A Conversation with M&A Attorney Matt Hartranft.

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Summary

In this engaging conversation hosted by Vector’s Jason Ranallo, Matthew Hartranft, an experienced M&A attorney with Brutlag Trucke & Doherty, shares practical strategies for business owners navigating the mergers and acquisitions (M&A) landscape. With a background in banking and inspiration drawn from his early legal and volunteer experiences, Matt emphasizes the importance of understanding your business’s value and being prepared for potential exits, even if they aren’t imminent.

He highlights actionable steps, including conducting a gap analysis to determine what’s needed to meet personal financial goals post-sale and ensuring financial advisors and accountants are on the same page. Matt stresses the need for readiness, as external factors like interest rate shifts or market conditions can quickly influence opportunities.

A key takeaway is the importance of preparation in negotiations, including gathering robust financial evidence to support valuations and leveraging timing to secure better deals. Matt underscores the principle that “time kills deals,” advocating for clear planning and collaboration to streamline the process.

Sharing a success story of nearly doubling a client’s deal value, Matt illustrates how strategic negotiation, competitive analysis, and attention to details like restrictive covenants can unlock hidden value in transactions. He concludes by encouraging business owners to approach deals with diligence, collaboration, and foresight, ensuring they achieve their long-term financial and business goals.

Episode Chapters

Introductions

Introducing Matt Hartranft and his background in M&A law.

- 00:02

The Journey to Becoming an Attorney

Matt discusses his unique path into law, including his business background and training.

- 00:28

Inspiration from Venezuela

Matt shares how a service mission in Venezuela inspired his passion for law.

- 01:55

Family-Owned Businesses and Legal Support

Exploring Matt's focus on closely held companies and family-owned businesses.

- 02:53

Advocacy Work in Bolivia with Mano a Mano

Highlighting Matt's involvement with a nonprofit organization doing infrastructure projects in Bolivia.

- 03:19

Understanding the M&A Landscape

Discussing current trends in mergers and acquisitions, including interest rates and valuation strategies.

- 04:34

Preparing for an Exit: Readiness and Gap Analysis

The importance of being poised for an exit, even if not immediately planning to sell.

- 06:42

Challenges in M&A: Time and Negotiation Hurdles

Addressing common obstacles in deal-making and how preparation can mitigate them.

- 14:11

Success Stories: Unlocking Value in M&A Deals

A success story about doubling the value of a waste management company sale.

- 20:28

Closing Reflections and Holiday Kindness

Wrapping up with reflections on the importance of kindness and trust in business and life.

- 27:52

Transcript

(adapted for readability)

Well, I'm here today with Matthew Hartranft, M&A attorney with BRUTLAG TRUCKE & DOHERTY, which is a business, finance and real estate law firm here in Minneapolis. Matt. Really excited to have you here. We've known each other for quite a while, and I've, of course, tapped you on the shoulder for some help on some things in the past You have a wealth of knowledge and just really excited to have you finally join the podcast here Today was a privilege to be here Jason, thanks for having me on So getting into first time, I kind of got a little bit of background because you got a really unique story in background, kind of how you got into being an attorney.

So just for a bit, take us back to kind of your path into this field, this career. Well, like any business owner Right That's how I kind of came up in my business of the practice of law just happened to become the business of the practice of law.

But as many of our business owner listeners can relate, there's a little story behind it as to, well, how did you how did you end up in your line of work and your business? And that's really how I look at our law firm here in Plymouth, Minnesota Small law firm comprised of business owners who happen to be attorneys And that's really how we've built our, I guess, camaraderie with our clients as, as fellow business owners and kind of team members And that all started, I think, way back, when I, was working at a small, bank and then a larger bank, KeyBank National, bigger Bank out west and was managing some of the branch operations there and encountering all these, interesting business needs on both sides of the table and realized, you know what? I should be at a different place at this table I really should go back to school and get a little more training.

Turned out to be a lot more training and a lot more work. But I'm sure it's been worth it. But it should It should be the practice of law And I can do more with that than I can representing the interests of the financial institution.

My love for the law really started in Venezuela during, service mission there, where we helped Colombian refugee families obtain Colombian immigrant and Venezuelan immigrant documents without consulate processing Translation, people were able to stay married in the country without getting kicked out When, the, regime changed down there So Seeing what that what the power of the law could do to families and family owned businesses there in South America.

I said, you know what? I bet it could do something like that for people right here in the United States And if I go to law school, maybe I can make something of that So that's really what inspired me to be working with family First through their businesses So the companies that I represent, I'm sure we'll get into that But generally I'm with closely held companies.

