The Sooner, The Better; Don Bravaldo

Don Bravaldo didn't exactly apply for his current position, he created it. After three years of work in acquisitions valued $100 million or less, he noticed that the market was missing high quality advisors working on that level of transaction. Fast forward a few years (and the start of a Recession) and Don had founded Bravaldo Capital Advisors. For Don, it's all about timing. He shares how to step back and look at the larger timeline of the business: don't wait until you're ready to retire to start planning how to sell your business, don't wait to explore new trends in your field until the natural bubble has burst or moved on without you, and don't submit yourself to a career stand-still right after graduation at a major firm if you can help it by going to work for a firm like his that allows you to work directly with clients. For a CEO; selling your business can be an awfully emotional decision, Don's perspective is that he is there to help make it a strategic one.

Transcript

Narrator:

Welcome to the Harbert College of Business podcast with your hosts, Sarah Gascon and Currie Dyess. Don Bravaldo is the president and founder of Bravaldo Capital Advisors, where he provides corporate finance advisory services. With over 20 years of experience, he has closed more than $250 million in transactions across industries. He is a 1993 Harbert graduate in accounting.

Sarah Gascon:

Don Bravaldo, War Eagle, and welcome to the show. It's so great to have you today.

Don Bravaldo:

War Eagle, Sarah. So glad to be here and Currie.

Currie Dyess:

Don, you started Bravaldo Capital Advisors in 2011. What problem did you see in the market that convinced you it was worth betting on yourself?

Don Bravaldo:

Well, my journey to entrepreneurship actually started a little bit earlier than that around 2000.

I was in corporate America working for a publicly traded company called Hanger Orthopedic Group where I was a business development manager acquiring businesses for Hanger. This was the late '90s. And during that process I was responsible for transaction sizes a hundred million or less and had traveled around the country and met a lot of great business owners. I think ultimately during my three years there, it accomplished around 10 transactions, but certainly met with probably 30, 40 companies and had developed some great relationships. The bottom line at that time I did see that there was a underserved spot in the market, that same $100 million valuation or less. It was a rare day to find a smaller transaction size with a high quality advisor representing the seller. And so here we were a big public company with all of the resources, best attorneys, best CPAs, the ability to really dig deep on due diligence and skillful negotiation of course.

And here was a seller that maybe at best had a long-serving relationship with a local attorney and a local CPA. They were outgunned and outmatched. And the deal sizes that were above where we traditionally looked around that hundred million dollar mark of course had high quality investment bankers representing them, doing a great job of marketing the business and creating competition. So I knew that there was a spot that was underserved, but quite frankly, like many stories of entrepreneurship, there was probably a little push off the end of the plank. Hanger got into some financial difficulty and suspended their M&A program so they didn't need me. And I took a long couple of weeks of a camping trip to decide maybe working for someone else was not going to be my calling. So at first I started my practice as a solo practitioner working out of an apartment and quickly realized that I enjoyed participating with other folks.

And there was a group that was starting a fledgling M&A firm. So I joined up with them and became the fourth principle to join that organization. And over about a five to seven year span, created a practice group there that became the biggest piece of that business, performing M&A advisory for lower middle market size companies. And actually in 2010, the Great Recession had occurred and we had weathered that. There wasn't a lot of M&A activity except for distressed deals. I had plans to actually launch my own firm a lot earlier than that, but decided to, if I wasn't going to make any money, it made sense to stay where I was and share some expenses and overhead, but founded Bravaldo Capital in 2010.

Sarah:

Are there common characteristics you see in founders who ultimately build highly valuable businesses?

Don Bravaldo:

Absolutely. And I'll turn it back around because I know your role in athletics and you see common traits in athletes I think that are very applicable to successful entrepreneurs. They're driven. They have a talent. Often they will start as a super technician. I'm speaking about myself as well, and they find that they're really good at something and they decide to take that entrepreneurial plunge. And many don't succeed in actually building an organization that scales, but quite a few either through blind luck in terms of their industry starting to really grow and them being a first because they notice the need, they suddenly start to build an organization. And if we talk about entrepreneurs that are able to go the distance from a startup to multi-billion dollar organization, I don't necessarily see that. I don't have an opportunity to work with Steve Jobs when he was doing his thing.

Most of my entrepreneurs are either very young entrepreneurs, they're in the tech industry that don't necessarily found Google, but create a really good business and it'll plateau because their skillset is working in an early stage company, not necessarily wanting to block and tackle once they get to a more mature organization. Or we see the other side of the spectrum folks that start to get to my age now in their 50s or even older, the boomer generation that they're ready to retire and they don't necessarily have a great succession plan internally with that organization. And so those end up, again, the common characteristic that I see is that grit and determination to see through a myriad of problems you encounter as an entrepreneur and to have that staying power to make it through. And the really great ones are able to surround themselves with people that complement their skillset.

