S3E3: Acquisition-ready with SA Recycling's Sandy Brooks

In today's episode, I’m joined by Sandy Brooks.

Sandy is Vice President of Finance at SA Recycling, the largest privately owned metal recycler in the US.

Sandy has been an integral part of SA's growth, from 17 to over 140 recycling facilities.

Sandy started her career at Ernst Young, was CFO of four companies, had her own accounting and tax practice, and wrote a tax guide.

She's currently chair of ReMA's Audit Committee, sits on the ReMA National Board, and is President of its West Coast chapter.

In today’s episode we talk about:

👉 Cleaning up your asset list
👉 Factoring tax into a sale
👉 The right time to sell
👉 Staging for a sale
👉 And more!

Listen to the full episode. Wherever you stream your podcasts.

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WHO IS STU KAGAN ANYWAYS?

25 years in the metal recycling game and still learning and growing...

I learnt from the best and worked my way up from yard labourer to Executive Director of Trading and Operations for the largest metal recycler in sub-Saharan Africa. Responsible for 4,500 employees, 85 sites, and the overall profitability of a multi-billion dollar operation.

I brought my breadth and depth of knowledge to bear and co-founded the fastest growing, most-loved, and most awarded metal recycling company in New Zealand. No small feat in a country where people are outnumbered 4:1 by sheep (spoiler alert: sheep don’t produce much metal waste).

I thought it was time that tech worked for our industry, so I took all of my experience as an operator and trader and leveraged that to build THE killer scrap app, Buddy. That’s right - built for scrappies, by scrappies.

Father of two crazy-awesome boys. Husband to Lisa. Under 9 rugby coach. YPO member. Lifelong learner. Mentee. Mentor. Chief dog walker. Committed Stoic. Undefeated dance-off champion.


