This week on the Missing Half podcast, we deliver a crash course on the intersection of marketing and M&A through a compelling compilation of expert insights. Bill weaves together commentary and clips from past guests—exit advisors, private equity operators, and former business owners—who’ve seen firsthand how marketing (or lack thereof) directly influences EBITDA, valuation multiples, and deal structure.

If you're a B2B company or manufacturer preparing for an exit or considering a roll-up strategy, this episode is a must-listen. Featuring insights from Rob Waring, Steve Kohnke, Dave Kohl, Adam Koós, and Dan Ellsworth, this commentary-driven episode exposes the often-overlooked marketing blind spots that stall deals or suppress valuations, and what you can do about it.

Bill: Thank you for joining the Missing Half podcast where we're discovering what's missing in manufacturing and B2B marketing. Today we're going to talk about a very specific subject which is mergers and acquisition and private equity plays in the market. We've interviewed a number of guests who participate in every aspect of mergers and acquisitions, private equity and exit strategy advice. We've talked to exit advisors who work with companies, owners and founders who are looking for an off ramp in a two to five year window. We've talked with folks who are operators who work for P.E. sponsors and work on roll ups and who execute deals to achieve those, achieve the EBITDA and exit multiples they're looking for. We've also talked with some owners who were bought out by M&A and experienced that process and other professionals who have perspectives on this space. And specifically, the topic we wanted to dive into was the impact of marketing on this space. Is there a correlation? Is there direct evidence or evidence that these folks have seen in their experience around marketing's impact on EBITDA and exit multiples? Can marketing be a lever similar to financial engineering or deal formation that can actually improve the outcomes of these deals? So we're going to get into some quotes from some of our guests and hear what they have to say. And I'll be providing some commentary as we go through their comments. First, we'll hear from Rob Waring, who talks as an expert exit advisor through his firm. They give exit advice and help represent sellers to buyers in these transactions and really try and help them prepare for exit, get them through the exit, and then also prepare for the days after exit. Let's hear what Rob has to say.

Rob Waring: I will tell you the number one area where we find challenges would be in the sales and marketing area. And I think the reason for that, and it ties to the owner. So the problem is, we'll talk about, a new client acquisition. Like how do you go about getting new clients? You know, existing client relationships, who manages those relationships? And a lot of times it's the owner is still very, very deep into those pieces of business. And I think the reason for that, you know, as an owner scales a business and they start hiring some of their management team, they are more than happy to give, get a CFO or a controller and like get rid of the financial stuff, right? HR, I don't want to listen to my employees complaining. Like I'll get rid of HR. Even operations and deliverables. Like I can bring somebody in who can streamline processes. That's their expertise. I'm what they, the last thing they will give up is their customer relationships. Like that is, that's how they started the business. They may still have the first customer that they ever had is still a customer of the business. And they credit themselves for like that relationships that they've made. You know, they've invited their customers to their kids’ weddings, you know, and so that's the thing. That's the last thing to go. So an owner will hold on to that till the very, very end. And if they, if they're willing to let that go, they've stepped out of the business. Like if that's in somebody else's hands, you can almost be guaranteed that the business runs well without them.

Bill: So as Rob just said, founder led sales, founder led marketing can be an absolute bottleneck and a limiter on exit multiples for firms. And I think we've seen this over and over again with other exit advisors that we've talked to that one of the main issues that they run into is that the founders are still generating a lot of the revenue. They are involved in a lot of the deals. The business cannot operate without them. And certainly identifying this as an issue and addressing it, building a scalable, predictable, repeatable marketing engine that drives leads to your sales team and then having a sales team that then can execute revenue growth without the owner or founder is so critical to success in exiting a business. And whether you're exiting that through M&A or through a P.E. roll up or just selling to a strategic or financial buyer directly. It's so very important that this situation is addressed.

