How Private Equity Values Your Business

There's 1.8 million of them in the United States and so and they're all small and they're all owned by people whose ages start with 50s to 60s and so as a result, you know, you've got baby boomers. I'm the youngest of the baby boomers. I was born in 64 and we're aging out. You know, our careers are coming to an end and there's just this massive transfer of businesses and wealth that's going to take place over the next 10 years. So last company I ran, I was buying the smaller companies at about five times and after buying eight in three years, I did the first exit and sold that company for 14 times earnings. If you're above 4 million, you know, being a platform, it comes down to Friday night lights. Do you want to be the star quarter back with a target on the back of your shirt? You know, call in the shots, you know, as a platform or do you want to be an add on and kind of kind of fly under the radar screen. Welcome to M&A Talk, the number one podcast on selling a business brought to by Morgan and Westfield, a boutique M&A firm specializing in the sale of small to midsize companies. I'm your host and president of Morgan and Westfield, Jacob Oros. If you're considering selling your business and you'd like to work with me throughout the process, you can schedule a free consultation at Morgan and Westfield.com. Or if you'd like my team and I to perform evaluation of your company for one time fee of $1,500, visit Morgan and Westfield.com or see the link in the show notes. And today we're going to talk with Adam Coffee, he's been on the show multiple times in the past, private equity, investor, operator, author of several books. And we're going to take you behind the scenes of private equity, talk about the differences between lower middle market and upper market, private equity and Adam. Welcome back to the show. Jacob, good to see you. Hello to all your listeners out there. It's good to be back. Always good to talk to you. So lower middle market versus middle middle market versus upper middle market. First of all, let's kind of define those real briefly. How would you define lower middle market? If you think about just PE in general, all PE firms, they all do the same things. They have a 10 year lifespan of a fund. They have six years to invest their capital. They invest about six to eight percent of their capital in any one deal and usually never more than about 12%. And so based on fund size that they raise is kind of created what I like to call these five different layers of capital. I call it the capital pyramid or the private equity pyramid. And so at the lowest level, if you take kind of the lowest smallest of the lower middle market funds, they typically have around 200 to 400 million in fund size. And they're generally buying companies that have EBITDAs of somewhere between four and seven million is kind of an entry point. May go as high as 10. And for those funds, you know, it's like their natural journey, you know, typical whole period is five years. And so their typical journey is if I buy it for I'm, you know, four to seven, I'm kind of headed to 15, you know, 15 to 17 is kind of their exit point. So three X the EBITDA and five this years or so. Yeah. Yeah. And so that, you know, that, you know, the five year typical whole period is what defines, you know, kind of the work to be done. So if I'm buying companies at four, you know, five, six million of EBITDA, that's like the first level of a real private equity firm buying a platform. Generally speaking in five years, they can normally get to somewhere around 15 to 17 million dollars. There's another group of funds that come in at about that size. And, you know, they may have anywhere from 750 to a billion and a half. I've seen some, I know, Audex does fun sizes as big as three billion, three and a half billion. But still kind of buy in that 15 million of EBITDA, you know, level as an entry point and then about a 50 million dollar exit point because that's about how far they can take a company when they're starting at 15 and get to about 50 during a typical five year hold period. And then there's people that come in at 50 generally they go to 100 and people that come in 100 generally go to 200. We're talking about EBITDA here, right? EBITDA, yeah, EBITDA. And then you've got the big boys who come in and, you know, their typical exit path is generally, you know, public company or some engineered large strategic deal. And, you know, over the years, you know, more and more money has been pouring into private equity. It's been, it's been, I'd say increasing interest rates has added some, you know, some difficulty. But it's getting harder and harder to generate what I'd call stellar returns the larger the companies yet. And we were talking off camera. I got a statement from a recent smaller private equity firm where I'm an investor and I'm an operating partner advisor. And, you know, my return on capital has been 4.75 times. I'm very pleased with that kind of level of return as an investor. And so I'd say right now lower middle market. Think about what's going on. You know, in the United States, just in the US, 34 million small companies down at the bottom two layers of this private equity pyramid. Yeah, I'm working on three roll ups right now independently, you know, with different sponsors, different people in the accounting space. You know, so counting bookkeeping payroll service companies tax preparation companies. There's 1.8 million of them in the United States. And so, and they're all small and they're