Episode 415: Building a Permanent Home for Virginia Businesses

Corey Kupfer00:00:01I'm Corey Kupfer, and this is the DealQuest Podcast, a mergers and acquisitions podcast and dealmaking podcast for entrepreneurs pursuing growth through acquisitions. Andrew Dunlap is the founder and CEO of Harbor, a holding company that buys established Virginia businesses to keep them in Virginia. In the last five months, he acquired a CNC machine shop, a FINRA registered broker dealer, and is wrapping up a deal on an industry services company. Folks, I'm super excited to have Andrew on. He's got a different approach to M&A strategy, a different model, not only the Virginia focus, but also some other things that you're going to hear about. Andrew, welcome to the DealQuest Podcast.

Andrew Dunlap00:00:31Corey, thank you so much. Love the podcast. Super grateful and excited to be here.

Corey Kupfer00:00:36So listen, Andrew, I want to hear all about what your approach is, the differentiators, the kind of companies you're buying. But before we do any of that and talk about some of the stories and the M&A experience in your background, I want to take you back to when you were a little kid growing up, maybe eight, ten, twelve years old. What did you want to be? Because I'm guessing a serial acquirer and investor in businesses likely wasn't it back then, but maybe I'm wrong. You tell me.

Andrew Dunlap00:01:00No, absolutely not. I wanted to play sports and kick soccer balls forever. I wanted to be out there on the field moving and doing something as an athlete, and quickly found out that I wasn't talented enough to do that as a kid, and found myself going into the normal world with everybody else.

Corey Kupfer00:01:19I will tell you, it was an early awakening for me that my Brooklyn schoolyard basketball skills at five eight, which I was pretty decent at, was not going to translate at anything above the Brooklyn schoolyard level. I love it. So one other question looking back, what was your first deal of any type? Whether it's early in your career, maybe even younger, anything you consider a deal.

Andrew Dunlap00:01:33Right. Exactly. Same realization for me. So I struck a deal with my neighbor to mow his grass for a particular party that he had, but I wanted to do a two for one deal and I knew he needed his grass good for a certain night. So I negotiated a bit of a package for him and said, okay, I could normally charge you this and I would charge you double that for two, but if we do two within a week, I can get you this price. And so we got a little bit of a bulk rate, and that was my first taste of getting into the negotiating table as a young kid with my neighbor.

Corey Kupfer00:02:22I love it. So before we even get to what you're doing now, I mentioned in the bio several of the companies that you just bought recently and the differentiator you have in terms of the way you approach strategic deals in the M&A space. Talk to us about how you even got here. What did you do before? When did you start this? What was the journey?

Andrew Dunlap00:02:42Yeah, it's a crazy story. Everybody asks me, how in the world did you find yourself in this position? And people want to replicate it. You've got all these MBA students coming out of those classes trying to figure out how do I become a fund, or buy companies and hold them, as holdcos have become more popular. And honestly I stumbled backwards into it, trying to come up with a solution to what I perceived to be a big problem in the state of Virginia, which was how do we keep more jobs in the state. How do we keep more exciting career pathways? I live in the southwest part of the state in Roanoke, Virginia. I've been here 10 years. I'm from Baltimore originally, so I came from a large market and moved here 10 years ago to help a company get itself ready for a sale. We got it sold and I started a number of companies after that. In January of 24, I was coming out of a venture-backed startup that I helped form that was based in the capital of Virginia, Richmond. And I was looking around thinking, there aren't exactly a ton of jobs that I can just go and apply for, or C-suite jobs I can jump into. But why is that? Why aren't there more? Virginia is a beautiful place. We've got mountains, we've got the coast, we've got farmland in the middle. It's very resource rich. Why are there not more career pathways here? So I did what any nerd would do, and I dug into M&A data and pulled databases down and said, who is buying all the companies that used to be here? Because I've heard the stories that Advance Auto Parts was started in Roanoke. GE used to have a huge presence here. Norfolk Southern, the train, they used to be here. So where did all those companies go and why aren't they here? I started looking at who the buyers were, and I discovered that in Roanoke, 87% of all external buyers are the ones buying all these companies. All those companies that get bought, 87% of the time, it's an out-of-state buyer. I was like, that can't be the whole state. Let me back out. So across Virginia, 82% of all transactions that happen are by an out-of-state buyer. So I thought, that's where the career pathways are going, because the owners take the companies out and then they take their C-suite to where they are. So what happens? Is that a bad thing? Is it good? Does it matter? I started digging into the research that's been done around, when an HQ is in a place, is that important or not? What we found was that when you have an HQ in a particular city, 52, 53 cents of every dollar of revenue recirculates in that particular place. When you take it out and move it somewhere else, a tier one city usually, that drops to 14 cents. So there's this huge economic outmigration. You have this huge talent outmigration. And with the rise of private equity in the late 70s, popularized in the 90s and early 2000s, that activity has kicked up, and there's just been a ton of companies that have migrated into roll ups into the tier one cities. That's led to this gravitational pull of talent, capital, businesses out of your smaller tier two, three, four cities. So that was the realization of, that's a pretty big problem. If you fast forward fifteen, twenty years down the road, what happens to our tier three cities? Do they have capital? Do they have people? Do they have businesses? Are they just tourist destinations? So that was how we came to it, and I thought, there are two pathways here. Do you legislate your way out of this problem? Do you go run for political office? That's what a lot of people say, you should go to the hill and shout really loudly about this. I didn't think that was the best pathway from a capitalist and free market perspective. So I thought, maybe we shouldn't regulate how M&A is done, but maybe we should just say, let's go build a mini Berkshire Hathaway, the Berkshire Hathaway of Virginia, buy companies in the state to keep them here. And then build a recruiting engine to bring all these great Virginians back, kids that were educated here, people that have grown their careers elsewhere, incentivize them to come here, live in this amazing state, and help build the future of the state.

