Oct. 3, 2022

What is Investment Banking with Channing Hamlet


Channing Hamlet is a Managing Director at Objective, Investment Banking & Valuation focused on leading the firm’s business valuation practice and transaction execution for its investment banking business services practice.  Mr. Hamlet is a results-driven executive that has 25+ years of experience advising business owners on management issues, transaction execution and business valuation. He is able to draw on a diverse background that includes direct management experience as well as strategy consulting, private equity investing, investment banking and business appraisal experience to advise his clients.

Prior to joining Objective, Mr. Hamlet served as a Managing Director of Cabrillo Advisors, where he was instrumental in growing its valuation practice from its inception to a national practice serving more than 700 clients in five years.  During this period, he was responsible for managing a team of approximately 25 professionals that conducted a variety of business valuation assignments including tax compliance (409a, estate and gift), fair value (ASC 820, ASC 350, ASC 805) as well as strategic advisory assignments.  His experience ranges from working with early stage companies on relatively simple stock option valuation assignments up to IPO stage companies with complex capitalization tables and significant scrutiny from Big 4 accounting firms and the SEC.

Previously, he served as a Director at Vistage where he focused on business development, acquisitions and new business initiatives.  Prior to joining Vistage, Mr. Hamlet served on the investment team at LLR Partners, a $260 million private-equity firm which invested in and acquired 25 companies during his tenure.  Prior to LLR Partners he was a member of Legg Mason’s Investment Banking group, where he focused on middle market M&A and corporate advisory assignments.

Channing is very involved in the Los Angeles and San Diego business communities, and regularly appears as a panelist or speaker for multiple organizations including ACG, EPI, EO, CFO Leadership Council, Southern California Institute, and more. He has also been recognized many times for his excellence in investment banking. Most recently he was chosen as an Investment Banking Visionary for 2022 and for 2021 in the Banking and Finance Magazine created and published by the Los Angeles Times. He was also recognized this year by the Los Angeles Business Journal as a Leader of Influence: Investment Bankers 2020 and 2021.

Mr. Hamlet has a master’s degree in operations research and a bachelor of science in mechanical engineering from Cornell University. He holds FINRA Series 7, 63 and 79 licenses and is a Registered Representative of BA Securities LLC, Member FINRA SIPC.

Registered Representative of and Securities Products offered through BA Securities, LLC Member FINRA (www.finra.org) SIPC (www.sipc.org). Objective Capital Partners, LLC and BA Securities, LLC are separate and independent entities. Any testimonial or endorsement may not be representative of the experience of other customers and is no guarantee of future performance or success.


Connect with Channing 
https://objectivecp.com/
https://www.linkedin.com/in/channinghamlet/

Transcript


 00:02

Josh Wilson
Good day, fellow deal makers. Welcome to the deal. Scout. My name is Josh, and on this show, we scout out cool deals and have conversations with dealmakers about deals. This is a show all about deals ranging from lemonade stands we've interviewed people talking about that all the way to special purpose acquisition companies and publicly traded companies and everything in between. We wanted to have a conversation about this idea of selling businesses, investing in businesses. We hit our marketplace, and we found a cool group out of San Diego who's going to talk to you about this deal. So, Channing, welcome to the show. 


 00:38

Channing Hamlet
Yeah, thanks. Glad to be here. 


 00:40

Josh Wilson
Absolutely. So, Channing, what's the name of your business? 


 00:44

Channing Hamlet
We're Objective, and we do investment banking and valuation work. 


 00:48

Josh Wilson
Okay. Investment banking kind of give us an idea on what is investment banking? 


 00:54

Channing Hamlet
One of the things we did is we named the firm Objective, and it's based on a foundational belief we have that business owners should make decisions based on their personal objectives. The way I think about it is, if you're CEO of a public company, your job is to show up every day and make money flofr the shareholders. Whereas if your CEO or you run your own private company, which is most of our clients, your job is whatever your objectives with the company are, to grow it. They have a lifestyle business to do this, to do that. That's the foundational element and the types of companies that we work with. In terms of what investment banking does, which is what your question was, we basically work with business owners to help them run a process to sell their company so that they get the best price in terms. 


 01:40

Josh Wilson
Okay, got it. All right. You guys are located in San Diego. Kind of give us an idea on a day to day basis. Channing Live, where do you put your focus? 


 01:51

Channing Hamlet
Our firm has about 25 people, and we have two group. We have a full service business appraisal group, and we have folks in Texas, Colorado, and in Southern California, both in Los Angeles and San Diego. Most of the folks at our firm are in San Diego on a day to day basis. One of the things I love about the job, no two days are the same. The typical day story could go in any number of different directions. Working with business owners, helping to negotiate their transactions, doing some fairly complex evaluation, proverbs meeting with potential new clients, that's a typical day. 


 02:34

Josh Wilson
Okay, let's go back. How did you get into this world? Right. Investment banking. When I went to college, there was only, like, a small little section about investment banking, and I didn't really understand private equity, investment bank, and all in this different world. I grew up on a construction site. I didn't learn until I was in my thirty s and forty s. Right. Kind of give us an idea of how did you get into the game? 


