Deborah Douglas spoke at our fourth 10x Medical Device Conference in May 2016.

A main takeaway for me seems obvious but those who go-it-alone probably ignore it: Multiple bidders make for higher prices. Deb said, “For an average seller, our firm will talk to 300-400 buyers.”

Watch her full presentation below and click through for the slides and transcript.

Joe Hage: Deborah Douglas is the author of a book I’ve read called ‘Ripe: Harvesting the Value of Your Business.’ Please come on up, Deborah.

There are some voracious buyers out there but you have to know when to sell and how to sell, and this is what this young lady does for a living. Let’s hear it for Deb Douglas.

Deborah Douglas: It’s great to be here today. You guys serve an industry segment that has been extremely hot in the M&A world recently. I read an article in the Wall Street Journal three or four months ago that said nine out of 10 middle market executives and above would be impacted by M&A activity in the next decade. I would say that for medical device companies that’s probably in the next four or five years. It’s really a hot segment.

The object of today is to tell you a little bit about how you can end up being on the winning end of those deals regardless of your position. All your companies will sell or combine or acquire somebody probably in the next few years. It’s effective business life that growth is nourished much more quickly, much more readily, much more profitably from an acquisition than it is just from internal activities.

Our firm, Douglas Group, gets a really good idea of that. We sell companies, middle market companies typically 20 million to 250 million in sales kind of is most of our market; we sell them very well. We’re good at it and we love it. We kind of feel like it’s doing a good thing for the world. We feel like business owners are kind of the heroes of the economy, they invest money and they guarantee debt, and they provide jobs and opportunities for people and they improve goods and services all over the country. And they certainly fill the public tax coffers with money.

So we feel like what we do which is make sure that the gold, the pot of gold is there at the end of the rainbow is really a good thing and we love it. I have a daughter who was home from college at Cornell a couple of years ago. Had all of her friends to St. Louis to visit. They sat around the breakfast room table chatting about love and life and government and everything. And I couldn’t help as I hovered around the room throwing in little comments here and there.

And finally my daughter just said, “Wait!” She stopped everything she said, “You have to understand my mom’s basic philosophy, she thinks there is some kind of really healthy selfishness that’s good for the world.”

And it’s true I do, I think that’s a fact. When we talk about timing for potential sale we’re talking about something that the object of the game is probably for most business owners really to make money. It’s a good thing and we like that.

I had a friend as I was growing up, he was from Communist Russia in the old ways when communism was pretty grim. He liked to define free enterprise as exploitation for the common good, and I think that’s kind of a good definition.

The M&A opportunity that you want is the one where one plus one becomes three. And that can happen for a number of reasons. It can be because a company finally put together has the resources it needs to really grow it. Especially in this industry in particular it takes a lot of money sometimes to get out there and get, and maximize results and it really can help to have an acquisition.

The benefit may be cross-sale to customers where you have two companies that can sell the products into one another’s customer base. It may be two companies with very different strengths that can capitalize on one another’s strengths. We had a medical device developer with no sales or marketing a few years ago, literally none, was kind of in the early startup stages. They were acquired by a company that had a powerful marketing and sales force. Their sales literally tripled in three years. It was a neat combination, a good business combination.

Owners also really want to protect employees, it’s way more important than employees ever realize I think. We sold a company in Philadelphia a few years ago and it was too little for us, most of our companies are 10 million or bigger in sales, these guys were about seven million in sales, but they had great earnings like a third. They were growing like crazy.

We sold that company we had probably about 20 offers on the company. Most were 10 to 15 million, two offers were north of 30 million: one was 35 million, one was 32 million. The $35 million offer was from a strategic buyer, a competitor of the company. The 32 was from an equity fund. The owner chose the $32 million guys $3 million less just because he thought they would be better for his people. So it’s kind of a neat outcome and people can get that.

The best protection any owner can get for his employees is probably to sell for a premium price. The buyer who pays a premium price wants your people, he wants to take good care of them, he wants to invest in new equipment, new marketing, all kinds of things. So he’s really a good guarantee for people. These buyers put in new marketing channels, new equipment, all sorts of things that can make a big difference.

Timing.

We get a lot of inquiries from sellers about when should I sell, what’s the right time.

