John Carvalho is the president of Stone Oak Capital Inc., an M&A advisory firm based in western Canada, and co-founder of Divestopedia, one of the leading online educational resources for selling a mid-sized business. Carvalho has worked in the M&A space for 20 years, beginning with a large investment banking firm, and transitioning to his own practice a decade ago. “I just wanted to focus on deals,” Carvalho said.
That focus led him to undertake his own entrepreneurial venture in the lower-middle market. In 2012, Carvalho and a business partner acquired an oilfield services company with a $5 million revenue. By 2020, they had acquired 16 more businesses, grown revenue to $240 million, and taken their company public. This first-hand experience added value to the advice he was able to give his clients, which spurred Carvalho to share what he learned more widely. He was also frustrated. When meeting with clients and prospects who didn’t understand the M&A process, “every time, it was like reducateing them on best practices on how to execute the sale, or how to build value within their business,” Carvalho said. So, he pitched the idea of creating a “thoughtful and really deep resource for educating entrepreneurs on selling a business.” That resource became Divestopedia.
“I get a lot of excitement and satisfaction out of teaching people about mergers and acquisitions.”John Carvalho, President of Stone Oak Capital and Divestopedia
With Divestopedia, Carvalho and his business partners recognized that transparency and information would prove empowering for entrepreneurs, and it did. With the same drive to share knowledge, Carvalho collaborated with Firmex in 2017 to bring transparency to M&A advisory fees, leading to the inaugural Firmex M&A Fee Guide. “Most of the things I’ve done have been born from frustration,” he said, and the Fee Guide was no exception. In what can be a quite opaque market, Carvalho sees the success of the Fee Guide as a result of advisors’ willingness to share their experience and contribute to a stronger, more competitive M&A community overall. In doing so, everyone benefits from a better understanding of fee structures, and advisors are able to improve the services they offer. His latest contribution to the M&A educational space is Acquisition Playbook, a buy-side resource for entrepreneurs looking to grow through acquisition. “I get a lot of excitement and satisfaction out of teaching people about mergers and acquisitions,” Carvalho said.
In Part 1 of the full conversation, Carvalho shared his take on what leads to sell-side success. When asked about advice for first-time sellers, Carvalho noted that “the first time is often the only time” for many business owners. In scenarios like this, owners have often spent many years building value, and this first sale marks their one opportunity to monetize that growth and success. From the moment an owner decides to take their business to market, to the point where they sign that purchase and sale agreement, is a critical process that requires care and acuity. It can be tempting to take whatever offer comes first or easily, but Carvalho emphasized to make sure to “do it right.” That means not rushing, and taking the time necessary to thoroughly plan out that exit and “find really great advisors that can help you through that journey.”
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A key part of that journey will be valuing your business. Carvalho conceded that this is one of the most challenging parts of the process, because valuation is impacted by so many factors, like market timing, the attractiveness of the business, its strategic positioning, and access to capital. Again, he returned to the importance of the planning phase, highlighting useful questions to ask oneself in advance: What do you want to accomplish with the sale of your business? Who are the best buyers? Is the timing right? Are you personally ready to sell? The answers to those questions can help you answer yet another important question: What are the things that I could do to help me meet my objectives when I’m selling? If one of those objectives is to increase value, then an action plan can unfold guided by the steps you can take to help you execute on that higher valuation.
With the factors that impact valuation always in flux, Carvalho recognizes that advisors have a responsibility to manage client expectations, pointing sellers towards probable and realistic outcomes. “Any business is salable — at the right price and terms,” he said, but the problem can be that business owners might not like what those turn out to be. As an advisor, Carvalho approaches his clients at the outset with openness and honesty. When the majority of advisory fees are contingency-based, it serves both advisor and client to be as realistic and possible. From there, it’s up to an advisor to manage an efficient and effective process and do their best to exceed those initial expectations.
“You have to have great chemistry with the advisor you’re entrusting to be able to sell your business.”John Carvalho, President of Stone Oak Capital and Divestopedia
What else can business owners look for and expect from an advisor? Carvalho answered that experience is paramount, and that an advisor’s ability to anecdotally communicate their deal history and it’s value to you presently, shows that they know how to walk their talk. For Carvalho, there’s nothing that can stand in for deal experience, and that means knowing a variety of tactics for how to nurture success, as well as those needed to mitigate common risks. An advisor should also have reach to the right buyers, facilitated by a diverse network. Beyond that, the best indication of a good advisor is one who, simply, you like. “You have to have great chemistry with the advisor you’re entrusting to be able to sell your business,” Carvalho said. The best way to find that right fit is to interview a handful of advisors. Not only will you get a sense for who you’ll work best with, but it’s also an opportunity to get some preliminary advice and see where there’s consensus about how to build the best deal for your business.