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Transcript

0:05

Hi, I'm Stu Kagan and welcome to Born Scrappy, the podcast of scrap metal exporters and traders. Join me in conversation with some of the most experienced traders and operators that have helped shape this incredible industry. In today's special acquisition masterclass, I chat to Sandy Brooks. Sandy is vice president of finance at SA Recycling, the largest privately owned metal recycler in the US. Sandy has been an integral part of SA's growth. From 17 to over 140 recycling facilities. Sandy started her career at Ernst Young where CFO of four companies had her own accounting and tax practice and wrote a tax guide. She's currently chair of RIMA's audit committee on its national board and president of the West Coast chapter. In today's episode, we speak about staging for a sale, factoring tax into a sale, the right time to sell, cleaning up your asset list, and so much more. So let's jump into this masterclass with Sandy. But first, intro. Hi, Sandy. How are you? Hi, Stu. Great. How are you doing? Yeah, I'm, I'm awesome. Um, uh, I'm really excited. I always say I'm excited for these episodes, but I'm like extremely excited because my masterclass is always my favorite and this topic is going to be awesome. So thank you for helping me put this together. Um, and I'm, I'm looking forward to it. Absolutely. Glad to be here. Sam, so today we're doing a masterclass on preparing for acquisitions. It's not necessarily just preparing, but we're talking about acquisitions. This is a super hot topic in the industry. Obviously you being from SA, you participate in this quite a lot. Um, there are other parties, Padnos just acquired a few yards the other day, Alta's acquiring a few the other day too. Um, there's a lot of movement in the industry. So we're kind of pitching this in a way that for those that have either been approached before or expect they will be at some stage or are going to consider it at some stage, what can they plan for? So before we kick on, Tell us how you found yourself in the metal recycling industry. Well, I got into the industry when I started with SA. Um, it's actually 16 years ago. I, I always am a year off because SA was formed 17 years ago. I started right before the end of the first fiscal year. And, and I'm such a part of the company. I feel like I have been there from the beginning, but 16 years ago, I had no clue. Whatsoever about this industry, um, didn't, didn't even know it existed. And, um, I, you know, started out at, um, Ernst Young. And after that, um, had my own practice for a while. And, but just before starting at SAI, uh, worked for three internet startup companies. So completely different than, uh, the scrap metal recycling industry. But, uh, I was, I had a, a recruiter and, uh, I was looking for. A new chapter in my life. I was looking for something that would be my permanent, uh, home. And, uh, so she called me and said, would you consider a consulting position? Uh, you know, short term two, two month position. I said, no, no, I want something. Real. And she said, Oh, I think it's like this. And she talked me into it. So I went, this was in 2008, kind of the heyday, um, when there was a lot of activity in our industry and our corporate offices at the time we're at our Anaheim shredder. So I drove up and saw all of these trucks with appliances sticking out of them and, you know, all of the scrap. And I said, what the heck is this? I had no clue whatsoever about this industry. Almost didn't walk in. Very glad I did walk in and I, uh, I met with our CFO, Mark Sweetman, and we hit it off. And I said, okay, I can do anything for two months. And at the end of the two month period, I came in with a suit on one day. And he said, what are you doing? And I said, well, you know, I'm almost done. They hired me to do the formation accounting for SA Recycling, and I was almost done with that. And he said, no, we're going to, we're going to do a few more acquisitions. I think we need you. And that was kind of the understatement of the century there. And, uh, you know, so had I been interviewing for a permanent position, I probably wouldn't have taken it. But after the two months, I, uh, That's all it took for me to fall in love with the industry and the people. And I said, yes, right away. And, and never looked back. I love that. I mean, you rock up in a suit and people are like, Whoa, what's going on? Yes. And are you thinking of leaving? It's like, that's how people know. So you must have an interview today. Exactly. And, and since, what are you doing on a day to day basis? What makes up your, your daily kind of routine at the moment? Well, I'm VP of finance and I am. Over the financials and our audit, tax, treasury, um, fixed assets, um, just about everything related to accounting other than the actual trade accounting. And I have a group of about thirty five people now that, um, that work in. And this area, uh, what I really love about working for SA is that it's not just your boring accounting job. You know, I don't, I don't come to work every day and do the exact same thing. There's always something new and exciting at SA recycling, uh, with Georgia at the home, uh, and all of these acquisitions, it keeps things exciting. So no doubt there's, um, Every day is changing for you and it's, it's always exciting. And when it comes to acquisitions, do you then go into acquisition mode or do you oversee a team or how does that work? Just so we get a bit of background before we start delving into the actual questions and advice tips. Well, we go into acquisition mode, but we've done it so much, we have it down, you know, and we still have to do our day jobs. I guess we still need to close the month every month. We usually do that within three to four days. We still have tax returns that need to be filed, you know, we still have to continue doing our day to day, but acquisition mode is important and that takes priority over a lot of things. Um, for those that don't know. Three to four days of a company of your size. That's pretty impressive. We had 85 yards, um, in Southern Africa and it would still take probably eight to 10 at best. That's a pretty phenomenal. So yeah, that's awesome. All right. So, so let's look at it. I'd love to know your experiences on these sort of acquisitions. What's the most surprising thing that you've learned about a seller during an acquisition process that you've been involved in? Well, I'm not sure how surprising it is when you look back at it, but I was, I guess, kind of surprised at how many of the sellers. Are so proud of their businesses and for them, it's less about the money or it's not only about the money, I should say. And they are just really proud. And when we take over, we come in and take over. And sometimes they're a little bit lost. In one of our recent acquisitions in the last couple of years, I Remember looking at the seller on day one, and we've got people already training and counting cash and looking at inventory and, and we, you know, our people are all over the place and he looked a little lost. So I went up and talked to him and just asked him about the business and when he started. And he just wanted to tell his story. He was proud of what he had built. He was proud of his employees. His relationship with the suppliers and, and his, his story and, and that kind of put him at ease and, and, and it was kind of fun for me to, to hear him. Yeah. There's, um, I guess you often will be buying multi generational businesses as well, so people are proud there. Um, they've been handed it down from their father. They've been on the tool since they were, I don't know, 14 years old, even younger, some of the time. So there's that anxiety. I'm, I'm assuming when looking to even sell a business that's been handed to you by your grandparents or parents, um, there must be in every single, almost every single acquisition you make, right? It's true. It is most of our acquisitions. And so let's understand, um, George is around the country constantly around the world, I should say, actually, but you're constantly