all owned by people whose ages start with 50s to 60s. And so as a result, you know, you've got baby boomers. I was born in 64. And we're aging out, you know, our careers are coming to an end. And there's just this massive transfer of businesses and wealth that's going to take place over the next 10 years. So there's still heavy fragmentation low multiples being paid because there's so many of these small companies. And as a result, you know, smaller lower middle market p firms are still doing really well finding companies to buy and putting them together and climbing the pyramid and then exiting. But as we get higher up into that pyramid boy multiples of sure, you know, have have sure gotten frothy, you know, over the last 10 years. And, you know, as a result of that, the entry point is a bit higher for some of these, you know, call it standard middle market or upper middle market firms. And it's getting harder to generate the kind of returns that historically they've been known for good firms bad firms, you know, everywhere in between. So good firms know what they're doing generally still are generating the kind of returns that their investors, you know, have come to seek from them over the years. But definitely getting tougher, I think ton of capital, lot of money looking for stuff to buy and that P E pyramid those levels have been coming down people that used to buy at 50 can't find enough. So they're circling down to about, you know, 40 looking for stuff to buy people that used to buy at 15 to 20 or now looking down as low as 10. What are you saying here you also saying that it's easier to generate returns in the lower middle market than the middle and upper middle markets. For me, you know, in my whole career as I look back at my career, you know, I'd say yes, that that is exactly what I'm saying, you know, I think that there is a higher returns to be had for call it the typical investor, you know, or business owner. In the lower middle market where there's still a ton of fragmentation, low multiples being paid and it is getting tougher to generate stellar returns, you know, in the middle market and upper middle market. Is that also for operational reasons because smaller companies are just they they haven't implemented all the operational improvements that they that some of the larger companies typically do. The largest driver of PE returns in general is arbitrage so it's engineering doing a buy and build putting a bunch of small companies together climbing the pyramid getting to a larger exit point and then getting the multiple expansion and arbitrage that's that's naturally occurring. So I think that's kind of the key driver is the fact that because there's such heavy fragmentation in small companies, the multiples being paid for small companies are low, you know, I go back to my example I've been using which is that that a you know accounting firm type roll up. One of my clients just recently bought a company that had you know call it four million dollars in revenue and about a million and a half and in cash earnings, you know, you know, Ibedon cash or the same because there's no capital expenditure and accounting firm to speak up and as a result, it's like and they paid three and a half times. I mean the multiples being paid for small companies are low. And the multiples being paid, you know, in the way I like to think of it is if you think about, you know, I'll take one of my companies that I built as an example. You know, so last company I ran, I was buying the smaller companies at about five times and after buying eight in three years, I did the first exit and sold that company for 14 times earnings. So for every dollar of earnings I'm paying, you know, five bucks for I'm getting 14 dollars. for that same dollar of earnings on exit. So I'm making a 9x arbitrage component is being created by doing that. So I think the magic and the returns in the lower middle market is just the fact that the multiples being paid remain low. And so typically what I tell people, and most of the industries that I like to play in which would be kind of surfaces, blue collar surfaces, guys and trucks, fix and stuff, or professional services. I'm doing a lot of work in dental and chiropractic and legal. So a lot of different areas where I'm playing right now. But when I look at those types of companies, the multiples being paid are small, but the exits are still large. And so typical I get to 4 million of EBITDA I'm getting eight times. I might be paying three and a half to four and a half for those small accounting firms, but at 4 million, 5 million, I'm looking at about eight times multiple to exit. Take that same company over 10 million, get to 12, you know, kind of 12 to 15, and I'm looking at 12 to 15 times multiple. Well, people paying 12 to 15 times don't have a lot of multiple, you know, arbitrage increase that's going to take place on the journey from 15 to 50. They may get four or five turns. They may sell for 15 times, 18 times, you know, there was a multi billion dollar deal that just took place recently in the HVAC space. And one of the large firms just paid 18 X for that company. It was the EBITDA on that. It was over a hundred. I don't quote me that the headline price was they paid about two and a half billion for the company. And it was reported it was about a 18 X. I'd have to get out my calculator and reverse engineer that math. I'm too old to do that in my head anymore. So at the end of the day, though, you know, I think that the multiple arbitrage in these larger companies is kind of