As founders, many of us dream of a successful exit, but what happens when you’re ready to sell part of your business while keeping a stake in its future growth? In this session, we’ll explore the dynamics of a partial exit—a strategy that allows founders to take some chips off the table, while still staying involved and benefiting from the company’s ongoing success. Whether you’re considering selling a minority stake or a significant portion of your business, this session will arm you with the strategies, insights, and practical knowledge you need to approach a partial exit with confidence. Join us to learn how to unlock value while keeping a seat at the table for future growth.
TRANSCRIPT
Greg Alexander: Hey, everybody. This is Greg Alexander, founder of Collective 54. And you’re listening to the Pro Serve Podcast. This is a podcast for owners, founders, senior leaders of boutique professional services firms. So if you market expertise for a living, let’s say in consulting or fractional CXOs, or marketing agencies, or IT services, etc., this is for you. And on this show, we try to help you figure out ways to make more money, make scaling easier, and make an exit achievable. That’s done by growing, scaling, and exiting your firms, of course. And on today’s episode, we’re going to talk about an exit, but a different type of exit, a partial exit. Several of our members decide to do this for a whole variety of reasons. So instead of selling your firm all at once, you sell a portion of it, and maybe you do that multiple times over an extended time period as a way to achieve a full exit eventually. And there’s a lot to it. But we’ve got a great guest with us today, a Collective 54 member. His name is Travis Carey. Travis, it’s good to see you. Would you please introduce yourself and your firm to the audience.
Travis Carey: Thanks, Greg. Okay, it’s Travis Carey. Firm is Carey and Co. Started as a little accounting firm by myself about 11 years ago, and grew ourselves to about 75 people branching out along the way to doing some human resources and some other executive management functions specifically in the not-for-profit sector, though all of our clients are charities or not-for-profit organizations.
Greg Alexander: All right. Well, very good. Well, thank you for being here. Congratulations on that success story. So I understand that you have recently gone through a partial exit. So my first question for the audience is kind of what motivated you to do that? Like, what was your strategic thinking or your personal goals around doing that?
Travis Carey: Sure, so I, you know, much like a lot of us, I was just trying to grow a great firm and serve my customers, but I think we got there was a lot of forces. One force was, you know, constant attention. Accounting firms are consolidating now, and that means the competition is different, and they have different resources, and they have different competitive forces. And the niche, the not-for-profit sector is appealing, right? And they do say the riches are in the niches. So there were lots of approaches from small firms that had a couple of guys who just wanted to invest to super large firms that had done hundreds of deals to a few others, and I mostly told them no for a couple of years that I wasn’t interested, or it wasn’t time. And one firm wrote to me, and they wanted to create a not-for-profit platform. Key for me is where, you know, you’re calling it a partial exit, but for me, their approach was this is not an exit at all. You’re staying. You’re running the place. We’re gonna build something with you, with this as the thought of the platform and what it would be like. And in that way, I thought it was a good partner. I was like, okay, I definitely want to stay around at my age, and where I’m at. I’ve got some time left in me, but I did see as the owner, right, I could take some money off the table here and take some risk off the table. Have a little cash in the bank, so if something goes south, the family is taken care of, or whatever else needs to happen. Right? So there’s some pressure there. There’s also some inability to beat the competition at certain things, and capitalize on every idea or every strategic force or pressure that’s out there, and having some thought partners and some investors that have done some things. So I think the matchup was key. The private equity firm that I’m involved with has five people. It’s not a huge firm. They’ve done a few of these platform-type investments. They were looking specifically to have one in this niche. And then the idea of adding on other companies. You know, I know the other vendors and players in this sector. I’m fairly uniquely positioned to bring on partners or strategic relationships, or do revenue sharing, or things like that. So it seemed like an ideal opportunity to take that risk off the table, but also roll a bunch of equity and capitalize on some long-term valuation that maybe I couldn’t get in a full exit all at once.
Greg Alexander: Interesting, fantastic answer. You mentioned timing a few times and timing from a marketplace perspective. And I didn’t know that about the nonprofit accounting sector, so that was really interesting to learn about. Tell me a little bit more about the timing. Personally, you mentioned you wanted to take some chips off the table and secure your financial future. But that’s after being in business for 11 years, right? So did you just wake up one day and say, maybe I got too much risk? Like, why didn’t you do this at year 3 or year 5 or year 7? Walk me through that a little bit.