Corey Kupfer00:06:41Wow, that's amazing. I love that. It's interesting, and it's one of the trends we watch across the M&A industry. I'm wondering, separate and apart from your specific efforts in Virginia, one of the reasons why there used to be a concentration in tier one cities is people used to go to an office and they had physical headquarters, and physical proximity made more of a difference. Do you think that the trend for remote work and things like that, you hear anecdotally at least that people are living in places they'd prefer to live, other than the tier one cities. And you're talking about a guy who grew up in New York and lives mainly in LA now. So I'm one of those guys. Frankly I went to LA because I knew I could work from anywhere, and I live on the west side by the beach on the marina. I don't live here because it's a big business city, I live here for lifestyle and weather. So do you think that this remote trend will help reverse that concern you had a while back?

Andrew Dunlap00:07:53I think yes and no. I thought during COVID we'd see a huge explosion of people moving to these beautiful places. At least where I live, Roanoke is a gorgeous mountain town. There's unbelievable views from almost everywhere in the city. And yet the cost of living here is very low because our growth is pretty much flat. Why is that, when it costs so much to live in Boulder and Denver and some of these other very prominent mountain towns? What we haven't seen is the remote workers come to Roanoke. Now that could be we're doing a bad job marketing ourselves, or it could be, and this is my particular opinion, digitalization of society has made people very lonely. People yearn and long for in-person experiences. I think we've seen all sorts of companies index back towards, there's nothing like being in an office with the guy or the gal that's ten, twenty years ahead of you and learning on the ground from them. That's great for places like New York. That's really bad for places like Roanoke, where we don't have tons of offices where people are clamoring to get back to. So for us, if Virginia wants to be a place where people want to go, we need those senior level people, those executive roles to be here to draw magnetically and gravitationally those really great next generation leaders to want to come back, learn from them, follow them. I think that's an in-person experience. That doesn't happen over Zoom. I've run a remote company before and there are huge things that you're missing when you're not physically looking someone in the face, telling them how they can get better and working side by side to help them improve their career. It just isn't the same.

Corey Kupfer00:09:31All right. So you have this philosophy, this concept, this passion. You did all your research, you got the data, you understood it, and now you have this commitment. What's your M&A approach, and what do you do to launch this company? How did you launch it? Do you have partners? Did you fund it? How'd you get started?

Andrew Dunlap00:09:51Yeah, that's a great question. So we looked at, if you build a holding company, the mini Virginia Berkshire Hathaway concept, how do you actually go to market and what's your differentiator? We've gone to market with the whole line of, we think that companies should stay in Virginia and the state is going to do better when there are more leaders here. So depending on who I'm talking to, I'll tell this story in different ways. Our job as a fund, as a GP, is to grow the wealth of investors. That is our goal. But fundamentally in the way we've constructed our fund, as the fund does well, we are going to be magnetically placing good leaders within our portfolio companies. We are going to be recruiting the next generation to learn and grow through those companies with them. There's a huge desire of people to work in companies that have good culture, work for leaders that are exceptional. We know that it doesn't really matter a ton what the widget is or where it is. There are people that want to work for great people. So that's our goal, to bring great leaders to a place. And great leaders are part of making a place really stable. There's a direct correlation to, if you have a large number of leaders in a place, that place will be healthier than a place that has fewer leaders. You have leaders that want to serve on the board of a nonprofit or another company, or meet in a CEO group, or give to a charity that's local, or even coach a little league team. When you have those components in a society, everyone looks at that and says, I want to aspire to be that gal, I want to aspire to be like him one day, I want to go work for him, or ask him, or I'm going to learn from him. And suddenly the tide lifts all the boats in the area. So that was our thesis. Let's get the HQs, we'll be the GP, we'll grow wealth for investors, but by doing that, we will keep leaders in place. So we went out and started telling this story. We said, okay, Mr. Owner, you want to sell your business, you're retiring, or you're at the end of your line with this thing and you want the next legacy holder to come in. Who do you want that to be? You have three options. You have a strategic, someone to roll you up into their bigger thing. You have a private equity firm that has their set of requirements, mandates, goals. And then you have someone like Harbor that's going to come in. Our goal is to keep your team in place, in the town, city, place that they were built and raised and grown, that town that has you as the sponsor of the local stadium. Which would you rather have? What do you want for the future of your company? And every single time I sit down with an owner and posture it that way, they say, why wouldn't I want Harbor to be the one? Are you going to pay me half of what everyone else is? No, we pay fair value, we pay you market rate for what your business is. And they say, I want you guys to be the one. So we came into the market with that narrative and it's just exploded. People love it, people are excited. People would rather have someone that's going to protect that legacy, carry it forward the way they did, over someone that wants to flip it in three to five years, like a house. So that's been our differentiator in how we entered the market.