 02:57

Channing Hamlet
I was fortunate to go to a school where investment banks were recruiting at the school. In high school and going to college, investment bank was like, investment what? I didn't really know what it was. In college a lot of my buddies that were a couple of years older than me went into live strategy consulting and investment banking. Those were the two hot fields where you could make a lot of money and work on interesting stuff and learn a lot. That's the direction I wanted to go with my career. I graduated from college, I worked at a strategy consulting firm for two years in New York City and then got married and moved to Philadelphia because my wife was going to grad school there and had to switch jobs. Just by luck, through a friend of a friend got an interview at Leg Mason and got hired doing investment banking. 


 03:51

Channing Hamlet
The first transaction I worked on was with a family owned company. We helped this family that had owned their business for three generations sell their company and really change their lives. I immediately fell in love with it. I went from the strategy consulting business where were working with Fortune 100 companies, helping some faceless nameless shareholder make money or whatever, to working with a family where they were less sophisticated, weren't really prepared to do a transaction, didn't understand the process where we could really roll up our sleeves and help them and make a difference. Just through luck and happenstance, got into investment banking and kind of fell in love with working with these business owners and families that are smart people that don't have the Wall Street or finance. Sophistication and that's the short version of a long storyon. 


 04:43

Josh Wilson
So then how? From New York to Philly to San Diego, how did that happen? 


 04:49

Channing Hamlet
My parents got divorced in the late ninety s and my dad moved to San Diego for work. I don't know if you've ever spent Thanksgiving in Philadelphia or Ohio where my wife's parents are from Chilly, but we did that a number of years. When my dad moved to San Diego, we came out here for Thanksgiving and that set a whole process in motion. It was really enjoyable getting sunburned over Thanksgiving instead of frostbite. 


 05:21

Josh Wilson
At Thanksgiving dinners. What is your favorite food that you eat in Thanksgiving? 


 05:30

Channing Hamlet
That's really everything. 


 05:34

Josh Wilson
You did ask that question on the Deal show, did you? 


 05:37

Channing Hamlet
I had dinner last night at a steak restaurant and there was a sweet potato casserole, which was like incredible. That's definitely going to be on the menu this year for Thanksgiving. 


 05:47

Josh Wilson
Nice. All right, so back to deals. You moved out to San Diego and you started this firm how long ago? 


 05:57

Channing Hamlet
My wife and I quit our jobs and sold our house and kind of packed up our stuff and moved to San Diego for a whole series, ready to do some different things personally, etc. E and after being in San Diego for a couple of years, I started an investment banking firm with a partner in 2004 2005 time frame. Were pretty successful for a small firm here in San Diego. In 2008, when the economy crashed, we pivoted and build a business appraisal. There were no dial happening in nine and ten and eleven, so we started doing appraisal work and we built about a 20 live person practice doing 500 appraisals a year. I got bought out of that in 2013 and joined Objective in 2014. I guess it's like eight, nine years now. We now have 25 people and we're doing investment banking and business valuation. 


 06:49

Channing Hamlet
Super cool. 


 06:51

Josh Wilson
In the process, 2008 nine and ten, tough years, right, for deal makers. What did you do to keep the lights on like you built an appraisal practice, but how did you think to do that? 


 07:04

Channing Hamlet
Yeah, super interesting and really lucky. My former partner came across this new type of evaluation called 409 A. I know you didn't want me to talk about tax code go for it, man. Flofr nine days was a new thing that came into being in the 2008 time frame, and effectively what happened in the.com crash. Companies like Enron, Vworldc and Tico, the executives took money out of those companies through different compensation plans as the companies were failing. Nobody liked that. The IRS enacted this new tax code, section 409 A, which kind of dealt with deferred compensation plans and putting tighter, closing a lot of loopholes there. One of those things was requiring private companies to do formal evaluation work when they were granting stock options. We started having people, none of these early stage venture backed companies that are bootstrapped wanted to spend money on valuation work when they didn't have to. 


 08:10

Channing Hamlet
There was an IRS regulation that said they have to come into effect in 2008. That was a godsend for us because the deal market cratered and the IRS dropped this plumb in our lap of forcing companies to spend money to do something we knew how to do. We started doing these four nine A evaluation projects. I think our firm became the second largest provider of 490s in the country, behind Silicon Valley Bank by 20 12. 20 13. Wow. It turned out to be the mechanism that kept the lights on for us when the deal market became tough. Our firm in 2009, the lease at the office were in was up, and the landlord wanted to raise our rent and ask us to sign personal guarantees and all this stuff, which was live just nuts during that time frame. Yeah. We moved into a house, we rented a house and we moved into a house and we cut the size of our firm in half and just struggled through 2009, building up the valuation practice, waiting for the deal market to come back and kind of just muddled our way through. 


 09:21

Channing Hamlet
It was a time that I would like to not repeat. 


 09:25

Josh Wilson
Yeah, I don't want to do that again. I would love to hear your thoughts about where we are in an industry now. Are you seeing similar signs or what do you see? We're recording this in 2022, in September. 


