think that, That's, I won't say for certain, but I'm feeling that there's definitely going to be a lower cost of capital and we're already starting to see a little bit of loosening of the credit market.
So, we're already starting to see that, happens, which is great news. It's great.
Corey Kupfer: Yeah, it's interesting. So, you know, no matter how much we think we can read the tea leaves, it's, you know, any of us who've been doing this long enough know that. We can't, there could be a black swan event tomorrow before we, you know, we even know it.
Having said that you sort of got to try to anticipate, and, whether it's, whether, it's us entrepreneurs deciding how we're going to staff up or not, you know, buyers making that, that decision to buy or let us make that decision to lend. And, you know, there were a number of factors pushing towards, interest rates look like they're going down.
Recently, there was a report where inflation was a little higher, so now the cataracts. And so, yeah, it's an interesting time to see, to see what'll happen over this next, year.
Stephen Speer: And I think if anybody is making an acquisition decision based on rates they shouldn't be acquiring a business.
That's just my own [00:31:00] personal feeling. I think overall, you got to look at, you know, can I make something out of this? Can I scale this business that I'm acquiring? And if the answer is no, just walk away, just, so I think that's one play. Another thing that, a lot of people, you know, there are a lot of different variables that we can't control.
So we either crawl in our holes and, you know, or we make things happen. So I think that's part of the, entrepreneurial spirit that we control what we can't control. And there are elements outside of our control that. We have to evaluate and make a decision from that point.
Corey Kupfer: Yeah, you know, it's interesting because there are certain assumptions out there and I think about maybe two, 18 months, two years ago, I did a solo cast on this. Less around cost of capital at that point, but around inflation, which obviously at that point was way, you know, was way high and it got up significantly and before it started dropping again.
And there was a subject even written in various of the trade and press or general, you know, financial and business [00:32:00] press about, slowing economy and the impact on deals to some extent. And you know, I've been doing this for 38 years, so I've seen, a lot of cycles, right?
You know? And, including some of the toughest times and, you know, I had a sense on something and I did some research and what I found out was that there is no correlation between deal volume and inflation rates, meaning that people would think, oh, inflation rates are high, you know, oh, that's going to slow the economy, slow deal volume down.
Well, no, that's not necessarily true. And there's less of a correlation, with interest rates on deal volumes as well than people would think, and, and it's, you know, in my mind, it's because, well, first of all, some of the best deals are done in tougher economies, that's where opportunities often show up, right?
And, you know, if you study some of the most successful deals are doing that. And also, while we talked about earlier with interest rates, like, initially when there's some big economic event or change or whatever, yeah, usually there's a pullback, slowing down, people want to see how it's going to play out, or.
Whatever, but then there's always a normalization that happens, maybe a new normal, right? [00:33:00] but, and a lot of the dealings, especially anybody who's capitalized, certainly, can take huge advantage of situations. So, I just, you know, it's interesting because some of the assumptions that people make without looking at the research or without having, decades of experience assume that some of these factors adversely affect the deal market and, and other parts of the economy.
And it's not necessarily true.
Stephen Speer: Some excellent points there, Corey. Absolutely.
Corey Kupfer: So all right, well, so listen, it be interesting to see what happens in 2024 here as the year goes on. We obviously, we've been very, very busy in various sectors that, the biggest two, we have a finance and, the financial markets, especially like advanced, investment advisors, people like that.
And then also do, we do a lot in tech as well. And, you're right. I think there's been more of an adjustment in, multiples and things like in, in tech, but we, but, you know, deals are continuing to go on. So, it's, it's, you know, it's not a bad thing. What other lessons along the way, have you learned, or is there anything else that comes to mind?
I mean, any good stories on either on the, interesting deal positive side or on the deals gone wrong side?
Stephen Speer: I [00:34:00] think mostly it's You know for your viewers, and listeners out there, I think the key is to have patience when you're searching. again, it's not like buying a house.
It takes months and months and months to find that right opportunity. We consult our clients in that very same way, like it's going to take time and just be patient. You'll find that, you'll find that incredible opportunity and just be ready to run with it because they're behind you looking at that same opportunity.
So, I would say that would be my little bit of advice.
Corey Kupfer: I love that. And I guess, I guess that leads me to, my last, of several, few questions. Talk to me about, you know, I often talk about mindset on this podcast and, like, any of us who do this kind of stuff, there's a joke, whether it's with the investment bankers or.
Lawyers or accountants and I'm sure you guys and sometimes we feel like we're psychologists or psychiatrists, right? Sometimes, because we're, because we deal with people, right? And you just mentioned it. I mean, even the ability, some people are better at having patients, than others.
Some people get over anxious just their personality [00:35:00] or it's because of the lack of experience.