And so my clients are family members, their managers and their owners of their company Sure. Interesting.

And you know, I know I'm going to get into some of that more certainly as we move along here too But you've got another interesting aspect You're part of a advocacy group Really it works It does work in Bolivia.

Exactly Yep I am, one of the several attorneys who serve on the board of directors for a absolutely wonderful organization, right Based, with an office right here in Saint Paul, Minnesota, called mano a mano, which translates in English to hand to hand or hand in hand Mano a mano is a 30 year old now.

We just celebrated our 30th anniversary A 30 year old now organization that does major infrastructure projects in the country of Bolivia This includes building schools, hospitals, reservoirs, farms and farm education and agricultural education centers It is, in my humble opinion, the most effectively operated and most efficiently operated nonprofit organization I have ever come in contact with And it's a privilege to have been serving on the board of directors there since 2005.

That's fascinating It's really, I know in the conversation we've had over time, too That's a fascinating project And really neat, really neat advocacy opportunity. Absolutely If you're looking for a charity this holiday season, look no further Take a look at mano a mano. All right Let's get into the, that the M&A world.

All right Let's this just kind of touch base and get into what as the market stands now and you can, even do this for a while Of course What's the market like now? How is how things change the trends you're seeing right now in this market space, whether it's interest rates or inflation, it's impacting activity in the M&A world.

Great question Really what people more and more want to know the answer to I hope they want to know it More and more I think they I think they are asking the question more and more, what is my business worth and my theme for this year? My, my, my highlight or I should say, number one question I want my clients to know the answer to, this this coming year is what's my business worth? Because, to your question, there have been some major changes or some major trends with what the Fed's doing to interest rates.

I think that's clear The banks, the major financial institutions are projecting some continued basis points, drops and continued interest rates drops here, through the rest of 2025, significant enough, we would think, to continue to catalyze, I think, good deal flow and good volume In, in the mergers and acquisitions space that of course, I work in And even if the interest rates don't come down substantially, though, there may be some other critical reasons why business owners are continually trending towards wanting to be poised for an exit And that's really the right terminology.

Is are you poised for an exit? And number two, you know, what's your business worth today? More and more I'm seeing business owners want to know the answer to those two questions. And on that point are you seeing in what you're recommending is be poised for an exit even if you're not looking for an exit Now just makes the have the business ready Have your house in order effectively.

Exactly Because I think, more I honestly think it's largely due to what we've all just been through Call it the last four, but really call it the last six and a half years where we went through some of these, manmade and natural disasters where depending on where you live may be more one side than the other And certainly our hearts are with those who are still kind of suffering through the damage down south.

But people are realizing, you know what, I need to have a state of readiness I need to be maintaining a state of readiness because there's less within my circle of influence and control than I maybe I thought before And so more and more, especially people who are beginning to get into that, later stages of business ownership And actually, frankly, even those who maybe don't have ten, 15, 20 years of business ownership under their belt, but are realizing I really have built something here, can I leverage it? So when we ask the question, are you in a state or readiness in your business? Are you poised for an exit? That doesn't necessarily mean poised to exit 100% of your ownership That could also mean, are you poised to take advantage of some leverage opportunities? So, all of those questions are more now trending than they were, I think 2 or 3 years ago.

I strongly hear that from my client base and new people coming in. Interesting They're better prepared They're asking more of the right questions and less of a deer in the headlights reaction to, well, I got an offer for my business and we hope that trend continues because it makes for it makes for a less expensive deal for the client It makes typically for a better due diligence process.

Okay, So on the point of that So if I'm a client or if I'm a business owner, how soon or how far along the process, what I want to engage with, with an attorney to say, let's start to get poised for exit When does that start to ones that start to take form? What a great question. And the typical attorney answer is, well, it depends.

Okay So in this case that answer applies because it depends largely on who you're already working with Your attorney really should just be one of the counselors who you work with Ideally, you've got financial advisors who are very intimate with you and your goals and what it is that you're hoping to get out of your exit Because here's the problem as an attorney that I'd love to see solved more, is that the statistic is somewhere around 45% of everyone exiting their business within the last three years reported when surveyed that they were sad they sold interest.

Is it that? Isn't that a higher number than you'd think? It surprised me too. And, why is that? It's largely because they don't perform an adequate gap analysis ahead of time And by gap analysis, we're referring to, well, what is it going to take for you to maintain the lifestyle that you want, after your exit? Number two, is somebody willing to pay that number? And if not additional gap analysis, what does it take to get your value up to that number. What in what enhancements can we help you implement.

