Anna Jacob: Maximizing Purpose while Achieving Profits

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On this episode of The Founder's Sandbox, Brenda speaks with Anna Jacob about "Maximing Purpose while Achieving Profits". They speak about her broad experience coming full circle from her experiences growing up that informed her future career purpose- and in assisting women business owners to think strategically on exit strategies. 

Anna Halloran Jacob specializes in selling privately owned companies and maximizing their after-tax proceeds. She has also served as Adjunct Finance Professor, Loyola Marymount University, 25 years in investment banking, private equity, and corporate operations. Anna was also COO of a full service advertising company with over 150 employees. Anna is passionate about educating business owners on how to maximize the value of their company for a successful exit. She has significant experience in representing companies in the sale of their business, capital raising and valuations. 

You can find out more about Anna Jacob at :

Linked IN https://www.linkedin.com/in/anna-halloran-jacob-6543b8193/

Diamond Capital Advisors

Show Transcript:

 

00:04

Welcome back to the Founder's Sandbox. The Founder's Sandbox is a podcast now in its second season. The monthly podcast reaches an audience of entrepreneurs and business owners who learn about building resilient,

 

00:32

scalable and sustainable businesses with great corporate governance. I'm Brenda McCabe, your host here on the Founder's Sandbox and my mission is simple. I want to assist both entrepreneurs and intrapreneurs in building their scalable, well-governed and resilient businesses. The guests to my podcast are founders, business owners, corporate directors and professional service providers who, like me, want to use the power of the private enterprise.

 

01:01

small, medium, and large to create change for a better world. Through storytelling with a guest on topics that we touch on, including resilience, purpose-driven enterprises, and sustainable growth, my goal is to create a fun sandbox environment where we can equip one business owner at a time to build a better world through great corporate governance. Today, I'm absolutely thrilled to have as my guest Anna Jacob.

 

01:30

Welcome, Anna, to the Founder's Sandbox. Thank you. It's great to be here, Brenda. Thank you. You are a managing director at a Los Angeles-based firm, Diamond Capital Advisors Investment Partners. It is a mid-market firm focusing on investment banking, M&A advisory, and capital markets. And Anna and I are going to talk about

 

01:55

something very near and dear to your heart as well as mine, is maximizing purpose while achieving profits. And if you allow me, Anna, I'm gonna give a brief background on yourself. Anna Halloran Jacob specializes in selling privately owned companies and maximizing their after-tax proceeds. She also has served as adjunct finance professor at Loyola Marymount University.

 

02:22

25 years in investment banking, private equity, and corporate operations. Anna was also COO of a full service advertising company with over 150 employees. Anna is very passionate about educating business owners on how to maximize the value of the company for successful exit. She has significant experience in representing companies in the sale of their business.

 

02:51

capital raising and valuations. It's truly a delight to have you here. You have such a broad experience. It was difficult to choose the topic. And I think your broad experience and having known you now for a couple of years while we work with women owned businesses is a testament that you're coming full circle to the episode's title, maximizing purpose while achieving profits.

 

03:18

I've known you for a few years and it wasn't until recently that I went, aha, I want to invite Anna to my podcast. I learned that you had an early formative or growing up experience that informed your purpose, Anna Jacob, in assisting business owners to maximize profits and alignment to your purpose. Can you share with my listeners, you know, what was that experience that was so formative and what you do today?

 

03:48

Yes, absolutely. So I'm one of 10 children. And my father was an entrepreneur. And he had a very innovative orthopedic device company. And it was for the betterment of patients. And we were too young at the time to know this was going on. But what had happened was he had received a couple of offers.

 

04:19

And unfortunately, he did not have advisors that helped him. And the technology was literally shelved. One of the offers was with the largest global medical device distributor in the world. And that would have changed not only patient outcomes significantly throughout the world, but it would also have, you know,

 

04:47

the technology wouldn't have been shelved and it would have provided retirement for, you know, my parents and so forth and security. We found this out when I was older and it really impacted all of us. And so I wanted to learn everything that I could about how to help entrepreneurs like my dad get the full value of their company to realize their hard work.