Don't get to see as many of those as I would like.

Currie:

So Donna, this is not my space, but I do see on social media that there's a growing trend of buying boomer businesses. And I could be totally wrong here, but a lot of entrepreneurs think of selling when they're ready to retire. What would be your recommended timeframe prior to, I want to sell on this date? How long should you start thinking about that in advance?

Don Bravaldo:

As early as possible.

Currie:

Okay.

Don Bravaldo:

Here's the standard answer. We would love to start working with companies and business owners three to five years in advance of their exit. And during that timeframe, I think we can do a tremendous amount of work helping them package and position and market time on an exit that is designed for M&A. We do help with internal sales. We'll do ESOP work, sell them to the employees, et cetera. But our primary bread and butter 99% of the time is selling to a third party through M&A. So sooner is better. And I would back that up and say, as an entrepreneur, you should, in theory, start your business with the end in mind. And so we have had many cases where business owners over a 10-year period of time, they're not ready to sell, but they start a relationship with us because we do offer buy-side advisory.

We all offer corporate finance, helping them, assisting them with getting access to capital, primarily debt capital or private equity capital. And so those business owners are checking with us each time they reach that plateau or that strategic juncture where they're trying to decide, look, I want to pivot. I want to add a new division to bring a new product to market. I want to acquire a competitor. And it's those businesses I think that we really enjoy because we get to watch the full lifecycle and help the full lifecycle of ownership with a business. But I'll tell you this, I think the 80 / 20 rule is very prevalent in our business. Only about 20% I'd say of our clientele are real planners that work with us at least three to five years in advance. We do a fantastic job for the other 80% that come to us.

Typically, they're event driven. There is some sort of event and it could be a good event that has brought this to the forefront and they're ready to sell. And so I often reference the four Ds, death or some scare that signals that the journey is not forever. It could be divorce, could be a personal divorce, it could be a business divorce, discouragement. I had a great business and for whatever reason the wheels are starting to come off the bus and so now I want to sell it, which we of course try to encourage them, let's fix that problem before trying to sell it. And then divestiture, which is typically more for the larger businesses we serve where they have a division that's become non-core and they'd like to sell that and redeploy the capital elsewhere.

Sarah:

Are there mistakes that consistently cost business owners millions of dollars?

Don Bravaldo:

Absolutely. I'd say the first mistake is trying to DIY do it themselves. And we see that quite often. In fact, often people ask, who's your competition? And there's a lot of wonderful competitors out there, a lot of not so good competitors out there. Every industry has competition these days. But our number one competitor working with lower middle market size businesses with 200 million in annual revenues or less typically is they will get a call out of the blue and get approached by a strategic acquirer or a private equity acquirer or a broker that's trying to rep one of those two parties or claiming two and they catch them on a bad day. Or that business owner is focused on the wrong thing, which is I'm going to save a couple of pennies here in professional fees and get everything I wanted. And they really can get themselves into trouble often.

We've met businesses that are too late in the process. It's hard to really get involved and make a huge difference when there's an LOI that's already signed. And we have before, but it becomes rarer. And we've watched businesses that we've heard about and had a relationship with that have gone at a loan. And there's just a myriad of ways that strategic acquirer, a private equity, Finagle buying a business at the lowest cost price, especially when there's no competition. And we've watched them play games with the price, change the price at the last minute. We've watched them play around with the working capital adjustments. It's a very, very complex thing selling a lower middle market size business and there's a lot of different ways you can get taken advantage of.

Currie:

You mentioned a $200 million revenue company. Your LinkedIn says you work with companies 10 to 300 million. How often are companies that large sold?

Don Bravaldo:

Well, you referenced the baby boomer generation and right now we are going through that big demographic shift. I think the numbers may be a little bit dated, but there's about 4.5 million businesses in the US right now owned by baby boomers. So we are seeing a big influx of sellers in that age demographic. And I wouldn't say that a $300 million a year revenue company sells every day, but I can guarantee you that here in Georgia and Alabama, it wouldn't surprise me if you have between five and 10 that size company sell every year. When I say sell, take on private equity capital. Sure.

Sarah:

I guess to piggyback off that question, how much does the owner themselves affect the valuation?