Rob: So from a marketing standpoint, there's marketing and there's sales. A lot of people lump them together. They are two different things. But when it comes to marketing, specifically, how is the business messaging and who is it messaging to? And what is the message that it's telling? I mean, it's differentiation. If you're a me too business, that's going to be worth significantly less than if you are truly different, unique, and you've built that differentiation into your marketing message, and you're putting that message in front of the right audience. That's worth a tremendous amount when it comes to a transaction. And then if you talk about, you know, valuation is one piece of the equation, the other piece is structure. You know, and that's the thing that a lot of people don't talk about. You know, everybody loves to like, you say I got 12x for my business or whatever it is, but you got 4x at the table and, you know, you got, you know, 8x still like hanging in an earn out based on some sort of lofty objectives that you're never going to meet. So structure is really, really a big, it's a huge piece of the equation when it comes to a transaction. And if they perceive risk, especially if that risk is associated with they don't have a marketing process, they don't have a sales process, the client, the new client acquisition is really dependent upon that owner and their personality and their personal reputation in that industry. That's a massive, massive risk to a buyer. So if I'm a buyer, I'm not going to write you a huge check and let you walk away the day of close. Because if that happens, the new business generation, new business development goes away. Existing client relationships are at risk. So I'm going to tie a lot of your transaction to the future performance of the business post-close, because I'm going to want to make sure that you stick around. So it's a massive determinant of risk, therefore valuation. It's also a massive determinant on structure of the transaction.

Bill: One of the other topics that is discussed a lot in this field is what's the mode? What makes your business different? And does it have brand and is that brand message accepted in the market? So just like Rob said, we can have a deal that on the face of it has a 12x multiple on exit. But if it's based on an earn out and performance that is based on zero brand, very little differentiation, owner-led sales, and reliance on referrals, we don't have a repeatable, scalable, predictable marketing engine. This is going to spell trouble. And when we might feel good when we ink the deal and have that 12x on the dotted line, the actual payout could be dramatically less and just really disappoint the seller in that situation.

The next guest, Steve Kohnke talks about the impact of marketing as a lever on exit multiples and the ability to structure the right deal and also the ability to do a deal. In some cases, deals die on the table because there isn't a repeatable, scalable, predictable marketing engine. There is not repeatable, predictable, scalable revenue growth. And not only is that a negative, the differential between the net positive of getting 1x, 2x more on EBITDA when these things are in place creates a huge gap between the haves and the have nots when it comes to making these deals. Let's listen to what Steve has to say.

Steve Kohnke: I mean, on that side of things, a strong marketing system, it can add millions to your valuation. It could also probably kill a deal. You know, if a business, if an acquirer is coming in and saying, we don't have predictability in business development. I can't guarantee what these future numbers that you're telling me. Like I can't correlate those together. So I mean, it can be a pretty big impact. I mean, it can have one to two X EBITDA impact, too, on that multiple on the valuations, depending on industry, of course, but it's just the predictability will give the buyer so much more confidence in the acquisition and they won't be looking for other reasons to discount. Business development and having that part of a business figured out and predictable and scalable, it's a big issue to solve. And if you go to an acquirer and say, I've solved this part, you're good. They're going to be pretty happy.

Bill: Buyers are looking to de-risk their deals. They're looking for predictability. And as an operator, you can pull levers, you can have great financial engineering, you can pull the levers operationally to reduce costs and create economies of scale. But at the end of the day, if you're not driving organic growth, you're going to stall out. And as we have seen over the past 10 years, the holding periods for these deals go from an average of three to five to seven plus. Most of this can be correlated to the fact that these roll ups stall when it comes to organic growth. And sometimes they figure it out, but whenever they start in year three or four, when the deal is not coming together, when suitable buyers are not available and they're not finding those opportunities because they don't have predictability, they don't have revenue growth. This is one of the biggest issues. And this is why a lot of these guests that we've talked to and what we believe is you need to start on that revenue growth opportunity on marketing day one or even possibly in a deal formation.