 

05:16

and to better, you know, people's lives. So after business school, I went to work for Lehman Brothers in New York, and investment banking, and did M&A and capital raising for Fortune 500 companies and learned everything I could. Yes, and I applied that I moved back to Southern California where I'm originally from, and focus and dedicated my career on

 

05:46

helping privately owned companies, entrepreneurs, to achieve maximum value on exit. And part of that process for me is that I like to get involved early on, as Brenda knows, with the entrepreneurs, and whether you're selling a year from now or five years from now, do you have the right advisors in place? Tax attorneys or wealth advisors?

 

06:16

in order to prepare for an exit. And also just counseling people that received unsolicited offers, you know, what to do. I'm very, very passionate about helping entrepreneurs in that regard. Thank you. It's always extremely enlightening to know what purpose has driven us into our current businesses. And, you know, I think it's

 

06:43

timely that you agreed to join as a guest in the podcast, because it's an election year in the US, and it just so happens that there are over 66 elections going on across the world today. Actually, not today, but over this in 2024. Interest rates remain high. Inflation is persistent, not only in the US, but in other countries.

 

07:13

Two wars continue their course. It appears that the US has made a soft landing, and we're going to avoid a recession. What are you observing in the merger and acquisition markets that there may be risks and opportunities with this backdrop during this month of March? Yeah, so last year, the M&A market definitely was down.

 

07:43

significantly globally. And a lot of that was driven by a very fast increase in interest rates. Yep. Very unprecedented. And that just causes uncertainty. It also causes financing costs to go up. And private equity is the big driver of the M&A market. And costing them more money, it's

 

08:12

you know, multiples that are paid for companies, which then puts these sellers on, you know, on a holding pattern. But what has happened and it started happening, you know, last fall is with interest rates starting to stabilize and now people are looking to in the future that hopefully to decline if the market is stabilizing.

 

08:42

both on a volume basis and also the multiples that are being paid. Okay. This is just very recent data, but we're seeing it's positive. We're seeing the stabilization. And, you know, in terms of, you know, what I would say in terms of risks to sellers, it's, we're still looking at instead of 100% cash deals that were, you know, being done.

 

09:10

Now we're seeing a lot more earnouts. Okay. And with earnouts, there's uncertainty. So, you know, our advice to clients is take as much cash upfront as you can. And, and just to talk about earnouts, you know, that's basically compensation that you will or consideration is a better way to say that for your company based on future.

 

09:39

either revenue or typically EBITDA milestones that the buyer is going to set to make part of that consideration. And there's just a lot of uncertainty with that. So what what the good news is, is that there's still a lot of money out there. There is 2.6 trillion just in private equity money.

 

10:05

And because interest rates, you know, borrowing costs are stabilizing, we are seeing, as I mentioned, the multiples starting to stabilize. And, you know, there's so what I would say to a CEO or an owner is know your cash number. Okay. Know what you want, because the earnout may or may not happen. And what we have actually done in certain transactions is negotiated a lower

 

10:34

total transaction value, but a higher cash component. Because the seller, their objective was to make sure that they absolutely had that cash number in their mind. So I would encourage people to help find that number is to talk to your financial planner and find out what it is that you would, when you do sell, what do you need? Because that will help you

 

11:03

well before you get into any negotiation or, you know, help representation in that negotiation in terms of what you actually need. So thank you. I like how you've taken us through both the risk side and the opportunities. And I had a little sigh of relief that we- there is a bit more stabilization, despite the headwinds that we've had over the last, I guess, two years, right, coming out of the pandemic.