Don Bravaldo:

Well, tremendously. I mean, they're the ones that are calling the shots. They're the ones that made the strategic decisions to grow their business up until that point. They are going to be an integral part in the business. I don't meet too many owner founders

That are not involved heavily in their businesses. Now, if it's a multi-generational family business, if it is a business that has transitioned to professional management, absolutely. We do have absentee owners that have professional management teams that run their business. And we can honestly make the case that they are less involved and therefore the focus for an acquirer tends to be, well, who is the management team? Are they people that we can count on to continue to run the business? I mean, there's a zillion things I could talk about in terms of that transition and that owner founder and what they can do to really successfully position the business. But it comes with having a great management team surrounding them and someone from a succession point that can take the business on and continue to run it. And I say that knowing that it's surprisingly fewer transactions every year where a strategic acquirer buys a business and they don't need a management team.

They just want to buy the business because they have their own people to run it. That is a really hard thing to find because even that, even a really big company with plenty of managers, they're going to be acquiring a business they really don't know much about. There's going to be a transition and that can be a three to five year period of time for an owner and for a management team.

Currie:

So you mentioned earlier that ideally you'd like to work with somebody three to five years prior to them wanting to exit. If somebody woke up and said, "I want to sell my business in five years," what is something that they should start doing tomorrow morning to make that happen?

Don Bravaldo:

That's a great question. And we see it all, but often we're working again with privately held businesses. And as a private business owner, I would prefer not to pay a high tax rate if possible. So I manage my business from a tax perspective. A public company is exactly the opposite. They manage their business to show maximum profitability and sustained profitability in the future. That's typically not how a private business owner runs their business. And maybe a rare few wouldn't take that track. And so my comments wouldn't apply very much to them, but almost all of ours do. And to switch to more of a public company mentality and how you run the business going to take multiple years. Another point is even that, let's say $100 million a year business, which you would think with 150 employees or so is very professionally run. Often a privately held business very weak in the financial function.

In family business, for example, you could have a family member that has the title of CFO, but yet struggles really to keep up with the books. And so taking a few years to improve the quality of the financial reporting, putting professionals in place in the finance function, because selling a business involves a lot of numbers, involves positioning the business for acquirers to see the true profitability in the business.That's probably one of the number one areas that we can spend time on over a couple year period of time getting the financial reporting straight. But there's a zillion other things. It could be often we see that many good-sized companies still have customer concentrations. They have major customers. And if those customers are more than 10 or 20% of the annual sales volume, that's a big detractor in terms of value. And a lot of owners don't think about that upfront.

And there may not be too much that we can do in a two to three-year period of time, but we could sure try. Trying to move from a relationship-based way of doing business to a more contractual way of doing business helpful. I'm not saying do away with relationships, but I am saying let's go ahead and document some of these relationships because that makes the business more transferable. And I could keep going, but those are some of the top ones that we see.

Currie:

Yeah, that's great. I mean, it's very actionable.

Don Bravaldo:

A lot of it depends on the owner and being able to spend time with them and educate them. These are entrepreneurs. They don't necessarily have the time or want to put the time in. And so that's why I referenced that 80 / 20. But when we do connect with them and they start to get it and they really spend time working on their business instead of in their business, it can make a huge difference in the outcome and selling.

Sarah:

What trends do you think every business owner should be paying attention to over the next five years?

Don Bravaldo:

That's a great question. Well, I wish I had a very novel response, but AI is the game changer right now for every business. We're in the process of adopting it in different ways in our business as well. The impacts are yet unknown, but I can tell you the build out of infrastructure and data centers and everything connected to AI right now has really caused some industries to really see a huge run up. And I am a big believer in cycles. Some might say we might have a bubble. And so timing in our business is a real thing. If there's a great time to sell the business, you want to be prepared to take advantage of that if you're not making purely an emotional decision on timing to sell. And quite frankly, a lot of private owners are making emotional decisions and that's okay. They created the business and it's their baby and a lot of times it's their lives.

But being cognizant of, hey, we're a business that is heavily involved in servicing data centers, maybe that heyday will continue for the next 20 years, maybe not, but I can tell you right now the multiples and the valuations around it are very high. Same thing for other industry groups right now. I mean, it's a great time to sell in general if you have a good business and you've done some work in helping to prepare the business for sale. But there's absolutely industries that are hot, whether it's industrial maintenance and repair. A lot of business services have been great. We have hit a period over the last year and a half where we were off in terms of manufacturing and distribution thanks to Liberation Day and tariffs and a lot of disruption, but think that isn't going away, but as entrepreneurs and business people, we're becoming accustomed to how to deal with that.

And so I think we're going to get back into a cycle where manufacturing distribution are going to be industries that have a lot of interest from acquisition and professional acquirers. And I can see multiples starting to tick up just a bit in those industries. So those are just a couple of things that come to mind in terms of your question, Sarah.