Corey Kupfer00:13:07Love it. So did you raise the fund first and then go out to market? I'd love to understand the deal structuring behind it. How do you do it in terms of the capital? Do you have multiple funds? Is it a single fund and other SPVs? What's the model?

Andrew Dunlap00:13:25Yeah, so we thought about it in different ways and we got a lot of feedback from investors on what they wanted. Because this is about them and growing their capital. What we ultimately settled on was a fund that was open ended. The fund clock on a traditional fund is the impetus. It's the gun to the head of, you have to exit in this period of time and you need to get this return in this period of time. And that drives what we describe as caffeinated decisions. It's going to be great in the short term, but it's not necessarily going to be great in the long term. And that's fine for you, because when the crash happens, when the caffeine high comes down, you're going to be out of the assets. So it doesn't really impact you, but it might impact the town, the people, the jobs, the future stability of the company. All those things were unacceptable to us.

Corey Kupfer00:13:56Right. Because in a normal fund, in five, seven years, whatever the number is, the investors are expecting an ROI, a return, and the folks are managing towards that and timing towards that.

Andrew Dunlap00:14:19Exactly. And there's nothing wrong with that. That's their mandate. That's their job, to get money back as fast as possible within that window. But we've seen some of the decisions you have to make to do it that way, and that's not the decision matrix we want to be in. So let's have an untimed fund. We'll have secondary windows that open in the fund. But let's go out and find deals first instead of raising a blind pool of capital. So we went out and found some really incredible deals on the backs of this story and said, Mr. and Mrs. Owner, here's who we are, here's how we are. This is our team. We've all operated businesses before. We're not coming in here blind on how to run a business. We want to steward this thing into the future. Would you like to do this with us? They say yes. We go out to our investors, get some commitments, and that capital comes into the fund to ultimately get deployed into buying that asset. So over time, we've bought several businesses, deployed that capital that's been committed, and the fund grows as part of that, to get those deals done and steward those assets forward.

Corey Kupfer00:15:25I love that. So talk about the folks who are investing. Obviously they have to have a longer time horizon, more patience. There are several things you're doing in this business. You have to find the deals, you have to find the right companies, and you have a value prop out to those right folks. But also it's a different kind of investor that's going to invest with you, in terms of the capital side of it, than a PE fund in equity M&A who's playing a multiple arbitrage game and is going to buy and sell businesses or roll up.

Andrew Dunlap00:16:02Possibly. I think our projected returns, and we're only two years into this, Corey, but I think our projected returns are going to be as good or way better than the PE market, based on the entry prices we're getting on some of this. So that's really exciting. But ultimately, as we partner with these businesses, they want us to be the buyer, and that sets up deal structures that wouldn't necessarily be afforded. We do have what I think is a very enticing structure. We don't have AUM fees, because that eats, let's say, 20% of a usual fund if you're doing 2% a year for 10 years. We have no time limit, but we also have a seven-year secondary window. So theoretically you could be out faster than you are in a traditional fund. We also distribute cash every single year. So you're getting cash on cash every year in our fund. You're getting a secondary window shorter than a traditional fund, and no AUM fees. We looked at that and thought, this is a better deal. This should be more enticing to most people. So our LPs are anything from family offices to high net worth individuals, and we're talking to some institutions now. But at the end of the day, we're a bit different, but we're trying to align it to something that almost everybody can get behind and get excited about.

Corey Kupfer00:17:15Love that. And listen, the longer term view. There are plenty of folks. We do a lot in financial services. We have a lot of wealth management clients and PE money has come into wealth management M&A heavily. As we cover often on this private equity podcast, I was speaking recently on a panel where there are certainly PE haters out there, and I'm not one of those guys. I'm one of these people who's like, you've got to just understand what PE is. PE is what PE is. There's a particular mandate they have, a particular game that they play. High growth is going to be prioritized. Some of them are going to be very successful, if they're doing a funded roll up for example and playing the multiple arbitrage game. There'll be winners and losers. I don't think it's inherently bad or good. It serves a particular purpose and it's good for certain people. It's easy to demonize the early side. Like I think back to Pretty Woman, where Richard Gere was chopping up companies, and he goes to the old guy and says, we're going to build this together. It's easy to demonize, but there are a lot of good people in PE. But this idea of, if you're committed to Virginia and you're committed to legacy and you're committed to employment and attracting leadership and executives back there, then the PE model does not align with those other objectives necessarily, whereas your model does.