 09:42

Channing Hamlet
It's really tough. We've had just an absolute roller coaster over the last two years. We had covet hit. Both of our businesses dropped from February 2020 to May 2020, both of our businesses dropped by 50%. Having live through the 2008 2009 thing, I was like, hey, I've seen this movie before. We got hunker down, we didn't really do any layoffs, were fortunate to get a PPP loan, but we did very significant pay cuts and had all these tough discussions with people on our team around like, hey, this is going to be a tough time, like we're better off sticking together and muddling through and coming out the other end stronger. By July and August 2020, the government stimulus kicked in, and the Biden administration was talking about changing the capital gains tax. The combination of the government stimulus and the capital gains tax created probably the hottest and most robust M Amp, a market we've seen in our lifetime. 


 10:54

Channing Hamlet
Most investment banking and professional service firms had a record year in 2021 with people racing to get their deals done to lock in a low capital gains tax rate. 2022 started off equally strong and then the market crashed and interest rates are going up and there's stock of inflation and a recession. That happened in March through May, which really slowed things down. We've had the summer where if you're a business owner and you are in a really good company in the March through May time frame, given that it takes six to nine months to sell a company, you're not going to start a sale process into an uncertain market. A lot of people were sitting on their hands. We've had summer break, and I think this summer was the first summer that people have had in three years because of Covet. So everybody's been on vacation. 


 11:52

Channing Hamlet
What we're seeing right now that kids are back to school, we're starting to see things come to life again. What I'm kind of seeing is I think things are going to go back to normal 20 17, 20 18 levels, like a good normal market, but not crazy robust. The second thing we're seeing is private equity and public companies have more capital available than they've ever had. What we've seen. We saw this in 2020, and we're seeing it again in an environment where there's less deal flow. The fact that there's so much demand for deals is propping up valuations, I think higher than they otherwise would be. I'm hearing from my friends at private equity firms that in certain industry sectors they're still paying the same price as they were paying in 2021, even though the market is down. There are some other sectors, particularly in consumer facing, where there are concerns about recession, interest rates, consumer Conference Link Cetera where things appear to be slowing down . 


 12:59

Channing Hamlet
By no means do I feel like we're going into the same winter that went into in 2010. I know that was a long winded thing, but that's kind of what we're seeing. 


 13:11

Josh Wilson
Super Interesting. How do you feel? Like the baby boomer and silver TUNAMIS seller tsunami. How do you think that plays into place? Because poor baby boomers, right, Live? They built this family business all their life. They're about to sell. They're getting ready. And then COVID hits. Right. How do you think that affects these numbers in this way? 


 13:30

Channing Hamlet
Yeah. One of the this is as we think about our business, both our valuation practice and our investment banking practice. A lot of the work we do is driven by mergers and acquisitions work. We've purpose focused on what I would call the lower middle market, which is a very large market, and it's underserved the bigger kind of household name. Firms, either in valuation or investment banking, are trying to work on the bigger deals and the more high profile things. We're working like one notch below that in what I would call the lower middle market. I feel like there's a massive tailwind with the baby boomers and the demographics of business ownership. Just from a demographic perspective. There's a lot of people that are aging and facing retirement that need to do some kind of transition with their business. A lot of them will do a sale. 


 14:25

Channing Hamlet
It feels like the younger generations are not as entrepreneurial and possibly more risk averse and lifestyle focused. They're not as much stepping up into business ownership. I think it's going to lead to a pretty stable m amp. A mergers and acquisitions business sale market, what have you over the next decade or two. But I guess time will tell. 


 14:48

Josh Wilson
Yeah, man. Let's do this. Let's say you were in the business you're in now, doing the work that you're doing and you had an opportunity to go back in time to you could either choose 2006 ish or 2012 ish and do something with the work that you do now. What would you choose and what would you do differently to take a hold of the market? 


 15:15

Channing Hamlet
That's really interesting. There's a trend in our industry towards industry specialization, which we've been putting a ton of work into over the last five years in terms of building specific industry expertise. If I could go back to 2006, I would have started that process much earlier, because I think that's where the world is moving. A lot of times when we meet a potential business owner that needs help with either evaluation or a sale, or we even need a referral partner that needs help with either of those, one of the first questions they're asking us is, live, hey, what's your industry expertise? Where in 1990, 619 95, when I started in this business, I didn't get that question very often. Now we get it every time. I think if I could go back and do it over again, starting that specialization process earlier, something that I'd go back and do. 


 16:16

Josh Wilson
All right, let's play a game. I'm going to name a time frame, time period. If you don't know, you could just say, I don't know. Pass. Right. I'm going to name a timeframe, and during that time frame, you get to choose your specialization. Live, you're the number one company in the area that focuses on this. M and a Wise. Okay, you're the best. Business valuation. M and a Investment banking, you're the best. 1995 ish what would you specialize? 


 16:40

Channing Hamlet
Anything related to the Internet. 


 16:42

Josh Wilson
Internet 2005. 