Travis Carey: Sure. Well, you know, it started. It wasn’t that at all. Didn’t start at that. It started with this, you know. They sent me their idea for what the platform would look like and who they wanted involved. And they said, let’s just have breakfast. Let’s meet each other in person and see if we even like each other or anything like that, right? And then, you know, my key question was probably what anybody would ask in my position: what would the numbers look like, or what does it take for me to know what the numbers look like? What do I have to do to get an answer from you? Like, is my valuation $50 or $500 million, or where’s the delta in there, right? I had done the Collective 54 valuation thing by that time, and I had done a little bit of homework, and I had talked to a few other folks who were in different models, guys who wanted to buy 80% and then work alongside with me and some things like that, and guys who wanted to buy it but didn’t really care if I stayed. There were lots of things. So the combination of the timing of, well, I’ve got some runway here where the kids are in college, and I still want to do a number of years, but there’s a horizon there where I don’t want to do it anymore. So I guess it’s what does it take to get a number, right? They said the things that we say all the time at Collective 54, which is, what’s the total revenue? What’s the EBITDA number? What’s your customer longevity, your staff longevity, all those triggers that if you go through the evaluation model at Collective 54, you actually get asked the same questions, right? So they put that through their model and said, here’s how we think we would do a deal. And the number was a relatively pleasant surprise, was good enough to keep talking. Then we had to learn about due diligence, improving it, and all that other stuff.
Greg Alexander: So let’s talk about negotiating the number. Is it the same as negotiating? So is evaluation the same regardless if you sell the entire firm or if you sell a piece of the firm? What challenges from a negotiation perspective should our listeners be aware of if they decide to do something similar?
Travis Carey: I think the valuation is. There was definitely a range in valuation to the way I talked to people that were millions of dollars, right? And I think that matters because it’s meaningful. What I would say, and it was always a high percentage or a low percentage, didn’t really matter. But the terms matter, right? When you’re doing a deal like this, you’ve got upfront cash, rolled equity, earn-out requirements, money that will be in escrow, reps and warranties insurance, and a bunch of things that you never heard of before. So I think that’s all good stuff, and probably Greg is familiar with all those terms, and maybe some others are. But you’re learning as you’re doing it, and you’re negotiating it along the way. As you go through the due diligence process, everything that you don’t have or say no to or isn’t exactly right becomes another clause in a contract that two lawyers are looking at, and you’re paying them for. It’s a pretty interesting thing to deal with along the way.
Greg Alexander: If you think about all the things that you just rattled off the top of your head, for many of our listeners, these are foreign terms. But in one deal, you’ve got total value, rolled equity, earn-out, escrow, reps and warranties. These things are very complicated at times. Our job is just to raise a level of awareness on these items. Travis, it sounds like you were able to get through these things and reach an acceptable resolution to each one of them, which is great. I want to encourage our listeners to know that these are things that need to be dealt with. When you’re partnering with the right private equity firm, which it sounds like you chose the right firm, they do this for a living, and they know that they’re going to be a partner, and that you guys are going on this journey for an extended time period, many years, and they need to be dealt with accordingly.
Greg Alexander: Let’s talk about you personally and your role. How has it been impacted after the transaction? Is it business as usual, or have things changed?
Travis Carey: Yeah. The first thing I would say is, things move faster. If you want to do a letter of intent and add on another company, you’ve got to meet that other company. You’ve got to like them. You’ve got to meet with lenders who might loan you more money for the deal because it’s not all going to be equity. You’ve got to integrate them into your existing team. In addition to running, you still have to meet milestones, grow your revenue, hire people, meet your customers, and do all the networking and marketing. So you gotta be a little more decisive. But it’s also, you know, you’re gonna invest in your marketing because you’ve committed to some growth. You might have hesitated on that if you were just one owner doing one thing. You might say, we can grow a little slower. We could do that. You can make different trade-offs. We’re still trying to build quality. It’s not necessarily grow. The nuts make the right decision for where you want the firm to be 5, 10 years, not one year. We ultimately have to be very attractive to another buyer down the road or another firm that wants to acquire us. This firm in particular, I think, where we lived was there was really good alignment between their incentives, my incentives, and the platform, and the other owners. As things evolve, the way they structure the deals gets really good alignment of everybody’s goals and everybody’s upside. So that’s what works for me. They’re true to their word. They’re staying out of the business day to day. There’s only five of them, so they can’t really tackle it. Anyway, they’re not experts in what we do. It’s a partnership. When we need something, I call them and say, Hey, this is what we need. You got anybody who does that? Then they search it out, or they have somebody, or they introduce somebody, or they at least say, Hey, we’ve done a deal like this before with this contract. Would that help you? So there’s resources and know-how that come with the deal that really add value.