Andrew Dunlap00:18:51Sure. And I'm with you, Corey. PE is an extremely important part of our society. A sophisticated society needs all kinds of different financial instruments. The US is no different. We need PE, we need long term hold, we need the Berkshire Hathaways of the world, we need annuities, we need all these things to solve the problems that people are trying to solve with their capital. Harbor is simply one that is saying, while we're solving this particular problem of growing your capital at this rate, we're also thinking about the ramifications of these investments. That is not most PE firms' mandate. For some of them it is, but not everyone's, and that's fine. That's what their investors have signed up for. And we need those folks. So we're all sort of different body parts in the whole system to make this thing go forward and work in a functional society.

Corey Kupfer00:19:40Yes. Let's talk about some of the company acquisitions and recent M&A transactions you have done, and the areas you're getting into, and what's been attractive to you in those areas.

Andrew Dunlap00:19:48Absolutely. So Virginia's a really interesting state in that we have everything from Northern Virginia, the defense tech space near DC, down to deep, sophisticated advanced manufacturing in the Southwest. And then you've got all kinds of farm tech companies coming out of the central part of the state. The Navy has a huge sub-base on the eastern side of the state, but also in the middle of the state there's a sub-testing company. There are all kinds of things in Virginia, which is such a cool thing about the state that people don't realize. So we've looked at all kinds of deals, and people early on who heard our thesis thought, you can never find enough deals to do in one state. We have found that to be completely the opposite. I bet almost every state has a similar story. There are other groups like us all over the country that have done this in their particular states. So there are all kinds of interesting things that happen in Virginia, but we've looked at manufacturing a lot, we've looked at industrial services a lot, because we have a talent base, frankly, that understands this at a globally professionalized level that is really ahead of where most people are. So we think, we have talent that is aligned to certain industry verticals, let's look at some of these things. One of the first things we did was look at metal fabrication. Companies that have specific needs that are not only engineering intensive, but labor intensive and machine intensive, and how do you put all those things together and do it well? We found an amazing opportunity with a group down in a small town in Southwest Virginia that by and large didn't really have a ton going on, but really wanted to keep this one business. We wanted to keep it there. And the stars aligned for us to be the buyer of Clark Precision Machine, which is one of the acquisitions we did this year. That deal was a confluence of things. The county was really excited about this. The owner was in his early 50s, looking to take some chips off the table, but really excited about continuing to grow his business, and wanted some other heads in the room to think through scaling challenges and how do we get in front of certain customers that we've had a hard time with. So we came in at a perfect time to bring a lot of that together, to bring some growth capital and say, great, let's double down on these things. Let's bring our horsepower into marketing, into talking about how do you go from doing 75,000 parts a year to a hundred thousand parts a year. And how do we do that in short order without killing your team and making your culture terrible? Those are some of the problems we tried to solve with them, and it's been phenomenal. The other day, the owner, the guy that stuck around, he's signed a five year contract to continue running the business with us. He posted on LinkedIn about just how great a partnership it's been. And we're so grateful. He was kind of expecting a shoe to drop, for this to be this terrible thing where we drop the hammer on him as soon as the deal closed. Day one came and he was like, nothing's happening. Day thirty came and he's like, this is actually really great. Day seventy five came and he's like, this is a really great partnership. Those are his words, not mine, but we're super grateful to have found an amazing operator that was looking for some additional horsepower, and to be able to provide that. So that was one of them that was just super fun to do.

Corey Kupfer00:23:05That's a great testimony, and exactly the kind of story we love on this business exit podcast. You certainly hear many more examples where outside buyers come in. And listen, sometimes it's not even that the buyers or the investors are bad. It's just that there is that shift that somebody has to go from being the king or the queen, having been that entrepreneur or the founder and having control over everything, to not, even in very good situations. That's a tough thing. I talk to my sell side M&A clients about that all the time, if they're going to stay on, they've got to really understand that. And then of course you do have your horror stories as well. But even in good situations it's a challenge. So that's great. Are you doing full purchases? Majority, minority, any kind of combination? What's the model?

Andrew Dunlap00:23:55So we try to be very flexible in how we come to an owner. That's the whole point of Harbor, to be a different kind of buyer that's not trying to shove square pegs into round holes and saying you must do it our way or the highway. So we come in with a very transparent approach to an owner and say, here's the deal. We want to be the next legacy owner of this particular thing that you've created and sweated and bled over, and it's like a family member, a kid to you. Here's what we want. We want to buy this thing from you. We can do all of it. We can do most of it. We want at least a majority, not because we're going to dictate things to you, but because we want you to be a partner in this with us. We can do an earnout, we can do seller financing, we can do a full equity slug, we can do debt or no debt, whatever works for you. And here's what we need in exchange for this deal. We need to get a return for our investors and we're very upfront about that. We need mid-teen returns plus on this thing, year over year, cash on cash. So that's what we look for. How can we structure something? And sometimes we can't get to a number that works and pencils for everybody. It's like, this probably isn't a fit for us. I'm sure there'll be a PE firm that'll pay you twelve times, and that's great, go for it, but that's not for us. But if there is a deal to be had, if we can make that work and all the numbers align, then fantastic. We're willing to be flexible and make this work for you. So far we've done three deals, three completely different deals, and they've all had very different flavors to them, different arrangements with the owners after the fact, different financing structures, different amounts of equity, some had debt, some didn't. But ultimately we try to come in hands open, Mr. and Mrs. Owner, we're not on the other side of the table with you. If we all agree this is the best thing for the business, let's solve this problem together and build the structure of the deal with them.

