Cashing Out - 16
Cashing Out - 16
Dena Jalbert: [00:00:00] So the first big milestone is getting that alive. The next critical piece was then informing the partners. And in this case the partners who are the managing members that they're spending off are that this this transaction now is ready to move to its next phase and stage and those partners now need to engage into the process. So it's essentially bringing them into the fold now and moving on to the next step.
Dan Humiston: [00:00:40] Hello everyone welcome back to cashing out brought to you each week by hope and law. With me today is my co-host Dena Jalbert from Align business advisory service.
Dan Humiston: [00:00:49] Hey Dena.
Dena Jalbert: [00:00:50] Hey Dan how's it going.
Dan Humiston: [00:00:52] It's going well. Good to be back on the show.
Dan Humiston: [00:00:55] Yeah. Unfortunately our legal advisor Larry Mishkin from Michigan law and Hoban law will not be with us today. He's presenting at a cannabis conference. So it's just going to be the two of us today call. You know I'm almost at the beginning of the show I started to see brought to you each week by Hope in law but that would be accurate because we've been dark for a while. We. Yeah. And we have a lot of interesting stuff to report back.
Dena Jalbert: [00:01:18] You know that's really just part of the M&A process. We try to move things as quickly long as we can. But sometimes it just takes time and so little things take a few weeks to have happen. So it doesn't feel as if much progress happens and then poof all the sudden things start to move. So there's a bit of a lull. So yes we've been a little quiet. There hasn't been a lot to discuss but things are certainly starting to move.
Dan Humiston: [00:01:44] Now our listeners may remember in our last show we know so we had an ally and once we got the Loi why there's a lot of logistical things and challenges with schedules that just really slow things down. We had holidays. One of my partners had surgery. So it was like a lot of these complicated things to try to get everybody on the phone and get everything done. But I'm happy to say that we made some progress. So I was thinking today just to bring everybody up to speed the fastest way to do it is we just take it in a chronological order maybe I'll lead us through it and then you can just add any of the details as we're going to. I think that's great. Well once we got the loi side which is that was back in March the first thing we need to do we said we needed to present the loi to my partners. I think it's important that we explain to our listeners why that's an essential step to the process.
Dena Jalbert: [00:02:34] Absolutely. So in an operating agreement for those who maybe don't have one it really governs and talks about how the business is supposed to be run day to day especially when there's multiple partners involved as is in this case. And so there's essentially a set cadence of things that have to take place. And so the first big milestone is getting the loi the next critical piece was then informing the partners. And in this case the partners who are the managing members that they're spending also that this transaction now is ready to move to its next phase and stage and those partners now need to engage in the process. So it's really bringing them into the fold now and moving on to the next step. So it's important to let them know.
Dan Humiston: [00:03:18] Yeah and as soon as that started then like almost immediately after that we had a partners meeting in at their partners meeting. We gave all the partners an opportunity just to talk about what their expectations were and what their concerns were. It's just proper. But a lot of operating agreements would make it a requirement that you have to do that.
Dena Jalbert: [00:03:38] That's exactly right. And that partner meeting you had is equally as important because you know we tell clients all the time that there's needs and strategic motivations for that business. But then there's also needs and strategic motivations of all the individuals who are part of that business.
Dan Humiston: [00:03:56] And so you want to make sure that everybody's needs and desires are being heard if not met and believe me to do that is to start by having those conversations and so that notice served is our way to start for you and your new partners to have that conversation and set those expectations in order to get things moving and that way everybody knows what everyone wants and needs and clear as a way to set the stage for what comes next.
Dan Humiston: [00:04:23] Yeah. It didn't feel like we lost a lot of time because while that was going on we continued what was called is like preliminary due diligence with the buyer. You had a number of conversations with them. I was on a couple of those calls where they broadened their extended team into the fold and everybody had questions. Now how does this work. What about this. Like I said you were on more of those calls than I think maybe you give a better feel you know what can be done in that sort of purgatory segment purgatory that limbo of right this sort of limbo section of the deal.
Dena Jalbert: [00:04:57] Yes purgatory is usually a not a bad experience feels that way. It feels that way especially because things at such a rapid pace up to the alibi and then it's a bit of a like like wait what happened. That momentum go. That it's not fair it's just to your point the Elway stage and even this beginning partner meetings like we were just talking. It's all very strategic. You're talking a high level. Then you shift into the tactical and that's where yeah they start doing some due diligence and asking the who the what the where the when how. Who's responsible for what. How does this work. And really start digging in to the details because prior to an ally you don't go into all that. Tale because it takes time and effort and resources to do that. And so first you want to make sure that at a strategic level and at a high level everybody's good but to terms and that's what an Alawite does. Then you you shift into the tax bill and that's when he does I like to use the car analogy open up the hood to see how the engine actually runs. And that's what they started doing and we started working with them and answering a lot of those day to day questions. And then there's a lot of history of why did it go this way. Why does this work that way. What was the background and context. And so we had a lot of conversations around that which I think has set us up for the positivity and where we are now because they've been able to get through that information understand that why and now can start to plan for what should the future look like.
Dan Humiston: [00:06:25] And it saves time too because like I said they brought in their extended team extended team had a lot of questions that weren't answered during the L.A. process. So now the table set and we have the buyer and my partners have a phone conversation sort of they get to know each other but this is an important call because both sides have to decide whether or not they're comfortable with each other. The call seems kind of matter of fact but it really is important call. I mean you on it. So give our listeners a flavor of what takes place in one of those calls.