running into different businesses and, um, somebody made a joke. Well, it's actually, somebody said to me that day, Oh, George was at my yard visiting last week. So I was like, Oh, are you for sale? So it's just kind of like, um, when George is visiting, I'm sure there's certain things he's evaluating and looking at at any time. So what are the key factors? That you guys in particular, I guess, are looking at when you're evaluating the potential acquisition target. You know, are there certain metrics you're looking at, whether financial, operational, are there efficiencies, are there assets that you're looking for at any time? What are you guys assessing when you're looking at the opportunity? Well, for George, they're just one checkbox. Do they buy and sell scrap? And then he wants to buy them. A lot of people joke about him not seeing a scrapyard he didn't want to buy. So, but really we do look at, you know, Strategic assets. If there's a shredder in an area where we have yards, but we don't yet have a shredder, that would be important. Um, we look at the hub and spoke model. And so if it's a shredder or a hub yard with some smaller yards around it, that's attractive to us. It's an area we want to move into and haven't yet. That's attractive. I don't get involved in the selection at all, but you know, George does. Tyler Adams, our COO, gets involved in that. And I think locations, It's super important, uh, if it's near transportation, uh, a rail line or, you know, barge or ports or things like that, that, that is sometimes important. Really the financial metrics don't come into play until after it's been decided we're going to pursue a company, a target company. It's all about kind of, does it fit into the strategy? And then we work out the financials behind it and see how that works. But Sanson, you will jump into on the feet on the finance side, right? So what could small to medium, even large family run businesses, what can they focus on financially? To make themselves more attractive to a buyer and what kind of other pitfall pitfalls or red flags that you've seen That people haven't adhered to on the finance side. Okay. Well, I think that someone looking to sell Should probably give themselves a lot of time to get prepared. It's just like with anything else. If you're selling a home, you want to get it prepared, ready to go to market. And so I'd say a year would be ideal, but at least a few months and. hire advisors. Um, I'm partial to accountants, tax accountants, attorneys, business brokers, not every company is going to need a business broker, especially in our industry. If, if a seller's been involved in Rima or knows a lot of the players in the industry, uh, then You know, they may not need a business broker to go out and help them find suitors, but you know, on the other hand, a business broker can kind of package all their strengths together and really make it more desirable. So I think advisors are really good. Don't shortcut there. Um, some of the things that the advisors can help you with are. The legal form of your entity. There are, you know, C corporations or LLCs taxed as C corporations that aren't as desirable for buyers. And other, other types of businesses are a little bit more desirable. And so the business form is important because if you get an advisor in early enough, they can kind of help with that. Not only is it not desirable for, for the buyer, it can actually. Mean a lot more taxes that have to be paid by the seller. So it's good to, to know that ahead of time and, and get in there. And also the type of sale is important too. We have asset sales or equity sales. Asset sales are when you. Just sell certain assets of the company. Those are more attractive for us. We, we like those they're simpler and maybe, maybe we would come in and buy the fixed assets and all of the intangible assets, such as the goodwill and the trademarks and permits and things like that, all of the intangible assets. And maybe we won't buy the accounts receivable. We'll leave that to the seller to continue to collect on those. And we won't take over the liabilities. So the other type of cell is an equity cell. So that would be selling shares of a corporation or selling membership interests in an LLC. And, uh, that, like I say, is just a little more complex and the buyers don't always want to take on all of those liabilities. And, you know, if you're planning on selling, I think. Especially if it's going to be an equity sell, it's, it's important to get an audit report. Um, it's not always necessary for a small business to do, but it might even be important if, if it's an asset sell, it's just a way of corroborating what you're saying to the seller, what your revenues have been, what your margins have been, and that kind of thing. So that might be something to. Consider it's not for everyone. One thing that's I think really important. Um, and I'm surprised at how many people don't do this. Clean up your asset list. So many times we get an asset list that has ghost assets that haven't been in the yard for a long time. They were scrapped in the scrap pile or something like that. And they've never been taken off the. The list. So, uh, cleaning up the asset list is really important. And if you have a few months to prepare, you can really do that. Make sure you have just a really clean list that has serial numbers and, and, you know, condition and years of purchase and, and that kind of thing. So that it's helpful for the buyer to know what, what they're buying. And the other thing related to assets, um, it's not exactly financial, but it is important and that is. Keep, keep your assets up, you know, cause to do the preventative maintenance. That's not a time you might think, well, it's going to be someone else's problem soon. So I'll just skimp and not do preventative maintenance, but no one's going to want to take over a bunch of assets that are in bad repair. And as far as pitfalls go, um, I think the biggest pitfall is, is when companies try and make their numbers look better than they are, you know. During the due diligence process, we're going to see through that. And, and it's better to just be transparent and upfront. I do feel like there are also a lot of non financial factors. And, uh, even though I'm on the finance side, I really think it's important that you take some time to take an inventory of your strengths and, uh, that could be your location, your suppliers, your employee base and talent, your customers, safety record. Longevity, like we were talking about, if it's been passed down and through generations, and it's it's a decades old company, that's that's a great strength and operationally as well. I, I feel that it's a time to clean up your yard and if you're not already doing, so get involved in the community and make sure. Your safety record's good, your legal record's good, that we're not going to find, uh, that there are lawsuits out there, or that you're, you know, breaking the law in certain ways, make sure you've got good PR, um, not any bad PR, and you might want to hire a PR consultant if there's been anything like that. Sponsor community events, clean up your yard. And, um, it's just like staging. If you're staging a home, you know, stage your business as well. Take out some of the stuff that's been there for, for years and years that, uh, maybe you're going to take with you when you leave, uh, clear it out of there beforehand. So that's really clean when a, uh, a seller comes to take a look at your yard. There's, um, so much gold in that, like, I don't even know where to start because every single one you said, I wanted to delve further into, I was already starting, like, even from the beginning, you were talking about an LLC versus a C Corp, you know, and I'd love to know, so just very briefly, which one do you recommend and what's the benefits for each party? So I recommend an LLC. I mean, I would recommend that. From the beginning, uh, whether you're going to sell or not, it's, it's, it's, uh, a lot better than a C corporation where there's double taxation. So a C corporation is where the corporation