Touchstone Talks: Ep 4 - Beyond the Numbers: Jeffrey Rich on the Human Side of M&A

If you're not successful, you're not going
to be in this industry very long. No.

So you got to get people
to the finish line,

not just down the path,
but to the finish line.

And, look, I enjoy every part of it.

I enjoy it so much
that I didn't want to run touched down.

Right. Which is how that's joined me.

And then you joined us,
and you run touchtone now.

And, you know, I like doing the deals.

I like, that that's where the to me,
that where the fun is.

Excellent. Well, for those of you

that are just joining
us, Jeff just gave us a great segue.

We're doing a meet the partner episode

with Jeffrey Rich, one of our three
partners that I touched on.

He. So you enjoy this component of it?

What got you here

in. Are you saying what's he like?

Like what's career path?

Because you didn't have,
you know, you did do the the financial bro

component, right?

Like you came with the the finance degree.

Sure, sure.

So out of college, I was hired by,
well, given a job offer by, yeah.

A firm on Wall Street
called or Fitzgerald.

I did not take that job.

I ended up, over the course
of a couple of years,

coming to work for it on Wall Street,
but in a different role as,

like an independent for proprietary trader
and so that's where you go to a firm

and they give you an amount of capital

to steward
and you trade it, very actively.

And if you make money,
you get a percentage of that.

And if you lose money,
no paycheck and fired for you.

So I did that. Or be killed. Or be killed.

So it's kind of the ultimate form
of capitalism.

As a young person, I think it's
really attractive because there's no cap

on the income that you can make,
and you're surrounded with a lot of other,

you know, people that are in most cases

far more intelligent than I am,
but really smart people.

And, you know,
the ideas are just flowing and,

it's it's
it's it's the job that I wanted to do.

And I got to do my life's,
you know, my life's

dream at 24, 25, 26, 27 years old.

That's pretty cool.
Not many people get to do that.

No. By 32, I was really done with it.

It's a young man's game, I would say.

Not that there's not a lot of older

people who are really successful traders
or portfolio managers, but,

there's definitely a,

negative, emotional component on it.

Over time, the good days feel less good,
and the days when you lose money

feel more bad and, it it

it, you know, I think I kind of were out
emotionally on it.

And so by the time I was in my early 30s,
I was time for a change.

I also had a view about the market
that was correct, but early and correct.

But early means
you're going to lose a lot of money.

So it was 2007.

End of 2006.

I went and worked in the hold out.

The recession that I anticipated
was coming in the insurance space.

That was good for a variety of things.

That definitely brought in me out.

It was also the change of pace was,
market from,

you know, from that high pace, high
stress environment.

Now you're in, you know, all
the disasters happened extremely slowly.

Fair. Category.

It was really good
from a family perspective, etc.

I did not find it
very intellectually satisfying at all.

And I was looking for a change
and I found,

the founder of touched on Mike Cammarata,
who, you know, had started to build

a small mergers and acquisitions company
in northern Connecticut.

And Mike took a shine to me
because I reminded him of his son,

who went to the same college

that I went with, went to,
but he couldn't work with his son.

Suddenly he had different ideas.

And so I sort of became Mike's
putative son,

and so was kind of Mike and son
for a couple of years.

And Roy joined us, as you remember.

And then, then and then Steve
joined us and, and others along the way.

And, and you joined us
and, and others since.

And so Mike
really wanted to build the firm, and,

but he needed somebody to do the work

of selling the companies because he didn't
really want to do that anymore.

And so he built the firm,
I sold the companies, and then he brought

in more people to sell the companies,
and it sort of went from there.

So I've been with touchstone now
close to 15 years.

I guess I'm the longest dated employee.

I think you are.

I think I am.

But, I'm planning on being here
at least another 15.

Unless. Better be to get rid of me.

We're not getting rid of,
you know, keep closing the deals.

So you are not only someone
that likes to close the deals.

You actually acquired a company
from someone else within the firm.

I did.

He regrets it ever since.