Corey Kupfer00:25:48Love it. So talk to me a little bit about your background and the M&A team. How do you know how to do this, how to raise capital, how you evaluate deals? You talked about we. Who's the we and where do they come from?

Andrew Dunlap00:26:09Yeah, so we have an amazing team, full time people and people in our ecosystem who are advisors and consultants, people that have been part of private equity firms for a long time. It's full time in Harbor. There are three of us full time. We've got Tad Fisher, who's an M&A attorney, a securities lawyer who came out of a family office that was doing deals all over the place, taking companies public, taking companies private. He's done tons of things, primarily in the venture space with huge companies and huge acquisitions. So he's a huge value add from a strategy perspective, from a deal structure perspective, and legally. Krista Glassburn is our operations savant. I'm not sure I've ever met a better operator than Krista in what she understands, especially about manufacturing. She came out of the Michigan manufacturing world where she was growing up. Most recently she was running a manufacturing company in Tazewell, Virginia. She grew it from fifteen to a hundred and ninety million. She bought seven companies all over the world, bolted them together, made this huge global conglomerate, did famously well with that. And then there's me. I came out of a venture-backed startup, Lambus, recently, and was building a software technology company and partnerships. We had users in sixty countries, and my partners are running that now. I get to be in Harbor every day, which is fantastic. So we bring all these different pieces together to make this team that has very different skill sets. And then we've got this ecosystem of consultants and advisors and partners and even LPs that are very helpful and will say, have you thought about this, or I've got a deal, or what about this, or can I get on a call. I was talking to a guy yesterday who's done every type of deal you can possibly imagine, and I was just bouncing some ideas off him. He's got a group that does acquisitions all over the world. We just have an amazing group that's come around this and said, this is important, Virginia really needs this. And we've got LPs outside of Virginia that come into this and say, we don't necessarily have an attachment to Virginia, but we love the model and we see that you're getting proprietary access to deals. People come to me all the time now and say, we don't want to go these traditional pathways, can Harbor be a buyer of our business? So we get really interesting deals and structures that make everybody interested, make everybody want to be a part of what we're doing. And we do want to see it grow beyond Virginia. This is where we're starting, but there are a lot of people rooting for this to be a thing everywhere. So that's our team and our donut of people around it. We've got some tremendous people that are way smarter than me that are helping get this thing going in the right direction.

Corey Kupfer00:28:50Love that. So let's talk about some of these stories and experiences, because across enough M&A transactions and that kind of deal volume, there's always one that went bad, or that you thought you were going to get and you didn't get. What do you have in that area, and what lessons did you learn from those experiences?

Andrew Dunlap00:29:07Yeah. Two things. One that took a real scar and another that was just a near miss. I'll tell you the easier one first and the painful one later. The first one, we were deep into talks with a great manufacturing company. We really loved it. We loved the team, we loved the guy that had been running it. They were part of a European conglomerate. And they were based right here where I live in Roanoke. None of the deals we've done are in Roanoke, so I was pretty excited about having something in my backyard that I could drive by and be like, this is a great place, go visit, bring lunch. Great group of guys. So we were getting very close to a deal, and then we got a call from the guy that was brokering the deal and he said, everything has stopped, everything's on pause. He didn't know why and couldn't really share anything with us. So we just waited, and then we never heard much more than that. Several months later we were looking at the European PE news, like what happened here? We found out that Samsung had come in and bought the European parent company. So everything shut down. The whole company, everything stops, nothing goes out, nothing comes in, while Samsung gets their hands around this.

Corey Kupfer00:30:37Yeah, but who knows. That's the classic example of what any deal person tries to preach to clients or investors, that it ain't done until it's done.

Andrew Dunlap00:30:48Yes. Exactly. Until it's signed and the money is wired, you're not finished. That was a good early lesson. That was last year. And Samsung, if anyone from your team is listening to this, please call me, we still want to do that deal. But then another one. We courted a company for a long time and they dragged their feet a little bit, so we were a little nervous about that. We were six months into this, couldn't really get them to commit to a number. They kept asking for more. So we went up a little bit and thought we were giving them a very fair deal. It was a very fair deal looking back on it. And then they randomly came to us and said, we've got another buyer. We knew it wasn't PE because they told us they would never sell it to anyone outside the area. So we thought, why is it stopping? They wouldn't tell us anything, until the deal just died suddenly and we didn't know any more. So we started doing the whole, what happened here, why did this deal die? We knew the CEO was really excited, the whole management team was excited. The owner wasn't really involved day to day, but he seemed to be really positively disposed to us. We had told them a bit about our plan post acquisition, here's what we want to do, we want to build a partnership with this other company here, there's a lot of cohesion, a lot of great synergy, we think we can help each other. And that was part of getting them comfortable with us being the buyer. We found out a couple of months later, when it was announced publicly, that they had basically broken some NDAs and gone and merged with that company. So we just got cut out of the deal, and they said, we'll just do that ourselves. And they went and did it. That was a huge lesson, to watch this awesome deal that we were super excited for, and expend an insane amount of time and money on getting that deal done and building out our growth, because we thought it was a lot. They were excited, they said they were excited. And then someone killed it on the final line and they went and did our plan without us. So it was like, be transparent, but don't overshare, or else you'll just get cut out of the solution. One of those things I felt dumb about afterwards, but we were just trying to win the deal and did a little too much of that. That was brutal. I still miss that one.