Talk to me a little bit about that mindset, and the psychology that, I'm guessing you deal with as well.
Stephen Speer: Absolutely. I mean, every one of our clients is different. It's just really getting to know them very well, especially prior to formal engagement. And, sometimes we, there is a match and we move our separate ways, but, I can tell you that we have a good, handle on how our clients, think and what they're looking for and what things, you know, what the best approach with them is in finding, either finding that opportunity for them or sure helps the financing for them.
And, so it's just getting to know the client, where it's not a number scheme with us. It's not. It's a deep relationship that we have with our clients, not, they're not just a number. So, I think that's the key. And then based on that, and we have some clients that are very impatient, I will say, but it's just knowing that and it's just knowing how to manage that is, is the key.
Corey Kupfer: Yeah, no, I, trust me, I, [00:36:00] I agree. Yes. We've had
Stephen Speer: everything done yesterday. Yeah. And, it's, you know. And setting proper expectations. I think that's a huge thing, especially if the ever changing market of what we just experienced the last 18 months is really Really honing in on really setting expectations like, Corey, it might take a year to find that right opportunity for you, whatever the case may be.
So I think it's setting that proper expectation and it's not just, something that's going to happen overnight. So,
Corey Kupfer: yeah, no, that's, I mean, say expectations is huge. Yeah. It's so interesting. I, and for me, I, frankly, it's part of the reason I find it interesting in what we do because everybody's different, and every deal is different, but every person is different.
And, there are some folks, you know, one of the things we say as lawyers is that, there's a spectrum, but, you have clients, you know, one extreme of client is the client that, we just did a deal and it was great because I love clients who are really involved, but who are like, reading every period, every sentence, they have a million questions, they really want to understand it [00:37:00] and that, and we're great with that.
And then you have on the other extreme, what we joke is the where do I sign clients, right? Like, they're not, you know, you got to give them the focus. No, no, you need to read the reps and warranties because We need to do schedules and if there's anything that has to be disclosed you got a problem, you know And they're basically like, when do I sign, so and everyone you're
Stephen Speer: right Oh my gosh, you know I had right when you said those two examples I thought of two of our clients that are polar opposites one's like, where do I sign the other one's like, okay Why are there two periods behind this last word instead of what is it?
Did they you know, it's like oh my gosh Yeah.
Corey Kupfer: And listen, knowing how to deal with that, right. And, without, you know, any judgment of either, it's just how, it's how they operate and protecting, you know, them on both sides from themselves that were the folks that overanalyze could kill a deal.
You talked earlier about, deal, fatigue and sometimes, you know, I always talk about how there's a rhythm and a pace to the deal. And one of the arts of dealmakers is that they understand that. And if [00:38:00] you slow a deal, a natural pace of a deal too much, that's often when, the other party gets nervous and backs out a little too, on the flip side, if you push it forward too aggressively, that could be, a problem as well.
Understanding that and then combining it with dealing with the personality of your, if your client is really an art that folks like us, I'm sure you have
Stephen Speer: that balance, if a client sees progression, even though it might be slow, that they're generally fine with that.
It's when there's just, there isn't progression. I think our biggest challenge in our end is quality of earnings reports. So I think those have the ability to killing deals, waiting around for those, especially on larger deals where. It could take months to get a quality of earnings report.
So that's, but, time does kill all deals. I heard that saying years ago in business school and it really does. It is, but you need that balance where you're showing progression, but you're not rushing things.
Corey Kupfer: Love it. Well, this is, there's so much more we could talk about, but we're coming to the end of our time.
So before I [00:39:00] ask you my, my final question, please let people know where they can find out more about you and the company and everything you have to offer.
Stephen Speer: Feel free to reach out, Stephen at ecommercelending. com. That's Stephen with a P H at ecommercelending. com. Or you could go to our website at ecommercelending.
com for additional information. Thanks for having me, Corey. Appreciate it.
Corey Kupfer: Perfect. Great to have you on. My final question. It's always around my highest value in life, which is, freedom. And for me, that means everything from freedom around the world, from, for all people, from oppression to why I've been an entrepreneur for decades and haven't had a boss, what does freedom mean to you and how does it impact your life in business?
I think,
Stephen Speer: Definitely. I think having the ability to do what I'd like to do and also. I have the freedom to provide for my family without government interference is great. Also it continues in this country, not quite sure, but, I think that's important and all our, you know, God given freedoms as listed on our amendments here in the United States are very important.
Especially our first amendment. That's the [00:40:00] most important, I think. So that's why it's first anyway. So that's, that's what it means to me.
Corey Kupfer: Love that. Stephen, thank you for being such a great guest on the Dealquest podcast. Thanks for having me.