No. Yes.

He was selling a small company.

At the time, I was looking for
a small company to buy, and.

Yeah, we bought it.

We owned it for about ten years.

It's been a really good investment for us.

I think we are.

If we were to exit the company,
I think we would return something

like 30 times
the initial investment we made on it.

So that was that's been.
And so the growth.

Continues to pay dividends for us.

I also have,

a logistics startup,

that we are working on
that I'm the majority owner of

and a, a couple other businesses
that I'm involved with as an investor.

Mostly in the sort of startup
realm, either software or medical devices.

So, so it's safe to say that you like
working with owners because you are one.

I do think that there's
a little bit of the tribe mentality.

I think most people who are our owners

would not want to have to go back
to working for somebody else.

I think there is an autonomy,
from a decision

making perspective,
that I think is important.

And one thing that I did realize
at the insurance company

that I worked,
which which were really, really big,

you know, companies
with thousands of employees

and really a bad fit for me
is that I would always do my best

when I was just talking with the decision
maker at the company, either

the CEO of the company that I worked for
or the, you know, the CFOs

or CEOs of the companies that, you know,
we were administering insurance for.

It's just for me, a lot easier
to just cut through

and speak directly, candidly,
the good, bad or indifferent. And,

I like that, you know, I do like,

I think to get sort of
beyond some of the red tape

and just get to the point
where decisions could be made, cause

in the decisions is,
I think, where progress happens.

That makes sense. That makes sense.

So one of the things that I've noticed
working both with you on with Steve

is that you read businesses differently.

Okay.

So you tend to come
from a financial standpoint.

So talk a little bit about how

financials impact

planning for an exit.

Sure. It's true. I can't help it.

You know, that Wall Street background,

and CFA charter holder background

does cause me to look at things probably
less operationally initially than you do.

And Steve does it more
from the financial perspective.

I will say that I can read
an income statement or a balance sheet

and tell you many things about
how the operations are running, including

probably how your organization,
from an organizational standpoint

is set up, whether people are happy,
whether they're not.

You can tell a lot
just from reading financials fluently.

But, yeah, I'm

typically more focused on the bottom line

and like what it is
and what we need to do to make it better.

And probably less astute when it comes to

some of the like, we know dev
marketing is not my thing, right?

Fair. Yeah.

You know,
you know, I'm going to be more focused on

what we need to do
to drive the financials forward

and less on some of the operational
or softer sides of it.

Yeah. Very fair.

And that's one of the reasons
that I touched on.

We work as a team.

That's right. Right.

So you know, our advisors come
from different different vantage points.

And pairing them
appropriately gives the clients the best.

But that was one of the things
that I think was a really important change

that touchstone made along the way

from going sort of as a solo entrepreneur
on every deal.

Right?

Maybe supported a little bit
by back office

to really bringing a team to the table.

I think that's something
that's important.

And I think it's also a differentiator.

There's a lot of soul practitioners,
who are really good.

But they can only be one place at once.

They might be.

And one of those places
might be a needed vacation.

Or every night.

Sleep every once in a while.

And, I think allowing for
some specialization, you know, thinking of

Joe from our team is such
a unique resource, in the finance space.

But just others, you know, to
to allow people to specialize somewhat.

I think helps
drive a better overall experience

for the business owners
that are looking to exit.

Agreed? Agreed.

Something that that we do quite well

is getting the right parties on the deal.

Talk a little bit about

the difficulties
within a transaction time.

Where do you see hiccups
the most frequently?

Okay.

Well, I do think I was at, conference
last week.

Was that replying
to, as you know, with a lot of other M&A

and advisors and investment bankers,
both nationally and internationally.

And one of the, one of our friends
there said something that I think is

very true, which is it's harder than ever
to get deals over the finish line. And

it's easy to bring them

in and and to sign them up as clients.

Right? There's a lot of people,
demographics, whatever.

There's a lot of people
that are looking to exit their business,

but so many of them are taken off track

along the way by either

known or unknown factors.