Corey Kupfer00:33:10You know what, and some people may say I have an amazing ability to justify, but I also truly believe it. In those situations, I'm not saying I wouldn't have feelings about it and be frustrated, but ultimately I usually come to the place of, well, if they're the kind of people that would do that, probably a good thing that I didn't end up in business with them. It's a gift in a way.

Andrew Dunlap00:33:38Right. I agree, and I still love the management team. I still don't understand what happened behind closed doors. I hope it all comes back. I think one day there's a possibility that it could all work out and we could still be the next holder continuing that legacy, so we're holding out hope for that one. But yeah, don't ever overshare is the lesson we learned the hard way on that one.

Corey Kupfer00:34:01I love it. So I'm sure the ratio of M&A deals you look at to deals you close, it's taking a hundred or more, probably, to get three. So much of managing acquisitions is deciding what to walk away from. And obviously the ones you're looking at, I don't know whether you approach folks that are not on the market or you're looking at all market deals, in some combination, but the point is there are a lot of folks that want to sell and then end up not being able to find the right buyer. So what is it, in all these deals that you look at and reject, what are the commonalities of what these companies don't have in place that make them not attractive to a buyer or investor like you?

Andrew Dunlap00:34:54Yeah. It's almost always the same thing. It's a lack of a sales function, it's a lack of a GM that actually can do something. You walk in and start talking to the owner and they're like, I've got some gals or some guys that can run things day to day, and you just ask, do they do that now? And they say, well, no, I run things. So then you talk to those people, or you talk to somebody else, and they're like, they definitely can't do it. Not that they couldn't grow into it, not that you couldn't hire somebody to pull in, but once you have that cognitive dissonance of, the owner thinks X, his employees on the ground are saying Y, what else is he maybe misunderstanding? So that's a huge red flag that usually kills a deal. But then there's also the hockey stick that comes right after the purchase. I see that on almost every deal, the growth forecast that you see. This happens in CIMs all the time. If you get something through a broker, it's like, you haven't grown, or you've been pretty steady, linear five percent, and then right after we buy it, it's going to go thirty-five percent growth year one. Help me understand how that's even possible. Because in most businesses, outside software, you don't have the infrastructure to grow that. Your team, they don't know how to scale quickly. So those are the types of things where you just raise your eyebrows and are like, we'll ask you more questions, but I kind of doubt this is going to be a fit, if you don't know that you're bluffing already. You're being too positive and optimistic. We just want to have an honest conversation. Five percent every year, we can live with that. But don't tell me it's going to be thirty five percent year one once we have the reins, and then you also want to get paid for that. Because they do.

Corey Kupfer00:36:37Right, that's the key piece of it, that they want to get paid for that. And whether it's the conversation of the management team being able to run it, the first question is, well, if they could, why aren't they already? So suddenly they're going to be able to. And the same thing on, yeah, thirty percent, why aren't you doing it already? Now, sometimes there's reasons, like, we just got this new big customer, or we expanded our facility, we had a lack of capacity, we always had all this interest. And in that case it just comes down to deal structure, because you're still not going to pay for it up front if it hasn't manifested. But if there's an actual reason why you believe that's possible, then you put it in an earnout, or you have some triggers for it, and it just comes down to structuring. That's the M&A deal structure piece. But when there's no real reason why we think it's going to take off, or it's a bogus reason, and then we want to get paid for it up front, that's a problem.

Andrew Dunlap00:37:34Right. Yes. You nailed it. Usually the question that snips it all out is, okay, great, if that's really going to happen because X, Y, and Z factors have come into play that have never come before, fantastic, let's do an earnout. And if they say, well, I don't know about that, it's like, okay, tell me why. So that's the real bluff test of, are you sure you really believe that? Because if you did, you would totally sign up for an earnout and say, yeah, it's going to happen no matter if a monkey's running this thing. So that's the funny tell.

Corey Kupfer00:38:03Yeah. It's interesting to me, because you look at it from the reverse point of view. When I speak to my clients, whether they're existing clients or they get introduced to me and they're thinking about selling, if you have smart advisors on the sell side who understand M&A negotiation, a good sell side M&A advisor doing real strategic advisory, you know what buyers and investors are going to be looking for. So you're going to say, okay, who really runs this company? Is it all dependent upon the owner? What are you looking to get out of it? Okay, you think it's going to grow this much, how could you possibly justify it? And I've been doing this for forty years, so I'm not so surprised anymore, but if people really understood what buyers and investors are looking for, that actually gives them a roadmap of what they could do in advance. If they're going to look at, do you have a management team that really runs this, then as opposed to going to market now, unless you've waited too long or you're sick or some life event comes up, go spend the next couple of years really getting your management team to run this and getting yourself out of the business, because then you're going to have more interest and better valuations as a seller if and when you do that.