gets taxed at the entity level every year based on profits and then a taxable income. And then, um, also you're taxed on your dividends or when you sell the company. And so it's, it's being taxed twice. And so, um, I. I strongly urge against that form of entity, but, uh, LLCs are great. Uh, and it just makes, makes for a smoother transition. The other thing I wanted to delve further into was, I guess it highlights everything is preparation, right? Um, if you are even considering selling your company at any stage, Right. Even if it's in 10 years time, there's certain things you can do today, which I think we're going to go through in general. If people take notes of what they literally do, you mentioned a whole lot now, but things that they could do today to prepare them. Now I hear from a lot of people when they're selling their company, the frustration is it can take a long time. And during that time, we all know that it's very difficult to keep a secret in this industry. Um, you also have a culture of, you know, your people, you don't want to keep secrets from them for too long, but the more people you tell in the company, the more everybody else is speaking about it. So it becomes very hard. If you want a shorter period, do your preparation, right? So, you know, the certain things you were saying, like fix your acid list now. Make sure that it is accurate. Make sure that your assets have all been looked after. So when they, and if they haven't just make sure it's known, like they're going to pick it up, you're not selling to private equity, you're selling to private equity. You probably can get away with a few things, right? As in like, Oh, this thing's really shiny and brand new, but it's five years old and probably doesn't work anymore. And it should be in the scrappy when George is walking around and the essay team, they're going to see straight away through any sort of equipment there that hasn't been looked after. So keep an accurate asset list, right? So that, that, that you can do straight away. But the other thing that you said, which was really important is tell your story. Now in the tech industry, and when other people are raising funds, they put together a pitch deck and in that pitch deck, it's got, you know, what the strengths are of the business, what's the history of the business, why you should be investing in this business. Don't just expect that somebody is going to come over and say, here you go, I'm going to give you 10 million for this business. because you're in a nice area. They want to know more. If you want to get the best valuation and we'll get into getting better valuations, you need to be able to promote the positives for your business. And if you can put together, I would think of five to 10 page document and with a whole lot of information. And if somebody knocks on your door, You're like, well, if you're interested in making an offer, here's the information on my business. It's very professional. It can make things go seamlessly and much smoother. Do you agree with that? Absolutely. Uh, that's, that's just the way to do it. And that's what a business broker would do for you. Uh, help you with, but, um, you can do that. Certainly do that on your own. Yeah. And the whole business broker, I see the benefit of a business broker is if you're in a, Industry where you're not sure who's going to buy you and you're looking for an outside party in this industry. I think, um, and to get grim, a business broker takes a commission. So I think that you'd be giving away that percentage of your, of your acquisition price. Really? You want to get huge value. And that value with a broker is normally they bring you buyers that you've never met before or didn't know, couldn't have got to any other way. If you're in the metal recycling industry in the U S. You know who the people are that are going to be interested to buy you. If you're looking to sell, put together that little pitch deck, but definitely there's nothing against bringing in an advisor. So there's, you know, there are people that have sold lots of businesses and lots of industries that you can reach out to, and they'll be able to help you put things together. They shouldn't be necessarily taking a commission of the sale. They should rather be like a consultant who you're paying on an hourly rate and they put together the documents for you. Metal recyclers. To all of us our strength is not putting together a pdf document of 10 pages to promote our business That's not what we do. That's not what we were trained to do So look for outside sources to help you that do that professionally, be willing to spend a few thousand dollars, 10, 000, whatever it is to do that. It's going to have a massive effect on your actual price at the end of the day. Exactly. And like you were saying, metal recyclers aren't trained to do that, but they are trained to be negotiators and they have no problem picking up the phone and calling the right people. So I agree with you on that. Most, most aren't going to need a broker. Yeah, and like I say, it's not a waste of money either if you're doing something like that and you're considering maybe selling in the future. Remember if it's telling your story. That story is going to be the same in five years time. If you do, then get a knock on the door. So it's worth just investing in that early on, getting some advice from people that know, um, of what you can put together, what your strengths are, what you should maybe highlight and don't hide away from things that you shouldn't highlight. Right. I think you said quite clearly that. When the due diligence is being done, right? So just so we understand where that fits in. So an offer will be made or you've approached or been approached. You're looking to sell your company. You agree on a number and the basic information, then the due diligence starts. And that's a, you know, due diligence is a DD. I also call it a deep dive. That really is where people get stuck into your business. They're going to be spending time in the business. They're going to spend time in the numbers. They might speak to a few of your people. They may spend time with your yard. They might speak to some of your buyers, accountants, um, external partners, whatever they could be. They're looking for any reason to find out that your numbers are accurate or your information that you've given is accurate Don't let them find out that you lied about that piece of equipment that you said was two years old It's actually 25 years old or that you have a maintenance program and you actually don't and you made up something very quickly and the guys In the yard have never heard of such a thing like that is immediately going to erode value in your acquisition price Yes, absolutely. And usually just to kind of go back when you were talking about the process, usually once prices agreed to, then there's a letter of intent. And, and it's after that point in time where the due diligence comes in. Yeah, 100%. So, um, Let's talk about valuations then. Like, I believe if you put your best foot forward, you're prepared, you are professional, everything's accurate. I believe there is, and it might be a tiny percentage, but there's more of a chance for you to negotiate a better price than if there are constantly, you know, Mistakes in this, so your accounting isn't right. So if you're looking to sell, you should really be making sure that everything is accurate. But where is it that you see, or how do you, is it that you see people can get a better acquisition? What are the other tips that you've seen for people to get full value for their business? Well, I don't actually usually get too involved. I get involved after the fact, you know, once that letter of intent is signed, that's when I get involved. Uh, so I don't get involved too much in the negotiation. That's usually George or Tyler, uh, Adams as well. But, um, you know, there are a lot of different factors that go into that. Um, and, Sometimes it's like multiples of EBITDA and, and, um, things like that. EBITDA is earnings before interest taxes, depreciation and