Right. Exogenous or endogenous factors.

And you can't do anything
about the things you couldn't plan for.

Like, I don't know, Trump tariffs,
which is definitely creating some issues

for some of our prospective clients
or clients that would like to come to

market, that are dealing with those
you can't deal with.

You can't do anything
about what happened to us.

I think in 2011, where we had a closing
scheduled for a business being acquired

by a Japanese company and the,

Japanese
were coming for to sign the paperwork.

They get off on the tarmac,
at Bradley Airport and find out

they have to go back
because there's been an earthquake.

And what turned into the Fukushima
nuclear crisis.

You can't do anything about those things.

No, but there are
a lot of things that you can.

Although I would say there's one thing
that you can do about them.

Probably the true adage within the M&A
business is that time kills all deals.

So if you're a tech business, right,
and like

people are more attuned to it,
I think in technology that,

you know, you're always everywhere
and always in a race.

And if you don't think

you're in a race like you lost, you lost,
you just don't know you lost.

Yeah, exactly.

So but,
over a long enough period of time,

a bad thing will happen,
and it will torpedo a deal.

Either
will happen to your prospective acquirer,

or it will happen to you as the party
looking to exit your business.

So we've adopted this sort of measure

twice cut once approach,
as you well know, and we go through

and we're really careful

to try to go through and strut
and understand what the good is.

Of course, that the business.

But what is the bad and the ugly, right.

Where are we? A little bit undressed.

Where do we need to get ourselves

from the business perspective, is it,
you know, to talk about financials?

Is it our financial reporting.

Right. Is it do we have a sales problem.

Do we have, an owner dependency problem?

Do we have a succession issue?

Do we have minority shareholders
who don't agree?

Right.

Who could torpedo a deal,
if they're not treated or,

you know, kept in the loop appropriately,
there's a lot of different,

it's a lot of different factors
that have to be evaluated.

And, you know,
I think that if you do those,

try to address as many of those
before you go to market as possible.

That's the best way
to try to avoid hiccups between,

say, a letter of intent
and a closing. Yeah.

So how and we've touched on it
a little bit, but how long do you see

a transaction
like actually happening these days?

Okay.

So I think it's getting longer overall.

I think buyers are very worried
about making a mistake

spending money on due diligence
not to get to the finish line.

What does the seller or their investment
bank or M&A advisor know that?

I don't know that information asymmetry.

Right.

I think that they're more cautious
about that, a little more suspicious,

just generally feel like everybody is a
little bit more after Covid.

A little shorter with,

you know, with, with their,
I guess with their,

I guess with the sense of grace
that you give another party,

right, that you're working with.

But, I think it's a situation

where, it just,

I guess the biggest issue that

that I see in between the, the,
the signing,

even the signing of letters of intent
takes a lot longer than it used to.

We've always,
you know, that's one of the things

where we always take
a little bit more time than some people.

We've really try to we want to make sure
we have a deal at the Loi stage.

We don't just want to sign them up
and then find out two months later that

there are all sorts of rats running around
that we could have figured out

and realized

that this wasn't the right fit buyer,
the seller, just not the right alignment.

So we take more time than most.

But even even that process takes longer,

I think for us many times than it used to.

Lately I've noticed the same. Right?

Everybody wants to agree,
but nobody wants to incur a cost

to agree, and nobody necessarily
wants to meet in the middle to agree.

They just want you to agree with them.

Yes. And I do think
that buyers are a little bit more.

I think they're pickier about what
constitutes success for them.

And I think the buyer community is also
a little more unyielding in terms of,

like I've always said, deals either
close or don't close

about whether people get jerky
over the last several percent of the deal.

Right? Right, right.

Well, that was the very first deal
that I worked with you guys, right?

And, we get to tell that story.

Yeah, we gave up.

We got down to the

finish line,
and we were arguing over $1,000.

Was it 1000 or 2? No. It was.

You know, we had gotten them to agree,
and it was down to it

because it was a $3,000 bill and
they're like, Will each pay a thousand?