restricted because of the high prices being paid to enter the arbitrage component is a little bit lighter, makes it a little bit tougher. So, you know, we, we of course want to get operational improvements and scale and fix, you know, companies when we're buying them small and get that operating leverage as they're getting bigger. But I think the largest profit component still coming from just the multiple expansion. What about operational improvements? Because those are obviously easier to implement. They are, but generally they're not as, I mean, you know, when you look at the return profile. So, first of all, a can't, a buy and build just can't be a bunch of companies slam together. You know, you have to be growing organically. You have to be creating operating leverage as you're getting bigger. So, you know, as I'm putting more and more companies together, I'm expecting the margin profile to increase. You know, my supplier cost should be going down because I'm buying more stuff. I should be getting more efficient with my operations. I can make investments in technology that generally give me better returns. The bigger that I am as a company when I implement them. So all of those things are important. But when you look at the EBITDA growth component, the majority of that growth that's happening quickly in a five year typical hold period is coming from buying other companies, paying a low multiple and putting them together. And then using my investments in technology to generate, call it higher returns or to increase the profitability of each of the companies that I'm buying. So I am getting uplift from that. I still would say probably 70 plus percent of returns in private equity are coming from simply playing the arbitrage game. Now what about some of these smaller private equity firms that will dip down to 750,000 EBITDA, a million, two million, three million EBITDA? So there's a bunch of firms out there that are called private equity firms. But there's pseudo private equity firms in my book. I mean, if I think about a traditional private equity firm that's raising a fund, they have limited partners. They've got fund raising is going on and they're calling it a typical five million dollar kind of minimum investment. Those funds, those firms tend to start buying companies that have about four to seven million of EBITDA. When I get below that, either it's a larger firm or a strategic company owned by private equity that's doing add-on acquisitions and they're buying companies that have 500,700,000 EBITDA or a million. And they're adding a bunch of them together to grow their platform. But for people that are actually buying and creating platforms at the size that you're talking about, generally those are private equity firms because they're investing private capital. But they're not traditional. They're not raising funds. It's a small, you know, it might be a group of guys who did really well, you know, further up the pyramid or a family office that's made a ton of money doing something else. And then they have, kind of allocated, hey, a 50 million, a hundred million dollars towards a, you know, a private equity firm or a venture that they're building. But they're not kind of the traditional firms in the sense that they're out raising capital from limited partners and, you know, and have several of them. It's more of a smaller group of investors probably. They call it the four F's. F and friends, family, fools and followers. So it's, it's kind of a boutique kind of a fundraise. Because you said the average fund will do six to eight percent of their fund size is the equity check. So what is that 12 to 15 deals or so? Yeah. So on average, you would have a typical P E fund would hold anywhere from about eight to 15 companies because it's, call it six to eight, usually no more than 12. So if they were buying a firms with using 12% equity checks, you know, they'd, they'd be holding, you know, nine, you know, eight and a half companies, you know, eight to nine companies in a given fund. Why is such a narrow range there? Yeah. But that's, you know, six to eight percent of a fund. That is pretty typical. That also sets up another dynamic, which is large firms. You take a KKR Apollo, a Carlisle, somebody that's got a $30 billion fund. They can't buy small companies. It would take them 100 years to put their capital to work. So they have to buy larger companies. And again, they're wanting to put six to eight percent, no more than 12 to work of the fund size in any one company. So big funds by big companies, medium size funds by medium size companies. And it's that dynamic, the very disciplined nature of private equity capital that, that creates these swim lanes that I'm talking about because big funds can't dip down. It takes smaller funds to dip, you know, to buy these smaller companies. And they're more or less creating the meals that are getting fed up, you know, to the next layer of capital. The sharks that buy at 15 are circling around, looking for something smaller PE firm is buying stuff at a million, two million, you know, in EBITDAW and adding a bunch of them together until they get up to that size. And then they're kind of feeding it up to the next layer, which immediately kind of swoops in and buys it up. And then, I mean, that that's how this game is played is in levels. So generally speaking, I tell founders when they're thinking about exiting, thinking about selling, you know, whether they should be a platform investment or being at an investment, to me generally goes back to size because their return