 16:45

Channing Hamlet
Across this entire time frame, a space that I'm really interested in is companies that provide services and software into life sciences. That's been a very stable, growing market, and there's been just a massive technology revolution over the last 2025 years in that space with the mapping of the human genome, specialized medicine technology coming into health care, et peter, et cetera. That's a space through all time that's been very robust, and it hasn't had a lot of the ups and downs that some of the other spaces have. Live, 1995. If you specialize in the Internet, in 2001, you're living under a bridge, eating Ramen because there's nothing going on in that space. Trying to pick a space that stands the test of time, I think, is the trick. 


 17:45

Josh Wilson
Yeah, super cool. One more part of this game. Let's just say you were able to go to you could go back to maybe January of 2020 with some foreign knowledge of what was about to happen. All right, so you and I get to time travel back to January 2020 and be like, Channing, Hamlet, me give you a piece of advice. Something is major about the change. What would you do. 


 18:12

Channing Hamlet
That'S so interesting? We've had a number of discussions about this year. We've had a big stock market craft or stock market reduction, inflation, interest rates are changing. Trying to go back in time to what was I hearing in January through March 2020, when the.com bubble was at its height. What am I hearing now? And how do I think about that? How do I think about that going forward? We've been talking a lot about that, trying to figure out what moves to make in this tricky market. It's super interesting that you ask that question. I don't know what the answer is, but during that time frame, a bunch of my buddies and I set up all of these online brokerage accounts, and were buying IPOs. Yeah. We turned a small amount of money into a large amount of money. I wish I had stopped doing that in January, because from January to March, that's when the institutional investors stopped investing, and the retail investors got bigger and bigger allocations in these IPOs, which none of them worked out well. 


 19:20

Channing Hamlet
I turned what was for me at the time, a large amount of money into a small amount of money from January to June 2020. I wish I had seen that coming. But lesson learned. 


 19:33

Josh Wilson
Yeah. You can't do anything now as deal makers, right. You've been through early two thousand s. The end of 2009 ish is when it really got crazy for us. Now so you've seen three major economic changes in the United States as you go across that. One of the things that you guys specialize in is, how much is this thing worth? 


 19:54

Channing Hamlet
Right? 


 19:55

Josh Wilson
I'm sitting on a business. How much is it worth? Right. What makes a business valuable across the board? 


 20:04

Channing Hamlet
It's interesting that you bring that up. We had an experience with a client, he call it mid 50s, having some health problems, decided to sell this company. And this is in 2019. We went through the process, got a good offer in late 2019, and it met the client's objectives in terms of live enough money in the bank after tax to never have to work again, et Peter, et cetera. Working with our client, we kept negotiating for more and for more, which we did. We improved the deal quite a bit, and then we signed a letter of intent on March 18, 2020, the week before the shutdown. 


 20:52

Josh Wilson
Wow. 


 20:52

Channing Hamlet
COVID happened, and that sector kind of no M and A is happening. The whole deal got put on hold. And fast forward two years. We wound up closing this deal this year at a fraction of the price that it was on CRE marketing two years ago. I've seen this pattern, I have many stories in this which I won't bore you with, but I've seen this pattern many times. One of the things that I often think about in advising clients is once you get to a number that changes your life, stop wasting time screwing around for the extra because you don't know what tomorrow is going to bring. And over 25 years of working. We have all these examples of one day the.com companies are having money thrown at them, the next day, the ones that raised money before March 18, 2000 had staying power, and the ones that tried to negotiate that extra nickel, they're all gone. 


 21:58

Channing Hamlet
Mortgage mean it's happened over and over again. This kind of pigs get slaughtered saying really resonates with me. That's something that we try to talk to our clients about a lot. The question you asked about what makes a company valuable is super interesting and it differs by industry sector. There's kind of a checklist we go through in looking at and thinking about that with our clients. You don't need me here to tell you that stronger revenue growth or higher EBITDA or better margins makes a company more valuable. Everybody knows that at this point. There are a lot of subtleties and nuances in the value driver thing that I think are interesting and would be worth talking about. 


 22:56

Josh Wilson
Yeah, let's do that. Let's go through some of the if you would say here are the three main key factors on getting a better valuation or a higher multiple live, pay attention to this. Let's choose an industry, right? Choose your favorite industry, because each industry might have its different nuances. Let's go through three key factors. 


 23:22

Channing Hamlet
One of the biggest factors is an external factor that is largely out of a business owner's control and hardest to predict, but it's the industry in the market cycle. Just an example. In the late nineties, I worked on a project where we sold a commercial printing company. At that time, the printing industry still existed. People still read, public companies were still publishing catalogs, and there was a lot of high end printing going on. There were seven or eight public companies that were doing a consolidation. We had this commercial printing business that was like 100 million in revenue that we sold. We got eight offers from the eight public companies that were at that time doing the consolidation and got them to negotiate against each other and sold that company for a premium. Fast forward 15 years later. Worked with a printing company in the Bay area whose clients were household name bay area companies google, Facebook, Cisco, et cetera, et cetera. 


 24:27

Channing Hamlet
Amazing cutting edge technology. We couldn't find buyers interested because the consolidation in the printing industry had happened. Printing was becoming more and more commoditized, et cetera. A better company 20 years later was not salable at any reasonable price than 20 years before purely because of industry and market cycle. That's something that we spend a lot of time talking to business owners about is understanding where you're particular niche is, what the drivers are, what's going on in M and A evaluation and just thinking about what's likely to happen over the next 510, 1520 years and thinking through that. So that's one of the bigger drivers. We could spend the rest of the hour talking about examples in different industries where particular software companies have sold for 50 times revenue at one point, now they sell for two times revenue, etc. The industry and market cycle is one of the big ones. 