 

11:33

On the Founder's Sandbox podcast, I really pride myself on the content my guests bring on real nuts and bolts for company owners. And what I'd like you to talk about is, all right, I listened to this podcast, met Anna Jacob. Yeah, I'm going to look at what my cash, my desirable cash exit value would be. Can you walk?

 

12:00

us through what is a real M&A timeline and when does it make sense to really line up those advisors? Yes, absolutely. So deals are taking longer in this market.

 

12:18

The expectation if you're doing an auction, which is what I would recommend to get the highest price, is typically it's about nine months. Some deals are taking longer. But, you know, typically you're, you're going to, and this is if you're well prepared. And by prepared, I mean that you have your financials and you know, it's readily available.

 

12:48

Um, if you have the due diligence process is pretty intense. So you want to make sure that when people ask you for financials, that you have them readily available. Um, and that increases your credibility, which increases your value. Um, and you know, to your point, Brenda, um, really you don't want, you don't need to get every advisor involved, involved at the beginning.

 

13:16

I think the first advisor you definitely want to get involved well before you receive an unsolicited offer and offer is what is that cash number? So that would be a wealth manager. Now in terms of my role as an investment banker, I would want to start talking to somebody a year before they're looking to get together so that I can help them.

 

13:45

figure out what are those two diligence items that you need so that when you go to market, it's very efficient because the longer a deal goes on, the more things that can happen. So you the process is critical. You want to make sure that you hit the market running that you can negotiate. You don't want to keep buyers on hold. You want to create this very, very efficient process. Okay, highest price. So typically, I would get involved

 

14:15

about a year before just consulting and then getting retained when you are ready to go. I also, in terms of another key advisor, I would bring in a tax expert, and that could be a CPA or a attorney, whatever makes the most sense, when we're getting ready to consider an offer.

 

14:45

The minute you hit into what's called a letter of intent, that is when you want to make sure that you have already talked to your tax advisor about what does this mean? So for example, just very specifically, it's not about getting the highest value. Okay, my job is to get a seller the highest after-tax proceeds. Got it. So we need to negotiate, know exactly what your cash number is.

 

15:14

And then also, depending on the form of consideration, buyers are going to have different types of consideration. Maybe someone's going to pay 100% cash, or maybe someone's going to say, I want to do an earn out, or maybe someone says, I want to do milestone payments. And it's very important that if you're going to do something like that, like a milestone payment, that it's not considered.

 

15:40

compensation where your tax on an ordinary income tax basis instead of capital gains. So all of these things before anybody gets to that letter of intent and they're giving us bids and we say, what is your form of consideration? We're gonna review all those and we're gonna pick the best one that has the best after-tax proceeds for the company and the highest certainty that it's gonna close. And so that's when we get somebody involved. Right, and you bring it back to the cash value, right? That's-

 

16:09

business owner has dreamed about. Exactly. In order to go on and build another business. Right. And then the M&A attorney comes in to help with the reps and warranties and any kind of exposure. And that's critical at that point. But that's not until you know that this is, what we're doing is we're vetting the buyer so that the seller is running their company. This is how it should be done. They shouldn't be distracted.

 

16:39

time-consuming process, they're running their company, they're making their numbers, they're running. And we're doing interference with the buyers and negotiating everything and weeding out the people that aren't gonna be the ones doing the highest bidding. And I should note one thing too about this process, Brenda, that's interesting is that we sold a company last year in the consumer sector and they didn't wanna go to auction.

 

17:08

They were approached by a competitor. Okay. And what we recommended to them was, we know that you think this is the most logical buyer, but we're going to negotiate a higher price from what they offered you. They offered 54 million, which was a good value. We said, we're going to get you a much higher price. And part of that was by us representing them, we were able to negotiate

 

17:39

what the company would look like on a pro forma basis to the buyer. How much money was the buyer going to save by buying this company? Because the seller had significant technology that was going to reduce their cost significantly. And so we basically did a pro forma showing this is what you're getting. Right. And, you know, we want you to pay for part of this because you're getting this value and you need this.