The volume and magnitude in this industry has been just huge in recent years; it’s been wonderful. In part that relates to general economic conditions. Demographics the populations of the world are getting old and feeble and benefit from new medical devices. That’s a great help to people. The stock market volatility actually helps the market in our case, the market for middle market companies.

People don’t feel real secure relying on the stock market with its ups and downs the swings as their future earnings. They like to invest in real ownership of a little piece of a company hence all the private equity funds today. You didn’t see that 25 years ago, you see a lot of private equity activity now.

In recent years interest rates have been a big boon. I mean half the deal price typically comes from borrowings. It’s really nice when those borrowings are really inexpensive. It helps price for the seller. Evolution of medical technologies, there has been so much that has changed and developed recently that’s really good in this segment in particular. There’s been a huge increase in the number of or in the access to international markets.

25 years ago I founded this firm and at that time it really was kind of unusual to have good access to international markets. Today just about everybody does, and it really helps that the growth prognosis tremendously.

The time to sell is when the trend is up. If I look at companies over a long term they grow kind of gradually then they level off a little bit and then eventually they drop down. You want to sell sometime in that upward path, somewhere along that way it makes a big difference.

The timing could be everything, we were approached – this is a long time ago – by a company with a guy who had $60 million in sales, good profits, steady profits and he was approached by somebody with a $50 million purchase to purchase his company.

Well he talked to us and we were helping and the buyer wanted him to commit to working one year to transition the company. Well he decided he didn’t want to retire in a year, he was only 58 or something. So he passed on it.

About a month later he had a stroke, he was out of the business completely for the better part of nine months. The business went down, it had all kinds of problems. He had never had any borrowings before.

His people started borrowing money, he was up to six or seven million in debt n
ine months later. He came back into the company, he tried to revive it he couldn’t. A year-and-a-half later he came back to us and said, “Okay now I want to sell,” but he had no value anymore!

It was not making money, he had debt, it was really in bad shape. We ended up, we did sell the company for when we got enough to cover his debt, barely, no more. So his value had gone from 50 million to zero in about two years; it’s really sad.

Sometimes it works the other way. We had a company that we sold a few years ago in the Memphis area. It was a nice company, good progress, good sales, good growth, $30 million in sales. But the really winning thing about it was that it’d just gotten a great new contract with a big really desirable customers. We took it on. We thought we’d get at least 30 million for it. We had a lot of offers, we ended up selling that company for 67 million all-cash.

It was purely timing, he had just gotten this great hot new customer and everybody wanted the hot new customer so it made a big difference. Also we kind of like cash deals. Everybody always makes the expression “Cold hard cash,” cash is warm. We think it’s soft, we think it’s nice, we think that cash is a good thing and we try to head in that direction always.

When you think about building value … Or excuse me, when you think about the recent M&A headlines there has been a huge amount of growth in recent years and it’s a great time to sell a company. People ask, “Is it really a cyclical market?” Yeah it is. What’s the cycle? I don’t know, six to eight years, something like what we see surges up and down. We have people that ask us, “So where are we now?” Well we’re obviously in an up cycle. “When will it end?” I don’t think I know that, that’s kind of hard.

I feel very good about 2016, less so about 2017 and 2018, it will probably go down somewhere along the way.

If you’re developing a company that has very new technology, timing is pretty important. You need to get catch the excitement enthusiasm about that wave to come for a new technology; it makes a big difference.

We had a Hillsborough product years ago that we worked for the company. A guy came to us, he had about $5 million invested in this product. It had just gone through all the trials and it was just about cleared for sale. He had a offer unsolicited for $50 million for his company.

Well he looked at it and he said, “You know it could be worth 200, 300 million in a few years. I think I’ve got to wait it out and see what happens.”

Well he did wait it out.

His patent wasn’t quite as strong as he thought, there were a lot of adjacent products coming on to compete with him; he didn’t do very well.

He ended up selling the company three years later for about $3 million. It’s really sad. Sometimes the dream and the hope for what that future could be for the technology is better than the real thing.

Sometimes owners sell just because they’re ready, they’re tired. We had a guy that we sold the company for in Texas a few years ago. He had a beautiful plan, big company, it was doing very well.

When I went down to visit his plant his COO picked me up and introduced me and brought him to his office and introduced me to Jim, the owner of the company. And he said, “I want to introduce you to Jim, he’s the father of this company.”

