Rudy Bentlage could see a lot of potential in this businessman from southern Ohio who was eager to get to work making deals. The problem was he seemed to be a little too eager.
“He was very inquisitive, which I knew he was going to be, but he was also super aggressive,” says Bentlage, Northeast Ohio market executive for Middle Market Banking at JPMorgan Chase. “I knew if I said no too many times, he would get frustrated. I sat down with him for a couple hours and said, ‘I know you want to make acquisitions. This is how we can help you make them. Here’s what we can do and here’s what we can’t do.’ From that point on, he never brought us a deal that we couldn’t do. It wasn’t because we said yes to everything. It was just that he knew what we could do.”
Bentlage has spent his entire career in the banking industry and dealmaking plays a part in nearly everything he does.
“A lot of companies that have done a good job deleveraging their balance sheets are out there looking to buy,” Bentlage says. “We are funding and have funded many acquisitions over the past six months and I don’t see that changing through the remainder of 2018. People want to grow their businesses.”
In this Dealmaker Q&A, Bentlage explains the value of transparency in M&A activity and talks about how to know when it’s the right to time to consider selling your business.
How can transparency boost your odds of making a deal?
The lack of communication and transparency is a huge part of why deals fall apart. People might have secret agendas and you can feel them pulling you in a direction you may not want to go, or you may not understand why you have to go in that direction. Now, you’re at odds with this person. Be open to the bank about what you want to do. In return, the bank needs to be open with you about what it can do. There are certain criteria banks have to meet. We’re a federally regulated industry and there are certain regulations we have to comply with. Some of that is the leveraged lending standards that are out there from the Fed.
The typical standard is that a bank can’t do much more than a deal that’s leveraged three times senior debt and four times total. There are exceptions to that, but that’s the general guideline.
A good banker will sit down with a borrower and say, ‘Here are the parameters under which we can do a deal.’ If you are in the process of doing a deal, how about prior to the time you sign a letter of intent, sit down and go through the numbers. Figure out what the combined businesses looks like and work with your bank to think through how to do that deal. It all goes back to communication. As long as the borrower is open about what they want to do and what they are trying to achieve and the bank says, ‘This is how far I can do and this is what I can do,’ you avoid the conflict and the issues.
How important is confidence when seeking financial support?
If you don’t believe in what you’re asking for or if you feel sheepish about asking to raise capital, you probably shouldn’t be doing it. If you think about the seven degrees of separation that people always laugh about, in Northeast Ohio, it’s probably two because it is such a small business community. If you go out and raise capital and really don’t believe in it and aren’t willing to support what you’re asking for, if things don’t work out, a lot of people are going to know about it. If you don’t put your heart into it, everyone is going to be like, ‘Wait a minute, you got me into this and you’re not willing to put your heart into it to make it a success?’ You shouldn’t ask for what you don’t believe in.
What are some things to consider before you decide to sell?
It’s where the economy is and where you’re at with the life cycle of your business. Do you have a ton of runway left to increase sales volume or increase your margins? If you’re an ownership team in your 50s and you feel like you have a lot of runway left, you might hold on to the business a little longer. If you’re an ownership team that’s 62 to 65, you don’t have any heir apparent and you’re not at the peak, but the economy is doing well and has been doing well for several years, it might be a good time to look at selling.
The multiples being offered to businesses now are as high as they have been in a long time. If you’re older and you think you can sell the business for a multiple that is higher than you’ll probably have an opportunity to get in the next several years and you’re ready to at least move on to another project or retire, you probably can’t pick a better time than right now to sell.
How to reach: JPMorgan Chase, www.jpmorganchase.com