 

18:07

Because if you don't buy this company, you're going to have a lot of problems going forward. That was a negotiation while the CEO was running the company. The buyer also knew that we, at any time, could go out to market.

 

18:23

And we had a whole buyer's list. We had a book put together. We had all the due diligence done. We negotiated that $54 million to $68 million. Wow. So $14 million. So even if a company says, you know, I don't want to go to auction. I don't want to do that. I know who the buyer is. There's a lot of validity in a very efficient type process. You know, I like.

 

18:51

of this specific example, because it kind of comes back to the work I do with founders pretty early on. They're just starting to scale. It's like, who was the CEO or which was the company in which you inspired your business? Because you want to look and we create a table of peers or comparables that are largely listed companies. And I want to work with the founder to make them look like that.

 

19:21

And we always ask, what is your exit strategy? And oftentimes, some of the founders I work with want to sell to a potential competitor. So I think this is a real life example of selling to a competitor. The other thing that I wanted to comment based on the process you've walked us through is the due diligence process is very onerous.

 

19:51

Get your ducks lined up early. I had another guest on the podcast, Lisa Greer-Quateman, an attorney, and she used the word fluff and fold. She recommends on an annual basis, even if you're not considering selling your company, to really go through those corporate governance documents, your tax filing. So the house is in order in that unexpected, unsolicited offer to buy your company.

 

20:21

So thank you.

 

20:25

You know, bring it back also to the sandbox.

 

20:31

If you were on a board, I work a lot in setting up first advisory boards as the company grows, they're going to bring in another series A, they're setting up their board of directors.

 

20:49

If you were on a board today in the current market context that you introduced us to, what would be some of the topics that you think should be front and center in those boards, Anna? Yeah, I think today it's we're hoping that things seem to have stabilized, right? But I think one of the most critical things

 

21:19

And I learned this more so as a CEO, a company with 150 employees. So there's a lot of personnel challenges and so forth is really getting together a strategic plan is whether it's three years, you know, at least at a minimum to look at and make sure that all of management is on board.

 

21:48

It can't just be the founder saying, OK, this is my strategy, is to get input from the key employees, is to make sure that that is one put together and has projections in there. And that it's revisited at least on every six months, if not earlier, where you have real actionable items.

 

22:16

It's especially if you're in a very competitive market in terms of what are you gonna do to deliver on those projections on those numbers and how is everybody in the team going to contribute to that? So you have to have people that have responsibilities in order to execute on that plan. I think that's critical. I know that

 

22:44

Operationally, when I was COO, there were certain things that we could do to increase profitability and to increase market share. But without a strategic plan, I think that is one of the most critical things that a board, being on a board that you need to make sure that that is being implemented in supporting the management team to, you know, give your input on

 

23:14

you know, does this make sense? Are you really looking at the competition correctly? You know, are these, is this realistic in terms of your projections? Just being that sounding board, I think is really critical. You know, as an investment banker, I would, you know, I am qualified to sit on audit committees as an SEC expert. I would definitely think that you would want somebody who was really looking at those numbers and the cashflow.

 

23:44

especially for capital intensive businesses in this environment to make sure that you have funding that you're not going to run out of cash. Looking at that is very critical. So I think, you know, those are just the two things that come to mind to me, it's the strategic plan, and then also just making sure somebody's really looking at your cash flow.

 

24:14

And what would happen if something in a down market to run that case, I think is really critical, which is part of the strategic plan. And I would add, based on your experience of 25 years and in different environments, investment bank and private equity and actually as an operator, I think the power of a good corporate board

 

24:44

is beyond the strategic plan is really pushing the management team CEO to think about options. Right. So it's around, like you were talking about, is it a cash deal? Is it an earn out? What are the milestones? So what are the options? Because maybe there will be an unsolicited offer by the company. So I think I would add to your two comments of what a corporate board would be

 

25:14

I think it's all about options as well. I think that's such an excellent point because there is an unprecedented amount of private equity out there. And the number of unsolicited offers that are being received by companies has significantly increased over the last, especially in the last five years.