 25:40

Channing Hamlet
The second one is not necessarily purely valuation, but it's a scalability factor and it's engineering risks out of the business. Having a management team and making sure the business is transferable to a buyer. If the business has a key individual. A key customer. A key vendor or something like that. There's one or two kind of key relationships that are important. It's very hard to sell the business at all. Much less sell it for a premium because a buyer doesn't. There's a lot of risk on the buyer. Really stepping back and making sure the business is transferable and engineering out key risk factors in the business. We've seen them with key salespeople, key customers, key vendors, key customers, intellectual property licensing agreements, partnership agreements, et Peter, et cetera. Stepping back and understanding what those risk points are and engineering them out. Yeah, most business owners that we've worked with that have these types of risks, it's like the frog and the pot. 


 26:55

Channing Hamlet
They get comfortable with it over 20 to 25 years. They have a very good relationship with whatever the risk is and they make it work. When it comes time to have a buyer write them a big check, buyer doesn't get comfortable that they can transition that relationship. That's the second biggest value driver we see. The third one is business owners often have trouble clearly articulating what their difference is from the competition and why their customers hire them. The more clear you can go to a buyer with this is who we are and why we're special and why when you own us, you can continue to have a really special asset, the more you can articulate that and have it be real and have it show up through all of the processes and systems in the company, that's another very significant value driver. We are working on either evaluation project or with a business owner that wants to sell their company, those are some of the things we look at to try to really understand. 


 28:14

Channing Hamlet
When you're selling a company, you really want to tell the story around those things that the industry is ripe, there's a tailwind, there are no risks with this business. The customer base is diversified, the employee base is diversified, vendor base, etc. And etc, etc. By the way, this is a really special company. You couldn't replicate this on your own. You have to own this. Really coming up with that value story and understanding it is really a key. I mean, that's really a key value driver as I see it. There's a bunch of other things that everybody talks about in terms of EBITDA margins and EBITDA growth rates and multiples and stuff like that are more basic blocking and tackling that everybody understands. There's a lot of intangibles that go into creating a premium valuation for a company. 


 29:09

Josh Wilson
Yeah. So good. The way I hear things live, a hungry market live. What does the market really want? Alex from Oz writes about this in his book. He says, you can have the best hot dog, you can have all the stuff, but a hungry market is the best thing to have. The transferable business, the sellability, engineering the risk out of the business. It's awesome. And that is for us. For me right now, for our PR firm, it's mostly stacked around me. We're working heavily consultants and stuff like that to create a transferable business in the future. The value proposition, the competitive advantage live. What makes this unique that you can't build it, you have to buy it. Right? That is so good. Shannon. That's awesome. Great way to encapsulate the value drivers in the business. I love this, and I want to talk to you about this for deal makers out there, right? 


 30:08

Josh Wilson
There's a lot of deal makers who want to squeeze as much as they can out of the deal. They want to get as much meat off the bone. Sometimes when they do that, there's that saying that you were mentioning, pigs get fat, hogs get slaughtered. There's something when you keep on forcing a deal that it just might dry up, disappear and dissolve, whatever. How do as a deal maker, when the deal is good enough to say yes? 


 30:32

Channing Hamlet
It's really interesting. When I started my first firm back in 2005, our first client was a gentleman who was in his late seventies, and were helping him sell his company. It was a very complex process, and it was the first time in my professional career that I was the one leading the charge on the deal. So very stressful for me. 


 31:00

Josh Wilson
Yeah. 


 31:00

Channing Hamlet
Every transaction we get down to the end, where the buyer is basically my rule of thumb is there's always, like, 10% of the purchase price being negotiated or more up until the last minute. So we're in the heat of battle. There's potential environmental liability that's getting negotiated. They don't think the EBITDA that we presented was correct, and a whole host of other issues. My client kind of was like, hey, no one's happy. I think it's time to compromise and get this dial done. I think in every deal, when you're dealing with a $100 million deal or $50 million deal or whatever, There's enough money at stake that you kind of get to the point where there's a feeling that it's time to stop pushing to get this done because the other side is meeting ready to walk away. It almost always gets pushed to that. 


 31:55

Channing Hamlet
It almost always gets pushed to that point. That's just the way it is. I think human psychology, at least on our side, when we're typically representing a seller, I think the human psychology is like, hey, I need to know I put my life's work into this company or this asset. I need to know I'm getting the best or close to the best. The only way I know is if I push so hard, the other side is getting ready to walk away. That's kind of what we typically see. Yeah. It's definitely an art, and I think it definitely helps to have a good attorney and a good adviser that doesn't get all emotionally wrapped up in the situation. Because as a seller or as a buyer, it's easy to get emotionally wrapped up, say the wrong thing, make a rash decision, something like that, and it's easy to kill a perfectly good deal with a well timed emotional outburst or a poorly timed emotional outburst. 