Greg Alexander: Now your day-to-day operations of the firm. Are you still running the firm, or are you out talking to potential acquisition targets, or both? And how are you dividing your time now? Because that’s extra work, correct.
Travis Carey: It’s extra work. We had been in a pretty good position where I brought in some high-level people towards the end of last year before this. This was an investment year and a growth year for us either way. So that’s been helpful. We have people that create more content than I create. We have people who help with performance management and metrics and things like that, and have increased our back-office systems quite a bit. So we were making some of those investments, anyway. I do have a larger, more visible role. I’m definitely taking on more speaking, more podcasts, more external-facing things, hitting as many conferences and things as possible to talk to people about what we’re doing and why we’re doing it. Part of the reason we were doing it was bolder promises to our customers and bolder solutions. Sometimes a place with finance problems has a bunch of other problems, too, and if you really want to get the best result for them, you’ve got to offer some other things. Even our clients have a good alignment with our goals right now. So it’s really pretty good.
Greg Alexander: And when did all this take place?
Travis Carey: This started about a year ago, like this week.
Greg Alexander: Okay, got it. So with a year of retrospection, what do you know now that you wish you knew then, and what advice would you give your peers, who might be thinking about doing this?
Travis Carey: I think there’s an exciting thing about being able to leverage all the ideas that a founder has, and that an entrepreneur has, that you can’t give legs to. That’s how I’ve been talking to the other platform companies about it and to the other people who ask. All the things that I ever wanted to do, that I thought were great ideas, I filter through them a lot faster. Some of them are not good ideas, some are good ideas, and we try them, and they work, some of them we try, and they don’t work, but it churns instead of hovering. That’s a nice feeling that drives me. It motivates me. It energizes me a bit. Then there’s the speed of light, too. All those things churning means everything happens faster. So there’s a little bit of anxiety around that. It’s excitement. It’s usually good anxiety, but it’s anxiety. Then there are things you never thought about that are silly business things. They’re less worried about us paying interest on some debt around the company because interest kind of doesn’t count in the next valuation. You and I wouldn’t spend that money freely, but it’s also, in a way, it doesn’t matter money. So there are things like that that I never thought about that are pretty cool.
Greg Alexander: Do you find yourself thinking more about the creation of enterprise value in what the firm might be worth down the road than you do thinking about, you know, this year’s P&L?
Travis Carey: Definitely.
Greg Alexander: Yeah, more of an owner’s mentality.
Travis Carey: Really.
Greg Alexander: Yeah, yeah.
Travis Carey: And there’s pressure on me to change my role. The pre self-imposed pressure, like knowing what I’ve got to do to take the firm to new places. What I have to do now is not what got us here.
Greg Alexander: Yeah, interesting.
Travis Carey: Yeah.
Greg Alexander: All right. Well, very good. Listen, this was meant to be an overview of a concept which is what we call the partial exit. You’re calling it a platform investment rightfully so, I think, and how life changes for an entrepreneur when they go down that path. You were very kind to be on the call today, and your insights were very interesting. So thank you for being here.
Travis Carey: Thank you for having me. It’s great.
Greg Alexander: And a few calls to action for listeners. If you want to talk to Travis more about this, and you know we just skimmed the tips of the wave, so to speak, please look for the member invitation that you’ll get if you’re a member of Collective 54, because we’re going to have a Q&A session with him coming up shortly. If you’re not a member and you want to become one, go to collective54.com, fill out an application, and we’ll get in contact with you. If you’re not interested in either of those two things, and you just want to consume some more content, I would point you to my book. It’s called The Boutique: How to Start, Scale, and Sell a Professional Services Firm written by yours truly. You can find it on amazon.com. But until next time, I wish you the best of luck as you try to grow, scale, and exit your firm. Travis, thanks again for being here today.
Travis Carey: Thank you. See you soon.
Note: This transcript was generated by Zoom.