thresholds, if they sought to be a rollover investor and go for a second bite of the apple, are the same, you know, regardless of whether they're an add on or a platform. So if they're below four million, I generally tell people, look, if you're if you're two million sub in earnings, probably best for you to be an add on acquisition to an existing platform, you'll have a more sophisticated buyer with more capabilities with a really good PE firm behind them. And the firms that would buy you and entertain being making you a platform are just as likely to suck the life out of you as they are to have enough resources and capability to help you really blow it out and grow to the next level. But for those who are kind of between two to three million, I tell them, you know, you could go either way, work a little bit harder, get that thing up over four, four, five million, you're a solid platform and there are so many really good lower middle market firms out there. I work with several and and there's some really great people and great firms and great funds and they've got a lot of capability and they're good stewards to the companies that have been built and you know, they care, they care about employees and they care about success and they generally, you know, do a really good job. So I tell people, if you're under four million, you know, you're selling as an add-on to an existing platform. If you're above four million, you know, being a platform, it comes down to Friday night lights. Do you want to be the star quarter back with a target on the back of your shirt, you know, calling the shots, you know, as a platform or do you want to be an add-on and kind of kind of fly under the radar screen? And I'll go back to my last company as an example. I bought 23 companies and you know, other than the fact that I had created through some strategic pivots three three divisions and I had three division presidents, there were really only two of the the companies that I bought where their founders were dealing with the private equity guys every day because they became division presidents. All of the companies we then sprinkled into these three divisions, pretty much business as usual. They kept building their companies, you know, they had roll over investments, skin in the game looking for a second bite of the apple, but they didn't necessarily necessarily have to deal with all the private equity demands and being polite and calling it just a crap that goes with being owned by private equity. Institutional investor asks a lot of questions and they put a lot of pressure on leadership teams. If you want to avoid all that, you could be an add-on as a smaller company to a bigger strategic owned by it by PE and kind of just fly off under the radar screen and be an investor while you're running your business and getting multiple bites of the apple. Let's take a quick break and we'll be right back. This is Jacob your host and thanks for listening to the show. If you'd like a free copy of one of my books on selling a business, you can send an email to [email protected] and we're giving away two books. The first is the art of the exit, the complete guide to selling your business. It's written for businesses with one to ten million per year in revenue and the second book is acquired the art of selling a business with ten to a hundred million in revenue. And again, if you'd like a free copy of either of those books, you can send an email to [email protected] and now back to today's show. Welcome back to M&A Talk with Adam Coffee. Adam what determines fund size is really just how much money they can raise? Yeah, so sometimes I would say it's area of expertise too. So I have worked with firms like Audax, good example. Audax is a great firm, you know, middle market, typical fund size now is as big as three billion. But they never really changed their profile. They've always been kind of looking for companies in that kind of fifteen million dollar EBITDA range has been their sweet spot. So as the fund size got bigger, they just buy more of them. And still kind of tend and stay to their specialty area. But for most firms, as they get more well known, as they get bigger, as they increase fund size, they typically are moving upstream in terms of the size and kind of companies that they buy. So part of this has to do with they may have a specialty area of expertise. A lot of these firms in the lower metal market, they really specialize in kind of founder led transitions at a certain size. And then their DNA of the firm has gotten really good at taking them from one size up to the next size as an exit. And so they specialize. But in general terms, I'd say how much you have, you know, how big of a fund you can raise really, you know, really is kind of the depending factor. So I'm working with a PE firm now that's a fund one, but they were able to raise more than a billion dollars in their first in their first fund. And it's because the two principles are guys who came from Carlisle and it's like in the Avarola decks and people, you know, people know them. And so they're used to playing a larger game. But but for most firms, it's kind of what size fund can I raise given my background, given my stature as I get better. Sometimes I want to stay there. Sometimes as I'm better known as the returns have been there in early funds, subsequent funds get bigger. And most, most of the times then those funds tend to start buying bigger companies. So they kind of move up with their fund size. How many investors typically is that very quite broadly? So