And Jim said, “I want a blood test.” Then it gets to be kind of frustrating sometimes. We ask him, “Why are you thinking about selling? What are you doing? What has happened in your life that makes you really think it’s the time now?”

He looked at us and said, “Well, Lady, I used to run three miles every day before I went to work. I’d stay at work till 8:00 or 10:00 every night, get up the next morning do it all over again.”

He said, “I’m too tired to do that now.” And said, “Shoot! Today the most exercise I get is I fill up the tub, pull the plug and fight the current.”

He just wasn’t ready to keep working on it anymore, he was just tired. That made him a good seller I mean frankly he had built that company for 20 years’ time. He had put all of that energy into it, he was ready to cash in.

When we think about what we do to build value I guess the first most important thing I would say is probably building a focus, building a one point that you’re kingpin of.

I talk to at least 20 new buyers a week, every week week in week out. And probably three fourths of them use the word ‘niche’ in the first three sentences. Everybody wants a company that has a really established great position with a really focused niche in their business.

Aristotle Onassis had a saying he said, “The secret of great business is knowing something that nobody else knows,” and I think there’s truth in that.

Our Texas guy, Jim had a comment about it he said, “You’ve got to be focused.” He said, “There’s nothing in the middle of the road but yellow stripes and dead Armadillos.”

Patents have huge value but again you have to think about the timing on selling a company with a patent. Buyers who have a really strong foothold in one area the great kingpin of heart care products loves a new heart care ad. They want something that will enhance that niche, make it even stronger, make it even more powerful and they may be the kingpin players for US seller.

Buyers also look very hard for management power. They really it’s become so important in recent years much more so than it was even 10 years ago.

I don’t know if any of you read Plastics News, Plastics News has a new spot on ‘What Keeps Owners Up at Night’ and practically everything that they say talks about how do you obtain great people. How do you keep them? How do you get them enthused and happy about what they’re doing? It’s a very important piece of business today.

Sometimes I think owners don’t fully appreciate how important that is. We sold a company in San Francisco a few years ago; it was a great company. Different kind of customers than yours, they were mostly computer giants: Compaq, HP, Apple, all the big computer guys. And we got about 10 offers on the company. We invited three of those guys up to tour to see the plant.

Well the first one that came through went through the plant and said, “Oh this is beautiful this is great.” They got into a private conference room, he was asking the questions he says, “You have to tell me one thing, I don’t see how a company that deals with these big hard tough customers possibly does it to keep such great margins. What do you do?”

The owner crossed his arms sat back said, “It’s all right here,” (pointing to his head) and the buyer was gone. 30 minutes later they left and never came back. The buyer doesn’t it all right here, they want a group of people that they can count on, that they can build, then they can make something with going into the future.

Those of you who are in a particularly high-growth area I think those people things are even more important; it becomes really critical. Those of you who are middle managers in those companies, there can be some wonderful opportunities as a result of the acquisition, possibilities.

When we think about what buyers want, there are probably three main things. First of all they want earnings power; absolutely. Secondly they want growth potential, why? It makes more earning power. And lastly they want something that gives them a big competitive advantage in the marketplace; it makes a big difference for them.

Sellers always ask me what’s the rule-of-thumb pricing. They want kind of an automatic number they can use to figure out what their business is valued. There are rule-of-thumb pricing mechanisms that are okay but they probably all go away when you get the right competition. I would s
ay rule-of-thumb for a medical manufacturer might be 5.5 to 7.5 times EBITDA. By the way that’s half a multiple higher than for a non-medical product; just a little bit up.

It can vary quite a bit depending on the competition. If the potential is amazingly strong for some reason, all of the rules of thumb can kind of go out the window. We had a company a couple of years ago with 30 million in sales making 5% making about a million-and-a-half dollars in sales. We sold that company and they had some really niche products that fit into a certain customer mix that everybody wanted. We ended up selling that company for 80 cash. We sell like a 25 mil 00:19:11 I mean it’s ridiculous, it makes no sense at all but you know what we had a lot of offers in that range. They were all fighting to get that company. If you get the right competition it can make a big big difference.

So what do you do if you have a company and you’re ready to sell? What is the process? Most business owners sell a company once in their lives, not many times. They really don’t know what to expect as they go through the process. I’m going to kind of walk you through what our process is and it’s not golden, it’s not what everybody does but there are a lot of commonalities to people who sell.