And I'm like, good, there's a third left.

So we gave up a thousand
of our of our fee,

which was the people
getting the least out of the deal.

Right.

Like, and I it changed
the dynamic of the entire room

because, yes, we gave up a fee
and they both felt quite silly.

And I think a lot of times
it does come down to people

getting emotionally anchored
into their position and just starting to.

I think that's one of the,
the reasons, the biggest reasons to hire

an M&A advisor or an investment banker,
whether it be touchstone or somebody else,

is to put on my old Boston
accent to be the buffer.

Right?

You like to go bone on bone

throughout a transaction,
you know, look, we've all.

Got to hate each other by the end of it.

And God forbid they have one of them
has to stay and work for the other.

It's never going to happen.

So, you know,
I can think of a couple transactions

right now where my buyer and my seller
don't necessarily

like or trust each other that much,
but they trust us, right?

Right.

They trust that we're running
a fair process that we are going to be,

even though we're advocating,
you know, traditionally

on the South Side, we're advocating
for the benefit of our clients.

As you know, as we have to
from a fiduciary perspective,

that we're not just,
taking everything to the brink, right?

That it's not like,
that there's an understanding that

in order to win the war,
you lose some battles along the way,

and that a really good deal
is probably one where everybody walks away

from the table, mostly happy,
but a little bit unhappy

about certain things, and that if you just
dominate the other party,

even if you win
and get the deal to the finish line,

the question is

what is the cost on the other side is that
is that seller

who got dominated by a buyer
and just beaten into submission

through deal fatigue or whatever,
are they going to give you what you need?

Post-closing are they going to,
you know, if you if there's

an area of expertise, for example,
and you've paid them,

they may not bother to pay
any attention to you after the closing.

So I don't know. Yeah.

Yeah, it's my thought.

Agreed.

And I think we play a role
in avoiding a lot of those scenarios and.

Yes. And it's why it's not unusual
for us to sell a business

the first time and then sell it again
when.

Five, six, seven years later
when they're ready for.

When they're ready for an exit
the second time.

You know, it's a good it's a good feeling

to know that the buyer trusted
you enough to come back to you.

Yeah, that's a great point.

I'm thinking of, a compliment
our team got

from a publicly traded foreign company
this past year in a transaction

we did, and we loved the investment
bankers on the other side.

They were great people, and I think
they did a great job with their client.

But,
the we got the the comment afterwards

that, you know, we could not have gotten
this deal done without touchstone,

that, you know, your fairness,
your diligence throughout,

you know, understand taking the time
to understand all sides of the issue

and then try to help diagram a solution,
you know, was really unparalleled.

And we look forward to hiring you to do
it deals going forward.

Fabulous.

Which I don't want to take away from my,
our, our friends.

By the way, at this other investment
banker did a great job,

but I think, you know, when the other side
is complimenting you on

what a good job
you did to manage a difficult deal.

And, you know,

some of these are almost like giving birth
to these deals is really hard.

Some of them a little bit, you know,
some of them go relatively easily,

but some of them are.

I'm not sure I think. Any
like one out of twin.

Like I don't maybe, maybe they all have
their own idiosyncrasies.

They definitely do it.

But there are patterns.

There are patterns of personality type.

There are patterns
in terms of how a deal is going to go.

Different sectors have different styles
as to how the deal may be constructed

or paid for.

And I think that's one of the advantages
here.

If you're a business owner,
maybe you've had 1 or 2 other exits,

but what you're an expert on
is running your business.

What we're an expert on
is selling it, right.

That's our business.

We've done it over 500 times.

We've seen all the movies before.

We know how they all end.

And honestly, if it's something we haven't
seen before, intellectually, it's like.

We will figure it out. Fun, a surprise.

And say, can I do it? This way?

That's right.

Yes, yes I can.

So you are kind of king of that.

You will sell a business that

can't be sold.

I am the patron saint of businesses

that are difficult to sell. Yes.

What keeps you going to get to that point?