amortization. And, and that's standard in other industries, probably more so than in our industry, but there, you know, that's kind of a starting point. And I think all of the things that we were talking about before, as far as the preparation, that that's going to help you make your case for a higher valuation. That will help you have some negotiating points. Yeah, I think it's important people consider how sales are being valued in the industry. In our industry, it's not got to do with revenue at all. So just make sure you know that what is the basis for evaluation before you're thinking, well, I'm going to sell my business. This is a great idea. And you're working on a five times revenue model or a 10 times EBITDA model or something like that. And you're not accurate at all. It can sway you. And then all of a sudden you go through this process. And then when. You do get an offer made. It's like a quarter or 10 percent of what you thought you could sell your business for. You wasted all your time. Do the homework early on to understand what a realistic valuation will be for your business. Great point. Yes. Agree. Do you get involved in the, um, operational fits and look at the culture at all? Um, obviously this is usually prior to LOI. So would you have an example where factors like cultural operational fits have played a role? Well, yeah, certainly operational fits. I, to answer your question, I don't get as involved. I, I do sometimes get involved in, in those discussions, but, um, to the operational side, that definitely comes into play when, when we're looking for. You know, prior to the LOI, let's say when we're looking for companies and seeing if there's a fit, um, just kind of like we were talking about with the hub and spoke, if we have some feeder yards in an area and there's a shredder for sale, that's definitely going to be of interest to us. So some of those operational fits are crucial and deciding if we're going to go after a target, but you know, the cultural fits. They're not quite as important. That's kind of more important in the whole transition process. And so we've had some companies that are, are very top down kind of Structures and organization. Uh, you've interviewed George before, and you know that he's the very bottom up type of leader. And he's really into pushing back when you think there's something you want to say and not just taking what someone above you has said, and that's, that's a culture shock for a lot of people, uh, that are used to that, the top down leadership. And for the most part, You know, they're welcoming us with open arms when we come in and they've already heard about us and that kind of thing. Uh, but then some people just can't, some people don't make it, you know, it just, they're, they're used to the way it was and, and they just can't transition and it's just not for them. So it's during our transition that, that really comes into play. I don't think that would necessarily make or break a decision to move forward with an acquisition because we feel pretty confident that we can come in and Use our processes and procedures and that kind of thing. We're always open to suggestions and that goes again to the pushback and that kind of thing. And we we've taken on some of our Acquiries methods when. It's something we have never even heard of. And they say, oh, we do it like this for this reason. And we're going, wow, that's, that's pretty cool. And we might just continue to keep that at that particular yard or group of yards, or we might even take it and, and, and put those new policies and procedures in across the board. So we're always open to new ways, but we do usually come in and say, okay, this is how we do things at SA. And, um, and that's all. After the fact that's not during the selection process. So the cultural fit issue usually would come from like, I would assume the senior managers. At a company that you acquire, I'm actually thinking of myself a fly in the room, um, a staff meeting, a management meeting or a team meeting and you guys have stepped in and the guy who normally leads this company says, all right, meeting over, everybody go to work and George or his team go, well, no, what have you guys got to say about it? And the manager turned around and going like, no, we don't, they don't get to speak. Um, and that's when it's like, well, that guy's not going to be able to cut with the new culture, right? And that's where you talk about top down, bottom up, um, some people, and I've worked with some of these people, um, are completely top down and they cannot make it work in the other way around. So I can, I can imagine the cultural fit there. Um, you will have run into those a few times. You, you keep touching on what happens afterwards. Um, It's called post in post acquisition integration is the term used you would know it and that's after a company buys another company and how you integrate the cultures and the systems, etc, etc. And there's actually for a lot of people in this industry won't know that there are. Serious processes that get followed. You don't just join another company and think everything is just going to be smooth. There's a reason why you guys have been so successful. And that's because I'm assuming you have a process that you follow. There's a culture thing. There's an operation, there's systems. All that stuff is rolled out. So before we get into what yours looks like, I'd love to know, how can somebody prepare their own employees for that sort of, um, process that's going to happen in the future? Well, yes, you kind of mentioned that before that, that. Transparency with the employees and the timing. You don't want to tell them too early because you don't want it to get out. Um, but on the other hand, it's not fair to them to wait until the very last minute. Unfortunately, most of the time the sellers wait until the very last minute. Um, they don't want anyone to jump ship. They, they don't want to have to be dealing with what about this? What's going to happen here? And there's so many unknowns and, and employees are so, They don't know what's going to happen. They don't know if they're going to have a job afterwards. And so I think it's important to include the employees and at least the managers include them in early on when it's going to be. It's, it's a fine line. You don't want to be too early. You don't want to be too late. Uh, but to include them in the process and what. If that's the case, and in acquisitions like that, where the sellers are open with their employees, then we usually have someone, whether it be George or Tyler, or one of our regional managers, go out and meet with their employees, kind of assure them that, you know, things Aren't going to change that much as far as employment goes anyway, and let them know about our culture and usually they can get people to be pretty excited about it and turn things around. If they're not told until the day it happens, then. You know, that kind of pushes it on us a little bit. We're then dealing with people who have a lot of questions that haven't yet been answered. It's a fine line though. Do you, um, we spoke about it, but have you guys got a set process that you follow? You don't have to give away all your secret sauce or your IP of how it works, but. I'm assuming there is a process there is and a lot of people are, are surprised to hear that we go in day one and, and they're immediately on all of our systems. So, our scale processing system, usually we close on a Friday and our it people are in all weekend getting everything switched over and we have a group of trainers that are ready to help them on day one. We found it just. It makes more sense rather than stretching it out over months, like, uh, probably most of their companies do. Um, there are times when it's really crazy, but you've got, you've got maybe a week or two of craziness versus, you know, months of it. So, uh, it just works out a lot better for us. Then we're then we don't have. Two different systems that we're trying to merge at the end of the month. We wouldn't be able to meet our three to four day turnaround on our