By the way let me get a feel for how many people here own a business? Pretty good number. And how many are middle market say within a business? Okay, how about advisors to business owners? Okay, I’ve talked to a number of people here today who are kind of advisors of business owners and I think this stuff fits for them as well very nicely.

As I talk to you about the process I will tell you that the best seller reps are kind of tough guys; it’s really a tough process. Their job is to protect you and to protect the value of the company you have and to make it safe. There’s a quote I like here, there’s a weird quote. Al Capone said, “You can get a whole lot more with a kind word and a gun than with a kind word alone.” I like that. We try to be the gun, we want to be the power behind that seller to make sure that he’s going to do well.

We sold a company some years ago in Louisville, Kentucky and the owner had … A lot of times buyers wait really long to hire anybody. These guys had come to us with an offer in hand of 10 million, that’s really later than they should come. And it was about a $10 million company, 10 million offer it was pretty good, but it had some big new customers, it was growing really well and we thought we could do a lot better. So we said, “Yeah, we’ll sell it, we can do a lot better than that.”

And the owner said, “Okay, but I don’t want to talk to any other buyers. I only want to talk to the one guy who already made me the offer because I really like and they’ll be good for my people and they’ll be good for the company long-term.” I said, “No then we can’t do it, there’s no way to get that buyer to raise his offer if you can’t get competition. His job is to buy as cheaply as he can, he can’t pay you more just for fun.”

The owner finally said, “Okay you can talk to other buyers but I’ll probably just take their offer whatever it is.” So we ended up going to work, bringing in other suitors for the company. We ended up selling that company pretty quickly about two-and-a-half months later for 25 million in cash plus 15 million in earn-out to the same buyer. I mean I would have thought they would have been humiliated the raise of that, I was amazed. But it happens, I mean the competition is all they needed.

And we had another company we sold about a year-and-a-half ago. It was a little company, came to us with an offer in hand of 13 million. They wanted us to sell the company and they said, “The only thing is you have to exclude from your fees any fees if we sell to that guy for 13 million.” And we said, “Well we’re not going to exclude anybody, what we do is create the pressure for them to get real and buy. We’re not going to do that but it’s okay no harm no foul. If you like the guy’s offer just take it, if it doesn’t work out come back to us in a few months.”

Well they came back to us, it was really about nine months later, they had accepted an offer from the guy with a letter of intent. They gave them six months of exclusivity, six months the guy had to close. He came back at the end of six months he said, “I need 90 days more,” they gave him 90 days more. Then they came to us about day 80 of his 90 days and said, “Okay we’re ready now, go ahead and take it.”

So we took over the deal, we brought in other offers pretty quickly and we find out by the way the $13 million offer was 20% cash 80% notes which is bad, cash is good, notes are bad. So he came to us and said, “Well I really wanted to bid on that company, I was going to buy that company. We did all this work, you can’t just count us out now,” and I said, “Well it’s okay you’re not counted out but I’ll tell you if you’re going to come back now with an offer we’d love to see it but the offer is going to have to be all-cash at close and it’s probably going to have to be more than 13.”

The guy came back to us with an offer of 15 million all-cash at close and we closed in 30 days. It was amazing it was great, but he would have never done it if he didn’t have competition making him do it; it makes a big difference.

Now owners, all of you owners in here you all get calls constantly I know. Every week, week in and week out every owner gets a million different calls from people probing to see if you want to consider sale. Well 75% of those calls are from people that are intermediaries that are calling to see if he might be receptive to sale and if so they’ll quickly pick up the phone and call five buyers they know and say and try to get a finder’s fee for finding him.

So they’re not very careful about confidentiality. They don’t know much to tell the seller. We always tell sellers, “Use those calls find out first of all who the buyer is.” Here’s a list:

Who are you calling for? Are you calling for yourself? Are you the CEO of a company that wants to buy me?

Are you an intermediary that’s been hired to do this job for a company that wants to buy me?

Why do you like us? Why do you think we’re a fit?

What do you look for in a company? What do you try to avoid?

What else have you bought in the last year or two? What did you pay for what you bought?”