if you take a $500 million fund and you figure I've got a $5 million minimum investment size. So it's 20 investors per million, you know, kind of if you, but you're going to have some institutional investors who say, Hey, I'm going to give you 30 or I'm going to do 50. But you know, if you wanted to say what's the maximum, you know, potential, you could go on the if it's a $5 million minimum, I'm a $100 million fund. I'm going to have at least, you know, I could have 20 investors. But usually when funds are raised, they have some anchor investors. You know, so might be they have a relationship with a big family office, you know, and or some large institutional group. And those people commit, you know, maybe 20% of the fund size, you know, 15, 20% of the fund size. So they start with some kind of an anchor or two investors who make up like a quarter of their fund. And then it's easier for them to go out and raise the smaller chunks to round it out. A lot of the funds that I'm seeing today are still over subscribed. They're still, you know, they're still closing above, you know, their targets, you know, they're doing well. Still a lot of fundraising going on. I mean, look at what's going on in the market today. I mean, we literally have a war in the Middle East with ballistic missiles flying all over the Middle East. And the market was down 500 at the open and it was even at lunch. I haven't looked in a while. I don't know where it's at right now. But it's like there's a ton of money out there. There's a ton of economic pressure that wants to drive the markets higher. If you look at the world of private equity, it just is constantly increasing in size. When I wrote my first book, the private equity playbook, it came out in February of 2019. And I remember doing the research in 2018 using 2017 data and they had pegged the world of private equity at about 2.87 trillion in capital at that time. And it's, it was well over seven. If you just use a chat GPT or some tool right now that, you know, some estimates are as large as 19 trillion because it depends on how you count capital, you know, in assets under management. But needless to say, the world of private equity is exploding. Tons of money keeps coming in. Why does it keep coming in? Because investors continue to get outsized returns. If they're beating the S&P 500, they're beating the major indices, then private equity is still an attractive place to invest. So I do think returns, thresholds are getting a little bit tougher. The bigger the fund is. And I think that because a competition, there's some delineation between top core tile funds and lower core tile funds for sure. And some people struggle just to hit S&P returns. The firm investors who are doing their homework and looking at kind of fund performance over time, you know, there's still a ton of great firms out there that are generating really good returns that make it, you know, continue to be a very strong place for, for people to want to. You should have said, I don't think a seller should care as much about who the limited partners are. They'll have no interaction with them. And once the fund is committed, the funds committed, the capital is reserved. Yeah, I think what they should care about is just kind of the personality of the firm they're partnering with. And do we only focus on the headline price? Personality. Was that word intentional? Yes, it was. If you think about, I'm a, let's say I'm a founder and I'm going to sell my, my, I've been working for 10 years, 20 years building a company. I've gotten to an exit size. I'm committed to that. Maybe I'm not just selling and walking away. Maybe I want to just get asset diversification. I want to take chips off the table, but I still got game. I've read Adam's books and I want to be a role-over investor and I want to keep going. Well, that's now a marriage and who I'm going to partner with, you know, who the people are that I'm going to be interfacing with. Private equity firms have a lot of stability in them. Partner level and up tend to stay the same during the entire life and investment. You know, analysts may come and go, but mid-level people, you know, I'm managing, you know, call advice presidents, you know, that at that level and kind of up the day to day people that are interacting with the fund, the partner level, the senior partner level, those positions are pretty stable. They don't really change during a typical hold period. So if I'm going to be going to battle with a group of people inside a firm, I better like them. You know, if I don't like them, you know, and all I'm focused on as a founder is just what's the price I'm going to sell at? What's the headline price I'm going to get? I might be then very disenfranchised or frustrated a few years post-close because I didn't get along with the people. So when I talk about personality of the fund, I am talking about, you know, kind of their track record, their history, their personalities of the people that I'm going to be dealing with. I'm going to want to do research to make sure I'm talking to other CEOs or founders that have sold to this firm, find out what their experience is like. I might actually ask them to not only point me to current portfolio CEOs, I'd like to talk to some that you fired, you know, somebody that you got rid of, you know, in the first hold period. Since 73% of founders, there's a scary statistic who sell the private equity, don't last the first five years, I'd like to find some divorces and talk to some people where it didn't go so well to see what