Andrew Dunlap00:39:21I couldn't agree more, and I don't understand why we meet so many guys that are over 70 and somehow have never thought about this before. They didn't take the step to say, let me talk to my attorney I've been working with for 30 years about this, before I get to the point where I have to sell it right now. They just get introduced to a broker that they don't know from Adam, that doesn't know their business. So people like yourself, or their CPAs, or whoever has been in their life for a long time, this is why having an attorney is so important, even if you don't necessarily need them every single second. Just having someone that is in your corner for a long period of time builds trust and rapport and understanding of your business. So that when you do have moments where you get approached to buy your company, or you're like, I'm 65 and I want to cash out, suddenly you have someone that's been around. They've seen it, they've tasted it, they've touched it, they know all the problems. And they can help posture, and not even broker officially, but it's so helpful for us to talk to an attorney that knows the business versus someone that's just brought into the deal. They can help us filter through, here's the stuff that maybe the owner didn't even state that's really good about this business that you're getting. We've had CPAs help us with that, like, the numbers look like this, but look over here at this, this is the value we've seen over decades. And that has been an unlock. Partnerships are magical, and it's been incredible when you've got people in that legal and financial decision making seat, helping the owners give us information that is gems and is super helpful to getting deals done.

Corey Kupfer00:40:56I a hundred percent agree with that. The only tweak I'd say is what happens unfortunately sometimes is they may have a great corporate attorney or general attorney relationship, but that person, maybe they formed their entity, they do their basic contracts, but they have no deal experience whatsoever. The problem is they know the business, but they don't work with folks to do the deal, or even to understand what they can do to create enterprise value and drive deal value, what buyers are looking for, because they don't have that kind of experience. I was at a conference a little while ago and got to talking to somebody on the buy side, and they had their big firm counsel on buy side M&A advisory, they were PE backed, but they were like, my God, Corey, we've got to add your M&A firm to the list to recommend to sellers, because we need a broader range of counsel to recommend. We end up doing these deals with these general corporate attorneys, or even worse, he was describing a situation where the guy's trusts and estates attorney was trying to do this deal. And what people who are not sophisticated or experienced in the deal market don't understand is, you'd think the buyers would want an inexperienced attorney on the other side they can take advantage of. They don't want that. They want professionals. They want deal attorneys. They want experienced accountants and investment bankers or brokers. It makes the deals so much easier for them than dealing with somebody who doesn't know what they're doing. So get that right team around you. That's the kind of M&A advice that changes outcomes.

Andrew Dunlap00:42:23Hundred percent. And I couldn't agree more. If your general counsel that you work with isn't part of a group that has that specialized M&A person, then you've got to have that. Because I've heard people say things like, I've done a few of these before, and that's not what I want to hear. I want to hear you do this every week and you've done it fifty times before, or a hundred, or thousands of times before. We've done a bunch of F reorgs recently, and that structure is so helpful for certain deals. There are certain people I've talked to about that who are like, I've never heard of that before, and I'm like, I wouldn't want to be your first rodeo if you were on my team doing this. So M&A attorneys are a super unique breed, and you've got to have someone with the specialty experience to know what are the hurdles, what are the pitfalls, what's going to happen to you in the middle of the deal, and know how to save the deal in the final hours. Here's what's going to kill it and here's what's not. You walk people through that fire, and there's nothing like someone that's going to do it in their sleep.

Corey Kupfer00:43:31Yeah. And listen, I'm fortunate because I love to do this kind of stuff, and we also have companies we represent on general contracts, even before they're ready to sell. One of my favorite things is, I have clients where we help them start up, and at this point in my career, some of them are twenty five, thirty years later, and we help them grow throughout it and then, like good exit strategy advisors, help them exit. There's nothing like being with the entire, obviously we get referred in even if it's just to do a deal, sure, we'll take that business, we'll love it, we'll do a great job. But there's nothing like working with a company throughout its entire life cycle, from startup through exit, which is really the heart of the M&A work we do. That's a lot of what this succession planning podcast is about. It's so satisfying. So listen, this M&A business never gets old, and we could talk for hours, but we're coming down to the end here. Anything else, whether it's what you're seeing in terms of trends? We're in such a crazy time. I guess maybe it always is, but it's a crazy time. I'm not getting into the politics of anything, but you have all these weird factors going on. You've got tariffs, you've got inflation, you've got war. On the flip side, the stock market's been strong for a long time. And in the PE market, capital markets, there's a huge amount of money out there and dry powder sitting around. So you have these conflicting factors that can affect deals. Deals get done in every market, but in terms of evaluating deals, planning. One of the things I always say is, in the order of preference, tariffs was a great example. They've calmed down. People have a view on what they want on tariffs, and that's the number one choice. The actual second best choice is what they don't want on tariffs, but at least they know what it is. This could be true on any issue. The worst choice is uncertainty. And we've had uncertainty in various areas. So in that context or otherwise, anything you're seeing out there in terms of the market, trends, things to watch out for, or things to be encouraged by?