 33:04

Channing Hamlet
I think the advisers earn their keep on the goal line, so to speak. 


 33:11

Josh Wilson
Yeah. So think about it this way. That guy is 70 years old. He was probably in the business for 40 years, right? 30, 40, 50 years. Right. How many businesses has he sold? Maybe one, maybe two, right? 


 33:23

Channing Hamlet
Yeah. 


 33:24

Josh Wilson
And I see this happen often. Right. You're so tied to it, and you're just like, what's my life going to look like afterwards? What's my identity going to be? This is my baby, I built this, my kids to college, whatever the case may be. And you're emotionally attached to the deal. If you don't get exactly what you want, even more than what you think you want, you're going to blow it up. 


 33:46

Channing Hamlet
Exactly. 


 33:47

Josh Wilson
Have you seen that happen? A few times? 


 33:49

Channing Hamlet
For sure. We've seen people go right to the end and then decide not to sell their company. I think it's largely tied to somewhat tied to what you just said. They don't understand what's next for them. What we've seen as a business owner, if they don't have the personal objectives well understood, going back to what I said at the beginning, it's harder to make that decision about selling the company because there's a financial element, there's a legacy element, and there's a personal element. Really, all three of those need to line up for someone to sign on the dotted line. If they don't line up, they shouldn't sign on the dotted line because they don't know what they want. They don't know what they want, and they're likely to be disappointed. 


 34:40

Josh Wilson
Yeah. 


 34:40

Channing Hamlet
If you sell your company it's hard to recreate that or get it back. 


 34:47

Josh Wilson
I find that the team chat a lot of business owners right before an exit is, what if I'm not getting as much this idea of I'm owed more, or there might be more out there for me. I find that creates unrealistic expectations, or it has the potential to right. There might be more. Or they come out with like, hey, what do you want for this? They pull a number out of their hat somewhere. How do you go about looking at here's actual value? This is actually what it's worth, in our opinion? How do you come at that? How do you combat it when they're like, It's worth way more than that? How do you work through that? 


 35:31

Channing Hamlet
How much time do you have to answer this one? That's your business, right? I have a story. I was hired to sell this company, and the guy that owned it was a passive owner, and he had a general manager working for him who is 65. The general manager wanted to retire, and the general manager wanted to retire, and he needed to sell the business to provide retirement for the general manager. And so we go through the process. We go through the process. We talk to over 100 buyers, like every company in their industry, private equity firms, this one, that one. At the end of the day, we wound up with four offers. There were some issues with this business and that the general manager who wanted to retire had key relationships with the three largest customers. The general manager was of a difficult personality, and so he turned a lot of the buyers off. 


 36:31

Channing Hamlet
We wound up with three offers that were not great offers. However, they were all fairly similar. So, after six and nine months of working on this, client calls me, and he's like, hey, Channing, I've decided not to sell my company. The offers just aren't good enough. I was live hang on a second. I put, like, nine months of my life into this. Let's go have a cup of coffee. We had coffee the next morning, and it was like, Steve, this is what you said you wanted when you hired me. You said you didn't need the money, you want to take care of your general manager, and that you want to have more free time so you could work on a family business that you wanted to start. Near as I can tell, I'm not going to sit here and tell you the offers are good. 


 37:17

Channing Hamlet
In fact, they're lower than I thought were going to get. And I agree with that. However, near as I can tell, this deal checks all the boxes of what you said was important to you, and if you don't do this deal, there's no other buyer. We've talked to every buyer. There's no other buyer out there that's going to pay you more. If you don't do this deal, you're going to have to fire the general manager that you want to take care of and work in this business and improve the things that are wrong with it, which is going to take you three to five years. It might work, it might not. It might work, it might work, it might not. And so that's sort of your decision. Do you do a deal that's less than you wanted, that checks all the boxes of what you said you wanted, or do you go back to work and improve the value? 


 38:02

Channing Hamlet
He ultimately decided to sell the company, but we changed the deal so that he retains some ownership with the new buyer and it's worked out incredibly well. He's captured the value over time and accomplished all of his personal objectives. The reason I tell you that story is the best way to put a business owner in a location to make a good decision is to run a market process. They clearly understand what their alternatives are. I think we're very smart when it comes to valuing a company we've worked on as a group at our firm. We've worked on thousands of transactions and tens of thousands of solutions. We're really smart when it comes to valuing a company, but theoretical valuation of X times Y E Vita is one thing and usually it's directionally correct. If you run a disciplined, well thought out market process, you're now educated on, here's what my options are today, here's what's worth today. 


 39:09

Channing Hamlet
If I don't like that, here's my roadmap to fix it. I think this process that we run in terms of educating ourselves and our client on the market is really a key factor in helping them make a good decision. We've had situations where we take a company to market and the numbers come out different than what we thought for a variety of reasons, and our client decides not to sell, and that's fine. We help them make a really good market based or fact based decision. At the end of the day, that's all you can do for your clients is help them make the best decision possible. 


 39:55

Josh Wilson
Yeah, I've heard. What is this worth? 


 39:59

Channing Hamlet
What? 