their thoughts are. And it really isn't about them picking on the firm that they were, were let go from, but it's more about just learning, he did, they honor their commitments. Did they treat you fairly, you know, on the way out the door? How do the, what's the reputation of this firm and these people and what have typical investments in a given type of industry look like over time? And I think founders too much get focused on just return, who's going to give me the highest headline price and they don't focus enough on, did I choose the right partner? Does it matter where in the fun life you come in? Do you want to be the first steal or the last steal or somewhere in the middle? Yeah, I think there's, it's an interesting question. So since the majority of funds last 10 years and they have six years to make their investment, There's a lot of. founder can learn about the firm they're partnering with just by asking a few questions. You know, what is the vintage year of this fund that's making the investment in my company? Meaning when was the fund started? When to the clock start? When the fund makes its first investment is its vintage year. So, let's say it's a 2026 fund and I'm selling my company right now and I'm talking to someone who's got a brand new fund. Well, typically, you know, an average whole period is five years, but if I'm early in a fund's life, then they could theoretically hold that investment for a lot longer, although usually what happens is the opposite. If I can grow a company quickly with an early stage fund, so, you know, let's say I'm doing my buy and build, you know, my last one was a great, great example because we bought, we actually sold it in three years. So, if I can get an early exit in my new fund at a high IRR because or a high return for those who don't know IRR, then I can use that early win on that fund as kind of fuel for raising my next fund. So, if I'm a larger firm, I might be raising a fund every three years. And if I have a new fund that's made a first investment, it's early in the whole period, CEO or the founder does a good job and grows it quickly. That firm is likely to sell that just to get a good headline return. So I had a 4x multiple of invested capital, a 56% IRR on a three year investment and a relatively new fund. Well, that's an instant sell. Why not take it farther? Well, because I can use it as a headline to raise my next fund. Likewise, if I'm late stage, let's say I'm in the 50 year of the fund when I'm bought. Well, I know that whole period probably isn't going longer than five simply because at the end of 10 years, they're going to have to return their capital to investors. So the companies that tend to get held the longest, they wind up being the dogs with fleas, they wind up being the investments that didn't really work out very well. They're holding them to the end and guess what? By the time they get to the end, they've already raised three other funds or two other funds. Now, old news, but they need the longer horizon in order to kind of generate at least to get good enough returns to where it doesn't impact necessarily the total funds return profile. So longer hold periods tend to be the companies that underperform. Shorter hold periods tend to be the companies that are doing well, especially if it's an early stage fund. Should the owner care? The seller care if the fund, if the PE firm is going to use any debt? No, I'd say it's fairly standard. In days gone by, the typical model was 50% equity, 50% debt. And if you asked any American in the country and said, geez, if I sell my, if I'm buying a house, if I write a check and make 50% equity as my deposit, most people are going to feel very good about the equity they have in that company. So I'd say your typical homeowner has a lot less equity in a company than a private equity firm actually has in the companies that they buy. So it's all about debt service coverage ratios. How much cash does the business generate? My personal model is always, hey, I'd like to see a debt service coverage ratio of two to one or better. What does that mean? For every dollar of free cash flow I'm generating, I'm okay, spend in 50 cents of that dollar on debt. If the company, if the economy cycles down, if the company's performance gets soft, if I've got a two to one debt coverage ratio, I'm feeling pretty good that I'll be able to write out that storm without having to write any additional equity checks. So I kind of like that level. And so debt is a tool. It can be overused and it can be underused. I once ran a company for a family office and that company had no debt. And that company had a value of over half a billion dollars and it was a large portion of that family's net worth. And trying to explain to an 85 year old woman and her husband, why debt was, leverage was good. This was a commercial laundry company. And so I remember using an example where it's like, let's say an MIT grad comes up with a little spray that they put on clothes and they never get dirty again. Their commercial laundry company is now bankrupt and you've lost 500 million, 600 million, however you wanted to value that company. But let's assume that we had leverage and we had taken some chips off the table. We had invested it elsewhere. And now that MIT person comes and creates that spray, my company goes bankrupt. But I've got half of that value out of the business already. And so now you're not destined to, you know, you've been able to diversify your holding. So I think private equity firms like to use the maximum amount of debt