Like, you keep going past the point
that most of us would have stopped.

Oh, the the chef makes all his money
after every rational human would give up.

Yes. That's me. Yes.

Okay.

So getting back,
I think it sort of gets into personality

type,

somebody that chooses to do trading

without a parachute, right, with no salary
and take a job and, like, risk their job

every single day is probably somebody who,
has confidence,

maybe too much in their own capabilities,
but also has,

an intellectual curiosity.

Okay.

And likes to do hard things.

I think there's some of that for me.

There's also an element of service, you
know, without getting into my background,

you know, I'm one of those people
that wasn't supposed to live this long.

And, you know, when you do that,
you sort of have to figure out

why are you still here
and what are you here to do?

And one of the ways
that I've come to terms with that is that,

you know, I'm here to serve
just like you're here to serve.

And one of the big ways that I serve in
life is through the medium

of finance, right?

It's the medium
that allows me to serve people.

And so I'm not going to say
it's like pro bono work that we do.

Certainly. But that's not the goal.

No. But you know, when we do work,
you know, there are times that we take on

businesses that it might be easier to say,
you know, I don't think

that we're the right fit for you there.

You know,

you can't take on only impossible
or mostly impossible businesses to sell.

But I think there is a, component of that
that is service oriented

because there's only so much time
that we have.

So I think there is some of that.

But also I think

when somebody tells you, like,
we had a client

this past year who had, their business
burned down, right?

And we sold them in four weeks.

Because we had to,

because they, they. Needed
they told we'd been at market.

One of them had been a really long
transaction.

Couple different buyers hadn't worked out.

And they he he said, I feel sorry for me.

And of course we did too.

But I feel sorry for you
because you and Joe worked so hard on this

and it's not going to close.

And I said, yes, it is.

And we had a deal done

in four weeks
now, obviously wasn't at the same price,

but we had a deal
and an exit for a gentleman who was 70,

78 years old
and and needed to exit his business.

It was time.

So I mean,

what could be more satisfying than that
when they tell you it couldn't be done

and you get it done for them,
that that's that's a blessing in life.

It's always great when they come back

and you find out that they are
actually happy with it as well. Yes.

You know, that's that's kind of the warm,
fuzzy feeling.

Yeah.

I mean, look, we're it
we spent a lot of time typing emails,

looking at spreadsheets, building sims,

going through buyer lists,
which is a huge differentiator for us.

But to actually,
the human side is not to be lost.

No, definitely not. Definitely not.

I think it's kind of a key area
that touchstone brings to, to our clients.

So in a wrap up conclusion,

we, we do this every day.

Let's say you weren't going to do this
every day, and you weren't

going to go back to trading
because you didn't get any younger.

No, I'm not doing that.

So. So what career?

What would be your career path?

Well, I have three screenplays
that I want to write.

Okay.

Based on three people
that I've met in my life.

And, I'm totally convinced that
at least two of them are Oscar winners.

So I do want to do that.

If I had never lived
the life that I lived,

the alternative life
that I think I would have lived.

Now you see it, you know, because now
we have phones and smartphones and.

Right, you know, video logs and stuff.

But I would have wanted
to travel the world

and be like a writer
for National Geographic.

I'm a really good writer.

Okay. And I would have. Liked,
like a travel writer.

A travel writer.

But really, what I would have liked
to use that to springboard on.

And you can do it
now, you couldn't really do it back then.

It's to go around
and kind of what you see.

People like Anthony Bourdain or people
like that doing where they go out

and meet with people

and they're they're in a country
and they're doing something,

but they're really understanding
people's lives.

I would like to write about people's
lives, meet interesting people

around the world and write of interview
them and write about their lives.

Excellent.

Well, I think I just helped
you find your retirement plan.

Yeah, I think

maybe the post Diamond Farm.

I don't wait too long.

Oh, excellent.

Well,
thank you very much for coming today.

I hope that that our owners enjoyed
getting to know you and me too.

Thank you very. Much.

All right. Thanks.

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