Sure. Now that's not always on the attorney It really depends on your attorney. Some attorneys like at our firm we do much more of the business consultation value analysis Really that dovetails with your accounting team and your financial advisor team in other instances, maybe you don't have an attorney that works that way, and they're just strictly going to be doing document drafting.

But either way, you want to integrate those team members so that they are familiar with each other And so that they're really helping you get to that point where you're poised for that exit You have that state of readiness right there ready to go.

It's interesting you bring up the numbers or the you know thing that gap analysis because we come across that with clients we work with who are on a business or in process of selling their business. And one of the things what kind of think in terms of like, let's look at cash flow modeling. Let's look at how much are you spending and how much is the business worth, and how do we project kind of your lifestyle after the business And what's interesting, exercise is a lot of times it's hard to determine what your spending when you're involved in the business, right? Because, well, the business place pays for, you know, some of the travel and the vehicle expenses and certain things get written off here. And so it's you try to get you try to get a handle on like how much are you actually spending or what's your number.

And it does require a, it does require kind of getting into the weeds. Okay. Trying to figure out what is what are you actually spending and, and the thing we recognize or observe too, is it tends to be something that changes over time, which is normal Meaning if you think you're going to spend this, it may actually be something above or below that. And that's okay because you don't have to land on it.

Exactly But the point being is getting relatively close as you're going to that process. And that's why I would say, it's not three years before you think you'll sell Your business is not too early to be engaging with legal counsel.

Three years If you're not engaging with you, at least that engagement might be limited to Hey, I'm preparing a plan with my financial advisor to exit my company in three years. Done.

Okay But you're putting it on your legal counsel's radar. And good legal counsel will then ask, “Fantastic who else is on the team.”

Who's your financial advisor, What do they know How experienced are they And the reason partly the reason for that is going back to my original highlight which was what is your business worth today Because so often in these transactions not fully understanding your number your your value, but also what in the heck is that number based on? Because one of the jobs of a savvy buyer is going to be to beat you up a little bit? .

On we think it might be worth a little less. And that can come up early It can come up at the letter of intent phase as very early stage due diligence begins to kind of come out of the woodwork But it can also happen the week before closing.

It can happen on the day of closing. You can walk in and they'll say, you know, actually it's we changed the number a little bit and here's why And you want to have a solid understanding of the, the financial analysis that went into that number And developing that can take a little time.

But just like if you're preparing for court, you want your evidence, right And you want a nice stack of compelling evidence So that when somebody comes in that 11th hour and challenges all of your convictions, right, you can say, nope, we're still this number and here's why And here's why. Here are the market comparables, but also here's our account.

Now, we understand that you might be able to argue with a straight face There's more than one way to get to the ultimate number Sure But guess what? We looked at all those different ways and this one's the most reasonable.

So, to have really good financial counsel and really good, financial advising be working together with legal is what helps that kind of come out. And it come out without a delay because that's the other piece and I'm really, I'm getting ahead of us a little But the other piece is that time kills deals How often have we heard that? Well, Oh Did you close? No Or you were still not closed. Or well, you know, it just got dragged on too long. I couldn't do it anymore It was three months. Involved fatigue, unsexy process. And we finally we just said we doing a pause.

Yeah. It kind of reminds me of the phrase that going back to your numbers and kind of having the evidence, how important that is, because it's the phrase something to the effect of if you torture the numbers long enough, they'll tell you anything you want , right And there's a lot of truth to that and having your evidence and we and we see that too.

And when we consult with our clients as they prepare for that final closing to be ready for that 11th hour change and understand your financial picture, that if it gets discounted by 10%, does that work or not? Know in advance of that so that you can be informed to make the decision that yes, we'll move, proceed or no, we're pulling the deal and we're walking. Be ready for that And that's an important part of getting your team together. And also understanding where are their give and takes.

You know we love give and takes right. It's okay. Well if you're going to take that from us in the form of working capital because you're going to try and beat us up over working capital, was legal counsel savvy enough to negotiate certain other forms of consideration? Because in many of these transactions, you could have a retainer or you could have a severance package for one of the maybe the only owner of the business. There are, different ways to split up a balance sheet when we're analyzing working capital, looking at what are we doing with accounts receivable? Who keeps what? Where do we draw that line?

And maybe that's based on a date that's earlier than closing So especially if we're in manufacturing or we're in we're in retail. And the way different goods and services are exchanged between the company in their end, customer might have a big impact on how we split up that working capital. That, cash and cash receivables.