 

25:44

they, the private equity firms have to get their money out. When we're talking 2.6 trillion of dry powder, that's what's available. Because their LPs will ask for a back if they don't deploy it. And so it's as a board member, and I know you've been very proactive about doing this Brenda to your credit, is when you do receive an unsolicited offer that the board takes a pause

 

26:15

and says, is this something we want to pursue right now? Is this a good time? Let's talk to an experienced investment banker that we trust to say, what do you think? Just as a sounding board, is this something we should look at? Is this something, what do we do? Can you counsel our founder or owner? Because...

 

26:43

Once you start that negotiation, you can, it can cause a lot of domino effect, tax wise and also just credibility, the market finds out or, you know, you, NDAs we know aren't necessarily just signing an NDA, what information are you giving? And counseling them on how to get that number.

 

27:12

you know, what are these people thinking? Are these people that you even want to do business with? Yes. All those things that Brenda, you have brought up to me before is to say, you know, we need somebody to help and figure out what's the situation here. I think board members have that as a fiduciary responsibility.

 

27:35

Thank you. I would love you to let my listeners know how to contact you. Yes. The best way is LinkedIn. I should say that it's Anna Halloran Jacob, not LinkedIn. OK.

 

27:56

Fantastic. And that will be in the show notes, as well as diamond capitalizers. Another part of my podcast, and I do this with every guest is bringing your experience and the meaning of certain topics that I am very passionate about and the work I do with founders. And I always go do around with Robin, what does resilience mean to you, Anna?

 

28:28

Well, I think resilience is in the face of adversity is.

 

28:37

finding solutions and moving through it. And that is really important instead of panicking or saying, okay, I'm gonna just throw in the towel as to figure out, look, there's a roadblock, how do we get around this? And the more that you can do that with your management team and board, ask for help, because that's resilience. There's always gonna be a challenge, right?

 

29:07

And options, exactly. Yep, exactly. And for you, what does purpose-driven enterprise elicit? You know, I think I love that you do this for founders. I think it's fantastic. I think it's like what my dad's company was. It was for the betterment of everyone. And to be passionate and to be able to do

 

29:36

do something that's bettering the world. I think that that's really what it is. And to have a real vision of why you're doing it and if you're passionate about something and it's for the good of mankind. Yes, the greater good. Yeah. While still maximizing profits.

 

30:06

Yeah. And I do want to do a shout out here. You do advise women-owned businesses. And this month of March is International Women's History Month. So I want to thank you for what you do in helping business owners that are considering selling the business.

 

30:33

Maybe are, have, aren't yet at that, what cash amount do I want to sell for? And you're ably guiding them, putting them in contact with the different, advisors, domain experts that can help them make that decision when they eventually do want to sell. So thank you for what you do. Well, thank you, Brenda. And.

 

30:57

I'm so honored to be on this podcast with you. You're bringing an amazing message to entrepreneurs and it's really an honor to be on this. Thank you. Last but not least, what does sustainable growth mean to you?

 

31:17

So I look at that as sustainable growth is having a proprietary product or service in a large market, large growing market. Got it. Where ideally you have recurring revenues.

 

31:44

That to me is a sustainable business.

 

31:49

Thank you. Last question, Anna. Did you have fun in the sandbox today? I did. I always have fun with you, Brenda, but it was really fun. And I love what you're doing. And thank you so much again for having me on the podcast. Well, thank you. To my listeners, if you liked this episode with Anna Jacob, you can sign up for the monthly release of Founders.

 

32:15

business owners, corporate directors, and professional service providers like Anna to learn about Founder Sandbox, how to build with strong governance, a resilient, scalable, and purpose-driven company to make profits for good. You'll find this podcast on major streaming platforms, and until next month, thank you very much.