financial statements if we had to have multiple systems like that. So we we put them on our our main systems and and train them right away. We usually have trainers from. The finance department, as well as from operations. So we'll have, uh, a GM from California, if we're acquiring a company in, in Texas, a fly out, and then we'll have an office manager, maybe from Alabama that'll come in and they'll help, uh, each of the, uh, yards that we're acquiring with the process. So not only are they training, but it provides them with someone to call. In weeks three and four, when the trainers go back to their own yards. And, um, sometimes there are just permanent, uh, mentor mentee relationships built through that whole process. But we've done it so much. We have it. We do have it down to a science. No, that's brilliant. It takes a lot to be able to, um, cut something off on Friday and start on a Monday. It takes a lot of confidence in your people, in your systems, in the process of training people. Um, you've done it a lot. So you're able to, to build that muscle and be better at it and build the confidence at the same time. I can only imagine the first time that decision was made, um, people would have been freaking out. It's like, what is this month going to look like? And, you know, we're going to have to run two systems at the same time. The first few times, which now everybody's double tenanting. So they're all using their old system and then use it. Like that must've been a nightmare. It's easy to look back in hindsight and go, yeah, well, this is how we do it now. It just makes sense. But somebody had to make that decision. Um, but like most things. That decision as well as the actual decision to do it straight away. The quicker you tear off that band aid and jump into a new system, the better it's going to be. Like you say, within that month, they're all trained. They're ready to go at the end of that month. Like you can pretty much move back and become the mentor mentee, um, situation because they've, they're in the deep end, right? And that's the best way to learn to swim. It's with most tech platforms. It's very similar. If you get totally into it, you'll learn it very quickly. If you're dabbling in it and thinking you're going to try this or try that, You never actually learn the system and the system doesn't take off. So yeah, I think that's a great point. And, and not to say that there aren't hiccups that come up. I mean, every acquisition's different and there's always the unexpected. I try and be at most of them and I don't have a specific training role or anything. I'm just there to help wherever needed and to. Be someone who can make a quick decision if, if something comes up and it always comes up. But sometimes I have to, you know, I've cashiered before I've, uh, you know, uh, what else have I done? I have, uh, driven to the gas station to, uh, fill up the trucks because the fuel cards have been canceled and, you know, just gotten people lunch a lot of times just because the trainers are so busy and, and, and I'll just do whatever it takes during that first week. I now want to sell my company to SA. I don't even have a scrapyard anymore, but I'm like, I, this sounds like fun. I want to see Sandy doing the cashier and getting some fuel and George coming to meet with the team and just the full team. I think it must be, I think it'll be full on really busy and really stressful, but I think it'll bring together a team as well. I think the culture must be really positive when, you know, somebody like George pops in and it's like, well, we're just a small yard, but he's come in and, The team, like you say, maybe the California general manager or wherever it is has come in. You realize that they take you seriously and we're all, uh, we're all on the same journey. We want the same things. Otherwise the senior managers wouldn't arrive. And I've seen acquisitions go where you get left in the dark. You buy a business and that business must just run. He has our new system. Use our new ERP system and just run a phone and see if you've got a problem. Like that does happen for those of you who are listening that don't know that that is actually probably way more common. Then what you're listening to from Sandy right now. Yeah. So yeah, I, I love it. And that's probably why your process works so well, but this is all really positive. And now I'm selling my scrapyards to you. What makes a deal fall through though? And how can the sellers avoid this situation? So at ESEA, not too many deals fall through. Uh, you know, once we've decided we want to buy a company, then it usually goes through. The only thing that would really stop it is not coming to an agreement on valuation. That's really the main thing that, um, becomes a barrier for us. Uh, sometimes we're just too far apart, obviously that that can happen. Um, I think, you know, occasionally there are some permitting or environmental issues that we need to work through, but that usually just postpones things versus actually, um, prohibiting them from happening. And so, other than that, most. Most other terms are negotiated and sometimes it seems like there's a roadblock and usually all of the parties can get creative and make something happen. So, you know, my team ends up being kind of the cleanup crew for the various ways we structure things and make sure that we get them accounted properly for both gap and taxes and that kind of thing. But we can, we can usually almost make it work. Almost always make it work. You know, that's another thing too, that I would say to anyone considering a sale out there, there might be some terms that are important to you. And it's good to negotiate those into the agreement. If you have them, the funniest one that we've had was a seller several years ago. Wanted to put and did put in the asset purchase agreement that we will continue to feed the yard cats. He had tons of cats and he was very into the cats and wanted to make sure that they would be okay. And it's actually in our agreement, we're legally bound to continue feeding them. And to this day we do. That's amazing. And that, that's really a good point. Like if it's, if it's important to you, get it in the letter of intent, make sure you've negotiated upfront. And then what's good to hear is that. Most of these sales, almost all of them, um, are concluded. A lot of industries is a letter of intent. The buyer usually looks for problems in the due diligence. They try to renegotiate the whole thing and they can often fall through. It's nice to hear that, um, in the industry here, uh, most of these sales, um, carry on and they do go through. So as long as you haven't done something stupid and like made valuation or whatever it is, you should be sweet. What's some, some common misconceptions you might have seen, um, from the people that you've bought the businesses from with regard to the acquisition process? I think the biggest thing that comes out, the thing that comes up most often is on the purchase price allocation. So, you know, you have a valuation, you have a purchase price you've agreed to. Um, but then. We need to go in and, um, divide it up between the various assets, the fixed assets, the land, if we're buying land, you know, uh, goodwill, that kind of thing, and that makes a difference. Um, and I think people are, um, surprised that we have to follow some rules for that. We're required to, to. Come up with a fair market value for each of these. And that's what we record. We're required by the IRS to do that. So we can't just come up with a number just because it's going to be better from a tax perspective for our seller. And I think, I think that they think that, and so we do have to come to an agreement, but the agreement has to be. Something that we can justify is is fair market value for each of those assets. So that that does come up a lot. And I also think that some sellers are surprised that they are are surprised that they are. Going to have a tax liability or such a huge tax liability. A lot of these companies were built on a shoestring and then they're selling for millions