Well, the accounts receivables. There's a lot there's a lot that goes into that. You're right There is.

And that's kind of the other piece of the job is can we can we not only shepherd a transaction effectively, but do it in a way that doesn't take the feeling of control away from the owner, so they truly feel they're in the driver's seat, but without them feeling overwhelmed, without them feeling like they're just not enough help along the way. So that's really where the fun, the that's what really makes my job fun, is that each transaction is different because every person's different. You different levels of savvy, different levels of expertise and technical expertise.

And you really have to kind of get to know someone Hopefully, like we said, you've got some time, but if you don't, I mean, frankly, most of the transactions that I get that come in, it's an accountant, it's a CPA saying we got an offer for this business and it's a really good number, we think, and help us know what to do next Yeah, okay Sure We can work with that.

No problem. And that's coming in late And you're like in an ideal world that's it's already you know, ideally they would already engaged with you before that point Is that right .

If they've been a customer of ours for a month and a day, then they're on track to have generally have a plan. For an exit strategy, and we don't always do that all ourselves. Sometimes we'll help them with their existing counsel.

And that's a big thing for us is to preserve the relationships that are already there and take as limited a role as we can. But as full a role as we need to. So that's that's how we work, at our firm.

But it was one of the Exit Planning Institute of Minnesota's events, and it was a very brilliant, very savvy, brokerage owner, small business brokerage owner, I believe, who was speaking there, who presented on those numbers And it just stuck in my brain.

The whole presentation was so good That's a very good company, by the way Exit Planning Institute in Minnesota. Okay Especially, if you have never heard of key strategies, Julie Keyes is someone who I'd love to work with fact I'd have all my clients working with her if I could. And, she's a just a tremendous resource. I believe that's also some of that data comes through her research and some of her, program there.

So, but I think that, predominantly it just goes back to what were your specific gaps for you in your company and, which ones weren't addressed early on? Meaning, you know, you didn't have a comprehend sort of plan. Okay That's good that's a good way to think of it And let's go back to the comment you had on time.

And you said something The effect of time, the passing of time kind of stalls. The time kills deals.

What, what are some of the things that get in the way of what are the, some of the things that drag out the time and how do you kind of kind of help offset that or how do you kind of , good preparation helps a lot because like I mentioned earlier, if you have strong evidence, strong financial evidence to back up your positions, then when you go into that negotiation, whoever it is that's on the other side of your negotiation, it becomes a more timely exercise to reach a consensus If you're not educating the other side on your position, you might be leaving some money on the table. And I'll give you an example.

We I recently did a deal, for a, waste management company We're selling a waste management company, and, the owner got an offer, and, hey, is this is more money than I'll ever see. Right. The offer was, you know, 5 million bucks for his waste management company.

And, what hadn't been done was a comprehensive analysis of the market. Who are all of the potential buyers? Okay, why? Why would I need to know that I got one? Okay, well, let's just humor us. Okay? Let's just let's make a list of who all the potential buyers might be. And taking that approach allowed us to identify that there were some strategic reasons to, before signing any restrictive covenants like, you're not allowed to talk about the offer or you're not allowed to tell anyone you got an offer early on.

They'll want to restrict your ability to leverage the fact that you just got a nice offer for your company. They don't want to take all those options off the table. So it really smart that even though he didn't call us and he didn't call us until he got an offer, but he called us right after he got that offer that gave us some wiggle room, because we were able to do that analysis with full transparency, let everyone know we're going to disclose to the marketplace that we got this offer, and we're going to open it up to a competitive bidding process. And in the course of doing that with the buyer that we ultimately selected, of course, they had come back and that gave us a little time to work up our financials. Evidence that we referred to earlier.

They'd come back and started beating us up over our inventory Well, okay Look, the inventory for a waste management company is like dumpsters and carts. So try and ask me if, like, it's obsolete. I don't care if that cart is 40 years old It's a cart, okay? It's not like it's not rusted. It doesn't need to be pretty. It's the same thing it was.

If it's new versus it's 30 years Old, serve the same purpose. And there's several examples of that with trucks and other equipment, if we didn't have a solid evidentiary basis to be going back to opposing counsel and saying, you know what? I remember how like early on in the in the letter of intent phase, we set certain caps and baskets, we set certain marks. We in other words, we used our leverage early on before we lost it by signing that letter of intent to early.

We already negotiated those positions. Now, would you like us to provide you our evidentiary support for why those were our reasonable positions? Because at this stage, later on, now a month down the road. It's not equitable for you to be hitting us with an adjustment on the purchase price by virtue of telling us that those items are obsolete inventory.