Andrew Dunlap00:45:32That's a big question. I'm going to give you a very unusual answer, but I think trust is the only currency that always matters. You can have a great asset that today is awesome and tomorrow is terrible. You can have a great revenue stream that dries up overnight. You can have a solid AI bet that you made that suddenly gets merged with something else and disappears. There are all these volatile moments, and I think it's accelerating in our society. But if you have trust that you build with relationships, that is a stabilizing factor. You've done it with this podcast. I think it is very misunderstood and underdeveloped in our current modern element of society, because of digital, because of globalization. People do not index towards building relationships, which deepens trust and stabilizes your life. Because when you have a crisis, if you have five numbers you can call of people that could help you with that. For us, tungsten just went through the roof with China. Our machine shop, they use tungsten a lot. We're talking like 300X in terms of increase of price. It'd be crazy. But we had a congressman's phone number we could call and be like, can you come to our shop? We want to have a conversation about what we can do. There's no price to that. There's no value, it's huge. So building trust, building relationships, putting yourself out there and being known. I write a lot on LinkedIn about what we're doing and how we're doing it and who we are, so that people understand us, so we can build relationships faster and deepen trust. You do this podcast, four hundred some episodes in. People know you, and they know, if I need an M&A attorney, I'm calling Corey. That's something I think most people just don't spend enough time and energy doing, deepening trust with as many people as they possibly can, to stabilize and balance their revenue streams and where they're trying to go.

Corey Kupfer00:47:24I love that. And I think in your case, that's true generally, period, that's great advice. And I look at your situation with the thesis you have, the philosophy you have, the commitment to Virginia you have. Building relationships with stakeholders that have aligned values in general, but then also aligned specifics. There's a benefit of that specificity, that geographic commitment, because it's authentic, which creates credibility, creates connection with other players that care about that as well. The congressperson is a great example. They're obviously going to be much more inclined to come down and meet with somebody who's committed to doing stuff in their district or their state than someone else. So your model plays into that.

Andrew Dunlap00:48:19Yes, exactly. Overlapping incentives is obviously an extremely powerful thing. How can you put yourself at the center of a ton of people's desires and wants, so that you are overlapping with as many stakeholders and people, and adding value to their life? So much of what Harbor does is intended to benefit all these different groups and stakeholders. They're not all investors, but investors are just one piece of what we're trying to accomplish and who we're trying to impact and benefit. And giving away as much as we possibly can for nothing is a great way to build credibility and earn trust. You've modeled that perfectly by creating podcasts that we don't have to pay to listen to. We get to learn, and that's a huge benefit to society. So you've built a template for that that I think we can all learn from. I'm super grateful to have been here. I'm so glad you were willing to have me on and talk about deals that we're doing. We're grateful for your podcast. I learn a lot from it all the time. Thank you for giving back to the world by doing this podcast for so many years.

Corey Kupfer00:49:18Well, listen, I appreciate it. I appreciate having you on. If you're just finding DealQuest, we work hard to be one of the best M&A podcasts out there, part business acquisition podcast, part negotiation podcast, part capital raising podcast. And if you've ever wondered how to be a guest on a podcast, or how to get on a podcast as a guest, we are a business podcast looking for guests. Anyone who wants to be an M&A podcast guest can send a podcast guest application and apply to be a guest on a dealmaking podcast at beaguestondealquest.com. So Andrew, if people want to find out more about what you're doing, your funds, your investments, how to get involved, where should they go?

Andrew Dunlap00:49:28Yeah, Harbor.capital is our site and you can get to us through that. I'm Andrew Dunlap. You can find me on LinkedIn and other social sites. But yeah, that's us. So Corey, thank you again for all you've done for us, and we appreciate you.

Corey Kupfer00:49:40Awesome. Well, final question. I always ask on the podcast about my highest value in life, which is freedom. For me that means everything from freedom around the world for people from oppression, to why I've been an entrepreneur for decades and haven't had a boss. What does freedom mean to you, and how does it impact your life and business?

Andrew Dunlap00:49:58Freedom means finding incredible ways to impact the world, because I think we find our deepest levels of satisfaction, which is when I feel the most free, when I've done something that is tremendously valuable to other people. There's no better thing to do than to give than to receive. I find that's true in business. If you can impact someone and make their life better, you experience depths of satisfaction I've never found in any other levels of success, or metrics, or dollars, or anything. So that gives me the freest feeling of, everything that we're doing, nine to five, or a hundred hours a week, whatever it is, it matters and gives freedom to us emotionally and mentally, and to others. There's been nothing better than that in my mind.

Corey Kupfer00:50:46Love that. Andrew Dunlap, thanks for being such a great guest on the DealQuest Podcast.

Andrew Dunlap00:50:51Thanks so much, Corey. Appreciate it.