If you can get that kind of intelligence that’s good for somebody, for the day when you decide to go and sell. It’s healthy, it’s helpful. It’s sometimes hard to get that information but it’s really worth it.

When we go through the selling process we probably spend the first two months doing two things. One is we gather information on the company. We gather information on financials by segment, by products, by geography, all different kinds of sorts of how you make it do money. How’s it coming to you? We spend a lot of time doing that. We develop information on people or charts descriptions of key management, all of those kinds of things.

Information on facilities, equipment, real estate, values, location, growth, capacity, all of those kinds of things; we spend a lot of time doing that. That information is kind of critical to the process and we really make sure there’s very accurate and very meticulously put together. We want it to be truth. Buyers only pay premium for truth and it pays to have truth.

Sometimes our clients find themselves a bit embarrassed about the things they don’t do very well like guy who I know sales staff 00:26:42 he doesn’t talk about it, he was like really embarrassed to even bring it out. But frankly if we find the buyers who can fix the problem they like it, they pay more for the problem. It’s really true. So it can be a great help.

We also spend
a lot of time working to identifying buyers during that first month or two and we spend a lot of time; people don’t believe. For an average seller, our firm will talk to 300-400 buyers, a lot of people. No some we talk to for five minutes and some we talk to for an hour.

We’re trying to find out all the things we can about what they want to buy and what’s a perfect fit and what do they think a good margin is for a company like this.

What do they think a good EBITDA percentage is? What do they think a good growth rate is? All of those kinds of things tell us how likely it is fit for our seller.

A lot of our clients come to us right away and say, “Oh I know who the buyers will be. It’s one of these three or four guys.” Really common and they were always wrong. I’ve learned over time they think of the guys that are most like them that are out in the marketplace or they tell me, “Well so and so would pay a fortune just to have us gone.” No they wouldn’t, not usually. People don’t pay just to have you gone; they pay for earnings capacity you can add.

The best buyers are usually the ones that are off-center, the ones you haven’t thought about. The ones that don’t know anything about what you do and can’t do it. They get more when they buy you, they get a new capability. They are much more enthused and they pay a much bigger premium for your company.

As we go through the process of probing buyers we’ll ask, “What makes the perfect fit? What do they want to avoid? What are good growth and profit percentages? What directions they want to go in the future? What do they think the most promising markets are for next steps? What’s their history with 00:28:50 acquisitions and what have they paid for what they bought? What’s their sort of rule-of-thumb pricing?”

If we talk to 300 buyers we’ll probably find 30 that are just right. We chair those with our clients; our clients enjoy that process. They like to know who’s buying who and why, it’s kind of fun gossip so they enjoy that piece. Usually they’ll agree on those top 30 with us and be pretty content with that.

If we’ve identified buyers really well, the next step we do is we go to the 30 and we get to sign non-disclosure. It’s got a client number, no name, no location; they don’t know who our seller is yet. They sign our NDA and then we start to share real information.

We’ll typically start that with just overview information maybe a two-page narrative and a one-page financial. If we chose really well, every one of those guys is calling us back the next day, and that really is the beginning of the competitive prices. That’s where the horse race starts.

When they come back to us they’ll all come back to us very quickly asking for more info. They want financial statements, they want all charts and they want info on people and they want info on the plant and what the equipment is and all of the stuff.

Then we begin to share that information in earnest with them. They ask questions, we’ll answer the questions, they all are asked to come and visit the plant.

We won’t let them do that; if we did that every seller we have would have 25 one-day long tours with buyers coming to their plant.

A, you couldn’t possibly keep it confidential, people would be really worried about what are all these people doing?

B, the owner couldn’t work on his business for a month. You can’t do it, it doesn’t make sense. We will be very careful not to let them do that.

When we get down to maybe the top 10 then we think are really coming along and really ready and really pressing us hard for a visit, we will ask them to submit a letter of interest. It’s non-binding a letter that says what the price is and what the key terms are.

From that letter of interest we’ll pick the best two or three to invite to come. By that time we really kind of know what’s going on and have a strong sense of what we want to do.

Each buyer who visits will bug us for immediately right after for a letter of intent. A letter of intent does nothing for the seller; it’s a bad thing not a good thing. Letter of intent always has exclusivity requirements. They want you to not talk to anybody else. Well you can’t do that too quickly you have to be darn sure you know who the buyer is, what all their terms are, the details of their terms, if they have the money to do it, all of those kinds of things before you choose a buyer.