Currie:

And Don, you've been recognized as a Georgia Titan 100 CEO. What leadership lessons have shaped the way you run your own firm?

Don Bravaldo:

Servant leadership is really how I approach our business here and my business with my clients. And I was very fortunate to grow up in a family where that was stressed and I've continued that style of leadership. I try to be very hands-on. Our firm right now is around 10 or 11 full-time staff and support staff, and we also have an advisory board of another 10 or so. So we're not a small business, not a large business, but we're still at that size where our senior leadership is very hands-on with our clients. And I'm able to work alongside our staff. We work in a team format on each one of our engagements, and we typically hyper-focus on five to seven clients each year. And so that allows us to really spend the time to make a bigger outcome possible for our clients and a great outcome possible for our clients.

So back to leadership, being able to work with our young staff and spend time and share knowledge. As opposed to a big Wall Street investment bank where a young person coming out of Auburn, if they make it to Wall Street and is going to be doing one tiny function in a back room for two years, our people are getting hands-on experience interacting directly with CEOs. They're seeing all aspects of the M&A process. They may not be out there wheeling and dealing and negotiating at the 11th hour, but they're going to be in the room, around the room, and being able to absorb all that I think is very important to them. Maybe another small characteristic, but a big one is I try to take my own advice and surround myself with very, very smart people. People that in many ways are a lot better than me.

And it's created an incredible team atmosphere here. And I believe in the team. There are firms in our industry where everybody is out to themselves. And believe me, we're competitive. We want to win. We want to do that with integrity and we want to do that in a team format.

Sarah:

Was there anything from your Auburn experience that still influences the way you make business decisions today?

Don Bravaldo:

I could say an hour about Auburn. I had a great experience while I was there. I was very fortunate to make some lifelong friends, to have some great professors, to have figured out very early that engineering wasn't going to be my calling, although my hats off to my friends that were successful and have gone on to do incredible things out of the engineering school. But the School of Acountancy was a great start for me. I'd say the number one thing about Auburn, we often talk about the Auburn family. That really exists. I mean the Auburn family today, my clients, the partners, many of them are from the Auburn community and we look after one another. That's hand in hand one of the things that makes Auburn special. And I can guarantee you that influenced and shaped me as a young student there. And I've gotten a lot of helping hands from Auburn alumni over the years.

I had a great experience in the Greek system. Back then, Auburn didn't have all the cool stuff that it does today. And I was fortunate to have a lot of fun, but also to be part of a fraternal organization where academics was important.

And I got involved very early in serving in the Greek community and was on the inner fraternity council and student government and some other organizations that really helped me figure out how to be a leader.

Currie:

But Don, speaking of Auburn, what advice would you give current students or maybe recent grads if they want to follow a similar career path as you?

Don Bravaldo:

It doesn't necessarily need to be the traditional finance track to end up into investment banking and M&A advisory, but it sure helps. I mean, you get an early understanding. I made a career switch late after seven and a half, eight years in public accounting and a three-year corporate career. And I had to found my own firm. I remember at the time in order to get into investment banking, I would've had to go back and get the MBA, which for me at the time just wasn't a choice I was willing to make. But I do see a lot of young professionals make that choice. They start off in accounting, they start off in engineering, and they go back and get an MBA with a concentration in finance and they enter our profession that way. So non-traditional is a little bit harder path, but it's not impossible.

And we have our share of folks that graduated in finance and have started as a young analyst and are starting to work their way up through the ranks in investment banking. So both routes are great. Start thinking about it early. Try to get involved in and get experience, internship experiences, at least in the business world, preferably in finance or in wealth management or in banking or in accounting. These are some professions that are closely related to our industry.

Sarah:

Don, it's been a pleasure having you with us today. How can our students keep up with your journey or get in contact with you?

Don Bravaldo:

Great question. First off, LinkedIn will be a great starting point for our journey and what we're up to. I'm there and folks can connect with me. You can also check out our website and I don't mind giving my email address out. It's first initial, last name, dbravaldo @B as in boy, C as in cat, dash advisors with an S.com. [dbravaldo@bc-advisors.com] I get a lot of emails. So what I would recommend is you can send me that email. It may be one of my support staff that connects. And if I can lend a hand to someone considering a career in investment thinking, we'll certainly try to do that. And we always need great people.

Currie:

All right. Thank you so much for your time, Don. War Eagle.

Sarah:

War Eagle.

Don Bravaldo:

Thank you, Currie, Sarah. War Eagle.

Narrator:

Harbert, inspiring business.