Dena Jalbert: [00:07:01] Yeah it's a bit kind of like dating and to the first couple of calls is just people getting to know one another. Hi my name is here's my background. Here's what I've done. You're essentially putting two folks together to become partners which is kind of like marriage. So there's a bit of a courting period. And so a lot of those conversations were just out around him getting to know one another and through that it starts to become apparent how people in organizations are going to work well together. So yes so we started with just the introductory call and then we had a couple others where we started talking more about back to those personal motivations and company motivations. We start talking strategy and here's what we envision for this organization and here's what we use. The other party views division and they lined up well which is great sometimes. Sometimes they don't. And sometimes you get into that and you're like well it's not quite a match but in this case the synergies really jumped out which is great. Through the whole process in prospecting an acquirer you always want to look for that value I this puzzle pieces come together. We particularly take the time to really do that. So then it came very abundantly clear that we'd made that match that value down in these subsequent calls which is great to see you move from those calls to the team met in person. And it's important to be able to look inside the people you're going to work with them again get to know right. So it's kind of like a separate dating me. We've had a few dates. Now we're getting a little more serious and now moving towards something more permanent. And so it's it's a bit of a progression and you know it's funny we've been quiet but all that happens over probably a two to three week period.
Dan Humiston: [00:08:41] You know you talk about it dating in this particular case is a little bit more like an arranged marriage. It's actually true.
Dan Humiston: [00:08:49] And OK so that kind of brings us up to where we are right now. So the next step in the process is the buyers have some obligations within their organization that make it necessary to make some amendments to the operating agreements so that they're not in violation of some of their other agreements. Is that a fairly common occurrence to amend an operating agreement.
Dena Jalbert: [00:09:12] Absolutely. It's almost 100 percent of the time it gets changed and that's because you've got new parties and a new business vision and a new set of circumstances when operating agreements are written they're written to reflect the people at the time the investors at the time that you know the people who are in the business the vision of those people trying the business and what they're looking for it to do and the resources those people are going to bring and how they're going to execute when you bring in a new entity into that fold. What worked then won't work now because you've got different people with different resources and now maybe this strategy is different you know in this case there's a huge strategic opportunity because the buyer in this case is very well connected and has a lot to offer and so what may work for you in the past doesn't reflect where it's going to go in the future and all parties understand that an operating agreement. It's essentially the rules of the game. And so everyone needs to agree to what those look like and how the game is going to be play going forward.
Dena Jalbert: [00:10:11] It's really important that they make sense. That makes sense. So concurrently while we're negotiating the amendments to the operating agreement we get right into the due diligence. I mean we did a whole show on due diligence but if there's any potential legal action if there's any settlements like the due diligence process can get pretty intense as I'm not sure how far this one will go. But it usually they're pretty thorough.
Dena Jalbert: [00:10:34] They are it's almost like an audit. And for those who've never had an audit before. It feels extra daunting. And also when it's your business and people start poking and asking questions and it's not malicious or judgmental they're just asking why. But it can feel that way. And so it's always the part of the process that people really dislike the most it's the most painful. And also once you're getting your operating agreement redone and you're talking strategically and you're talking operationally and you're planning for the future you're really excited and want to get to that future. So due diligence can be a bit of a deflator you know takes the wind out a bit because it is so tedious and so thorough. We seem regardless of size of company or even good structure much like this line that's a little unique. We'll bring a team of people in and look through everything through all the expenses. How does money come in and who's responsible for what and who gets paid what. How does it work and what if they've been paid historically and are all the compliance filings nine and ten times the one to go as far as calling on customers to make sure the customers are happy and that there isn't a flight risk of course.
Dena Jalbert: [00:11:42] I mean there's a whole laundry list of things that can be done. And sometimes the breadth of the due diligence and the speed is also predicated on how much risk of buyers willing to take in order to move quickly. And so sometimes they'll weigh that risk with just wanting to to get things done. For example if you're a retailer and there's a certain time of year that sales are high. If I'm a buyer I want to get in before that period because I want to reap the benefit of that growth period. You want to get insurance so maybe you'll say hey I'm willing to pull back on some of this due diligence so that we can get this done a little bit faster. I'm willing to assume that risk we've seen due diligence last anywhere from a couple of days to six months. So it really varies by organization and how many parties are at the table on how much they have a desire to want to really dig in.
Dan Humiston: [00:12:30] Ok. Well before we wrap up let's do some housekeeping first. Thanks for all the e-mails that everyone sent us. Hopefully today's show answered your questions. But if you have additional questions or comments or ideas anything just please send us connected MJBulls dot com. And I always always want to thank Jamie Humiston for composing the music and Edina for being such a loyal co-host on the show. Thanks again for doing this Dina.
Dena Jalbert: [00:12:57] It's my pleasure. It's a lot of fun. I love doing it. I'm glad we were able to get back to it.
Dan Humiston: [00:13:01] Yeah me too. Well our goal is to get this done by the end of the month. So hopefully we're going to have a lot more opportunities to get together so we'll have a good week. Dina and our listeners everyone have a great week. And we will see you again next Sunday on cashing out.
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