Our next guest was Dave Kohl. Dave is a seasoned operator owner. He has exited a number of businesses as well as has stakes in a number of other private equity plays. And Dave has a unique wealth of experience to comment on the ability and sophistication of companies as they present themselves to be sold.
Bill: When you think about the differential in the exit multiples, did you see where marketing had, or could have had a better impact on some of the exits?
Dave: Absolutely. I think they value it more as a as a purchaser or buyer. I think you'd have more rapid growth. You'd be bigger. And and it also shows some sophistication, you know. Well, you know, if they look at you and they see some audited financials that build sophistication, they share some organizational structure, sophistication, marketing, we were probably weak in those areas. Had we had a stronger, we might have valued more.
Bill: Dave couldn't be more right. Sophistication is a differentiator and sophistication can exist at multiple points in the business. Marketing sophistication, revenue growth sophistication is a distinct advantage. It is a unique qualifier when you're trying to be acquired. And this can change the game when you're looking at your EBITDA and exit multiples at sale. PE firms often struggle to move from financial engineering and deal formation and the things that they do really, really well to organic growth. And Rob Waring is going to talk us through some of his experience in working with PE and the challenges that they face.
Rob Waring: Okay, so there are some private equity groups that their model, they're really good at M&A. They're really good at buying low and selling high. And in those models, they're very good at sort of executing on the model you talked about, you described. We're going to buy a platform, we're going to buy a bunch of smaller companies, we're going to roll them together. We're good at integrating, we can take some cost out of the system, we're going to raise EBITDA, we're bigger, we have a higher multiple. And then we do a sale to a larger private equity group typically. You know, that's the big fish eat the little fish. That's the way that world works. Organic growth, there are some that are really good at it. There are many that are not. So really getting into the strategic plan for growth. I mean, one of the things we always tell clients is if you're meeting with a company, especially with a private equity group, or a private equity backed strategic, one of the questions they're going to ask is how do you double this in three years? Like, what does it look like? What are the pinch points? What are the impediments to doubling this in three years? How much capital would it cost? Forget acquisitions. Is there a market to grow it and double it? Do you have the capacity to grow it and double it? Do you have the processes in place from a marketing perspective and a sales perspective to wind that stuff up to double it in three years? And if you don't have a good answer to that question, it reduces the valuation. It's one of those questions. They want to know, what's the growth plan? Can you execute on it? And do you have the scalability within the business to actually handle the growth? Because, you know, businesses can sell as much as they want. I came up from a consumer products background for a period of my life. And one of the things we always said is, there's no point advertising to empty shelves. If you don't have the product available and you spend a lot of money to get people to come out and buy it and you can't deliver, it's a waste of money.
Bill: Rob brought up a great point. If you're sitting in the meeting and they ask you, you double it in three years? Is there any path you could see to doubling this business over the next three years? You better have an answer. And if you're exiting a business or if you're part of a roll up and you're looking to exit to the next buyer, this needs to be a question that can be answered. And if you can't envision it, it's because you don't have a sophisticated marketing game plan. You don't understand your buyers. You don't understand the solutions you provide, your unique value proposition, your brand, your go to market strategy. And this is something that they're going to be looking for. Not that you have to have all the answers or have the exact game plan to do it, because we all know some things have to be tested, tried, failed, rinsed, repeated. And that's part of the marketing game. But there needs to be a vision of an ability to see a path forward to generate those type of growth numbers that they're going to be looking for. Because if not, they're not going to buy the business.

Bill: Next, we're gonna hear from Adam Koós. And Adam has a very, very interesting perspective, and I happen to agree with it, about marketing strategy. Oftentimes, we see private equity firms hire tacticians and hire productized service marketing agencies to do a thing. And that may or may not work, or it may work to a point, and then we start to see diminishing marginal utility. The key is to make sure we have a strategic marketing plan that will in fact work and then flex with the changing times and the information that comes back. The results of the tests that are run have to be taken into account and that strategic formation of the marketing plan is so very important.

Adam Koós: The point is you can have a marketing person or three, and then it doesn't really matter if you don't have any strategy. You have to have, that's the other piece that you, again, in this new age that we're living in now, uh, post-COVID I'll call it, you have to have strategy as well. Otherwise, you know, you're, you're saying, oh, I want to, you know, I'm looking for someplace warmer and you just start marching south. Well, you you might find a river and you might need a boat. You know what I mean? You can just keep going and you can just keep paddling away and you can keep climbing the ladder, but you might find out when you get to the top of the ladder that you're on the wrong wall, as the saying goes. So you've got to have strategy as well.

Bill: And as Adam says, we've all been there. I mean, we've all climbed that ladder. We've all found out we were at the wrong wall and it's about pivoting quickly and readjusting the strategy. The marketing strategy is just so very important in the formation of these organic growth plans. Our next guest, Dan Ellsworth, talks about the uniqueness of each business and brand messaging. And in a lot of ways, I think we're lured into a false sense of messaging because so many startups and plays that make the news or that get all of the press are one product, one service, very unique, very vertically integrated, and very succinct. But the reality is the bulk of activity in this space is not around those clean and neat consumer product offerings or business service offerings, SaaS products, et cetera. There are a lot of messy deals where we're rolling up companies that have a lot of different subsidiaries or unique service divisions. And we have to buy one that we only really want 60% of the company and the other 40% we just have to deal with. And because of the timetables with private equity, we really don't have time to spin that off. We just got to march forward. So there's a very important component around brand messaging and making sure we have that dialed in as we're preparing to sell. And then as we, as that the private equity firms purchase these companies, that they're pulling them together and really building value in the brand and making sure that messaging is resonating with the market.