Right. So it then puts opposing counsel in a position to have to say, , you do that for your priority I can't argue that with a straight face The more we can set you up for that kind of an interaction with the other side, who's tasked with making you feel small But you get to feel big because you're, you're poised for exit.

You have you made you got ready and you entered into that negotiation process with someone who's experienced, who's been there before And that's financial I can't stress that enough It's the financial planning side It's accounting and it's legal. It's it's at least those three, sometimes it's also estate planning.

When I take from that too Is that you? If you get that offer, ideally you're already working with somebody on your team that you already have A process or kind of a group that's already working with you.

But if you get that offer to not sign anything so you don't get tied up to some of for some restricted covenants that don't allow you to explore it. That's right And oh, punch line people want to know So what did he sell the business for? Yeah, That's 9.5 million bucks. Wow So almost double of that original offer was. Yeah. And two things went into that.

I'm saying 9.5 million net. A big piece of that was, he had come to us and said, I don't want to have anything to do with this company ever again I just want to go do farming Fantastic Don't tell them that. It's really important to you, that you get some, you know, you may even want to go and continue operating a new, you may start a new waste management company. Well, you were good at it this time Do it again.

Do it four more times. So that meant that those restrictive covenants then were worth a chunk of change. Oh, you want me to restrict my ability to open a new company after closing? Because I was planning on maybe I was planning on opening two more waste management companies.

You know, you want to take a competitor out of the marketplace that cost a little more. But the other piece that got that number to almost double was after we mapped out, okay, who are the who are the buyers? What are the geographic territorial considerations that would make one competitor in the industry want you over another, having you almost to the point where it became, we will pay anything as long as they don't get the territory that he's built.

That doesn't always happen. But imagine if, you know, you just felt like maybe five was a good number. I remember standing up I mean, we actually went nice, okay? We were kind of tearful because the celebration for that successful deal was come on out to my farm, stand up here on my combine and look out over this field. And can you tell as far as you can see, Matt? Look out.

That's all mine. That's my farm now My dream came true. Everything I ever hoped would be realized.

From all the last ten years of stress and toil. This is my dream. And here's two dozen eggs. That That was such a neat.

What a cool story. To be a part of that dream to be a part of.. And then actually get to stand up there and just be in this beautiful farmstead and see all of that have having happen. And so we all got choked up over that. That's cool Really neat experience.

Well, it's and it's fun to see those success stories too of and being part of that. Right you helped unlock that value for him that family. Right That's the meaningful amount. That's that's amazing.

That's why we do what we do is to have those kinds of experiences for sure. You mentioned so that deal size, anything from 1 to 9 and a half, what's the typical deal size that your firm works with? Oh honestly, Well let's just talk enterprise value.

I guess, I mean, I do transactions I'm doing one this week I just closed one this week That was, like $190,000 deal, selling, a snowplow business. So we'll do the small stuff.

Absolutely. All on up to $100 million, give or take. Okay And, I have experience with what? But Okay.

Translate that Typically these are, like I said, these are closely held companies, LLC partnerships, C Corp's and the number of employees is between one and about 150 employees Okay And a typical industry for me, I do a lot of construction, a lot of manufacturing, some software and some medical engineering, medical tech There's, a wide range restaurants and retail as well.

Things like powersports dealerships for some reason, has been something that I've been getting a lot of calls on over the last three years, partly because word got out, we did a couple that were really very, very successful for the owners. And then the buyers as well, okay. So word kind of got out I'd say we in terms of sell side versus buy side, because people want to know that too.

I'd say about 40% of my deals I'm representing the buyer. Okay. So decent sell side deal flow. But that's a that's a pretty good chunk on the on the buyer side.

Of course, when you're on the sell side, you lose your client in a way because, you know, you sell their business. So then that business becomes something else. But I'm in contact with the people who, generally they're coming back and they're asking a more questions as their legal needs evolve.

Well great This has been this is been a great discussion And you also want to hit on before we wrap up? Well that's a good question. Only that it's the holiday season okay.

So aside from all this business stuff we've been talking about, remember that holiday spirit? You know, if there's anything, that, any opportunity that comes along to just show kindness and the world can use more kindness. So my plug of all the business stuff is that I love how kindness and everything builds trust. And trust will help your deal, but kindness will help your trust. So, showing kindness to others this holiday season, that's my thing. Yeah.

Well said Matt, thanks a lot for sharing.

I appreciate you joining Thanks for being here today.

Appreciate it Thanks for having me on.

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