of dollars. And, you know, they need to, then that's where the advisors come in. If you, if you have your accountants and your attorneys, they're going to let, you know, What to expect. There's going to be a tax consequence. We've even had a few that expect us to pay half of their, their taxes in the end. And so I think that's a common misconception that it would be helpful for sellers to know that they're going to have a tax liability and they just need to factor that into the equation. So I just want to ask, I want to double click briefly onto this tax situation. Are we talking, um, from my understanding that goodwill, you have to pay CGT, capital gains tax, is that where mainly the issue is? Obviously there's assets, They don't have that tax bill. So they're wanting you to push through as much as possible on the assets, nothing on the Goodwill. You obviously correctly have to allocate funds to the right places. You can't make an asset which was bought brand new 10 years ago at the same as brand new value. It has to be depreciated and you have to accrue that and show that in the books. You can't push everything. Is that what we're talking about? Yeah. And then people are not expecting that tax on the Goodwill and they're going, well, no, hold on. It's not all Goodwill. It's all that equipment. Right. Yeah. That, that is what I'm talking about. And you know, the, um, the tax law in recent years has made it so there's not as much of a disparity between the two. Um, but that can change at any time, of course here and probably will in the coming years. But yeah, that's exactly what I'm talking about. Yeah. Capital gains versus regular income tax. Some people aren't even aware that there's, there's going to be a tax at all, you know, so that, that's, uh, surprising to me. Yeah. So I think that's a great place that people can reach out to an advisor, reach out to an accountant, reach out to somebody and say, Hey, I'm considering selling my business. Be aware that there will be tax upfront. So don't think to yourself, you're getting, this is my sales price. That's how much I'm putting in my pocket and start, you know, paying off your house, buying new houses, holiday houses, maybe private jets, whatever you think you're going to do with that money. Just realize there'll be tax on it. And a lot of people I can imagine would get frustrated if they didn't know they were paying tax and all of a sudden, um, yeah, there's a whole lot that's taken out of that acquisition prize. Yes. Um, what would you say, and this is also, you know, not necessarily on the post LOI situation, but when does a seller know it's the right time to sell? I mean, if anybody's listening and they're like, ah, I'm not really sure you, you have these conversations with people afterwards, which is why I think it's quite nice context to come from you. When do you think people should go? Yep. It's probably the right time, or, no, I'm still. This is not the right time. Yeah. Well, it's obviously highly, um, subjective and personal. Like we've talked about the, um, industry is made up of a lot of family businesses. And so if the next generation has no interest whatsoever in the, in the business, then obviously that's, that's a time to think about selling. Um, but you know, there, there are times when. If the company's doing really well, that would be a great time to sell because then you can get more for it. But then the opposite is sometimes true if they're, if the company's not doing too well, maybe there's some last months, maybe the debt's been, um, you know, Uh, growing, uh, maybe that's a good time to sell because a lot of times the sellers will be able to realize economies of scale and, um, you know, synergies so that, uh, they can make it work even when you weren't able to make it work. So, so it really can be either end of the spectrum and anywhere in between. One thing I want to throw in here, and this is. Very much a personal thing. I'm an extremely passionate person. I like to do something that I absolutely love. So for me, I'm thinking to myself, if I don't go into my yard every day with that sort of drive and passion that I see in George, like then I should look to be getting out and doing something that I'm going to enjoy. Our lives are short. Like if we're not enjoying going to work every single day and there is an opportunity, especially in the U S like, To sell your metal recycling company. I would recommend somebody does it because you don't want to look back 15 years later and go, well, now that's money in the bank. I could have had the last 15 years with this and done something that I really enjoy. So I would just throw that in there. And I know that's probably a personal thing. Yeah, that's, that's a great point. Yes. What are, to make a sale successful, right? And I mean this for both buyer and seller, to have a successful, a long term success, what are the three top elements you would say would make a deal successful in the long term? Well, kind of touched on, upon a few of these things, but, um, a full understanding of the agreement, um, and that's where advisors can come in and, and help you, or just make sure that you, you completely understand, uh, the terms of the agreement, um, the ramifications, like the taxes we talked about just now, and, um, so as long as, as both parties have a, a full and complete understanding of what the agreement is, that, that, um, That's key. Um, transparency, I, I think is key to transparency with the employees. Like we talked about before, that's going to make for a much smoother transition. Um, and then help with the transition is, is important. A lot of times the sellers will just, you know, walk away, but it's, it's, it's helpful. Especially if you're proud of your business, you want to see it continue to flourish. And, uh, you know, introductions to key suppliers and help with the employee transition, just being around and available for questions and that kind of thing, I think is important. If you look at the first one you spoke about, um, kind of understanding what you're in for, um, what come, what I think about is managing expectations. If you manage expectations for both parties, um, there should be no love lost at the end. So if constantly you're aware, this is what is required from you and they're aware that you've, you know, this is what actually is going on in the business. If everybody has managed everybody's expectations along the way, you should have a very happy ending because as a seller, you've got the money that you agreed on. You've got to, you've got the opportunity to walk away in the process you agreed on. Right. In the manner that you've agreed on, whether it's staying on for a short period or walking away or whatever it might be. And as a buyer, you know, if they've got all the details were accurate, they don't come in there and there's a whole bunch of skeletons that they weren't aware of, then immediately, um, it's a happy ending. You can all, everybody can go and have a drink when they see each other at the country club. But if you're going to, if they're going to be skeletons or you don't get the money that you expect or whatever it is, but even for yourself, right? So it's like, I'm expecting to receive this amount for it. If I haven't done my homework and realize there's going to be tax. I'm going to get frustrated and go, Oh, I should have, they ripped me off and I should have got more because this is all I got. Just understand the situation you're in, understand it well, slow down. Like if somebody's negotiating with you, stop them. Say, I'm not sure exactly how that works. Can you please explain to me what you mean by capital gains tax? Or can you explain to me what you mean by assets versus goodwill? Take some time, use chat GPT if you need to get, get as much information, you can make them be your lawyer and get as much information as you can, but managing those expectations will make for a very, very happy exit. Yes, agree. A hundred percent. Now, personally for you, where do you think this industry, and this is not, you're not representing SA now, where do you think this