that they can comfortably. But I'd say that in the recent years because interest rates were high, they actually were using less debt than they used to and they were writing equity checks that were bigger than was typical because it was the only way they could finance the deals. And so, you know, I called it a few years ago, there was a game of chicken going on where founders and private equity were staring at each other and the founders were saying, I want my high multiple and the PE firm was saying interest rates are up. I can't pay your high multiple. Well, guess what? The founders won that game of chicken because at some level, private capital, private equity has to invest the money that they're entrusted with in order to, you know, be able to raise their next fund. They have to be able to invest the capital that's already committed to them. So they have to buy at some level. And so what actually happened was equity checks started getting bigger and leverage started going down for most firms or they would bring in another partner and have two equity checks coming into a deal in order to make the math work because of the higher interest rates. So generally speaking, I would say I am not, you know, I'm never worried about private equity using debt. It's a tool. And as long as the company's not overlabered, as long as there's enough cash flow to service the debt, you know, even if there's a slight downturn or a pretty healthy downturn, then I think debt is a tool that one properly used is not something that a founder should be worried about. Adam, what do you think the takeaway is here? Is it we wrap up the show? So definitely over time, money keeps pouring into private equity. The number of firms that are out there looking for things to invest in has gone up dramatically. Private equity is permeated every industry on the planet. You can't even go camping in Denali National Park by yourself without encountering private equity because half your camping gear is going to be owned by companies that were owned by private equity. So they're everywhere. They're permeating every industry. They have to invest their capital. It's because of their activity that I as a founder have a market to sell my business for the kind of multiples that are being paid. And I think that because there's this giant transfer of wealth that's going to go on over the next 10 years as boomers, you know, retire and age out, you know, I think founders need to be much more better educated about private equity. What it is, how it works and how to feed it. You know, it's a tool for you to grow your business and to get your wealth out. You're a tool for private equity because they don't have leadership teams. They have capital. They bring the checkbook. They need people to help generate returns for their, their investors. And so it's a match made in heaven when it works and it works well. But because of the unknowns and because of a founder's lack of true understanding and how private equity works, you know, when it goes south, oftentimes they're shaking their heads and wondering why did this go south? Why am I outside looking in at my own company and I'm no longer running this thing that I built. I was, you know, put off to the side. So I would say founders get better educated. Founders don't be just entirely focused on on what's the highest value I can get for the company. Also, be focused on who can be a good partner, good steward to me, to the employees, to the culture of the business I've built. And the more educated I am, the better I can navigate this world of private equity. And as time continues to roll forward, interest rates are normalizing. Capital's still pouring in. You know, no bubble in sight. I remember Mitt Romney saying, you know, hey, there's a bubble back in the 1980s. You know, people were wondering, well, when's private equity's bubble going averse? Well, it's still going strong. And I don't necessarily think there's a bubble, but I think as the world matures, there's more players. And there's a good mixture of those who have game and those who don't. And we have to be careful. So education is key, but still with PE buying about 50% of all companies bought and sold on the planet, this is something we as founders need to pay attention to. And if I'm a PE firm, I need to do a really good job from an operating partner perspective, making sure when I'm paying a high price for a company that I'm getting the kind of return thresholds and profiles that I've been modeling for my investors in order to be in good position to raise my next fund. Well, Adam, thanks for taking us behind the scenes again. And that's Adam. coffee and Adam obviously of course we'll have you back on in the show in the future and thanks again. Jacob good to see you. Good luck to everybody out there. I hope I hope I wish you the best. Thank you Adam. M&A Talk is brought to you by Morgan and Westfield, a nationwide leader in mergers and acquisitions for small to mid market companies. If you've enjoyed this show don't forget to subscribe and leave a review. Learn more at morganandwestfield.com. While we take reasonable care to select recognized experts for our podcast, please note that each podcast presents the independent opinions of such experts only and not of Morgan and Westfield. We make no warrant to guarantee your representation as to the accuracy or sufficiency of the information provided. Any reliance on the podcast information is at your own risk. The podcast is for general information only and cannot be considered legal or professional advice.