Dan Ellsworth: When you're running your company, you're an owner and you know what you need to do and you know the value and you know that it's unique and you know your differentiators and you know how to position that. It's the same thing with your company and that, you know, we pay, it's the old adage, you're only worth what somebody will pay, right? But they'll only pay in how unique you are. And marketing is being able to communicate that uniqueness in an efficient and compelling way. And so whether if you're selling a product, you're selling your company, your position in your company, it really comes down to what is the most compelling thing about you and what you're trying to accomplish, and what is the shortest way that you can deliver that message? Because a message that's compelling is only compelling is if it creates action. And if we think about, what's a compelling statement that creates action? You know, you have a mission statement. If you have a mission statement that's 15 words, it's not compelling because it's probably not actionable. And what I try to compare to people is that to say a compelling statement that creates action would be, Bill, I want you to know that there is a fire upstairs in your bathroom. Okay? You're thinking about that. You're like, do I even have an upstairs? And how did a fire start in my bathroom? And like, what were the kids doing? As compared to, if I say, Bill, fire, you automatically go to action. So the key with marketing and the power it has is that it gets, your compelling message has to get people past thinking into doing, into creating action. And the sharper you are with your message about the value that you're bringing to your customers, which is your marketing pitch, the more that that creates action, the easier it is to get more buyers interested in your business because it's compelling. And that's, at the end of the day in business, what we're trying to do is get people to act. Act in buying the service. We're trying to get our employees to act in delivering the service. It's all about action. And the tighter your message is and the shorter your message is, the more likely you're going to inspire action.

Bill: Dan is so right about this. There are values beyond EBITDA and exit multiples where this compelling messaging and consistency on brand will not only impact customers, but it will impact employees and every stakeholder at the same time. Our next comments come from Steve Kohnke, and we're gonna nerd out a little bit on KPIs and metrics and talk about the importance of really defining your ICP, understanding your TAM, what your KPIs are, how do you make sure your CAC and ROAS are in alignment, and really dive into a little bit more technical marketing conversation that some of you may not enjoy, but that some of us really enjoy geeking out.

Steve Kohnke: It's do you have the right ICPs, ideal client profiles defined? Do you have multiple channels working together? Are you tracking KPIs and are they where they need to be, cost per lead, conversion rates, ROIs on those channels, ROAS? And most importantly, owner independent of the marketing engine. But to me, you have that, that is your engine, right? Of having that. And if you can have that working in a way where we're not necessarily trying to fix stuff, we're more optimizing. We already know the channels, we have our ICP, we have all those things in place and we're just fine tuning it and making it better and better and better. That's where we want to be, not necessarily what are the channels, right?

Bill: At the end of the day, marketing should be seen as a capital deployment, not just an expense that's written off. It should be a capital deployment, just like you would use in buying EBITDA or buying a business, that we're looking for a specific return on. And there's a number of ways we're measuring that through the different KPIs. But fundamentally, when we're looking at mergers and acquisitions and PE, it's just about investing capital to generate a return that then we can get a return on through the exit multiples. And when we think of the way that marketing investments have been deployed and dealt with over the past five to 10 years and the kind of carnage that has ensued because of the variability in digital performance and the changes that have occurred there. There needs to be a reckoning where marketing really aligns itself. The marketing function, the marketing agencies, the marketing professionals align themselves with private equity and mergers and acquisition players to make sure that we're speaking the same language, that we're deploying the capital correctly, and that we're measuring the results, not only in terms of these KPIs and like numbers that we nerd out on marketing. But that it's truly if we put this many dollars in, we're getting this many dollars back in EBITDA. And then we're expecting this multiple and that's the value created for the deal. Thank you for joining us today as we've talked about PE, mergers and acquisitions, exit advisor advice and how firms need to prepare on the buy side, how private equity and M&A firms need to deal with deals in the formation, operation, and then divestiture stage. And then also what we need to be thinking of as we're continuing this conversation on marketing's impact on EBITDA and exit multiples. Thank you for joining the Missing Half where we're discovering what's missing today in mergers and acquisitions, private equity and marketing's impact on earnings, EBITDA and exit multiples. Have a great day. Like, share, subscribe. Thank you.