industry is heading in the next five to 10 years? With this current trend of consolidation, and this is purely Sandy's opinion on this. Well, I, I think it's going to continue. I, I, I've, you know, had friends recently and multi general generational businesses that have sold their businesses, uh, even though they were very involved, you know, I was talking about before that, uh, That, you know, that's a time to sell if the next generation doesn't want to get involved. But I'm seeing sales even when the generations are involved. Um, so I think it's going to continue. And in many industries, consolidation means shutting down operations. And because of the uniqueness of our industry, where we need to be close to the scrap, That's not going to happen. I mean, we're not shutting down operations. We're buying the companies in order to have those operations. So it's a little bit different. And so you're not going to see that type of consolidation that you'd see, like, in other industries. And. There are a lot of small businesses out there, single yard businesses in our industry, and they're going to remain. I mean, there, some of them are going to sell, but some of them are not going to sell. Some of them enjoy what they do. They, they wake up and they're excited about going like you were saying, and, and their kids do too. And, and it's going to continue because it's not for everyone to sell. And so I, I think that we're still going to see. A lot of, um, individual operations out there, but more consolidation as well. And in all the time that you've been doing this. What's the most challenging decision that you've had to make, um, when you're overseeing these acquisitions? Well, I think it kind of goes back to taxes. I keep going back to taxes, but it was a particular situation. It was kind of a more complicated structure in an acquisition, uh, where it was kind of done in stages and the sellers were, you Basically given bad tax advice and it was from a mid tier accounting firm. Um, so there were times in the process where I doubted myself, but I, I stuck to my guns. I felt like I was right in how we were supposed to be handling this and they felt we were cheating them. We were going back and forth and back and forth and I remember it was, um, I was actually in the car, had my mother in law, had a, had a carpool of people. We were on our way up to Santa Barbara for my son's wedding and I was getting the calls from the, uh, sellers and basically saying that He thought we were cheating them. And, and so I finally pulled over. I said, okay, you guys all have lunch. I'm gonna talk through this and, and And, uh, we continued to go back and forth with it. Finally got on the phone with their accountants and their accountants conceded that they had made a mistake and hadn't given them the proper advice. And so then we got back on the road and I got a call from George. And I said, George, I'm on my way up for my son's wedding. And he said, I know, I know. I just wanted to say thank you for continuing to stick with it and for continuing to discuss with them. They're happy with us now. They're not so happy with their accounting firm, but, uh, it was a difficult time because, you know, you don't want anyone to think that you're cheating them. And that was the worst feeling I think that he had. And I was having to, at the same time. Um, in, in hindsight, fantastic during the period must have been extremely challenging. You have to back yourself, um, against, like you say, a mid tier accounting firm. They've got multiple partners, multiple people they can speak to at any time. You know, it's you and a few others that are kind of making this call and having to stick to it. So a lot of people hear when we talk about, um, in general on Bourne Scrappy. Trading situations that were difficult or making a certain decision that was hard. And we tell the story just like, well, you know, this is how it went. And then when they're going through their own issues, they're going, Oh, well, this is much harder, but they don't realize what the story you just told would have been intense, like very much so, but now when you look back, it's like, well, it was great learning experience. It was an awesome experience to have gone through for myself, but very difficult at the time. Exactly. Yeah. And I just want people to understand that when they're going through hard times, that, um, We've all been through hard times and it will get easier. You've got to keep moving forward. Um, Yeah, otherwise you don't get anywhere and you don't learn if you don't go through hard times. So It's a positive thing. This has been awesome. I've got one or two questions I want to end with quickly, the normal way. So although it's a masterclass, I still want to know from you, sand, who do you want to hear next on born scrappy? So, uh, I know that you've had George on at least once, maybe a couple of times. Um, and. I, I think it'd be nice to have one of his sons on, probably Tyler Adams as our, our COO. He's, uh, he's doing a fantastic job and I, I think that he would make for a good podcast. Awesome. I'll reach out to Tyler. I think that's a great idea. Um, then, Quick fire, last few questions, getting to know you a bit personally. We now know everything about you on the work side. What's your favorite TV series or movie? Okay. Don't watch TV too much. Uh, but I do like to, uh, watch some series, especially the miniseries and that kind of thing where you can get snippets of them. And one of my favorites in the last few years was Bad Sisters. The, the Irish dark comedy. Super funny. Never heard of it. Loved it. Great escape. But I'm sure it's fantastic. Awesome. Um, favorite place to visit? Oh, gosh. I love to travel. Haven't done nearly enough of it, but, uh, but love it. Um, probably, uh, The liberal in France and in Provence and France. It's if you haven't heard of it, it's a bunch of hilltop towns that are just amazing. A place I could live, you know, and and just we stayed at the very smallest of the hilltop towns and it had just a few little shops and to Michelin star restaurants. It was just one. That's incredible. It's um, it's, um, The only thing I can picture right now, and unfortunately, most things happen like this with me, is it goes to sport, and I think of the Tour de France, and I just look at the routes that they travel with these incredible little towns, you know, with this amazing culture and heritage and, you know, buildings from whenever, whatever decade and, um, or even century, um, yeah, so, so that would be, yeah, that must be an amazing place to visit. Favorite book? So I do love to read. I, I'm not big on non fiction, but I like historical fiction. And, um, so, uh, one of my recent books was called The Horse by Geraldine Brooke. She's an Australian, um, writer. And, um, it's about, it's a, a, it's a, It's based on a true story about a horse named Lexington, a racehorse. I never thought I'd love a book about a racehorse, but it's pretty amazing. It's, uh, it's about a racehorse and, and it was, uh, antebellum South Kentucky, I guess, and the slaves who were being, Bonding and, and caring for this horse. It was, it was a great read. Yeah. Awesome. Um, lastly, favorite quote. So Wayne Gretzky said, you miss a hundred percent of the shots you don't take. And I've always loved that short and simple. It applies to hockey, but it applies to just about everything in life and work and relationships and everything. I was, um, 13 years old. And playing water polo, um, and my water polo coach used to say that to me all the time and no one knew where it came from. We always thought he made it up. And only about a year ago did somebody tell me it was Wayne Gretzky. Um, but I absolutely, I used it yesterday. Literally. It's one of my favorite, favorite quotes. Um, it's all about having a go. Yeah, I love it. Sanz, that's been so much fun. Um, so much gold, gems inside there for people to listen to and to take some notes and to come up with some ideas. So thank you so much for spending the last hour with us. Thank you so much for having me. It's been fun. Cheers Sanz. Bye. Bye.