 39:59

Josh Wilson
Someone is willing to pay for it? Right? A way to do that, the way to figure that out is multiple offers running through your market process, talking with people, putting it, packaging it. Well, now, when it comes to maybe now is not the time to sell. You and I are working together on a big deal and we look at it and you're like, Josh, sorry to tell you, dude, things not ready to sell. Do these few things over the next year or two, and then you're going to be much happier with the outcome. Do you come rross those kinds of opportunities in your business where that just needs some nurturing and care. 


 40:36

Channing Hamlet
Yeah, I think I touched on this earlier. For a business owner to want to sell their company, they need to understand what their number is. Hey, I own this company. I'm making money every year. I'm going to trade that for cash in my bank account or cash in my stock portfolio or whatever. How much do I need to trade it for to support the lifestyle I want. They need to understand personally how much they need. That's actually fairly complex to figure out. We love to see business owners work with a financial planner or something to know the answer to that. We don't really do that stuff. We're more focused on the business. We do a lot of work with business owners that's like, hey, you're in this rapid growth cycle. Your industry has these characteristics. If you hold onto this and you change these couple of things over the next three years, you have the potential to triple the value. 


 41:36

Josh Wilson
Nice. 


 41:37

Channing Hamlet
Your risk of losing value is quite low. Why would you sell today? It seems like hanging onto it and continuing to grow makes sense. The other thing that I love about that situation is we can start to give them advice and help them build the team so that they're truly ready to sell because a buyer is going to come along and there's like seven or eight key streams of due diligence that they're going to do. If a business owner can be ready to conquer all seven or eight key streams of due diligence, it makes the process a h*** of a lot easier. In our business, we're not necessarily consulting with companies on a monthly basis or weekly basis, helping them get ready, but we do a lot of work with people to create a relationship where we help define the roadmap and have had a lot of success with that over the years. 


 42:42

Josh Wilson
Awesome, man. For groups that want to connect with you, what does the perfect deal look like for you? Someone's listening and they go, hey, man, that's actually my business. I want to go have a chat with Shannon. 


 42:57

Channing Hamlet
I think it's two things. I think one is someone who's really curious about what their company's worth and what it takes to have it be ready to sell. Our appraisal practice has a kind of process that we follow, we call kind of an exit gap analysis, if you will, what's it worth today? The deliverable is, what is it worth today? What are the value drivers? And what is live? A prioritized list of things to work on to improve the value. We do that with a broad range of companies. Most of the companies where our expertise falls are worth kind of five to 10 million at the low end, up to 150,000,000 at the high end. That's one area for people listening that I think we can add a lot of value to and help with. The second one is for people that are thinking about selling their company, whether they've got a couple of buyers interested. 


 43:54

Channing Hamlet
They want to understand the process. They want to understand the process, get smarter about, should I sell now, should I sell in the future? I mean, those are all things that we can help with. 


 44:07

Josh Wilson
Super cool. Best deal. Worst deal ever. 


 44:16

Channing Hamlet
We just have so many great stories of helping people. One of the deals that we worked on a couple of years ago was a company that was providing kind of data services to pharma companies. There were three owners that were equal partners, and they were approached by a buyer in 2015, and the offer was relatively low, and it was some cash upfront and an earn out. Et. Peter and I met with the CEO, and it's like, do you have audited financials? No. Do you do this? No. Do you do this? No. Every single question, the answer was no. I mean, they just live. No succession plan, no financial projections, nothing. Over the next four years, they worked on a lot of the stuff. I met with them a few times over the years, and they came back to us with succession plan, audited financials, financial projections. 


 45:19

Channing Hamlet
The business was dialed in, and we sold it for them for five times in cash offer. What their first crappy offer was four years ago. That was just super rewarding to help them with that. They did much of the hard work in terms of improving the business. Sure, yeah. But that was a lot of fun. The worst deals ever. I don't know if we've really had a bad deal. The hardest ones are when we have international buyers. We've had the opportunity to sell US based companies to companies in Asia and companies india, and dealing with the cultural differences and the time change and the different laws and the different accounting rules. It's fun, but it's really complex and tricky to navigate that. Setting your alarm for 230 in the morning to get up and do a conference call to talk to an attorney in Singapore is not my idea of fun, but we've done it and really help people doing that. 


 46:34

Channing Hamlet
Those are the hardest ones for us. 


 46:38

Josh Wilson
Awesome. During this interview, there's probably questions that I should have asked you, at least pertaining to the topics of the conversation today. There's a question I should have asked you that I screwed up and did not ask you. What is that question? 


 46:51

Channing Hamlet
I think the one question is, what are the issues facing business owners as they think about how to prepare to sell their company? I think one of the things that I've seen over the years across most, if not all the transactions I've worked on is I feel like business owners, in particular the ones who have built his or her company over a long period of time and this is their first transaction. I feel like they don't take the time to educate themselves to truly understand the process and truly be prepared. There's personal planning in terms of what are they going to do, how much money do they need. There's tax planning in terms of making sure they optimize their taxes. They optimize the taxes for their family, the generational and estate taxes. There's personal issues in terms of like, hey, I'm going from CEO to 7th in line at Starbucks. 