When we have a letter of intent request from a buyer who has visited, if our client loves that buyer as much as he loves him, we’ll try to do it. But we’ll require a non-refundable deposit. Maybe 250,000 and the buyer doesn’t get it back if he changes his mind for discretionary reasons. He gets it back if we give him non-truth but we don’t. He gets it back if the plant burns down, if there’s a material adverse event but he doesn’t get it back because he changed his mind.

We do those deposits probably a third of the time. A third of the time we can’t get anyone to do a deposit but we’ll continue without exclusivity. We’ll go ahead and let him do due diligence and say, “Good we’ll go forward to award 00:32:45 close but we won’t agree to chase the other buyers away.”

Sometimes maybe a third we have to take exclusivity with a buyer.

If we have to do that it’s dangerous because some of those buyers will decide not to later. They’ll get halfway through the process and cost us a lot of time and money then say, “Ah never mind.”

That’s painful. All the other buyers who had bid before that are gone, they’re always gone I know this I’ve done this for 25 years I know it. It doesn’t mean you can’t sell the company but you’re going to have to go back and find new buyers, it’s a lot of trouble. So it’s a bad thing when it happens.

When we get to the point of sending a letter of intent we try to work out a lot of the details like will the owners transition?

How long are they going to work?

Will the company buyer lease the building often owned by the owner separately? Well limitations is the buyer okay with 00:33:42 reps and warranties. Buyers always have reps and warranties the seller has to make to say that things certain things are true. If any of those turn out to be non-true they’re going to be able to come on the seller financially. So we need a limitation on that both the time period and the amount that can go forward.

How will the due diligence be conducted? Will the buyer continue to keep it confidential? Buyers sometimes want to talk to people; we’ll let them do that.

Sometimes if they want to talk to the one key guy who’s going to run the company after the owner retires you might have to allow that. Or many owners will allow the CFO to know what’s going on just because the owner couldn’t get all the info without the CFO.

But you don’t want to tell too many people, it does no good and can do great harm. I’ve seen lots of owners sorry they did it; I’ve never seen any owner sorry he kept quiet. It pays to keep it very quiet.

Does the buyer need to talk to the customers? Buyers often want to talk to customers. You don’t want to let buyers do that.

Now pretty often we will have to allow some kind of customer satisfaction survey that the buyer can listen in on to make sure they’re comfortable that we have good relationship with customers. But usually I try to do that in the last week or two before close so it doesn’t do too much harm.

Then sellers think they’re done but they’re not done.

They get to the definitive agreement; I mean this is a 150-page complex pain-in-the-neck document that you really have to pay attention to.

I probably read that 150-page thing on the average 20 times. I probably change something on every page of it, b
ut you know what, in 25 years we have never once had a client sued and we’ve never once had a client who didn’t collect all his money.

That’s because we spend the time to be really careful and really meticulous about those documents. It makes a big difference and it saves our clients from a lot of pain. There’s nothing like selling a company and then dealing with a lawsuit for three or four years afterward. We tend to get pretty unhappy.

One other thing I’d like to comment on a little bit is the retained ownership stake. There are so many equity funds out there now and you guys read about it all the time, equity funds that buy a piece of somebody. It’s a big deal and it can be a good opportunity for an owner. Equity funds typically like for the owners to reinvest, to stay in for a 10% or 20% or maybe 30 some percentage to keep.

It’s kind of scary for owners but part of the benefit is that to stay in for a 20% for example doesn’t cost you 20% of the deal price. We had a deal last year we sold for $50 million and the owner wanted to stay in for 20%. Well he thought that meant that he would have to put $10 million in. Well it didn’t, the equity fund did the deal with about half cash from his bank account and half debt.

So he put in 25 million of cash 25 million of equity. To keep that 20% our owner only had to put in the 25% of the equity of 25 million. So our owner had to put in five million. He got 50 million he put back in five, he netted 45 million and he owned 20% of his company. Not a bad deal I mean he liked that.

And we have sometimes great results. We sold a company last year that employed an injection 00:37:22 that we did well on and they wanted to keep a piece of the business. The owners kept 20% two guys kept 20% of the company. I just talked to the owner one of the owners, April 15th really recently, and he said it’s been the best thing that he could imagine.