 48:01

Channing Hamlet
There's the business things, just a whole host of business things. The common ones are underinvestment in their finance team, under investment in their reporting systems, incomplete management team that won't show well during the process and then not necessarily having a well defined and articulated strategic plan and financial projections. Those are some of the key areas where if you don't have that, it's harder for an investment bank and a set of advisors to help you really maximize the value. That's a whole preparation and appreciation for how complex and difficult it is to sell a company for a premium is one thing I love talking about and educating business owners on. The second one is a lot of people come to us with a buyer already interested and they've shared poorly thought out and partial data and they've really set themselves up to fail because once a buyer anchors on a certain deal structure or price. 


 49:16

Channing Hamlet
It's hard to put the toothpaste back in the tube and it's also then hard to run a full auction process because you got one buyer interested that's not going to hang around forever while you do the auction process. A lot of times I think we feel like we have one hand tied behind our back in terms of not being able to truly maximize the value. However, we can still help in this solutions but it's not necessarily the most ideal scenario in many cases. 


 49:45

Josh Wilson
How long should someone connect with you? It the first time that it pops in their head is live, hey, I might sell this one day, they should probably start having chats with you or is there a timeframe, what is the perfect time to reach out? 


 50:06

Channing Hamlet
I think it's never too soon to connect and be ready. I think that the companies going back to some of the value drivers, we talked about the external one in terms of the industry and the market cycle, being ready when your phone rings, when the right buyer knocks on your door and says they're interested, truly being ready for that's where the magic happens. And people can sell for a premium. It's never too soon to understand what pieces need to be put in place for an exit, what the process is. When I do get that call and I'm ready, what is my team going to look like? Who's my CPA, who's my state planner, who's my financial planner, investment banker, attorney, et cetera, et cetera. To have everything ready to go so you can mobilize the team when you're team chat I think is really the best practice. 


 51:05

Josh Wilson
So let's do this shaming. If people are listening in, they've got a deal on the hook and they'd like you to take a look at it and maybe help them sell their business or put a value on it at least. What's a good place for people to connect with you and do a deal? 


 51:18

Channing Hamlet
Yeah, my contact info is on our website. Feel free to pick up the phone or shoot me an email. Cool. 


 51:26

Josh Wilson
And it's objectivecp.com, is that right? 


 51:29

Channing Hamlet
Connect. 


 51:30

Josh Wilson
So let's do this. Fellow deal makers, as always, reach out to our guests. Thanks for being on the show. Find a way to connect with them and do a deal. That's the mission and purpose of the show, is to put deals and dealmakers together. If you have a deal that you would like to talk about on this show, head over to zip thedealscout.com fill out a quick form and then maybe you can talk about your deal and your deal making journey on this show. Till then, we'll talk to you all on the next episode. 


 51:55

Channing Hamlet
Cool. Thanks for having me. 


 51:56

Josh Wilson
You're welcome and good having you. 

Channing Hamlet Profile Photo

Channing Hamlet

Managing Director

Channing Hamlet is a Managing Director at Objective, Investment Banking & Valuation focused on leading the firm’s business valuation practice and transaction execution for its investment banking business services practice. Mr. Hamlet is a results-driven executive that has 25+ years of experience advising business owners on management issues, transaction execution and business valuation. He is able to draw on a diverse background that includes direct management experience as well as strategy consulting, private equity investing, investment banking and business appraisal experience to advise his clients.

Prior to joining Objective, Mr. Hamlet served as a Managing Director of Cabrillo Advisors, where he was instrumental in growing its valuation practice from its inception to a national practice serving more than 700 clients in five years. During this period, he was responsible for managing a team of approximately 25 professionals that conducted a variety of business valuation assignments including tax compliance (409a, estate and gift), fair value (ASC 820, ASC 350, ASC 805) as well as strategic advisory assignments. His experience ranges from working with early stage companies on relatively simple stock option valuation assignments up to IPO stage companies with complex capitalization tables and significant scrutiny from Big 4 accounting firms and the SEC.

Previously, he served as a Director at Vistage where he focused on business development, acquisitions and new business initiatives. Prior to joining Vistage, Mr. Hamlet served on the investment team at LLR Partners, a $260 million private-equity firm which invested in and acquired 25 companies during his tenure. Prior to LLR Partners he was a member of Legg Mason’s Investment Banking group, where he focused on middle market M&A and corporate advisory assignments.

Channing is very involved in the Los Angeles and San Diego business communities, and regularly appears as a panelist or speaker for multiple organizations including ACG, EPI, EO, CFO Leadership Council, Southern California Institute, and more. He has also been recognized many times for his excellence in investment banking. Most recently he was chosen as an Investment Banking Visionary for 2022 and for 2021 in the Banking and Finance Magazine created and published by the Los Angeles Times. He was also recognized this year by the Los Angeles Business Journal as a Leader of Influence: Investment Bankers 2020 and 2021.

Mr. Hamlet has a master’s degree in operations research and a bachelor of science in mechanical engineering from Cornell University. He holds FINRA Series 7, 63 and 79 licenses and is a Registered Representative of BA Securities LLC, Member FINRA SIPC.