He said, “Everything we don’t know how to do they do, and they get the resources for us to do it. Everything that we know how to do and that we do well they leave us alone on.” So that’s perfect. It’s a great opportunity. He’ll do wonderfully on that company. It’ll probably sell in five six years but I bet you he’ll do very well on it, it’s very nice.

There are a lot of other issues on an equity fund that you want to find out. What if the owner retires before the equity fund sells? Will he get bought out? How much will they pay him?

What if the equity fund fires the owner? You’re no longer around the company, you’re out on the beach or on the bench so do you get bought out at that time?

And if so what do they pay you for what you get bought out? Will the equity fund allow them to give equity to other key management? Owners really like that, they really want to have their key people bought in the same so it makes a big difference.

There are a lot of issues for the equity funds that make a big deal but we have now probably six equity fund sales we’ve done where the owner made more selling his little piece, his 10 or 20% five years later than he did the first time for the whole rest of the company. That’s pretty neat, that’s a pretty good opportunity. That’s pretty wonderful for the sellers.

We sold a company 10 years ago to a guy who had a 10% employee COO. The employee got 10% that was a million-and-a-half dollars at the time, he got that million-and-a-half but the buyer also wanted to keep him so they gave him a bunch of equity incentives to let him keep earning more stock.

He did well in six years he had earned about 25% of the company. I just heard recently they’re going to sell now, they’re going to get $40 million, he’s going to get 10 of it, no debt. He gets $10 million. What a neat thing for a key second-in-command guy! I mean it’s wonderful.

In conclusion if you’re the owner of a great medical company today the market has never been stronger. If you’re key management for a company like that, there are opportunities now that you have never, would never have had in past years. There’s no really easy right answer to all the M&A questions that will come up but there are some really neat opportunities for people today.

Thank you.

Joe Hage: That was a great talk. Please stay.

(Applause)

So my first question of the audience is who knows someone right now that would do well to know Deb? One two three four. I’m just taking a mental picture of these hands.

Deborah Douglas: One of our associates, Jason Bean, – raise your hand Jason – is back there and he’s got a couple of books so if anybody wants a book tell Jason and we’ll get them with you.

Joe Hage: These will be autographed?

Deborah Douglas: Of course.

Joe Hage: Oh excellent, Deb. So I want to ask a question of you.

Deborah Douglas: Shoot.

Joe Hage: I was at an event in Dublin a few week backs and I met a venture capitalist and I asked him what was the best way to approach him and how could people who wanted to get his money get it. And he said something that was very interesting to me, he said that not only is he looking for at least a five times return, but he needs an exit of at least 350 million to do the math.

And he said that the average exit for a medical device company over some period, I don’t remember that, was 140 million. That delta was striking to me.

And you mentioned some sales in the 80 million or so category so where do you fit in to that kind of dynamic and what happens when a company is VC-backed?

Deborah Douglas: I would comment that VC companies typically look for companies that they can buy for less but trade at a much higher multiple. We deal more with existing substantial companies that are already in place. They have an ongoing business, they’re not … They’re more than an idea, more than a patent. They actually have some volume in place, and it’s a different kind of business, it really is.

Shiv Skulka: For younger companies I was curious if you could tell us what sort of IP portfolios did they have? Are you looking at like 20 patents or 100? Just curious because we’re early stage right now.

Deborah Douglas: I’m sorry I didn’t hear the first part.

Shiv Skulka: IP portfolios like how big are their patent portfolios?

Joe Hage: Them being the companies she represents?

Shiv Skulka: Yeah, the companies that are being bought.

Deborah Douglas: They really vary hugely. Most of our sellers probably don’t have very deep patent portfolios. They’re companies that are 250 million or less in sales. Usually they don’t have 20 patents they have four.

Shiv Skulka: I see. So they don’t get a … Do they get a revenue multiplier or patent, intellectual property multiplier?

Deborah Douglas: We’ve done deals where we actually sold the company but retained a commission, a royalty if you will for the owner for a long time. Some of those have done really well but it depends on how much the patent really takes off and how good it is long-term. If you feel strongly about it, it might be worth trading a few million in cash for what could be tens of millions going forward for a patent royalty.

Joe Hage: I look forward to sharing your presentation with my group. Deborah Douglas.